The Sixth Annual CEO leadership summit: global forces are transforming the U.S. economy. Wise policy will be essential to maintain competitiveness.The U.S. economy is poised at a particularly historic crossroads: huge competitive pressures and global financial imbalances are buffeting it at the same time that it retains the power to innovate and adapt. Whether the economy gains strength or loses its comparative advantage will depend in large part on decisions that political leaders make on such issues as health care, education, tort reform and regulatory relief. And it will depend on whether exciting new technologies can be deployed. [ILLUSTRATION OMITTED] That was the view of a roundtable of top CEOs launching the Sixth Annual CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Leadership Summit in Palm Beach, Fla. The session, held on Dec. 9 in the former Kennedy Winter White House, now owned by John Castle of Castle Harlan, included CEOs representing the services sector, retailing, finance, technology and manufacturing as well as John Thain John Thain (born May 26 1955 in Antioch, Illinois) is the current CEO of the New York Stock Exchange. Previously, Thain was both president and Chief Operating Officer of Goldman Sachs, starting in July, 2003. , CEO of the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. (see sidebar, page 53). Fred Smith Fred Smith may refer to:
Retailing, represented by The Home Depot's Bob Nardelli and Albertsons' Larry Johnston Larry Johnston was a Manitoba politician and activist. In 1977, he was a leading figure in the province's Revolutionary Workers League, a Trotskyist organization aligned with the national party of the same name. , also is benefiting from the trend toward cheaper offshore manufacturing, much of it in China. Home Depot The Home Depot (NYSE: HD) is an American retailer of home improvement and construction products and services. Headquartered in Vinings, just outside Atlanta in unincorporated Cobb County, Georgia, Home Depot employs more than 355,000 people and operates 2,164 big-box , in particular, wins because as the nation's second largest importer (following Wal-Mart) it is able to drive down prices for its customers, who conduct 1.2 billion transactions a year with it. The question on the minds of all the CEOs is how sustainable U.S. consumption patterns are. "If you've got jobs going offshore, that's going to shrink the labor market labor market A place where labor is exchanged for wages; an LM is defined by geography, education and technical expertise, occupation, licensure or certification requirements, and job experience ," said Nardelli. He noted the emergence of a "two-tier" consumer market where the affluent can afford to buy what they want, but other consumers who live paycheck to paycheck are much more sensitive to rising oil prices and job worries. "As interest rates go up, it's going to squeeze the consumer," said Nardelli. "As jobs go offshore, that's going to squeeze them, too. If we aren't careful, we're going to find ourselves right back to where we were three or four years ago. I think it's a very fragile economy." [ILLUSTRATION OMITTED] Johnston is feeling similar pressures from customers who visit Albertsons 1.6 billion times a year. "In the epicenter of where poor consumers live in big numbers, we see people changing buying habits because of this economy and because of the globalization globalization Process by which the experience of everyday life, marked by the diffusion of commodities and ideas, is becoming standardized around the world. Factors that have contributed to globalization include increasingly sophisticated communications and transportation pressures," said Johnston. Dick Syron of Freddie Mac Freddie Mac: see Federal Home Loan Mortgage Corporation. noted that consumers were able to keep spending through the most recent recession and stock market slump partly by tapping into the equity in their homes, which had gained so rapidly in value. But with interest rates now rising, that source of capital will not be as readily available to sustain consumer spending Consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. . It was striking at the roundtable just how deeply China is now touching Americans, from average consumers to major CEOs. One major imponderable im·pon·der·a·ble adj. That cannot undergo precise evaluation: imponderable problems. im·pon that hangs over U.S.-Chinese relations is the value of the renminbi, which is pegged to the dollar. Manufacturers such as GM and Delphi are eager for a weaker dollar to ease Chinese and Japanese competition. But Syron, who had just returned from a trip to Asia where he sold 40 percent of a $5 billion Freddie Mac bond offering, said he thinks the Chinese will hold firm on not devaluing their currency. The reason is that social and political stability at home means more to them than the fact that their more than $500 billion in U.S.-dollar-denominated assets loses value as the American currency declines. "If you're the Chinese government Ever since Republic of China founded in January 1st, 1912, China has had several regional and national governments. List
So the stage is set for a continued exodus of manufacturing jobs out of the U.S. to China and elsewhere (see story, page 69). "About 70 percent of our manufacturing is not in the U.S.--only 30 percent is left here," said Battenberg, who heads the world's largest automotive supplier. "I see that declining continuously as the baby boomers See generation X. retire. They're just not going to be replaced. Many of the contracts of the 1960s and 1970s, which had lifetime provisions for health care, pensions and retirement, will never be replaced." Can currency shifts help U.S. manufacturing survive? Manufacturers certainly hope so. "We're one of the ones who don't mind seeing the dollar weaken," said GM's Cowger. "A strong yen looks pretty good from this vantage point. If you look at the goods that we're selling up against, a $50,000 Lexus comes in at 10 percent or 20 percent under the cost to make it. That's a lot of money that Toyota can take in profitability, use to add extra content or put back into product development." And GM is carrying a much heavier cost burden than Toyota does. "You add that to health care costs that we're carrying, which no other competitors carry," said Cowger. "We're the poster child for that, given that we support 1.1 million retirees and families. You're starting in a pretty steep hole, competitively speaking." Positive Outlook for Technology One force that could greatly buoy the overall U.S. economy is technology. CEOs believe they have found better ways to link technology to their underlying business objectives (see page 60) and that they will be able to stimulate growth by capturing emerging technologies (page 74). Telecommunications, in particular, is set for an exciting wave of new offerings. "The price curves are phenomenal, the innovation just continues, and I think in an increasingly digital, affordable personal kind of world, we're going to continue to see all kinds of technology enablers and technology capability," said Lucent Technologies' Pat Russo. Overall technology spending seems to be increasing, she noted. "We're seeing some spending come back as companies look to get to the next generation of technology, which is all packet and IP enabled." One paradox the CEOs considered was whether sourcing of IT and software functions to India is part of the problem or part of the solution. Vivek Paul of Wipro, which is at the epicenter of the outsourcing trend, argued that only 2 percent of the job loss in the U.S. over the past few years is attributable to outsourcing. [ILLUSTRATION OMITTED] Indeed, in his view, American companies should look at outsourcing as a competitive tool. CEOs of software companies are asking, "How can I deconstruct de·con·struct tr.v. de·con·struct·ed, de·con·struct·ing, de·con·structs 1. To break down into components; dismantle. 2. my R & D chain? How can I do testing, which is about moving the R & D somewhere else? How do I do globalization?" In that sense, Paul said, U.S. CEOs are concluding, "I can use this as a benefit if I embrace it upfront. If a company like Wipro is helping me do my testing, they're not becoming my next opportunistic competitor." Russo and Paul agreed that the search for the best technical talent will drive the strategies of most technology companies. Fortunately, President Bush has signed into law a change in the H1B visa system. Previously, a high percentage of foreign nationals who graduated from U.S. universities had to return to their native lands. Now, that stricture stricture /stric·ture/ (strik´chur) stenosis. stric·ture n. A circumscribed narrowing of a hollow structure. has been eased and more workers are available for hire here. Another piece of the solution to the competitive challenges facing American CEOs is the prospect for tort reform. Smith, Nardelli and Thain all said some kind of tort reform will be enacted in 2005. But lasting solutions to rising health care costs (see page 54) and the failure of the K-12 educational system (see page 70) are elusive. So beneath the surface of daily economic reports, huge global pressures are at work. China is primary among them. "I think the difference between the Chinese and any other economy that we've faced since the end of World War II End of World War II can refer to:
n. A person unduly fearful or contemptuous of that which is foreign, especially of strangers or foreign peoples. xen like the Japanese are and, to a lesser degree, the German and European economies were. China is going to become a massive and technologically advanced society with the capabilities and a lot of the incentives and rationale to become a peer competitor to us." RELATED ARTICLE: Who's Who Robert Ashe Cognos Lionel Barber Financial Times Americas Tom Bartlett Concentra Preferred Systems J.T. Battenberg III Delphi Saul J. Berman IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) Business Consulting Services Gloria Bohan Omega World Travel William R. Brody Dr. William R. Brody is the current President of the Johns Hopkins University, a position which he has held since 1996. He was the highest-paid university president in the United States, receiving $897,786 in 2004, and regained the title in 2007. Brody received his B.S. and M.S. President Johns Hopkins University Johns Hopkins University, mainly at Baltimore, Md. Johns Hopkins in 1867 had a group of his associates incorporated as the trustees of a university and a hospital, endowing each with $3.5 million. Daniel C. John K. Castle Castle Harlan Joe Cowan Manugistics Gary L. Cowger General Motors North America John M. Danielson The Dilenschneider Group Jay Desai Institute of Global Competitiveness Alfred Fasola RCN RCN n abbr (= Royal Canadian Navy) → kanadische Marine John Foley The Foley Group John D. Forsyth Wellmark Blue Cross and Blue Shield Blue Shield A US not-for-profit health care insurer that is a reimbursement intermediary for physicians. Cf Blue Cross. of Iowa and South Dakota Ernest L. Godshalk Varian Semiconductor Equipment Associates Harry E. Gould, Jr. Gould Paper Steven T. Halverson The Haskell Company Leonard M. Harlan Castle Harlan Kevin Hickey IntelliClaim William J. Holstein Chief Executive Lawrence R. Johnston Albertsons John Joyce IBM Global Services IBM Global Services is the world's largest business and technology services provider. It is the fastest growing part of IBM, with over 190,000 professionals serving customers in more than 160 countries. Joel Klein Chancellor New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. School System Edward M. Kopko Butler International Chief Executive Group Joseph Lagana USIS USIS United States Information Service USIS United States Imagery System USIS United States Investigations Services USIS Ugandan Schools Information Service USIS User-to-User Indicator (Signaling System #7) Walter LeCroy LeCroy Robert Marston Robert Marston and Associates Andy W. Mattes Siemens Communications Eugene R. McGrath Con Edison Jeffrey Miron Professor of Economics Boston University Patrick M. Murray Dresser Robert L. Nardelli The Home Depot Thomas J. Neff Spencer Stuart Donald Nigbor Benchmark Electronics Vivek Paul Wipro Eric Pelander IBM Business Consulting Services Edward W. Rabin Hyatt Hotels Virginia Rometty IBM Business Consulting Services Patricia F. Russo Lucent Technologies Austin J. Shanfelter MasTec John J. Sickler Teleflex Barry Siegel Recruitment Enhancement Services Frederick W. Smith
Frederick Wallace Smith (born August 11, 1944), or Fred Smith, is the founder, chairman, president, and CEO of FedEx, originally known as Federal Express, the FedEx Richard F. Syron Freddie Mac Maurice Taylor Jr. Titan International Ted Teng Wyndham International John A. Thain New York Stock Exchange Mark F. Thimmig White Hat Ventures Leslie A. Viegas Blue Cross Blue Shield of Michigan Steve Wnuk American Society For Quality American Society for Quality (ASQ), formerly known as American Society for Quality Control (ASQC), is a knowledge-based global community of quality control experts, with nearly 100,000 members dedicated to the promotion and advancement of quality tools, principles, and Harold L. Yoh III Day & Zimmermann RELATED ARTICLE: The World According To John Thain * Section 404 of Sarbanes-Oxley (requiring a company's internal controls to be certified by outside auditors by Dec. 31, 2004): "I think it's mixed whether or not there's actually a benefit from Section 404 as opposed to a bureaucratic kind of checking the box. There's no question that the accounting firms are making this more difficult and more expensive than they need to." * 404 Compliance Period Extension: "The numbers thrown around are as high as 25 percent of companies won't, in fact, be able to meet the deadline. You've seen recently that the Securities and Exchange Commission has been accommodating to some of the smaller companies in giving them some more time to satisfy the 404 certification process. I still think there is a big issue on 404 about what is exactly going to happen when companies get to the deadline and either aren't done yet or don't get a clean opinion. I don't think there has been enough focus on exactly what will happen to companies that get qualified 404 opinions." * SEC Enforcement Climate: "We're not going to get any relief out of the SEC for those of you who are dealing with the enforcement side of the SEC. I think they continue to suffer from being behind the curve of our New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of attorney general in particular. The fact is that Eliot Spitzer, whether we like him or not, has in general been right at least in finding bad behavior." * Eliot Spitzer: "He's now running for governor, which is probably good. He did catch some mutual funds on late trading Late trading Late trading of mutual fund shares occurs when investors placing trades after 4 PM receive the 4 PM price. These late traders can use the information revealed after 4 PM to guide their trades: buying funds when their current value is greater than their 4 PM value and and market timing. He did catch the insurance brokers rigging their bids. Now, what I think is a concern is he took those violations of law and then pushed them beyond the law and then started setting the fees that mutual funds should charge. I'm not sure we want our New York attorney general setting fees for our entire industry. He's also changing the fee structure for the insurance brokerage world." [ILLUSTRATION OMITTED] |
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