Can Ceos Be Super Heroes? Do We Expect Too Much from the Boss?

EXECUTIVE SUMMARY

Can CEOs Be Super Heroes? Do We Expect Too Much from the Boss?

New York Stock Exchange | June 4 - 5, 2013

PRESENTING SPONSORS Deloitte IBM Korn/Ferry International PepsiCo UPS CNBC NYSE Euronext Yale CEO Summit June 4-5, 2013 | New York Stock Exchange Can CEOs Be Super Heroes? Do We Expect Too Much from the Boss?

Table of Contents

Key Themes from June 2013 CEO Summit 2

Covering the Map: How Much of the Globe to Visit — How to Have Impact When in Town 7 PaNEliSTS Michael a. leven, President & COO, las Vegas Sands Corporation Gen. Peter Chiarelli (Ret.), 32nd Vice Chief of Staff, U.S. army , Chairman & CEO, Rockwood Holdings Francisco luzón, Former Executive Vice President, Banco Santander Michael H. Posner, assistant Secretary of State (2009-2013) Patricia F. Russo, Former CEO, alcatel-lucent Tom Tait, Mayor, City of anaheim, California lynn Tilton, CEO, Patriarch Partners Keith E. Williams, President & CEO, Underwriters laboratories R. James Woolsey, Director, Central intelligence (1993-1995)

RESPONDENTS David D. Blakemore, Business President, The Dow Chemical Company Brian G. Bowler, Retired ambassador to the United Nations, Republic of Malawi Wendy Hayler, Vice President Global aviation Security, UPS Simon C. Hemus, President & COO, Tupperware Brands Dave Muscatel, CEO, Rand McNally S. Prakas Sethi, Professor, Baruch College/CUNY Bruce Speechley, Travel & Transportation Services leader, iBM

The CEO as Statesman: Your Voice in Public Policy 10 PaNEliSTS ashton B. Carter, Deputy Secretary of Defense Richard J. Berry, Mayor, City of albuquerque, New Mexico William H. Donaldson, 27th Chairman, U.S. Securities and Exchange Commission R. David Edelman, Senior advisor for internet, innovation & Privacy, The White House Richard B. Hoey, Chief Economist, BNY Mellon Robert D. Hormats, U.S. Under Secretary of State Stuart a. Miller, President & CEO, lennar Corporation Duncan Niederauer J. Stapleton Roy, Former U.S. ambassador to China, Singapore, and indonesia David M. Walker, 7th Comptroller General of the U.S. Robert Wolf, Former Chairman, UBS americas

RESPONDENTS Zhiwu Chen, Yale School of Management Zack Cooper, Yale University Joele Frank, Managing Partner, Joele Frank, Wilkinson Brimmer Katcher Harry Greenspun, Senior advisor, Health Care Transformation, Deloitte Center for Health Solutions Christopher Shays, Member of Congress (1987-2009), State of Connecticut

2 The Time Needed for Innovation and Impact: Enough Rope to Climb Out, or for a Hanging? 12 PaNEliSTS John C. Bogle, Founder, The Vanguard Group Walter W. Buckley iii, Chairman & CEO, iCG Peter J. Devlin, President, Fish & Richardson Robert E. Diamond Jr., Former President & CEO, Barclays PlC Sean J. Egan, Managing Director, Egan-Jones Ratings Co. Jim Gray, Mayor, City of lexington, Kentucky Fred Hassan, Chairman, avon Products Stephen W. Hasselmann, North america Strategy leader, iBM Michael F. Holland, Chairman, Holland & Company Ray lane, Former Chairman, Hewlett-Packard Company; Managing Partner, Kleiner Perkins Nell Minow, Co-Founder, GMi Ratings Gary P. Naftalis, Partner and Firm Co-Chair, Kramer levin Naftalis & Frankel William R. Nuti, Chairman & CEO, NCR Corporation Jed S. Rakoff, Judge, Southern District of New York, U.S. District Court Benjamin a. Walter, CEO, Hiscox USa

RESPONDENTS ardeshir Contractor, CEO, Kiran Energy Debra Crew, President, americas Beverages, PepsiCo John H. Eyler, Former Chairman & CEO, Toys “R” Us Frederick Frank, Vice Chairman, Burrill & Company Harvey J. Goldschmid, Commissioner (2002-2005), U.S. Securities & Exchange Commission Jonathan R. Macey, Professor of Corporate law, Yale law School Steve Papa, Founder, Endeca William D. Perez, Former President & CEO, Wm. Wrigley Jr. Company

Building Up or Breaking Up: When Is Bigger Better; When is Smaller Beautiful? 14 PaNEliSTS Stephen a. Schwarzman, Chairman & CEO, The Blackstone Group Thomas W. Horton, Chairman & CEO, american airlines John J. legere, President & CEO, T-Mobile USa Steve Miller, Chairman, aiG Todd R. Peters, CEO, GENCO Nicholas T. Pinchuk, Chairman, President & CEO, Snap-on incorporated Garry O. Ridge, President & CEO, WD-40 Company Frederick O. Terrell, Vice Chairman, Credit Suisse

RESPONDENTS Edward J. De la Rosa, President, De la Rosa & Company William H. Fuessler, Financial Services Strategy & Transformation leader, iBM Barry M. Gosin, CEO, Newmark Grubb Knight Frank William P. Putsis, Professor, Kenan-Flagler Business School, University of North Carolina John a. Quelch, Professor, Harvard Business School Mary C. Tanner, Senior Managing Director, Burrill & Company

3 Staying Current on Customers and Your Business While Living Your Life: What to Read; When to Breathe? 17 PaNEliSTS James D. Wolfensohn, President 1995-2005, World Bank Group Saul J. Berman, Global Strategy Consulting leader, iBM Kelly Evans, Co-anchor, Squawk on the Street, CNBC Greg Fischer, Mayor, City of louisville, Kentucky Steven H. Grapstein, CEO, a/X armani Exchange Sly James, Mayor, City of Kansas City, Missouri Joseph J. lhota, Former Chairman & CEO, Metropolitan Transportation authority (MTa) Mark Penn, Corporate Vice President, Microsoft Corporation; Former CEO, Burson-Marsteller Carl Quintanilla, Co-anchor, Squawk on the Street, CNBC Stephanie Rawlings-Blake, Mayor, City of Baltimore, Maryland Robert B. Simonds, Film Producer, The Robert Simonds Company Scott Smith, Mayor, City of Mesa, arizona

RESPONDENTS Elisabeth DeMarse, Chairman, President & CEO, TheStreet, inc. James S. Denton, Publisher & Editor, World affairs Stephen a. Greyser, Harvard Business School Thomas a. Kolditz, Professor, Yale School of Management Renée Mauborgne, Professor & Distinguished Fellow, iNSEaD David W. Miller, Director, Faith & Work initiative, Princeton University Dan Raviv, National Correspondent, CBS Radio

Legend in Leadership Award: James D. Wolfensohn, President 1995-2005, World Bank 20 PRESENTER William H. Donaldson, 27th Chairman, U.S. Securities and Exchange Commission

4 Yale CEO Summit June 4-5, 2013 | New York Stock Exchange Can CEOs Be Super Heroes? Do We Expect Too Much from the Boss?

Key Themes from June 2013 CEO Summit

The 72nd Yale CEO Leadership Summit, held on June 5 and 6, 2013, brought together business executives, federal government officials, mayors, investors, academ- ics, and heads of nonprofits and was led by Yale professor Jeffrey Sonnenfeld, the founder and president of the Chief Executive Leadership Institute. This Summit dealt with a wide range of topics including how companies decide which countries to enter, how CEOs and companies have their voices heard in the public debate, the similarities and differences between public officials and CEOs, how boards measure CEO performance, whether CEOs are heroes—and much more.

The stage of the industry in a particular market. The understanding of the local market, including the culture. The skills, cost, and productivity of the workforce. The proximity of customers and the importance of being located near customers. The ability to form positive, stable, long-term relationships with unions and government. Also, whether the government would provide support, such as infrastructure and tax relief, or if the government might prove a barrier. The amount of innovation possible in a given market, due to the education and creativity of the workforce and the ability to Edward Snyder and Jeffrey Sonnenfeld protect IP. Companies see opportunities in markets across the globe, and use numerous criteria in deciding which While often challenging and frustrating, it is opportunities to pursue. important that business make its voice heard in Despite the relatively slow growth of the U.S. economy, many CEOs Washington, D.C. remain bullish on the U.S. and are investing in America. Reasons Participants expressed frustration with legislation and regulation, include relative stability, a generally business-friendly environment mentioning Dodd-Frank and the Affordable Care Act, which are seen (compared to many other countries), proximity to established cus- as imposing significant costs on business. Some criticized President tomers, prospects for future growth, a large and affluent population, Obama for acting like a legislator, not a leader, or for being the CEO protection of intellectual property, and an ability to form positive of just one party, not the nation. While a few participants defended relationships with state and local leaders. Also, the ideas of “national the president’s leadership and economic policies, others see the coun- interest” and revitalizing the manufacturing sector evoke passions. try’s slow but ongoing recovery as taking place despite these policies, Beyond the U.S., some business leaders see opportunities in Western not because of them. (Mayors noted that elected officials are not Europe, with Germany and Spain mentioned. For particular indus- CEOs; they cannot make unilateral decisions and cannot fire those tries and opportunities, these countries have workers with the req- who disagree with them. Elected officials must work collaboratively uisite skills, and those pursuing opportunities in these markets have with multiple stakeholders to build support, which is very differ- had positive experiences building relationships with unions and the ent from the role of a CEO. Several mayors encouraged the CEOs government. (Other participants were less positive about conditions in attendance to serve at some point as an elected official, which is in Europe, citing often inflexible unions and governments.) extremely difficult but highly rewarding.) Also, participants continue to see opportunities in Asia, particularly In a real-time poll of CELI participants, 71% felt that the voice of China and India, and in Latin America. However, protection of IP is business is not being heard in Washington, and 77% felt lost or over- a significant and growing issue when doing business in China, giving whelmed when trying to influence government. And, while seeing the some business leaders pause. need for collective action among the business community on a wide range of issues—including debt reduction, tax reform, trade policies, In general, the criteria mentioned when assessing various markets and health care—the business community and particular industries include: often have difficulty aligning. Businesses are typically focused The time horizon being considered. narrowly on their own self-interests and speak with their own voice. The relative opportunity and the associated risks.

5 In polling results, 79% of participants indicated that business trade The preference is for directors to be highly engaged and to make the associations do not fully represent their interests, which reflects best decision for the company, which might entail support for one businesses’ perceived need to “go it alone.” individual serving in both roles. Specifically, the general view was that even with J.P. Morgan’s recent high-profile losses, the company Despite these frustrations, business leaders were in agreement about under Jamie Dimon has performed exceptionally well and there was the need to participate in the political system to attempt to have their no reason for the board to strip Dimon of one of these posts. Partici- voice heard by policymakers. The general perspective was that poli- pants want directors who are engaged and make the most appropriate cymakers tend to be well intentioned, want to do the right thing, are judgments for a particular company at a particular moment in time, overwhelmed by information, and often don’t understand the specific not relying on a formula or mandated rules. And, they want chairmen issues facing a particular industry. Therefore, it is incumbent on busi- and CEOs who are strong leaders. ness leaders to be present to educate and inform policymakers. Failing to do so will result in decisions made without the input of business. From CEOs’ perspective, they don’t want directors who see their (A Yale professor observed that business students are educated in ar- primary role as being auditors and monitors. CEOs want directors eas like finance, but not in how to shape government policies, which who understand the business, act as partners, and have a long-term should perhaps be added to the curriculum.) perspective. Current and former government officials encouraged business leaders to be strategic in whom they approach. A comment was shared Companies can achieve success as public or private that business leaders often want to speak just with the president or companies. senators, but many other government officials can be important allies, including members of the House, regulators, and even local officials. Participants discussed the tradeoffs of being privately owned or pub- One government official noted that beyond specific regulations, licly held. Leaders from privately owned companies see advantages it is important for the U.S. government to work with business to with patient capital which can allow a company to think long term, strengthen the entire system of market capitalism. It is not just U.S. take more risks, and focus on the business as opposed to constantly companies competing against foreign companies (particularly from having to spend time and energy satisfying shareholders. These are China); the U.S. market-based system is competing against countries particular advantages for smaller, younger companies. with a government-based system. Therefore, America needs greater However, leaders from public companies see advantages in access business/government cooperation. to capital, the discipline brought by demanding investors, and the ability to attract talent. Also, even at public companies, executives Education is an area where business and local acknowledged that boards can be patient and have a long-term per- governments are collaborating. spective if management can articulate a compelling vision. What matters most is not necessarily whether a company is public or private, There is general agreement that for the U.S. to successfully compete but the people on the board and in management, and their vision, requires a more educated workforce. This is in the best interests of perspective, and capabilities. companies and communities. Across the country there are many positive examples of companies that have worked at the local level on training and education programs to improve workers’ skills. Even While CEOs may not rise to the level of “super more focus is needed on programs that involve career and technical heroes” many are in fact heroes. education. One participant stated that CEOs are not heroes at all; that all individuals have unique value that they contribute to an enterprise. But Boards require judgment and courage when assessing there may be more to the story. Research shows that leaders of corpo- CEO performance. rations and other major organizations are in fact different. In addition to having soaring ambitions they commonly engage in self-sacrifice. Several examples were shared of situations where boards made deci- CEOs often have heroic stature as well as a heroic mission to create sions about their CEO based on short-term political or media pres- a lasting legacy. They have always been leaders and have aspired to sure, or based on relying too heavily on the simplistic criteria of proxy leadership. Importantly, many successful leaders have persevered advisory firms. Too often boards have not demonstrated sound judg- through a near-fatal derailment which served to make them stronger. ment and have failed to have the courage to make long-term decisions CEOs are heroes who provide branding and a code of conduct for in opposition to the sensationalistic press. As a result, it can at times their organizations. seem random when a CEO or chairman is dismissed. As one participant said, perhaps the proper term for a great leader In particular, participants focused on whether there should be a split isn’t “super hero” but being super humble, sacrificing for others and of the chairman and CEO roles. Several participants supported the serving others first. concept of a non-executive chairman who is focused on governance and oversight, with a CEO running the day-to-day business. Yet even most advocates of this idea would not mandate it.

6 Yale CEO Summit June 4-5, 2013 | New York Stock Exchange Can CEOs Be Super Heroes? Do We Expect Too Much from the Boss?

Covering the Map: How Much of the Globe to Visit – How to Have Impact When in Town

KeyPanelists Themes Summary Respondents Michael a. leven, President & COO, las Vegas Sands Corporation David D. Blakemore, Business President, The Dow Chemical Company Gen. Peter Chiarelli (Ret.), 32nd Vice Chief of Staff, U.S. army Brian G. Bowler, Retired ambassador to the United Nations, Republic of , Chairman & CEO, Rockwood Holdings Malawi Francisco luzón, Former Executive Vice President, Banco Santander Wendy Hayler, Vice President, Global aviation Security, UPS Michael H. Posner, assistant Secretary of State (2009-2013) Simon C. Hemus, President & COO, Tupperware Brands Patricia F. Russo, Former CEO, alcatel-lucent Dave Muscatel, CEO, Rand McNally Tom Tait, Mayor, City of anaheim, California S. Prakas Sethi, Professor, Baruch College/CUNY lynn Tilton, CEO, Patriarch Partners Bruce Speechley, Travel & Transportation Services leader, iBM Keith E. Williams, President & CEO, Underwriters laboratories R. James Woolsey, Director, Central intelligence (1993-1995)

Overview Despite problems with the U.S. economy, many To grow their businesses, CEOs are looking at opportunities across companies—mainly foreign ones—still see great the globe, and are considering numerous criteria in deciding where opportunity in the United States. to invest and which opportunities to pursue. Criteria include the A former government official from Africa said that the United States time horizon, the workforce, relationships with the government and is still the greatest place on earth and remains the country that all unions, the relative opportunity, and the associated risks. Interest- other countries aspire to. The United States has the rule of law and ingly, despite the buzz about the fast growth in developing markets civil liberties, and uses its power and wealth in places where policies and the general view of stagnant economies in the developed markets, are not working to make the rest of the world safe. CEOs still see attractive opportunities in the United States and Europe where there are large markets, stability, IP protections, and Beyond America’s democratic ideals, which are admired in other economic growth, albeit modest. countries, the CEO of a global chemical company proclaimed the best place for his company to invest as the United States. He sees the U.S. as having a large, stable, and affluent population. The U.S. has a Context huge GDP, which even if only growing around 2%, is still significant. Panelists discussed how they are thinking about different regions and And despite comments from many business leaders about the level of markets, and the criteria they use when considering whether or not to regulation in the U.S., this leader sees the U.S. as having a business- invest in a market. friendly environment with IP protections.

Key Takeaways While doing business in Europe comes with challenges, some business leaders see attractive The context for global commerce is changing opportunities there. dramatically. The same chemical company CEO who sees attractive opportunities As a backdrop for discussing which markets and opportunities to in the U.S. also sees opportunities in Europe, particularly Germany. pursue and how to pursue them, a leading academic reminded at- This company has made acquisitions in Germany and has been im- tendees that three billion people in developing markets are joining the pressed with the highly trained, productive workforce and the world economy at the same time that new technologies are disrupting ﬂexibility of the unions. During the recession, the German unions established industries. These changes are putting tremendous pres- agreed to reduce their salaries by 20% to avoid layoffs. When the sure on the middle class in developed countries and on governments, economy picked back up, it was much easier for this company to which citizens expect to buffer these changes. As these changes are ramp up production. An executive from another chemical company occurring, the U.S. economy has not worked as well as it once did and sees opportunities in Spain. overall support for a market economy has decreased.

7 The president of a leading international gaming company also sees When deciding which markets in which to invest, opportunity in Spain, which he acknowledged is a contrarian perspec- business leaders consider multiple factors. tive. For gaming, he sees an oversaturated U.S. market that is heavily regulated at the state level. In contrast, he sees strong unmet demand Some business leaders are focused on Asia or Latin America, while in Europe, a Spanish workforce that excels in providing hospitality others see the best opportunities in the U.S. or Europe. In all situa- and is hungry for jobs, and governmental support. tions, business leaders offer thoughtful explanations for where they are investing. Key criteria include: The time horizon being considered, with some executives looking for returns in the next few years, and others looking 15 or 30 years down the road. The relative opportunity and associated risks. The U.S. may not be as dynamic as other markets, but it is seen as more stable and predictable, with lower risks. The stage of an industry in a particular market. Industries that are mature in developed markets may have more upside growth potential in developing markets. a company’s understanding of a market, including the culture. Michael leven Even if a market is growing rapidly, if a company doesn’t understand it, the risk increases. Conversely, even if the conventional Not all business leaders shared such favorable views of doing busi- wisdom is to shy away from a market, if a company understands it ness in Europe. The former CEO of a large global telecom company well, it can take a contrarian view and invest there. said that the ease or difficulty of dealing with European governments The skills, cost, and productivity of the workforce. Every panelist and unions is largely based on whether a company is growing and mentioned the capabilities of the workforce as a factor making a creating jobs, or restructuring and shedding jobs. In areas such as the market an attractive investment. automotive industry and manufacturing of telecom equipment, there is overcapacity in Europe and growth is coming from Asia. In Europe, The proximity of customers. One executive mentioned the desire this requires a contraction in capacity and reductions in the labor to be close to customers in China and India as a driver for estab- force, requiring that business leaders navigate somewhat adversarial lishing facilities there. A global company with customers in the political issues and inflexible unions. This is a different environment U.S. cited that as a key reason for maintaining operations in the than when fast-growth companies are creating jobs. U.S. as opposed to moving them offshore. Relationships with governments and unions. Several participants stressed the importance of having positive, stable, long-term “Managing in Europe can be a big relationships with national and local governments, as well as with challenge. There are structural unions. Also a consideration is the willingness of the government to provide support, such as infrastructure and tax relief, or if the issues and the workforce in not government will prove a barrier. amount of innovation possible. Panelists noted that the amount of innovation differs by market, based on the education and creativity of the workforce, the ability to protect IP, and the culture in a country. creating jobs.” - Former CEO, large telecom company different perspectives on the role of government. One participant noted that in China, mayors also have the title of CEO and getting promoted depends on their ability to grow their local economy. As a result, local officials may offer various induce- ments. This happens in other countries, as well as in the U.S. on occasion, where a government may provide support such as targeted tax relief or infrastructure. Business leaders mentioned this government support and the overall attitude of the government as important in deciding where to locate and invest. But a mayor from a major U.S. city sees the role of government somewhat differently. He doesn’t see his role, or that of a city, as favoring

Patricia Russo individual companies or picking winners and losers. In addition, U.S. cities are already ﬁnancially strapped, with too little money to currently

8 afford even basic needs, such as having enough police ofﬁcers, let alone take steps to subsidize businesses. This mayor sees the role of government not as supporting particular businesses, but as creating an overall environment that is conducive for all businesses.

“The best thing for businesses in America is for the government to - Mayor of a large American city leaders have different perspectives on the basic role of business. The CEO of a major conglomerate of many manufacturing companies has a mission of putting Americans back to work, creating jobs by bring- ing manufacturing back to the U.S., and making U.S. manufacturers competitive. She sees the U.S. as in trouble and is focused on how busi- lynn Tilton ness can help the country. A fellow CEO, who identiﬁed himself as a patriot who loves America, argued that business leaders have a responsibility to do what is best for their company and beneﬁt shareholders in a globally competitive environment.

productive places on the globe for business.” - President, major global company

9 Yale CEO Summit June 4-5, 2013 | New York Stock Exchange Can CEOs Be Super Heroes? Do We Expect Too Much from the Boss?

The CEO as Statesman: Your Voice in Public Policy

Panelists Respondents ashton B. Carter, Deputy Secretary of Defense Zhiwu Chen, Yale School of Management Richard J. Berry, Mayor, City of albuquerque, New Mexico Zack Cooper, Yale University William H. Donaldson, 27th Chairman, U.S. Securities and Exchange Joele Frank, Managing Partner, Joele Frank, Wilkinson Brimmer Katcher Commission Harry Greenspun, Senior advisor, Health Care Transformation, Deloitte R. David Edelman, Senior advisor for internet, innovation & Privacy, Center for Health Solutions The White House Christopher Shays, Member of Congress (1987-2009), State of Connecticut Richard B. Hoey, Chief Economist, BNY Mellon Robert D. Hormats, U.S. Under Secretary of State Stuart a. Miller, President & CEO, lennar Corporation Duncan Niederauer J. Stapleton Roy, Former U.S. ambassador to China, Singapore, and indonesia David M. Walker, 7th Comptroller General of the U.S. Robert Wolf, Former Chairman, UBS americas

Overview economy is dependent upon business, and business support is needed for foreign policy and security. At the same time, business needs the Despite the often acrimonious relationship between business and support of government. Even though the U.S. is fundamentally a government, they both need each other. Government needs business market-driven system, it is necessary to have an active government in to drive economic growth; business needs government in order for a order for this market-driven system to work. market-driven system to work. Business leaders also need to recognize that in this global economy, This means that business leaders must play an active role in the politi- American companies are not just competing against other companies, cal dialogue, educating politicians about specific issues and mak- but entire systems are competing against other systems. ing sure the voice of business is heard. However, as each individual business leader and company wants its voice heard, the result can be a fractured business community with each participant focused on its own self interests instead of business speaking with one voice. Opti- mism was expressed that businesses can set aside their own short- not just companies.” term self interests to align on major long-term issues like fixing the - Senior government official national debt and tax reform.

Context Business leaders must have a voice in the political Panelists discussed the importance of business leaders participating in dialogue. the political dialogue. A former Congressman said that elected officials deal with so many different subjects, they are often ignorant about specific topics and how various decisions will affect key stakeholders, such as the busi- Key Takeaways ness community. He said that political leaders actually want to hear To be successful, government from business executives to understand their perspective and to be needs business and business educated. needs government. However, the business community rarely speaks with one unified voice and most CELI participants (71%) don’t believe that the voice of A senior government official said it business is being heard in the political debate. is essential for the U.S. government to be proactive and pro-business. Robert Hormats The government knows that the U.S.

10 There are many issues where business leaders can come together, speak with one voice, and attempt to shape policy. Several participants noted how frustrating and acrimonious the legislative process now is. The narrow interest of a CEO and company in one area causes opposition to Duncan Niederauer an entire piece of legislation if their specific area of interest isn’t addressed. With so many companies each having so many specific areas of interest, Part of the reason that business isn’t heard is because there is not one getting broad support among businesses for any legislation seems ex- uniform “voice of business.” Instead, each business advocates nar- tremely difficult. Also, businesses realize the permanence of any new rowly based on its own specific agenda and self interests. For politi- legislation and the difficulty of ever revising it, making any legisla- cians, the result is numerous different voices, resulting in confusion tion viewed as extremely high stakes. So, even though many business about where the business community really stands. leaders agree conceptually (and off the record) with major pieces of legislation such as Dodd Frank or the Affordable Care Act, if there is even a small area of disagreement, the executive is likely to oppose the entire legislation (when on the record). term self interest have reached One former government official called on business leaders to put aside their differences and align on those issues that could benefit epidemic proportions in D.C.” America and all companies, such as fixing the debt, tax reform, trade - Former government official policies, and regulatory policies. This individual said that “doing nothing is not an option” and urged CEOs to work together to pro- A business leader said that not showing up in Washington D.C. and mote growth and innovation. not participating in the political debate is not a viable option for business leaders. Even though there are many different interests and voices, businesses that don’t participate in the process will be left out. By adding their voices to the political debate, CEOs help educate politicians; they bring the perspective of consumers and of the market. Regulators and politicians, who usually try to do the right thing in promoting growth and very complicated situations, listen to these many voices and create an innovation. CEOs need imperfect knitting together of lots of different ideas and perspectives. “You have to show David Walker. - Former government official Other Important Points leverage your employees. A former politician said that in addition to CEOs dealing with politicians in a top-down manner, an effec- not understood or tive strategy is for companies to mobilize stakeholders—particu- Stuart Miller larly employees—at a grassroots level. If a politician hears from a considered.” large number of employees in their district, they take notice. - CEO of a major corporation

One participant stressed the importance of being highly strategic in selecting whom to speak with. Typically, CEOs want to speak with senators, yet there are other individuals, including members of Con- gress, their staffs, and regulators who can also be extremely important for speciﬁc issues.

11 Yale CEO Summit June 4-5, 2013 | New York Stock Exchange Can CEOs Be Super Heroes? Do We Expect Too Much from the Boss?

The Time Needed for Innovation and Impact: Enough Rope to Climb Out, or for a Hanging?

Panelists Respondents John C. Bogle, Founder, The Vanguard Group ardeshir Contractor, CEO, Kiran Energy Walter W. Buckley iii, Chairman & CEO, iCG Debra Crew, President, americas Beverages, PepsiCo Peter J. Devlin, President, Fish & Richardson John H. Eyler, Former Chairman & CEO, Toys “R” Us Robert E. Diamond Jr., Former President & CEO, Barclays PlC Frederick Frank, Vice Chairman, Burrill & Company Sean J. Egan, Managing Director, Egan-Jones Ratings Co. Harvey J. Goldschmid, Commissioner (2002-2005), U.S. Securities & Jim Gray, Mayor, City of lexington, Kentucky Exchange Commission Fred Hassan, Chairman, avon Products Jonathan R. Macey, Professor of Corporate law, Yale law School Stephen W. Hasselmann, North america Strategy leader, iBM Steve Papa, Founder, Endeca Michael F. Holland, Chairman, Holland & Company William D. Perez, Former President & CEO, Wm. Wrigley Jr. Company Ray lane, Former Chairman, Hewlett-Packard Company; Managing Partner, Kleiner Perkins Nell Minow, Co-Founder, GMi Ratings Gary P. Naftalis, Partner and Firm Co-Chair, Kramer levin Naftalis & Frankel William R. Nuti, Chairman & CEO, NCR Corporation Jed S. Rakoff, Judge, Southern District of New York, U.S. District Court Benjamin a. Walter, CEO, Hiscox USa

Overview resulting in the emergence of smaller boutiques. As consumers access content in new ways, new distribution channels are emerging, As industries face disruption, innovation is essential in order to sur- including through mobile devices, sites like YouTube, and even Xbox vive. As a country, innovation is needed in renovating the infrastruc- and PlayStation devices. The changes in the media industry have just ture, and in the educational system to build a capable workforce. Such begun and tremendous innovation will take place in all aspects of the innovation requires collaboration between government and business industry. in entirely new ways. As CEOs lead their organizations and industries, there will be times There are areas where business and government can when they will face inevitable criticism. In such circumstances, the best approach is to be proactive and in front of the issue while avoid- work together for impact, particularly education. ing “triumphalism.” One area where the government and business can work together is the creation of an infrastructure bank, which has some bipartisan Context support. Every $1 billion loaned by an infrastructure bank creates 25,000 new jobs and every dollar loaned has a 1.6 times multiplier Panelists discussed innovation and impact, as well as the methods effect on the economy. used by elected officials to secure support and the most effect ap- Another area where government and business must work together is proach of CEOs in dealing with controversy. on education. There is currently a huge gap between the workforce skills needed by employers and the capabilities being provided by the Key Takeaways educational system. Tremendous innovation will take place in the media There are examples of successful public-private partnerships where industry. businesses have collaborated with other stakeholders on a local basis. Business has communicated the skills that are needed and has pro- A leading filmmaker said that consumers are consuming content in vided support for education in the form of money and resources. entirely new ways, causing major disruptions in the media business, and causing all players in the industry to completely rethink their business model. The major movie producers are making fewer, bigger budget films,

12 Companies and CEOs want to get in front of controversial issues, which avoiding “triumphalism.” PR experts and the CEO of a major corporation agreed that it often is appropriate to respond to critics, and being proactive and out in vocational schools. This is a model front of issues is always preferable to being reactive. A recommended approach when an entire industry is being criticized is to work with that can be used in other areas.” trade associations, so they can be the voice of the industry. However, - Senior government ofﬁcial CELI participants don’t always see the value in industry associations. In a poll of participants, only 35% believe that trade associations are a better voice than individual CEOs. One barrier that needs to be removed would allow business people into schools to work with teachers in the educational process (which is prohibited in some states). Representatives from industry won’t re- place teachers but will supplement them and will provide real-world perspective.

- Mayor of a major city

But, when speaking out on a particular It is also necessary to increase the emphasis on career and technical topic, CEOs need to avoid “triumphalism,” education. This involves providing funding and support, and impor- which is an attitude of being triumphant tantly changing the general perception of technical fields, like weld- and arrogant. As an example, the major- ing, so that individuals see such fields at attractive careers. Failure to ity of CELI participants believe that Jamie change the perception of these fields and attract students/workers Dimon—of whom CELI participants think will result in jobs disappearing from the U.S. extremely highly—has largely brought upon himself the media criticism he has received The methods that political leaders must use to have through his triumphalism. One PR expert impact are very different from those used by business Nell Minow said that Dimon made assertions that were leaders. quite memorable and in doing so, “He asked for it [his treatment by the media].” The media, which always wants The mayor of a large city described how business leaders can articu- to knock down people who are riding high, thought it was fun to get late a vision and strategy, can hire their team—and fire those who him. aren’t in agreement or who aren’t performing well—and can shape The lesson: Be in front of things, but avoid triumphalism in the the organization through the strength of their leadership. process. But political leaders such as mayors must do it differently. This mayor explained that mayors can’t fire and can’t force other parties to support their ideas. To have impact, mayors must cajole and collaborate; “Triumphalism is bad for CEOs.” they must bring together individuals and organizations that are fo- - Communications expert cused on their own self interests. Working in this way takes different skills and a different approach. Other Important Points Big data. A key to future innovation is going to be the ability to and collaborate . . . we have to bring aggregate and analyze data to glean meaningful insights. This ca- pability will allow innovations to be based on better understanding people together.” and to be precisely targeted. - Mayor a major city

13 Yale CEO Summit June 4-5, 2013 | New York Stock Exchange Can CEOs Be Super Heroes? Do We Expect Too Much from the Boss?

Building Up or Breaking Up: When Is Bigger Better; When is Smaller Beautiful?

Panelists Respondents Stephen a. Schwarzman, Chairman & CEO, The Blackstone Group Edward J. De la Rosa, President, De la Rosa & Company Thomas W. Horton, Chairman & CEO, american airlines William H. Fuessler, Financial Services Strategy & Transformation leader, John J. legere, President & CEO, T-Mobile USa iBM Steve Miller, Chairman, aiG Barry M. Gosin, CEO, Newmark Grubb Knight Frank Todd R. Peters, CEO, GENCO William P. Putsis, Professor, Kenan-Flagler Business School, University of Nicholas T. Pinchuk, Chairman, President & CEO, Snap-on incorporated North Carolina Garry O. Ridge, President & CEO, WD-40 Company John a. Quelch, Professor, Harvard Business School Frederick O. Terrell, Vice Chairman, Credit Suisse Mary C. Tanner, Senior Managing Director, Burrill & Company

Overview A major airline is taking a different route by going through bankrupt- cy. This process is allowing the company to restructure and renew Boards and corporate leaders face critical strategic decisions about itself so the company is well positioned for the future. whether to build up or break up, and how to go about it. Such decisions will be greatly influenced by whether a company is public or Thus, decisions on whether to build up, break up, or restructure are private, by the composition and focus of the board, by a company’s based on a company’s industry and specific situation. organizational structure and governance, and by an organization’s leadership. Decisions about building up or breaking up are But regardless of whether a company’s chair and CEO are combined or spilt, and whether a company is public or private, CELI participants see the keys to success as having supportive investors, a board A company’s ownership structure and governance greatly affects its with a long-term perspective, a leader who can articulate a clear vi- strategy. However, an experienced investor expressed frustration that sion, and a strong management team. companies today are largely owned by speculators, and not patient, long-term investors. He said that $30 trillion in equities is traded on public markets. Of this, only $150 billion is truly invested; the rest is Context engaged in speculation. This means there is 200 times more capital involved in speculation than in investment. Professor Sonnenfeld Panelists and participants discussed reasons a company might build suggested that this short-term speculation is a key reason that leaders up or break up, and factors that influence such decisions. at companies such as Dell and Harrah’s have gone private or are planning to do so. Key Takeaways company’s industry and situation. A huge telecom company is focused on building up. This company has $25 billion in revenue, invests $5 billion in CAPEX per year, and has 44 million customers and 50,000 employees. It is competing against other large players and is focused on growing market share and growing through the addition of new services. In this industry, investments take significant scale and the stock can move quickly on customer acquisitions or losses. Building is the strategy here. In contrast, a major global financial services company is in the process of breaking itself up by divesting certain parts of the business. This company is interested in decreasing its debt and strengthening its bal- ance sheet, which requires selling off some valuable assets. John Bogle

14 CEOs from private companies see huge advantages in being private. Regardless of whether a The CEO of a high-tech company said that being private allowed the company is public or private, company to be more patient in growing its revenue and enabled the it must have a board with a company to take more risks. The former CEO of a major consumer products company said that a huge advantage of being private was long-term focus. being able to focus on operating and growing the business, as op- Several participants commented posed to having to spend time meeting with and satisfying investors that their boards understand the and analysts. company’s industry and business, are patient, are focused on the long term, and have aligned executives’ com- Steve Miller “If we were public in this volatile pensation with long-term results. Having a knowledgeable, supportive board is particularly important when an industry is going through challenging times, when difficult decisions must be made, and/or when a company is pursuing a - CEO of a fast-growing technology company contrarian strategy that goes against conventional wisdom. One CEO describe the long-term decision his company made—which was supported by the board—to invest heavily even while the industry was But CEOs of several publicly traded companies didn’t express dis- performing poorly. This decision, which was criticized at the time by satisfaction at being public; in fact, they cited numerous advantages outsiders, has proven prescient. in their public status. These advantages include: Creating a clear, publicly stated goal that the entire organization rallies behind Having the market impose pressure and discipline Having analysts and investors provide feedback on the company’s strategy Earning respect from customers who know they are doing business and governance and compensation with a public company are geared for the long term.” Being tested on a daily basis, with rewards to those who perform - CEO of a major public insurance company well The former CEO of a large investment company noted that he started “Conversations with investors his company in 1974 and it took 18 years for the company’s model to take hold. Throughout this time the company’s directors were patient and stayed the course. This individual wondered if any directors would have the same patience in today’s world. - CEO of a major public company Opinions differ on whether the chair and CEO roles These CEOs of public companies believe that despite the short-term should be split. pressures, the keys to success are An experienced investor said that the having a clear vision, a strong principle of having a chair who over- management team, and supportive sees governance and a CEO who runs investors who understand and buy the business makes good sense. These into the company’s vision. One CEO Stephen Schwarzman Ray lane are different roles, requiring different stressed that in an era of scorecards skills and different areas of focus. A and metrics, CEOs need to have con- former chairman from a major corporation added that a chair needs fidence in their own judgments. to have the credibility to lead the organization, often through major changes. If a chair lacks that internal and external credibility, he or she should step down, which is what he did. Most participants were uncomfortable with the idea of a mandated and there are rewards to those who separation. One participant noted that all of the financial services survive.” companies in Europe that failed in the recent financial crisis had split roles, which didn’t prevent these companies from failing. The general - Executive from a major technology company consensus is that what matters most is having the right leadership.

15 The sense was that the decision of whether to combine or split the roles of chair and CEO should be left to the board based on the organization’s situation and leadership. Also, despite the recent controversy related to Jamie Dimon, participants still think highly of him and support him retaining the chair and CEO roles.

No one is mandating separation.” - CELI participant

There was also agreement that at times the media seems to somewhat arbitrarily and unfairly subject a chair or CEO to enormous criticism, which can lead to an individual’s ouster. History has shown that boards often lack courage and respond in a knee-jerk fashion to appease critics. This has occurred at companies such as Motorola and HP. Boards must be held accountable for a company’s performance. But accountability does not necessarily mean responding to the whims of the media or adhering to a series of metrics from third-party entities. Boards must have the courage to stay the course over the long term and support strong leaders, even in the face of controversy, if it is in the best interests of the company.

Other Important Points Gupta’s guilt. In a poll of CELI participants, 94% believe that Rajat Gupta is guilty. One individual with knowledge of the case said the environment for Mr. Gupta was very difﬁcult as there is general hostility for business and many people believe there is a criminal answer for every economic problem. This individual also believes that jurors may have been inﬂuenced by the media. Another individual with deep knowledge of the trial said that Mr. Gupta was convicted Jed Rakoff for no other reason than the fact that the evidence against him was overwhelming.

16 Yale CEO Summit June 4-5, 2013 | New York Stock Exchange Can CEOs Be Super Heroes? Do We Expect Too Much from the Boss?

Staying Current on Customers and Your Business While Living Your Life: What to Read; When to Breathe?

Panelists Respondents James D. Wolfensohn, President 1995-2005, World Bank Group Elisabeth DeMarse, Chairman, President & CEO, TheStreet, inc. Saul J. Berman, Global Strategy Consulting leader, iBM James S. Denton, Publisher & Editor, World affairs Kelly Evans, Co-anchor, Squawk on the Street, CNBC Stephen a. Greyser, Harvard Business School Greg Fischer, Mayor, City of louisville, Kentucky Thomas a. Kolditz, Professor, Yale School of Management Steven H. Grapstein, CEO, a/X armani Exchange Renée Mauborgne, Professor & Distinguished Fellow, iNSEaD Sly James, Mayor, City of Kansas City, Missouri David W. Miller, Director, Faith & Work initiative, Princeton University Joseph J. lhota, Former Chairman & CEO, Metropolitan Transportation Dan Raviv, National Correspondent, CBS Radio authority (MTa) Mark Penn, Corporate Vice President, Microsoft Corporation; Former CEO, Burson-Marsteller Carl Quintanilla, Co-anchor, Squawk on the Street, CNBC Stephanie Rawlings-Blake, Mayor, City of Baltimore, Maryland Robert B. Simonds, Film Producer, The Robert Simonds Company Scott Smith, Mayor, City of Mesa, arizona

Overview This session, as well as the entire Summit, showed the strengths and weaknesses of the United States. It was an open discussion that showed how well many companies and cities are doing, and that em- phasized rapid strides in innovative technologies. But while areas are doing well, the country as a whole isn’t keeping up. There is divisiveness, the educational system is in decline, and much needs to be done. Moving the country forward requires heroic yet humble leaders who are focused on serving others.

Context Mark Penn, alfred Spector, and Kristin Russell In the Summit’s final broad-ranging session, panelists and participants continued discussing the relationship between the board and the CEO, looked at the impact of technology on how people com- best thing is for a CEO to step aside. municate, and talked about how leaders define themselves and how others see CEOs. The former CEO of a large British-based financial services firm described his decision process when his company became embroiled in a controversy, resulting in personally-directed criticism from the press Key Takeaways and the British government. The governor of the Bank of England CEOs want to partner with their boards. wanted this individual to step down as CEO. The board, customers, and other stakeholders were supportive of him staying on. Having be- In a discussion about what CEOs really want from their boards, come a lightning rod, this CEO decided that asking the board to fight Professor Sonnenfeld mentioned a Harvard Business Review article for him wasn’t in the company’s best interests. Ultimately, he decided indicating that CEOs want more than directors who serve as monitors that the best thing he could do for the company was to step aside. and auditors and deal with other compliance matters. They want a partnership with their board and directors. This humble, noble action is in contrast to other CEOs (including past CEOs of BP) who, amid crises, have uttered memorable state- ments such as, “I’ve suffered too,” or “I want my life back.”

17 Mayors are leading the way in CEOs are increasingly getting their information from a getting things done locally. wide variety of sources. While the federal government was criti- When asked where they get their daily busi- cized for its divisiveness and inability to get ness news, only 28% of attendees said Wall things done, mayors from several cities said Street Journal and 13% said New York Times, they are having success getting things done and another 16% said CNBC or Fox. The most at the local level through strong leadership common response, by 40% of participants, was and collaboration. Several of the mayors Sly James. “other print/online” sources. in attendance combined long personal In responding to the session’s title about what histories in the cities they are now running to read, one academic suggested reading Moby with extensive business skills learned in the Kelly Evans. Dick as well as the books from one’s faith. private sector. A personal history provides credibility; business experience provides the ability to get things done. The participating mayors were in agreement that serving as a mayor is challenging, with a fast decision cycle, but is a tremendously rewarding experience. They called on business leaders to take the opportunity to run for ofﬁce and take a turn as a public servant. Joseph lhota

be involved in public service at While CEOs and other senior leaders may not realize some point. Business leaders can it, many are heroes. do tremendous good. You should One CEO doesn’t believe that CEOs are super heroes or deserve spe- cial treatment. He said that everyone brings unique value and talent all run.” to an organization. CEOs are like others in putting their unique value - Mayor of a large city to use. But Professor Sonnenfeld cited research showing that many CEOs and other leaders are different and are in fact heroes. Heroes were Technology is rapidly transforming how people live not like the other kids in the group; they always had soaring ambi- and communicate. tions, engaged in self sacrifice, and separated themselves from others through “heroic stature” and a heroic mission with a lasting legacy. The major technology trends that have already taken hold are smart Many came from common origins and had a near-fatal derailment at mobile devices and social media. A professor said that Twitter and some point, but their perseverance made them stronger. other forms of social media have already become critical to many Being a hero doesn’t just mean saving lives. It is a code of conduct in brands. And, the power of social media will only grow, as 600 million how one lives, behaves, and inspires others. It is about being bold, people in China already have access to it. confident, taking risks, and assuming leadership, often in difficult A mayor added that Twitter is a great tool for local government. It al- situations. Heroes are not about grandiosity; they are about hope and lows leaders to easily communicate with citizens and enables citizens courage. to easily and immediately provide feedback on day-to-day issues like road conditions or the need for snow removal. The downside, said this mayor, is that this always-on technology is extremely intrusive. Participants with knowledge of technology identified two other trends that will be occurring going forward: 1) the Internet of things, - Jeffrey Sonnenfeld which will take unconnected devices and technologies and will seamlessly connect them; and 2) wearable technologies, including such things as glasses and clothes. It is anticipated that once these An academic said he chafes at the idea of considering business leaders technologies eventually take hold and become embedded in people’s as super heroes. He believes that the most effective leaders are those lives, they will change people’s behavior. An issue is that as devices who are “super humble.” They serve others first and sacrifice for produce data and as more data is shared more broadly, privacy will be others. given up.

18 Other Important Points What’s taught in business school. One participant observed that a key theme from this Summit has been the role that business leaders play in shaping policy. However, this is not something currently taught in business schools, but perhaps should be. imperfect leaders. One participant said that everyone today seems to believe there are perfect people in the world, are only looking for and willing to hire someone they view as perfect, and will immediately disregard someone once there is a sign of an imperfection. This is a mistake. This individual said that James Madison was phenomenal at drafting America’s constitution but was terrible as the commander in chief.

19 Yale CEO Summit June 4-5, 2013 | New York Stock Exchange Can CEOs Be Super Heroes? Do We Expect Too Much from the Boss?

Legend in Leadership Award: James D. Wolfensohn, President 1995-2005, World Bank Group

Presenter William H. Donaldson, 27th Chairman, U.S. Securities and Exchange Commission

Presentation James Wolfensohn has had a distinguished career on Wall Street and Individuals in other countries are hungry to learn about the West, il- as head of the World Bank. He is deeply respected throughout the lustrated by the number of students from China and India who come business community and has made enormous contributions that go to the U.S. to study. Yet Americans lack interest in learning about the far beyond business, having served in government entities and on the rest of the world, as few American students journey to these rapidly boards of numerous philanthropic organizations. growing countries to learn about them. To prepare for the future it is important for the U.S. and other developed countries to become more Based on his extensive international experience, Mr. Wolfensohn sees international. It is important to teach students about the culture and major imbalances in the world, as a minority of the world’s popula- history of other countries, so we better appreciate these nations and tion has the vast majority of the planet’s wealth. Big changes lie ahead are better able to work with them. for this imbalanced world, as the emerging markets grow much faster than the developed world.

Jeffrey Sonnenfeld, James Wolfsohn, and William Donaldson