JOURNAL REPORT

© 2015 Dow Jones & Company. All Rights Reserved. THE WALL STREET JOURNAL. Monday, June 22, 2015 | R1 For CFOs, Signs of a Stronger Economy At The Wall Street Journal’s annual conference, the talk was of tighter labor markets and higher wages

BY JOHN BUSSEY AND VANESSA O’CONNELL tions Systems Inc. the chief U.S. trade nego- “It’s unfortunate that the administration Similarly, while U.S. tiator, told the CFOs they chooses not to do that,” he told Mr. Froman. employment data shows should take heart in the The CFOs’ generally upbeat attitude and confi- U.S. ECONOMIC GROWTH may be listless, but wage growth barely levi- promise of new trade dence extended beyond corporate performance there are signs that could change in the coming tating, the CFOs see it a pacts. He spoke while de- and economic outlooks. Almost all of the execu- months. bit differently. When asked about wage increases bate over the proposed Trans-Pacific Partnership, tives at the CFO Network conference said their That, at least, was the conclusion one could at their companies in the coming year, fully 30% of an Asia-wide trade deal, flared on Capitol Hill just boards depend on them for leadership on matters draw at this year’s gathering of global chief finan- the CFOs said they’d be higher than last year. Only a few blocks away. beyond finance. Maybe it’s no surprise, then, that cial officers at The Wall Street Journal’s CFO Net- 3% said lower. The CFOs weren’t exactly excited about the 76% of the crowd also agreed with this statement: work conference. The CFOs clearly see a tightening True, the CFOs said, the economic momentum deal. About 22% said the TPP would have a posi- “I have what it takes to become CEO someday.” labor market—a sign of economic momentum. is somewhat clouded by a lot of unresolved issues tive effect on their companies. The vast majority “We’re seeing increased competition for tal- in Washington, particularly tax reform. Regulation, believe it wouldn’t affect them one way or the Mr. Bussey is an associate editor of The Wall ented employees,” Kedrick Adkins Jr., CFO of the cybersecurity and increased shareholder activism other. Bob Shanks, Ford Motor Co.’s CFO, stood in Street Journal. He can be reached at Mayo Clinic, said at the gathering in Washington, also were top of mind at the conference. the audience to say the pact needs rules that keep [email protected] or on Twitter D.C., last week. “It’s across the organization.” But even the possibility that trade deals may be trade partners from manipulating their curren- @johncbussey. Ms. O’Connell is a Wall Street “Our market for talent is very hot right now,” in for a rough patch didn’t seem to bother the cies—a tactic that can make exports more price- Journal news editor in New York. She can be added Dan Fairfax, CFO of Brocade Communica- CFOs all that much. For instance, Michael Froman, competitive. reached at vanessa.o’[email protected].

‘We only steal stuff Shame on the U.S. to keep you free and to keep you safe. We Retired Gen. Michael Hayden on why the United do not steal stuff to States is such an easy target for hackers make you rich.’

Few are as qualified to speak, NSA, would have had the oppor- MR. BAKER: If the federal govern- or as outspoken, as retired Gen. tunity to grab the equivalent in ment can be infiltrated in this Michael Hayden on the topic of the Chinese system, I would not way, what hope can you offer to cyberespionage. Gen. Hayden, af- have thought twice, I would not companies? ter a career in the U.S. Air Force, have asked permission. GEN. HAYDEN: American military became the only person to have So this is not shame on China. doctrine says this cyber thing is served as director of both the This is shame on us for not pro- a domain. There are no rivers or National Security Agency and tecting that kind of information. hills up here. It’s all flat. All ad- the Central Intelligence Agency. This is a tremendously big vantage goes to the attacker. Today he is a principal at the deal. And my deepest emotion is That’s one reality. Chertoff Group, a global advi- embarrassment. Then, all of us just fell in love sory firm focused on security with the ease and convenience and risk management. MR. BAKER: How does it happen? and scale, so we decided to take The Wall Street Journal’s edi- We always hope America has things we used to keep if not in tor in chief, Gerard Baker, spoke greater sophistication. a safe, at least in our desk GEN. HAYDEN: with Gen. Hayden about his There are three drawer, and put it up here, PAUL MORSE/DOW JONES (3) views on Chinese hacking, the se- layers: the government system, where it’s by definition more curity risk to companies globally, the political system and popular vulnerable. other countries use their intelli- And as soon as you start to inno- GEN. HAYDEN: Apple and Google and a U.S. political climate in culture. So, the governmental sys- No. 3, we still have a bunch of gence agencies to obtain com- vate, you’re going to be as inter- want to create encryption for which the general says Ameri- tem: Raw incompetence is the scrimmages down here in physi- mercially valuable information ested as we are in people not which they could not provide cans haven’t decided how they best explanation I can offer you. cal space about what it is you to benefit their companies or stealing your innovation.” you the key. Their business want the government to respond That’s at the executive-branch will let your government do to state-owned enterprises. model will not survive if the to cyberthreats. level. At the political level, we be- keep you safe. We have no con- GEN. HAYDEN: We only steal stuff MR. BAKER: Do you think that American government has a spe- Edited excerpts of their con- gan last week in Washington with sensus whatsoever up here in to keep you free and to keep you Chinese companies, especially in cial relationship with them that versation follow. reining in the renegade National the cyber domain. safe. We do not steal stuff to the technology fields, are rou- requires them to surrender this Security Agency for actually hav- What’s the impact for you? make you rich. I know of four tinely operating essentially on kind of information. How serious? ing phone bills—yours and mine— The impact is the next sound other countries that can say those behalf of the Chinese government As Baidu and Huawei become MR. BAKER: How serious a up at Fort Meade. Wednesday, we you hear will not be a digital bu- last two sentences. Everyone else and using whatever means they international companies, they breach of security was the recent have the Boston Police Depart- gle signaling the arrival of the steals for commercial advantage. can in the U.S. market to obtain won’t survive either if they’re hacking of the Office of Person- ment shooting someone who is digital cavalry to come save the I’ve met with PLA 3 [the Peo- intelligence information? seen to be tools of the Chinese nel Management? [Hackers stole committed to behead people. And day. ple’s Liberation Army, Third De- GEN. HAYDEN: All enterprises and government. millions of personnel records Thursday, we learned that OPM The government ain’t coming. partment], the Chinese cyber- major players need to pay atten- from the agency functioning as had lost four, make it 14, million You’re not quite on your own, stealing thing. I never had this tion to the needs of the govern- MR. BAKER: Does the U.S.A. Free- the federal government’s human- sets of records. but you are more on your own conversation with PLA 3, but I ment of the country of which dom Act, phasing out bulk col- resources department.] At the level of popular cul- up here [in cyberspace] than you can picture it as: “You know, they are a part. At one level, it lection of phone records by the GEN. HAYDEN: The current story ture, we Americans have not yet in your lifetime have ever expe- we’re both professionals. You would be unconscionable for a NSA, make Americans safer than is this was done by the Ministry decided what it is we want or rienced being on your own down steal stuff, I steal stuff, but you company like Huawei not to be they were before or— of State Security—very roughly what it is we will permit our here. know, fundamentally, you’re just responsive to Chinese national- GEN. HAYDEN: They are definitely the [Chinese] equivalent of the government to do in this cyber stealing the wrong stuff.…You security needs. not safer. They are more com- CIA. Those records are a legiti- domain. And until we make Asymmetrical threat can’t get your game to the next fortable, but they are definitely mate foreign intelligence target. those decisions, these kinds of MR. BAKER: One thing the U.S. level by just stealing our stuff. MR. BAKER: That doesn’t seem to not safer. It remains to be seen if If I, as director of the CIA or events are more likely. government won’t do: China and You’re going to have to innovate. apply to Apple, does it? they are less safe.

‘One of the big questions is how In Defense of a Pacific Trade Pact to reconcile TPP Michael Froman and Charlene Barshefsky argue for its passage with a China not in the TPP.’ Free trade is on the minds of to export products abroad. two. of creating more jobs and creat- many U.S. business executives At the same time, we’re using What we don’t want to see is ing better jobs, higher-paying CHARLENE BARSHEFSKY these days as the White House the trade agreement to raise an Asia divided into two trading jobs. seeks to push through a land- standards in these other coun- blocs, one headed by the U.S., mark Pacific trade deal with Ja- tries, including putting disci- one headed by China. If coun- Currency manipulation pan and 10 other countries. plines on state-owned enter- tries in the region have to MR. BUSSEY: Currency manipula- The current U.S. trade repre- prises, so that when they choose, the answer won’t be fa- tion has also come up. The auto sentative, Michael Froman, and compete with our private firms vorable to the U.S. industry, particularly, says, a former one, Charlene Barshef- they have to do so on a commer- “Why are we negotiating this, sky, sat down with The Wall cial basis, [without the benefit MR. BUSSEY: Is China prepared when we’ve got a Japan that’s Street Journal’s John Bussey to of government subsidies.] anytime in the near future to driving its yen down, making its discuss the issue. make the kinds of concessions exports cheaper in dollar terms Here are edited excerpts: MR. BUSSEY: China isn’t part of you’re talking about? and hammering us?” the TPP. Is that a problem? MS. BARSHEFSKY: China isn’t MR. FROMAN: We completely TPP and China MS. BARSHEFSKY: China is the close now. But as it restructures agree this is a serious issue, and MR. BUSSEY: Let’s assume the major player in the Asia region, its own economy it might find it we are doing things about it. Trans-Pacific Partnership gets to so one of the big questions is in its interest to deal with the Japan is interesting because it a vote. What does this trade deal how to reconcile TPP with a TPP countries on a TPP basis. isn’t intervening in its currency ‘We’re using the hold in store for U.S. companies? China not in the TPP. in the way other countries have. trade agreement MR. FROMAN: Our market already There are a couple of [op- MR. BUSSEY: Ambassador Fro- It has expanded its monetary is an open market. We have an tions]. One is China eventually man, a lot of Democrats and a base through something close to to raise standards average applied tariff in the U.S. joining the TPP. That could only lot of unions say TPP is a job quantitative easing, as our Fed- in these other of 1.4%, and we don’t use regula- happen if China could come up killer. What do you say to that? eral Reserve did. We think it’s countries.’ tions as a disguise barrier to to the very high disciplines in MR. FROMAN: I go back to the important to deal with this bilat- trade. the TPP that Mike and his team fact that we’re already compet- erally and through the G-7, G-20 MICHAEL FROMAN So what we’re trying to do have set out. Another is for the ing as an open economy in the and the International Monetary through these trade agreements U.S. and China to agree on cer- global economy. We know that Fund, but we are quite reluctant is, first, just proportionately re- tain modifications of China’s every billion dollars of addi- to [push for] binding and en- duce the barriers we face to our current regime to make it, over tional exports supports some- forceable provisions on mone- exports. The average applied tar- time, more compatible with TPP where between 5,000 and 7,000 tary policy. In other countries’ iff in TPP countries is three or standards. A third is to take the jobs and that those jobs pay up point of view, it might be quanti- four times as high as ours. It’s [trade] agreements China has in to 18% more, on average, than tative easing that expands the 70% on autos, 50% on machinery, Asia, which don’t include the nonexport-related jobs in the monetary base and has an effect 35% on chemicals, 50% on beef. U.S., and decide that over time same sector. Firms that export on relative currency values. We These will either be zero or those agreements ought to ei- tend to invest more in research certainly wouldn’t want to sub- much lower than they are now, ther merge with TPP or find and development. They hire ject our Federal Reserve to bind- creating more opportunities for some means of harmonization or more, and they pay their people ing and enforceable trade sanc- American firms to compete and accommodation between the more. So we view this as a way tions.

INSIDE

Paul Ryan on global tax reform, R4 | Shaun Donovan on reaching a big deal, R4 | Jim Yong Kim on the outlook for emerging countries, R5 | Gary Burnison on what CEOs should focus on, R5 John Noseworthy and Bernard Tyson on a different approach to health care, R6 | Charles Penner on shareholder activism, R6 | Keith Higgins on pay-disclosure rules, R8 Jason Furman on the state of the economy, R8 | Kevin McCarthy on the Republican agenda, R9 | Debbie Stabenow on the Democrats’ view, R9 PLUS The CFO Task Forces’ Recommendations and CFOs’ Top Priorities, R2 R2 | Monday, June 22, 2015 THE WALL STREET JOURNAL. JOURNAL REPORT | CFO NETWORK The Task Forces’ Priorities CFO Network executives split up into five groups to debate their management and policy agendas in the following areas. Here are their top recommendations.

ALL THAT CASH FOSTERING INNOVATION SHARE CAPITAL triation holidays. The money and improved performance SPACE TO DREAM CUSTOMER AS and push for survival of the 1 STRATEGY can benefit the U.S. economy. through operating efficiencies 1 Innovation is a mindset. 3 INNOVATOR fittest. Create decision hierarchy of and improved management of Give people the space to dream Live and breathe the customer how to use your cash. Articu- INVEST INTERNALLY the combined companies. and freedom to be curious. experience. Innovation must CO-CHAIRS late capital allocation strategy 3 Investing in capital proj- Don’t bog down employees in transform into value creation. Hope Cochran, CFO, King to shareholders. Clarity on ects, research and develop- CO-CHAIRS quarterly activity, let them think Change your way of thinking Digital Entertainment PLC management’s strategy and ment, and new hiring can help Karen McLoughlin, CFO, through things so that they can and experimentation. Interface Dominique Thormann, process will remove investor companies expand into new Cognizant Technology Solutions innovate. Celebrate failure. with the customer, and get out Executive Vice President and uncertainty. Act consistently. markets, develop new products, Lori A. Varlas, Senior Vice of the office to see how they CFO, Renault; Chairman, improve productivity and gener- President, CFO and Secretary, RECRUIT AND use your product. RCI Banque REFORM INTERNA- ate sustainable organic growth. Central Garden & Pet Co. 2 DEVELOP INNOVATORS 2 TIONAL TAXES Focus on investing for the long Talent is what drives innova- CROWDSOURCE SUBJECT EXPERT Advocate for a more efficient term. SUBJECT EXPERT tion. If you want innovation you 4 SOLUTIONS Beth Altringer, Head of tax system to encourage com- Jim Kaitz, President and CEO, need to recruit and develop There is no monopoly on ideas. Desirability Lab and Lecturer on panies to return cash to the MAKE ACQUISITIONS Association for Financial people who are comfortable Get past silos and find ways to Innovation and Design, Harvard U.S., including through territo- 4 A disciplined acquisition Professionals with change and have natural drive sharing across the com- School of Engineering and rial system, flat rate, and repa- strategy can lead to growth curiosity. Hire employees who pany—both between units and Applied Sciences and Harvard are willing to challenge the sta- up and down the management Graduate School of Design tus quo. chain. Ask the right questions INCENTIVES AND HEALTH CARE LEVERAGE TECHNOL- of health care from just the and incentives to make the THE CFOS’ TOP PRIORITIES 1 OGY, DATA ANALYTICS employee to the family smartest, most cost-efficient Know the demographics, decision-maker. decisions, both in choosing The task forces at the CFO Network conference presented their recommendations to the full health-care utilization and hab- plans and determining health conference, which voted these the top overall priorities: its of your workforce. Navigate SEEK HEALTH CARE events. state-level regulations to find 3 VALUE AT ALL LEVELS BRING BROAD stakeholders understand the late capital allocation strategy the best outcomes. Reduce reg- Direct workers to a higher-per- CO-CHAIRS 1 PERSPECTIVES implications of a breach, and to shareholders. Clarity on man- ulatory barriers to data sharing, forming, smaller group of pro- Mark Guinan, CFO and The CFO should be a thought that cybersecurity is every- agement’s strategy and process telemedicine and innovation. viders. Leverage patient cost- Senior Vice President, Quest leader for and with the CEO. body’s job. will remove investor uncertainty. sharing incentives in a clinically Diagnostics Inc. The CFO should be a comple- Act consistently. PURSUE CARE-MAN- smart way through value-based Francis J. Shammo, ment to the CEO and provide a REFORM INTERNA- 2 AGEMENT STRATEGIES insurance design. If providers Executive Vice President and balanced perspective, to thor- 3 TIONAL TAXES RECRUIT AND Offer well-designed disease- can improve outcomes at re- CFO, Verizon Communications oughly explore alternatives. The Advocate for a more efficient 5 DEVELOP INNOVATORS management programs that duced costs, reward them. Inc. CFO should broaden the con- tax system to encourage com- Talent is what drives innovation. show more promise for imme- versation with key external and panies to return cash to the If you want innovation you need diate savings and positive ROI. REDEFINE CONSUMER- SUBJECT EXPERT internal stakeholders. U.S, including through territorial to recruit and develop people Take an active role in follow-up 4 DRIVEN HEALTH CARE A. Bowen Garrett, system, flat rate, and repatria- who are comfortable with treatment. Move the definition Give employees the information Senior Fellow, Urban Institute SET TONE AT THE TOP tion holidays. The money can change and have natural curios- 2 FOR CYBERSECURITY benefit the U.S. economy. ity. Hire employees who are CEO and the board need to willing to challenge the status prioritize the issue of cyberse- SHARE CAPITAL quo. THE PURSUIT OF CYBERSECURITY curity, and senior management 4 STRATEGY needs to drive a culture of vigi- Create decision hierarchy of SET TONE AT THE TOP rates, and it can be managed. for intrusion. Protecting against lance and accountability. Help how to use your cash. Articu- 1 CEO and the board need to Take stock of where the risk is, the attacks of yesterday prioritize the issue, and senior and how to keep it locked doesn’t mean you’re safe today. management needs to drive a down. culture of vigilance and ac- CO-CHAIRS CFO NETWORK MEMBERS countability. Help stakeholders BUILD AND Patrick Grismer, CFO, understand the implications of 3 TEST RESILIENCE Yum! Brands Inc. (Chief financial officers except Jamere Jackson, Nielsen Woody Woodall, Fidelity a breach, and that cybersecu- Consider worst-case scenarios. John Shrewsberry, Senior as noted) Hugh F. Johnston, PepsiCo National Information Services rity is everybody’s job. Develop a response plan. Test Executive Vice President and David Adams, Aimia Inc. John M. Jureller, Frontier E. Lee Wyatt, Fortune Brands it. CFO, Wells Fargo & Co. Kedrick D. Adkins Jr., Mayo Communications Corp. Home & Security Inc. MATCH INVESTMENT Clinic Joseph Lemaire, Executive 2 TO RISK EVOLVE ALONG SUBJECT EXPERT Michael J. Angelakis, Comcast Vice President, Finance, PARTICIPATING GUESTS Accept that cybersecurity is a 4 WITH THREATS James A. Lewis, Director, Bertrand Badré, World Bank Meridian Health Beth Altringer, Head of critical element of enterprise Understand that you’re never Technology Program, Center for Group Kevin Lenahan, Atlantic Health Desirability Lab and Lecturer risk management, like foreign done. Hackers constantly Strategic and International Rajiv Bansal, Infosys Ltd. System on Innovation and Design, exchange, political risk, interest change their methods and tools Studies Richard Beckert, Olivier C. Leonetti, Western Harvard School of Engineering CA Technologies Digital Corp. and Applied Sciences and Har- Jay S. Benet, Travelers Cos. Gerard Mattia, HSBC North vard Graduate School of Design Michael Berman, General America Charlene Barshefsky, Senior RETHINKING THE CFO Growth Properties Inc. Bill Maw,LiquidnetHoldingsInc. International Partner, Wilmer- Bruce Besanko, Supervalu Inc. Carrie S. McIntyre, Interstate Hale; U.S. Trade Representative BRING BROAD sions. The finance chief creates REFRAME ENTERPRISE Eric Brandt, Broadcom Corp. Hotels & Resorts Inc. (1997-2001) 1 PERSPECTIVES partnerships throughout the 4 RISK MANAGEMENT Judy L. Brown, Perrigo Co. Karen McLoughlin, Cognizant Gary D. Burnison, CEO, The CFO should be a thought business, ensures the finance The CFO should drive enter- Stuart Burgdoerfer, L Brands Technology Solutions Korn/Ferry International leader for and with the CEO. team thinks broadly about the prise risk management to be Paul Carbone, Dunkin’ Brands Frank Mergenthaler, Interpublic Shaun Donovan, Director, The CFO should be a comple- business. broad—not only to address Hope Cochran, King Digital Group of Companies Inc. Office of Management ment to the CEO and provide a risks, but to be a form of value Entertainment PLC Michael Monahan, Pitney and Budget balanced perspective, to thor- BE AN INTEGRAL creation. Gary Crowe, Ricoh Americas Bowes Inc. Michael Froman, U.S. Trade oughly explore alternatives. The 3 PART OF THE BOARD Jatin Dalal, Wipro Ltd. Thomas Naratil, UBS AG Representative CFO should broaden the con- AND LEADERSHIP CO-CHAIRS Marcia Dall, Erie Insurance Alan Nicholl, Canfor Corp. Jason Furman, Chairman, versation with key external and Boards should consider the Bill Oplinger, Executive Vice Group Peter Oleksiak, DTE Energy Co. Council of Economic Advisers internal stakeholders. value of having the CFO on the President and CFO, Alcoa Inc. Andrew Davies, VimpelCom Ltd. Bill Oplinger, Alcoa Inc. A. Bowen Garrett, Senior board, ideally as an official Vanessa Wittman, CFO, George S. Davis, Qualcomm Inc. Aldo J. Pagliari, Snap-on Inc. Fellow, Urban Institute DRIVE VALUE member of the board. In this Dropbox Robyn M. Denholm, Juniper Donald Parker, John R. Graham, D. Richard 2 THROUGH INTERNAL role, the CFO should actively Networks Inc. SAS Institute Inc. Mead Jr. Family Professor of PARTNERSHIPS contribute as well as guide, ed- SUBJECT EXPERT David M. Denton, CVS Health Kenneth S. Parks, Wesco Finance, Fuqua School of The CFO provides insight and ucate and hold accountable ex- John R. Graham, D. Richard Fredrik Eliasson, CSX Corp. International Inc. Business, Duke University education around various chal- ecutive officers and directors. Mead Jr. Family Professor of Kevin Entricken, Wolters Mark Peek, Workday Gen. Michael Hayden, Principal, lenges and opportunities, such Boards should think this Finance, Fuqua School of Kluwer NV Frank Perier Jr., Forest Chertoff Group; Director, as helping the company make through. Business, Duke University Daniel Fairfax, Brocade Laboratories Inc. Central Intelligence Agency value-creating business deci- Communications Systems Inc. James Perry, Trinity Industries (2006-2009); Director, National Edward J. Fitzpatrick, Genpact Julie A. Piggott, BNSF Railway Security Agency (1999-2005) Mark Flaherty, Sally Beauty Karan Rai, ADS Inc. Keith F. Higgins, Director, Holdings Inc. John Reddy, Spectra Energy Division of Corporation Daniel Florness, Fastenal Co. Paul Reilly, Arrow Electronics Finance, U.S. Securities and Frank Friedman, Deloitte LLP Joseph W. Ritzel, Day & Exchange Commission Art Garcia, Ryder System Inc. Zimmermann Jim Kaitz, President and CEO, Mark Garrett, Adobe Systems David Rowland, Accenture Association for Financial William J. Gerber, Sandra E. Rowland, Harman Professionals TD Ameritrade Inc. International Industries Inc. Jim Yong Kim, President, World Robert Glenning, Hackensack Eric Rychel, Aleris Bank Group University Health Network Brian Schell, BATS Global James A. Lewis, Director, Dipak Golechha, NBTY Inc. Markets Inc. Technology Program, Center Christopher Govan, Onex Corp. Stephen Scherger, Graphic for Strategic and International Paul Graves, FMC Corp. Packaging Holding Co. Studies The Wall Street Journal Patrick Grismer, Yum! Brands Anna Sedgley, Dow Jones & Co. Kevin McCarthy, U.S. Represen- would like to thank the 2015 sponsors Mark Guinan, Quest Diagnostics Thomas Seifert, Symantec tative (R., Calif.); for their generous support of the CFO Network annual meeting. Bob Gunderman, Windstream Francis J. Shammo, Verizon House Majority Leader Holdings Inc. Communications Inc. John H. Noseworthy, President Brad Halverson, Caterpillar Inc. Bob Shanks, Ford Motor Co. and CEO, Mayo Clinic Katherine Harper, Tronox Ltd. John Shrewsberry, Wells Fargo Charles Penner, Partner, Chief Robert W. Hau, TE Connectivity Harmit Singh, Levi Strauss & Co. Legal Officer, JANA Partners Michael Herring, Pandora Ewout Steenbergen, Voya Paul Ryan, U.S. Representative Media Inc. Financial Inc. (R., Wis.); Chairman, House Scott Hill, Intercontinental Gordon Stetz, McCormick & Co. Ways and Means Committee Exchange Ralf P. Thomas, Siemens AG Debbie Stabenow, U.S. Senator David Holtze, Global Gregory Thompson, Axiall (D., Mich.) Vice Chairman, Finance, Dominique Thormann, Renault Bernard J. Tyson, Chairman Ernst & Young Carol B. Tomé, Home Depot Inc. and CEO, Kaiser Permanente Amy Hood, Microsoft Corp. Kenneth R. Trammell, Tenneco Jay Horgen, Affiliated Scott Ullem, Edwards CFO NETWORK VIDEOS Managers Group Inc. Lifesciences Robert F. Hull Jr., Lowe’s Cos. Lori A. Varlas, Central Garden Watch interviews Greg Iverson, Vice President, & Pet Co. from the CFO Finance, Chief Accounting Robin L. Washington, Gilead WSJ conference at Officer and Treasurer, Apollo Sciences Inc. .COM wsj.com/ Education Group Vanessa Wittman, Dropbox LeadershipReport

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In discussions of corporate REP. RYAN: Orrin and I come where there’s no haven for lower tax reform in the U.S., interna- from the school of thought tax rates and that we have other tional issues loom large. U.S.- which believes in tax competi- countries trying to assert their based companies are holding tion, not tax harmonization, jurisdiction into our domestic hundreds of billions of dollars in which means we want to see firms to tax them, where we profits abroad to avoid paying countries compete for more free- break down these traditionally taxes on that income at home, market lower barriers, not try- observed international legal bar- and some have moved their ing to harmonize everybody’s riers between firms and between headquarters overseas to coun- taxes up. countries. tries with lower corporate tax rates. MS. STRASSEL: [The latter] is ex- MS. STRASSEL: There seem to be

The result is a smaller tax actly what this project is at- other things, too, like disclosure PAUL MORSE/DOW JONES (2) base in the U.S. and less money tempting to do. requirements in this. available to fuel the nation’s REP. RYAN: Correct. It also is at- REP. RYAN: We’re very concerned all of these international rules, MS. STRASSEL: So what can you REP. RYAN: We do talk with Trea- economy. tempting to basically grab a tax about intellectual-property pro- or because of our absolutely in- do that gets you a step in the sury quite a bit about interna- Paul Ryan, chairman of the base of our domestic corpora- tection. We’re very concerned ferior tax system or tax treat- right direction? tional conversion and extenders. House Ways and Means Commit- tions. So we want to make sure about data protection and the ment of U.S. corporations, we REP. RYAN: We think a conver- There’s also a component about tee, sat down with The Wall that our Treasury has a united privacy of firms. won’t have a tax base with which sion from a world-wide [taxa- the fact that if you convert from Street Journal’s Kimberley Stras- front against that direction. It’s probably in our interest to to actually reform our tax code. tion] system to an exemption a world-wide system to an ex- sel to discuss the international The other issue is that it see if we can move quickly to do So for those of us who want system is something that we emption system, there’s sort of a aspect of tax reform and the brings attention to having to some international reforms that comprehensive tax reform, we would like to think is in the one-time slug of money that prospects for legislative action. deal with tax-based issues in address this issue so as to cau- think it’s important to make sure cards, meaning possible. Tax ex- comes into the system. Here are edited excerpts. such a way that we make sure terize it in a way to prevent the that we stabilize our tax base so tenders [extending tax breaks that we give America a place corporate tax base from being we can get to that day. due to expire at the end of the MS. STRASSEL: What’s the timing A dangerous plan? where it’s a haven for capital eroded so that we have a tax Now, can we do that with this year] is something that applies on this? MS. STRASSEL: Last week you formation. base to work with when we do president? There’s a big differ- to both sides of the code that REP. RYAN: It’s going to be this and Sen. Orrin Hatch sent a let- They call it stateless income comprehensive tax reform. ence between our view and the has to get done. summer and fall. As we go ter to the Treasury Department or highly mobile IP income. We president’s view. And we believe many of these through the summer, we’re going talking about this big OECD want to make sure that America MS. STRASSEL: So this adds to He believes we should have provisions ought to be made to continue exploring the inter- plan, the Base Erosion and Profit is a place where it makes sense the urgency of doing something higher tax rates on individuals. permanent. national. And then in the fall is Shifting Project, [which aims to to keep those decisions here, to here? We think they should be lower. when if we do something, we harmonize the international tax base those operations here be- REP. RYAN: That’s right. And when eight out of 10 busi- MS. STRASSEL: Where do you would have to execute. On the system]. cause of our favorable tax treat- nesses in America are what we think the administration is most extenders, we want to do this as It hasn’t gotten a lot of atten- ment of that. Prospects for progress call pass-throughs, LLCs, sole likely to want to work with you? early as possible in the fall. tion, but it seems to be a really MS. STRASSEL: It seems that proprietors, sub S corporations, big deal. Talk a little bit about MS. STRASSEL: What are the big- we’re heading in a direction at their top effective tax right now what was in the letter and how gest threats to U.S. businesses of which you may not have a base because of this president is Tax Master you see that in terms of your this project? to reform at a certain point. 44.6%. The U.S. has the highest central-government tax rate for corporate income own efforts to work on the tax REP. RYAN: The biggest threat is REP. RYAN: If the corporate tax The international average tax among the 34 countries in the Organization for Economic Cooperation and code here. that you will have a system base erodes so much because of rate on businesses is 25%. So we Development. have to get these rates down across the board. That is some- TOP 8 BOTTOM 8 thing that the administration VOICES FROM THE CONFERENCE 35.00% 19.00% doesn’t share with us. So there’s U.S. Czech Republic an impasse. France 34.43* Hungary 19.00 “Sometimes, bigger is easier, not harder, in Wash- The question is what can we 33.00 19.00 ington. What I mean by that is that, if you pull to- do in the meantime that gets us Belgium Poland gether the tax extenders that need to be extended, a step in the right direction. Australia 30.00 Slovenia 17.00 And as we’re looking at that, if there is some kind of budget deal at the end of 30.00 15.83 we’re looking at the interna- Mexico Germany the year with business tax reform and the Highway tional system. New Zealand 28.00 Canada 15.00 Trust Fund, sometimes it’s actually easier to get all We want to move to an ex- 28.00 12.50 of that done together in one big deal.” emption system [where compa- Portugal Ireland nies can repatriate foreign earn- Spain 28.00 Switzerland 8.50 Shaun Donovan, Director, Office of Management ings without paying U.S. taxes and Budget on them]. We want to make ev- * Effective rate for companies with annual profit above €2.289 million ($2.6 million) ery day a repatriation day for Note: Rates are flat or top marginal tax rate on corporate income

firms. Source: Organization for Economic Cooperation and Development THE WALL STREET JOURNAL.

CYAN YELLOW MAGENTA THE WALL STREET JOURNAL. Monday, June 22, 2015 | R5 JOURNAL REPORT | CFO NETWORK The Outlook for ‘Despite Ebola, Africa continues Emerging Countries to grow.’ World Bank President Jim YongKim on China, India, the Middle East, Africa and the impact of inequality

What’s going right—and the United States, Europe and We’re also impressed with In- wrong—with the world’s devel- Japan, especially with the rising dia. India, for the first time in 15 oping economies? dollar, you see currency move- years, is going to have a higher We put that question to Jim ments toward the United States. growth rate than China. I met Yong Kim, who took over as That affects the exchange rates Prime Minister Modi last year in president of the World Bank in in developing countries. The im- early July. I was impressed with 2012. In this discussion with The pact of Russia and Brazil con- how focused he was. Wall Street Journal’s Rebecca tracting has also been serious.

Blumenstein, he talks about the So it’s different depending on MS. BLUMENSTEIN: Over the long PAUL MORSE/DOW JONES (2) countries that impress him the different countries. In Africa and term, are you optimistic enough most, how to spur private invest- many of the commodity-export- about India where you see it Appealing to investors is living, and that’s changing the us that higher levels of inequal- ment in emerging nations and ing countries, the slowdown in supplanting a China role? MS. BLUMENSTEIN: In terms of world in fundamental ways. ityareadragongrowth. why it’s vital to fight poverty China has had a big impact. DR. KIM: Prime Minister Modi is private investment, you’re think- DR. KIM: It’s happening every- The IMF just came out with a and income inequality. Whereas in 2000 China made up in a very complicated country ing of going on a roadshow, cre- where. I went to see President study saying that countries re- Here are edited excerpts of about 1% of total developing- that has big problems still. But I ating different types of invest- Evo Morales in Bolivia. He said, ally should focus on improving the conversation. country exports, it’s now the have to say the impact of this ment vehicles to entice the “I’ll meet with you, but you need incomes to the bottom 20%, be- biggest trading partner with the one leader on our own sense of private sector into these coun- to go to 14,000 feet and we’re cause that spurs growth much A trip around the world entire developing world. where things are moving has tries. Could you explain? going to play soccer.” I never more than increasing the rela- MS. BLUMENSTEIN: Take us on a But if you step back and say, been profound. DR. KIM: If you look at just one played soccer in my life, so it tive incomes of the top 20%. tour of the emerging economies. “So what about Africa?” Despite particular need in developing was a challenge. But as we were For us, it means trying to We started out the year feeling Ebola, Africa continues to grow. MS. BLUMENSTEIN: Could you countries, financing for new in- landing the helicopter at 14,000 spur investments that will lead very pessimistic about their It grew all through the period talk about the Middle East? It’s frastructure, it’s about a trillion feet, the most remote village in to private-sector growth that prospects. Is that changing now? after the crisis. There are still all in such turmoil, but yet you dollars a year. If you look at all all of Bolivia, they were taking will create jobs and lift the in- DR. KIM: For this year, the ex- great prospects in Africa. feel that it’s very important for of the official development assis- pictures of us with smartphones comes of the bottom 20% to pected rate of growth is 4.4%. At China is going to grow at both the World Bank and for pri- tance put together, it’s about and they could see Miami-based 40%. That’s what we focus on one point we thought that low about 7% this year. We think it’s vate business to support Egypt $130 billion. Then you add in all Spanish-language telenovelas. everywhere. oil prices would spur growth. because they’re going forward in and the region. the funding that’s provided by So everyone knows how ev- We cannot do it just with do- But still we’re seeing it as a drag a controlled, thoughtfully done DR. KIM: People have said that the multilateral development eryone else lives. It isn’t just nor assistance. We cannot do it on the economy. shift of their growth model from the Arab world is like a tent with banks, and it doesn’t even get to that the people who don’t have just with loans to governments. Also, there is currency uncer- investment and exports to one two poles. One is Saudi Arabia half of what the need is. access to jobs and education and We’ve really got to get private tainty. When you have the diver- focused more on services and and one is Egypt, and both have We need to get some of the income are resentful. It’s that sectors moving in all those gent monetary policies across consumption. to be stable for the region to be capital sitting on the sidelines the analysis is beginning to tell places. stable. We’ve done a lot of work moving for these infrastructure in Egypt over time. I met with investments. Infrastructure in- VOICES FROM THE CONFERENCE President el-Sisi, and I was very vestments in developing coun- Getting Back on Track? impressed with his commitment tries provide a great potential The World Bank sees economic growth in developing countries as a whole to tackling major issues. return on investment for sover- “As a CEO, there are staging a recovery after a dip this year, with India's growth rate Having said that, there are eign-wealth funds, for equity in- overtaking China's this year and Brazil's economy returning to growth two constituencies that challenges. I went to Luxor. vestors, for just about anybody. next year after shrinking this year. you have to focus on. Egyptian antiquities are one of But the perception of risk is Forecast annual GDP growth, in constant 2010 U.S. dollars And only two. They will the great resources for the en- holding people back. We feel tire world. It’s really stunning. that if we get together with all World Developing countries China India Brazil be the arbiters of your But at the same time it’s one of the other multilateral develop- 8% performance. And that’s the very poorest regions. There’s ment banks, with private-sector a huge agenda with Egypt. players, we can effectively de- your customers and your 6 people. That’s it. If you Our goal is to end extreme risk those investments. So even poverty by 2030. By 2020, half a teacher’s fund or a pension get those two right, ev- of all people living in extreme fund will feel comfortable in- 4 erything else will sort poverty will be living in fragile vesting. itself, including that in- and conflict-affected situations. 2 MS. BLUMENSTEIN: vestor constituency.” I’ve asked my vice president How con- working in areas where there’s a cerned should we be about in- 0 Gary D. Burnison, lot of fragility, “Do we have a equality around the world? new take?” For example, ad- You’ve spoken about the role of -2 Chief Executive Officer, dressing radicalization, are there technology and how if you’re a 2015 2016 2017 Korn/Ferry International things we can do to help tackle student in Africa, you can see this? how the other half of the world Source: World Bank THE WALL STREET JOURNAL. R6 | Monday, June 22, 2015 THE WALL STREET JOURNAL. JOURNAL REPORT | CFO NETWORK A Different Approach to Health Care Two health-care executives on ‘We’re more ‘Cost avoidance how they are able to reduce costs efficient and by reducing —while improving quality effective.’ infection, reducing BERNARD TYSON readmissions— It’s a question at the heart of lion people on the electronic all those things arguments about health care: health record. I was told recently are terrific.’ How can the industry put a lid we have something like 100 on soaring costs and still deliver petabytes of data. Somebody JOHN H. NOSEWORTHY quality, innovation and choice to asked me, “How much is that?” patients? and I said, “A lot.” For insights, The Wall Street Our physicians have been able Journal’s Laura Landro spoke to study, through the data, the with two health-care executives efficacy of care and to look at whose organizations are re- the practices that produce dif- nowned for innovative practices: ferent outcomes. We’ve been John H. Noseworthy, president able to aggregate data to better and chief executive of the Mayo understand how to take care of,

Clinic, and Bernard J. Tyson, for example, different ethnic PAUL MORSE/DOW JONES (3) chairman and CEO of Kaiser populations. We’re more effi- Permanente. Here are edited ex- cient and effective because now vider of transplant care for Wal- DR. NOSEWORTHY: And patients fordable means that you’re going Care Act? cerpts of their conversation. we’re targeting to different dis- Mart, regardless of where their need not always go [to clinics to to skimp on quality.” In fact, MR. TYSON: Health-care costs eases, to different populations, employees live. In January, they get help]. A young woman we re- we’re showing just the opposite. have been going up, so let’s be a Data-driven results to different outcomes. That is al- extended that exclusive contract cently saw from Kentucky found For instance, one of the issues little bit careful that we don’t MS. LANDRO: Kaiser has really lowing us to do things very dif- for the care of women with she had breast cancer. [Her local we’ve been working on is cutting say it’s because of the ACA. In embraced electronic medical re- ferently. Last year, we did 20 breast cancer or patients with doctors] consulted us; just as the sepsis rate in our hospitals. fact, I think that that’s part of cords. Tell us about how the big million e-visits. That is you lung or colorectal cancer. they were about to treat her, the complexity of what’s going data in your system has enabled emailing your doctor. It is an in- They will send those records they realized she was pregnant. MS. LANDRO: Sepsis, as you all on in the health-care industry. you to identify the highest-cost teractive process in a secure en- for all those folks who work at They said, “Oh my gosh, what know, is a very dangerous blood We all have to work to make people and look at ways to inter- vironment where you’re getting Wal-Mart for us to review. If we do we do about that?” We were infection. health care more affordable and vene, and use e-visits—not hav- the information that you need. believe additional diagnostics or able to coach them on how to MR. TYSON: We said, “There is no drive down costs while we im- ing to go to the doctor. treatments are needed, they will manage that young woman’s reason why someone should go prove quality and improve ac- MR. TYSON: I can’t imagine what MS. LANDRO: Dr. Noseworthy, tell pay the entire cost of those pa- breast cancer and her pregnancy. to a hospital and pick up a bac- cess to care. There is still a lot it would be like to run an organi- us about what you’re doing for tients going to [clinics in other She got great care. She never teria germ and die or have more of work to go on. But with the zation taking care of 10 million- employers like Wal-Mart. cities] for diagnostics and care left Kentucky. The costs were hospital stay.” We’re on our way Affordable Care Act, the early plus people on a paper-based DR. NOSEWORTHY: For18years, and send the caregiver for that low, and all of that was done to our goal, which is zero. [It’s indications are for those individ- system. We now have all 10 mil- we’ve been the exclusive pro- care at no cost to the employee. keeping the patient local. She taken] a lot of work over the uals who never had coverage, It is an extraordinary benefit, got great care and the costs years, but we’ve improved qual- who might have gone in for care but it makes good sense to Wal- were [relatively] minuscule. ity and we’ve [ultimately] low- through emergency departments, We're No. 11 (of 11) Mart because the diagnosis will ered costs. Now you’re not stay- now that they have coverage, The U.S. was last overall in a ranking of 11 countries' health-care be accurate. The care will be as Striking a balance ing in the hospital longer and they can come through the front systems by the Commonwealth Fund, a private foundation that promotes safe as it can be, as cutting edge MS. LANDRO: One of the concerns God forbid, you’re not dying. door of the health-care system. improvements in health care as it can be, and the patient will is always, “If I’m trying to con- Another example is knowing We’re discovering that there get back to work. They’ve recog- trol costs, I’m not going to get the different treatments that are illnesses and challenges that Overall ranking of U.S. ranking in various aspects of nized that the avoided costs for the best care.” How do you make would work in individuals and they have been having that we health-care systems health care complex care in a highly engi- those decisions? populations and then building now are treating. In our systems, 1 U.K. QUALITY 5 neered system like Mayo saves MR. TYSON: The fact of the mat- the systems around that. It al- we’re able now to figure out the them money. It’s a lot less ex- ter is our system is different lows us to be much more effi- best way to care for them over 2 Care that is effective, safe, coordinated and Switzerland patient-centered pensive if they do the right thing from the rest of the industry. cient in diagnoses, in treatment time that hopefully will level and do it quickly and help the The industry is on a fee-for-ser- and in prevention that allows a those costs out and start to 3 Sweden ACCESS 9 patient get back, and it’s also vice basis, is volume driven. person to stay much healthier. drive those costs down or make DR. NOSEWORTHY: 4 Patients can obtain affordable health care good for their employees. I’m not suggesting these are Cost avoid- them more manageable. Australia and receive timely attention bad people, and we’re the good ance by reducing infection, re- DR. NOSEWORTHY: I don’t think MS. LANDRO: A lot of times, your people. But if I’m getting paid ducing readmissions—all those it’s any surprise that companies 5 Germany EFFICIENCY 11 Netherlands treatment plan will involve not every time I do a procedure or things are terrific. And it re- that have health-care plans are Health-care spending as a percentage of GDP, doing as much aggressive care see you, and that’s the way the quires an engineered, team- bearing a lot of the cost of car- as well as efficiency in treatment and administration 7 New Zealand as was originally decided by the incentive system works, eventu- based approach to do that. This ing for those who didn’t have in- Norway 11 patients’ local doctors? ally I will justify that behavior. is hard work. You invest an aw- surance. That’s not to say it isn’t EQUITY DR. NOSEWORTHY: Yes. What we’ve been able to do ful lot of money in doing that, as a good thing to do, but it isn’t 9 France Care that doesn't vary because of income over the years is to bring out- Bernard mentioned. [But you surprising. And Bernard is obvi- MS. LANDRO: But in other cases, come-based data to the argu- save money at the end.] ously taking the long view that 10 Canada HEALTHY LIVES 11 you will be providing care but at ment and to show that our phi- ultimately those who haven’t 11 U.S. Mortality amenable to health care, infant mortality, a more cost-efficient basis even losophy is there is no such thing The effects of the ACA had insurance will find a home and life expectancy of a healthy 60-year-old with hotel bills and flights to the as a global statement, like, “To MR. LANDRO: Have you seen and get appropriate care to pre- Source: Commonwealth Fund THE WALL STREET JOURNAL. clinic and all of that? be cost effective, to be more af- costs go up since the Affordable vent and treat early.

When the Activists Call Charles Penner ‘I don’t think makes the case bad ideas are the sole for shareholder provenance of activism shareholders.’

Shareholder activists have an ally in Charles Penner, a partner and chief legal officer at JANA Partners, an investment firm with $11 billion in assets under management, and a record of supporting activist campaigns. The Wall Street Journal’s Dennis Berman spoke with Mr. Penner about shareholder activism, its successes, and what some might consider its excesses. Edited excerpts of their con- and dividends than into capital going to say two things. One: versation follow. spending. Long term, the theory Shareholder democracy is like ev- goes, that is dangerous to U.S. ery other form of democracy; it’s MR. BERMAN: So the letter comes competitiveness and corporate- the worst form of government we in to the board or the CEO. The level competitiveness. have except for all the other CFO is probably immediately MR. PENNER: I don’t think anyone ones. It won’t always be perfect. brought in. What’s your advice is arguing for irresponsible re- People will have bad ideas. I about what they should do when turns of capital. The Economist don’t think bad ideas are the sole the activist shows up? also did a study of the 50 big- provenance of shareholders. MR. PENNER: My advice, and I gest activist campaigns in the I would say, though, to the ac- think most shareholders’ advice, U.S., the most recent ones. They tivist community, that people are is to engage. If you look at the found that not only did profit- watching. We have a very good campaigns where we’ve had an ability go up and better returns track record over the, say, 10 to easy time of it, it’s where com- for shareholders, but capital in- 15 years since activism has really panies take it for granted that vestment [and] R&D went up. So been going on. If we start pro- they can stiff-arm us and not en- there is a bigger picture here. posing things that are irrespon- gage in debate. But just speaking for us per- sible or if people start pointing It obviously doesn’t make the sonally, we’ve never in my opin- to situations we’ve been in- analyst and the proxy advisory ion advocated for an irresponsi- volved with and saying, “Well, firms happy. But if you look at it ble return of capital. You have to look, there is a company that and say, “Look, we’ve got a good have a stock that’s undervalued they took and dragged down,” argument here and these guys and a clear plan to correct that the BlackRocks and the T. Rowe’s are wrong and we can show undervaluation. And you need to and the Vanguards will quickly them that they’re wrong,” we’re have a situation where there’s withdraw their support. We ob- the type of firm that will listen not any higher and better use of viously have to be cognizant. to that and respond. capital. Companies who have been un- MR. BERMAN: One can make the MR. BERMAN: What percentage der pressure to return more cap- argument that shareholder activ- of situations would you say that ital than they thought was re- ism is driven mainly by the big you’ve presented your detailed sponsible, like Apple and Amgen, institutional money managers analysis, the management comes had reputations as being respon- who’ve thrown in their lot with back and you say, “Oh, you know sible toward capital. They you because they are getting what? They’re right?” weren’t just hoarding cash for pressured from ETFs and need to MR. PENNER: It’s statistically in- no reason. And they were able to show some returns. significant. But it could happen. fight back. So I see your point. MR. PENNER: Sort of. We’re basi- Look, we don’t throw stuff I’m sure that there are irrespon- cally a market-driven mechanism against the wall and see if it sible returns of capital. I think, to address underperformance at sticks. So by the time we’re sit- though, to lay it all at the feet of certain companies. The mecha- ting down with you, I think that activists is going a little far. nism is you take a small stake in it’s unlikely we’re going to be a company and bring about the 100% wrong. Arosegarden? change that used to happen pri- MR. BERMAN: It sounds from your vately. The gatekeepers are the Misuse of assets point of view as if activism is a big institutions seeking returns. MR. BERMAN: If there is a bigger rose garden. Obviously it isn’t Without their support, we would macro criticism, it is that activ- that simple. If you had to, what shrivel up and die. ism is pushing for more share- sort of letter would you write to But it’s a free-market re- holder returns largely through the activism community about sponse to a problem, which is dividends or buybacks. The Jour- how they’re doing things wrong? that it doesn’t make sense for nal did a recent analysis that MR. PENNER: Well, I’m trying to most shareholders to spend the showed that U.S. companies are get out of the premise since I time and the money and the now putting more into buybacks don’t agree with it. I mean, I’m headline risk to do this. THE WALL STREET JOURNAL. Monday, June 22, 2015 | R7

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CFOs DRIVE PERFORMANCE THROUGH GREATER ROLE IN SUPPLY CHAINS

©2015 MICHAEL AUSTIN C/O THEISPOT.COM By Joe Mullich s part of the cost cutting that came with the economic downturn several years ago, many companies prioritized making supply chains leaner. Today, the growing complexity of global supply chains, along with a stronger demand for reduced time to market, is causing many of those same A companies to view supply chains in a fundamentally different way: as a potential source of profit and a competitive advantage. Leading this new approach are forward-looking “When[CFOs]digdeeperandunderstand supply chain functions do not work closely together. CFOs who are increasing their role in management of that logistics is intrinsically tied to P&L, they In the same way, supply chain costs can be misunder- the supply chain and building more collaborative rela- begin to evolve the supply chain model to stood if they are not probed deeply enough by the CFO tionships with supply chain leaders. For many, the pay- working in lockstep with cross-function colleagues. unlock savings and opportunities.” off is impressive: According to a study by Ernst & Young, “Companies need to understand the true costs of nearly half of CFOs who have forged these deeper re- —ARTGARCIA supply chains beyond shipping, rail and trucking costs,” lationships say they have boosted EBITDA by at least Ryder’s Garcia says. “A lot of regulatory and safety costs 5 percent, compared with only about a quarter of CFOs product to its partner. Here is where the partner com- are embedded in the structure, as well as the back- who maintain more traditional finance relationships. pany can step in. Through the collaborative efforts of office costs and other costs like recruiting drivers. Ifa “In the past, CFOs focused on logistics as a procure- its finance, procurement and supply chain functions, company has handled its own supply chain for many ment exercise,”says Art Garcia, executive vice president the firm can gather more precise information about the years, it can develop inertia, not realizing it can gain and chief financial officer for Ryder System, Inc., alead- supplier, such as whether delivery targets are being met, greater savings by outsourcing many of these services.” ing provider of commercial transportation, logistics and to help assuage lenders. This in turn reduces risks and DATA DRIVES COLLABORATION supply chain management solutions. “When they dig costs passed to the partner company. Among CFOs forging new partnerships, many are deeper and understand that logistics is intrinsically tied For all these benefits, however, this approach re- embracing analytics tools to gain a more granular un- to P&L, they begin to evolve the supply chain model to mains largely at odds with the traditional CFO stance of derstanding of the true costs and opportunities lurking unlock savings and opportunities.” arm’s-length monitoring of and reporting on the supply throughout the supply chain. chain. The same E&Y survey found that only 26 percent LOOKING BEYOND COSTS “You can only add value to the supply chain if you are of CFOs have a collaborative business relationship with CFOs who take a more expansive view of and role able to slice and dice the data more precisely,” Garcia their company’s main supply chain executive. “That is within supply chains — a practice some have dubbed says. “But it’s not only about having the right data. You a tragedy for companies,” says Jonathan Byrnes, a se- holistic supply chain finance — can help to reduce time also need the right mindset, where you are open to nior lecturer at the MIT Center for Transportation & to market and lead times, ensure timely delivery of criti- changing the supply chain structure from time to time Logistics. “It reflects an obsolete way of looking at sup- cal supplies, and prioritize giving the highest level of as new opportunities present themselves.” ply chains.” service to the most important customers. Armed with such a mindset and the right data, CFOs This holistic view can also produce less obvious ben- PROBING PROFITABILITY can team with their supply chain counterparts — as well efits. “When the CFO looks at the supply chain asmore AccordingtoByrnes,changebeginswhenCFOsdevel- as personnel in sales and other departments — to plan than a pure cost play, the supply chain can be more op a deeper understanding of the profitability of differ- key initiatives that will bring larger returns. deeply aligned with the strategic vision of the compa- ent customer groups: “If you understand that a customer “When you begin looking at supply chains in this ny,” Garcia says. “For example, decisions of where you is highly profitable, it can be a great investment to hold broader way as a vehicle of profitability,” says MIT’s manufacture products might be affected by what mar- more inventory for that customer in reserve.”Conversely, Byrnes, “you understand that the only greater role a kets you want to penetrate in the future.” he adds, if a customer is not highly profitable, “having a CFO should have than supply chains is making sure the Finally, it can help to uncover hidden risks. Consider longer order cycle may be more beneficial.” company does not run out of money.” the example of a small foreign supplier that needs to se- Given that the most profitable customers are not cure financing from a bank in its home country —and necessarily the largest or most obvious, gaining this in- Joe Mullich has received more than two dozen awards for faces an exorbitant finance rate — before it can ship a sight can be difficult to achieve when the finance and writing about business and other topics.

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RyderandtheRyderlogoareregisteredtrademarksofRyderSystem,Inc.Copyright©2015RyderSystem,Inc.EverbetterisatrademarkofRyderSystem,Inc. R8 | Monday, June 22, 2015 THE WALL STREET JOURNAL. Health. JOURNAL REPORT | CFO NETWORK It’sateamsport. Pay Disclosure Flexibility Wedon’tjustfillprescriptions.Wepartnerwithdoctors, Keith Higgins hospitals and employers to help patients manage their ‘A lot of people on Dodd-Frank don’t think that conditionsforbetteroutcomesatlowercosts. and the SEC this disclosure is material or Keith Higgins, director of the useful.’ Division of Corporation Finance at the U.S. Securities and Ex- change Commission, sat down with The Wall Street Journal’s Dennis Berman to discuss some of the regulatory issues compa- nies are facing. Edited excerpts of the conversation follow.

CEO pay PAUL MORSE/DOW JONES (2) MR. BERMAN: Pay-ratio disclo- sure. It was in Dodd-Frank. MR. HIGGINS: You don’t have to My advice would be to bring Maybe you can remind everyone put all your 240,000 employees in the statisticians, the HR peo- of the requirement and tell us into a spreadsheet and ask Excel ple, before you go to the board. where we are in actually making to find the… And let’s figure out a way that this happen. we can choose a reasonable MR. HIGGINS: It requires compa- MR. BERMAN: That’s not that methodology that will be as nies to disclose the total com- hard. “Sum all,” and “Find me- cost-effective as possible. pensation of the chief executive dian.” officer, the median compensa- MR. HIGGINS: The problem—I IFRS vs. GAAP tion of their workforce, and the don’t deny these are real con- MR. BERMAN: There is a move- ratio of those two numbers. It’s cerns—is different payroll sys- ment to try to simplify financial pretty simple. tems, different ways of paying reporting around International people in different countries. Financial Reporting Standards. MR. BERMAN: But? Not everybody has sort of a W-2 Give us the update. MR. HIGGINS: The biggest con- compensation number like in the MR. HIGGINS: What the IFRS— cern that we’ve heard is that the U.S. that you can come up with. that’s Jim Schnurr [U.S. chief ac- statute requires the median And so companies rightfully countant] and the office of chief compensation of all employees. said, “Look, we want to get this accountant at the SEC—has said And the way the commission right. We take our obligations recently is three principal proposal expresses that, “all em- seriously. And if we really are things. One is, there does not ployees” includes the entire going to do this right, it’s going seem to be any huge cry for workforce. to be very, very expensive for adoption of IFRS in the U.S., at not a lot of benefit.” least by the filer community. MR. BERMAN: Some people Maybe that’s an understatement. wanted you to exclude certain MR. BERMAN: So a CFO can say, There isn’t really even a sub- workers. “We’re going to take a core sam- stantial amount of support for MR. HIGGINS: Foreign employees. ple and dig a few inches, and an option of filing in IFRS. Look, a lot of people don’t think that will be sufficient.” On the other hand, we think a that this disclosure is material MR. HIGGINS: But you don’t have single global set of high-quality or useful information for inves- to find every employee’s com- accounting standards would be tors. That it’s meant to name pensation to get to a median. in everybody’s best interest: in- and shame. We have heard that. When you read your newspaper vestors, companies and the like. It is the statute, it’s the law of and it talks about the median There’s not yet a path forward the land, and the commission home price in the U.S., my guess on that. I think the idea is to was directed to implement that. is that they don’t take data from continue to work, FASB [Finan- So the commission came up every single home sale over a cial Accounting Standards with a proposal that the best period of time. There’s a statisti- Board] and the IFRS to work to way to read that is the way it cal sampling that gets done. harmonize where possible. naturally sounds, but to provide And Jim has floated recently as much flexibility as we could MR. BERMAN: So what’s your ad- the idea that if companies want to allow companies to use statis- vice to the CFO who has to go in to present IFRS information in tical sampling and other estima- front of her board in two weeks their U.S. filings, and are con- tion methods to try to determine and say, “On the agenda is pay- cerned about them being non- the median compensation for a ratio disclosure”? GAAP measures [Generally Ac- global workforce. MR. HIGGINS: The proposal is out cepted Accounting Principles, there. It’s under consideration. the standard widely used in the MR. BERMAN: So what does that We’re working up recommenda- U.S.], maybe we need to provide mean? tions for the commission. some relief to filers.

The State of the Economy Before medicine can Jason Furman on why he thinks things will pick up reach the disease, it

Jason Furman has been Presi- dent Barack Obama’s top eco- ‘We’re still not has to reach the patient. nomic adviser since 2013. As chairman of the White fully recovered. House Council of Economic Ad- We’re almost Wemakeitmoreconvenientforpeoplewithcomplexconditions visers, he has had a voice on is- there, but there’s sues ranging from the debt ceil- togetinfusedmedicationsinthecomfortoftheirhomesorin ing to trade. He sat down with still slack in the The Wall Street Journal’s Greg labor market.’ our Coram infusion suites. Ip to discuss the economy and why he thinks things will pick up. Here are edited excerpts: Does age matter? MR. IP: The economic numbers have been pretty disappointing this year. The first quarter was negative. A lot of the data have been mushy. Should we be wor- ried that the economy is flagging lot of economic research on this transparent, level playing field. again? question, and it pretty consis- A lot of the countries we’re ne- MR. FURMAN: In mid-June of last tently finds that expansions gotiating with in TPP don’t, so year, the economy looked a lot don’t die of old age. It isn’t that we’re trying to [fix that]. like this.Then we saw a really the longer it’s gone on, the If you look at a standard eco- strong second half last year. higher the probability of going nomic model, it shows that just I continue to think a lot of into a recession. those types of effects, lowering what was powering the economy There is almost a constant tariffs, could add about $75 bil- last year was consumers. They’re probability of going into a reces- lion to the U.S. economy annu- 70% of the economy. They’re de- sion in any given year. So I don’t ally. And that could be an under- leveraged. They’re confident. think there’s any reason to be statement, because expanding They have higher real earnings worried about the age of the ex- the size of the market expands each month due to lower gas pansion. And by the way, we’re innovation. prices. And so I continue to still not fully recovered. We’re think they will be a good part of almost there, but there’s still AUDIENCE MEMBER: My name is our economy. It has taken a little slack in the labor market. There Bill Moore. As a citizen and CFO, bit longer to get going, but we are still ways in which we aren’t I’d say the economy is still very did start to see that in May. back to where we should be. fragile out there. House prices But I do think we always have haven’t risen as much as people MR. IP: Many people believed the to be prepared for ups and would hope. People are still un- drop in gasoline prices would downs in the economy and to derwater. Another aspect of boost consumption. But thus far, have a more robust system that, wealth is investments. Could it seems to have gone into sav- to some degree, automatically something like a correction in ings, not spending. What are we responds as an economy starts the equities market have a ripple to make of that? to turn down. effect on the economy? MR. FURMAN: I think it has been MR. FURMAN: There’s no ques- really puzzling. If you look at the Potential growth areas tion that part of what deter- jump in the savings rate, it was MR. IP: This town is all abuzz mines consumption is wealth. unusually large. about the president’s efforts to People took a really, really big Now we just got revised data obtain trade promotion author- hit to their wealth in 2007 and for March and April that raised ity from Congress, with the idea 2008. It was much larger than consumer spending. May was a being to consummate the Trans- the hit to wealth that precipi- lot stronger, so I think those sav- Pacific Partnership that’s been in tated the Great Depression. And ings numbers will come down. the works for a while. Can TPP part of what we’ve seen since And when they do, that will lead actually change the slow-growth then is a really long, painful pro- to elevated consumer spending. mode that the U.S. is stuck in? cess of deleveraging by consum- So this may be just the normal MR. FURMAN: I think that there ers and businesses. bumps and wiggles in the econ- is still a lot of potential in ex- I don’t think we’re all the way omy that are hard to explain panded trade to help with our there yet. The housing sector short term, but that make more productivity growth—and pro- isn’t fully healed. The flip side of sense over a longer period. ductivity growth is key to our the housing sector not being overall economic success. fully healed is that it still has a MR. IP: It’s hard to believe but First, there are high tariffs in lot of potential in it. I think the expansion is now, as of this a number of areas, agriculture we’re actually not building month, six years old, which is being one of them. Second, a lot enough houses right now. Credit slightly longer than the average of the countries we’re dealing is too tight for many households. postwar expansion. Should we with here have very significant And as we rectify those issues, be worried about another reces- nontariff barriers, which is that will be one of the sources of sion coming along soon? something the U.S. tends not to added growth we can expect MR. FURMAN: There has been a have. We have a very open, over the next few years. THE WALL STREET JOURNAL. Monday, June 22, 2015 | R9 JOURNAL REPORT | CFO NETWORK The View From the Republican Side House Majority Leader Kevin McCarthy talks highways, infrastructure, the Ex-Im Bank and growth

Eight months after an election enough Democrats to vote for months on those issues. that expanded GOP control over TPA. That’s why you separate it. REP. MCCARTHY: Highway is a both houses of Congress, what’s major problem in America. We ‘I think the happened to the Republican MR. SEIB: Unless you as the mas- make policy in the world of poli- leadership of agenda? And what does it mean ter vote whipper bring them into tics. If you thought, “Well, why Ex-Im would for business? line and say, “You’ve got to vote don’t you just raise the gasoline The Wall Street Journal’s Ger- for this stuff.” tax?” Well, politically that will have been smart ald F. Seib spoke with House REP. MCCARTHY: There became a not make it. Let’s think of some- to realize they Majority Leader Kevin McCarthy decision in the Democratic lead- thing else. How do you have a had a problem.’ for an inside look. Below are ed- ership that they were going to funding mechanism where you ited excerpts of the conversation. change what they’d done before. could actually fund a five-year They think this is the only way plan? The trade situation to kill trade. So they don’t want There’s a coalition that cares MR. SEIB: Your first order of to do anything. about highways, but there’s also business this week is to try to What if we just pass TPA and a coalition that cares about tax rescue Fast Track and by exten- send that to the president’s reform. There’s a way that if you sion a free-trade agreement in desk? Then, they may be more took the highway bill today and Asia. than willing to do TAA. you extended it toward the end The logical thing to do would Trade’s very important if of the year, and you had tax re- to be to take Trade Adjustment we’re going to have growth. I form and highways combined so Assistance, which Democrats also think it’s very important for you could find also a pay-for in like, and the Fast Track Trade our standing in the world today. there, those are two coalitions Promotion Authority, which Re- I believe we’re going to get this that are married together. publicans like, and put them done. back together. Why don’t you MR. SEIB: Are you suggesting a just do that? Highways and tax reform tax reform that’s not revenue PAUL MORSE/DOW JONES (2) REP. MCCARTHY: That’sines- MR. SEIB: There are a whole se- neutral, that raises money so sence what we did, but that quence of issues that are of im- that you can create some funds I think another version could Im would have been smart to re- cient and accountable. didn’t work. portance to people in this room. for highways? Are you talking work, and a big chunk of money alize they had a problem. They Then the fifth. I would focus There’s the Export-Import Bank. about repatriation? can come. So that could be a would have solved their problem on our foreign policy. MR. SEIB: You did the opposite. There’s funding for a highway REP. MCCARTHY: I’m not talking one-time funding of highways. early. It’s better to solve your History always repeats itself. You broke them apart. bill and infrastructure. And about raising taxes. But I see so And highways could have five own problems than to think that In America today, people would REP. MCCARTHY: They were never there’s the question of passing a many American companies have more years to figure out how you’re going to let the House say, “The world’s like 1932,” broken apart. There were two budget and getting a new debt- so much money overseas, be- they’re going to fund them in and Senate solve your problem maybe. I say, “It’s 1979.” votes, because you will not get ceiling resolution passed without cause that’s the way the struc- the future. for you. When was the last time you enough Republicans to vote for basically going to the brink. ture works. I do not like the ver- watched Americans being held TAA. And you will not get Walk through the next few sion that the president has, but Tackling the bank A growth agenda hostage? Iran? Today with ISIS. MR. SEIB: Export-Import Bank. MR. SEIB: Let’s imagine the world When was the last time a U.S. Obviously, not a popular item that you hope evolves over the ambassador was killed on for- Bad Reviews anymore in many corners of next couple of years, which is to eign soil? That’s a direct reflec- A Pew Research Center survey found dissatisfaction with the performance of the Republican-controlled Congress your caucus and the party. But say, the Republicans retain con- tion of the respect or the fear something that’s supported by trol of the House, you control the that other countries have of us. Do you approve or disapprove of From what you have seen or heard On balance, do you think the new lots of the business community. Senate, and you get the White In 1979 in Afghanistan and Ste- the job the Republican leaders in about events in the new Congress, Congress has accomplished more Where does that go? House. vens in Libya. Congress are doing? in general, do you think the than you expected in its first 100 REP. MCCARTHY: IvotedforEx- What’s the Republican pro- When was the last time the Republicans in Congress are days, less than you expected, or Im last time, mainly because it growth agenda look like under Soviet Union invaded another keeping the promises they made about what you expected? was short term, and there were those conditions? country? Afghanistan. And now, during the campaign, or not? going to be reforms. I’ve not REP. MCCARTHY: Overall tax re- Russia and Ukraine today. seen the reforms. They tell me form, so you can be competitive. I don’t tell you all that to Ex-Im is profitable. If it’s profit- A national energy policy. I’ll go scare you. I tell you that to ex- able, then why doesn’t some- through five things, but if you cite you. Not Less than body else fill the void? were able to do those two, Because the pendulum had Keeping About expected Disapprove Keeping what was Ex-Im, if nothing happens, it you’re going to be competitive. swung so far then, we didn’t 72% Approve Promises 37% 22% 65% Promises expected expires. I do not believe some- Third, immigration reform. look at it so much as party. We 23% 53% thing’s going to happen by June Our system is broken. Fourth, if looked at putting it back to- 30. In the Senate, they had a we created America today, we gether and working. semi-test vote where they had would never create the agencies Now, that pro-growth agenda, overwhelming support. in which they are set today. You we should not wait to the next I think what will probably cannot write the flow chart the election. We should run that Don't know/ Don't know/ More than Don't know/ happen at the end of the day, the way it is. So I have a group of agenda today and have it put in Didn't answer Didn't answer expected Didn't answer Senate looks like they have members that is going through the debate for whoever becomes % % % % 6 12 4 6 votes. It’ll probably come to the all the agencies. Make them the nominee on either side, on Source: Pew Research Center telephone survey of 2.002 adults in the U.S., House. streamlined. Make them open. where we’re going to make conducted May 12-18; margin of error: +/-2.5 percentage points THE WALL STREET JOURNAL. I think the leadership of Ex- My principles? Effective, effi- America grow.

The Democrats’ View Sen. Debbie Stabenow on the prospects for a trade You’re passionate about agreement, the Ex-Im Bank and a budget deal supporting your clients.

What does the Republican We’re passionate about policy agenda look like from the protecting them. other side of the aisle? ‘We need to The Wall Street Journal’s Ger- export our Youlivefortheideas,theindependence,thefeelingof ald F. Seib sat down with Demo- products, making things happen. You have a passion for your business. cratic Sen. Debbie Stabenow to talk about wrangles over the not our jobs.’ Liberty Mutual Insurance has a passion for protecting it. For free-trade deal with Asia, the Ex- more than 100 years, we’ve helped all types of businesses port-Import Bank and the possi- thrive. With coverages like commercial auto, workers bility of a budget showdown. Be- compensation, and business owner’s policy (BOP), we can low are edited excerpts of their help do the same for you. Talk to your independent agent conversation. or broker today about Liberty Mutual Insurance, or go to Moving the trade deal libertymutualgroup.com/business. MR. SEIB: What’s your prognosis about where Fast Track is @LibertyB2B headed? What can be done to deal with your concerns about currency manipulation? SEN. STABENOW: We need to ex- port our products, not our jobs. How we frame what we do is in- credibly important, in terms of a times when we authorized the sure they could bring their agri- level playing field in a global Ex-Im Bank on a voice vote. cultural products to the ports. economy for our businesses. In We’re talking about the abil- And we’re looking there, just Asia, where their No. 1 trade ity to compete and sell our prod- twiddling our thumbs. barrier is currency manipulation, ucts around the world. Every I just came from a press con- one of the rules we should have other country we’re competing ference that had people from in place is a requirement for an with has some financing mecha- business and labor and others. enforceable currency-manipula- nism. We desperately need you to help tion provision. Now, we know the largest fi- us break through. There’s also a Sen. Rob Portman and I had a nancing contracts are to large general philosophy that there is bipartisan amendment, and it al- businesses. But 80% of the indi- no role for government in the most passed. vidual financing deals are small United States of America. It’s very serious. All we have business. And why would we to do is ask our friends from give that up? This should not be Looming showdown? Ford Motor Co. or other manu- a partisan issue. MR. SEIB: Are we going to have a facturers about what is happen- budget crisis? And a debt-ceiling ing. Currency manipulation just Stalled on infrastructure crisis? between Japan and the U.S. has MR. SEIB: One of the oddities of SEN. STABENOW: They can abso- made the difference between Washington these days is that lutely be avoided. It takes people $6,000 up to $11,000 on the even for the things on which you of goodwill to come together and price of a vehicle. Think about think there is broad bipartisan to do that. One of the things competing with that kind of dif- consensus, there isn’t. One is the that’s worrisome to me is that ferential on the price of your highway bill, the pot of money we’ve spent the bulk of this year product. that pays for road repairs and doing things that we tried to do improvements. More broadly, in- last year, but they got filibus- MR. SEIB: When we get to the end frastructure improvement. There tered and stopped. We’ve wasted of this long and winding road, seems to be a bipartisan consen- a lot of time. do you think there will be a free- sus that the infrastructure needs Our Republican colleagues trade agreement with Asia? some serious work. But neither want to fund the Department of SEN. STABENOW: Probably. But I of those things seem to be hap- Defense but then basically un- think this has taken a turn that pening either. dercut every other part of the they did not expect at all in the SEN. STABENOW: We have 45 budget. We’re going to say no to House. It’s going to be tricky to days from today before the High- starting that process. We want get out of it. I also don’t think way Trust Fund is empty. China to work out an agreement now, it’s fair and would adamantly is spending 9% of its GDP right not when the funding runs out oppose moving forward on any- now on infrastructure. Last time Oct. 1. Not when there’s a threat thing that did not make a com- I was there, I was speaking at a of a budget shutdown or govern- mitment to our own workers global auto leaders summit, and ment shutdown, but right now who’ve been displaced. they proudly rolled out for me negotiate. their 20 new international air- We’re saying, “Let’s, on the Protecting the bank ports. front end, agree to how we’re MR. SEIB: © 2015 Liberty Mutual Insurance. Insurance underwritten by What’s your view of I was in Brazil with the secre- going to responsibly invest in Liberty Mutual Insurance Co., Boston, MA, or its affiliates or subsidiaries. the prospects for keeping the Ex- tary of agriculture a year ago. those things that we need to do Im Bank alive? They were rolling out their ro- as America, and cut those things SEN. STABENOW: I remember bust rail and road effort to make that we don’t.” R10 | Monday, June 22, 2015 THE WALL STREET JOURNAL.

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