EXECUTIVE S UMMARY

CAUCUS

in association with FICCI Washington, D.C.

Putting America Back to Work

November 15, 2011 Presenting Spons o r s Burson-Marsteller NYSE Euronext CNBC Patriarch Partners Korn/Ferry UPS Leslie and Steven Saiontz The Yale CEO Caucus November 15, 2011 Putting America Back to Work Washington, DC

Table of Contents

Key Themes from Yale CEO Leadership Caucus

Jeffrey A. Sonnenfeld, Yale CELI/Yale School of Management

Discussion 1: How CEOs Add Value in Job Creation Efforts at Home and DC: Correcting Public Impressions

Introductory Comments: The Honorable Mitch McConnell, Senate Republican Leader Andrew N. Liveris, Chairman & CEO, The Dow Chemical Company

Respondents: Joshua Bekenstein, Managing Director, Bain Capital The Honorable Michael F. Bennet, U.S. Senate (CO) The Honorable Christopher Coons, U.S. Senate (DE) Governor John M. Engler, President, The Business Roundtable Alan B. Miller, Chairman, President & CEO, Universal Health Services Nell Minow, Board Member, GovernanceMetrics Nels B. Olson, Vice Chairman, Korn/Ferry International Mark J. Penn, Worldwide CEO, Burson-Marsteller Robert M. Tomasko, Director, Social Enterprise Program, American University

Discussion 2: Fixing Problems without Washington: Jobs & Healthcare

Panelists: Adam Aron, CEO, Philadelphia 76ers Trevor Fetter, President & CEO, Tenet Healthcare Corporation Tig Gilliam, CEO, Adecco North America Seth Goldman, TeaEO, Honest Tea James Hagedorn, Chairman, President and CEO, The Scotts Miracle-Gro Company Gerardo Lopez, President & CEO, AMC Entertainment John F. Lundgren, President & CEO, Stanley Black & Decker Thomas J. Quinlan III, President & CEO, R.R. Donnelley & Sons Company David B. Snow Jr., Chairman & CEO, Medco Health Solutions Lynn Tilton, CEO, Patriarch Partners Myron W. Ullman III, Chairman & CEO, JCPenney Company

Discussion 3: Fair Fights: Domestic Employment & New Global Markets

Panelists: Steve Case, Chairman & CEO, Revolution LLC The Honorable Elaine Chao, U.S. Secretary of Labor (2001–2009) Lisa Kahn, Professor, Yale School of Management; Senior Labor Economist, Council of Economic Advisers Lt. General David Melcher (Ret.), President & CEO, ITT Exelis D. Quinn Mills, Professor, Harvard Business School Peter Navarro, Professor, UC-Irvine; Author, The Coming New China War Robert A. Pastor, Professor, American University; Author, The North American Idea Jose Maria Sanz-Magallon, CEO, Telefonica Internacional USA The Honorable Christopher Shays, Former U.S. House of Representatives

THESE SUMMARIES REFLECT BULLSEYE RESOURCES, INC.’S SUBJECTIVE CONDENSED SUMMARIZATION OF THE 2011 YALE CEO CAUCUS, AND THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE SESSIONS. IN NO WAY DOES THE CHIEF EXECUTIVE LEADERSHIP INSTITUTE OR BULLSEYE RESOURCES ASSUME ANY RESPONSIBILITY FOR THE INFORMATION CONTAINED HEREIN, OR ANY DECISIONS MADE BASED UPON THE INFORMATION PROVIDED IN THIS DOCUMENT.

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Putting America Back to Work – Key Themes

nationalizing the student loan business. The country has spent Overview more than $1 trillion on stimulus and has increased the national debt by 35%. Healthcare has been taken over by the There is no greater issue than the country’s high unemployment government, the FCC is trying to take over the Internet, and the rate. Lack of economic growth, lack of demand, structural changes NLRB is trying to shorten union elections. While unemployment in the economy, harmful government policies, and unfair trade across the country is high, the government continues to grow. practices are among the key factors inhibiting job growth. In the 2010 election, the American people “issued a restraining Business leaders and policymakers must come together to find order,” resulting in divided government. People wonder if any- solutions to put America back to work. This requires changing the thing is possible with divided government, but history has shown conversation in Washington, putting the country’s fiscal house in that big things are possible. Four examples: order (through entitlement reform), and creating an economic vision for the future. This vision must be complemented with specific  In 1983 President Reagan and Tip policies and frameworks that create more certainty so businesses O’Neill agreed to raise the retirement can invest. Trade policies must be reassessed, a new commitment age for Social Security. to manufacturing is required, and policy changes are needed to  In 1986 Reagan and O’Neill agreed on unleash entrepreneurship. Further changes in healthcare are comprehensive tax reform. needed to decrease costs, and the country’s educational system must be improved to address America’s skill gap.  In 1996 President Clinton and the Republicans agreed on welfare reform.  At multiple times in the late 1990s, Context Clinton and the Republicans agreed on After 67 CEO Summits over more than 20 years, the first-ever Yale balanced budgets. Senator Mitch McConnell CEO Caucus was held in Washington, DC on November 15, 2011. This caucus brought together business leaders, policymakers, and “Divided government is the perfect time to do big, academics to focus on putting America back to work. tough stuff.”  Mitch McConnell

The country faces huge challenges and needs the government to find solutions. These challenges include high unemployment, the deficit, and the debt. Entitlements have to be addressed. It is the view of the Republicans that government spending, regulation, and taxes are not the way to stimulate the economy. While thus far this divided government has not made progress on the big issues, Senator McConnell remains optimistic that it can.

. A few key numbers tell the story. Senator Michael Bennet laid out four curves that show where America is:

 Productivity curve. Productivity in the U.S. continues to rise as companies After Senate Republican Leader Mitch McConnell provided his take figure out how to do more with fewer on where the country is, other participants described the situation people. they see today, discussed why the U.S. is not creating jobs, and  GDP curve. Economic growth has offered suggestions to increase job growth. Some of the key cratered and the country continues to themes from the caucus are summarized below. Senator Michael Bennet struggle to restore growth. Key Themes  Household income curve. Median family income in the United States continues to stagnate; the middle class is hurting.

Where the Country Is Today  Unemployment curve. The focus of this caucus is the country’s high unemployment rate and how to create jobs. . Historically, big things have been achieved during times of divided government, but that hasn’t yet happened this time. In addition, a telling statistic is that for every 100 children, only nine will graduate from college. If this doesn’t change, the Senator McConnell acknowledged that the winning party sets country will be constrained and will have a huge problem policy. After winning elections in 2006 and 2008, the Democrats competing. were able to make policy with little interference. The result has been an explosion of government. The government has taken over banks, insurance companies, and car companies, along with

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. Public dissatisfaction is at record levels. . Lack of economic growth. Recent data shared by Mark Penn, Worldwide CEO of Burson- After experiencing real, inflation-adjusted GDP growth averaging Marsteller, shows that 74% of Americans are dissatisfied with the 3.5% from 1947 to 2000, over the past 10 years, U.S. economic direction of the country. They are dissatisfied with the President, growth has averaged with Congress, and with business leaders. The population has just 1.6% per year. Had now been dissatisfied for almost eight years, the longest period the country grown at of sustained public dissatisfaction in recorded American history. historic rates over the past decade, an additional 20 million jobs would have been created. Professor Peter Navarro said the leading factor inhibiting GDP growth is the country’s massive trade deficit, particularly with China. Adam Mark Alan John Peter Navarro Aron Penn Miller Engler . Lack of short-term demand. In the aftermath of the mortgage crisis, the financial crisis, and Bain Capital’s Joshua Bekenstein and Tig Gilliam, CEO of various corporate crises (e.g. BP and Toyota), people are angry Adecco, both argued that companies only hire when staffing has at business. Politicians have fanned the flame with rhetoric and to be increased to satisfy demand. In the absence of increased regulation. Activist Nell Minow finds this anger understandable, demand, firms have no reason to add employees. Mr. Gilliam is as many of the CEOs and directors involved in these crises are seeing companies hire contract workers because they can get still serving, got huge payoffs, and faced no consequences. the precise skills they need for a limited time period.

“The brand of U.S. capitalism has been severely “Companies hire when staffing has to increase to diminished.” satisfy demand. There will be no change in jobs  Nell Minow until demand changes.”  Tig Gilliam While DC is pointing fingers at Wall Street, business leaders are extremely frustrated with policymakers. Executives feel that they . Structural changes in the economy. are running their businesses well, while politicians are not keeping their house in order and are creating conditions that In a poll of attendees, permanent structural change in the U.S. make it difficult for business. economy was voted the leading reason why the United States is not creating more jobs (although several participants noted that The public is fed up. Ms. Minow said 53% of Americans support “lack of demand” was not an option in the poll). the views of Occupy Wall Street and Mr. Penn said two-thirds of Americans think the U.S. should be less involved in the global Structural changes include new technologies and moving jobs to economy. Professor Robert Pastor said that many people don’t lower-wage countries. Dow CEO Andrew Liveris and Lynn Tilton see the benefits of globalization. In Mr. Penn’s view, Americans of Patriarch Partners both asserted that many business leaders see no economic vision and no sense of leadership about the have (incorrectly and mistakenly) given up on manufacturing in economy from either the business community or the government. the United States. (Mr. Liveris noted that no changes are permanent. Part of what has made the U.S. great is that it is Bob Tomasko, Director of the Social Enterprise Program at flexible, adaptable, and resilient.) American University, has spoken with many in the Occupy movement. He said they have equal contempt for Congress and . Unfair trade practices. the private sector. He agreed with Ms. Minow and Mr. Penn that Professor Navarro believes that China’s trade practices give it a Occupy has touched a nerve and will persist. tremendous advantage versus the U.S., which is the reason that the U.S. has such a big trade deficit with China. In his view, “The tents will go away eventually, but the China manipulates its currency, pollutes its air and water, doesn’t movement won’t. This is just the tip of the honor intellectual protection, and violates other trade practices. iceberg.” Ms. Tilton sees the key issue as the subsidization by China and  Robert Tomasko other countries of raw materials, which she believes is more crippling to the U.S. than currency manipulation. Reasons Why the U.S. Is Not Creating Jobs Mr. Liveris acknowledged that “other countries don’t play fair.” Participants cited numerous reasons why jobs are not being They give tax breaks and subsidies, have less regulation, and created in the United States. provide incentives to move jobs there. The United States needs to accept this reality and have a strategy to compete.

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. Government policies. . Restore manufacturing in the United States. Participants expressed concern that many policies and Mr. Liveris argued that while there is a manufacturing crisis in the regulations have increased the uncertainty for business leaders. United States, it is still possible to make things in America. Labor Uncertainty increases risk and keeps companies from investing. costs represent a relatively small portion (less than 10%) of total Mr. Liveris said his company is investing in countries such as manufacturing costs and are not the key factor in determining Turkey, Saudi Arabia, South Africa, and Columbia. While Dow where factories are located. continues to invest in the U.S., he views investments in other More important are regulations markets as less risky than those in the U.S. because there is so and human capital. He sees much regulatory uncertainty in the United States. manufacturing jobs of the future as high tech, high skilled, and . Obstacles for entrepreneurs. high paying. For the U.S. to win Entrepreneur Steve Case, founder of America Online and these jobs the country needs a Revolution, cited data from the Kaufman Foundation indicating strategy to do so and needs that high-growth startups have produced 40 million U.S. jobs over partnership models between the Andrew Myron the past three decades; these companies have been responsible government and the private sector. Liveris Ullman for all net new jobs in the country during that time. These high- growth startups have created major new companies and entire Ms. Tilton, who has purchased 76 companies—many of them new industries. once-prominent manufacturers who had fallen on hard times— sees manufacturing as core to the country’s economy. Small and But over the past five years the number of startups is down by mid-sized manufacturers were hit particularly hard by the recent 23%. Had the pace of starting new businesses remained the economic downturn. Bringing manufacturing back to life requires same, two million more jobs would have been created. One making it a national priority. Individual manufacturers must reason for the decline in startups is that policies around rationalize their costs and innovate. immigration have been an obstacle to entrepreneurship. And, while 90% of job creation occurs after an IPO, fewer high-growth “We have to make things. We can’t say that startups are electing to go public. Instead of dealing with manufacturing is not relevant.” Sarbanes-Oxley, entrepreneurs are choosing to get acquired,  Lynn Tilton which results in a deceleration of job growth. Without eliminating obstacles to starting and scaling new companies, the country is . Create government frameworks to provide more certainty at risk to lose job-producing industries of the future. around investment decisions. Mr. Liveris sees the need for long-term government frameworks . Skills gap. created with input from constituents. Frameworks in areas such Despite the high rate of employment, many U.S. employers are as tax, trade, energy, healthcare, and global warming would lay having difficulty finding employees in the U.S. with the skills they out the country’s strategies and policies. They would create more need. Former Secretary of Labor Elaine Chao sees a big gap certainty, making it easier for businesses to make investment between the skills employers want and the skills being supplied decisions. These frameworks should focus on opportunities for by America’s workforce. The shortage is greatest for individuals public/private partnership. with strong STEM skills (science, technology, . There is much the executive branch can do without engineering, and math) and Congressional approval. for skilled tradespeople. This Governor John Engler, President of the Business Roundtable, skills gap is costing America laid out several ideas for steps the Administration can take. jobs today and will become even more important in the  Approve the Keystone pipeline, creating 20,000 jobs. future. It is fundamentally an  Upgrade FERC, resulting in investments in transmission lines. education issue. Elaine Chao Thomas Quinlan  Order the EPA to upgrade old coal-fired power plants, which would lead to massive private investment and new jobs. Putting America Back to Work  Develop plans to create nuclear power plants.

 Develop the next-generation air traffic control system. Participants shared multiple ideas and suggestions for concrete steps that America can take to create jobs in the short term and  Fix the country’s export control laws, which could improve U.S. competitiveness in the long term. boost exports by $60 billion.  Lift barriers to drilling on-shore and offshore. . Change the political conversation. Senator Bennet emphasized the need to change the political “All can be financed privately without increasing conversation and the country’s priorities. The country’s political the country’s debt. This would mean billions in leaders must work together in a bipartisan way to show fiscal investment and millions of jobs . . . all can be done responsibility by addressing the debt problem. by administrative agencies, not by Congress.”  John Engler

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. Unleash a new wave of entrepreneurship. during tough times on infrastructure spending, which creates jobs Mr. Case argued that legislation is needed to make it easier for in the short term and benefits the country in the long term. entrepreneurs to start and scale high-growth businesses. This includes revising immigration laws to keep the best talent in the U.S. and not requiring Sarbanes-Oxley for young companies.

An attempt to change the conversation and unleash entrepre- neurship is the AGREE Act (American Growth, Empowerment and Entrepreneurship), co-sponsored by Senators Christopher Coons (Democrat) and Marco Rubio (Republican). Senator Coons Lynn Steve Joshua David explained that AGREE is bipartisan Tilton Case Bekenstein Snow legislation (supported by Mr. Case) focused on immigration, investment, In Mr. Bekenstein’s view, providing a short-term payroll tax cut for tax policies, R&D, and intellectual employees is not as beneficial as spending on infrastructure, but property—all areas of importance to Steve Case can boost demand and is reasonably efficient. If an employee entrepreneurs. earning $30,000 receives an extra $1,000, they will spend this money, which helps the economy and can boost jobs. But . Strengthen the country’s trade policies. providing companies with a lower payroll tax won’t cause firms to Several participants had strong opinions about steps the U.S. hire more people. A firm won’t decide to hire/not hire someone if needs to take related to trade policies. the cost of an employee is $30,000 per year versus $31,000. This difference isn’t material and won’t create jobs. Such a tax  Accept reality and develop policies in response. Senator cut is just throwing money away. Coons stated, “We are in a trade war and we need to fight. There is no such thing as fair trade.” Acknowledging that other . Promote U.S. companies abroad. countries don’t play fair, Mr. Liveris advised policymakers and As U.S. companies seek to increase sales abroad, they face business leaders to “accept reality” and develop strategies that many international barriers. Lt. General David Melcher, CEO of enable U.S. companies to compete. Ms. Tilton reiterated that ITT Exelis, believes that jobs can be created if U.S. officials are foreign countries often heavily subsidize raw materials, which more active in promoting U.S. companies. can represent 50–70% of total manufacturing costs. To

preserve manufacturing in the United States, policy changes are needed to put U.S. manufacturers on equal footing. Other Important Points

Professor Navarro believes that unfair trade practices are a . Even with the passage of healthcare reform, huge huge impediment to U.S. growth. He believes the United uncertainty remains related to healthcare. No participants States should have a free trade bill that allows the U.S. to stated directly that the cost of healthcare is hurting job growth, engage in trade with any country that doesn’t manipulate its but they see many challenges related to healthcare. currency, that honors intellectual property, and that doesn’t pollute its air and water. He believes such legislation would  Increased insurance costs affect jobs. Alan Miller of Universal pressure China to undertake significant changes. However, he Health Services said the Affordable Care Act was supposed to sees large, multinational companies opposing such legislation lower insurance rates but the opposite has occurred— because they now have a vested interest in China. They are insurance costs have increased. producing in China, are focusing on opportunities in the This is problematic because Chinese market, and are therefore accommodating China. health insurance costs hinder the creation of jobs.  Deepen trading relationships with Canada and Mexico. Professor Pastor argued that America’s most important trading  Business wants transparency. partners are Canada and Mexico, which account for two-thirds Governor Engler said that of U.S. exports. Immediately after NAFTA’s passage in 1994 businesses want greater and continuing through 2001, trade among NAFTA’s transparency of healthcare cost participants increased and jobs were created. Since then, and quality data, which will drive growth in trade and jobs has decreased. Professor Pastor the healthcare system to provide Alan John believes deeper relationships and more integration between higher-quality care and lower costs. Miller Engler the United States, Canada, and Mexico would be economically beneficial and would create jobs.  Hospitals support health reform . . . but want private insurers. Tenet CEO Trevor Fetter said that uninsured patients cost his . Focus government spending on infrastructure. hospitals $520 million per year and his company collects just $56 million to cover these costs. Requiring everyone to have Mr. Bekenstein commented that many states have rainy day insurance will decrease the costs of uncompensated care. funds which they add to during good times and use during tough However, hospitals don’t want everyone to have government times. The federal government should consider creating such a insurance, which pays less; they want a healthy commercial fund. In particular, the federal government should use this fund insurance industry, as commercial insurers pay higher rates.

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 Corporations have an incentive to dump private insurance. Chao acknowledged that there are multiple data sources that R.R. Donnelley’s Thomas Quinlan believes that if health often differ, and that precisely measuring changes in a workforce insurance exchanges become socially acceptable, it doesn’t with more than 150 million people is quite complex. Less make sense for his company to continue to pay for insurance. important than looking at a 0.1% change in employment is taking His company can pay the penalty for not offering insurance a holistic view of the changes taking place. and still save lots of money by pushing the costs of insurance to the government. (However, a long-term consequence of . Don’t follow Europe. Elaine Chao sees Americans talking too companies putting employees into exchanges could be that much about America and looking to Europe as a model. She private health insurance unravels and a single payer option sees this as a mistake. With huge swaths of economic activity becomes the only alternative.) occurring elsewhere, particularly in Asia and South America, American leaders are advised to pay more attention to these  Under healthcare reform, companies must focus on scale to geographies. compete. Medco CEO David Snow believes that even with healthcare reform, there is significant uncertainty for . Growth of the Business Roundtable. After a period of companies in this sector. He sees rationalizing costs, cynicism and defensiveness, the achieving scale, and leveraging technology as the keys to tone and focus of the Business competition. Roundtable has returned to its roots. In just the past year, the . Congratulating Carter. Jeff Sonnenfeld congratulated Ashton Business Roundtable has grown Carter, who has attended more than 20 Yale CEO Summits, on from 140 members to more than being unanimously voted as Deputy Secretary of Defense. In his 200. More business leaders confirmation hearing Secretary Carter stated his two priorities as understand the need to be engaged supporting U.S. troops wherever they are deployed and and see the Business Roundtable delivering better buying power for the Department of Defense. as an excellent way to participate in the national conversation. . Measuring jobs. Professor John Engler Quinn Mills, who was . Made in China. While spending time in Zuccotti Park speaking involved in developing the with members of the Occupy Wall Street movement—who want employment statistics that the U.S. to be less involved in global trade—Professor Navarro are widely reported and observed that all of these protesters’ tents were made in China. used in many models, says Jeff Sonnenfeld Ashton Carter that these statistics are not . Strengthen corporate governance. Nell Minow believes that accurate and can be misleading. The economy has changed and restoring trust in the private sector requires a host of governance the approaches used to gather data have not kept pace. For changes including independent directors on boards, greater example, for the period from September to October 2011, the transparency, complete disclosure of political donations, greater Bureau of Labor Statistics reported seasonally adjusted job alignment of pay and performance, and having executives growth of 80,000 jobs. However, actual job growth during that experience both upside and downside consequences. period was 880,000. Having served as Labor Secretary, Elaine

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