 Hello, everyone. Welcome. My name is Henry Blodgett. I'm the editor of Business Insider. This panel is being live streamed on Business Insider at Elsewhere. Thank you so much for joining us. I'll set the scene for a couple of minutes and then introduce a remarkable panel. It could not be more perfect to talk about this issue. One of the themes of the conference this year is how to bring together a fractured world. One of the main reasons we are so fractured is that the benefits of capitalism are going to a very small segment of a lot of societies. Average individuals aren't seeing much benefit. So the question is, how do we fix that? How do we make it work for everybody? One thing that's clear if you've come to a lot of the World Economic Forum conferences and you've watched politics for a decent period of time is that government seems unable to fix a lot of the problems for a lot of different reasons, which means ultimately that companies have to do it. That's what I would argue. The way they need to do it is by creating value for many constituencies, not just shareholders but customers, employees, and society. This is not a new idea, by the way. In the 1950s and 60s, at least in the United States, this was the stated purpose of companies. You were supposed to do that. It wasn't just about shareholders. But what happened was in the 1970s we went through a period where there was a big economic malaise. Company performance suffered. Profits went down. Shareholders did very badly for a very long period of time. And then in the early 1980s, we started to see the rise of activism, shareholder activism. And this was memorialized and really symbolized by the movie Wall Street, where the famous fictional corporate raider Gordon Gekko got up at a shareholder meeting and he told those executives at Tel-Dar paper who were saying, how dare you tell us how to do our jobs? Say, listen, look, you don't own the company. We own the company. And famously, greed is good. And one could argue that actually in those days greed was good. Companies really needed to be reformed and kicked into shape and to start producing more value for shareholders instead of just executives. But arguably, the pendulum has now, after 30 years, swung way too far. And you can see this in the United States by looking at two measures. One is profits as a percent of the economy are near an all-time high. Wages as a percent of the economy are near an all-time low and have been declining for 40 years. And ardent shareholder capitalists will say, well, so what? The economics will just figure that out. It'll all work out. But the thing is that ultimately the problem for economies is that the money paid in wages to people who work is actually revenue for other companies. One of the reasons the global economy and the U.S. economy have been sluggish for so long is that the people who actually spend most of the money have not been paid enough to spend enough to drive growth. And so getting money in the hands of those folks will do it. And there are lots of reasons for this. Globalism, technology, replacing jobs, but really it's a choice. It's a philosophy about what companies stand for. So we at Business Insider have been arguing for better capitalism for many years. I would say several years ago I was always greeted the reaction with, well, that's nice, but you're obviously a socialist because companies are about making money. And I would say very happily this year, and especially at this conference, we are starting to see the beginnings of this acceptance by not only companies but investors that things may be starting to change and that companies can be serving a greater purpose than just that. And we see it with investors. We see it with voluntary wages increases in the United States. And most encouragingly, very recently, we see it from a very major investor, Larry Fink of BlackRock wrote an open letter to CEOs, which I'll read a little bit of segment of, saying, look, it's not just about money for us anymore. And to quote Larry, he said, society is demanding that companies serve a social purpose. Every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate. That is better capitalism. And some of us are certainly rooting for that to see that take hold. We have this wonderful panel. Let me introduce them very briefly so we can go on to the discussion. On my immediate left, Teresa Whitmarsh is the chief executive of the Washington State Investment Board, handling over $100 billion. I complimented Teresa by saying, Teresa, when you Google you, remarkably few embarrassing or colorful details come up. This is hard to do in this day and age and say, well, I won't tell you the embarrassing stuff, but I will tell you that I live on a ranch and raise farm, I'm sorry, grass-fed beef. So interesting detail that is not yet on Google. Professor Joseph Stiglitz of Columbia University, one of the most accomplished economics, economists of our time, many books, papers. It happens to be an expert in wages and inequality and many other things and a Nobel Prize winner. Indra Nui needs very little introduction. The chairman and CEO of Pepsi, her stock price just hit an all-time high, which is sort of not the thing that one would include on this, but the irony of it that we're talking about benefits beyond capitalism seemed very good to mention that. Mark Weinberger is the CEO of EY, I'm sorry, former assistant secretary of the Treasury and says his stock price has also hit an all-time high, it's just private, so you can't look it up. And then lastly, Carlos Ghosn, legendary CEO of many companies, is now the CEO and chairman of Renault, formerly chairman also of Nissan and Mitsubishi, and recently, on Bloomberg Television, defended being a Davos man, something that a lot of lesser people would shrink away from. He did not, he said, I'm proud of that. So let us jump right into it. Lisa, let me start with you. You manage $100 billion. $125 billion. It's growing as her profits are growing. Is Larry Fink crazy? Is this something that you think about? Are you going to demand that companies you invest in serve something other than the bottom line? Well, this has been an evolution in my own thinking over the last decade, and, you know, as an investor who I invest on behalf of teachers, firefighters, judges, childcare workers, I have a fiduciary duty to secure their retirement, and that in and of itself is mission-driven, and it's a very high duty. So I struggled with this initially, and in fact, we have our fiduciary council come and give our new board members essentially lessons in fiduciary duty. And one of my board members came to me afterwards, and she said that was like a scared straight session. In other words, I can't think about anything now except fiduciary duty. But Time Horizon allows you to essentially reconcile fiduciary duty with stakeholder, shareholder, beyond shareholder concerns, societal concerns. Because if you think about a company that has a myopic focus on short-term earnings, they're typically sowing the seeds of their own destruction. And you see a lot of catastrophes that happen over time because companies are not thinking about how are they building for the long term. And as you're building for the long term as a company and you're creating value over time, you know, my returns are going to be better. So I think Time Horizon is what allows you to reconcile fiduciary duty with societal commitments. So I want to get into the specifics of that, but I want to hear from everybody before we do it. Professor Stiglitz, is there one of the things that investors will say when you say, oh, but stakeholders, they say, oh yes, but. And if I don't concentrate on anything but next quarter, I will be fired long before I can do anything about the employees and customers that you seem to care about. In economics and investment, the study of that, is there any evidence that caring about stakeholders helps or hurts returns? Yeah, so first, let me point out that you were giving a history of thought about this. And I want to emphasize that actually it was in this period not only of activist shareholders, but Milton Friedman arguing that that was what was supposed to be economic theory said. And he was wrong. There was a body of economic theory that said that did not lead to an efficient economy. For some of the same reasons that I think that all the panelists will talk about, you need a long-term vision. And if you're talking about the quarterly return, you're not getting that long-term efficient economy. We look at things, you know, being Americans a little bit from an American-centric point of view, but for instance, Germany has had a long history of what they call stakeholder capitalism. And they've done very well. We have countries that have had other models that have done as well or even better. And certainly for ordinary workers have done better. The final point I guess I make it is because of exactly the point that was just raised, if you are investing for the long-term and you're investing for the retirement, you're not focused on what's going to happen next quarter, you're concerned about the retirement income of your investor, that is going to be larger for the long-term. I was a trustee of one of the American colleges that have a small one, but have a few billion dollars. And we took a very long-term view. And the result of that is we consistently beat the market. And when I asked our investment people, why do they do so much better than everybody else? And they said, we weren't chained to that short-run view. We could take the long-run view and it really did deliver. Indra, you have, I believe, 11 years ago started a performance with a purpose at PepsiCo. A long period where your stock seemed to move up and down, but relatively sideways, which was good during the financial crisis and so forth now has gone up. How do you think about that? That's a long time that you've been working on that. Now everything's worked out on the investment side, but how do you manage that and how do you balance the constituencies in the boardroom? Well, let's start off by saying that when you start focusing on the long-term and you really want to transform the company to where the company needs to go, investors are typically impatient and they're actually highly critical because they just don't see why the company should do that The other companies in your industry are giving you a short-term return. So if you're doing something truly strategic and transformative, it always evokes criticism. So I always say that our stock price being at an all-time high, I have the results to show for long-term management and the scars to show for short-term management because they kept telling me, why are you Mother Teresa? Why are you trying to change your portfolio to healthier products? Because I thought that's where the market was going, that's where we needed to go. But it doesn't happen overnight. We have to make the investments, we have to make all the, you know, product portfolio changes to get there. And I think the biggest issue we have here is that we can talk all we want about short-term and long-term management. If we don't educate the investing community about asking the right questions of companies, we're always going to be pushing water uphill. Teresa, I'll be honest with you. In the United States, 90% of the companies we talk to are the buy side. Never ask us a question and stick with a discussion of strategy. They want to know how's the quarter going to turn out? How's sometimes weekly sales? Why are your weekly sales this way? And how's the rest of the year going to turn out? If you go over to Europe, they ask you questions about the long-term. And if you go to Asia, they ask you questions about the real long-term. So I think we have to really think through how do we want to think about duration? Is it quarter and one year? Is one year long-term for the U.S.? And quarter short-term? Is it three years, five years? That's the appropriate long-term? I don't know. We have to have that discussion. Mark, I'd love to hear your thoughts on whatever you said. Also, you are running a private company, very large, very profitable, growing every year. Do you feel like you have an advantage that you're shielded from this? How do you think about that? No, because we're a partnership and every year all of our partners want to see what their annual take-home pay is. And we've got to manage for the future partners as well as the local ones. So I'm interested in it well. I mean, it's not only though the time period over what you report, that people should be looking at. So for example, for me, my business, we have a quarter of a million people. We don't make cars. We don't make food. Our value is in, our asset is entirely our people. And median age is 29 years old. We hire 65,000 people a year. It is clearly training, developing those people for the long term. When I call around to my leaders around the world every year, I only ask them one thing. They're global people survey results. And how happy and engaged are our people. We now have data analytics that didn't exist years ago. That will tell us if you have certain answers to questions with that data analytics, you'll have higher quality and higher long-term returns in those business units. It's not the current financials that matter. The problem is when you look at, when an investor looks at a company like Pepsi or any of us, what do they have but quarterly financial reporting? Which doesn't even really reflect the value of the company anymore because most assets are now in tangibles and brand and workforce, which aren't even on your balance sheet. There's no long-term way to compare companies or to measure with assurance whether they're doing a good job or not. So everyone falls back to the quarterly reporting. So one of the things that maybe we'll get into later that many of us, Indra and Teresa, are in a group we're looking at, how do we develop something that asset owners, managers and corporates could all agree upon that could capture long-term value and that when a CEO wants to think long-term, the investors will reward them for that, not punish them. We've got to come up with that to get away from short-term quarterly focus. And, Carl, let me sort of set the table for talking about long-term initiatives like self-driving cars and electric cars. Jeff Bezos in one conversation that I had with him interviewed, he said, look, one of the advantages that we have is we will take a seven-year time horizon with our big, risky bets. And these are expensive. If they don't work, they're going to cost hundreds of millions of dollars. It's going to be very embarrassing. But our competitors, most companies, will try that for one to two years. Then the poor CEO will be browbeaten by the short-term shareholders they're talking about. They will give up, because it looks bad in the early years. But we stick with it, and sometimes it works in Amazon's case. Sometimes it's a disaster, but they stick with it seven years long time. How do you, running a company, think about things like electric cars, long paybacks, self-driving cars? How do you do that? Well, first, I totally agree on the fact that when you're talking about quarterly results, everybody understands what it is. When you're talking about long-term vision, everybody has a different interpretation. If you're in Japan, in China, or in the United States, long-term doesn't have the same meaning. And on top of this, we talk about long-term plan or long-term vision. We should talk about long-term plans and long-term visions, because get ready to change. Get ready to change. My long-term plan five years ago was completely different from the one I have today, because in the meantime, I have a burst of artificial intelligence. I have a much more conscious regulator about emissions. I have Chinese government putting everything to incentivize electric cars. So you have to change, and you have to make sure that every year, you explain the changes that you are bringing to your long-term vision, whatever it is. Now, it's not a level playing field. Let me explain to you. Young companies don't have to worry about quarterly results. We see it every day. Young companies, junior companies, new companies, they don't have to worry about it because you can see the valorization of a lot of companies who, frankly, have pitiful quarterly results. I mean, we would come with the quarterly results negative if we would be crucified. So there is a difference, and it's a reality that in age counts. I mean, the more senior the company it is, the more quarterly result is important. It doesn't mean that it's sufficient. You need first to deliver quarterly results to have the luxury to be able to be heard about your long-term vision, but if not, you're going to be punished immediately and then there's going to be change in management and change of strategy. I'll give you two examples. Electric cars, Russian market. Two very simple examples. We launched electric cars in 2007. We were the only ones. And I said we'd be dedicated 4 billion euro at that time to launch electric cars. But you have to consider that when you are putting 4 billion euro on electric cars, there are a lot of things you're not going to do. This is the difficulty. If you are open investments and you're going to do electric car plus et cetera, it would be easy. But you have to make choices. I mean, if I put so much chips in electric cars, there are a lot of things I am not going to develop. And this is where the criticism comes. Is it smart? Are you betting the house? Et cetera. And as you know, electric cars are taking off now. Now, nobody contests anymore that electric cars are going to be part of the industry. But for seven, eight years, you have to face a lot of criticism, skepticism. Your competition adds to it. So it's not something easy. The only way you can do that is to have a strong bottom line on quarterly results. If you don't have a strong quarterly results, you can't afford the luxury to have a long-term plan. Russia is the second example. As you know, the Russian market collapsed four years ago. I mean, for the car market, it went down 50%. 50% on a period of three years. A lot of car manufacturers left Russia. We doubled down. We doubled down. So all of a sudden, when you say, okay, Russia has not finished. This is the market of the future. I'm going to invest. I'm going to modernize. I'm waiting for the recovery. Obviously, a lot of criticism. Why are you doing that? Are you sure? Et cetera, et cetera. So what saves us is the fact quarterly results are strong. Now, Indra, you said the same thing when we were discussing this a while ago. You can invest as long as whatever you're not investing in is throwing off so much cash that your earnings go up over time. Is that... The portfolio has to work. I think, I mean, let me take the view of the fund manager for a second. They need to have a portfolio that's working. If every company they're investing in doesn't have short-term results and everything is priced to concept, it's way too risky. So I understand that legacy companies have a role to play in the portfolios because we are tangible cash flow. We are tangible results. They can hang their hat on. But the point is if you put too much focus and too much pressure on companies that are actually laying the egg, we're never going to be feeding the goose going forward. And that's really the problem that we have. And in Russia, we doubled down in the downturn. I mean, we really doubled down and said, we love this market. It's got long-term potential. Let's stay in there. But the rest of the portfolio worked brilliantly. So as long as we could balance every geography and product line, we could take the hit in Russia. But if we couldn't do that, we would have had enough critics to say, now's the time to get rid of it. Because for some reason, getting rid of businesses or countries seems to be a fashionable suggestion that some investors throw out. You're almost like it's a small cut that you can just... Because you will immediately raise the bottom line. Yeah, it's just ridiculous, yeah. So let me pick up on that and something that Carlos said, which is this idea that new companies get cut a break. And let me ask Professor Stiglitz and Theresa, the same thing. Is it that they're new? And let me give you a couple of specific examples. Amazon, famously, has never made money until quite recently, and then it almost seems to be an accident. They didn't spend... They didn't find something they spent on. Stock price, $500 billion. One of the most successful companies ever. Netflix reported earnings last night. Yet again, negative cash flow into the hereafter. Kind of crappy operating results. And yet, stock blasts to a new high. Why is it? Is it age? Amazon's 25 years old. Why is it that some companies, the poor folks on the end, have to deliver all this profit to you every quarter and these Silicon Valley companies don't? I think it's basically expectations. There's not a revolution happening in autumn bills, although electricity is a revolution. But until there is a conventional view that what's changing in these main old legacy companies. But in the new areas, there's always hope. And no one really knows, and so it's all based on expectations. Now as economists, we always ask the question, what are the barriers to entry? Because you can have a very good idea. But if everybody can imitate it, you'll get profits for a little while and then they won't last very long. So one of the issues that you need to ask is, is there a significant barrier to entry that you can create, which may be against the anti-trust laws. You shouldn't be doing this, but this is what we teach in the business school and then in the public policy school, we try to tell the government how to stop the business school from doing what it's doing. But in terms of value, this is what you're doing. Are there barriers to entry that can't be easily overcome? And if there aren't, then even short-run profits and certainly short-term losses are not an indicator of future value. And that's why there's been some concern about some of these companies. Some of them believe that there's a network platform externality, which is a natural barrier to entry, and that's where the market is betting on. Whether that's true in selling books is another thing. It may be true in delivery mechanisms for retail goods, including books. Just one thing, Joseph. Instead of saying, oh, legacy companies, you might want to say, earnings and cash flow generating, job creating companies. Just add that qualifier. Thank you. And Theresa, do you have an explanation for this? Why is it that Amazon can make no money forever and be worth what it is? I think we need a behavioral finance economist here to tell us that. I don't get it. I mean, for us, because we are a really long-horizon investor and we're global and we have to be spread across all different type, asset types, sectors, et cetera, we don't really take a particular view on tech. We're going to own the index. We're going to own everything pretty much globally. So we don't get that excited about, we worry about it. We're trying to figure out, should we essentially hedge the fangs? Ultimately decided that it doesn't make sense for us right now. It's not cost-effective, but we worry about it, but I don't think we buy into the height because we're not stock pickers. The fangs for all of you who don't watch financial television are Facebook, Amazon, Netflix and Google. What Joe said is exactly right. When investors invest in Amazon and Google and Facebook, they don't expect a constant stream of annual returns. It's when a company's been around for a long time and the analysts all expect something. When you change that expectation, that hits the price right away. And so there's different kind of investors. There's also traders and long-term holders. There's different types of people with different types of stocks. And that matters a lot in many ways. The real issue I see though, if a CEO, they have strategic assets. Indra does, Carlos does. They know what's going to make their company great. They know where they have to invest. The question is, how do they convince Teresa and the asset owners that they're investing in the right place? And at the same time, in the short term, they can go up or down based on volatility based on analysts' expectations or guidance or things like that. The problem is, I'm going to come back to what Carlos said and I said originally, there's no way to measure what they're telling us is exactly right, like there isn't quarterly earnings. And so you have to really explain your long-term strategy and you have to come up some way for agreement between asset owners and managers and corporates to measure that and compare it to quarterly earnings. Otherwise, there's only one thing to fall back on and that's the short term. But Mark, let me ask you a question. Let's say that CEOs are willing to spend the time to educate investors on the strategy. You think investors... I'm just asking the question, Teresa, not an opinion. Are they really able to understand what companies are saying? That's the first question. I raised this morning in a discussion. I basically think there's a big disconnect between investors and value creators. So we extract value from the market. You create value and contribute to the market. And I think that's a really fundamental difference in view and expertise. And so I've been quite skeptical of the investment community's ability to really discern what is going to create value and what's going to create corporate value over time. And I think part of it is we're giving the wrong kind of education. The CFA Institute is all focused on pure financial metrics. I think there needs to be a lot more business education of analysts to understand that. So I kind of look at if you think about engagement between investors and corporations, I think we're in very early days. And I think the whole engagement process and the people who are doing that has to change. I think finance and accounting has trumped strategy excessively. Totally. The whole world is ratio driven, comparison driven, and accounting driven, even though the accounting rules are not clear across companies. We know they don't reflect value, long term value. And so what happens is they just look at the numbers and say, well, this person's GNA is eight and yours is 10. Therefore, you've got two points to cut. Not thinking about two different models of the company because you've got to spend to get efficiency. Nobody thinks about the strategic consequences. They blindly look at the numbers and a bunch of number crunchers put out a little spreadsheet and that to them is strategy. Sorry. We need to defend investors here. I just want to beat this, I want to beat this horse before we go to Joe, which is the reason they do that is because it's still the only thing they have that the regulators agree to that you could compare cost companies. There's nothing else they can look to other than what CEOs say. And so that's why it exists and I think we need something else. Go ahead. I want to pick up a point that actually relates what Teresa said in the beginning which is some of the legal framework actually constrains what the pension funds and others do because they have a fiduciary responsibility and the question is how you interpret that. I think the way that it has been interpreted is wrong. So right now as a fiduciary responsibility it often means maximizing short-term value because that's the only thing they can easily see. But there are other things that we know are going to happen. For instance, we know that climate change is going to happen. We know that there's going to be a carbon price and that assets, companies that have large carbon assets the value is going to go down. So I think there's a huge climate risk for anybody that's investing in a fossil fuel company. And so I think it's a violation of their fiduciary responsibility to focus on short-term returns if you buy a fossil stock and not think about the climate change. And the same thing moving into electric was very important for you because you would have been a fossil. A fossil company if you hadn't done that. And now you're leading part of the way for electric cars. And so as we think about the future I think that there are many areas where if you look at what civil society does if you look at where the concerns that we as a community have they are anticipating where the regulatory environment is going to be in the future. And to ignore that signal I think is a violation of fiduciary responsibility and poor investment. Well and the way we reconcile it basically if you think of our in statute mandate is to maximize return at a prudent level of risk and as you move your time horizon out you start accounting for risks that you would not account for in the short term. So climate is something we actually adopted an investment belief saying not all risks are known at the time but it's our obligation as a fiduciary to try and understand evolving risks and there's a lot of talk about fossil fuels being a potentially stranded asset. Well the history of investing is the history of good investing is the history of understanding what's going to be stranded going forward. So it's not a new concept for an investor so what we've tried to do to get our portfolio managers comfortable with this is always put it through a risk lens. What are the what are the risks that are going to really impact our portfolio you know five years ten years from now and then that aligns fiduciary duty with societal good over time. So let me let me know two points that I think have come out that is something I've seen over my career as well I think Indra you made it very clear that different investors are different and some are the incredibly boring statutory ones that you've described but there are those who are actually interested in long term strategy the ones who invest early in Silicon Valley companies they'll take that some investors will hate it if you do what Netflix did last night obviously others will like it so as a management team you need to find the investors that are in sync with your strategy cultivate relationships with them and then ultimately let everybody else take their course and the second piece and I think you all share this because you've been in your jobs Mark you will have a long tenure short tenure relatively short tenure thus far but Carlos and Indra you've been in your jobs for a long time average tenure of a CEO now it's very short because boards are very impatient because stock prices don't go up they get hammered replace the CEO maybe they'll immediately cut a country and EBITDA will go up or what have you but you have obviously won the support of your boards and your shareholders despite the fact that your stocks weren't skyrocketing in that period so I think trust in that person actually may be more important than the age of the company because I think I don't know if it's a question of trust or a question of credit you're giving credit for the past performance because you're being given credit for the past performance you can allow yourself to go a little bit a little bit further I mean every day we see in our industry in many industry CEOs fired because you know the share didn't move for the last year you know or things which are pretty short term I think the letter that Larry think signed and distributing is going to obviously have to induce a lot of change not only in the way companies talk about their long term plan but particularly on the financial community which is analyzing the performance of the company because today you have the perfect theoretical approach but when we face the analysis it's a completely different ball game so there is a complete disconnect between the theoretical approach which is a little bit you know idealistic and the reality where you're scared to miss your corner because a lot of things that you're doing on the long term can be totally handicapped by the fact that you missed it and you're talking about I think the short tenure of CEOs is a real problem it's a real problem contrary to professor Siklitz car industry is concentrated innovation today that's why everybody wants to be in the car industry or everybody's moving to the car industry that means everybody wants to make the automated car, the autonomous car, the robot taxi Google is involved in it Uber want to be there a lot of these companies are there and why because they consider that the most secure growth happening in the next years is the number of miles traveled on the planet they estimate that we're going to move from 1.5 trillion miles traveled today to more than 3.5 to 4 trillion miles that's what they see and they say the only sector where we can have a return on investments made on artificial intelligence it's about mobility and it's about transportation and it's very clearly to me by the CEO of NVIDIA which is one of the tech companies which is blooming they said you guys are for us the best bet on return because we know that if we contribute to the car without the driver we're going to have a huge return on our technology that's the situation we are facing so short term tenure of CEOs totally in contradiction with everything we need to implement in terms of technology that takes a lot of time the car is 78 years connected cars is 3 to 4 years electric cars is 7 to 8 years and the average 10 year CEO in the United States I understand it's about 4 years a little bit longer a little bit longer about 5 years but even 6 years it's not enough because if every time you have a revolution you need on average 7 to 8 to 9 years you have a problem I think Henry in my case in our case in PepsiCo's case and I've been CEO of my 12th year from the ancient ones around 12 years ago when I took over the company we articulated our strategy but articulated based on mega trends that we saw happening in this marketplace so every time we talked to investors we talked about the mega trends and therefore the strategy and basically told the investor if you don't buy into the strategy don't question the strategy question the mega trends because the strategy is a fallout of the trends and the investors didn't ask for my head and my board supported me because they looked at the mega trends and said those mega trends are the right ones so how can we question the strategy if it just results from the mega trends and the other thing too is I own a lot of PepsiCo stock personally so I bet my complete wealth on our company because I felt this company if it followed the strategy would be in the right place and so I was my own internal activist and I was telling my investors if you have a better strategy for our company tell me we will listen to you we are not really stuck on our strategy if you believe we have a better strategy but if you don't have a better one our strategy holds the good news is being in food and beverage each one could relate to our products so when you talk about health and wellness and they say why do you have to do healthy products your job is to sell more soda and chips have you changed your eating and drinking habits oh absolutely give it all up so why do you think we shouldn't change you know immediately silence or they'll send you an apology note three years later by way of a sell side report which says she was right and so as I said I have this cars to prove for it but I had a wonderful board that stuck by us because the mega trends which resulted in the strategy could not be argued with and I think that's what we've got to do as CEOs start with an external view of the world that results in a strategy so let me I'm going to open up to questions in about five minutes but let me come to one very specific topic which is employee compensation one of the things in the United States in particular is we have so many tremendously successful fabulously wealthy global companies that if you look at what they pay rank and file and this is especially common in the retail industry you can have professionals who work full-time for these companies who are poor below the poverty line which strikes a lot of us as not being right or fair or at least sharing in the incredible wealth that the company is creating how do we deal with that how do you think about it as CEOs and we part of this is coincided with the decline of labor unions who used to be responsible for the well-paid manufacturing jobs that everyone wants to come back that aren't going to come back as manufacturing exchange how do we get those in the retail industry and how do we encourage more companies to do what Walmart has done recently to its credit Apple, Starbucks many other companies where they had seemingly voluntarily raised wages not as high as some people would like to fifteen or sixteen dollars an hour but at least raise them more than they had to because if you talk to investors sometimes they will say look every dollar you pay to an employee is a cost you should cut those costs as much as possible as little as possible which is obviously not the same spirit well you know we cannot talk about I mean I can't talk about the service industry I can't talk about the car industry because we are big employers you know we employ 450,000 people directly plus if you count the people distributing our car the suppliers working for us we're talking about 2.5 to 3 million people for us the obviously the salary is a cost but also is a very important ingredient for sustainability it's a very important ingredient and so if you look only at the short term you're going to go to the extreme by saying you know every salary is a cost but if as we said CEOs have to look at the long term and the sustainability of the business they need to ponder that with I need to make my workforce engaged I need my workforce to stay I need stability and that's the other side you cannot ignore both that you are in a very competitive industry but at the same time you need the sustainability of your business that's the way we look at it I agree very strongly with Carlos and there's a whole theory of economics called the efficiency wage theory that points out the higher wages that listed more productive Henry Ford in the car industry started that with the $5 a day salary and it worked for Ford the gestures what I see is some of the gestures that are being made by Walmart are just that gestures I mean the raising wages when they know that the minimum wage is going to go up and so they're trying to claim credit as doing something voluntary knowing that it's going to be forced on them very shortly part of this is a sales trick for the tax cut that disproportionately went to the very wealthy and so he's trying to tell ordinary people that you're getting a little slice of that tax cut you're getting it once and we're going to go back to this low wage policy and it's not only wages it's working conditions one of the criticisms in the retail sector is the way that they you don't know a week in advance what your work week is going to be and there are studies about what that does to individuals that have not to be able to know when they're going to work the next week so it's a whole set of policies that take advantage of the fact that in today's labor market workers don't have any power and that comes from the visceration of unions from globalization where you're putting American workers in competition with low wage workers in other countries a whole set of forces have been at play that have had the effect of weakening workers bargaining power and I think that has a very negative effect on productivity over the long run now I would think to receive if Walmart came to you and said look we're raising our wage from $9 an hour to $11 an hour that's what they just did what if they came in and said we're going to raise it to $15 an hour and they just think it's the right thing to do for all the people that work for us and by the way a lot of those people shop at Walmart it should accelerate our top line how would you react to that? well again we're an indexer so we're going to own them no matter what if you were an activist how would you the Pacific Northwest where I come from has a tradition of aligning values with good economic value and there's two really good examples Starbucks and Costco both of them made commitments to their workforce for example health benefits they have very decent wages and they have performed phenomenally so again I think anything that is looking at short term profits at the expense of anything whether it be employees whether it be the environment etc at some point you're going to pay for that and Walmart is paying for it they've had to react to societal forces and look at two their stock price took a beating their earnings dropped and so they had to make adjustments and so I still think this gets back to time horizon and you can incorporate values if you're looking at a long time horizon and that will pay back in the stock price over time and just to touch on unions again do you feel that we need unions Professor Stiglitz and Indra do you think that is the answer or can companies do this on their own? Well I think that there may be some companies that will do it on their own but as I look across the landscape in the United States it hasn't happened and that's why you see the kind of exploitation that Walmart has been engaged in and it's exploiting in that sense not only workers but it's also exploiting might say the public sector because you know everybody else is paying for the health care cost that Walmart shifted on to the public sector so I think that it's all important for workers in one way or another to have voice and there are different ways of doing it but I think as I see the American landscape unions are an important part of that. I think from our perspective we look at our employees especially our frontline workers as the assets that drive our business as opposed to tools of the trade the minute you think of them as assets that drive the business you give them a good wage you give them medical benefits you give them pension benefits and you give them all of the accoutrements that go with any management person so we treat our people quite well we'd like to do even better but we treat them well and as long as we continue to do that even if we have some unions I think we can have a constructive dialogue with them. If we violate that pact we have with our frontline I think it will have consequences for us I'm just going to take it probably won't be a popular position I guess after hearing these comments but I think businesses invest a lot in their people that they don't get credit for as well we have 2 million people apply last year to work at EY we hired 3% 65,000 people why do people want to come work for us we have higher wages we're not minimum wage obviously we're professional services but it's our training and giving them skills to succeed when you get out of college anymore your job that you're going to work for doesn't exist today the technology you're going to use isn't around and the problem you're going to solve hasn't been identified yet and if you're not investing and you're seeing more and more investment by businesses across the board most healthcare and benefits are paid for by employers and a lot of companies are going up not because like you said I don't think the tax bill but when a company gets lower taxes they can only do 3 things with the money they either pay their employees more they either invest in capital equipment or they pay their shareholders and either buy back their dividends and that's all they can do they can't buy a lunch, they can't go on vacation they're going to do some things with that money and how they allocate it we'll see over the next year or so great let's take some of your questions right there there seems to be some consensus about that quarterly results are a bad measure for companies for productivity yet at an aggregate level at societal level we still use quite a similar measure namely GDP I'm very curious about your take and especially Professor Stiglitz's and Mrs. Noyes' take on GDP good question well I chaired a commission that was appointed by President Sarkozy that looked at this issue and we wrote a report called mismeasuring our lives why GDP doesn't add up and the consensus of this commission was that GDP was certainly not a good measure of well-being and that there are systematic biases that lead us to make wrong policies like we've been talking here at the corporate level what you measure affects what you do if you're measuring short-term you're going to behave short-term very hard to be long-term same thing for our society if we're measuring GDP and we don't think about environmental degradation resource depletion inequality what's happening to health status of our citizens all these other things then we won't be doing the kinds of things that we ought to be doing for the long-run prosperity of well-being of our country I don't think anybody ever said quarterly earnings is bad quarterly earnings alone is not enough I think it's got to be a judicious balance and what you look at on a quarterly basis and what you look at on a long-term basis is equally important judging a company completely by quarterly performance is a bad way to look at a company let me tell you the difference in a company if a quarterly performance missed a company's plans and a sales side analyst's consensus the sales side analysts who don't run the company they put out a consensus if you missed that they sell your stock and the price goes down if GDP comes in lower nobody leaves the country as a consequence so very different macro and micro basis so I think GDP is sort of a scorecard on a run on a rolling basis to understand how the economy is doing we can talk about the GDP measure itself that I'll leave to Mr. Stiglitz but from a quarterly earnings perspective I think what we really have to talk about Mark is what should you report on a quarterly basis what should you report on a longer-term basis and how do you educate the investor to look at both I think there's value to both it's how do you balance it too great thank you my name is John Neil I'm chairman and chief executive of the Unipart Group so like Carlos I've been the CEO for quite a long time the thing that puzzles me long-term supporter of free enterprise and capitalism is the best way we know of improving a nation's quality of life is that people don't believe it anymore in our country there's a real swing away because people don't see it improving their quality of life their wages are stagnant productivity stagnant so if we're going to ensure that capitalism continues to win the battle what are the key three arguments that we would put to convince people that it is still the best way yeah I think that went to your second point that we really didn't cover as much it's not only what your report is a corporation but who do the returns go to and do your focus as you talked about Milton Friedman is it just shareholders are all stakeholders and I think you couldn't be more right I think the license for all of us to lead going forward is in question and and we saw that you know whether it's the Brexit vote or Donald Trump winning or whatever and even where in Germany Austria and France last year the traditional parties ended up winning the increase in nationalistic tendencies and votes in the congress is going way up so I this is one of the biggest issues for Davos this year in my view we can be really happy that we're growing faster than we ever did but all of a sudden all the problems we talked about last year didn't go away they didn't just disappear so this goes to the intercom inequality and if the GDP grows and it's all in the top 1% the other 99% don't feel it right so I really think it comes to stakeholder evaluation you know there's Mark Benioff talks about a lot, Andrew talks about a lot, Carlos talked about it, there's a lot of CEOs who get that talk about the return to your stakeholders including your communities, your workers, your supply chains and Paul Poelman share you know he look and will fire supply chains that don't have the values of a unilever so I think that you know we need to be held to those standards otherwise our license to lead will be gone anyone else want to I think it's just worth commenting on that the value corporations create that gives me a return is return to society so if you think about retirement assets not just to find benefit or public plan assets but 401k is any kind of retirement asset that gets invested it is ultimately returning to the population the big problem is so many people do not have access to any kind of retirement and so from that standpoint we've got to fix that but you know bottom line when you guys make money I can pay my beneficiaries we don't want to forget that every company in the country could behave responsibly and yet just because of the way that the forces of demand and supply are working labor wages might not be doing very well and so when you see what's happening in the United States where the full-time income is at the same level adjusted for inflation as it was 42 years ago it's partly because some corporations have not some companies have not behaved well but it's also partly because of underlying economic forces the way the rules of the game have been played the role of the tax system in not redistributing income lack of enforcement of antitrust policy a whole set of things and in the end public policy is going to have to play a critical role I think having responsible corporations is very important to get confidence in business but that's not sufficient so I would kind of say it before you because I want to give you time to think about it take breath personally I believe it's a dangerous slippery slope I would say that everybody that has a point of view on what should or shouldn't be done should be allowing the governments to tell them what they should or shouldn't do again how you look at this depends on where you probably are on the spectrum of how big government should be and how controlling and how much individuals should have their own choice but once you decide that you want government to make the decision to what we can and cannot buy, where and how and everything else it becomes a very slippery slope in my view thank you Mark it's a great inflammatory but it's a great question I think what you're getting to is what is the soul of the company what does the company really believe its business model is is it an ethical business model for the societies when you sold products 50 years ago that was fine for a society that was active as society became more sedentary and all kinds of other lifestyle issues cropped up should you change the portfolio yes absolutely and companies are doing it but you've got to feel it inside you that you want to change the portfolio as a way to make money that you've got to do things right in terms of water usage, carbon footprint in order to make money typically what's happened is companies focus on making money during the day and they give money to social cause in the evening and they say this is corporate social responsibility to me that is confession going to confession I think what we ought to think about is how do we make money differently how do you change the fundamental business model so unless you make money the right way transforming your portfolio being environmentally sustainable treating your people right unless you do that you can't drive performance that's what we've been trying to do and as I said scars in my back based on the first six years of my CEO ship kudos for the last six years of my CEO ship and so it takes a while if you've got a strong board if you're willing to go out there and take you know what it takes to and do what it takes to get your message across there is hope will your competitors challenge you at every point in time in my industry they do where I said lower the sugar levels go to a different product portfolio they double down on sugar drinks so what do you do you lose share you give up some share that's okay because we played a different portfolio game but educating the investors was difficult it requires enormous courage conviction consistency painful very painful there are some areas where I think there is a broad consensus about what the right policies ought to be I mean for instance some climate change water those are things that we all know and it's not a question of I mean it's still opinion but it's 99.99 against .01 so to me I think there is a corporate responsibility for standing up some people at Davos have been very active in trying to have corporations work against corruption and that's an area where if one company is corrupt it really puts a burden on others in the area of mining if one company can come in and mine in an environmentally destructive way it puts the other companies at a disadvantage and it's really important I've seen good mining companies do this go in lobby the government to say we want tight environmental regulation so that we can compete on an even playing field we can do well on that but we know that there are dirty mostly private companies not public public listed that will come in and take advantage the final point I guess is there are some cases where the public policy is already trying to create the right environment so climate change is one Mayor Bloomberg made a big effort in New York City to you know, childhood obesity is a real problem and unfortunately some people in the industry lobbied strongly against it and it got taken away and there will be more obese children and more childhood diabetes is a real problem in the United States so we have a couple of minutes left let me just ask all of you if you want to make closing remarks great to hear from you start at the end or Carlos what we said is short term financial results are important but they are insignificant if they are not complemented by something representing the long-term plan of the company that I think this is one of the conclusion we reach the second point is obviously I think you were talking about regulation and the role of government role of government is very important because there are some areas where you don't know how much is too much and how much is not enough for example the emissions you know how much CO2 are you allowed to have in the car how much I mean is it 20 gram, 50 gram, 100 gram you need debate by different part of society at a certain point in time government has to decide these are the rules and these are the way they are going to change for the next year so I think the role of government is important particularly when you cannot make a decision if you leak it to the market forces it's impossible to reach a decision obviously it doesn't mean that you want government in many areas because I agree with what has been said that then you know if they authorize what can be done or what cannot be done you are going too far role of government is important and a lot of the technology we are developing electric car, autonomous car, robot taxi mobility services cannot happen by industry alone we need a private public partnership because we need infrastructures we need regulation we need into what condition you can allow a car to drive on the street without a driver what are the conditions cyber security what is the level of cyber security you can ensure that your car is acceptable on the market we can't decide by ourselves so that's why I think it's important this cooperation is important because it allows government to be aware about the evolution of the technology and then make a decision that in the present situation they are the only one to be able to make since we only have two minutes left and four people I'll be very quick I think you said it well and interested before I think a CEO's responsibility is to explain why not just the what and then investors can decide if they agree with the why and governments can decide whether they want to regulate or not the why but you can't just rely on telling people what you're doing today in the short term you have to explain why you're doing it for the long term with those mega trends that you talked about I have a plea to the media if you give companies as much airtime as you give the short term focused activists to talk about the company their statements as opposed to cutting them off mid statement I think you'll have a better dialogue I think you'll have a better dialogue today if you're an activist you get infinite amount of time on any business show companies are never invited tell me when is the last time a company was asked to come in and talk about its strategy in a sensible complete sentences kind of a way if that happens and it's a real discussion companies and long term thinking will win that does not happen to you you're invited anytime so I want to compliment just said by thinking that we need to think about how we change long term thinking more deeply so one of the ideas is for instance loyalty shares changing corporate governance to give long term investors bigger say in the decisions of the firm on the boards for instance and that would result in boards that are dominated more by people who are long term investors so I think the real point here is I think we need more creativity of how to change our society more towards long term thinking which is the only way that we're going to solve the deep problems of our society I think that what we've identified today is that there's a new market force and they're non-financial and they're societal and I'm active with Ira Milstein Columbia University Milstein Center for Corporate Governance and Ira, 91 year old thought leader in governance, wonderful man and what he said is we're essentially redefining the future of the American Corporation and I think we need to recognize it's a daunting task and it's going to come in inches rather than miles and it's going to be slow and methodic but we need to understand that we are dealing with the new market force and business decided to thank you all so much and thank you for joining