President Donald J. Trump has issued an executive order aimed at changing how defense contractors operate, with a focus on prioritizing the needs of the United States military over shareholder interests. The order, signed on January 7, 2026, seeks to ensure that defense companies deliver equipment and weapons on time and at high quality standards.
Trump stated, "As Chief Executive and Commander in Chief, I am committed to ensuring that the United States military possesses the most lethal warfighting capabilities in the world. Our Nation can only be at peace if we maintain strength. The performance of America’s defense industrial base is critical to this capacity. After years of misplaced priorities, traditional defense contractors have been incentivized to prioritize investor returns over the Nation’s warfighters."
The order highlights concerns about production delays and insufficient output from some large defense contractors. Trump noted that while some companies have invested in increased production capacity, many others have focused on stock buy-backs and dividends instead of fulfilling government contracts efficiently. He declared, "Effective immediately, they are not permitted in any way, shape, or form to pay dividends or buy back stock, until such time as they are able to produce a superior product, on time and on budget."
The policy directs federal agencies to accelerate procurement processes and revitalize the industrial base by prohibiting major contractors from conducting stock buy-backs or issuing dividends when it would hinder timely delivery or investment in production capacity.
Under the new rules, within 30 days the Secretary of War must identify underperforming contractors who have engaged in financial practices like stock buy-backs during periods of contract underperformance or slow production. Contractors will receive notice and may submit remediation plans for review.
If a contractor's plan is found insufficient after a 15-day negotiation period, enforcement actions may be taken under existing laws such as the Defense Production Act and Federal Acquisition Regulations. Future contracts will also include clauses restricting financial distributions during periods of non-compliance or inadequate performance.
Additionally, executive compensation for defense contractors will shift away from short-term financial metrics toward incentives based on timely delivery and expanded production capacity.
Trump emphasized that while firms are entitled to profit from prudent investment and hard work, they also bear responsibility for providing top-quality equipment for American forces: "Every firm across our economy has a right to profit from prudent investment and hard work, but the American defense industrial base also has the responsibility to ensure that America’s warfighters have the best possible equipment and weapons. These two objectives are not mutually exclusive."
The order further instructs relevant officials to consider halting advocacy efforts for underperforming contractors seeking international sales opportunities. The Securities and Exchange Commission is also asked to consider changes regarding safe harbor provisions for stock buy-backs by identified defense firms.
This executive action reflects ongoing efforts by U.S. administrations to align private sector activity with national security priorities.
