Does Maximizing Shareholder Value Endanger America's Great Companies?
Corporations are the engines of America’s prosperity. Yet
The Economist says they are an endangered species. In the
last 15 years, the number of publicly listed corporations
has shrunk by almost 50 percent! Worse, polls tell us
corporations have lost much public favor and are sometimes
even seen as destructive to the general welfare. The result is
the threat of ever more regulation. What is happening? And
why? Are corporations responding to the wrong incentives?
If so, is it because today’s shareholders are more typically
short-term speculators than long-term investors? What is
the purpose of the corporation?
Festival: 2012
Does Maximizing Shareholder Value Endanger America's Great Companies?
Aspen Ideas Festival transcripts are created on a rush deadline by a contractor for the Aspen Institute, and the accuracy may vary. This text may be updated or revised in the future. Please be aware that the authoritative record of Aspen Institute programming is the video or audio.
THE ASPEN INSTITUTE
ASPEN IDEAS FESTIVAL 2012
DOES MAXIMIZING SHAREHOLDER VALUE ENDANGER
AMERICA'S GREAT COMPANIES?
Greenwald Pavilion,
1000 N Third Street,
Aspen, Colorado
Sunday, July 1, 2012
LIST OF PARTICIPANTS
HOWARD SCHULTZ
Chairman, President, and Chief Executive Officer
of Starbucks Coffee Company
JOE NOCERA
Op-Ed Columnist at The New York Times
Business Commentator for NPR's Weekend Edition
LYNN A. STOUT
Distinguished Professor of Corporate and Business
Law, Clarke Business Law Institute, Cornell Law
School, Author of The Shareholder Value Myth and
Cultivating Conscience,
SHELLY LAZARUS
Chairman, Ogilvy & Mather
THOMAS DONALDSON
Mark O. Winkelman Professor at the Wharton School,
University of Pennsylvania
Director, Zicklin Center for Business Ethics
Research
* * * * *
P R O C E E D I N G S
(9:00 a.m.)
MS. SAMUELSON: Good morning. I'm Judy
Samuelson. I'm with the Business and Society Program here
at the Aspen Institute, but operate out of New York. And
we're glad you're all here. For many of you this may be
your first session. You're just joining kind of part two
of the Ideas Festival, and I'm delighted to welcome you
for what I think is going to be terrific next couple of
days.
This is tough competition this morning. When
you're up against Katie Couric, you got to worry. But
given the topic, we know that you all think that either
women do already have it all or there's no reason to work
on this problem anymore. So we're glad you've all chosen
to be here.
There are tracks at the Ideas Festival and you
could be in the economy track or you can be on another
track. This one is tagged economy, but I actually think
it's about values, and it would easily fit within the
values track because we're talking this morning about how
we think about what business exists to do. And I think
that value and what we carry into that is one of the most
important questions of our day.
We've got a fabulous panel lined up. At some
point we'll open it up to Q&A and wait for a mic so we can
make sure we hear your question well. And at this point
it's my delight to turn it over to Joe Nocera of The New
York Times who is well equipped to lead this panel this
morning. Thank you, Joe, and to all of you for joining us.
MR. NOCERA: Good morning, everybody, thanks for
being here. We -- I am a little horse, so I may have to
use my water a little more than normal. We have a
wonderful panel here and I am going to introduce
everybody, and then I'm going to tell you we're going to
do it a little more free form than these things normally
go because two of our panelists are academics who have a
lot of questions they want to ask the corporate executives
on stage as well. So this -- and we're also -- I'm a big
believer in having plenty of time for audience Q&A, so we
are going to do that. All I ask when we get to the Q&A
portion is that you ask a question.
(Laughter)
MR. NOCERA: Sometimes I know that's a tough
thing to ask, but that's what we ask. To my far left is
Lynn Stout, a distinguished professor of corporate and
business law at Cornell. She has been studying the issue
of shareholder value for much of her career in corporate
performance and the interrelationship or lack therefore.
Her most recent book, which I believe is just out --
MS. STOUT: Yeah --
MR. NOCERA: -- is called The Shareholder Value
Myth: How Putting Shareholders First Harms Investors,
Corporations and the Public. So as you can see she has a
strong point of view. To my immediate left is Tom
Donaldson, our other academic, who is the director of the
Zicklin Center for Research and Business Ethics at
Wharton. He comes out not only from a corporate
performance perspective but from a business education
perspective. And we're going to talk to him about that.
Howard Schultz, of course, is the founder,
chairman, chief executive and president. I didn't know
you were the president too --
(Laughter)
MR. NOCERA: -- of Starbucks. Wow, and I bet if
he went into a Starbucks he could work the machines. As
you may know, Howard has powerful thoughts about, if you
saw him yesterday, powerful thoughts about the importance
of values in a corporation and how that should drive
profitability as opposed to simply focusing on shareholder
value. And I just want to point out that in this
morning's New York Times, on page 7, Starbucks has a
letter that Howard wrote about the need to get America up
and running again and what we can all do to try and help
make that happen.
And last but not least is Shelly Lazarus, the
chairwoman of Ogilvy & Mather, one of the great
advertising people in the United States and she's also a
director at both Merck and General Electric, and we're
going to ask her about corporate performance and values
from a director's standpoint.
I'm going to start with Lynn because one of the
things that struck me about your book, which I think is
really an excellent piece of work, is that you take apart
the idea that there is a legal foundation behind
shareholder value. Now, I happened to be in the room when
shareholder value was invented. It was 1982, Waldorf
Astoria, and Boone Pickens was trying to take over City
Service, his very first deal.
And in the old days, in the '80s, the raters
were saying the shareholders own the company, the
executives don't care enough about the shareholders, we
want to change the dynamic so that the shareholders, the --
what the shareholders want and profitability and
maximizing profitability is what comes first. If you
would ask Boone today how that all worked out, he would
probably say not so well.
But through the course of those decades, a
mythology surrounded shareholder value, which is that not
only is it what corporations ought to be doing, but it's
what they are required to do by law, and that there are
fiduciary responsibilities to shareholders that sort of
preempt every other value. Lynn says that's not true.
And so I'd like to start with Lynn and ask you to talk
about quickly why it isn't?
MS. STOUT: He said you weren't in the room, but
you are associated with the entity that caused all the
problems and that was The New York Times.
(Laughter)
MS. STOUT: And the story actually begins
earlier in 1970.
MR. NOCERA: It's always The New York Times.
MS. STOUT: It's always The New York Times. It
actually begins earlier in 1970 when Milton Friedman
published a very famous article in which he said the only
social responsibility of corporations was to increase
their profits, and he made a very interesting statement.
He said shareholders own companies. And Milton Friedman
may be a Nobel Prize winning economist, but I'll tell you
he's no lawyer.
And so I'm going to reveal to you something.
Now, how many people in the room are lawyers, especially
corporate lawyers? Okay, I'm going to reveal something
that us corporate lawyers already know, and that is that
legally shareholders do not own corporations.
Corporations, as the Supreme Court has been careful to
remind us, are legal persons. They own themselves.
Shareholders own things called shares. And
they're really a contract with the corporation that gives
shareholders very limited rights in very limited
situations just as bond holders have a contract with the
corporation and employees have a contract with the
corporation. So we have this interesting situation -- oh,
and as to maximizing shareholder value, that's not in the
law.
And you know, how you can tell? The case that's
always cited in support of this proposition is nearly a
century old, comes from a jurisdiction that is a nothing
in the corporate law world and didn't involve a public
corporation to begin with. It was actually a fight
between shareholders in a closely held corporation. I
speak, of course, of the famous Dodge versus Ford.
Now, any lawyer will tell you if the only
corporate law case you can cite in support of a
proposition comes from Michigan instead of Delaware, is
almost a 100 years old, and doesn't deal with a public
corporation in the first place, you have to be very
suspicious as to whether that's the law. And it's not.
Delaware, which is, of course, the state where
over half of the Fortune 500 companies are incorporated is
very clear. If it's not in bankruptcy or being -- or
about to go private in a takeover, the directors of a
public corporation have, and I'm quoting the Delaware
court now, "No per se duty to maximize shareholder value."
And so is that enough of a start, Joe?
MR. NOCERA: That's great. Howard, you come at
this from the perspective of somebody who has built a
fabulous company and who has believed virtually from day
one that there have to be -- that maximizing profitability
cannot be the only value. So why don't you just give us
the sort of 3-minute summary of your point of view here,
profit versus value?
MR. SCHULTZ: Well, I think we've always
believed that you can't build a company unless you're
balancing profitability with a social conscience. And I
think the story of Starbucks has a lot to do with looking
at that through a different lens, looking at it through
the lens of people. And I can get very emotional about
this because the essence of Starbucks is not the
shareholder. It is whether or not the people of Starbucks
are embraced and they are valued as much as the
shareholder.
So in 1988, when we were a private company and
we looked at the future of the company, we did something
that no one else had ever done before and that was we gave
shares to our people. And the reason I'm upset about this
in a sense is that we're arguing about something we
shouldn't be arguing about. The shareholders today cannot
succeed unless the people are rewarded and valued.
As a private company in America in 1988, we
decided we were going to dilute shareholder value and give
equity in the form of stock options to our employees.
Fourteen percent of their base pay was going to be
rewarded in shareholder shares. Well, let me just -- let
me explain this. The private shareholders of Starbucks at
the time went crazy and they said are you kidding, you're
going to give equity to the employees? We're a private
company. How could you do that? And we said we will
retain the people. They will perform better and we will
exceed shareholder value because we will exceed the
expectations of our people.
And I think the essence of business today has it
all wrong. It's not shareholder value. It's in building
an enduring and sustainable enterprise. And the only way
you can do that by exceeding shareholder value is to
reward your people.
And I think we have to understand something.
It's whatever organization you're building, whatever
company, whether it's high-tech, whether it's insurance,
whether it's coffee, every organization is based on one
thing, whether or not the people come to work believing
trusting and are part of something larger than themselves.
That's the only way business can succeed.
And I think it's interesting to me that we're
still arguing over a subject that really should've been
put to rest a long time ago. Shareholders cannot win on
the backs of their people. The only way shareholders can
win is if you reward the people along with the
shareholders and you tie shareholder value to the value of
your employees.
MR. NOCERA: Well, you know, just my perspective
is that you may say this is a battle we shouldn't be
fighting anymore and you may be right, but it actually
seems to me that we're more or less at the beginning of
this as opposed to the end just in terms of the way
shareholders respond, the expectations that are put on
CEOs, the short term focus and the pressure that's put on
a CEO like your friend at Procter & Gamble, you may want
to tell people about that, when the stock is
underperforming, whether it's their fault or not.
MR. SCHULTZ: Well, I spoke yesterday by saying
that I've a good friend, Bob McDonalds, the CEO of Procter
& Gamble, one of the great companies in the world and one
of the great people running a public company is under
tremendous pressure because his European business, the
customers and the value of money is so difficult there
that people are not buying as much soap as they used to,
and they are blaming him.
Well, it's wrong. You can't put pressure on
people to do things if the environment does not allow it
and there has to be patience and tolerance. At the same
time you can't make short term decisions either in the
marketplace or internally by taking benefits away from
people just because you're having a bad quarter or two.
You've got to build long term value for the shareholder by
taking a long term view for the company.
And I think if you look at the history of
companies, those companies that have done that have
produced the highest value for the shareholder. And I
think we're still arguing about this and discussing it,
but it's the wrong premise.
MR. NOCERA: Shelly, from the perspective of a
corporate director, how much time gets spend on these
kinds of things and what is your perspective in terms of
the need to boost the share price versus these other
values?
MS. LAZARUS: Well, it was -- we had a
fascinating moment in the GE board about, I'd say, 2 years
ago, and one -- it's actually quite a collegial board and
very strong people. One board member said at one point
but what we have to do is think about the stock price at
which point the other 15 board members just piled on this
man and said, no, really, the role of the directors is to
ensure the long term health of the company.
So I think time horizon is really important in
these conversations. And while I think everybody is aware
of the share price for sure, I think the sense of the
boards that I sit on is that the role of the directors is
to ensure the long term health of the company. And one of
the things the board has to do is kind of protect the CEO
from all the pressure that he is feeling from the
investors who have a more short-term horizon.
And to that point I just like to add to
something that Howard said, my own perspective, on how do
you think about building that long term value for the
company is that -- you know, it's interesting that every
company in the world almost, if you ask them if they are
market driven, they say yes, of course, we're market
driven. With the exception of Russia during the Stalin
period or China under the communist that used to just
write plans about production, every company inherently is
market driven.
Well, in my business I watch the market. The
market has spoken. The market cares about what kind of
company is manufacturing the products and services that
they are buying and they -- if you don't tell them whether
or not you're a good corporate citizen, in my experience,
they impute values to you. They know who the good guys
are and who the bad guys are. And the younger the
consumer is, the more they care.
MR. NOCERA: Yet your CEO, Jeff Immelt, has
spent much of his tenure being under pressure from
investors because the stock price -- I mean he walked into
a tough situation.
MS. LAZARUS: Oh, absolutely.
MR. NOCERA: And it's been in tough situation
for him all along.
MS. LAZARUS: Absolutely. And he could've --
there were moments where he could have taken some moves
that would've boosted the share price in the short term,
but they wouldn't have been the right decision for the
long term value of the company in his view and with the
backing of the board.
MR. NOCERA: Tom, let's talk about this from the
perspective of a business educator and what gets taught in
terms of values, what doesn't get taught in terms of
values and what the problems are at the business school
level.
MR. DONALDSON: Well, actually I wanted to pick
up on Shelly's point. I want to disagree just a little
bit, not so much with your characterization of the board
or the boards that you see, but with how we train people
to be board members. I end up being in corporate
governance workshops and sessions trying to train people
who are already quite prominent to be independent, not
exactly board members. And I can tell you from the
standpoint of what they get taught, the kind of thing that
you're talking about doesn't show up. It doesn't show up.
Now, when you attend a board meeting, you begin
to hear about it. And that actually brings me to the
point that I want to focus on, which is I think part of
the problem lies with people like me. I think part of the
problem lies with business educators. I'm concerned about
the future of American business. I'm not just concerned
about the failure of government to handle things. I'm
worried about that, not just worried about presence greed,
excessive greed. I'm worried about how we train people to
be hired managers, especially in large corporations.
Think of the story of the MBA who comes in on
the first day to a school. I see them. We have 800
students that appear every year. They come in and they
are looking for tools to help them, they are looking for
credentials. They bring with them, by the way, a kind of
common sense conception of responsibility, of purpose and
so on.
What happens in the next 2 years? Well, we give
them the tools. We teach them how to calculate net
present value, how to do regression analysis. We give
them the five forces strategic Porter model, capital asset
pricing. All of these tools interestingly enough assume,
although interestingly, very few say out load, I think
that's interesting, that the sole function or purpose of
the firm is financial success for the owners.
By the time they leave, what's happened? In
effect they have had some of these common sense notions
trained out of them. It's death by neglect, death by
permission in effect. And we haven't provided them any
story to replace it. So what my concern is we don't have
the tools in business schools today to explain what smart
people, smart business leaders like Howard or Bill
Budinger in the office, people who have created great
corporations know all along, and that is to be a leader
you've got to give people a sense of purpose, you've got
to give them a sense of meaning to help them do what they
need to do.
MR. NOCERA: Well, when you -- you have a center
for business ethics. How many students go to it? I mean,
how -- do they walk past your door? I mean, what happens?
(Laughter)
MR. DONALDSON: You know, it's interesting.
MBAs are very concerned about the image of the school that
they're attending. I mean, that's part of what they are
paying for, credentials. So I -- well, I shouldn't tell
the story, but I recall some students who gathered
together with me and the dean and they wanted more
courses, electives, that would focus on ethics, purpose,
et cetera et cetera. And at one point of the meeting I
said, well, now by the way, how many of you will take this
course? And nobody raise their hands.
(Laughter)
MR. DONALDSON: They said, well, we have to get
the nuts and bolts stuff to get out.
MR. NOCERA: Lynn, one of your views is that the
emphasis on stock performance really hasn't worked very
well. So in addition to being a myth that it's a
fiduciary responsibility, it's a myth that it actually
works. You've got some statistics from your new book.
MS. STOUT: Absolutely. Yeah, I think it's
always valuable to pay attention to facts. So let me give
you some facts, and these are things we know. Okay, we
all know the unemployment rate is up, right, and we all
know that inequality is rising, but here's some things
that you may not know. Between 1997 and 2008, the number
of companies listed on U.S. exchange has declined from
8,823 to only 4,501. So the population of public
companies has declined 40 percent in a 10-year period. If
this were a species, we'd call it endangered.
According to Steve Denning at Forbes, the life
expectancy of a typical public corporation has declined
from 75 years in the 1940s to 15 years today. There is
some evidence that our corporations are less innovative.
They account of a smaller percentage of the patents that
are filed worldwide than they used to. We all know that
executive pay has risen dramatically, but we also know
that simultaneously shareholder returns have declined.
The last year has been -- you know, the last
decades, actually it's now the last 15 years, have been
described as the loss decade for investors and this
actually starts somewhat earlier. Roger Martin at the
Rotman School in Canada has calculated that between 1933
and 1976, shareholders who invested in the S&P 500 enjoyed
real compound average annual returns of 7.5 percent.
After 1976 this average has dropped to 6.5 percent.
MR. NOCERA: So Lynn, what has happened? In
other words, everybody talks about pay for performance and
nobody really talks about pay for values or pay for
purpose or -- what has actually been happening?
MS. STOUT: Well, I'm going to actually say, you
know, I'm a hard headed economics type. I actually have a
case book in law and economics. I don't worry about
values. I leave that to you guys, you business people.
Here's a professor. I'm going to be hard headed. But
what's happened is that we're learning is that pursuing
shareholder value is bad for shareholders as well as
pretty much everyone else with the exception of some hedge
funds and some executives.
And I trace this series of problems, the suite
of problems that are reflected in these statistics, they
have a lot of causes, but one of the causes I think is
ideology, and the widespread acceptance of this very
simple, I will actually say, simplistic, idea that
corporations are run well when they are run to maximize
shareholder value, which is almost always ultimately
measured by share price.
And that makes a fatal mistake. It teaches
business people, many of whom, and we have two on the
stage here, have resisted the notion because they know
better, but it tells business people that they are
supposed to run their companies according to the metric of
a hypothetical entity, a non-existent entity, this
hypothetical shareholder that only cares about what
happens to the share price of one company tomorrow.
And that hypothetical entity is a functional
psychopath, seriously. Shortsighted, opportunistic and
willing to exploit employees, self destructive, pursuing
shareholder value at one firm even though it harms their
other interest, their interest in their jobs and their
environment and their returns from their other investments
and psychopathically unconcerned about the welfare of
other people, the future generations of the planet.
MR. NOCERA: I've never met any CEO even close
to that explanation.
(Applause)
MS. STOUT: Right, I know.
MR. NOCERA: I don't know what statistics you're
reading, but those are not the people who are running
American companies.
MS. STOUT: No, don't misunderstand me. I'm not
saying those are the people who run American companies. I
know a lot of business people. I actually think they
score pretty well compared to say, I don't know,
professors, on ethics and values. The problem is that the
business people are under pressure to run their
corporations according to the psychopathic ideal.
I'm not saying that's your goal. I'm saying
you're constantly subject to pressures to do it even
though ironically enough at the end of the day the
structural pressures, it's not evil people, it's not evil
shareholders, it's not evil executives, it's a system that
is now structurally designed to produce results that are
bad for almost all of us.
MR. NOCERA: Howard, you look like you disagree.
(Laughter)
MR. NOCERA: Well, Howard, how are you paid?
MR. SCHULTZ: I have a salary like you, Joe.
And we get a bonus that is tied to EPS and return on
equity. And Starbucks has obviously, you know, the last
12 months or so had a record year, record revenue, record
profit, record stock price.
But I think just going back to what you said and
really the topic of this conversation is at the end of the
day it's really about what you are measuring and rewarding
inside your organization. I can't remember a conversation
honestly at any Starbucks meeting where I've heard
somebody say this is going to be good for the stock price.
I've never heard it.
The only issue that we're talking about at the
center of every room is our customers and our people, and
trying to do everything we can to exceed expectations.
And the lens in which we manage and build the company is
trying to do the right thing for them. And I think the
litmus test for us all the time is, is this decision going
to make our people proud because if it isn't they are not
going to support it and execute it, and is this going to
be good for the customer.
And I think when you're managing a business with
that kind of framework it's very easy to do the right
thing. Now, we all have pressures. I understand exactly
what you said, but you're the leader of the company and
we're leaders and we're paid to be leaders and we're paid
to be moral people. We're not paid to justify the wimps
and the short term mentality and the pressure of Wall
Street, which is no longer a quarter to a quarter and 5
minutes. But we're not going to play their game. The
game we're going to play is we're going to build a great
sustainable enduring company by trying to do the right
thing.
And as I said yesterday, and we're going to make
mistakes and we're not perfect, but we are going to
perform over the long term. And I think getting back to
all of this is Starbucks employs 200,000 people. We're in
the people business. We can't create value for the
shareholder if you don't create value for your people.
It's a pretty simple formula.
MR. DONALDSON: And let me push you just a
little bit on that.
MR. SCHULTZ: Yeah.
MR. DONALDSON: I think you know how much I
admire what you've done and this sounds great. But as you
put it, you're in the people business. You sell a premium
product, you sell a product that you can get a price
premium for in part because of the image. If you were
manufacturing ball bearings and having to sell them B2B,
business-to-business, to somebody else, if it wasn't so
important that the people in front of the customer had the
enthusiasm but just that they made the ball bearings at a
cheap price that's competitive in a commoditized market,
wouldn't it be different?
MR. SCHULTZ: You know, I think every industry
has its own challenges. But I think if you look at many
of the industries or in a commodity type business, those
businesses that win are the businesses that are doing the
right thing. I mean, I understand your question. It
would be harder. But I'm not in that bus. I can't really
answer that question.
MR. NOCERA: Shelly, what about -- you know,
you're on boards of two different companies, GE is GE,
always has been, kind of always will be. But then there's
Merck. Merck is under enormous pressure as are all big
pharmaceutical companies as the pipeline dries up, as they
are trying to figure out different business models. Is
there a different set of pressures to be on a board of a
company like that?
MS. LAZARUS: I think the issues are the same.
I mean I don't -- I think -- you know, one of the things
that I find interesting about all these conversations is
we don't talk a whole lot about revenue. I mean, you
know, to have a long term health company you need revenue.
And so the conversation, a lot of the conversation in most
of the meetings is how do we drive revenue.
And so in the instance of Merck, in
pharmaceuticals, if we don't have a pipeline, we don't got
no revenue because after 7 years, the drugs go off patent.
And so it's actually critical, back to people. And how do
you get the good pipeline? We get the good pipeline
because you have the best scientist. And you create an
environment for them that is conducive to their coming up
with new exploration.
So there too, I mean, even with all the
pressure, you got to feel the pressure, you got to take
the pressure, but you can't let the pressure get down to
the people who are doing the work because what they have
to focus on is making great drugs. And without them the
whole game is over. That's the thing, is you can tweak it
for a month, you can get the numbers better for a quarter,
but at the end of the day in this, I would say for any
business, but in this particular business, it has such a
long horizon, you're going to be nowhere 3 years from now
if all your scientists get up and leave and you don't have
the drugs. If I were thinking about shareholder value,
that's the way I would define it, is are we going to have
a pipeline of drugs that is -- will make a difference to
people and will keep the company successful and prosperous.
MR. NOCERA: Which is in itself a form of
purpose. I mean Apple --
MS. LAZARUS: Yes, but it's revenue-driven
purpose, yes, yes.
MR. NOCERA: I mean, Apple Computer has long
viewed itself as both a company that builds devices but
also a company that helps make life a little better in the
world.
MS. LAZARUS: Oh, absolutely.
MR. NOCERA: And that's the purpose that really
drives it. Well, it seems to me, listening to the four of
you, and listening to you two push back, that the
perspective from inside the corporation is a little
different from the perspective of the people outside the
corporation. From inside the corporation it feels to me
like you're trying to create a company or you are creating
a company with purpose, a company that's trying to look
out on the long term and trying to kind of put up a kind
of shield against the short term pressures that are
inevitable. But from the -- but, wait let me just --
MS. STOUT: Just a marker, not inevitable. But
we'll get to that.
MR. NOCERA: Right. And so from -- you know,
Carl Icahn isn't going to make a run at Starbucks but
there are a lot of companies where he is and there's a lot
of companies where Bill Ackman is going to take a stake
and say if we financially reengineer this company we'll
all make a lot of money as you just did with Burger King
for instance. A company that -- I mean, whatever you
think of the burgers, the company has been a pinball
machine for financial engineers. I mean, everybody gets
rich except on Wall Street. So the question I really want
to ask is, how do you change the perception, not from the
person inside the corporation, but from the shareholders
on the outside, how do you that?
Tom, what are your thoughts about that?
MR. DONALDSON: Well, I think in the end it's a
shift that's almost generational. It's deep, and because
I'm an educator, I think a lot of it has to do with what
we teach the leaders who are going to be manning the
tiller. Lynn, I don't want to beat you up but it seems to
me you're --
MR. NOCERA: Go ahead, go ahead.
MR. DONALDSON: -- part of the problem here. I
just heard you say I want to be -- I'm an academic. I
want to be tough minded. I don't want to talk about
values. And I can't tell you how prevalent that view is.
How did we get in to this situation, those of us who tried
to teach and create theories about business? We invented
a beautiful hammer, a beautiful powerful hammer; analysis
of data, a hypothetical deductive model, the testing of
hypothesis, the tough minded stuff.
The problem with this, and it's very powerful,
is it doesn't do very well at understanding purpose
because purpose is not something you study out on the
road; it's something as a leader you create. And so to
use the old saw when the only thing you have is a hammer,
everything starts looking like a nail.
MR. NOCERA: So I mean, like, did you want to
say, respond to that?
MR. SCHULTZ: Well, I think, you know, one of
the things that we did the last couple of years is that we
went around, not for any other purpose, just to
communicate our strategy and what it is we had to in the
next couple of years with our key institutional
shareholders who have held Starbucks stock for a while.
And we talked about that there is -- we're witnessing a
seismic change in consumer behavior.
And as a result of that we're going to need to
make significant long term investments in social digital
media and mobile payment and mobile commerce. And I think
they understood because of the long term opportunity and
obviously the performance and the license that we had
based on their confidence and trust in us as people.
But what I wanted to say is as leaders of
companies you have to invest in those relationships as
much as you do with your people, your board, because those
relationships are going to define ultimately your stock
price. And I think you can't be insulated from that just
because you're running a company. You have to invest in
those relationships as well.
MR NOCERA: Go ahead, Shelly.
MS. LAZARUS: No, I was going to say we -- I
also think we have to start educating everybody about the
fact that there's not a -- there's not an either or choice
between doing the right thing and making money. I mean,
and I take the example of GE, of ecomagination, which Jeff
Immelt from the first minute that he presented that
concept said this is not about doing right for the
environment for the sake of doing right for the
environment. This is about making money.
The reason we're going to make money from
ecomagination is that the world cares about the
environment. And everyone of our customers -- because
they're mostly B2B -- every one of our customers is
looking for products that are going to be -- do more with
less, more conservation, more green, so locomotive engines
that don't pollute and light bulbs that don't give off
pollution as well and -- but he kept saying from the start
that this is a business proposition that will make us
money and so, you know, green is green.
And ecomagination today is, it's billions of
dollars of business. It's its own division within GE. It
is billions of dollars of business to GE every year. You
don't have to make a choice. It's the same thing. You
know right is on our side. It's doing the right thing now
actually drives revenue. And when that happens, you don't
have to get to these conversations about do we trade off
doing the right thing for profit. It's the same thing.
You know, green is green.
MR. NOCERA: All right, Lynn, I'm going to give
you a chance to defend yourself. And I'm going to try to
open it to questions in about 5 minutes or so.
MS. STOUT: Okay. And actually I'm going to
welcome Tom's criticism. He is right to go after me for
ignoring values. And just in my defense, my book before
this one, the title was Cultivating Conscience. So I do
take them seriously. But I don't think as much as
important as values are I don't think values enough are
going to do it. We have an extraordinary CEO here and an
extraordinary chair. But a lot of other CEOs and chairs
are mortals and this is what they have to worry about.
So here's another fact for you. In 1960, annual
share turnover for firms listed on the New York Stock
Exchange was only 12 percent implying an average holding
period of about 8 years. By 1987, this figure had risen
to 73 percent. By 2010, the average annual turnover for
equities listed on U.S. exchanges has reached an
astonishing 300 percent annually implying an average
holding period of 4 months. How do you talk about longterm
values to a shareholder who's going to be owning your
stock for 4 months? There's a deep structural problem
here. And you lawyers, you get to smile quietly.
I think one of the reasons why I can see it is
that a lot of the problem has come from changes in the
law, that people who don't spend their days studying, you
know, what the SCC or the IRS has done lately are not
aware of. But one of the reasons why we see this
incredible hyper-frenetic trading is that the cost of
trading has come done dramatically. Why has it come down?
Well, among other things, I don't know how many
of the people in the room remember this, we used to have a
transaction tax on trading stocks. Now, we're taxing
everything else today. And if the Obamacare goes forward,
we're going to start taxing. There will be sales tax on a
little old lady's purchase of an artificial hip for a hip
implant, right? We're taxing hip implants. We're not
taxing stock trades. Now, another thing that's happened
of course, you all remember --
MR. NOCERA: Well, wait, stop. Stop right there.
MS. STOUT: Yeah.
MR. NOCERA: So how do you -- how do the
corporate people on this panel feel about a transaction
tax?
MR. SCHULTZ: Well, Joe, that's -- I have no
opinion on that.
MR. NOCERA: Okay.
MR. SCHULTZ: I'm not in the business of
transaction tax. I'm not in the business of short term
trading. I'm in the business of creating long term value
for multiple constituents.
MR. NOCERA: Could you tell the story you told
yesterday about the hedge fund guy who called you up in
the throws of --
MR. SCHULTZ: In 2008, during the cataclysmic
financial crisis when we were really trying to navigate
through a very tough period, maybe 6 months into the
crisis I got a call from one of our institutional
shareholders who I had known for many years. He's held a
stock for probably a decade. And he said to me, you have
the perfect opportunity and all the cover in the world to
cut the health care benefit out of Starbucks.
We've been providing health insurance for over
20 years. That line item this year is $260 million. And
I said to him, you know, I understand why you're calling.
But you need to understand if we cut that benefit, it
would literally fracture the culture and values and
guiding principals for our company. We couldn't do that
and we wouldn't do it.
And I said to him very politely, without
arrogance, if you feel that a no-decision on that is
worthy of you cutting your holdings in the company, then
you should do it. And a week later I found out that 50
percent of his shareholdings in Starbucks had been cut in
half. And I said, okay, fine, he made his decision. But
we stood for the long term purpose of the company.
And I think even if the stock goes down, that
wasn't going to phase us. It was going phase our board.
It was going to phase our intent. We were going to manage
through the crisis. And I think also what I said
yesterday is you can't have good values just because you
have a tail wind. You've got to have good values when you
have a head wind and believe and have confidence and faith
that you're going to manage through it, and we did. Not
because we're perfect or better than anyone else. It's a
story that's true and authentic. But there's lots of
stories like that, of fantastic companies and fantastic
CEOs that are always doing the right thing. They just
don't get the ink.
MS. LAZARUS: But I think, if I could just -- I
think, Howard, that's also where you need a strong board
because if three more guys had done the same thing -- I
mean, the board's got -- that's when some board's get
shaky, you know. And that's why you see CEOs changing
too, that the board start to feel all this pressure from
investors. And you got to hang in there and remember all
over again what the long term purpose of the company is.
MR. NOCERA: I'd like to open it up to
questions. Right there, sir.
MR. GANS: Thank you very much. My name is
Mitchell Gans. I teach at law schools in New York tax
courses. And so I'm thinking about the article in The New
York Times some months ago which was principally about, if
I recall correctly, GE and it's tax avoidance strategies.
And I'm wondering about that from an ethical or values
perspective. And I'm particularly interested, of course,
given the panel, I'm particularly interested in the kinds
of discussions that might occur in the board room about,
you know, is that doing the right thing.
And, of course, this is all against the
backdrop, from my perspective of teaching tax, it's all
against the backdrop of changing norms really about tax
avoidance strategies in general. I mean, the IRS and the
Department of Justice indeed have -- you know, there's
kind of been a paradigm shift. I mean there are tax
lawyers now who are actually sitting in jail for merely
because they wrote opinion saying that certain tax
strategies worked and the governments disagreed. So
anyway I'm wondering about the discussion in the board
room about is that doing the right thing and is it
coinciding or is it contention with the objective of
making money.
MR. NOCERA: Wow, Shelly, you weren't expecting
that one really?
MS. LAZARUS: Well, actually it's not a hard
question to answer because I really don't think it was an
issue of ethics and values. And frankly, it really didn't
come to the board because it was just -- we have a
strategy to pay the least tax that we can pay. I mean,
that's part of -- I mean, I don't how to get to a strategy
that says, oh, let's pay a little more; we're feeling
better this year. I mean, it's -- I think the whole way
the system is structured is -- has people working to sort
of minimize taxes. I think that's what's expected.
Now, the thing that caused the real brouhaha was
that in the year where this all came about is GE lost
billions of dollars. You know, it's did the company want
to lose billions of dollars? No. But when you lose
billions of dollars, you don't pay tax. I mean, as far I
know -- I mean, there are lawyers here. I don't know. As
far as I know that's not required. And so I think if I go
back to The New York Times -- so The New York Times ran it
as a front page story, that GE pays no taxes. And that
was true, but I don't believe that for GE and the board at
that moment in time it was an ethical issue.
Now, whether it's a larger ethical issue for
society, government, corporations, you know that's a
different conversation. But in the GE instance, I think
what caused the whole concern was a horrific year for the
company where the stock fell from $40 bucks to $20 bucks.
And one of the outcomes of that was that we didn't owe any
tax.
MR. NOCERA: Yes, sir. Grab a mike.
MR. JONES: Thank you. I'm David Jones. I was
chairman of the board until a couple of years ago of a
Fortune 100 company called Humana and now run a venture
capital firm. And I wonder if you could comment on the
importance in this context of balancing short term against
long term of both management and board members owning
material amounts of stock not having options to buy it
later but actually owning it.
MR. NOCERA: Could you just expand on the
question a tiny little bit? I'm not quite sure what
you're getting at.
MR. JONES: Sure. Well, the pressure here
supposedly is that the hedge funds who were trading in and
out of your stock or hooting and hollering that you got to
do this or that today to improve the price in a week. And
if the management, in my experience, and the directors
have actual shares that they own and it matters to them,
my experience very strongly is that's pretty easy to
resist because you can make an investment today that will
pay off in 3 or 4 years. That's what Howard is talking
about, right, keep your work force focused and caring
about the values?
MR. NOCERA: I think, Joe, what he's asking is
whether or not there's been policy change for section 16
officers and board members?
MR. JONES: It's not a legal question. It's not
a legal question. It's -- does it matter whether the
agents and the fiduciaries have a long term interest in
the value of the entity?
MR. NOCERA: Oh, from their own stock holdings?
MR. JONES: From their own personal perspective?
MR. NOCERA: Okay. Nobody knows.
MS. STOUT: All right, I'll weigh in on this.
MS. LAZARUS: I don't think it should. No, I
mean, I don't think it should.
MS. STOUT: I'll just give you two historic --
I'm big on facts. That's what they pay me to do. Two
facts. Before Congress changed the law in 1993, to
require public corporations to tie pay to some objective
performance metrics, CEO pay was based largely on a flat
salary -- I was very glad to hear of your salary
arrangement -- with some share ownership which was
normally done just -- the CEO themselves thought it was
appropriate to buy and hold stock. It was thanks to this
legal intervention, ironically enough, that suddenly
companies felt compelled to start using stock options, and
we all know where that has landed us.
Second fact, actually a CEO of Monsanto, a
former CEO of Monsanto who read my book send me a
wonderful e-mail and he said that he had detected a change
in the culture, and back when he was the CEO, no selfrepresenting
CEO would sell his own company stock. The
norm was if you were selling your own company stock you
were telling your shareholders that you didn't believe in
the company.
And that that changed a couple of decades ago
and suddenly CEOs were advised -- and I'm wondering, Tom,
if maybe your folks at Wharton had something to do with
this. Maybe the finance department went in and told the
CEOs they had to rebalance their portfolios, right.
MR. DONALDSON: Call me back.
(Laughter)
MR. NOCERA: Right here.
MR. CORDIAN: Thank you. My name is Rick
Calderone, I'm a professor at Georgetown University, and I
relate to Tom that I've known for a while since his good
old days at Georgetown. And I deeply, deeply relate to
the responsibility we have in business schools to train
our future managers, future leaders because of what they
need to do and I always maintain the thesis that business
schools are manufacturing facilities of overhead.
Hopefully that's an intelligent overhead.
But in any event, the bottom line is the
following. I think that metrics condition behavior. And
if metrics condition behavior. There are three dimensions
that we have been discussing today. One is the financial
dimension, financial performance. The other one is
operational performance, and the third one is social
performance. I would argue that the financial performance
has been way -- I mean, is ahead of the pool of the other
metrics which can be done objectively. And that's why
it's so easy to measure them.
Operationally, depending on how you evaluate the
whole thing is also okay. And we could argue, without
getting too much into the whole thing, that there is a gap
between the financial performance and the operational
performance. But the one that has been left out of this
equation is the social performance.
So what I want to know, particularly not from
the academics, but from the other two, is which ones are
the metric you would recommend, like our key. Because,
you know, I understand the passion that you put into
telling the people that they should and create this sense
of community that you created Starbucks. But when we
teach at our business schools, we don't have you there.
And then not all of them are going to be working for
Starbucks. So how do we develop a set of metrics that at
least will put in their head, this is the carrot that will
close the three sets of metrics; the financial, the
operational and the social?
MR. SCHULTZ: I certainly respect that you are
professor and you want a metric.
(Laughter)
MR. SCHULTZ: But I -- but this is not the real
world. We don't sit in a room and measure metrics. Let
me tell you a very brief story. Last month -- and I think
this will hopefully give you an illustration. Last month
we went to China. We have a 1,000 stores in China. We
went to Beijing and Shanghai. We went there for a very
unusual unorthodox reason, to have annual meeting. Not an
annual meeting of shareholders, an annual meeting of
parents. Parent's of our employees in Beijing and
Shanghai. Can you imagine that?
You can't put a metric on that. There is no
metrics. What it is, is a sensitivity, an understanding.
And the understanding is the family unit in China and the
one child within that family is everything to the parents.
We had an obligation, a responsibility, if we're going to
build a long term business, thousands of stores, to build
the relationship with the parents. There is no metric for
that. It's an understanding that business is not just a
financial metric or a financial goal. It is a -- it's a
narrative and in that narrative is a number of things that
you have to do to be successful.
And there is this new relevancy and the new
relevancy is the innovation that we all have to have in
the market place, you also have to have in the social
responsibility of being an external good employer to the
community but also innovation to your employees. Doing
things for them that are unaccepted that they see value in
and that they want to embrace and as a result perform.
There's no metric for this.
MS. LAZARUS: But, Howard, wouldn't you -- but I
would answer that there is no social metric, that the
social piece drives the financial performance and the
operational performance. What you're just talking about
is everything you did in China drives your enterprise in
China.
MR. SCHULTZ: Yeah. And I'm sure we'll be more
successful as a result of doing the right thing.
MS. LAZARUS: But I think -- I actually think
it's a trap to separate out the social piece. I actually
do. I'd think it's not the thing you do after you do
everything else. It's not sort of -- we'll run our
business and then we'll be good guys. It's what's
happening now is it's going to the core of the business,
that the business has to be responsible. And this is my
own view and that the most successful businesses that you
look at do have that inherently at their hearts.
MR. NOCERA: Tom.
MR. DONALDSON: Yeah, let me just jump in. I
agree very much that it's horribly difficult to measure.
But I would submit that because of a tendency for it to be
more toxically joyful at the top of the organization. In
other words, I mean, we measure this stuff. and it is
true that the view is rosier about the ethics and social
responsibility of the firm if you survey the people at the
top in contrast to ways down. So we can deceive ourselves
that we have to sometimes try to take the temperature of
the organization.
Now, this entire movement that flourished in
Europe for the last decade-and-a-half in social
accountancy. And it's very fancy. It has a record that I
think is unblemished by success.
(Laughter)
MR. DONALDSON: In other words it has failed at
almost every turn. But, what I find -- I mean, when I am
pushed to take the temperature of an organization, instead
of looking at the black letter principals, the codes of
ethics, the credo statements, all that stuff, I listen to
the stories that are told. And that way you can get to
their culture. And in Starbucks just what wonderful
stories there are that probably almost everybody working
at Starbucks knows about. If those stories aren't there
and they aren't good, you've got problems.
MR. NOCERA: Sir, you had your hand.
SPEAKER: A quick question. This is a real
question for the fact lady. Tell us the story behind
those two numbers; 75 years of average age to 15 and that
enormous drop. What's the story behind those two numbers?
MS. STOUT: First of all I'm the stout lady, not
the fat lady.
MR. NOCERA: He said fact. He said fact.
(Laughter)
MS. STOUT: Oh, fact. See I'm feeling --
(Laughter)
MS. STOUT: I am clearly feeling guilty over the
dessert last night.
(Laughter)
MS. STOUT: But now you'll all remember, won't
you? This is the story and it's an interesting one. It's
a mix of things. First of all, lots of our public
companies have blown up. There are no CEOs from Enron
here, right? Or any of the other companies that have
failed, some of them in a very dramatic fashion, in the
last 8 years.
Part of the story is public companies are going
private like Dunkin' Donuts. They don't want to deal with
their public investors. Part of the story is that
companies that are private don't want to go public any
longer. And there is an interesting part of the story
that I think has been missed. And here you go, Joe, story
for someone. Maybe not for you, but someone at The New
York Times. A lot of the companies that are going public,
the few, they're actually what I call closet private
companies because they're going public with dual class
share structures that make sure that the founders maintain
voting control so they're not subject to pressures from
these short term traders.
And by the way, Howard, I will point out, I
think you find -- the puzzle I had for Howard is how can
his company resist these short term pressures if they have
public shareholders? Now, I know the answer. A lot of
your shareholders are your employees. That helps. So
that's the story behind the fact.
MR. NOCERA: You know, just for the record
though, public companies going private is not entirely
benign to get out of the glare and the short term
pressures. A lot of times public companies going private
puts more pressure on because they've been taken private --
by private equity people who have an exit -- who want an
exit strategy, have an exit strategy. Sometimes they go
private -- I mean, who was the CEO of Chrysler who --
Nardello (phonetic).
MS. LAZARUS: Nardelli.
MR. NOCERA: Nardelli, you know, was reported to
say, thank God, I'm now at private company. Nobody gets
to see how much money I make anymore, because his pay
package at Home Depot had been a cause of considerable
controversy. So, you know, yes, there are plenty of
instances, Fidelity Investments or Cargill (phonetic)
immediately come to mind, companies that have been private
for a really long time, want to stay private, and do so
very specifically because they want to make the kind of
business investments and judgments and long term thinking
that they think is right for their companies. But a lot
of companies go private, you know, basically because they
want to cash out. I mean, let's be honest here.
Let's take another question. Somebody from --
oh, God, all the questions are on this side. Okay, sir.
SPEAKER: Howard, as an entrepreneur myself
believing in your total philosophy myself, I have 13,000
plus associates at our organization or private enterprise.
And I find it difficult to find benchmarking to take it to
the next level of really associate, a shareholder. I
don't know where to go to, to really find information that
would shortcut long term investigating and networking to
really take to the market to help our people grow and feel
better about the organization because we intentionalized
our culture 16 years ago mirroring everything you do, but
we're a private enterprise. So where would you suggest
that someone like myself or other entrepreneurs here go
for more education along the philosophy that you share
with your people?
MS. SCHULTZ: Let me ask you a question. Do
think there is -- there needs to be a bifurcation between
the way you treat your people, value people or grow your
people between a private and a public company because I
don't see the distinction?
SPEAKER: We're private and we're all about our
people. We hold our people in the highest esteem with
gratitude and respect.
MR. SCHULTZ: Do they have equity?
SPEAKER: They do not, but I'm saying because
our margins we don't enjoy as much margin maybe as you do,
I don't know. You know its margin, holes, whatever the
case maybe.
MR. SCHULTZ: Yeah.
SPEAKER: But I'm looking to learn, to
understand more to bring it our people so we can do a
better job for the people.
MR. SCHULTZ: Okay. I'd be happy to talk to you
offline. That's a very broad based question. I think
there are a lot of private companies that have done a very
good job in creating value for their people, an exit
opportunity for their people, in terms of equity. But
I'll be happy to talk to you about that.
SPEAKER: Thank you.
MR. SCHULTZ: You're welcome.
MR NOCERA: Yes, sir, you've had your hand up
for a while, right. I'm pointing at you, sir. You're on.
MR. STROBE: Richard Strobe (phonetic), Beta
Drug Society (phonetic), Europe. Just one point regarding
the overall discussion. Shareholder value, as we
discussed it, is man made, right? It's not God-given.
It's not an eternal law. So it's subject to change.
What I'm wondering is there enough thought about
where should we really make changes, what are the levels
to make changes because the one point I would add is if
you look inside many corporations today -- and I think
Howard Schultz's company maybe rather a very good
exception. But I don't think this is the general picture
if you look inside, not a CEO, but to the employees in the
companies, you find a world of cost-cutting, of reduced
investment, of higher pressure, of reduced benefit et
cetera, et cetera. And so I'm wondering is there a way to
move maybe the current philosophy in a better direction
and what would you see are the levels?
MR. NOCERA: Tom, why don't you take that first?
MR. DONALDSONL: Well, Lynn is best qualified to
talk about shifts in the way we interpret, say, the form
of the corporation and so on than I. But a lot of it for
me does come back to how we train professional managers.
And I use the term professional, and I've got to confess
that most of my colleagues would disagree that even people
who graduate from Cornell or Wharton and so on, having
spend 2 years studying this stuff, are professionals.
Professionals, that term is resisted because it does carry
some sense of responsibility along with it. So my sense
is that's one of the big shift.
If you're Howard Schultz and you're the founder
or if you're the leader of a family corporation that has
had an identity, that's thrived over, say, a couple of
generations, your job is a heck of lot easier. Bring in
the hired gun that we trained at Wharton, and what we've
trained doesn't relate very well to what you really have
to have in the end in order to get the job done. Now,
that's just part of the solution, but that's where I would
begin.
MR. NOCERA: Anybody else?
MR. SCHULTZ: I think one thing we haven't
talked about is the young people -- and you made a comment
earlier which I think is worth repeating. The younger
generation coming into an organization today, I have
found, come in with a high degree of cynicism. For two
reasons, it's a cynical generation because they don't
believe in institutions as much as we did, we have. And
probably they've worked for a company or an organization
before coming to Starbucks or another company and they've
been disappointed or let down. So we certainly are very
conscious of that first 30 or 45 days to make sure that
the tribal knowledge, the imprinting, the culture and what
we stand for is really presented in a way that's honest
and authentic.
The other thing that we do which I think has
been very helpful, on a quarterly basis, everywhere in the
world we are standing up in an open forum like a town hall
meeting with no notes and we're talking about the company
for 5 minutes, and then just like this it's an open mic
and there is no retribution for criticism and concerns,
and we've been doing that for years. And in that
environment, you get such honest communication and it
travels. And then internally we've developed a social
media channel where everyone is connected inside the
organization so that there is tremendous transparency
about what we're doing and when we're not doing well.
And the other think I'd like to say is that you
shouldn't misunderstand that we are a performance driven
organization and the culture of the company is linked to
that. And that is a contract and responsibility we all
have. We have to perform for the culture to exist.
MR. NOCERA: Over here.
MR. LEVEEN: I'm Steve Leveen, CEO of Levenger,
a small private company. And the focus this morning has
been on young people in business school, which is a very
important focus. But my question has to do with all the
other young people who don't even consider business school
because they want to change the world. So how do you --
how do we -- here's my question, how do we reach these
young people who want to change the world and convince
them that they can do so in business, that capitalism can
be a tool for social good?
MR. NOCERA: Anybody?
MS. STOUT: All right, I'll leap in on this one.
I think one of the reasons why they are so cynical is --
by the way, for what it's worth, I love corporations. I
adore them. They brought us penicillin and, you know, and
airplanes, which even though it's horrible to fly in them,
it really beats a covered wagon, right? They brought us
so many wonderful things.
But if you look back during the era of what was
called managerialism, which by the way sounds a lot like
what Howard's talking about, you will see that companies
not only produced good returns for shareholders, they also
produced steady secure job for employees, they paid lots
of government taxes, they regarded themselves as citizens
that had obligations to their communities, they were
dedicated to producing quality products.
And as a result, they were viewed as
institutions that although imperfect, contributed to
society broadly. And I think as a result of some of the
changes, we've seen both cultural changes, which are the
specialty of the other three people here, and legal
changes, which are my specialty, there's a widespread
perception that corporations are not doing that anymore.
My own view is it's very reversible. You know
the heart of capitalism, what Adam Smith talked about, was
business that made both parties better off, that grew the
pie, as opposed to making small group off at the expense
of everyone else. That's what business should be, and I
think it is largely, but it's failed that standard enough
that that's why our young people are cynical. And we need
to move it back to that ideal form of capitalism that
contributes to peace and prosperity for large numbers of
people.
MR. DONALDSON: Let me just add one quick
thought. There are increasing numbers of young people who
are just rejecting the old models and going out and trying
to do it. And they deserve our applause. There are two
simple things we need to do. I mean, Howard has been a
leader in focusing on small business and getting
businesses started. There are two things we need to do;
one, we shouldn't tell them it can't be done and the
second thing is we need to lend them money. And that's in
part what Howard is doing.
MR. NOCERA: I think -- actually do we have time
for one more? Who's my boss here?
MS. STOUT: There's a lady over there. There's
a lady over there.
MR. NOCERA: Okay.
MS. STOUT: I'm doing my gender thing. There's
a lady over there.
(Laughter)
MR. NOCERA: Okay. Ma'am?
MS. BENDER: Hi, I'm Grace Bender (phonetic).
I'd like to first say to Mr. Schultz I'm going to go home
and buy more of your stock. And I would like to know -- I
wish there was some way you could rate companies to see
who is doing social things in their company. But you
mentioned that the hedge fund person called you and talked
to you about the insurance and you weren't going to drop
it. I don't know how many shares he was able to dump, but
that affects the market. Do you think these hedge fund
people should be able to talk the CEOs and sort of do that
because their dumping can affect your stock hugely? And
do you think it's the hedge funds or the day traders that
are causing more of the disruption in the market place,
the stock value?
MR. SCHULTZ: One thing I should correct. It
wasn't a hedge fund who called, it was a classic
institutional shareholder very-well-respected company.
But, you know, any shareholder can call the CEO. The
question is, is the CEO going to call back?
(Laughter)
MR. SCHULTZ: And -- but I think, you know, the
system needs to be examined clearly. I think day trading
and the algorithms that exist today in terms of how
quickly something could happen has nothing to do with the
performance of the company that could drag the stock down.
These things are systemic and -- but I must say, it's not
something candidly that I think about at all. What I
think about is our core business and how we can improve
it. I'm not thinking about all the things that might
drive the stock up or down.
MR. NOCERA: Shelly, do you have any last words
of wisdom?
MS. LAZARUS: Just what I said before. I think
I actually think it comes down to the long term, you know,
growth of the company, that right is on our side, that
people care about the ethics of a company and that when
it's perceived as being strong and the company caring
about the environment, they buy more of the stuff. And at
the end of the day when they buy more, good things happen.
MR. NOCERA: And on that note we close. Thank
you all. Thanks to our panel.
(Applause)
* * * *
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