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On 7 January 2025, President Donald Trump issued an executive order (EO) aimed at limiting and preventing certain large defense contractors from conducting stock buybacks, issuing dividends, and awarding executive compensation. The order, titled "Prioritizing the Warfighter in Defense Contracting," directs the Secretary of War to identify defense contractors that the secretary determines, at his discretion, are currently underperforming contracts, failing to meet desired production speeds, or underinvesting capital into production capacity and engaged in stock buyback or corporate distribution during the period of identified deficiency.1 The secretary is then directed to provide notice to the identified contractors and provide them opportunity to submit remediation plans to address the identified deficiency within 15 days of receiving the notice.2
In the event that the secretary deems a contractor's remediation plan insufficient, or if the secretary and the contractor are unable to resolve the underperformance dispute during the 15-day negotiation period, the secretary is directed to immediately "secure remedies for the Secretary that will expedite production, prioritize the United States military, and return the contractor to sufficient performance, investment, prioritization, and production, to the maximum extent permitted by law," including through actions under Defense Production Act authority.3
The order further requires the secretary to ensure that future defense contracts include prohibitions on stock buybacks and corporate distributions during periods of underperformance—including contract noncompliance, insufficient investment, or insufficient production speed—as determined by the secretary. Future contracts will also stipulate restrictions on tying executive incentive compensation to "short-term financial metrics" like cash flow or earnings per share.4
The EO grants broad authority to the Secretary of War and does not prescribe a specific definition for "contractor" or "defense contractor," nor does it limit application of the order to certain companies based on any identified criteria other than "large" or "major"—also undefined terms. As written, the order would apply to all companies, foreign and domestic, that contract with the Department of War (DOW).
The Trump administration has previously expressed its frustration with the defense industrial complex's corporate buyback practices, with senior DOW officials raising concerns that defense contractors are using federal funds to purchase shares of their own company's stock rather than investing in research and development or improving production and supply chain capabilities.5
In December 2025, Secretary of Defense Pete Hegseth gave a speech reiterating his priority to "transform" the defense acquisition system and "rapidly accelerate" production capabilities, a sentiment shared by President Trump and directed at both the federal procurement bureaucracy and the private contractors who supply materials, equipment, and technology to every facet the US government.6 In a November 2025 speech, Hegseth previously called for the largest defense manufacturers in the country to invest more of their capital into increasing production volume and accelerating delivery.7
This EO marks a notable shift in DOW policy by prioritizing military readiness and the defense industrial supply chain over corporate stockholder obligations and the financial interests of major defense contractors, with US Assistant to the Secretary of Defense for Public Affairs and Pentagon spokesperson Sean Parnell stating that the DOW's obligation was to "warfighters, not Wall Street."8 The broad authority granted to the secretary to investigate, identify, negotiate, and enforce the EO, along with the requirements for future defense contracts, will have significant implications for large defense contractors and companies that contract with the US government around the world.
The legal and regulatory professionals at the firm are actively monitoring updates in federal contracting and procurement policies and are eager to assist in navigating ongoing changes in this area.
Footnotes
1. Executive Order, "Prioritizing the Warfighter in Defense Contracting," (Jan. 7, 2025) available at https://www.whitehouse.gov/presidential-actions/2026/01/prioritizing-the-warfighter-in-defense-contracting/.
2. Id.
3. Id.
4. Id.
5. Center for a New American Security, "Stock Buybacks in Defense: What Drives Them, and How That Can Change?" (Apr. 8, 2024) available at https://www.cnas.org/publications/commentary/stock-buybacks-in-defense-what-drives-them-and-how-that-can-change.
6. Punchbowl News, "The business of defense faces big changes," (Dec. 9, 2025) available at https://punchbowl.news/article/defense/business-defense-big-changes/?utm_source=Sailthru&utm_medium=email&utm_campaign=12/17/25%20%20AM:&utm_term=Punchbowl%20AM%20and%20Active%20Subscribers%20from%20Memberful%20Combined.
7. U.S. Department of War, "Secretary of War Announces Acquisition Reform," (Nov. 10, 2025) available at https://www.war.gov/News/Releases/Release/Article/4329487/secretary-of-war-announces-acquisition-reform/.
8. Business Insider, "Trump says he'll block defense contractor stock buybacks. Here's what his executive order actually does," (Jan. 8, 2025) available at https://www.businessinsider.com/trump-defense-contractor-executive-order-restrict-buybacks-dividend-salaries-2026-1.
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