 Good morning everyone This is one of the opening sessions in the 2016 annual meeting of the World Economic Forum and we are Discussing the long term Not today not tomorrow not even next year not even five years from now. We are discussing the real long term Actually, the the session is titled the long term imperative and of course that has come on the forum's agenda because of the Growing complexity and the growing uncertainty which makes Life professional life perhaps also personal life for for business leaders increasingly difficult. We have an excellent panel In no specific order from my left your right Let's see. Well, well, we'll go we'll go here Larry Larry think Goodless about Larry think who? actually manages All more more Matt more assets than the GDP of Germany as observed this morning to him He says well, but these are not my own assets and I indicated to him that neither were the mrs. Merkel's Gula savanshi who? chairs Savanshi holding in in Turkey, which is a very large conglomerate 60% privately owned 40% public and in a very turbulent region Tijan Tijam Who is the new CEO of of could be Swiss who came from a related to? Industry in the financial services and who will tell us about how his long-term view has changed from the insurance insurance to the banking industry Dominic Barton the global managing partner of of McKinsey Who advises perhaps everyone at on this on this panel? I don't know and the and the livers who is going through one of the the Biggest mergers in in contemporary history Putting Dow and DuPont together and still keeping the very long-term view. I hope and the and At the end there Mark Visman who is the the CEO of? present actually of the the Canadian pension plan and has to keep in mind not so much shareholders, but beneficiaries Which is a very important angle added to this to this panel. So What are we going to discuss? How do you make bold choices for the long term? And bold choices which do not only relate to one's own industry, but also to to society Now this discussion is on the record There are no reporters in the room or there's no one reporting in the room, but as a compensation it's like webcast As agreed with with my fellow panelists We will initially discuss one or two industry related questions and then from there on move to either react to each other or Include observations or actually not observations Questions from the room and we ask you if you have questions to keep them really brief to make no general statements and identify yourself So now let's go to this panel of long-term practitioners Dominique to start off this you I Think you wrote the other day or said the other day that That technology sweeps across virtually every sector in every industry and that has Incredible impacts digital platforms network all the consequence. We don't need to spell that out here So, how do you educate your clients on that because this is different for every industry and McKinsey is not a technology company So, how do you deal with that? How have you transformed yourself McKinsey that is? I'm not sure what that has to do with the long term, but I'll try and weave that I hope that is that for the long term. That's very important for your clients to understand that you are braced for that Well, I think yeah, this is this digital revolution is Is something that's unprecedented. I think we're at the early stages of it It's forcing everyone to change their business models and I think the So no one's immune from it. I think everyone has to do it And I think one of the challenges is when you restore you and often need to restructure your business model to do it and if you're operating in a Environment where people are look monitoring you on a quarterly basis of how you do it That's a very difficult challenge because you're gonna it's not a smooth line. It's gonna you're gonna go through troughs Ups and downs and I think it makes it very difficult to do that But you have to and that's why I think this long term view is important I think what's interesting is that many of the technology companies that are Dealing in one of the most fast-moving parts of the world have had to be long term if you look at Apple and you look at what What the iPod and the difficulties they had in developing that if that they didn't have a long-term view They would have scrapped that within two years. That was a long-term Bat an investment to be able to make that work Facebook when they were doing their IPO Decided that they had to shift from a PC based platform to a mobile Platform and you saw the share price completely tank There was a lot of concern about what was gonna happen If there wasn't in a sense of controlling interest that Mark Zuckerberg had I don't think they would have been able to do it They would have been taken out But the view was if we don't do this now we won't be here for the long term So I think a lot of the technological shift is an example of why we need to have this this Long view to to be able to do it even in a very fast moving Industry in a set of forces that are there and we as you said we often don't take our own medicine We're but we like to tell other people what to do and I do it We're in the midst of a very significant digital transformation and it takes a lot of time a lot of resources and investment and What we're going to see the benefits of that not immediately but in a number of years from now So we we just have to do it You are in fact doing it Can you elaborate a little bit on what you are doing inside McKinsey for that long term a couple of things what you know One of our our principles is every the partner this generations partnership has to make it better for the next generation That's kind of our objective function right and what as we look at the technological shifts going on right now just to be specific Analytics advanced analytics. This is the ability to take you know crunch massive amounts of data With machines That's a very different capability than most of the NBA students that we typically have hired We need mathematicians and so forth. So we are going to have to hire different people We're doing that but also retrain people including some of the senior people Which are the most difficult of us to retrain on on how to use this and some of our orthodoxies like in McKinsey If you're told that you're not a very if you boil the ocean if you look That's not a very good piece of feedback to get Today it actually is a good that would be good because with machines You can boil the ocean and get results and where they are So that's one sliver of the change where we're going to have to Re-educate basically 20,000 people to be leading edge if you will it won't happen overnight We're going to have to work in a very different way with our clients than we have in the past I could talk to about just the digital side, which is different from the analytics So there's a lot of change that has to go on and that it takes time. It takes investment and it's You know, we're not going to see we will not see the results immediately But if we don't do it now, I don't think we'll be a relevant institution in five years Thank you to Larry Now you have this incredible Number size assets on the management Which is a huge responsibility. I Don't really want to ask you about your responsibility, but how do you? trade off your short-term Attention span against the long-term needs Because there's a big issue there, right? You have you're in this Industry for the long term, but you have every minute while we are sitting here Something which is of real big potentially turbulent importance. How do you do? is it First of all As you rightfully said it's not my money. So every client has different objectives quite frankly some clients This money that are is very short-term oriented However, 70% of the assets that we navigate on behalf of our clients are long-term. There are other pension assets Or insurance assets so the great ponderance of all the assets we manage are Are going to be looked upon over a long horizon? Now what is a long horizon for some people along horizon may be a quarter And we all have to live with that type of noise But I think that type of noise is what we all are going to have to live with and we are living in this world now that The immediacy of information is so quick and we're all looking at our Mobile devices and we're all Trying to interpret the immediacy of information the blogs on our companies And I do believe societies have been a hard time adapting Politicians have probably the hardest time to adapt. I think that's one of the Quagmires we have in government, especially democracies today that the immediacy of the information Is accelerating in the short term? So it's very hard to ask every CEO of every company said you have to focus on the long run It's just so when we want to address these issues you have to think much more than the entire ecosystem how to discuss long-term In my view what long-term is You're gonna have to train Management teams and boards To focus on five-year plans and that's one of my last year's letter Talked about I'll have a letter out in a few weeks Reinforcing this whole concept Five-year plan doesn't mean you pivot a five-year plan is made to you have an objective It's identifiable as a shareholder of 70% as it's long term You can take that five-year plan and then use that as a guidepost and too many firms do not Illustrate and identify what their five-year business plan is But if more and more companies do that and discuss how they are going to navigate how they're gonna adapt to the new technologies How they're gonna adapt to the new horizons? How do they adapt to the changes in the global? Economy that's all part of a five-year plan We all have to live it and we all have to pivot in that world But if you have if you illustrated a five-year plan And then every quarter as an update you Update how you're navigating around that five-year plan as a baseline no different than when you go to the doctor You have a cardiogram that a doctor always checks on your baseline heart rate and they say oh is there is there a change? We need to have that cardiogram for companies and We need to have that process in which We all can be judged now a lot of companies don't want to be judged and I understand that But I think if we set up that type of philosophy I Truly believe we could have a methodology and it will help investors to look at it it will then in many cases if it's a strong good five-year plan and you Understand how a company is navigating the global world around that five-year plan which requires some pivoting. I actually believe it will eliminate the activists attacking a company It will not eliminate an activity or if you have a five-year plan And you're supposed to be vectoring to your left and all but and you see the company moving right Well, you're doing something wrong and not just an activist should be attacking it black rock and other long-term investors Should be addressing it because they're going against the plan So these are the types of things I think you need and then the other thing that I think is very important I can't speak about Europe as much as the United States related to this Right now with most of my investors I'm guided by the Department of Labor Law Which is a fiduciary law and the fiduciary law in the United States is you must maximize return so That means You could fire a hundred thousand people tomorrow if that maximizes return. There's no There's no even a comment about Environmental there's not even a comment period about destroying jobs for society The only definition is maximizing return Now I must say that was changed in 2006 2006 it wasn't so harsh in 2006 it was changed because unfortunately a bunch of unions in the United States Invested on their own behalf to and they harmed their participants returned so they made this very strict and harsh Definition but that harsh definition now is having Remarkable negative consequences We have endorsed and pushed and I discussed this I think in my last letter that it's important that the DOL changes fiduciary standards to adding at least one phrase and fiduciary standards over the long run So if you have that then you could actually sensibly invest in infrastructure sensibly invest in other things to help society until we have these changes You're gonna have most investors seeking the Investment firm that they believe will maximize return and that is one of the reasons why so many activists is are receiving so much money Some of the loudest pension funds who talk about long term without naming them are the largest investors with activists Why they're falling under the fiduciary guidelines. They're doing what their responsibility is So we need to come at it two ways. We need to come at it on the business side by by and I and I my letter will go heavily into this the definition what a five-year plan is How that is going to be signature? I mean I as a CEO of public company I spend so much time on my CEO letter I mean the real we're gonna have to now have an or maybe in our CEO letter that five-year plan and We'll go into a little later. How I'm gonna try to describe that but this is and if every company did that Coupled with this fiduciary standard rule. I actually think we can navigate and change Some of the standards and we could move more towards long-termism. I actually believe From the onset of my first letter. I actually believe the narrative of long-term is starting to change too So we're starting to make a change, but I'm not sure right now. We're not making a significant change We're just changing the ecosystem alone Thank you Larry. I'm sure we'll get back to this to this long-termism Andy you are going through one of the of the greatest events of these years now the pond That has lots of short-term impacts, but I guess it's a long-term framework. Actually, I don't doubt it's a long-term framework How do you keep sight of that long-term framework by you going through all these adjustments for the short term Well, thank you Victor and I mean I'm listening very carefully to Larry as one of our owners and Larry owns most of everyone I guess but we He's a guiding light in this whole discussion that we're having here on the stage But the whole thematic for the conference this year, which is the fourth industrial revolution And I have to give you context to your question because the Dow DuPont merger that go forward Really has its roots ten years ago And as we as a board and we as a company woke up in the early parts of last decade and looked at the industry Most of our industry had been ravaged By being exploited for the short term 60 percent of the top 20 chemical companies Back then it disappeared Either private ownership and run for cash or state-owned enterprises and really the state of the Union If you looked at us and everyone around us was that we had not invested in innovation We'd been around for most of the second and third industrial revolutions Maybe not the first so 118 years young Reinvention should be in our DNA and it wasn't our DNA So we chose the path less traveled Unlike the hooks and the buyers and the ICIs and the Roan polonks and the seabed geys and many storied names That have disappeared from the lexicon of our industry We had Dow the board with a lot of work done by management chose to transform ourselves back to the roots of our company Which is innovation centric and really get access to low-cost feedstocks in the emerging world And so we did what we used to do very well I'm an Australian I got hired in by now 40 years ago in Australia and So 40 years when the company moved to Michigan. That was your Michigan was one of my north stars So literally north star but I mean we we certainly as a company the company I grew up in was used to these once every decade or two transformations and so the very first thing I'd say to you is that We confused back then Something that I think industry still confusing today the very nature of this panel You're using the term long term, but actually most of us confuse that with the term long cycle Long cycles are gone Gone and there's no sector and we're very asset intensive. We're eighty four billion dollars asset base So imagine the pivot that Larry just talked about with a five-year time frame five years is actually too short Okay, so so literally how do you pivot organizations that are large? diversified global 162 countries that don't have any innovation don't have access to low-cost feedstocks are being totally killed by the emerging world Stated on enterprises through subsidies and the like. How do you do that in? 90 days or one year or even five years and so so this this whole notion of Transformation to this new world order now as you went through that decade note where we are right now Volatility uncertainty, which is just a new normal I mean, we're living in an ADD society. Okay, we are totally impatient Capitals very impatient what you've ended up got a getting is connectivity. What's the cause and what's the effect? This technology disruption that you asked Dominique about Technology disruption of the fourth industrial revolution Everyone knows everything all the time in the instant. Okay, what is that doing to decision-making? What is that doing to the ability to respond? Well, it's creating what you are living within the equity markets and frankly in geopolitics Which is it's totally disruptive and creates no normality around marketplaces So here's the problem that Larry just outlined you put out a five-year plan or 10-year. We call that a Dow our North Star Literally the North Star. We literally since 2004 have said we're going that way but boy, oh boy Every single day every 90-day period every single pathway along that path is disruptive So what does that mean? It means a cultural change of the most enormous order In fact, I happen to believe and I'm running one and it now gets your doubt coupon question that the large diversified industrial companies conglomerate structures of the publicly owned variety are doomed The grainyards going to be littered with them now. There's one answer called go private Okay, and I'm sure glue will have some conversations about that I really do think and of course Michael Dell had an answer for it. Okay. Yeah, so so but if you don't go to that You're what you've got to do is be very responsive to this notion that you've got to be Transparent in where you make money and how you make money There's no excuse for you on this return point that I'm running it for the short term not the long term or I'm running it For the long term not the short term that's out You've got to run it for the cycle you're in and we're all short cycle. I just said that so what does that mean? That means you've got to be a better portfolio manager of your diversification than your portfolio managers Which means a connectivity to your owners like never before and Mark and Dominic and Larry and some of us are being involved in an initiative that's trying to actually shorten the distance between the ultimate owners and Management because that distance has gotten way too big and I'm sure Mark's gonna talk about it But as you go through all those vicissitudes, you've got to do what the Dow Dupont merger is going to do This whole notion of our sector being remade from being In every business in every business known to humankind in chemistry case you don't know everything's chemistry But that's all of a conversation So so what we are doing is we're merging In a manner so that we can culturally reinvent these two storied Corporations between them over three hundred and twenty years of history Putting them together to remake them in a form that they can keep growing This is not a cost-cutting exercise This is a strategic pivot to create the number one player in the world of agricultural science and the number one player in the World of material science so we can keep growing with our customers in this sort of world That sort of pivot is strategic We have to explain it we have to spend a lot of time with it and most importantly We have to be responsive my last comment to you to the new world order of inclusive capitalism You see multi stakeholder metrics are here to stay It is not just the shareholder and that could get people like me fired normally But it is the shareholder, but the shareholders deeply concerned about all other stakeholders Civil society and the license to operate if you don't actually have that in your planning and your future you will be Taken out of what being able to operate and so that multi stakeholder inclusive capitalism pressure on top of this need To actually generate returns in short cycles means that this industrial diversified company in the public markets He's gonna have a real hard time because you cannot build the culture to be agile and pivot with not fast Movements, but smart movements and I'll leave it there because I've got a lot more I can add but I'm sure others want to speak to Thank you, Andy. We'll get back to that Gula Yes, we are a coglomerate in Turkey we are a family owned controlled public company as you have mentioned in the beginning and I'm the third generation. So the resilience and the survival is still here For an example But it is true. I mean, there is a recent study of the BCG that you know one out of three Public corporations mortality rate is very high in in the five years so I Think what I see what we do in Sabanje is the is as Andrew also mentioned the distance between the Shareholders the board and the management that distance is is is you know We do work very close as shareholders with the management but that is that requires a very flexible and very agile governance system In order to be successful The second thing is of course the KPIs the management should have KPIs that direct them for long term that really force them to be to think about long term The third thing is what we have in Sabanje is a long cycle of strategic planning cycle and Larry talked about five years plan of navigating We actually push our Existing companies to really focus for a weekend with the leadership team to look for ten years from now ten years from now what are the Scenarios could be ten years from now for each businesses that we are in the worst case the best case now with all the tools that we have technological tools we have I mean the IT you know you can do a lot of scenarios and So it is easy to really look into different scenarios and that that ten-year Vision or that then ten-year look is not really a plan It is a perspective But it just makes the management team and us to really see what is possible What is not possible? What is far-fetched? What can be you know, so? It makes you think it is on one hand while you are firefighting Which is you know as you have rightly said in my country. We are very used to crisis management And so while you are firefighting on the other hand you must have Time and you must have people the brains get together and think about What can be what cannot be there may be far-fetched scenarios? But it's still worth having this in your strategic planning cycle The second thing is of course the five-year plans as Larry said it's a navigator But within that five-year plan we try to ask The management to have really early warning scenarios early warning markers Again, it is possible for example if the oil prices Suddenly shoot up again to a hundred dollars who is going to do what so there should be plans There should be for and we try to do this I'm not saying they're perfectly doing this But we try to do this and we learn this through our experience through Navigating in a country like emerging country like Turkey through crisis. So There is planning of course, but let's not forget the balance the right balance between plans and Improvisation has to be there. So you need to have Management with skills that can improvise the shareholders that can take Collective decisions in a very short period of time and you know, there are technological tools now which help us to do these things Thank You Gula Among the panelists you're the only one who lives in a very turbulent region. Yes We all live in a very turbulent world for you. It's somewhat close or by So, how does that impact your long-term thinking does it make you insecure? No, I don't expect you to say no But what how does it affect you? Well, it is it is, you know, you think about it. You you hear about it. You watch about it. You follow about it, but You don't let the let it affect your everyday work and and you don't You don't accept Some of the shocks you act You try to pray, you know be proactive And as I said, you you you get prepared for that you you have to think about Alternative scenarios, but there are also good shocks, you know And which we I prefer to think about the good shocks and you know some of them clear the other ones Thank You Gula That brings me to Tijan Tijan, you are Not a new kid on this block because we all know each other very well But you are very new to a very important CEO role in a very large financial institution Which is very different from your previous financial institution Because it is somehow in the public mind more associated with the short term than the insurance world Where you came from. So how has it affected you? Are you happier? I have a lucky I have a very happy temperament so I tend to be I tend to be happy Mark and I were Commiserating on the tribulations of having a name that starts with t or w because you always have to come up with Hopefully interesting things after everybody has said everything. So we are at the end of the panel a lot has been said I'll just try to to add maybe a few points I think about the short term and the long term. I'll just use an image which is well known It's the experiment where you give you take a vase you put an apple That's exactly the diameter of the extremity of a vase and you give it to a chimpanzee He will put his hand in the grab the apple and try to pull it out and Will never succeed and humans you can run this experience with humans after one two three years When they get to three years old the kid will take the vase grab the apple let the apple go Take his hand out turn the vase around get the apple eat the apple For me that that summarizes very well all the tensions between short term and long term because Often to get what you want you have first to let it go If you don't want to let go of the apple you'll never eat it Which is what the chimpanzee does the little kid Understands that he has there's a trade off there. Okay. I have to forego some immediate gratification for future gratification and I will eat the apple and a lot of situations like that Happen in business. Where are you? I say I'm speaking very well the head of my investment bank is there We've just been through a five month strategic planning exercise together and I often say unfortunately There are very few things that are good both in the short and the long term And that's called a free lunch and if you find one you should take it But it's very rare most most most long term good things are challenging in the short term and really a lot of The job we have to do as CEOs is to to manage this tension well I agree with Andrew that to be viable a long term strategy has also to be viable in the long in the short term I am not one of those who Criminate against the short term pressures because in the end your job is complex because you have to manage both You have to find an answer that works in the long term But you also have to take people with you along the journey so that you You you actually are still alive when you come to a destination. So back to back to back to Larry's point We just um, we just did a five-year plan. It's interesting. We we have very Um precise kind of 2020 objectives Because I also like to quote it's Seneca who said that there is no such thing as a favorable wind for both who doesn't have a destination All right, if you don't have a destination a wind is a wind is a wind There's no favorable is defined by the understanding and the knowledge of your destination So we we have we have a destination. We know where we want to get to in 2020 But the funny thing is I knew when I went to market on october 21, but frankly There's no point standing up there and talking to that community about 2020. So we actually presented a 2018 plan Okay, because they want three years objectives and that's where you compromise because frankly in a free world I would have just gone with the 2020 but you have to make those trade-offs saying well You have to give them enough that they feel comfortable and they back you But keeping your eye on the on the real goal which is to get to 2020 in the shape Where you where you want to be and and Anyway, I'm tempted to to stop but I'm just gonna say one or two more things because I was just reflecting on an experience We had together larry and larry and me. I'm funny. I have a connection to everybody on this panel We larry owns a lot of me like on drew like that one pretty she's always and I I I hope you if I mentioned her whole sabon she negotiated the 15 year agreement at bank years back It was a big big agreement in turkey I worked 10 years at mckinsey I'm a chemical engineer And I worried about about pensions for a lot a lot of my life So I've got many many connections on the on the panel But larry and I went through an experiment. We tried to do a 35 billion Dollar takeover and I think that as my shareholder you supported it And it was a takeover that failed So you're succeeding where I failed on true But it um, it was clearly a very value creating in the long term But you had all the all the short term tensions and when when you've been through an experience like that you I think the lesson I I drew out of it is that you I will quote my father on this it's important to be right in the long term But it's equally important to stay alive. So you have If you if everybody comes on your tomb and say, yeah, he was a great guy. He was right It's not great. So and the staying alive is really the the short term delivery You kind of you kind of need to you kind of need to both if you Thank you teacher about mark That brings us to you and you have all these beneficiaries out there. How many 19 million. Okay, so How do you explain the long term to them? How do you assure the long term? Well, you know, it's it's it's very difficult and you know, I and I one of the benefits of going last is Is that you can pick up on the points that have been raised and I'll start with the first one is that You have to be alive, but you need the courage of a dead man sometimes In order to keep your eye focused on that on that long term That long term objective you know at The Canada pension plan investment board which is essentially the national pension system For Canada representing almost every worker in the country Not only are we managing assets for Current workers and beneficiaries, but we're actually managing assets on behalf of some that aren't even born yet So for us a quarter is 25 years And so we have to think Very very very very differently in the way that we manage our business and the way that we we invest and our our objective I think and I think I think Others are now coming to the same viewpoint Comes back to the point that that Larry raised is that redefining that fiduciary obligation And defining that fiduciary obligation in terms of long term value creation As opposed to just short term profit maximization. What's very interesting is you change that lens To value creation in the long term Uh, what happens is these issues converge They converge So, uh, at the end of the day, it is about the pricing mechanism that you use to evaluate The assets that you're purchasing on behalf of those Contributors and beneficiaries and you have to price in those longer term And corporations we have to do it as investors We don't do it well as an industry and corporations have to do it as As the ultimate stewards of the capital that we Are providing to them As as owners and lo and behold as you start to price in long term costs You end up in a convergence model where you do create Make better decisions in terms of long term value creation I want to just pick up on a on a on a couple examples gula talked about this the agency issue As it relates between the owners the ultimate owners And the managers of corporations intermediated by board of directors and That agency problem in public companies has to be solved It has to be solved and if we if it doesn't get solved more to andrew's point more and more companies are going to do What del is done and said we simply can't create value in the long term Uh in the context of the public markets anymore How do we how do we in in fact as as andrew alluded to this is what the initiative that that Blackrock and dow and mckinsey and cppib and others have been working on is how do we deal with that that agency problem To solve that agency problem. You actually need change in behavior both at corporations And institutional investors And it's easy to point the finger at the corporations But institutional investors both public in institutions like pension funds sovereign wealth funds And uh asset managers, uh like black rock or credit suese Uh We have to start changing the way that that we behave as well in order to Uh try to mitigate that agency problem. So what does it mean for the institutional investor means starting to act like an owner Institutional investors have to start acting like owners That has to be an ownership culture institutional investors have to start voting their shares. Let's just start there Right not abdicating that responsibility to proxy advisory firms or not voting their shares At all. I'm sure you're well aware of this issue um They have to begin engaging with the companies that they own And in return the companies must be willing to engage more freely with their their owners They institutional investors have to demand That management teams and boards put in place long-term strategies and then are and then hold them accountable against Those those strategies So I think if you can find a way to change the mindset Of the investor And start having the investor think like an owner in fact recognize that they are indeed the owner every asset In the world every dollar is ultimately owned by an individual saver We have to remember that's who we're working on behalf in my case We're working on behalf of 19 million hardworking people in canada We have to remind ourselves of that every day and what is their interest their interest is long term And so we have to start representing that interest much more effectively as an owner Let me make one last point um And and andrew spoke about this We can't confuse the need for transparency with short-term behavior so You know a lot of people say well, I've heard CEO say this well, if only I didn't have to report quarterly I'd have no problems realities owners Owners have the right to information about the companies that they own They have the right to that information on a timely manner But you don't have kpi for two months But it's what they do with it's what it's the type of information that they're demanding And it's what they're doing with the information. That's the problem But simply saying oh, well if only we reported annually all the problems would go away You know, it's very very dangerous. It's very very dangerous To attack transparency and the importance for transparency in the guise that that's what's creating short-term behavior So that's I think that's one thing we have to keep our eye on. It's it's to make our song. Thank you mark for that comment Tijani, you had a comment to jump in because what mark talks about resonates very strongly with me first I completely agree that in the long term there is convergence between the shareholder Model and the stakeholder model. Okay, if I if I run credit issues and we destroy our reputation The bank was created in 1856 probably the oldest company on this panel, you know the bank will blow up So absolutely as a CEO you have to take that into account I also don't argue argue against quantity results. I agree with you completely. That's not the issue That's not driving the behavior now if I want to be a bit provocative victor encourages to be provocative I do what 250 investor meetings every year I do get frustrated sometimes as CEOs because the people I'm talking to are not shareholders Simple observation and sometimes we get in heated discussions and I will say, okay fine. How many shares do you all? Don't talk to them. No, no, but they they represent the shareholder. Who's your one of your 19 million? That's my shareholder And often I get into a fight with somebody who's just representing a shower I have some shareholders are credit issues or families. They have invested in us Absolutely, and the nature of the conversation is always constructive The great shareholders to have their own money when you see the cross the table from them You have a real dialogue about the long term of the company I'll just use one example and I'll stop but in our strategy We have a cost cutting program 3.5 billion we said we'd cost in the next three years, but we have an investment program 1.5 billion But the most controversial part of the whole thing was the investment program And quite a few investors said well just give us the cost savings I said, well, I'm running a company that's a hundred and one over 60 years old Well, surely I have to invest because you know, I've got human beings if I want to hire the best people They have to believe that there's a future if I'm just running a bond into the ground And I'm just going to generate a lot of cash and give it all back to you We're not going to get anywhere and I actually I actually believe this is how the British car manufacturing industry British owned car manufacturing industry was killed Britain is a thriving car manufacturing center Honda BMW Ford have showed that you can make a lot of cars very profitably in England Produce millions of cars that all the British owned companies have gone bankrupt in the same country the same workers Because they were absolutely forbidden to invest long term They were turned into dividend paying machines And they were faced with a show on the base that was obsessed with dividends and as a I'm an engineer as an industrialist. You couldn't tell them. Look, I want to invest for 10 years If I want to do this model, I need 2 billion and 5 billion said no give it back to us We'll know what to do with it. But that conception of capitalism I think he's bound to fail because it just creates companies that are going nowhere Unable to invest for a future unable to reward their staff and unable to create value in the long term A brief comment from guller and then we'll go to the audience I just want to add something that we should not mix the thing about Having a long-term vision and perspective And the ownership culture that does not mean that's one one threat there that On the when it comes to managing a portfolio like us on the divestures When to divest Is is why we should not mix up with the when we say ownership culture long-term vision We will keep everything. No, we should uh, the prudent management should be able to divest By creating value at the right time. So that does not mean that I just I call that I I say investing is investing for the long term isn't about set it and forget it Right. It's it's about constant engagement and and constant reevaluation. Yeah Okay now to increase the level of complexity and uncertainty. We're going to involve the audience Who would like to speak please raise your hand Identify yourself And you'll have a minute or two minutes to ask your question who? gentlemen on the first row Middle Yes, sir, and my name is Javier Santiso. I'm involved in venture capital investments And the question is I mean, I enjoy very much the panel teach and comments right now Cannot subscribe more the question is very easy is on Way to bet on on the future on long term is venture capital here. There's a lot of investors I know that McKinsey is doing also a lot here there So it's a question on what you are doing or planning to do or not to do in this area well Quick answer Okay, me. Okay. I'll take it. No. I was looking at Larry No, look it absolutely one point. I wanted to make I think one thing that For you know that policy makers there's no policy maker on this panel, but I really think for me it's innovation and competition um The two things that make companies stay on their toes and think about the long term is Really innovation and competition. There has to be innovation in the economy and that's something that Policy makers should focus on rather than mandating holding periods for shares or whatever and sure But there is a constant flow of innovation and there are venture capital is is vital Actually, we're thinking we were doing quite a few things as credit fees across the world Of course, we're very close to a venture capital community and we want to do more We're looking at Switzerland where there is a vibrant technology Community in Zurich in particular and what we can do there. So that's that's very interesting And really competition you think about fintech Um, I mean, everybody knows the numbers how many billions I've got in fintech this This this year or last year I read 12 billion 15 billion 20 billion, but it's good as an incumbent. I don't see it there Think about it as a negative thing because it allows me to move the bank faster I'm certain that there will be banks in 20 years from now I'm also certain they look completely different from what we are now and fintech is a is a big part of that We're co-investing with inventors. We're trying with McKinsey offers. We're doing a lot of work in the Yorkshire Thank you to Janet a quick comment from Larry on this Well, I would I would look at it from two angles first at black rock itself um We created a technology platform called the laden one of the founding foundations of the organization today um it is uh Probably the most instrumental risk management platform That investors use there's 19 trillion dollars of investment assets on the system not managed by black rock We created this we didn't call it the cloud, but it is all done the same way through sharing of servers worldwide um And then we started that in 1998 So we started people were using our servers for data Information risk management systems in 1998. We were not smart enough to call it the cloud But we but we did that and then on top of how we're investing More and more of our information now is from big data We're at a bunch of chief technology officers from various tech companies One very important one from the valley Um, we are we probably have had better outperformance in the last year because of All the deep data research we're doing in terms of information related to companies Probably the most unique thing that we are doing is we are doing data search on companies on word recognition There is getting back to good companies bad companies There is absolute evidence that companies internal blogs and blogs and companies if they're perceived Well by their employees Those companies should actually perform better Companies that actually have their employees piss all over them on a blog They're actually poorly run companies and their stock shows it So there is some great evidence now that if you do a lot of data extraction You could glean different types of investment ideas So we've been heavily investing in india and the united states related to deep data and analysis And then third related to interconnectivity with clients. We've invested in in some people call Indigitized information towards Intersecting with clients So In every category from investing from risk management to intersection with clients is all now What I would call Advanced technology in terms of intersecting in terms of investing You know, we're one of the bigger investors in in this we we own a lot of Unicorns that we invested at the very early stages On behalf of our clients and not for our own balance sheet and It is what it is but I don't I believe for my industry if you do not invest in these technologies You're going to be out of business so And do you want to have a brief comment? Yeah, I mean this venture capital topic There was a book I wrote called make it an america which talked about innovation following manufacturing centers of excellence And I was co-chair of president obama's advanced manufacturing partnership and the silicon valley ecosystem doesn't just naturally happen For those of you track it back it goes back to bell labs and the Lawrence little more labs and all that So government strategies in r&d and encouraging Companies to innovate in the new new space is not an accident It's actually a strategy and if you haven't read a good book start up nation about how israel did it Is a good example of what i'm talking about So country led strategies that actually encourage advanced manufacturing that has been talked about on this panel advanced technologies These are actually policy decisions Which is why companies like mine spend so much time in places like washington and elsewhere Because those policies most politicians don't understand that that upfront investment That then catalyzes the risk taking that then then lends to your investment strategies that that actually is long cycle And so just using my company's example part of our transformation was to reinvent innovation in our company of scale That was market centric and to take manage risk in the new new space We've actually Our patent generation is now six times what it was 10 years ago But we've put nine billion dollars in place in risk based investment now that really hits the five year 10 year plan point All the way back to long term. I mean that has zero payback I mean I could be a richer CEO personally based on current metrics if I spent not one dollar in that area Let me just make one one one small additional one small additional point very quickly 15 seconds, which is that Also this idea of innovation if you're a long-term investor You better understand it and you better have that as part of your portfolio. So let me give you a very very quick example We own toll roads and parking lots Toll roads. We have a toll road. It's got an 89 year concession left in it We intend to own it for 89 years If you don't understand self-driving cars, you don't understand the value of your toll road Thank you, Andy. There's a gentleman in the middle who had raised his hand initially and then in the back Yes in the middle here over here over here Yes, I know I must politely ask each of you to be very very brief Likewise for the panel because we have only 20 minutes left. Yes, sir Richard jolly, uh, london business school I'm struck by this doom for large diversified organizations. I speak to CEOs who've been building The delayed gratification letting go of the apple is uh to jan said for many years But in a world of activist investors, uh, they're increasingly having to change How they behave what is the future for leadership? Given the rise of the activist investors Okay one Andy that's your well, I mean I use the term with all I really I mean the bcg study that gula referenced and This private ownership point that she made and and the role of the private owner to protect Uh, the behaviors of the saver that mark talked about I want to link those points Because if you can in fact shorten the distance between saver and the funds and and the investors To management you can mimic the behaviors that gula was talking about in terms of pivoting Value creation and the lens the convergence value creation Those techniques make you converge So there's no excuse you can deliver in a transparent way the short term result while you invest for the long term We've been doing it a doubt for 10 years and we've just done the biggest deal in the sector known as humankind So so we we can do it it can be done But the resiliency of the ceo The recognition that you've got to actually overcome whatever the noise factors are and there's plenty of those Okay, you've got to have two ears one mouth as they say in asia Listen twice as much as you talk so i'm breaking the rule right now But I at the end of the day, okay Your ability to bring all these forces together in this very dynamic uncertain world is really the only answer to your question That can't be taught I'm a little bit. I'm a little bit controversial on this. I'm a little bit controversial on this point You know distribution is everything Dominic and then gentlemen in the back of the room Yeah, the thing I would just say is I I don't think we're seeing going to see the end of the conglomerate if I look at a lot of the Asian organizations that have been a long time and have a view You you are going to I think the issue is you have to As a good owner you do need to think about whether you're the best owner That's part of being a good owner over time And I think having a shareholder it could be a family or a pension fund That's then you then think about your purpose of what you're at I think you should expect to see a portfolio change. I think that's exactly what what you said So I I think there's I don't see the decline of the of the conglomerate in fact I actually think there's some benefits to the conglomerate because of the Cross-sector convergence risk, but also it's we're seeing a lot of of challenges coming from other sectors The biggest challenge for a shut up in a second the biggest the biggest challenge for a heart surgeon In the united states is the driverless car Because that's the biggest supplier unfortunately Of hearts car accidents So you don't think about this these these things if if you're a doctor you don't think about the drive it you better So sometimes being a conglomerate may give you ideas and perspectives that you wouldn't otherwise have Thank you dumb 15 seconds for larry and then gentlemen the back of the room larry So obviously activists are are playing a pretty prominent role in In in in the ecosystem of And in some respects they've done a played a very good role in a lot of respects have done a bad role But let me just check to pose one thing We you know no one talked about china and we're all you know china is on the in the headlines If china does not reform What I mean by reform reform its companies China is going to be left behind because most of their state-owned enterprises are becoming less and less competitive They need a little activism Not not related to what we're talking about activism, but they need to consolidate their state-owned enterprises To be more efficient. And so the one thing I I will say The tensions we have whether it's an activist or a long-term investor or whatever I believe you know what andy's doing in other companies We're creating more efficiencies better companies more designed companies and I actually believe the new dow dupont Is going to be a symbol of the new dynicism not not not a not a result of activism And I think we need to be less afraid of activists for a second And I do believe my five-year plan would do that but um, but importantly We need more ceos like andrew and who are redesigning Corporate america and hopefully we have a dynamic china that redesigns itself too So it can have a growth rate that we're all accustomed to. Thank you larry gentlemen in the back And then there is a gentleman over there. I'm trying to I'm struck when I hear uh The loud louder please long-term good and surviving short term I think any politician would actually concur with exactly the same thing So and we all lament on the fact that there is no long-term thinking among politicians So your question, please What would be your advice to the political world coming out of On this long-term perspective because we all live in a regulated world Okay, we will take that question as the last question and ask everyone to include that in his final comment You'll all have two minutes at at the end the gentleman over there in the third or fourth row Thank you li hui tian nankai university china I heard the panel discussions are two very good Point improved corporate governance and how long-term strategy. Okay, it's good Long-term strategy need but long-term capital investment even cannot survive Because we all live the under the framework of a changing world. The world is changing so fast. My question is for the captains of different mother ships Will the sea get tougher? Is there a crisis? A hide What is your will about the perspectives of the changing of the world of the economic world? Thank you Larry We live in change And We live in change The world is very dynamic Um Last year here in davos said a couple panels. We're still talking a hundred dollar oil. So, um We live in the world of change But the change is fine. I mean Change is only constant. Well the one thing I will say and then I'm going to leave it at that There's great pessimism now because of the lower oil prices great You know and many companies are going to go bankrupt And many countries are going to have real instability because of lower energy or lower commodity prices But the reality is there's four billion human beings. They're going to enjoy lower energy costs And lower inflation. Well, we may have too low of inflation. So that's a little bit No, but um the marketplace and this is what we're digesting right now The marketplace sees these hundred companies are going to implode Because of the debt structure now at $20 oil or $30 oil is not they're not going to be sustainable You see countries that are not sustainable Because of this but the reality is four billion human beings are going to have cheaper energy Cheaper heating they're going to have more disposable income and ultimately that's going to reaccelerate the global economy It may take six months may take a year, but This is all good. I mean look do I enjoy my stock price down 12% the last two weeks? No, but you know I can't change it We are going to the audience for two or three final questions of maximum one minute And then return to each member of the panel gentleman here on row two You're getting a microphone, sir Yes, thank very Thank you. I'll try and be very very brief. I happen to run the public company in canada I'm a 35 share owner of that company I'm a survivor of an activist movement An activist shareholder over a long period of time and I made a transformational bet that had a longer than five year duration I've been involved in this topic of long-termism for a long long time I completely align with all of the objectives that you've articulated My question is this is where is the role of the institutional shareholder beyond Just their level of engagement when you read in the The s&p or the economist recently and I experienced it as a CEO Where the average institutional shareholder owns their stock for 200 days And I visit with these shareholders over and over and over and they describe to me their long-term interest Is two years or three years and you know that that's not survivable What do we do to to put this onus on the share owner and their horizon? As opposed to Managements in the boards. Thank you, sir. That will be included in the replies from everyone for two minutes Anyone else in the room if not I return to the panel and I'll start of this with mark Well, thank you. Let me let me just pick up on on michael mccain's point and the point that was raised earlier about activists and Shareholders, I think you're absolutely right shareholders institutional investors Have to start acting like owners have to start having a longer term viewpoint activists Activists are not the cause of issues. You may not like the sound of this Andrew They are the symptom and the symptom is they are the symptom of Where are the other 97 percent of the owners of a corporation when you have activists who can gain 3 percent 4 percent sometimes they don't even have the economic interest because they've hedged out the other side able to force change for the short term not in the interests of Of that long-term value creation To me the problem is the other 97 percent not acting like owners And so activists become the symptom of the very problem that michael was talking about Thank you mark. Andy you're closing comment Yeah, the question that was asked on politicians and this commentary on activism Maybe I'll make a comment about both of those I think We are here in davos. We are the world's elite apparently We have these conversations, but we fail miserably in educating constituencies You talked about employees and savers when i'm in my town halls with employees I make the connection on virtuous capitalism that mark talked about that your pension And your demand for return is driving a behavior that could cause me to fire you Okay, I mean I won't but I mean but if you connect The individual out there who is fairly ignorant of the world forces and afraid of them actually We we have a massive responsibility to the london business school leaders Question about what CEOs have to do We are educators in chief today And by the way every leader of every institution in the world is an educator And if we haven't embraced that yet and yes, it's hard But we get paid princely sums a lot of us do to do this This is the price of entry You've got to do everything that the shareholders and stakeholders Demand and it just happens to be that activists are playing that role right now and being noisy So I just would grab all of that and put the word policy back into the term politician Okay, and demand some change from the grassroots level. You have to get out there and educate I just say a couple of things one is that I think if you look historically over the last and thus the last 30 years Capitalism capitalism has become much more short-term and has become much more narrow That's a it's a fact. You can see it in the holding of shares. You can see it In the time the average tenure of CEOs on many many dimensions It's shrunk and it's become more Narrow and that's a very worrying thing. I think for the system because if we don't change it, it'll get changed And I think a core element is this Principal agent thing we've been talking about here before the link between the owners and the Operators and the problem is all of us are trying to fix our silos So CEOs are getting together and boards get together and investors get together And we need to blend it together because what what's shocking is that you get everyone saying The right thing, but it actually doesn't hang together well and meanwhile Every we've we've been serving this with this group with might with mark and larry and andrew It's getting shorter and shorter term. It's not it hasn't we haven't pivoted the other way despite The good stories that we talk about so I think there's a Very high imperative to change but it needs a collective Action of an adjoined up action to be able to Shift the thing back to the way it should be. Thank you Djan Yeah, I like to pick up all the points are well taken on mark's point on the 97 percent I could not agree more I'll just illustrate an example and the gentleman from lbs raised that I was at the point q408 And the share price was such volatility in the share price. We had such intraday falls that I said, okay Pulled me down the 10 worst intraday falls in it was potential 1848. Okay, so it was 160 years of history Okay, six of the 10 had happened in october wait I was in my office a friend called me said, oh, I was having dinner with hedge funds They were just laughing their heads off. They drove a share price of through all the way down to 190 It was a one-way directional bet. They made so much money Okay, that has nothing to do with economic reality There was no way in that crisis that company was ever going to go bankrupt and it was just like printing money Okay, and in the end in spite and I'm a free market guy I'm totally capitalist but in the end, you know, they had to intervene and stop short selling in london because it had become a joke so It varies there is a tension there between the 97 percent long-term holders who need sometimes to protect the company Protect management protect the long-term interest of the company because as much as I like market there are market failures sometimes And I think those are the extreme cases that actually do a lot of damage to the cause of capitalism And and but I've been used by people who want to argue against capitalism as a reason for to throw the baby with a bath water So I think we have a lot of work to do there and I welcome the group that you guys have constituted and Maybe if you don't quote me, I'll join anyway Thank you Well much has been said and I agree with all of them I just want to add one thing is that the more the complex the world is We all know that how to manage it is with more diversity And I want to add this that there is some studies not Concrete evidence yet, but if you have more women in your boards, you may have more a more long-term view There are studies On this thank you gullah larry for the final provocative comment. Yes I agree. I just added four women on my board Well, I think the statistics that michael brought up are are kind of erroneous The velocity of money has been increasing primarily for three reasons hedge funds sovereign wealth funds central banks Um And the velocity of money has increased quite considerably in those three sectors Uh, obviously hedge funds and t-zone was talking about some hedge funds related to his prior job The velocity of money there is Incredible now who are the investors behind these hedge funds their pension funds? Getting back to this maximization of return But the other major trend is trends more out of active management into Into passive in passive you own those stocks forever You know if they're part of an index you own them and you know The problem of being an index you own some really crappy companies and you own some good companies And so you actually have as a as a passive manager or large-scale you have to actually have more engagement But I I think the trends are twofold one more money towards hedge funds, which increases the velocity of money Greater outflows from active management towards passive management and then you have more elongation So I don't you know, so the statistics are heavily skewed by the velocity money by hedge funds And I'm not sure of that. I mean I could tell you as a public CEO. I have my two largest shareholders Um, one of them invested on the IPO. They still remain to be one of the largest shareholders and now that's 16 years so I I have not witnessed Uh, as as a CEO the the velocity that you're talking about related long-term shareholders and then related to politicians Um, for those who are constantly focusing on his or her Re-election and nothing more We need a revolution And right now unfortunately the revolution may be donald trump So I'll leave it at that Mary this only demonstrates that That the short-term prevails over the long term Well, we were going we were discussing the long-term imperative. It was a very candid very fruitful discussion. Thank you all and Enabling me to to direct it as I tried I have one takeaway actually to everybody spoke about three takeaways Everyone spoke about the need to educate others Secondly, everyone agreed that there is a very serious need for redefining fiduciary obligation And there are actions underway. That's very important to keep that in mind And finally I noticed that geopolitics Hardly played a role while that in the end through the transmission mechanism is going to be deciding for the long term Thank you all. Have a nice day