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Financial Executive   

July 1999 

AlliedSignal's Karen Wilson is known for her bold stances on government contracting, her pioneering efforts to bridge home and work and her refreshing "put-all-your-cards-on-the-table" approach.


By Robert Stowe England

A GOOD IDEA GOES NOWHERE without the enthusiasm of a dedicated advocate who understands how it will benefit the world, who believes passionately in the need to promote it, and who communicates its message with clarity and conviction.

Such an advocate is Karen Lerohl Wilson, vice president for government finance and process excellence at AlliedSignal, Inc. in Morristown, N.J.

Over the past six years, Wilson has emerged in the world of defense contracting as a leader for reforms in the way commercial firms fulfill contract work for the Department of Defense and other government agencies. She has diligently supported internal improvements at AlliedSignal (set to merge with Honeywell-and take its name-- in October). And in public forums, she has vigorously supported changes in government procurement practices and reforms of the government's cost-based accounting rules.

Most recently she was one of 10 members of an expert panel appointed by the General Accounting Office on behalf of Congress to make recommendations about the Cost Accounting Standards Board (created in 1970 to set uniform standards for accounting for the costs of goods and services that contractors provide).

The panel's proposals, released in April, include moving the CAS Board out of the Office of Federal Procurement Policy in the Office of Management and Budget, under White House oversight. The panel suggests making it an independent organization within either the General Services Administration or the Department of Defense.

A former Alabama state high school swimming champion, Wilson now wins accolades for her reform efforts from both industry and government. "She has mastery over the subject. She's a real pro. She's articulate. She's focused. She's passionate in her commitments and her beliefs," says Dan Burnham, chairman-elect and CEO of Raytheon Company in Lexington, Mass., who was president of AlliedSignal's aerospace division when Wilson was hired.

She's getting plaudits from the Pentagon, too, where she worked as counsel on contracting issues. "She brings the big picture to any discussion," says Paul J. "Page" Hoeper, assistant secretary of the Army for acquisitions, logistics and technology. "She can grasp the threads of a particular problem and tie them together in a way that allows her to explain the problem and what must be done about it in simple language."

Wilson has also gained leadership positions in industry organizations. She heads FEI's Committee on Government Business, a 35-member council that examines cost accounting and procurement issues. She also chairs the Aerospace Industries Association procurement and finance executive committee.

Government Work

Perhaps Wilson's highest profile role has been as a member of the expert panel appointed by the GAO to review the Cost Accounting Standards Board. Wilson helped the group reach consensus on key issues, according to Nelson F. Gibbs, corporate vice president and controller at Northrop Grumman Corporation in Los Angeles, one of three panel co-chairs. "She did an excellent job in participating and facilitating that kind of outcome," he says.

Wilson articulated the need for closer civil-military integration in procurement. To help the process along, the panel recommended allowing more commercial companies to be involved with government contracting without having to adopt cost accounting standards. This included raising the trigger for full coverage by CAS from a contract of $25,000 to one of $7.5 million. It also recommended exempting more fixed-price contracts from CAS.

Wilson contends the Department of Defense may be denying itself access to new technology by failing to adjust part of its acquisition processes to innovative commercial approaches. Commercial companies on the cutting edge of technology may opt against government contract work if it makes their operations more expensive and cumbersome, Wilson thinks.

Not everyone is happy with the CAS proposals, though. Some in the defense industry think the reforms are too modest. Others, like the watchdog Project on Government Oversight, say they go too far. Commercial firms are already exempt from CAS rules, says Marcus Corbin, a defense specialist at POGO. The rules are needed because the government buys items specifically tailored to situations where there's no competition to contain costs, he claims. "The standards ensure that the costs a contractor claims are accurate," Corbin says.

As chairman of FEI's Committee on Government Business, Wilson is helping the panel tackle other thorny contracting issues, too. For instance, the committee is concerned about a new CAS Board proposal to expand the use of cost-impact studies (see FEI News, page 58). The board now requires such studies when a company does a restructuring, to determine whether it would add to the expense of contract work being done for the government. But, under the proposed new rule, any modification in the manufacturing process could be seen as a restructuring change, and thus require a cost-impact study. "You could end up doing thousands of cost-impact studies," says Wilson. "These changes in manufacturing are not being done to manipulate the contract process or get rich quick." FEI hopes to convince the CAS Board that the proposal isn't necessary.

Another key FEI concern is a CAS Board proposal to adopt the current FAS 106 for the accounting of postretirement medical benefits. The government lets contractors allocate the costs of funding post-retirement benefits for workers covered in a contract. The CAS proposal would rely on the calculation of that obligation under FAS 106. In addition, the board is considering requiring full funding of such benefits. The industry claims the liability exists when it's accrued under FAS 106, whether it's funded or not, and that should be sufficient. "Funding the accrual creates an overlay of additional requirements," Wilson explains.

Falling Into Aerospace

A 1972 philosophy graduate of the College of William and Mary in Virginia, Wilson earned a degree in corporate law at Washington College of Law at American University in 1978 and a master of law degree in government contracts at George Washington University in 1982. After seven years at the Pentagon (1978 to 1984), she worked in California as corporate counsel on government contracts, first for TRW's electronics and defense sector in Redondo Beach, then at Hughes Aircraft in El Segundo. In 1993, she made the transition to financial executive, becoming group controller at AlliedSignal's aerospace division in Torrance, Calif.

Wilson found this new role a challenge. "The aerospace industry was in free fall" from sharply declining defense spending, recalls Raytheon's Burnham, then with AlliedSignal. "We had to completely change our business practices if we were not only going to survive, but thrive. And we had to engage our government customer in that change in a big way. Karen was instrumental in doing that."

AlliedSignal's biggest internal reform was adopting a supplier-based management strategy, recalls Ray Stark, the firm's corporate vice president for productivity. The company had decided to drastically cut back the number of suppliers on the government contracting side, and to engage more intensely with the remainder to improve quality and reduce costs. Government contracts account for only 12 percent of AlliedSignal's $15 billion in annual revenues. The company provides items like brakes and safety equipment for aircraft, as well as environmental control systems, as a subcontractor for major defense and aerospace contractors.

"We had to convince the government this was the best value process," recalls Stark. Traditionally DoD has taken the view that the more suppliers a contractor has, the better, since more suppliers would mean more competition and lower costs. "Karen was able to satisfy their concerns that we weren't going to give away the store to preferred suppliers," Stark says.

As part of its new strategy, AlliedSignal has slashed its vendor list, from 30,000 to between 3,000 and 4,000. "We have more leverage with the remaining suppliers," Stark says, "and we can work tighter with them, and train them to use statistical tools to improve quality." As a result, AlliedSignal "has been able to get better quality in its components, productivity has improved, and cost has been contained or reduced," he adds.

Part of AlliedSignal's effort has been incorporating Six Sigma, a statistical method for measuring manufacturing quality first adopted by Motorola and now firmly established at both AlliedSignal and General Electric. Its goal is to make the manufacturing process 99.9997 percent perfect, reducing defects to 3.4 per one million. LOTS OF HELP AT HOME. Wilson telecommutes for part of each work week. She was one of the first AlliedSignal employees to do so.

Going the extra mile, "Karen arranged for government people to attend training side by side with Allied employees so they had common definitions and common expectations" about Six Sigma, says Michael Thibault, deputy director of the Defense Contract Audit Agency. This was typical of Wilson's open, upfront negotiating style, he adds. "She's an active advocate of putting your cards on the table rather than playing it like a poker game," Thibault adds.

Wilson also made sure the company complied with documents describing how it would apply its own internal reforms to achieve its supplier-based management strategy, according to Stark. "She's taken the position of an advocate for the government for us to stay the course," he says. Under the terms of various government contracts, AlliedSignal describes in writing the processes it will follow to provide procured parts and services. Here Wilson's government experience paid off. "We have almost a secret language," says the Army's Hoeper. "Because Karen was in the building, she learned the code and kept up with contacts. She was able to translate that to industry and do it the other way."

Dinner Meeting

Wilson has also faced challenges in balancing career and family. When she joined AlliedSignal, she was recently divorced and had two young boys who needed more, not less, of her time and attention. "I felt a sense of not being able to be as involved and connected with them as I like," Wilson recalls.

Yet her new job required extensive travel. "She never complained," recalls Burnham, "but it had to be hard for her to work all of this in. She was going back and forth to Washington, and Allied had major operations all around."

To have more time with her boys, Wilson suggested to her boss in 1995 that she be allowed to telecommute one to two days a week. Since AlliedSignal encourages its employees to balance work and personal obligations, her boss agreed-one of the first such arrangements at the company. Wilson's career, however, was to yield even more personal fulfillment.

The story begins three years ago, when she met Robert P. Murphy, general counsel for the General Accounting Office, at a dinner meeting of the National Contract Management Association. Wilson, in Washington for an FEI meeting, stayed on to attend that dinner. Impressed by Murphy's thoughtful understanding of the issues and the gentle way he handled a confrontational questioner, she talked with him briefly. Later, when it was suggested that Murphy be invited to a NCMA educational conference for which Wilson was the program manager, she contacted him. "We both seemed smitten from the beginning," she says. The mutual admiration quickly blossomed into "a sweet romance" with all the complications of bi-coastal dating, Wilson says.

Before they met, both had pretty much given up on the idea of remarrying, Wilson says. Murphy, too, had been divorced for a number of years, and had two sons who lived with him. "It was hard to start all over again," she says, "yet we each saw special qualities we admired in the other." As they tried to work out the logistics of a potential marriage, providence smiled on Wilson. AlliedSignal reorganized and consolidated its operations at corporate headquarters. Since Wilson's job involved spending a lot of time in Washington, she was given the option of living in Washington and commuting frequently to New Jersey, or vice versa. She chose to live in Washington. Last July, she and Murphy were married; she and her sons moved to Murphy's home in Potomac, Md. Murphy's sons, Aaron and Noah, are older than Wilson's sons, Teddy and Tommy. And the four boys stretch in age from Tommy, 9, to Aaron, 21, who will enter his senior year this fall at the University of Maryland. "We're now the Brady bunch, with two of hers and two of his," she jokes. In the year since the marriage, the family has come together successfully and happily, she adds, noting, "It's a wonderful life."

Copyright (c) 1999 Financial Executive Magazine. All Rights Reserved



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