EO-14372
Prioritizing the Warfighter in Defense Contracting
- Signed
- Jan 7, 2026
- Published
- Jan 13, 2026
Federal Register: 2026-00554
Source: Federal Register.
Restricts Stock Buybacks and Dividends for Underperforming Defense Contractors
What it does
This order directs the Secretary of Defense to identify major defense contractors that are underperforming on delivery, production speed, or investment while simultaneously paying dividends or buying back stock. It requires future defense contracts to include provisions that restrict executive pay structures and prohibit stock buybacks and dividends during periods of underperformance. The order also asks the SEC to consider changing stock buyback rules for flagged defense contractors and allows the government to reduce diplomatic support for underperforming contractors competing for foreign military sales.
Who benefits
Active-duty military personnel who depend on timely delivery of weapons and equipment. U.S. allies and partners receiving Foreign Military Sales who would receive better-quality equipment sooner. Smaller defense subcontractors and suppliers who may benefit if prime contractors are pushed to invest in production capacity. Taxpayers who fund defense contracts and have an interest in on-time, on-budget delivery. Workers at defense facilities if increased production investment leads to expanded manufacturing capacity.
Who is affected
Shareholders of large publicly traded defense contractors (e.g., those holding stock in major aerospace and defense firms) who would lose dividend income or see reduced stock buyback activity. Defense contractor executives whose compensation structures would be restructured away from short-term financial metrics. Institutional investors and pension funds with significant holdings in defense stocks. Defense contractors currently underperforming who could face contract enforcement actions, salary caps, or loss of government advocacy for foreign sales. The SEC, which is directed to consider new rulemaking that it may not have independently prioritized.
Supporters argue
Supporters argue that the federal government, as the primary customer of the defense industrial base, has both the contractual authority and the Commander-in-Chief responsibility to demand performance standards from contractors it funds. They contend that when companies receiving billions in taxpayer-funded contracts return capital to shareholders instead of investing in production capacity, military readiness suffers — and that conditioning contract terms on financial behavior is a standard and legally sound procurement tool available under the Federal Acquisition Regulations and the Defense Production Act.
Opponents argue
Opponents argue that restricting how private companies allocate their own capital — including profits earned outside government contracts — goes beyond the government's role as a contracting party and may constitute an unconstitutional condition or an uncompensated regulatory taking under the Fifth Amendment. They contend that the order's broad delegation of enforcement discretion to the Secretary, including the ability to cap executive salaries and deny foreign sales advocacy, lacks clear statutory authorization and could deter qualified firms from bidding on defense contracts, ultimately harming the industrial base it seeks to strengthen.
Constitutional basis
Executive orders rest on constitutional authority or statutory delegation. This summary describes the legal grounding cited or implied by the order.
The order cites the President's authority as Commander in Chief under Article II, Section 2, Clause 1, and as Chief Executive under Article II, Section 1. It also invokes the Defense Production Act (50 U.S.C. §4501 et seq.) as a statutory basis for enforcement actions, and relies on the Federal Acquisition Regulations and Defense Federal Acquisition Regulations Supplement as the legal framework for imposing contract-level conditions on contractor financial behavior.