Highlights from the CEO Caucus

Meeting in sight of the U.S. Capitol dome, business and political leaders discussed a range of pressing topics, including the intertwining issues of trade, demographics, and immigration, at the Yale School of Management’s semiannual CEO Caucus on September 17.

One area of discussion was the need for the sluggish U.S. economy to become more globalized. Deputy U.S. Trade Representative Miriam Sapiro noted, “Small- and medium-sized enterprises are the backbone of our economy and the same is true for many of our trade partners around the world.” But only 1% of U.S. small- and medium-sized enterprises now export their products, and most of those that do export trade exclusively with either Canada or Mexico. Sapiro sees the opportunity to simplify access to international markets, including facilitating direct trade between smaller businesses, as critical. “We are very focused on opening new markets by tearing down tariff and non-tariff barriers.” This can benefit greatly both large and small companies.

Clyde Prestowitz, president of the Economic Strategy Institute, cautioned that trade agreements alone won’t suffice. “According to all the laws of economics, America has a comparative advantage in making microprocessors for PCs. Intel makes 85% of the world’s supply. So why are we moving production of what we are good at abroad?” He offered two key reasons: currency values and investment incentives.

We need to see trade not simply as a matter of making deals with other countries, but also as a critical part of the restoration of the competitive strength and dynamic growth of the United States.

As an example, Prestowitz noted that Intel is moving semiconductor production out of Arizona to China. “In this case China—but it’s not the only country that does this—is offering no taxes for a period of time; they are offering a capital grant of a billion dollars, free land, reduced utility costs. This is a financial subsidy that is going to drive trade.” Prestowitz argued that trade agreements can only help if they effectively control both currency values and financial incentives that distort markets.

It was generally agreed that for significant progress to be made around trade there has to be greater engagement at every level, from the electorate to top leaders in business and politics. That might happen if more businesses and their employees see themselves as selling to global markets. “We need to see trade not simply as a matter of making deals with other countries—which of course is one key part of the process—but also as a critical part of the restoration of the competitive strength and dynamic growth of the United States,” said Robert Hormats, former undersecretary of state. “Most of the growth in the world now is taking place abroad; most of the world’s consumers are abroad. The small and medium-sized U.S. enterprises that aren’t selling internationally are missing an opportunity because they are confined to a relatively slow-growing market—slow-growing demographically and economically—and are missing the very large global market..”

Arizona Senator John McCain agreed that more trade agreements were need, and added that immigration reform is also key to expanding a slow-growing domestic market. “In 1955, there were 16 workers for every retiree. Today there are three workers for every retiree, and in five years there will be two workers for every retiree,” he said. “Immigration reform will unleash 11 million people into the workforce who will, among other things, pay into the Social Security Trust Fund.”

Steve Case, chairman and CEO of Revolution LLC, focused on another reason for immigration reform: “There’s a global battle for talent. We’ve got to update our immigration policies or we’re going to start to lose that. While many people in Washington see immigration as a problem we need to solve, I see it as an opportunity we need to seize if we’re going to remain the leading economy.”

While some held out some hope for action on the proposed immigration legislation before the end of the year, there was concern that if nothing is resolved it will mean the uncertainty around immigration policy will linger for years.

Participants said that extended political battles in Washington, like the one over immigration, mean uncertainty for business—and that’s bad for the economy. Scott Davis, the CEO of UPS, said that the uncertainty about the outcome of a range of policy fights is stifling the hundreds of thousands of firms his company works with. “They are sitting on their hands in terms of investments and hiring people until they understand what’s going to happen with tax policy, energy policy, and healthcare,” he said. “The big issue for them is, ‘What’s policy five years out?’ Whether you agree or disagree, if you know the rules of the road, you are going to make investments.”

There’s a global battle for talent. We’ve got to update our immigration policies or we’re going to start to lose that.

Jeffrey Sonnenfeld, the host of the CEO Caucus and Yale SOM’s senior associate dean for executive programs, asked how business leaders should approach engagement with Washington. Are firms that only speak up about on narrowly relevant issues being good corporate citizens? On the other hand, he wondered, what happens when individual business leaders take on broader issues? “Do you make a target of yourself, if you act as a corporate statesperson? Are you better off working through collective action or associations?”

Senator Christopher Coons of Delaware said that it’s difficult to have a clear impact with a broad message. “Is the voice of business being heard? I think it is, on issues that happen to be specific to a company or subsector on a regulatory or legislative issue.” He added, “Individual CEOs can come in and be compelling and persuasive on issues that connect with a state and a company, where a broader interest group might not make a difference.”

Some of the business leaders present echoed Senator Coons’ conclusion that personal and targeted efforts get the best results. That perspective was clearly expressed by Vikram Malhotra, chairman of the Americas for McKinsey, who said he consistently hears from CEOs that they take personal responsibility for representing their firms’ regulatory and legislative agendas with government. “The message from them is that the trade associations and lobbying groups are the old world and are less effective today,” he said. “It’s skyrocketing in terms of their personal time commitment, showing up in Washington and dealing with these issues day in and day out.”

Others said that they believe in the value of associations, such as the Business Roundtable, which is made up of CEOs of large firms, but acknowledged that trying to find an audience is a challenge.  One prominent business leader spoke about the Business Roundtable’s role in representing middle-of-the-road solutions to match the predictable, balanced, and politically sustainable world desired by most people, and which, he added, is “by definition, in the middle.” This leader emphasized, “The dirty little secret is that the business community is in the middle, and we can’t find anyone to talk to.”

Repeatedly, participants said that strong leadership was the solution, both in the business and political realms. But they noted frequently that leadership comes with risks. Politicians risk losing support at home if they aren’t seen as sufficiently focused on the concerns of their constituents. And high-profile business leaders can become lightning rods in a way that can damage the firms they lead.

“CEOs who raise their head up and take a position can get shot at,” said Steve Odland, CEO of the Committee for Economic Development and former CEO of Office Depot and AutoZone. Acknowledging the challenges of having a broader impact within an ever-shortening window in the top seat, he lamented a lack of statesmanship. “Current [average] tenure for CEOs is four years,” he pointed out. “People are keeping their heads down and worrying about this quarter. When CED was founded 70 years ago, our business trustees provided the thinking behind the Marshall Plan, the Bretton Woods Agreement, and the Full Employment Act. Today, business people don’t seem to have the time to be statesmen.”

Notes on the CEO Caucus: Yale SOM’s Chief Executive Leadership Institute gave its Legend in Leadership award to Dave Cote, chairman and CEO of Honeywell International, at the event. The award was presented by W. James McNerney Jr., Chairman, President, and CEO of the Boeing Company, and D. Scott Davis, Chairman and CEO of UPS.

Cote was saluted for both his success in leading Honeywell as well as his strong, courageous voice in Washington. He took over Honeywell as a troubled enterprise suffering in the aftermath of wrenching mergers and took it to new product focus and soaring profits, with its stock price up 286% under his leadership. Cote represented the business community on the Simson-Bowles commission on the national debt and has continued that valiant mission with perseverance and passion, addressing American productivity and standard of living.

The event was produced in partnership with CNBC, Edelman, Ernst & Young, Korn/Ferry International, McKinsey & Company, Microsoft Corporation, NYSE Euronext, Leslie Miller Saiontz, Patriarch Partners, and UPS.