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Global Conference 2009
Sunday, April 26, 2009
Sun 4/268:00 am - 10:00 am
Government and Education: A Private Breakfast with U.S. Representative Buck McKeon
By invitation only
Sun 4/2611:45 am - 1:45 pm
Government and Health: A Dialogue for Accelerating Medical Solutions With Anna Barker and Andrew von Eschenbach
By invitation only
Sun 4/262:00 pm - 3:30 pm
A View from Minority Leaders in the U.S. Senate & House: With Senator John Ensign and Representative Eric Cantor, House Minority Whip
By invitation only
Sun 4/263:00 pm - 8:00 pm
Sun 4/263:00 pm - 5:00 pm
Prostate Cancer Foundation Board Meeting
By invitation only
Sun 4/265:00 pm - 7:00 pm
Reception at the home of Lubov and Max Azria
Hosted by Guggenheim Partners
Special Guest: U.S. Representative Henry Waxman, Chairman, House Committee on Energy and Commerce
By invitation only
Sun 4/266:30 pm - 9:30 pm
Private Dinners
By invitation only
Monday, April 27, 2009
Mon 4/276:30 am - 7:45 am
The Evolution of Islamic Finance
With "net capital exportation at par with China," the Gulf Cooperation Council (GCC) states have seen strong growth in Shariah-compliant financing, or Islamic financing, according to panel moderator Shawn Baldwin. As structural elements and best practices have begun to formalize, and as the GCC continues to acquire more than $1 trillion of foreign capital over the next decade, the focus on Shariah financing will continue to increase.
Umar Moghul stressed that Shariah financing "is a startup industry, not just a startup venture," and it will take time for the legal, ethical, and financial institutions of the industry to mature.
According to Aamir Rehman, some asset classes, particularly equity and real estate assets, are more easily entered into by Islamic investors than fixed-income equivalents, known as "sukuk," and private equity investments. Part of the difference stems from the specific role of interest, or "riba," in fixed income. Interest is generally impermissible under Shariah. This aspect of Islamic financing creates a need for Shariah review boards composed of Islamic scholars and experts.
Taha Abdul-Basser said these Islamic scholars are essentially counterparts to lawyers, collaborating during the documentation period to ensure that the investment is Shariah-compliant. The review board verifies that what appears to be a conventional transaction (i.e., to be interest bearing) is structured in a compliant way.
Other roles of the review board include looking at the practical limitations on traditionally impermissible activities, like sales of tobacco and alcohol. For instance, a real estate asset with a few tenants engaged in some "impermissible" activities might still be deemed a Shariah-compliant investment by the scholar review board. In other instances, practical solutions may take the form of donating revenue from the impermissible activities to charity.
Another crucial role of the Shariah experts, Moghul said, is to work with lawyers to create specialized investment structures that allow for fixed-income sukuk transactions to take place. Typically, this is accomplished by adding a special purpose vehicle (SPV) to the overall transaction structure that is able to operate on a basis other than an Islamic one. Because a sukuk holder must take an ownership interest in the underlying asset for compliance purposes, the SPV acts to take on loans and set up leases, calls and puts that mirror prepay agreements and other structuring needs for the Islamic investor.
As the structures of Islamic financing have become more formalized, the demand for Shariah-compliant financing has increased. Historically, most sovereign investment funds in the Islamic world have not been Shariah-compliant, but Rehman said these investors, as well as insurance institutions, increasingly are looking at meeting the demand for Islamic financing. "Customers in the Islamic world prefer Shariah-compliant structures if they perform exactly like a conventional product," he said.
There also has been a growing movement among pensioners for Shariah-compliant pensions. Additionally, there is a need for private equity investments to bring capital back into the GCC to support job growth in a region where 40 percent of the population is younger than 15.
The panel closed by noting that Shariah-compliant investing bears similarities to socially responsible investing in that ethical concerns drive Shariah investing.
Taha Abdul-Basser
Principal and Co-Founder, StraightWay Ethical Advisory LLC
Umar Moghul
Partner, Murtha Cullina LLP
Aamir Rehman
Head of Strategy, Fajr Capital Limited; Author, Dubai & Co.: Global Strategies for Doing Business in the Gulf States
Mon 4/276:30 am - 8:30 am
Access to Capital: Fueling Economic Growth
Women Financial Leaders Program
By invitation only
Diane Denish
Lieutenant Governor, State of New Mexico
Kathleen Lutito
President and Chief Investment Officer, Qwest Asset Management Company
Anne Walsh
Senior Managing Director, Guggenheim Partners
Carmencita Whonder
Policy Director, Government Relations Group, Brownstein Hyatt Farber Schreck LLP
Mon 4/276:30 am - 7:45 am
Solutions to the Increasing Cost of Financing College Education
The roundtable opened with a discussion of President Obama's goal of having 50 percent of the American population achieve some form of post-secondary school education. Egalitarian access puts a significant financial burden on academic institutions. Universities need to offer a broader range of programs to serve a wider student population, but at the same time they need to help students graduate, panelist Michael Crow said.
U.S. graduation rates average less than 40 percent. "How do you drive down cost when productivity is so low?" Crow asked.
Universities need to improve access and low graduation rates before they can address cost. He gave the example of his experience at Columbia University to illustrate that cost containment is not a problem at private schools because of the high income of students' families. "The subject never came up," he said.
Crow suggested that the reason graduation rates are so low is that the quality of the education offered is low; so students opt out because they are underwhelmed, although not everyone in the room agreed with that assertion.
Graduation rates are complicated by students′ family income and ethnicity. Students whose abilities are in the lowest quintile and whose family income is in the highest quintile have a 75 percent likelihood of obtaining a college degree, while students whose abilities are in the highest quintile and whose family income is in the lowest quintile have a 15 percent likelihood of obtaining a college degree.
Crow said the main problems universities face today are the lack of adaptability, speed, structural innovation and differentiation. Telling public universities, for example, to think of themselves as enterprises rather than as extensions of government agencies would drive innovation. Competition among schools would spur more adaptability and differentiation.
But as for cost, innovation is not the only solution, Crow said. Arizona State University uses seven different financial models to help students finance their education. Some students pay monthly at zero interest. Crow's team is considering offering a free tuition up front, with a higher tax bracket in the post-college years to "pay" for the years of college through higher taxes.
Moderator Daniel Ebersole offered his take on reducing the cost of higher education: 529 savings plans. A new bill would extend the saver′s credit to 529 plans, make permanent the ability to change the 529′s investment direction twice per year, and make permanent the qualification of computers as a qualified withdrawal under the plan, he said. There are several options for different 529 plans, and parents can compare plans at www.collegesavings.org.
Mon 4/278:00 am - 9:15 am
Financial Recovery: When and How?
"The one thing that would speed up the recovery is the mindset that you don't kill the innovation but you update the infrastructure to allow the innovation to get going," said El-Erian, echoing the view of the other panelists that entrepreneurial innovation is the key to a rebound.
The U.S. government's involvement in the insurance, auto and banking industries was more of a concern than the country's ability to recover for Kenneth Griffin of Citadel Investment Group. Steve Forbes of Forbes Inc. agreed that more government involvement in the private sector would be detrimental, causing recovery to take years rather than months.
El-Erian insisted that recovery will not be a simultaneous process, since initial conditions in various industries and nations were very different to begin with. He projects a sequential recovery in the coming quarters, during which some sectors and countries will resume growth, but fears that protectionism may help some groups at the cost of others.
While he agreed that more government ownership and regulation are not part of a long-term solution, John Micklethwait of The Economist pointed out the political reality that the public is demanding these actions. The panelists agreed that the U.S. government needs an overarching framework and direction for regulation and other actions rather than applying ad-hoc fixes.
"We've spent 200 years developing good law. This is not the time to rewrite it," stated Griffin. Rather, he suggested that regulators should recommit to adequately enforcing current rules. He pointed out that although Fannie Mae and Freddie Mac were heavily regulated agencies, regulation did not prevent them from incurring catastrophic losses.
While the panelists disagreed on whether to eliminate mark-to-market accounting and specific exchange-rate policies, they all agreed that the free market will ultimately provide the most desired long-term outcome. "We want to move the government out of the role of picking winners and losers and return that to private markets as fast as prudently possible," concluded Griffin.
When polled, more than 50 percent of the audience at this session stated that they believe the United States will emerge from the current recession by the first half of 2010.
Mohamed El-Erian
CEO and Co-Chief Investment Officer, Pacific Investment Management Co. (PIMCO)
Kenneth Griffin
Founder, President and CEO, Citadel Investment Group LLC
John Micklethwait
Editor-in-Chief, The Economist
Mon 4/278:00 am - 9:15 am
The Future of Health
Elias Zerhouni of the Bill & Melinda Gates Foundation identified two current barriers: the current focus on acute care and the unanticipated complexity of biology. There is a disconnect between advancements such as completion of the human genome project and translation to care. He believes that a societal shift to a concept of "embedded health" will be required to truly change the face of health. A commitment to change and healthy living is needed at the societal, economic and political levels.
Rep. Henry Waxman spoke to the role of government in this metamorphosis, specifically in promoting prevention, creating and sustaining public health infrastructure, addressing access inequity and funding basic research. He believes that government needs to create greater access to healthcare but also needs to look at health beyond just treatment of symptoms (for example, promoting behavior or environmental changes that can positively affect health). Waxman stated that the government needs to take a harder look at public health policy and make provisions for the unanticipated. He also spoke to the need for a sustained and increasing commitment to funding basic research rather than fluctuating with shifts in power.
Susan Hockfield of MIT and John Lechleiter from Eli Lilly also called for sustained funding as well as investment in human capital. Hochfield believes the future of health, prevention and treatment lies in innovations stemming from the collaboration between life and physical scientists as well as engineers. These partnerships can give rise to new technology and delivery systems but require basic research funding and crossing of disciplinary divides. Additionally, investment in both K-12 and higher education is required to nurture the talent leading this innovation.
Lechleiter had a similar stance and referred to this nurturing as part of an "ecosystem for innovation," which also requires investment and regulation. To create and sustain this ecosystem, government, public institutions and private sector need to work together more efficiently.
According to panelists, our future will bring personalized medicine with an emphasis on prevention and targeted, cost-effective and high-tech treatments. Achieving this future will require not only investment in human capital and basic research but also a culture shift among researchers, politicians, philanthropists and the general public.
Henry Waxman
U.S. Congressman (D-California)
Elias Zerhouni
Senior Fellow, Global Health Program, Bill & Melinda Gates Foundation; former Director, National Institutes of Health
Mon 4/278:00 am - 9:15 am
Doing Business in Russia: Overcoming Repeated Crises
These words of speaker Alexander Kovaler accurately summarized how Russia's geography, demography and culture come together to create a unique business environment: one characterized by the potential for tremendous returns on investment, but a strong need for networking and an ability to navigate the changing but ever-present bureaucracy and corruption.
To illustrate this point, Kovaler cited the experience of his friend who recently opened a nightclub in Moscow and, upon tallying over his entire experience of launching the business, found that he was visited by 80 different "bodies" requiring some action or transaction before the club's doors could be opened. However, once the nightclub began operations, it recouped its $10 million investment in only six months.
Stories of rapid growth abound in Russia, but an important point when looking forward is that "growth has covered up a lot of deficiencies and inefficiencies." Noting a particular company spent $2 million dollars per year providing fruit in their sales offices, Kovaler pointed out that there are many business practices that will need to be corrected as Russian companies compete in more efficient markets. Perhaps most problematic is the dearth of managerial skills to improve the operating of inefficient companies.
Interviewer Michael Intriligator pointed out that many of these inefficiencies arise from a post-USSR adoption of free market principles that neglected the institutions required for well-functioning market. In particular, there was a gap in legitimate public services, accompanied by privatization of public monopolies, with a general lack of concern for promoting competition. This cleared the way for the "Russian Mafia" to fill the void, and many of their operations have now been legitimized into businesses, with attendant inefficiencies in tow.
But while organized private corruption may have had a significant role in the past, Kovaler believes Russia is a much different place than it was in the early 1990s. Personal safety of officials and those doing business is a much smaller concern, but government corruption itself is a bigger problem.
There are signs of hope on this front. Medvedev, the current president, has at least put the issue of corruption and improved transparency on the table, making his income statements public, among other actions. Whether this will be sufficient to improve the business environment, not to mention the lot of Russia's population, is yet to be seen.
Michael Intriligator
Senior Fellow, Milken Institute; Professor of Economics, Political Science and Public Policy, University of California, Los Angeles
Mon 4/278:00 am - 9:15 am
How U.S. States Can Benefit from the Build America Bond Program
The program offers municipalities a 35 percent direct subsidy from the federal government on the sale of these bonds, creating a potential windfall that can shore up strained local budgets. This session came at a moment when state and local governments are still poring over the terms of BABs to assess their overall benefits, feasibility and implementation.
Scott Minerd of Guggenheim Partners and Kathleen Brown of Goldman Sachs explained the value of these vehicles from an investor perspective: BABs allow investors the opportunity to diversify their investments into a very stable asset class that offers a much more secure and profitable return than current options in corporate debt. Tax credits further enhance their appeal. Since these bonds are not liquid, they are primarily meant to be long-term investments, something that is particularly attractive in an unstable economy.
From the state and municipal perspective, there are a number of factors to consider. As moderator Amy Resnick of The Bond Buyer pointed out, the history of this program goes back a painfully short two and a half weeks. Because they have no track record and the possible unintended consequences are unknown, Nancy Kopp, state treasurer of Maryland, noted that issuing these bonds will prove to be a major undertaking for many governments. However, the obvious reason still resonates: The 35% refundable credit frees up significant capacity for the issuer.
Nevada's state treasurer, Kate Marshall, brought up the question of revenues. As state and local governments are beginning to analyze the benefits of BABs, they are forced to assess their revenue streams and project ahead. Affordability is an issue for states such as Nevada, where a great deal of revenue came from property taxes but the real estate market is still suffering. Furthermore, the prescribed timeline indicates that these bonds must be issued within the next two years, but many states can't act without voter approval, thereby adding to the hurdles.
From both sides of the equation, the panelists ultimately conceded that each bond is different and it is vital to understand the various tax credits and terms. They urged state and local governments to undertake careful analysis before launching their own programs.
Robert McCord
Treasurer, State of Pennsylvania
Scott Minerd
Managing Partner, Guggenheim Partners; CEO and Chief Investment Officer, Guggenheim Partners Asset Management Inc.
Mon 4/279:30 am - 10:45 am
U.S. Governors Address Challenges Facing Their States
All three governors have made education, infrastructure and the environment priorities in their respective states, moderator Michael Milken said. Pennsylvania Gov. Edward Rendell said the United States is "in a race to develop alternative forms of energy" and isn't doing well in the international competition. Rendell is optimistic, however, because "the president gets it and most of Congress gets it." The U.S. simply needs to do more.
Utah Gov. Jon Huntsman Jr. said his constituents' priorities are health care and increasing energy security. These priorities do not vary by party. "They don't care if you're red or blue; they just want you to get it done." To meet these needs, Utah is preparing to unveil a personalized health-care initiative in the next month or two while also working to create "the first natural gas corridor." This highway would stretch from Utah to California and would be reserved for vehicles that run on natural gas.
In the session's most comedic moment, Huntsman joked, "If you could tap the wind coming out of the legislative sessions, you'd have energy for years."
California Gov. Arnold Schwarzenegger called the crisis an opportunity to help reform that state′s budget system. For six decades, California lacked a rainy-day fund, so in good times the state is flush and in hard times the state is broke. "It is time to fix the budget system, which is a broken system," Schwarzenegger said.
Each state's individual difficulties aside, there have been partnerships across state and party lines to drive progress toward common goals. Schwarzenegger and Rendell have joined forces with New York Mayor Mike Bloomberg to push the federal government to increase the money allocated for upgrading the nation′s infrastructure.
The trio self-selected to include a Republican, a Democrat and an independent to highlight that "infrastructure is the most bipartisan of ideas," Rendell said. Added Schwarzenegger, "There is no reason that the U.S. should have a train system that is 100 years old while in China their train goes 250 or 300 mph."
Jon Huntsman Jr.
Governor of Utah (R)
Edward Rendell
Governor of Pennsylvania (D)
Arnold Schwarzenegger
Governor of California (R)
Mon 4/279:30 am - 10:45 am
Commercial Real Estate: Identifying the Opportunities
While much of the commercial real estate market has avoided a downturn as steep as that in other sectors, there is cause for concern. Sam Zell said too much leveraging between the booms of 2003 and 2007 is largely to blame for today's slump.
"We all drank too much Kool-Aid," Zell said. Between 2003 and 2007, 50 percent of institutional real estate was traded but was overly leveraged, he observed. The result is that today there are few of those financings that are above water.
Randy Mundt of Principal Real Estate Investors said the overall economic downturn has led to a severe decline in demand for office space. "Layoffs mean a lot of office properties are unoccupied; these properties may end up losing about 40 to 45 percent of their value," he said.
Despite the downturn, the panel discussed the possibility of investments in commercial real estate coming from abroad. "We will see more money coming from outside the U.S. to buy real estate here," Frits van Paasschen predicted. "As prices continue to come down over time, we will continue to see more of that."
All the news is not bad. "The good news is the government is extremely focused on commercial real estate; they realize it could be the next shoe to drop if something isn′t done," David Simon said. But the help of the government — especially the Federal Reserve and the Treasury Department — in shoring up the commercial real estate market may not be a long-term boost. "With all of this government intervention, we will have to see if it is a short-term fix or a long-term shift in ideology that will help the commercial real estate market down the road," Mundt said.
Van Paasschen views the intervention as a not-so-perfect solution that is having at least some effect. "As flawed as the programs may be, they have taken the panic out of the market," he said.
In the end, the panelists seemed to agree that times are tough for the commercial real estate market but possibilities for a rebound exist. "We′ve got losses as an industry that we need to take, and we′re going to have to deal with it," Simon said. With the help of the federal government and overseas investors, the outlook is not completely dire. But the need for investors of commercial real estate within the U.S. remains.
"There was something elegant about President Bush′s 'go out and shop' statement to American consumers in response to 9/11," Simon said. "If we could just get people to do that now, things could get better much sooner."
Scott Minerd
Managing Partner, Guggenheim Partners; CEO and Chief Investment Officer, Guggenheim Partners Asset Management Inc.
Randy Mundt
President and Chief Investment Officer, Principal Real Estate Investors
Frits van Paasschen
President and CEO, Starwood Hotels & Resorts Worldwide Inc.
Sam Zell
Chairman and President, Equity Group Investments LLC; Chairman and CEO, Tribune Company
Mon 4/279:30 am - 10:45 am
Leadership Lessons from the World of Sports
Mike Krzyzewski of Duke broached the topic of managing egos as it related to his experience of guiding Team USA to a gold medal at the Beijing Olympics. He remarked that "as long as the ego is attached to a body that can support that ego," you can direct it. The bottom line is that you need talent to win.
To manage egos and prepare for competition, Coach K needed his team to buy in to a common purpose — in this case, winning the gold, winning respect back home and winning international respect. He accomplished this by sitting down individually with his players to set standards and gain commitment. He also emphasized that "leadership isn't singular; it is plural." Coach K depended on players like Kobe Bryant, LeBron James and Jason Kidd to help guide the team. They became the internal leaders that helped to disseminate the message, keep the focus and refuse to accept anything less than the best. These types of figures can be pivotal in motivating and developing your next wave of leaders.
USC coach Pete Carroll stated his firm belief that you have to find common ground when reaching out and developing players. Where have they come from? How are you going to connect to them? He strives to be clear about the purpose and mission, outlining a mission that is bigger than the individual players to help them succeed. "You have to communicate individually to bring them into the collective," he said, noting that each person is unique and needs to be approached differently.
Billy Beane of the Oakland A's was very candid about differentiating college from professional sports. In the professional ranks, the currency of respect is money. Beane spoke of balancing the need to run a business against the desire to win games, the present against the future. Money is by no means the ultimate motivator in sports, but plays a central role.
The panel also touched on the darker side of sports. Coach K expressed his concern that basketball players are now identified as potential stars at the junior high level, and they're being educated in monetary terms from an early age. This makes for a challenge in helping them develop into complete leaders.
Carroll remarked that college football is probably a bit more pure, but young players are consumed with the thought of going pro. A big challenge is to try and get players to stop thinking so far ahead and get them to want to challenge themselves, compete and put it all together right now. The rest will follow. Beane interjected that athletes are extremely competitive; they want to win. Trying to play this up and reinforce it can be one strategy for getting around this issue.
How hard is it become a champion? Coach K mused that there's "a big difference between being a winner and a champion." To become a championship team, you have to develop purpose and camaraderie that is highly intangible. Carroll focused on the mentality of continuous excellence, from which championships follow. He isn't just focused on winning, but also on the ability to stay on top and persevere.
Billy Beane countered a bit by saying that he believes the goal is putting yourself in situations with a high probability of winning. By focusing on that, he has been able to help the As win consistently, even with modest payrolls.
Billy Beane
Vice President and General Manager, Oakland Athletics
Pete Carroll
Head Football Coach, University of Southern California
Mon 4/279:30 am - 10:45 am
Investing in Green Energy
Robert Kleine cited a study that said 80 percent of the electricity in the nation could potentially be provided by wind generation around the Great Lakes. Given the enormous potential for clean energy and other clean tech sectors, moderator Paul Deninger asked panelists to discuss the benefits and pitfalls that face investors.
While all panelists were enthusiastic about possibilities for enormous growth in the clean tech sector, Steve Westly suggested that "there is still too much hyperbole" and that investors and venture capitalists must focus on fundamentals. The panel generally agreed with Deninger, who said clean tech is becoming the "third leg of the stool of venture capital after IT and health technologies." But McDermott said, "Reliability trumps novelty." In many other areas of venture capital, novelty is key to allowing companies to mark up their prices and generate more revenue; in clean tech, "low-cost providers rule the day."
Lynde Coit pointed to the difference in the investment climate today vs. a year ago. Investment normally goes through several stages — from venture capitalists to private equity to other investors, but with the economic downturn, investors are no longer comfortable that the next person in the chain will be there.
Panelists agreed that government should play a role in encouraging clean-tech investment and providing some incentives against the backdrop of sometimes extreme volatility in commodity prices.
Jonathan Bloch called clean tech a good repository for money from the stimulus plan, as it is neither a straight financing deal (which would be done by a bank) nor a traditional venture capital deal. McDermott warned, however, that until the government makes the rules of the game clear and gives guidance for the markets, simply writing checks will not solve anything.
Investors will be leery about lending if they don′t know what the regulatory landscape will look like in future. Non-economic "green" mandates rather than tax incentives or other direct cash transfers may be more effective, Westly said, adding that the government would be well-advised to follow California′s lead in environmental mandates. Rather than mandating that car companies produce so many plug-in hybrids or electric vehicles, Westly and Bloch said, just mandate "fuel-efficient vehicles" and let the market determine which technology is the winner based on price competitiveness.
Clean technology is heavily dependent on government regulation and financing, making investing in the technologies unattractive to some despite the potential for large upsides. McDermott said what's missing are a coherent U.S. energy policy and a global framework for pricing carbon. "Until rules are clear and pricing mechanisms are there, I think it′s going to be a hodge-podge," McDermott said.
Jonathan Bloch
Senior Managing Director and Managing Partner, GKM Newport; Managing Partner, GKM Ventures
Robert Kleine
Treasurer, State of Michigan
Jim McDermott
Managing Director, US Renewables Group
Steve Westly
Managing Partner, The Westly Group
Mon 4/279:30 am - 10:45 am
The Forecast for Emerging Markets
Jean-Louis Scandella drew a distinction between "old" emerging countries and "new" emerging countries, noting that the latter were staying afloat in the current environment. Scandella characterized the old countries —South Korea, Mexico and Taiwan, for example — as having mercantilist business models dedicated to producing goods for the U.S. and Europe. Such countries are highly dependent on world growth and external capital and are therefore doing poorly in the current environment.
In contrast, new emerging countries such as India and China are characterized by liberalizing reforms leading to the emergence of a rising middle class. Scandella noted that these countries are less dependent on demand from the developed world and have large capital reserves of their own that makes them less dependent on external capital flows. In other words, these countries have both the domestic demand and the capital to see them through the downturn.
This theme of many emerging markets being well-positioned to weather the downturn was echoed by many panelists. Hüseyin Erkan noted that Turkey's economy has tripled over the past seven to eight years while diversifying its exports to non-EU countries by, for example, implementing bilateral tax treaties with 80 countries. Erkan also noted that Turkey′s capital markets are large and liquid.
Vasant Prabhu provided some anecdotal evidence from patrons and management at Starwood Hotels′ 5-star establishments in emerging markets. He hears long-term bullishness on the emerging world and even some talk of a power shift from traditional superpowers to the developing world as a result of the downturn. Prabhu reported that "you don′t see fear in people′s eyes (in the emerging world)" as he has when talking to managers in developed markets such as the U.S.
Vikas Kapoor pointed to a recent Business Week article — "Call center? That′s so 2004"— to show that the era of emerging markets 1.0 in which labor arbitrage was the primary driver has essentially been replaced by a model in which emerging markets actually add value rather than just perform basic tasks.
Kapoor said value-added outsourcing will essentially serve two functions, both of which will lead to growth in emerging markets: creating local demand by increasing local wealth and providing a strong conduit for emerging countries to access greater demand from the U.S. and Europe.
George Hoguet highlighted deflation as a potential concern, particularly for countries such as Japan, and noted a recent International Monetary Fund finding that approximately $4 trillion in potential write-downs have yet to be realized by banks, most notably in Europe.
Overall, the panel struck a hopeful note that at least the new emerging markets are in better shape than many think. These countries may emerge stronger from the current downturn and continue to ride upward trajectories founded on their new stimulus-driven infrastructure and value-added business models. That said, the emerging markets will probably not achieve these heady results absent strong recoveries in the developed world.
Komal Sri-Kumar
Managing Director and Chief Global Strategist, TCW Group Inc.; Senior Fellow, Milken Institute
Hüseyin Erkan
Chairman and CEO, Istanbul Stock Exchange
George Hoguet
Global Investment Strategist, Senior Portfolio Manager, State Street Global Advisors
Vikas Kapoor
President and CEO, iQor Inc.
Vasant Prabhu
Executive Vice President and Chief Financial Officer, Starwood Hotels & Resorts Worldwide Inc.
Mon 4/279:30 am - 10:45 am
How Nonprofits Can Sustain Their Mission in a Down Economy
Asked by moderator Greg Simon why nonprofits exist, Carl Schramm said charitable giving and nonprofit activity is really a function of capitalism. For Schramm, the "nonprofit sector exists in some regard to make up for market failure" because the dynamic market conditions of a capitalist society will necessarily fail to provide what society needs, and nonprofits will spring up to fill the void.
However, Schramm said government can have a negative effect on the level of charitable giving in the United States because charitable giving declines as the state takes more of the gross domestic product. Schramm said governmental action is premised on the flawed idea that the state can better dispose of income than individual charitable impulses. As an example of such flawed government spending, Schramm pointed to the federal stimulus program, which he said will subsidize many unworthy nonprofits that would otherwise cease to exist.
Schramm said business is not the enemy of nonprofits because "all entrepreneurs are social entrepreneurs" in that they create jobs and the wealth that sustains an individual′s charitable impulses.
Sherry Lansing said when a cause "strikes someone′s heart, that′s when you really get [individuals] to give." But being motivated to donate is not the end of the decision-making process, she said. In a market downturn, donors are inspecting nonprofits and calling for greater accountability. Lansing encouraged all donors to follow the money to evaluate how much goes to overhead and to make decisions about worthy causes based on how effective their donations will be in furthering the cause. In this environment, Lansing said, nonprofits need to adopt better practices and higher standards to withstand the scrutiny of the donor market.
Jonathan Simons predicted that institutional giving will be negatively affected for the next three to four years but agrees with Lansing that more individuals will donate to charitable causes. Simons said medical philanthropy is different from other charitable causes in that medical philanthropists "want to wake up one day and turn out the lights" by finding a cure for a specific disease.
The difference between philanthropy and charity, he said, is that philanthropy is finding a way to solve a problem and charity is giving money to the solution. Simons would like to see more demands made of the government, as the nation′s largest medical philanthropy investor, to examine best practices of medical research.
John Walsh has used innovative funding to sustain his charitable organization despite the market downturn. Walsh figured out how to fund medical research in a meaningful way by recycling insurance dollars into research. One such innovative funding method was when he persuaded a pharmaceutical company to make a legacy gift of $1 million dollars that would be restricted to research, even though the company was being acquired by another pharmaceutical company. This type of innovative funding is more important during down economic times, he said.
John Walsh
Co-Founder, President and CEO, Alpha-1 Foundation
Mon 4/279:30 am - 10:45 am
Taking Control of Restructuring to Drive Successful Turnarounds
Maria Boyazny
Managing Director and Portfolio Manager, Siguler Guff & Company
Frank Merola
Managing Director, Jefferies & Company Inc.
John Rapisardi
Partner and Co-Chair of Financial Restructuring Department, Cadwalader, Wickersham & Taft LLP
Christopher Shepard
Executive Vice President, Co-Head of Investment Banking and Head of Capital Markets, Imperial Capital LLC
Mon 4/279:30 am - 10:45 am
Institutional Endowments: Finding the Right Formula
"What has repeatedly made money when we needed it the most?" Tom O'Donnell asked. "Diversification is the answer. Safe but effective. We need to take advantage of all possibilities for growth. Create value over time. Access the very best investments."
O'Donnell said trustees carry a large burden for the success of an endowment and investment.
"Trustees have asymetrical risk," he said. "They are roundly criticized when things go sour but usually unrecognized when all goes soundly. We need to recognize that most trustees are wealthy people who have built their wealth by taking risks, not taking the safe route. They earned their way to wealth. The entrepreneurial spirit is alive and well."
Regarding what's ahead for philanthropic endowments, Mark Yusko said: "In '92, Harry Dent wrote about 'The Great Boom Ahead,' and now he's writing about 'The Great Depression Ahead.' Why? The demographic of 40- to 60-year-olds don't spend much afterwards. Even Warren Buffett knew that those stock market valuations were bogus and that it would turn into a vicious cycle. Lather, rinse, repeat. Lather, rinse, repeat. The cycle continues. Equity gets crunked by credit; then we buy unsecured debt. It's the law of returns."
William Lee agreed. "Unsecured bonds are yielding almost 18 percent right now! It just ain't gonna work like this," he said. "And deleveraging will only create more bankruptcies while equities will continue their downslide. Look at Citigroup. For the next eight years, banks will be in the hole. Deutsche Bank in Germany is over 100 times leveraged, as are Japan's banks. We need to learn from this. Only in the developing world, as in India, is there existing opportunities for growth. If not for the widespread corruption and greed, there could be a chance."
Moderator James Williams said investment managers must align their goals with their actions. Yusko added that gifts are down but endowments are stable because they are multi-year commitments.
Williams said investors must be discerning. "There will most definitely be a shakeout of mass proportions. Institutions must do their due diligence more than ever before."
Peter Adamson
Chief Investment Officer, Broad Family Office
William Lee
Chief Investment Officer and Vice President, Pensions and Foundation Investments, Kaiser Permanente
Tom O'Donnell
First Vice President, Alternative Investments Group, Newedge
Mark Yusko
President and Chief Investment Officer, Morgan Creek Capital Management LLC
Mon 4/2711:00 am - 12:15 pm
The New Relationship Between Government and Business
When those asking the questions are men like John Ensign, Thomas "Mack" McLarty and Rupert Murdoch, respectively, people take notice.
The government is clearly more active and is directly engaging business, and McLarty said Obama had no choice but to act like Franklin D. Roosevelt to stimulate the economy. The issues are maintaining fiscal responsibility and addressing how these government actions will eventually ensure a strong America.
Murdoch said: "There is much hyperactivity going on right now. The government′s ad-hoc approach to banking during the financial crisis is introducing permanent programs with little forethought and some risk of the Europeanization of our (American) economy. As we come out of this, we have to be careful not to over-regulate."
Ensign was more direct: The federal government caused many of today′s problems when it ignored human nature in pursuit of homeownership. The government is not capable of spending the country out of the downturn, he said. The solutions rests with small businesses and incentives to create jobs. It also requires sound business policies like tax structures that return capital to the U.S. so it is available to build America, Ensign said.
Bipartisanship is critical to success, the panel agreed. Only through bipartisan effort can Congress craft good legislation on complex, important issues like health care, education, climate change and energy. Congress also needs businesses and lobbyists to help sort through the abundance of good ideas.
"In this regard it remains business as usual in Washington, D.C.," Norman Brownstein said. "It takes a sponsor to champion the issue, preferably on both sides of the aisle, and appears best to start with the Senate, where the processes are more deliberate."
Norman Brownstein
Founding Member and Chairman, Brownstein Hyatt Farber Schreck LLP
John Ensign
U.S. Senator (R-Nevada)
Rupert Murdoch
Chairman and CEO, News Corporation
Mon 4/2711:00 am - 12:15 pm
Wellness in the Workplace: Obesity and Other Bottom-Line Issues
The choices people make about diet and exercise ultimately determine the balance between calories in and calories out. Behavioral factors are responsible for a large number of deaths every year, and there is a limit to what medicine, employers and policymakers can do, speakers said.
But some businesses have taken the initiative in improving the health of employees and the consumers they serve. Employer-based programs require an initial financial outlay, but they have secured short-term returns. For example, Steven Burd said Safeway recently introduced a Healthy Measures program that adjusts employees' insurance premiums based on tobacco use, weight, blood pressure, and cholesterol; employees are refunded the difference at year's end if they improve in those categories.
"You have to measure so you know where you stand, then you have to make progress on that," Burd said. By shifting financial responsibility onto individuals, employees bear the consequences of their choices.
The Cleveland Clinic also has been successful at making the workplace healthier, promoting better food choices and reducing smoking — all without increasing employer costs, Delos Cosgrove said.
The Cleveland Clinic improved on-site food options; labeled cafeteria portions and calories; and provided free access to Weight Watchers, Curves and exercise classes. Although the changes cost the clinic $5 million in the first year, the 80,000 pounds lost by its employees in the first six months were estimated to save $6 million in health-care costs, Cosgrove said.
Manufacturers share the responsibility. "Food and beverage companies have to actively agree to reformulate their products," Indra Nooyi said. If healthy products end up costing more, or tasting worse, then they have failed. Industrywide standards for nutrition labeling and consumer education are also needed, Nooyi said.
"We're putting wiser, healthier options up front without serious trade-offs in quality, taste and price," moderator Andrew von Eschenbach said.
In addition to the "calories in" component, more exercise is required to affect the "calories out" part of the equation, panelists said. Physical education is disappearing from schools and from children's daily lives, which Nooyi called a serious threat. For adults, building fitness centers near workplaces improves exercise opportunities, Mark Mastrov said.
However, widespread promotion of health programs faces a number of challenges. Businesses that are self-insured focus more on administration solutions than on health promotion, and they are unaware that premiums can be adjusted to incentivize behavioral change. Policymakers in Washington, D.C., are increasingly aware of the societal costs of obesity, but they need to support the development and expansion of effective programs. The law around obesity is part of the problem.
"Obesity is protected by the Americans with Disabilities Act, which seems to me to send the wrong message from the government about what obesity is and what it represents," Cosgrove said.
Steven Burd
Chairman, President and CEO, Safeway Inc.
Delos Cosgrove
President and CEO, Cleveland Clinic
Mark Mastrov
Founder, 24 Hour Fitness
Indra Nooyi
Chairman and CEO, PepsiCo Inc.
Mon 4/2711:00 am - 12:15 pm
Perspectives on the Changing Landscape in Alternative Asset Management
One of the drivers of the proposed changes has been that investors are reexamining their portfolios. Timothy Barrett of the San Bernardino County Employees' Retirement Association stated that in a traditional 60/40 portfolio, more than 90 percent of the risk comes from equity. Based on that evaluation, Barrett's investment group has been shifting assets since 2002, and now allocates only 20 percent to equity. That trend is expected to continue, as is the wave of clients shifting to macros and CTAs for investment guidance.
The panel also discussed recent pressure for hedge funds to provide separate accounts for larger institutions. According the Barrett, the need for liquidity is driving pensions to call for separate accounts. Arthur Tully of Ernst & Young's Global Hedge Fund Practice emphasized that this provided an important opportunity for investors to talk to fund managers and restructure fund terms, while Simon Ruddick of Albourne Partners countered that the costs of operating segregated assets would render the idea more talk than action.
The pressure to have discussions with fund managers also spills over into due diligence. Fund managers are dealing with "tons of requests for due diligence," according to Tully. The managers have been trying to create as much investor confidence in their numbers as possible, including more information around risk and risk aggregation and counterparty assessments.
However, it is difficult to streamline the due diligence process for the simple fact that the best information results from the human review process. Although the recently released FAS 157 provides guidelines for valuing level 2 and level 3 assets, the valuations still rely on the quantitative knowledge of the fund managers. Increased documentation under the FAS rule will be more extensive, but the role of human relationships in the due diligence process and subsequent reviews cannot be replaced.
The panel also discussed the structure of hedge fund management fees. Managers have come under increasing pressure to justify their fees. In today's environment, hedge funds are open to the concept of other fee structures, like hurdle rates or third-party administrators. However, the industry may not be so quick to move away from fee structures. Ruddick points out the "inconvenient truth" that the fund managers' performance over time actually justifies their fees. However, Tully pointed out that numerous surveys have shown fees to be less important considerations than the more salient issues of performance and investment philosophy.
Another area of pressure on hedge funds, according to Anthony Scaramucci of Skybridge Capital is investors looking to empower limited partners by offering direct seeding to the funds in order to obtain similar transaction terms as general partners. Barrett countered that his experience had not produced any successful seeding yet due to the costs involved in vetting such transaction terms. Ruddick agreed, offering that while it is a great investment opportunity, it will not be easy for incubators to raise capital in the near future.
Despite all of the pressure on the hedge fund market, Scaramucci emphasized the opportunities in the market. He sees particular promise with small funds, which studies have shown to perform better in their early years than larger funds that tend to hug the major indices.
Timothy Barrett
Executive Director and Chief Investment Officer, San Bernardino County Employees' Retirement Association
Simon Ruddick
Co-Founder and Managing Director, Albourne Partners
Anthony Scaramucci
Managing Partner, Skybridge Capital Group LLC
Arthur Tully
Partner, Co-Leader of Global Hedge Fund Practice and Leader of Asset Management Practice, Ernst & Young LLP
Mon 4/2711:00 am - 12:15 pm
Global Banking: Too Big to Fail or Too Big to Save?
Robert Kelly of The Bank of New York Mellon emphasized a theme, echoed by the panel, that the U.S. regulatory regime is structurally challenged. In particular, panelists concurred that it is very difficult to navigate or understand the complex, bureaucratic U.S. regulatory structure. A single systemic regulator would, at least in theory, fix this problem by placing a single office in charge of (systemic) risk management. While panelists generally expressed confidence that the concept will be developed, they agreed that it is not clear who will have the authority to implement it (whether the Federal Reserve or a team of regulators).
Alan Boyce of Absalon and Adecoagro suggested that the current crisis stemmed from the complex, opaque way in which the U.S. banking system securitizes cash flows. He called for a new system, arguing that the current structure is designed primarily to benefit the middleman and not market participants.
Bo Lundgren of the Swedish National Debt Office and Robert Litan of the Kauffman Foundation emphasized the potential benefits that could be realized from carefully analyzing the best practices employed by other nations (e.g., Denmark and Canada). Litan stated his belief that the current economic climate facing banks should not be blamed on the 1999 repeal, by then-President Clinton, of the Glass-Steagall Act, but rather on poor management as it relates to the mortgage market. He suggested that the subprime market was merely a match in the current conflagration; the real fuel was the relatively high degree of leverage employed in the system.
Alan Boyce and Robert Litan noted that the first step in overseeing the banking system will be to determine who makes the list — which institutions will be designated "too large to fail"? Such institutions would then likely be required to maintain higher levels of capital. They also suggest that a primary objective of this new system would be to protect short-term creditors, decreasing the potential ripple effect caused when a key financial institution stumbles or fails.
Kelly also discussed the various financial measures used to analyze the health of financial institutions. Barth, Boyce and Litan emphasized that some banks are relatively strong in terms of select indicators but not in others, and expressed mild disagreement regarding the relative merits of each indicator.
Panelists also discussed the recent stress tests administered by the Federal Reserve for 19 U.S. banks to determine capital adequacy. Kelly expressed serious concerns that if the government were to divulge the firm-level results of these tests, a serious crisis could result. He suggested that short sellers might use this information to engage in further speculation, adding to the problems experienced by already distressed banks. In a brief exchange with Bo Lundgren, Kelly conveyed some optimism about the U.S. banking system. While he agreed that not every bank is in exemplary condition, he believes the system as a whole to be in much better health than it was just last September.
James Barth
Senior Finance Fellow, Milken Institute; Lowder Eminent Scholar in Finance, Auburn University
Robert Kelly
Chairman and CEO, The Bank of New York Mellon Corp.
Robert Litan
Vice President, Research and Policy, Ewing Marion Kauffman Foundation
Bo Lundgren
Director General, Swedish National Debt Office; former Minister for Fiscal and Financial Affairs
Mon 4/2711:00 am - 12:15 pm
Global M&A Opportunities in Education
Demand is skyrocketing, they said, focusing on the growing markets of China, India and Brazil. People all over the globe understand the correlation between financial stability and an educated population. The four panelists agreed that transferring U.S. business models is not an easy task. To create successful ventures in global markets will take knowledge of local resources and customs.
Ricardo Scavazza researched the Brazilian market extensively before creating a culturally relevant, successful model for distance learning in that country. The model that Patria Investimentos helped create features call centers and online video chats between professors and students.
Greg Capelli said investors want providers to understand the culture, country and methodologies to ensure fruitful ventures and acquisitions in global opportunities.
Although there is significant demand for alternative educational services in the United States, demand in China, India and Brazil is staggering. Douglas Becker said the lack of government regulations has made it difficult to invest in countries like China. "China is still in that phase where it is on everyone's list but not necessarily considered a big player. It won′t happened until China gets more clarity on its own regulations," he said.
All four panelists agreed that the rest of the world doesn't quite understand the distance-learning model like the U.S. market does, making the future of that sector unclear.
Douglas Becker
Founder, Chairman and CEO, Laureate Education Inc.
Gregory Cappelli
Chairman, Apollo Global
Brooke Coburn
Managing Director and Head of Carlyle Growth Partners, The Carlyle Group
Ricardo Scavazza
Principal, Private Equity Division, Patria Investimentos
Mon 4/2711:00 am - 12:15 pm
Computing's Next Playground
Moderator Gordon Crovitz launched a discussion on Computing′s Next Playground by asking a panel of technologists to identify areas where technology drives opportunities for growth and progress.
Greg Papadopoulos predicted that the connection between the physical world of atoms and the digital world of patterns is the direction of the new digital age. He described the current shift in technology as a "network revolution — a time we connected everything." Stephen Pawlowski said the changing computing paradigm means more connectivity in your house and benefits to the smart grid but greater challenges to information security. Shane Robinson agreed that innovation is now focused on communication and collaboration, such as YouTube, while past innovations targeted productivity.
"Facebook and YouTube are just the beginning," Yair Landau said. Facebook has empowered people because services are simple and communicating is easy. YouTube allows for mass customized consumption. It is the beginning of a global migration from text to video, Landau said, and it will transform how the world communicates.
Search technology is another opportunity for innovation, some panelists said. "Today you search a sea of information, but tomorrow search will be done for you," Robinson said. He thinks future technology will know user preferences and navigate the sea of information for users. Papadopoulos agreed, saying the next wave of search technology would even interpret the meaning of your question in the context of your location.
Innovative technologies that use crowdsourcing, such as Wikipedia, were also discussed. Crowdsourcing relies on many experts, and Robinson said the predictive crowdsourcing models created by HP are more accurate than normal models. Crovitz demonstrated the ease of using Wikipedia, arranging for the IT staff to create a Wiki entry for the Milken Institute during the panel discussion.
Papadopoulos predicted a dramatic shift to storing data in technological clouds, which may be safer than at home. Pawlowski said digital information can be vulnerable, so one obstacle will be establishing trust that information will be protected in clouds.
The economic downturn presents tremendous opportunities for more innovation, panelists said. As Papadopoulos noted, "Innovation loves a crisis."
Yair Landau
Former President, Sony Pictures Digital; former Vice Chairman, Sony Pictures Entertainment
Greg Papadopoulos
Chief Technology Officer and Executive Vice President of Research and Development, Sun Microsystems Inc.
Stephen Pawlowski
Intel Senior Fellow; Chief Technology Officer, Digital Enterprise Group, and General Manager for Architecture and Planning, Intel Corp.
Shane Robison
Chief Strategy and Technology Officer, HP
Mon 4/2711:00 am - 12:15 pm
The New University and Its Role in the Economy
"At the end of the day, it′s in regions and places where people create, work and add value to the economy. Universities are the fulcrum of innovation hotspots," Deborah Wince-Smith said.
The panelists agreed that universities play a crucial role because they are often a laboratory of business ideas, new products and the intellectual talent needed for growth. "Forty percent of the doctors that practice medicine in this state went to the University of California," noted Richard Blum, citing one example of the power of a university in driving a region′s economy.
The power of universities as economic engines provides great incentive for them to grow. However, "we′re not anywhere near ready to operate at scale yet," Michael Crow said. The belief that universities are underserving the nation′s needs has led Crow to oversee a dramatic expansion of the student body and course offerings at Arizona State University.
The panel agreed that American universities in particular are failing to compete globally in producing scientists and engineers. "Fifteen percent of U.S. bachelor′s degrees are in the sciences or engineering. In China, it′s 50 percent," Susan Hockfield said. The panelists concurred that the dramatic gap between the United States and other nations in the sciences could have devastating effects on the U.S. economy.
But there was heated debate as to how universities should go about generating greater intellectual capital. Hockfield warned against the type of expansion Crow championed, noting that her institution accepts just 10 percent of applicants. "If we accepted the next 10 percent," Hockfield added, "it would have a negative impact on teaching and research."
Blum blamed universities for failing to entice students into the scientific disciplines. "A lot of it is like anything else, it′s in how you market it," he said.
The panel explored whether part of the challenge lays in a general intellectual malaise in the nation at large. Hockfield said the excitement of the Apollo program drove many of her generation to pursue the sciences, and the panel largely concurred that the absence of such motivators has led to declining student interest in physics and engineering. "A culture where it′s understood that effort breeds success should be developed," Luc Vinet said.
However, Crow said the attitude problem may be confined to the leaders of higher education. "You are forced to innovate by your victories and defeats. ... We are overconfident in higher education because of our victories over the last 60 years."
Richard Blum
Chairman, Regents of the University of California
Luc Vinet
Rector, Université de Montréal
Deborah Wince-Smith
President, Council on Competitiveness
Mon 4/2711:00 am - 12:15 pm
The U.S.-China Relationship: The Uneasy Ties That Bind
The U.S. and Chinese economies are so interconnected, the economic relationship is beyond the control of either government, according to Zachary Karabell, and that relationship has less to do with nation-state sovereignty than before.
Joshua Cooper Ramo said focusing on the economic relationship is too risky and restrictive because it precludes the ability address major challenges that are not economic in nature, especially issues of security and U.S. political values. But Karabell said bilateral economic interdependence provides a perspective through which other major issues can be understood.
On the issues of energy security and climate change, Victor Zhikai Gao argued that fingerpointing is useless because climate change now poses challenges to all countries. Highlighting the need for U.S.-China cooperation on climate change and energy issues, Gao said China is the second-largest oil importer and uses a third what that the U.S. uses. Per capita, China′s oil consumption is only one-thirteenth that of America′s. Gao advocated establishing an organization of petroleum-importing countries to encourage U.S.-China collaboration and avoid potential conflicts over oil sources.
Protecting intellectual property rights in China was a subject for debate. Karabell called intellectual property rights a "fetish" of American policymakers. And Gao said the concept of private property ownership is new to the Chinese. Americans should have patience as property rights protection develops in China, he said.
Ramo said China views its relationship with the U.S. through a prism of strategic significance. Rui Yang said the relationship is not viewed as a zero-sum game in China, where many leaders see many possibilities to cooperate with the U.S.
Victor Zhikai Gao
Executive Director, Beijing Private Equity Association; Secretary-General, China Private Equity Association
Zachary Karabell
President, River Twice Research
Joshua Cooper Ramo
Managing Director, Kissinger Associates; Author, The Age of the Unthinkable
Rui Yang
Anchor, CCTV
Mon 4/2711:00 am - 12:15 pm
Encore Careers and Volunteerism: Civic Engagement After Age 50
With a membership of close to 40 million, the AARP and individuals like Lansing are helping to reframe what it means to be retired. Citing the fact that today's AARP encompasses three generations of members — in which grandma, mom and daughter are all active and over the age of 50 — Hansen said that there were demographic imperatives demolishing old stereotypes: "This is not just your grandmother's AARP." In fact, as moderator Nancy Aossey, president and CEO of International Medical Corps pointed out, the AARP cast off its old name, the "American Association of Retired People," and went with just the acronym in response to the reality that half of AARP's members work either full or half time.
Part of the need to rethink our notions comes from the fact that ageism is still prevalent in our society. Experience is devalued in a society where youth culture dominates. As Lansing mentioned, perhaps ageism is the "last area of discrimination." Seizing Jeri Sedlar's spirit of "Don't Retire, Rewire!" both Hansen and Lansing encouraged a semantic sea change in order to harness the movement to redefine aging. "Call AARP the American Association of Rewired Persons!" Lansing exclaimed. If 50 and up is to be seen as the prime of someone's life, the language should reflect their relevance to the times. Rather than talking about "volunteers," Lansing preferred the term "social entrepreneurs." She also made the pointed distinction between charity and philanthropy: "Charity in the past meant that you gave money. Philanthropy means you want to affect a change with the money you give, and that's very empowering."
It is imperative, then, for baby boomers and the generations that came before, to harness a movement. Hansen spoke to the importance of harnessing public-private partnerships and agreeing on core principles surrounding societal issues like health care. In today's economy, these partnerships are especially crucial.
The panel served up a powerful reminder that people over the age of 50 are equipped today, more than ever before, with the health and the wealth to make a difference.
Jennie Chin Hansen
President, AARP
Mon 4/2711:00 am - 12:15 pm
Affordable Housing Roundtable
Special emphasis was placed on REOs (real estate-owned properties), which tend to be concentrated in blighted neighborhoods where housing markets are stagnant and local residents are increasingly unable to afford moving into refurbished homes. "We have a unique opportunity to control both the [property] assets and the funding at the same time. We need to approach this strategically there is a whole lot of money flowing out there. Let's not waste it," Zeidman urged.
Mary Tingerthal of the Housing Market Network discussed the Housing and Economic Recovery Act (2008), which is delivering $3.92 billion to all 50 states and 259 communities to acquire, rehabilitate, demolish and dispose of foreclosed and vacant residential properties. This money, administered by the Department of Housing and Urban Development, is allocated on a formula-basis according to need. The stimulus package adds $2 billion that will be available to both local governments and nonprofits based on program effectiveness. Tingerthal noted the need to structure community development agencies to ensure that the money is well spent.
Nearly all speakers concurred that the best way to solve this problem is to keep homeowners in their homes. Because there is no "velocity" in the market, as Debra Schwartz of the MacArthur Foundation put it, any REO homes that get rehabilitated with government money will remain vacant. Her foundation has a program that focuses on providing financing for 2,000 of Chicago's 25,000 REO properties. To her, the problem with velocity is largely due to the complicated mechanism for delivering the federal money to where is needed.
George McCarthy of the Ford Foundation noted that the situation is made worse because it's very difficult to accurately appraise the values of homes in the current market. We can't fix the problem until the pricing structure is resolved, so we find ourselves in a peculiar chicken-egg conundrum. Furthermore, McCarthy believes that the federal money dedicated to this issue will only handle less than 10 percent of the problem. He argues for an upstream fix that will solve the broader problem of home loans rather than simply focusing on REOs.
Thomas Humphreys of Morrison & Foerster believes that the solution will require a public and regulated vehicle that will raise capital and redevelop communities rather than just homes. Otherwise, we will continue to be beset by "vulture-type" funders who are looking for ways to make money rather than to redevelop communities. Rick Jacobus of NCB Capital Impact's Shared Equity Homeownership Initiative called for a system of shared equity homeownership between the homeowner and some sort of "stewardship entity. McCarthy reinforced this idea: "We need a backstop for these homeowners." Shant Hovnanian of iHopeUSA discussed his new firm, an initiative for the preservation of homeownership, which would do just that.
Joe Kanter of the Kanter Family Foundation argued that our perception of the problem and its solution is upside down. This is fundamentally an issue about homeowners and the local governments who benefit need property tax revenue. Kanter says that we have to work with the homeowners and keep them in their homes through a system of "sweat equity." If we waste time and money rehabilitating REO homes in frozen real estate markets, then we are throwing money away. By solving this from the bottom rather than from the top, he feels the REO problem will solve itself.
Betsy Zeidman
Research Fellow and Director of the Center for Emerging Domestic Markets, Milken Institute
Thomas Humphreys
Partner, Morrison & Foerster LLP
Rick Jacobus
Partner, Burlington Associates in Community Development
Debra Schwartz
Director, Program-Related Investments, John D. and Catherine T. MacArthur Foundation
Ellen Seidman
Executive Vice President, National Policy and Partnership Development, ShoreBank Corp.; Chair, Center for Financial Services Innovation; Senior Fellow, New America Foundation
Mary Tingerthal
President, Capital Markets Companies, Housing Partnership Network
Mon 4/2712:15 pm - 2:15 pm
Lunch Panel
U.S. Overview: When Will Growth Resume?
Douglas Elmendorf admitted that even his predictions that unemployment will continue to rise, the economy will continue to contract until the second half of 2010, and growth for 2010-11 will reach 4 percent is considered optimistic in comparison to others′ views.
Panelists said the question is whether the $783 billion stimulus package will be enough to bring the country back to full output. Michael Boskin said the stimulus would best serve the economy through targeted efforts. Additional stimulus aid in 2010 should be viewed critically, and current allocations of the package should be analyzed for impact. It′s important to juxtapose long-run costs with short-term benefits, he said. Ultimately, the short-term effects of the stimulus are needed but the long-term impact of higher taxes will be felt by future generations if spending isn′t curbed.
Universal health care, carbon-emission caps and unionization all stirred debates on detrimental vs. beneficial effects. However, the panelists agreed that the crisis itself has exposed gaps in the current system of regulation. While the need for systematic risk regulation and market ratings were generally viewed as necessary, it is evident that regulation must be flexible enough to adapt to variety of industries and firm sizes that exist, they said.
Michael Miles said the nation survived the "perfect storm" and that things are "looking better," at least in retail. Though small businesses were hit the hardest during this crisis, these businesses will also lead the nation out of the downturn, he said.
Jim Goodnight said this is the ideal time for businesses, large or small, to look inward and begin to optimize their processes, minimize their inventories and truly maximize revenue. It′s through innovation, investment and cost-cutting that the nation can remain competitive on a global scale.
Introduction By
Michael Boskin
Senior Fellow, Hoover Institution; T.M. Friedman Professor of Economics, Stanford University
Mon 4/272:30 pm - 3:45 pm
Capital Structure Matters
Scott Sperling of THL Partners gave a brief overview of recent economic developments and how we arrived at where we stand today. Specifically, he noted that the ratio of total debt to long-term EBITDA increased from 4.2x in 2000 to 6.2x in 2007, driven primarily by senior debt offerings. U.S. household debt today stands at its highest levels, even as income is being crimped and consumers are really feeling the pain. Like companies, households now face the need to deleverage.
Each panelist stressed that it is imperative to understand a company's capital structure and use that knowledge to make more informed decisions. Randall Wooster of Imperial Capital described why capital structure is hugely important for traders and noted that if people cannot be certain about the structure of a given company's debt, people will not trade that debt. The legal and regulatory complexities of capital, such as equitable subordination, must be fully comprehended, and only when these complexities can be navigated can a trader reduce his risk and improve his profits.
Marc Rowan of Apollo highlighted the "ability to make a decision in the context of uncertainty" and remarked that he has been very surprised with the speed at which several large U.S. companies have unraveled. Echoing these sentiments, Sperling described how his company has formed a team that works with the senior management of its portfolio companies to bring in key personnel with new perspectives from other industries to help improve cash flow and top-line growth. With the aid of this strategic resource group, management has been able to come up with creative ideas that can help a company manage its cost structure.
Dan Hesse, CEO of Sprint-Nextel, described some reasons why it is important for a large corporation to improve its capital structure. He claims that it is extremely important for companies operating in capital-intensive industries to paint a good financial picture so that they can improve their credit ratings and piggyback this with a "free" marketing tool and increased positive advertising. Hesse also noted the importance of an off-balance-sheet company for Sprint, which will be cash-flow negative for the next few years, but will ultimately position the company well in the future.
Going forward, there will be continued tightening in the credit markets, despite the recent positive tone in the stock market. The reality of an overburdened consumer is going to be problematic for the economy. To restore their balance sheets, companies will utilize debt-for-asset swaps and should also look to sell equity and push out their maturities. With the right understanding of current capital structures, the capital markets can be used advantageously.
Dan Hesse
President and CEO, Sprint Nextel Corp.
Marc Rowan
Founding Partner, Apollo Advisors LP
Scott Sperling
Co-President, Thomas H. Lee Partners
Randall Wooster
Co-Founder, Imperial Capital Group LLC; President, Imperial Capital LLC
Mon 4/272:30 pm - 3:45 pm
Retail and the Changing Consumer: Where People Will Spend
Max Azria of BCBG Max Azria Group took the first shot at answering the million dollar question. He acknowledged that U.S. sales fell about 10 percent from 2007 to 2008, but noted that his company's global business division was up by a comparable number. "So I don't think it's as bad as we may think. At least not for me," he said with a smile. "But it is because we concentrate our energy on designing, creating and marketing." He pointed in particular to the cutting-edge technology used in the company's marketing, including social media initiatives and grassroots efforts on college campuses.
Joe Fortunato of GNC also felt confident and optimistic about the current state of affairs. He chalks GNC's success up to product differentiation, vertical brand integration, private labeling of products, quality assurance and placement in all the best malls in the country. "We set the tone over four years ago by investing in our core competencies and always sticking to our goals," he said. Fortunato pointed to a strategy of doing detailed market research, creating line extensions geared specifically to a specific market segment and creating private-label branding for most products.
Michael Miles of Staples has implemented initiatives such as value contracts with fixed price lists of more than 150 items, and special promotions and deals for new customers, including discounts on private-label store brands. "Our store brand is just as good as the best brands out there," he insisted. There are two driving trends for retailers right now, according to Goldman Sachs analyst Adrianna Shapira: cutting inventory and cutting expenses. "Lean and mean is the name of the game," she said. She went on to explain the benefits of "newness" and the importance of maintaining a compelling price-to-value equation.
All panelists agreed on a few key points. First, stores must align occupancy costs with store performance and drop underperforming locations. Second, retailers must strive to make an emotional connection with their consumers. Third, retailers must leverage the Internet for marketing. (Miles boasted that Staples.com is second only second to Amazon.com in online sales in the nation.) Fourth, retailers must look for ways to become more relevant in today's challenging marketplace by employing creative marketing strategies.
Shapira emphasized that consumers are saving more and spending more time at home. They are redefining how they spend their time and money. "Until consumer confidence makes a comeback, we will wait to see a revitalization of spending," she said. She advised retailers to focus on their niches and unique selling propositions, and warned that simply copying successful discounters such as Wal-Mart is a formula for failure. "Look at Apple with the iPod, and True Religion jeans. They are both experiencing increased revenues due to their niche market focus."
David Simon of Simon Property Group explained that his tenants want to trade for smaller spaces with better locations. "It is survival of the thriftiest," he said. "Right now, the market is directing the game. Vendor relationships are more important than ever. Sustaining brand equity is so crucial now. The strong will get stronger, and the weak will falter."
Max Azria
Chairman, CEO and Designer, BCBGMaxAzria Group Inc.
Joe Fortunato
CEO, GNC Corp.
Adrianne Shapira
Managing Director, Retail Analyst, Goldman, Sachs & Co.
Mon 4/272:30 pm - 3:45 pm
Life After 80: Always Looking Forward
The four panelists hail from across the U.S. and Canada, though all grew up in modest households and lived through the Depression. John Sperling of Apollo Group recalled his mother saying, "The Depression doesn't mean anything to us. We've been poor all our lives."
Deborah Szekely of Rancho La Puerta and Golden Door speculated that living in that troubled era had been an advantage because they had nowhere to go but up. "Risk-taking and challenges are the vitamins and minerals of life," she said. Growing up poor hardened her resolve and perseverance, two qualities she believes are crucial to attaining success in life.
Producer Norman Lear "does not enjoy or look for conflict," though with twin 14-year-old girls at home he has plenty of excitement. He does, however, look ahead at all times. In his words, he is "always on to next."
Another similarity among the panelists was their dedication to philanthropic endeavors. Each has specific and unique causes — Lear is a benefactor of People for the American Way, Pattison has tithed 10 percent to his church his entire life, Sperling contributes to an array of scientific endeavors and Szekely helps new immigrants — and all believe in the power of giving.
Not surprisingly, each of the panelists also makes diet and exercise a priority. Szekely has eaten well her entire life, though just recently she acknowledged her lack of discipline in "the exercise area" and hired a trainer three times a week. Lear chimed in saying, "I want to talk about my body, too. My legs have been carrying me around for 86 years." Then he kissed his knees.
Kaplan asked the panelists about a recent New York Times article documenting a recent study that showed people with more friends — even distant friends — seem to live longer, healthier lives. Three of the panelists echoed the sentiment to varying degrees. But Sperling countered, "I love humanity but they are not my friends."
Lear recounted that his son-in-law once asked him to reconsider his desire to be cremated. "I want to take my kids to your headstone and have them see 'Even This I Got to Experience.'"
Marty Kaplan
Research Professor and Director of the Norman Lear Center, USC's Annenberg School for Communication
Norman Lear
Jim Pattison
Chairman and CEO, The Jim Pattison Group
John Sperling
Founder and Executive Chairman, Apollo Group Inc.
Deborah Szekely
Owner and Director, Rancho La Puerta and Golden Door
Mon 4/272:30 pm - 3:45 pm
High-Skills Immigration Can Help U.S. Economic Recovery
Entrepreneurial opportunity and improved quality of life have attracted many well-to-do, high-skills immigrants to venture to the United States. However, current political and social sentiments on immigration have unfolded in policies that deter high-skills immigrants from building a permanent niche here and enable other countries to recruit high-skills workers to their work forces.
John Lechleiter said the research cycle plan at Eli Lilly typically takes 10 to 15 years, and Lilly′s talent largely is made up of high-skills immigrants such as graduates on student visas. However, U.S. immigration policy deters many high-skills immigrant workers from committing to the company, Lechleiter said. This causes employees to leave after about five years and undermines Lilly′s research and development, he said.
One solution is to expand the numbers of temporary residents and speed up the green card process for high-skills immigrants.
Richard LeFrak refers to the success of Canada′s 1997 immigration policy in response to the surge of Hong Kong immigrants during the island′s transition from British to Chinese governance. Canada offered these well-to-do, high-skills Hong Kong immigrants "access visas" that permitted them to live in Canada in return for their investment. This innovative foresight in immigration policy helped build Canadian cities such as Vancouver into booming metropolises.
High-skilled immigrants are educated and risk-takers, making them prime candidates for successful, job-creating entrepreneurs. Both LeFrak and Gary Shilling recognize an opportunity for high-skills immigrants to help the United States in economic recovery not just by creating jobs but also by occupying homes and taking units off the market.
Panelists agree that the subject of immigration should shy away from its current perception to the idea of value creation, with high-skills immigrants contributing to the population of homeowners, entrepreneurs and job creators. While current entrepreneurship visas permit high-skills immigrants to obtain permanent residence after three years of investment and contribution, it is not enough to retain about 1 million people who are stuck in immigration limbo. A member of the audience said that, as a high-skills immigrant who pays Social Security taxes and health-care premiums, he and immigrants like him have the resources to help repair the housing market. Panelists agreed that the United States should frame immigration differently and promote itself as a magnet for skilled immigrants.
In closing, Lechleiter loosely suggested that if he cannot retain high-skills immigrants in Lilly domestically, he would have to outsource. Wadhwa said that if the United States continues its current immigration policy, it would in effect hand other countries the human capital to innovate.
Richard LeFrak
Chairman, President and CEO, LeFrak Organization
Vivek Wadhwa
Senior Research Associate, Labor and Worklife Program, Harvard Law School; Executive in Residence/Adjunct Professor, Pratt School of Engineering, Duke University
Mon 4/272:30 pm - 3:45 pm
Work Force Development: A Differentiator in Hiring and Retaining
A difficult economic climate has intensified the need for strategic vision to attract and develop the brightest talent. But as employees are asked to do more with less, short-term productivity and long-term viability may be at risk without the proper structures and incentives for work force development. Panelists revealed a number of far-sighted policies their companies have initiated to lure new hires and to take full advantage of existing talent with an eye toward continuous improvement. As the drivers of tomorrow′s economy will undoubtedly be different than those of the recent past, Carol Lindstrom noted that companies "need structural change, not new programs."
Several panelists pointed to the risks to morale and productivity that come with the cuts companies have made to remain competitive. Ann Huang Miller described a changed work environment for many employees, one where the economy has presented employees with new challenges ranging from increased work demands to stress from financial uncertainty in their personal lives.
The panel went on outline the key components for any company policy that attempts to engage and retain key talent, the most fundamental of which is information in three forms. First, to help employees cope, companies must make the logic and vision behind decisions more transparent to instill trust between the company and its employees. Second, to Russ Jackson and several other panel members, the use of 360-degree feedback has informed executives of work force vulnerabilities and opportunities while empowering workers. The final dimension deals with staff awareness of the development, health and wellness programs that are already in place to aid them.
Brian Schipper noted the rising costs of such programs, saying investment in wellness is expensive but important. "It is important to get a handle on the costs of these programs, but critical to show the firm′s commitment to its employees," he said.
Moderator Felicia Thornton said each firm seeking to hire and retain talent faces the difficult task of differentiating itself from competitors. Many have added expansive opportunities for management education and professional development along with health and wellness programs that include on-site medical care, exercise facilities and day care. Recent initiatives seek to give people time to do things that they value in the community and make managerial decisions earlier in their careers. People may then return to enrich the workplace with their experiences.
Thornton cited a recent Deloitte study showing many executives will seek to use the downturn to attract talent. "This really can be an investment time," Peri Hansen agreed.
Peri Hansen
Senior Client Partner, Korn/Ferry International
Russ Jackson
Senior Vice President of Human Resources, Safeway
Carol Lindstrom
Vice Chairman, Deloitte LLP
Ann Huang Miller
Chief Attorney Development Officer, Latham & Watkins LLP
Brian Schipper
Senior Vice President, Human Resources, Cisco Systems Inc.
Mon 4/272:30 pm - 3:45 pm
Is It Time to Embrace Nuclear Energy?
Potential energy resources can′t be taken off the table in any bid to achieve energy security and energy independence and to fight climate change, Lady Barbara Thomas Judge said. Although many issues need to be addressed including improved communication, planning, economics and resources, she firmly believes nuclear energy should be an option.
David Scott agreed that nuclear energy should be an option and said it is among the United Arab Emirates' goals of energy diversification, widespread electricity accessibility and domestic development. Although the UAE is aggressively developing solar generation capabilities, it doesn′t provide the required baseload while nuclear energy does. Nuclear energy also complements the UAE's overall decision to move forward with renewable energy options.
These views contrasted sharply with the beliefs of Amory Lovins. Lovins said the efficient use of electricity, cogeneration of heat and electricity, and distributed renewables were three options that already are cheaper than nuclear energy without safety, proliferation or waste disposal issues. He also argued that "global capital markets put $90 billion into distributed renewables and zero dollars into nuclear" for a reason. "If we take market behavior seriously," he said, we should understand that nuclear energy isn′t cost competitive with existing options that are only getting cheaper.
Judge countered that the debate over nuclear energy "is not a zero sum game." She said the world needs a multitude of resources to address the growing global demand for energy. Nuclear is one of many options that need to be considered but is by no means the only option.
Scott emphasized the UAE's aspirations to diversify power generation methods and said each planning authority must look at its requirements and decide what will fulfill them.
He also discussed the UAE civil nuclear program as the first that is working in lock-step with the West to limit the risks of nuclear proliferation. The UAE program won't centralize activities that create weapons grade materials and will insist on explicit transparency.
Lovins reiterated his skepticism that the UAE's model will stop people from using civil nuclear materials to make weapons — even without enriching materials or recovering fuel themselves.
Lady Barbara Thomas Judge
Chairman, United Kingdom Atomic Energy Authority
Mon 4/272:30 pm - 3:45 pm
What Are the Real Economics of Quality Health Care?
Marc Hoffing of Desert Oasis Healthcare put it even more bluntly: "Supply and demand is completely upside down in health care."
In locales with lower supply, Schmidt observed, patients are more satisfied with access because physicians are more willing to have discussions about values. Juan Davila of Blue Shield of California pointed out that facilities don't always have your best interests at heart; there is a lack of interest and a lack of communication. The moderator, Richard Merkin of Heritage Provider Network, added that many patients are hospitalized who don't need to be.
Washington has a key role to play in this debate, but Hoffing claimed there is little discussion of incentives or rationing there. Schmidt pointed out, though, that the American Recovery and Reinvestment Act (ARRA) has allocated $1.1 billion for comparative effectiveness research, which is in effect rationing.
Many of the panelists pointed to health care labor as part of the problem. According to Merkin, 60 percent of hospital expenses are labor, with the majority of that being nursing expenses. Paul McBride of Wellpoint Inc. said that in some countries with comparable or better outcomes, health-care labor costs are lower than in the United States.
Hoffing further argued that nurses and physicians are being used incorrectly. Physicians are incentivized to order more tests, leading to higher costs. This means better-qualified doctors get paid less, Merkin explained, and an integrated model with revised payment incentives could help ameliorate this problem. Physicians must also be incentivized to become primary-care providers; the noted the average age of primary care providers in California is 57.
McBride stated that patient incentives are also skewed. Patients are uninvolved in their own care because the marketplace is designed around the delivery system, not the consumer. This lack of responsibility leads to overutilization and higher spending, Davila agreed. These costs will continue to grow as baby boomers age and qualify for Medicare and as obese youth acquire adult-onset diabetes. Nevertheless, many patients have financial barriers to even accessing the health-care system; others have the means but choose not to get insurance, raising costs for everyone else.
Davila summed it up by noting that the U.S. health-care system is extraordinarily complicated, and multiple pieces need to be re-conceptualized.
Juan Davila
Senior Vice President, Network Management, Blue Shield of California
Marc Hoffing
Medical Director, Desert Medical Group and Oasis IPA
Paul McBride
Vice President, Health Care Management and Services, Wellpoint Inc./Anthem Blue Cross & Blue Shield
David Schmidt
CEO, SCAN Health Plan
Mon 4/272:30 pm - 3:45 pm
Moving From Aid to Investment: New Models for Supporting International Development
Moderator Betsy Zeidman noted how the unpredictable patterns of aid leave developing countries wondering if and when it will arrive. Jan Walliser noted the difficulty African nations face working with several hundred donors who are not coordinated and have not leveraged their services. Albright added that the donor environment does not help health care because each donor has its own reporting and monitoring requirements, further complicating aid delivery.
Dambisa Moyo, author of Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa said a fundamental problem with the aid culture in that donors don′t involve African governments. This removes incentives for the African government to participate in a meaningful way. The aid conversation should really focus on donor exit strategies and not short-term solutions that ultimately do not spur long-term development, she said.
In terms of long-term solutions for health-care needs, Gargee Ghosh said drugs and vaccines tend to be neglected with investment. She said grants are more effective in delivering health services to developing nations. About 50 percent of those providing health care are private entities, and there is a great opportunity for aid organizations to work with the private sector, Ghosh said.
Albright offered other solutions to access funding for health care. One is the International Finance Facility for Immunizations. The GAVI Alliance has used IFFIm to access the capital market for additional funding for government immunization pledges. These binding promises allow for long-term, predictable, funding commitments. Another solution is advance market commitments, which use up-front payments to encourage pharmaceutical companies to create vaccines more rapidly. In return, the pharmaceutical companies sell the vaccines at a lower price. However, Ghosh asserted, IFFIm is not an endless source of money.
Moyo said the solutions Albright mentioned do not address the fundamental problem that African governments need incentives to invest and underwrite such programs. Moyo said that unlike the Western view that African nations can access capital markets, other nations — particularly China — have a different attitude toward Africa that the West has failed to consider. Walliser disagreed, saying that African governments will not have easy access to capital markets and that most investors are looking to invest in Africa.
While the panelists had different perspectives on the best approaches to international development, they agreed that international aid requires a multi-faceted approach that considers donors, local governments, the private sector and civil society.
Betsy Zeidman
Research Fellow and Director of the Center for Emerging Domestic Markets, Milken Institute
Alice Albright
Executive Vice President and Chief Investment and Financial Officer, GAVI Alliance
Gargee Ghosh
Senior Program Officer, Development Finance and Policy, Bill & Melinda Gates Foundation
Dambisa Moyo
Author, Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa
Jan Walliser
Sector Manager, Poverty Reduction and Economic Management, Africa Region, World Bank
Mon 4/272:30 pm - 3:45 pm
Preserving the Past to Build the Future: Antiquities as an Economic Development Resource for Emerging Nations
Glen Yago of the Milken Institute gave an overview of the current problems with antiquities. He described how the destruction and looting of archaeological artifacts is stripping the world of its cultural heritage, while at the same time denying any economic return or benefit to the local communities where such antiquities originate. Larry Coben of the University of Pennsylvania agreed: "The rate of destruction is extraordinary." They both introduced the notion that market and financial innovations may be able to solve both problems at once, perhaps through smart and innovative archaeological financing structures.
Jerry Podany of the J. Paul Getty Museum pointed to the partnerships the Getty has already undertaken as a potential model. The Getty has begun to lend its expertise to help source countries preserve their antiquities; in turn, the museum receives pieces on loan for display. The exhibition of these pieces also provides opportunities to excite museum-goers about visiting the country of origin, providing that country with further financial benefit.
Tourism could in fact be the key to solving this quandry, argued Charles Stanish of the Cotsen Institute. He provided two examples in Argentina and Peru of recent archaeological discoveries that have led to the creation of small, local museums for their display. This ensures preservation of the artifacts while simultaneously creating wealth for the surrounding communities.
Some differences of opinion on the appropriate use of money became clear near the conclusion of the panel. Brent Lane of the Kenen-Flagler Business School argued strongly for venture capital-type investment in archaeological financing. "Unless you create a local economic benefit, you don't have shared communal interest in the conservation process itself," he stated.
Hakan Tekin, Consul General of Turkey, countered that the perception from his country is that Lane and others are simply trying to create a market for antiquities. "Sale of cultural property has been banned in Turkey for over 100 years," he noted, urging the panelists to seek nonmonetary ways of exploring the problem.
Author Sharon Waxman emphasized the validity of Tekin's viewpoint, and said that multiple models might be worth exploring in different areas. Every culture is unique, she noted, and we may have to tailor our solutions in recognition of that reality.
Larry Coben
Founder, Chairman and CEO, Tremisis Energy; Archaeologist, University of Pennsylvania
Brent Lane
Director, UNC Center for Competitive Economies (C3E), Kenan-Flagler Business School, University of North Carolina
Jerry Podany
Senior Conservator, Antiquities, J. Paul Getty Museum
Charles Stanish
Professor, Department of Anthropology, Cotsen Institute of Archaeology, University of California, Los Angeles
Hakan Tekin
Consul General of Turkey in Los Angeles
Sharon Waxman
Founder and CEO, The Wrap.com
Mon 4/274:00 pm - 5:15 pm
The Current Restructuring Cycle: Meltdown or Metamorphosis?
David Hollander of Tennenbaum Capital emphasized several troubling characteristics of the current market. For instance, leveraged loan spreads are at historic highs, while firms are now demanding to be paid at rates that borrowers cannot afford. Hollander also noted that the interest expense is often prohibitive to the borrower, while the price of debtor-in-possession (DIP) lending has risen to unprecedented levels. In his experience, lenders are able to successfully demand a much quicker reorganization process today than ever before; they now want to be taken out as soon as possible. Hollander said he considers predicting the future of industries and of firm profits to be more difficult today than ever before.
Doug Teitelbaum of Bay Harbour Management noted that current recessionary conditions often hide poor management practices. He suggests that secured bank loans should no longer be viewed as an instrument that pays par. Teitelbaum also joked — with a touch of seriousness — that today's bankruptcy court is like Sotheby's, an auction house of many fine valuables.
First- and second-line tranches are increasingly taking more defensive positions, noted Paul Aronzon of Millbank, Tweed, Hadley & McCloy, exacerbating an already difficult market situation. Furthermore, he shared that there is little to no financing available for exits. Aronzon and other panelists agreed that lenders today commonly consider themselves to be secured creditors, although many second-lien lenders may be worse off today than are unsecured lenders.
John Castellano of AlixPartners noted that the bankruptcy process is very expensive, which motivates fire sales or liquidations. This problem is compounded by the general lack of funding, such that firms today seek to exit reorganization as quickly as possible.
Carl Goldsmith of Beach Point Capital Management discussed the traditional debt model in which investors seek to double their money in a reasonable period of time. However, he stated that leverage is currently at historic highs, while economic prospects are bleak, resulting in earnings that are falling or even negative. Consequently, he believes this is the toughest restructuring cycle in U.S. history.
Goldsmith further suggested that there has been a total void for the last eight or nine months in regards to first-lien capital, while the secured loan and DIP-financing process has grown adversarial for firms. As a result, new debt arrangements have developed, which potentially harm existing bondholders. However, he noted that firms are so desperate for financing that they will now accept covenants that previously would have been considered objectionable. The situation is pitting the interests of different classes of bondholders against one another.
Panelist generally concurred that investors typically fail to comprehend the intricacies of either the current market conditions or their full legal rights. In part this is because rules vary widely according to investor class, are extremely complex and differ measurably from the high-yield markets.
Michael Henkin
Managing Director, Co-Head of Recapitalization & Restructuring, Jefferies & Company Inc.
Paul Aronzon
Co-Practice Group Leader, Financial Restructuring Group, Milbank, Tweed, Hadley & McCloy LLP
John Castellano
Managing Director, AlixPartners
Carl Goldsmith
Managing Partner and Portfolio Manager, Beach Point Capital Management
David Hollander
Partner, Tennenbaum Capital Partners LLC
Mon 4/274:00 pm - 5:15 pm
Infrastructure Projects as Economic Stimulus
Infrastructure spending has a multiplier effect of $1.80 for every $1 the government spends, Doug Elmendorf said. A recent Congressional Budget Office report determined that, while additional spending of tens of billions of dollars could be justified, the returns on project investment varied widely. For that reason, Elmendorf said it is important to pick projects carefully and apply cost-benefit analysis.
The panel focused on several areas where the current infrastructure funding will not keep up with demand. There are infrastructure needs that are highly visible, such as highways and railways, and needs that emerge from catastrophe, such as Minnesota′s bridge collapse and New Orleans′ failed levees. Nancy Kopp argued for prioritizing sewers, clean water systems and other water infrastructure. Over the next 30 years, 50 percent of water infrastructure will need replacing, she said.
Norman Mineta pointed to the underfunding of the highway trust fund through a gas tax that hasn′t increased since 1993. He predicts alternative fuels and electric vehicles will further decrease money for federal highways.
Too often funding of infrastructure is uncertain. Martin Koffel said it is important to develop infrastructure spending for a boom or bust economy. He favored developing effective public-private partnerships in which private organizations aren′t just buying outmoded infrastructure but are able to invest in infrastructure projects that can be improved.
Some panelists suggested ways to improve the allocation of funding. Mineta said discretionary programs are laden with earmarks, prohibiting progress. Kinton said it is important to get creative in securing money through user fees and the congressional process.
Elmendorf agreed that user fees are a logical solution. Water fees and congestion pricing would effectively reduce consumption, increase efficiency and generate revenue, he said.
Thomas Kinton cited the passenger facility fees that Boston′s Logan International Airport charges passengers who travel through that airport. The $4.50 fee has no impact on budgets but generates significant revenue for airport improvement projects.
Thomas Kinton, Jr.
CEO and Executive Director, Massachusetts Port Authority
Martin Koffel
Chairman and CEO, URS Corp.
Mon 4/274:00 pm - 5:15 pm
Living Longer and Better Through Science, Nutrition and Lifestyle Choices
To listen to them, it′s an exciting era for age-related research.
Cohen emphasized the distinction between health span — the length of disease-free living — and life span — the length of life. Life span is a result of genes and environmental factors, while health span is related to genes, environment and behavioral factors affecting preventable maladies, such as cardiovascular disease or cancer. Cohen said longevity studies demonstrate that size, i.e. height and gender, are important determinants of life expectancy and longevity. Moreover, high levels of growth hormones or testosterone correlate with higher risk of oxidative stress and prostate cancer.
Berns gave an overview of the Progeria Research Foundation, a 10-year-old organization that was funded to find a cure for progeria, a premature aging disease often leading to death by age 13. The foundation has supported research leading to the discovery of a single gene mutation associated with the disease. The foundation has sponsored a clinical trial to test the effectiveness of farnesyltransferase inhibitors to reverse the dramatic nuclear structure abnormalities that are the hallmark of cells from children with progeria. Finding a cure may create lead treatments for other aging-related diseases such as cardiovascular disease and cancer, Berns said.
A highlight of the panel was the research on calorie-restricted diets presented by Fontana. Fontana′s research has found that restricting rats′ diets leads to a 30 percent to 50 percent increase in life and health spans. Fontana′s research suggests that aging and chronic diseases are not linked, at least in small animals. A study is underway to test the effects of calorie restriction and find the optimal nutrition for human lifespan. Patients are fed low-fat dairy, whole grains, vegetables and other energy-intensive foods. Preliminary data have shown that the study diets improve all biomarkers for cardiovascular disease compared to a typical American diet. Fontana stressed that calorie-restricted diets must be carefully administered to assure that they are nutritious and meet daily requirements for vitamins and minerals.
Howard Soule
Executive Vice President and Chief Science Officer, Prostate Cancer Foundation; Senior Fellow, Milken Institute
Scott Berns
Co-Founder, Progeria Research Foundation Inc.; Senior Vice President of Chapter Programs, March of Dimes
Pinchas Cohen
Pediatric Endocrinology Specialist, UCLA Children's Health Center
Luigi Fontana
Research Associate Professor of Medicine and Associate Director of the Longevity Research Program, Washington University in St. Louis School of Medicine
Mon 4/274:00 pm - 5:15 pm
Eyes Still on the Prize: African-American Civil Rights in the Age of Obama
California′s public schools rank 47th in the nation. Jealous recounted that a group of students in an inner-city Oakland school poignantly called their state "Calabama," revealing a profound understanding of the racial inequalities that still exist in the Golden State.
Jealous said Brown vs. Board of Education successfully desegregated many areas of public life, but schools have been an exception. Public education is still not recognized as a fundamental right by the Supreme Court, something Wade Henderson said should be established on a national level. Jealous said quality education should be not just a right, but a reality.
The panelists spoke at length about Obama's election, described by Henderson as a "watershed moment" and a "milestone in the evolution of American democracy." Yet the promise of a more perfect union remains. Myrlie Evers-Williams recalled a conversation in which she was asked by a young man, "What else do you people want?" Memories of civil-rights battles came flooding back. The road to a better America remains long, she said, and "the agenda still has not been fully addressed."
The subprime mortgage crisis, Henderson said, reflects the discrimination that led to a disproportionate number of subprime loans to black and Latinos.
The presence of police in inner-city schools, particularly after the Columbine massacre, has led to an astronomical number of arrests of black youth. Jealous said a police officer in on Oakland school told Jealous that he would arrest an average of 15 students each semester, mostly for so-called acts of defiance. The officer admitted that he was not preventing the next Columbine massacre in any of these cases. Jealous said police are necessary in urban communities but are far more needed in the streets than in the schools. Jealous said locking up disobedient youth is essentially "locking kids out of educational opportunity and economic opportunity."
Moderator Beverly Daniel Tatum asked if the nation has the will to empower black children. The "moral argument alone is not sufficient," Henderson said. Well-educated children are an investment in the future; they guarantee the nation′s competitiveness in the age of globalization. Whether by appealing to rational self-interest or building strong coalitions, the battle for equality must be won. The question is when and by whom.
"Leaders should always be lean, and a little mean," Jealous said. "Power should be taken. You need leaders who know how to win."
Myrlie Evers-Williams
Chairman Emeritus, NAACP; Founder, Medgar Evers Institute
Wade Henderson
President and CEO, Leadership Conference on Civil Rights
Benjamin Jealous
President and CEO, NAACP
Joseph Phillips
Actor and Author
Mon 4/274:00 pm - 5:15 pm
Infusing Technology into Education for Economic Competitiveness
Glenn Kleiman discussed the importance of a new model for education. He made many audience members smile with two pictures of American classrooms. One was taken in 1907 and one in 2002, but they were eerily similar. "About 100 years have passed, and while some changes have occurred, we still have a classroom that is still designed with Industrial Age ideas," Kleiman said.
Bette Manchester said a program she helped design in Maine gave middle school students access to laptops around the clock. "We made sure that we had equity and access for all students and all teachers in the state," she said. The program tried to build a culture of innovation with the work of parents, students, and teachers. By building a culture of innovation, they were also able to tackle the issue of teacher isolation, she said.
Educators need to view students as customers, Keith Krueger said, and tailor learning to meet their needs. "Even our best students are bored," he said. The technology kids use at home is banned from school, whether it be iPods, laptops or cell phones. Krueger said students are clear about what they want; educators need to make sure those needs are being met to keep students engaged and competitive.
L. Michael Golden said amazing things are in fact happening in education such as Microsoft′s Imagine Cup, but it is important to improve and build on such programs.
L. Michael Golden
Corporate Vice President, Education Products Group, Microsoft Corp.
Glenn Kleiman
Executive Director, Friday Institute for Educational Innovation; Professor, Department of Educational Leadership and Policy Studies, North Carolina State University
Keith Krueger
CEO, Consortium on School Networking
Bette Manchester
Executive Director, Maine International Center for Digital Learning; former Director of Special Projects, Maine Learning Technology Initiative
Mon 4/274:00 pm - 5:15 pm
Reinventing Asia's Growth Miracle
Just as other economies are battling against the global slowdown, so is Asia's. William Meaney said slowing export growth has and will continue to hurt most trade-dependent Asian economies. Another root cause of Asia′s economic condition is the fact that, despite its rapid economic growth, private consumption has not risen.
In response to the crisis, Asian economies have rolled out sizable fiscal stimulus plans to combat the downward spiral. Keng Yong Ong said Asian governments have attempted to stimulate their economies with fiscal policies, preservation of jobs by increasing employee training, and other tactics. However, Ong's view is that these policies are sufficient for the short term, but their effects five to eight months later are questionable.
Huiyao Wang appeared to be the most bullish on Asia's economy, outlining China′s ambitious stimulus plan and its other attempts at sustained growth and global competition. The government is also spending on medical reform, increased salaries for teachers and farmers, tax exemptions, etc. Wang goes on to explain the positive effects that China's stimulus package has had on its gross domestic product.
While time will reveal the long-term effects of Asia′s policies, it is certain the nations are in short-term pain. Businesses operating in Asia must shift resources to adjust to the downturn; investors need to regain confidence in the markets; and governments must explore policy changes and increase privatization, panelists said.
Keng Yong Ong
Director, Institute of Policy Studies, Lee Kuan Yew School of Public Policy, National University of Singapore
Huiyao (Henry) Wang
Vice Chairman, China Western Returned Scholars Association
Mon 4/274:00 pm - 5:15 pm
Measuring Todays Terrorist Threat
Like pornography, terrorism is something that you know when you see it. How it′s defined helps law enforcement track trends and try to prevent terrorist strikes. Philip Coyle said recent terrorism peaked in the 1980s; the numbers of attacks in the years after 9/11 more closely resembled activity during the 1970s. The government however quit making this type of information public because decreasing terrorism wasn′t good publicity for an administration trying to sell a global war on terror, he said.
Michael Intrilligator said obtaining weapons of mass destruction is a key goal of al-Qaida. Al-Qaida has expressed its intent to kill 4 million Americans, 2 million of whom will be children. They have arrived at this number by counting what they believe are all the Muslim deaths at the hands of Westerners. Furthermore, the sheer number of deaths can only be actualized through the use of WMDs, he said. The only two cities that al-Qaida has publicly announced as targets are Los Angeles and Melbourne, Australia. Los Angeles, with its ports, entertainment industry and large population, is an obvious choice. Melbourne, however, is something of a mystery.
Alvin Toffler commented on the asymmetry of the war on terror. There are multiple opportunities, both known and unknown, that small cells of terrorists could use to cause large impacts. Yet, to counter terrorism, the U.S. created a massive bureaucracy, or "Institutional Katrina," in the Department of Homeland Security. Created from 22 other agencies, the DHS is a very centralized, pyramidal, hierarchical bureaucracy, while terrorist groups work within decentralized, independent cells. Alvin Toffler refers to this as "pyramids and pancakes." While DHS reacts sluggishly to changes in weapons, technologies, and speed of information, terrorists are adapting, evolving and embracing this trend.
Phil said the "D" in WMD doesn′t always mean destruction. In many cases, it is more disruption and distraction. In California, a school bus could be considered a weapon of mass destruction. Government at times seems much too focused on high-profile, well-known weapons while more probable and more accessible weapons are overlooked.
Financing for terrorism comes from both illegal and legitimate sources. Many terrorist groups are affiliated with international criminal organizations, which help move money, weapons and illegal drugs. Al-Qaida receives large amounts of money from poppy farms in Afghanistan, the world′s leading producer. Some Muslim charity groups receive donations intended for less fortunate individuals while supporting terrorist groups.
The only way that to effectively counter the evolving terrorist threat is by not fighting yesterday′s war. Phil said "an ounce of prevention" now is worth more than reactive policies later. Terrorists aren′t likely to attack the way they have in the past. The world of terrorism is evolving so quickly that those in charge of counter-terrorism operations may not understand what they are fighting let alone how to fight it.
Peter Katona
Associate Professor of Clinical Medicine, David Geffen School of Medicine, University of California, Los Angeles
Philip Coyle
Senior Advisor, Center for Defense Information
Michael Intriligator
Senior Fellow, Milken Institute; Professor of Economics, Political Science and Public Policy, University of California, Los Angeles
Alvin Toffler
Author; Futurist; Principal, Toffler & Associates
Mon 4/274:00 pm - 5:15 pm
Philanthropists in the New Economy
Jamie McCourt and Deborah Doyle McWhinney predict paradigm shifts in philanthropy driven by the economic realities and changes in the distribution of wealth and the demographics of potential donors. Gone is the era of simply writing a check, they said. Panelists expect a shift from program-based giving to an operations focus for sustainability.
Donors want more accountability for how their donation will be used; they want a connection with the cause; and they want to know the tangible outcome of their gift. Charities should be prepared for cautious donors who will ask more questions not only about the cause but also about their money management.
McCourt urged potential donors to perform their due diligence, investigating not only the heart of the charity but also their money management and track record. McWhinney encouraged donors to consider making a pledge rather than a one-time donation if there are concerns about a foundation's money management.
Panelists warned charities and recruiters about donor fatigue and encouraged fundraisers to know their audience and target their activities. McWhinney and McCourt advised potential donors to identify their passions and focus their giving. Otherwise, McWhinney said, "philanthropy is a labor not a labor of love."
McWhinney suggested that each person has a role to play and a way to contribute, that philanthropy is not restricted to the top few percent of the population. Audience participants spoke to the importance of securing small donations from a large number rather than large donations from a small number. With the surge of online social networking, this is more attainable then ever. Other ways the audience proposed expanding philanthropy included allowing for "indirect impact" by investing in a for-profit company that has charitable activities; mission-based philanthropy; and recognizing that there are resources other than money people can provide to help others.
In this economy, philanthropy has an opportunity to evaluate itself and be creative, to invest wisely and to think beyond monetary gifts, including donations of time, advice and expertise.
Jamie McCourt
CEO, Los Angeles Dodgers
Deborah Doyle McWhinney
CEO and President, Dennis and Phyllis Washington Foundation
Mon 4/274:00 pm - 5:15 pm
Convertible Securities in Today's Market
The panel agreed that convertible securities are more flexible than debt because they do not have as many restrictive covenants and allows companies to tap into funding even when debt spreads are high. Moderator John Calamos Sr. of Calamos Asset Management explained that the convertible securities market is "more resilient over time in providing access [to capital] to companies."
Companies access capital along a spectrum, with equity on one end as the most flexible but most expensive option, and debt on the other end as a relatively inexpensive but restrictive mechanism. Additionally, Calamos added that debt is not accessible to all firms: some are too small to raise a significant debt offering or have their debt rated. "Convertibles really provide the ability to enhance each part of the spectrum," Calamos explained, allowing companies to raise equity at a premium or issue debt with a higher yield.
Jason Lee of Goldman, Sachs & Co. added that convertible securities have also been very attractive because of their accounting treatment, although the panel agreed that the Financial Accounting Standards Board will soon take away that advantage.
The panel also addressed whether CFOs and investors really understand convertible securities. Michael O'Grady of Bank of America Merrill Lynch stated that CFOs may not start with a full understanding, but by the time they finish, they understand. Lee agreed. "The challenge of this asset class is educating those companies who don't get it," he said, noting that there are a large number of "classic American companies that still have a bit of a perverted perception about what this security is."
However, the panelists agreed that there is a great value proposition to investing in the convertible securities market once participants are educated. The speakers noted that this market has experienced a tremendous dislocation that has opened up a myriad of ways to invest in convertible securities.
Christopher Zafiriou, Senior Investment Analyst of the Investments of the Pew Charitable Trusts, stated that convertibles can be used in three common ways: as a means to invest in distressed securities, through convertible arbitrage and as a defensive equity substitute. Zafiriou did warn that he did not feel that convertible arbitrage is a long-term proposition; he believes it will eventually devolve to hedge funds trading among themselves. But he stated his belief that convertible securities offer an excellent risk/reward ratio and states that if an investor is "gun-shy about rebalancing into equity, then convertibles are a great way to transition."
Jason Lee
Managing Director, Goldman, Sachs & Co.
Michael O'Grady
Managing Director of Investment Banking, Bank of America Merrill Lynch
Michael Rosen
Principal and Chief Investment Officer, Angeles Investment Advisors LLC
Christopher Zafiriou
Senior Investment Analyst, Investments of the Pew Charitable Trusts
Mon 4/277:00 pm - 9:00 pm
Dinner Panel
Athletes for Hope: Sports Philanthropy
In 2007, Agassi and other all-star athletes got together to lay out the plans for a philanthropic organization. When soccer superstar Mia Hamm began pouring over the financial aspects, she recalls that Agassi told her, "don't get caught up in the numbers." They were there to change people's lives. Athletes for Hope was founded to promote excellence through charitable work, making endeavors such as Hamm's work on behalf of bone marrow research more effective. The organization educates and connects athletes who are already interested in philanthropy and empowers them to make even greater strides together.
Annika Sorenstam, arguably the greatest female golfer of all time, joined the group and brought her energetic advocacy for health and nutrition. She runs the ANNIKA Foundation, which sponsors golf tournaments for youth and offers educational scholarships. Sorenstam is a firm believer that we must increase physical education in schools, create more after-school programs and make cafeteria food more nutritional. "Whatever you put in, you become," she said.
The audience got a chance to participate in several survey questions throughout the panel. Eighty-four percent of the attendees disagreed with the statement "my money is more valuable than my time." The panel concurred, but as skateboarding legend Tony Hawk pointed out, the question of money vs. time sometimes depends on what kind of charitable work is in question. When it comes to cancer research, he said, "It's not like they′re looking for extra hands in the lab."
The audience was divided on the question of whether we should lower our expectations about what we can accomplish charitably in light of the economic crisis. Hawk explained that, under the current circumstances, more people are in need, which means we have to think outside the box to find innovative ways to fundraise.
The Tony Hawk Foundation does just that, having raised funds to build 450 skateparks throughout the country, mostly in disadvantaged neighborhoods. The skatepark in Compton was the result of a partnership with the mayor's anti-gang initiative and the city.
Robert Shafir of Credit Suisse shared the athletes' belief in the power of philanthropy, calling it a "great culture builder" for any organization. Social responsibility is becoming increasingly popular, and large companies are motivated to engage in charitable work by their shareholders, clients and employees.
Moderator Chris Waddell added a note of inspiration to the evening. He hopes to become the first paraplegic to climb Mount Kilimanjaro, the tallest mountain in the world. Doing this without the use of his legs may seem impossible, but not for this resilient champion.
Andre Agassi
Tennis Champion; Founder, Andre Agassi Charitable Foundation
Mia Hamm
Olympic Gold Medalist and World Cup Champion, U.S. Women's Soccer Team; Founder, Mia Hamm Foundation
Tony Hawk
Professional Skateboarder; Founder, Tony Hawk Foundation
Robert Shafir
CEO, Asset Management and Americas Region, Credit Suisse
Annika Sorenstam
Professional Golfer; Winner of 72 LPGA Tournaments
Mon 4/279:00 pm - 10:30 pm
Late Night
Duke University and U.S. Olympic Coach Mike Krzyzewski on Building Winning Teams
Introduction By
Tuesday, April 28, 2009
Tue 4/286:30 am - 7:45 am
Private Versus Publicly Held Financial Institutions: Which Are Best Positioned?
When asked how private firms different from public companies, Dave Marks had a ready answer: "Culture eats strategy for breakfast." As a public investment officer, it is very easy to be worried about "the now": this week, this month, this quarter, this year. But private firms can focus on the long-term direction of the company and the needs of their customers without worrying about analysts, quarterly reports or the press, creating a stark contrast of cultures.
Mark Lipson of Bessemer Trust stressed that "we don't have a daily share price to distract us," one that might give rise to short-term thinking. Freed from fluctuating stock prices, companies can focus more fully on their core competencies, partnering with clients and customers, customer retention and market share. Being private allows a company to be more nimble and flexible, and most importantly allows companies to make decisions more quickly and efficiently. It also allows for more efficient capital utilization and keeps management more focused on knowing what the margin of safety is in the organization.
There are drawbacks, however, to being a private company. One of the biggest is the lack of access to capital, which is not as easily obtainable as it is for a public company. Another pitfall of being private can be the lack of shareholder discipline that exists for publicly traded companies. Activist shareholders can steer a company in the right direct and call for change when the current management is not pursuing the right strategies to create shareholder value and increase the profitability of the business.
The lessons to be learned from private companies can be profound — and staying "under the radar" can be advantageous in fragile economic times. Privately owned companies tend to have more discipline and don't have the luxury of "playing with the houses money to the benefit of senior management," according to Scott Minerd of Guggenheim. Instead, they can focus on longer-term thinking that tends to enhance decision-making skills.
David Kuplic
Chief Investment Officer, Securian Financial
Mark Lipson
Managing Director and Senior Resident Officer, Bessemer Trust
David Marks
Executive Vice President and Chief Investment Officer, CUNA Mutual Group
James Weishan
Chief Investment Officer and Senior Vice President, Investments, Sentry Insurance
Tue 4/286:30 am - 7:45 am
The Swine Flu Epidemic: How Serious Is the Threat?
Scott Layne
Professor of Epidemiology, School of Public Health, University of California, Los Angeles
Tue 4/288:00 am - 9:15 am
The Future of Hedge Funds: Transparent and Liquid
Through the first quarter of 2009, hedge funds overall were down an average of 20 percent, but one in three realized positive returns over the same period. At approximately 2 percent, hedge funds account for a relatively small percentage of global assets under management. However, hedge funds have accounted for a disproportionate share of attention from the financial media due a handful of high-profile implosions. The panel of two fund managers, two pension fund limited partners and an industry consultant were largely in agreement on how the industry got to where it is today.
Jason Cummins said hedge funds got into trouble simply by taking on excessive risk with high leverage levels. Managers have historically been incentivized to "reach for yield," necessitating a move to riskier assets. As a result, Joseph Dear said, the compensation structure for hedge fund managers needs to be modified. "A serious misalignment of interests exists in the current model," Dear said, and a move toward pay for performance, increased transparency and an institutional model is needed.
Orin Kramer, also on the limited partner side, agreed with Dear's assessment and suggested that hedge fund managers adopt characteristics of a private equity fund structure with preferred returns for LPs and clawback provisions. Marc Lasry said increased transparency is necessary and not an unrealistic expectation from investors.
The panel agreed that screening from managers simply based on low fee schedules would lead to a negative selection bias. However, the LP representatives were emphatic that regardless of the fee structure adopted by a hedge fund, interests must be aligned with their investors and compensation should be based on performance.
When discussing the near future of asset allocation and fund flows to hedge funds, Stephen Nesbitt was optimistic about growth in hedge fund assets for multiple reasons. First, large institutions need to take calculated investment risks because depressed asset valuations across their portfolios mean that pensions are significantly underfunded. In addition, other asset classes are not terribly attractive on a risk-adjusted basis relative to hedge funds. Nesbitt expects to see more movement of money into hedge funds in the last quarter of 2009 and continuing into 2010.
Looking forward, Cummins said the macro economic environment will experience materially more volatility than historical levels. After the shakeout of the past 12 months, best-in-class managers will emerge and will be well-positioned to capitalize on an environment of decreased competition and increase volatility. Lasry described potential government regulation of the hedge fund industry with the simple statement, "It's not if but when."
Jason Cummins
Head of Economic Research, Brevan Howard Asset Management LLP
Orin Kramer
General Partner, Boston Provident LP; Chairman, New Jersey State Investment Council
Marc Lasry
Chairman, CEO and Co-Founder, Avenue Capital Group
Tue 4/288:00 am - 9:15 am
CEO Conversation: Past, Present and Future of Las Vegas With Steve Wynn
Steve Wynn spoke to a packed ballroom about Las Vegas, the economy and simple truths like these: Humans possess a wonderful capacity to adjust to negative events and quickly return to normal behavior, and businesses must keep their promises to their customers.
"I′m in the business of human aspirations," Wynn said, and ensuring the customer′s hopes are realized or exceeded. "I place great trust in simple truths with a sense of history, asking, 'What do I know for sure?' I start with the simple before moving to the complex aspects of any issue.
"I know that Las Vegas is a flower in America's garden. If the garden is healthy, Las Vegas is healthy. The present economic downturn is part of the natural business cycles that Las Vegas is familiar with. Just as Las Vegas blossomed over the last decade, she weathered the 1974 oil crisis and the early 1990′s recession," Wynn said.
Las Vegas weathers the downturns by keeping its promise as a premier party destination. Maybe that isn't the loftiest notion, he said, but the economy won′t change human behavior, and Las Vegas does it better than anywhere else. Fierce competition causes casinos to learn from each other and try to outdo each other. As long as that competition exists, Las Vegas will keep its promise and evolve to meet customer demands with the convenience of a safe, easy-to-reach travel destination, Wynn said.
To evolve requires the right capital structure. It is a company's main form of marketing and ensures that the staff feels safe to focus on the guest. The guest experience is what matters; it suffers without attention to capital structure.
Consider the example of cost cutting. Everyone wants to cut costs, but there is a difference between cutting waste and cutting cost, Wynn said. In economic downturns it is more important than ever to keep promises to customers. It means avoiding illogical actions like cutting costs that come at the expense of the customer unless you are also cutting price, Wynn said.
In responding to audience questions, Wynn noted that local gaming and places like Wynn Macau still benefit Las Vegas. Las Vegas is far more than gambling; it is an experience, he said.
He also looks forward to President Obama's focusing on job creation as his top priority. He wants the administration to target small-business growth through tax incentives.
It is also important to send the right message, Wynn said. People should be encouraged to attend meetings and conferences in places like Las Vegas because the exchange of ideas is more important than ever in tough times. It not only helps the hospitality industry — a huge part of the economy — but it also is vital to the innovation that will fuel prosperity.
Introduction By
Tue 4/288:00 am - 9:15 am
On the Wealth of Nations: Creating Prosperity in a Turbulent World
David Davis
Member of British Parliament
Robert Mosbacher Jr.
Former President and CEO, Overseas Private Investment Corp.
Tue 4/288:00 am - 9:15 am
SAVE Roundtable: New Energy Initiatives
Klebensberger said that feed-in tariffs have driven Germany's success in the renewable energy market (Germany has 50 percent of the world market for solar power). The country first tried an American-style incentive system, in which households would receive tax credits for buying solar systems, but adoption growth under this approach was minimal. When Germany moved to the feed-in tariff — rewarding households for the energy they produce rather than what they spend on producing it — they saw adoption skyrocket.
Lee Bailey of US Renewables Group agreed that the question facing America is whether to turn to another financial system or continue "monkeying around with these two-year fixes." He suggested that it was not a lack of will or technology, but a lack of capital in the system.
Joseph Pettus pointed to Safeway's method of attaining clean, renewable energy by taking itself off the grid and producing the energy itself. Although they've been able to achieve great savings by this method, they still have to pay a $30 million per year penalty for not being on the grid. But in spite of these penalties, Pettus said Safeway is "15 years ahead of AB32 and we're making money doing it."
Moderator Joel Kurtzman of the Milken Institute chimed in that in the energy market, there are 135 regulators — some private, some municipal, some statewide or national — on top of this policy penalty of exiting the system. This makes it costly and time-consuming to navigate the regulatory system, potentially depressing uptake of renewable technologies.
G. Chris Andersen of GC Andersen Partners expressed concern about transmission, distribution and storage, which affect the price and deliverability of clean energy. He maintained that the industry will probably have to turn to unique financial structures, such as REIT financing, which could cut the cost of capital by a third.
Amory Lovins of the Rocky Mountain Institute emphasized that grid development must be done thoughtfully, with an eye to the most efficient distribution of different types of energy to different parts of the country. Lovins also maintained that worries surrounding the difficulty of integrating solar and wind energy into the grid are largely overblown; he insisted that it is cheaper than integrating new thermal plants, which is what we are currently doing. Klebensberger agreed, citing a study that says solar and wind energies are usually added to peak electricity usage, so storage is not as big of a problem as some may believe.
G. Chris Andersen
Founder and Partner, G.C. Andersen Partners LLC
Lee Bailey
Managing Partner, US Renewables Group
Boris Klebensberger
Manager, Operative Business, and Chief Operating Officer, SolarWorld AG
Richard Pietrafesa
Managing Director, Destiny USA
Tue 4/288:00 am - 9:15 am
Milken Institute California Center Advisory Council Meeting
By invitation only
Tue 4/288:00 am - 9:15 am
Health Information Technology and the Health-Care Revolution
Despite these incentives, just 20 percent of hospitals and fewer physician practices use electronic health records, according to Stephen Leiber.
The Recovery and Reinvestment Act of 2009 allocates $35 billion to increase the use of electronic health records. The four major components include funding incentives; setting standards for health information technology, or HIT; linking incentives to HIT certification; and demonstrated use and establishing minimum requirements for functionality and interoperability. Leiber predicts that outcomes of HIT implementation will be eliminating unnecessary medical procedures, reducing errors and increasing efficiency.
David Levy said health-care costs are rising faster than economic growth, and global leaders in health-care delivery are concerned about sustainability. Integrated systems can lower cost and improve care, Yitzhak Peterburg said. Take-away messages from Peterburg′s experience implementing HIT in the world's second-largest HMO were increased patient satisfaction, improved quality indicators and an improved budget.
"Health IT is a stepping-stone for expense control and better medicine," Peterburg said, but to be successful it needs to be integrated; you need to do the research and get the right system; you need to get user buy-in; and you need to recognize that it's a culture shift that will take time and likely be met with some resistance.
"HIT is not only a stepping-stone for increased quality and decreased cost but also for clinical research," Margaret Anderson said. Anderson strongly encouraged HIT adoptees to integrate clinical research components prospectively rather than trying to build in post-implementation. A research-inclusive HIT will allow for quicker identification of patients eligible for clinical trials, enhanced monitoring of adverse drug reactions, and access to a broader, more diverse patient population, Anderson said.
Another means for faster cures and improved care via technology was proposed by Frank Moss. "Ordinary people, empowered by technology, are transforming every facet of society" and will affect health-care delivery and decision making as well, he said. For example, he said, orphan disease studies have found that electronic social networks provide a means of connecting patients and empowering them to track their disease, pose research questions and attract researchers. Moss highlighted the role of low-cost technology in distance medicine both for developing nations with limited access to providers and for developed nations as a means of addressing staggering health-care costs.
Recommendations and projections from the diverse group of panelists all spoke to the same theme: Technology provides solutions to many dilemmas health care is facing by improving outcomes, accelerating cures, increasing access and lowering costs.
Margaret Anderson
Chief Operating Officer, FasterCures / The Center for Accelerating Medical Solutions
David Levy
Global Healthcare Sector Leader, PricewaterhouseCoopers
Stephen Lieber
President and CEO, Healthcare Information and Management Systems Society (HIMSS)
Frank Moss
Director, Media Lab, Massachusetts Institute of Technology
Yitzhak Peterburg
Senior Visiting Fellow, Milken Institute; Former CEO, Clalit Health Services; Former President and CEO, Cellcom Israel Ltd.
Tue 4/289:30 am - 10:45 am
The Next Generation of Venture Capital: Hot Ideas from Sand Hill Road
The trouble in the capital markets has not deterred Eric McAfee of McAfee Capital. He highlighted a $4.5 billion solar energy project that includes bond financing and funding from McAfee Capital of just under $50 million.
Solar, he says, is where the majority of VC money is going. This is reflected elsewhere in the world — especially in the Middle East, where according to McAfee, sovereign wealth funds are investing in the infrastructure because of limited remaining oil resources.
As other forms of generation advance, electricity has the potential to be the new basis of the world's transportation network. McAfee stressed, however, that investors need to be wary of what part of the value chain they choose to invest in. Specifically, there are many manufacturers of solar cells, and McAfee predicts that there will be a "bloodbath" as competition forces most of the 80 or so participants out of the market. The power in the value chain has moved to the utility customers. Ford Tamer of Khosla Ventures cautions that the "Google of solar" has not yet been invented and that there is not enough efficiency in the overall cost structure.
Shifting gears to the larger electrical network, the panel agreed that the U.S. government is in a unique position to spur investments in the historically neglected electrical infrastructure. Specifically, if national policy dictated a goal of building out a "smart grid" for electricity distribution, venture funding would flow toward producing energy-efficient retail goods.
Tamer stated that while some venture participants are looking to batteries as improvements that can meet electrical infrastructure needs, his firm is looking at other forms of electricity storage that can meet demand for 100 MW of storage.
Compatibility with a "smart grid" is also on Tamer's mind; he pointed out that Khosla is still looking at consumer-based devices like advanced adaptations of cell phones that include projector functions as well as uses that will replace traditional credit cards.
The panel also agreed that other forms of alternative energy are providing opportunities right now. Alec Ellison of Jefferies & Company proposed a move toward compressed natural gas as a clean technology with one-third of the emissions of traditional car fuels, cautioning that the costs of producing biofuels may be too high at the moment due to the costs of food for algae and other microbes. Tamer suggested that the technology exists for zero net emissions through the use of advanced geo-thermal techniques and bio crude oil production.
McAfee supported that effort, adding that McAfee Capital was looking at a biotech approach to creating fuels using only the cheap inputs of sunlight, carbon dioxide and seawater. Steve Jurvetson, of Draper Fisher Jurvetson, also echoed the drive toward biofuels through the use of advanced genomics in algae capable of constantly excreting oils.
The overall industry tone was reflected by Ellison, who said that although it is experiencing difficulty, the IPO market will return later this year, but not with very high volumes.
Jurvetson added that difficulties in the capital markets have dried up financing for ventures at a time when good ideas need funding. The result, he says, is that 2009 and 2010 will be fantastic vintage years, meaning that in a few years' time investors will look back and wish they had taken part.
Alec Ellison
Co-Head of Investment Banking; Chairman, Technology, Media and Telecom Group, Jefferies & Company Inc.
Steve Jurvetson
Managing Director, Draper Fisher Jurvetson
Eric McAfee
Chairman, McAfee Capital
Ford Tamer
Operating Partner, Khosla Ventures
Tue 4/289:30 am - 10:45 am
Credit Markets
David Malpass of Encima Global opened with a basic rundown of the importance of credit as the underpinning of any healthy economy, stressing the importance of proper valuations and accurate ratings. Without well-functioning credit markets and proper credit allocation, he warned, expansion will be limited.
According to James Walker of Fir Tree Partners, the core of the crisis came from off-balance-sheet securitizations in mortgages; cars and credit cards; and securitization of securitization (i.e., CDOs). This securitization phenomenon was driven over the past 15 years by a combination of financial institutions, investment management firms and rating agencies with little skin in the game operating under misaligned incentives to generate fees rather than execute accurate, well-considered analysis. Through this process, Walker said, these asset managers essentially became "asset gatherers," and the world became a global casino with governments acting as the house and taxpayers taking the losses.
Milken turned the discussion to the question of ratings, pointing out that almost 17,000 instruments received AAA ratings in 2007, while today we only have four U.S. companies holding that distinction. He noted that much of the exuberance in ratings was driven by analysts' over-reliance on historical asset appreciation, pointing out that schools typically teach students backward-looking regression analysis as a way of charting the future. The flaw in this model is that raters really need a realistic grasp of future dynamics to understand where things are headed. "The past can't pay you interest," Milken remarked.
Echoing points raised by Milken and the other panelists, Stephen Nesbitt of Cliffwater noted that many institutional investors were hurt because they looked to the past and trusted the ratings firms to provide realistic evaluations of risk. Over the past 35 years, credit has been a bad deal for these investors, Nesbitt said, pointing out that Treasuries actually would have provided a better return. He cautioned that just because an instrument has a high rating or good spread doesn't mean it's attractive. Milken summarized these points by noting the importance of looking at "facts rather than perception."
To round out the discussion, Milken challenged the panelists to focus on solutions. Walker said the key lies in the equitization of debt, otherwise known as deleveraging. Currently there is just too much debt out there at the institutional, corporate and consumer level. To remedy this, Walker proposed banks build tangible common equity and deleverage through asset sales. Corporations must swap debt for equity, pursue secondary equity offerings and enter bankruptcy if necessary. Finally, Walker argued that consumers need to similarly raise their savings rate, restructure debt and enter bankruptcy if needed.
Stephen Tananbaum of GoldenTree offered his thoughts, focusing primarily on the corporate side since he feels it′s easier to change the balance sheet for corporations than consumers, at least in the near term. He spoke of his experience in working with distressed firms, noting that companies are generally receptive when approached with a reasonable offer. He also made the point that the market may be willing to value debt equity at a higher price.
Milken seized on this last point, noting that in good times, a firm's value will likely go up when it takes on debt. In the current environment, however, enterprise value may actually go up when equity is swapped for debt.
David Malpass
President, Encima Global LLC
Steven Tananbaum
CEO and Chief Investment Officer, GoldenTree Asset Management LP
James Walker
Managing Partner, Fir Tree Partners
Tue 4/289:30 am - 10:45 am
Jump-Starting the Housing Market
Recounting the challenges facing the housing market, panel members agreed that the causes are numerous. Donald Brownstein said the downturn was the result of easy money for homebuyers in the form of mortgages that were too high for people′s income. Steven Mnuchin agreed: "The industry began making loans based on the value of the property instead of on the home-buyer′s income. The problem is lending gone wild."
Other panelists noted a complete breakdown in the mortgage system observing that no one, from homebuyer to mortgage lender, understood the risks associated with high housing prices and mortgages based on home value instead of income.
The panel said the troubled housing market a large contributor to the economic downturn. "What we have now is a depression in the housing market, and it is why we have an overall economic slump," Ross DeVol said. Housing's decline has taken approximately two years' growth from the nation's gross domestic product.
The bottom is still ahead, Brownstein said, and the essential question is when will the economy turn around and how. While forecasts predict an uptick in the housing market in the next few years, there is a lot of room for government and free market solutions.
Richard Smith said, "The administration has failed so far in addressing the housing crisis. The focus of the administration has been on the foreclosure issue, but the solution to the problem is on the demand side." But Mnuchin said stabilizing housing prices is part of the solution.
The panel addressed some misconceptions about the housing market, especially the idea that there is a national housing market with challenges that can be addressed on a one-size-fits-all basis. Devol said that misconception leads policymakers to miss the fact that 50 percent of foreclosures are in California, Las Vegas, Phoenix and southern Florida. "The plan from the federal government addresses the housing problem as on a national problem but doesn′t tackle it locally," he said.
Donald Brownstein
CEO and Chief Investment Officer, Structured Portfolio Management
Steven Mnuchin
Chairman and Co-CEO, Dune Capital Management LP; Chairman and CEO, OneWest Bank Group LLC
Richard Smith
President and CEO, Realogy Corp.
Tue 4/289:30 am - 10:45 am
Building a World Without Hunger
Terrence Smith opened the panel with that daunting fact.
Three things happen when people don′t have food: people migrate, people revolt, and people die. The United States must "figure out how to stabilize the global food supply if we are going to have a stable world," Josette Sheeran said.
The answer is simple yet complex: use the public sector, which has the capacity to impact change, while partnering with the private sector; align incentives; create transparency; and invest in technology, she said.
The panelists agreed that it is critical for the U.S. to take a leading role in fighting world hunger. "America should own the brand of feeding the world," Sheeran said. However, Dan Glickman said government hurdles exist. One hurdle discussed was the Bumpers Amendment, which stipulates that no aid received through the U.S. Foreign Assistance Act can be provided to anyone in a foreign country for an export that may compete with a similar U.S. product in world markets.
Whatever solutions are created must be sustainable. Rajiv Shah stressed that there is no one right answer. The solution is not transplanting a model but allowing for a customer-driven solution in each area. He also stressed that this solution must be sustainable, and smart investing must be encouraged.
Volatility in food prices and freight prices over the past year caused a hunger crisis, William Meaney said; from June 2007 to January 2008, food prices skyrocketed. The effects of changing prices are difficult to measure and include such things as farmers going in and out of business. The hunger crisis must be answered with a sustainable solution, he said, whether it′s making markets work as regions relying upon each other or teaching each country to be self-sufficient.
In the private sector, investing in appropriate technology, addressing the water crisis, and giving farmers the direct opportunities may have an immediate impact on hunger, Jerry Steiner said. Meaney noted that by working together companies such as the Zuellig Group and Monsanto could discover how to meet their risk profiles and invest in an environment where the economics make sense and instability is addressed.
Dan Glickman
Chairman and CEO, Motion Picture Association of America; former U.S. Secretary of Agriculture
Rajiv Shah
Director of Agricultural Development, Bill & Melinda Gates Foundation
Josette Sheeran
Executive Director, United Nations World Food Programme
Jerry Steiner
Executive Vice President, Sustainability and Corporate Affairs, Monsanto Company
Tue 4/289:30 am - 10:45 am
El Mundo Nuevo: Why the United States and Latin America Need Each Other
Jeffrey Davidow reported on his recent experience attending this year's Summit of the Americas as a senior adviser to President Obama, observing that the event was marked by a decidedly different tone than in years past. Davidow outlined President Obama′s approach, describing it as a call for close cooperation, with no junior or senior partners, working together on a plethora of global issues such as energy, climate, poverty, immigration, public safety and trade.
Bruno Ferarri CEO of Pro Mexico noted that a response to many of these issues lies with ending protectionism. He pointed to the high level of intraregional trade within Europe, which he felt led to the tremendous success of the European Union. He suggested that by applying the same kind of trade policies in the Americas — where many of the countries have large internal markets — could create a major force.
Gabriel Rodriguez of the Chilean Ministry of Foreign Affairs also called for more targeted associations between countries, specifically to promote the advancement of human capital and technology. Rodriguez encouraged targets and standards for these interactions in meeting the needs of the region.
Each panelist pointed out that the future of U.S.-Latin American relations is dependent on the United States devoting increased awareness and attention to the region. Ferrari interjected that he would like to see some of the media and international attention typically given to the Middle East directed toward Latin America. Former U.S. ambassador to Uruguay Frank Baxter agreed, explaining that Latin America is seldom on U.S. radar screens; it's not a danger to the United States, it's not poor enough to need foreign aid and it's not growing fast enough yet to excite board rooms. To make matters worse, Ferrari added, Latin America has not done a good enough job marketing itself and the potential benefits of partnership to the United States.
In closing, the panelists called for more direct U.S. attention to Latin America, increased and more effective education to prepare Latin Americans to compete in a 21st-century world and the promotion of more open borders for people and products.
Frank Baxter
Former U.S. Ambassador to Uruguay; Chairman Emeritus, Jefferies & Company Inc.
Jeffrey Davidow
President, Institute of the Americas
Bruno Ferrari
CEO, ProMexico
Gabriel Rodriguez
Director of Energy, Science and Technology, and Innovation, Ministry of Foreign Affairs, Chile
Tue 4/289:30 am - 10:45 am
Energy Efficiency: Tightening Our Energy Belts
That is the potential savings in new electricity generation costs if the G-8 countries were to double the speed at which they increase energy efficiency. This and other stark facts kicked off a discussion about how improving energy efficiency can be a profitable venture with clear potential for environmental and economic good.
A common theme was that, for homeowners, the desire for energy efficiency is not solely "dollars driven," in the words of Martha Amram. People look for ways to improve the comfort in their home, and if that can be done by increasing energy efficiency, so be it. David Arfin reiterated the point, with a slight twist, emphasizing the need to move from portraying decisions about home efficiency and renewable energy as one of "investment" to more of a no-brainer: "If I could save money and help the environment, why wouldn′t I do this?"
Toward that end, his company, Solarcity, began offering a lease-based system to reduce up-front costs and lower overall energy payments while greatly obviating a homeowner's need to navigate a complex web of regulations and financial credits on their own. The result? A tremendous take-off in home installations relative to SolarCity's major competitors.
Bill Philips said Home Depot has seen growth in "do-it-for-me" rather than "do-it-yourself" projects, in which customers contract with Home Depot for purchase, delivery and installation. Being responsible for the "envelope of the home," Phillips was naturally led into the business of energy efficiency, with items like insulation and windows playing a critical role in keeping heat and cold where they should be, resulting in lower energy bills and increased comfort.
Not all efficiency problems can be solved easily at the level of the individual homeowner. James Davis and Mark Pougnet said their businesses work with large organizations to increase their effect. In the case of Chevron, Davis described how its focus on large institutions like the federal government allows them to undertake beneficial efficiency projects with longer payback periods than a private homeowner would find enticing.
While they plan to expand to home-based sales, Pougnet's company began its business of smart metering and monitoring software by linking with utilities, with a long-term vision that a well-monitored and data-rich grid will allow for gains at both ends of the power line, helping utilities better forecast demand and allowing users to make informed decisions about their electricity use. If that happens, it would neatly link energy efficiency with the efficiency of markets.
Martha Amram
CEO, HomeZ Inc; Senior Fellow, Milken Institute
David Arfin
Vice President, Customer Finance, SolarCity
James Davis
President, Chevron Energy Solutions
Bill Phillips
Director, Merchandising, THD At Home Services, Inc., Home Depot
Mark Pougnet
Chief Financial Officer, Tendril Networks Inc.
Tue 4/289:30 am - 10:45 am
Emerging Domestic Markets: Financing Community Development in Troubled Times
CDFIs are small, local banks that have strong connections to the communities they serve. Most are nonprofit institutions and are considered to be of the community and for the community. According to Ellen Seidman, they know local needs, can better anticipate changes and have more flexibility. With a strong interest in the success of their borrowers, they are in the business of "community conservation."
CDFIs operate in communities that the Milken Institute classifies as emerging domestic markets: poor and marginalized areas often characterized by bigger minority populations. Larger, mainstream banks generally don't invest in these areas because of the misplaced perception of risk, Seidman said. George McCarthy reinforced her point, saying that "risky" groups are not really risky if the loans are properly made and managed. He added that the notion of blaming the current banking crisis on subprime loans to risky groups of borrowers did not hold up after examining the facts.
Doug Bystry knows this well because he runs an extremely successful for-profit CDFI in California that has grown while other lending institutions have been floundering. Bystry incorporated as a for-profit firm rather than a nonprofit because he thought it would be easier to attract capital. His loan officers use guidelines that encourage them to say "no" when necessary. By engaging in good business practices, he has shown that these emerging markets are viable.
David Sand agrees. His firm, Access Capital, provides money management services for CDFIs. It only invests in double bottom-line activities, and officials do their homework before providing securities. Unlike many of his industry counterparts, Sand ensures that they only provide securities backed by real, underlying collateral. They take the time to ask the right questions and ensure the value of their activities. As a result, Access Capital has grown 22 percent since December 2008.
Phaedra Ellis-Lamkins provides green jobs as a career ladder for people from these communities and thinks the time is right for large-scale job creation within this sector. Her firm, Green for All, looks for areas with new net jobs and dirty industries that are transforming themselves into green ones.
One challenge is access to capital. While testifying before the House Appropriations Committee on this issue, she noted, many "Republicans don′t believe in global warming, but they want to be part of the solution if it means new jobs for their constituents." New jobs in recycling, waste management and the logistical functions of a green economy will increase the economic activity within these "emerging markets" and lead to real economic growth, she said.
The panelists agreed that as long as credit markets remain frozen, the economic woes will continue. But CDFIs have been doing well in areas where financial success was least expected. In fact, McCarthy said CDFIs were created to fill the gap left by the large financial institutions that refused to serve poor communities. However, CDFIs will not be able to "scale up" and solve our financial problems. Perhaps the real lesson for larger, struggling financial institutions is that they can perform better by following the example of CDFIs: stick to the basics of good banking.
Betsy Zeidman
Research Fellow and Director of the Center for Emerging Domestic Markets, Milken Institute
Douglas Bystry
President and CEO, Clearinghouse CDFI
Phaedra Ellis-Lamkins
CEO, Green For All
David Sand
Chief Investment Officer, Access Capital Strategies
Ellen Seidman
Executive Vice President, National Policy and Partnership Development, ShoreBank Corp.; Chair, Center for Financial Services Innovation; Senior Fellow, New America Foundation
Tue 4/289:30 am - 10:45 am
The Post-Secondary Education Market: Is Online Education Coming of Age?
A benefit of online education is educating students who traditionally fall outside the regular criteria for admissions. Many of these students, identified as adult learners, have risk factors — having children, being single parents or having full-time jobs — that have excluded them from traditional education. These students turn to the University of Phoenix, part of the Apollo Group, and other online education programs for their convenience.
Mernoy Harrison Jr. said another benefit to online education is that classes are not limited by room size.
Panelists said it was important to match online offerings to the different missions of each organization. For instance, the University of Phoenix aims for flexibility to serve working adults. Arizona State University educates as many students as possible to meet the demands of the state′s population. And George Washington University focuses on making online coursework consistent with its on-campus courses.
The University of Phoenix business model is grounded in customer service. The organization maintains a teacher-to-student ratio of approximately 17:1. It has a higher percentage of African-American and Hispanic students as well as more female students than traditional schools.
Challenges include meeting the quality standards of traditional campuses. Murat Tarimclilar noted that getting the faculty to buy in to GW's online programs was a significant barrier to improving the perceived quality of online courses.
The University of Phoenix tries to maintain quality through a low student-to-teacher ratio and through faculty-driven courses that are offered to a large number of students.
Steve Fireng said the reality is that online students generally perform as well or better than their counterparts on campus, largely because of rigorous standards and the transparency of student participation in an online environment. Fireng added that the online education platform encourages debate and conversation.
As more people turn to online education, the perception of quality and student performance will continue to improve, the panelists said.
Susan Wolford
Managing Director and Group Head, Business Services and Media, BMO Capital Markets Corp.
Charles Edelstein
CEO, Apollo Group Inc.
Mernoy Harrison Jr.
Vice President and Executive Vice Provost, Arizona State University Online and Extended Education
Murat Tarimcilar
Associate Dean for Graduate Programs and Associate Professor of Decision Sciences, George Washington University
Tue 4/289:30 am - 10:45 am
A Conversation With Lado Gurgenidze, Former Prime Minister of Georgia
Stability and growth have been hallmarks of Georgia's coherent and comprehensive reforms. From 2004 to 2008, the nominal gross domestic product grew from approximately $4 billion to almost $13 billion. Even after the armed conflict of 2008, the Georgian economy showed its ability to be "instability-proof," demonstrating 2 percent growth and recovering the 12 percent lost in bank deposits during the war.
Equally important has been the virtual elimination of corruption. According to IRI and Gallup research, less than 3 percent of Georgian respondents have paid a bribe in the 12 months before the poll, a result that has held for the past five years. No longer is Georgia characterized by the endemic palm greasing, high tax rates, low tax collection, inflation and inconsistent policies that used to ail the country. As Gurgenidze said, "We are cleaner than clean — never gray listed, blacklisted, watch listed, whatever."
How did Georgia do it?
The answer is in a series of fiscal and public sector reforms that expanded the tax base, flattened tax rates, capped public expenditure, freed up trade, increased labor market flexibility and installed new mechanisms for transparency and accountability. The cumulative effect has been a reduction in the state′s size and reach in the economy and an increase in the economic liberties enjoyed by individuals and businesses.
Take, for instance, the ease of doing business. According to the World Bank, Georgia was ranked 112th in 2005. In 2008 it was ranked 15th — ahead of virtually all emerging markets and the majority of European Union markets.
Gurgenidze′s self-professed "single crowning achievement" was passing a law in 2008 that limited budget expenditures to 25 percent of Georgia's GDP. In addition to reducing deficits, the law introduced the public to the discourse of a monitored and controlled fiscal state, Gurgenidze said. To make these changes sustainable, various mechanisms were needed to keep reforms "succession-proof, Marxist-proof, idiot-proof." In addition to being pervasive, permanent, quantifiable and tangible, reforms were made sustainable by being codified in legislation. Fiscal deficits, for instance, are illegal. Underperformance by statesmen results in a vote of no confidence in Parliament.
In the end, Georgia is "still a poor country at a crossroads" that could continue on the "European path" or degenerate into a post-Soviet, corrupt state, he said. Reform was going to stem not only from emulating other models of success but creating from creating its own. As Gurgenidze said, "It′s not enough to be like other countries. We have to be better. Unabashedly, unequivocally better."
Michael Intriligator
Senior Fellow, Milken Institute; Professor of Economics, Political Science and Public Policy, University of California, Los Angeles
Tue 4/289:30 am - 10:45 am
Innovative Funding for Sustainable Fisheries and Oceans
Larry Band opened the discussion with a bleak picture of the state of the world's fisheries, noting that the majority of the world′s stocks have been damaged. "The ocean is going to be a different ocean in 50 years," said J.R. Schubel, noting that the damage can be attributed to human actions causing oceans to be warmer, more acidic and less diverse biologically.
David Festa said overfishing also is devastating fish populations and blamed ineffective regulations, in part. Regulations narrow the length of the fishing season, which encourages fishing entities to maximize their catches during that window by employing far more boats, hooks and crews than the ecosystem can sustain.
Festa advocated the idea of "catch share" fisheries as a remedy. Quotas would limit the size of a fishing entity's annual catch, but the fishing season would be substantially longer. Festa said this would encourage fishing entities to be more responsible and would cause them to bring in their catches over longer periods of time, increasing the product's desirability and value.
David Crane agreed that catch share fisheries were a much-needed step that would benefit fishing entities and the ecosystem. "Nothing will work unless we come up with innovative ideas that solve the environmental problem but allow people to earn a great living," he said.
Jason Winship said the financial benefits of catch share programs are attractive to investors. "We do see a significant opportunity," he said. But while catch share fisheries offer significant potential, just 15 are in existence. The panel expressed hope that by 2030 the number of catch share fisheries might increase to 70.
The goal will require significant and early investments in fishing equipment and vehicles. "Money needs to come into fisheries ahead of catch shares taking place," Band said, explaining that improvements in the tools of the trade must take place before sustainable fishing can occur.
The panel agreed that the infusion of private capital into these enterprises will be essential to advancing this innovation in fishing. "We need capital to rationalize the fishing fleet," Band said.
David Crane
Special Advisor to the Governor of California for Jobs and Economic Growth
David Festa
Vice President, West Coast, Environmental Defense Fund
Jerry Schubel
President and CEO, Aquarium of the Pacific
Jason Winship
Managing Principal, Sea Change Management LLC
Tue 4/2811:00 am - 12:15 pm
Private Equity: Where Risk Meets Opportunity
According to Leon Black, Founding Partner of Apollo Management, Americans are living in "treacherous times." The financial system is broken and the outlook for conventional buyouts is dreary due to the lack of capital. Black predicts that it will take 18 to 24 months before the lending market begins to ease.
In the meantime, he believes private equity firms should play defense with their existing portfolios. The majority of Apollo's concentration is on current assets while the rest is focusing on identifying new opportunities. One recommendation from Black is for private equity firms to focus on cash management, working capital, operational savings and delivering through debt restructuring. Echoing similar sentiments was Ted Virtue of MidOcean Partners, who also recommended stretching out maturity holds and simply "weathering out the storm" for solid companies that are still believed to be good investments.
For those private equity firms looking to take the offensive approach, the panel of experts weighed in on attractive opportunities. Virtue sees distressed assets and in-house debt as attractive options. Thomas Lee of Thomas H. Lee Capital currently seeks value in deals without leverage, thus independent of the credit markets. Looking at industry attractiveness, Black believes that there are great opportunities in commodities and nonperforming loans in Europe.
Jim Davidson of Silver Lake revealed that he is taking a more aggressive approach, with majority of time and effort spent on looking for new opportunities as opposed to tending existing holdings. Davidson finds attractive companies that are market leaders in several sectors, including technology and power and energy management.
One carrying theme throughout the discussion was the need and urgency for communication. Moderator Duncan Goldie-Morrison of Calyon Americas reiterated that in these times of capital scarcity, communication across varying partnerships is critical. Elected representatives have and will continue to struggle with the complexity of America′s financial crisis; in such an environment, interests must be aligned and strategy communicated.
As a final note, the private equity industry will most likely return to different purchase price and debt multiples but will still operate under a business model that provides solid returns to investors. Statistically, private equity returns are most attractive coming out of contrarian environments, so don't count the industry out just yet.
Leon Black
Founding Partner, Apollo Management LP
Jim Davidson
Co-Founder and Chairman, Silver Lake
Thomas Lee
President and CEO, Thomas H. Lee Capital LLC
Ted Virtue
CEO, MidOcean Partners
Tue 4/2811:00 am - 12:15 pm
Entrepreneurship = Recovery: A Formula for Long-Term Economic Growth
"The American spirit is alive and well . . . and will continue to surprise and impress," he insisted. Schramm outlined the rise in entrepreneurial ventures during the down economies of the past, and predicted that history will repeat itself. He noted that more than half of all Fortune 100 companies were created during a bear market, most notably FedEx, Genentech, Microsoft and Apple. Schramm continues to believe there are many opportunities available to young, brilliant minds with heart and determination.
William Saito of AIST agreed strongly with Schramm. "America really is the land of opportunity," he said, contrasting the United States with Japan, where it is difficult to start a business. He noted that features of Apple's successful iPhone were present in many of Japan's mobile phone technologies even two years ago, but America was faster to get those technologies to market than Japan. "America's got the 'do factor,' the secret sauce of innovative genius."
Kris Gopalakrishnan of Infosys was gung ho about his native India as the hot place for entrepreneurial ventures. He believes that technology is providing unprecedented access to market information and new opportunities, and an abundance of highly educated young workers ready to deploy those advantages. In the past, India focused inward, and most ventures maintained their operations within the nation's borders. But that is now changing rapidly. Gopalakrishnan saw limitless opportunities in infrastructure, consumer goods, insurance and banking, and today he believes that innovative Indian firms will have an impact across the globe.
James Cain of Cain Global Partners noted a cultural shift toward greater entrepreneurialism in young Americans. "The current population of young, well-educated people will have had around 8 to 10 different jobs in between graduation and turning 30 years old. That means that they are taking charge of their careers and enjoy being in control of their lives," he remarked. Cain, the former U.S. ambassador to Denmark, believes that the U.S. stimulates creativity, rewards results and celebrates success, while Europe, by contrast, is focused on security, equality and what he termed "yenta law," a combination that he believes stunts growth in the long run.
The panel concluded by calling for the U.S. government to cut back taxes and regulation of the private sector and grant more funds to start-ups. They also hope to see universities adopt a greater role in feeding young entrepreneurs. "We hope that President Obama . . . allows our up-and-coming entrepreneurs the space to grow and innovate," said Schramm. "This will keep talent in America and continue to attract the best and brightest from all other countries."
James Cain
U.S. Ambassador to Denmark (Ret.); Chairman, Cain Global Partners LLC
William Saito
Director, Venture Support Center, Japan National Institute of Advanced Industrial Science and Technology (AIST)
Tue 4/2811:00 am - 12:15 pm
The Stimulus Bill and Education: How Can the Money be Spent Wisely?
Lowell Milken
Chairman and Co-Founder, Milken Family Foundation; Co-Founder, Knowledge Universe Education; Founder, Teacher Advancement Program (TAP)
Roland Fryer Jr.
CEO, The Education Innovation Laboratory, Harvard University
Kevin Johnson
Mayor, City of Sacramento
Barry OCallaghan
Chairman, Education Media and Publishing Group; CEO, Houghton Mifflin Harcourt
Tue 4/2811:00 am - 12:15 pm
What We've Learned From the Credit Crisis
In hindsight, it was apparent that companies had too little equity, James McCaughan said. Financial services firms were placed under a great deal of pressure to lever up their balance sheets to generate returns in line with their peers. The combination of available debt and public market pressure led to excessive leverage levels. McCaughan said that this run-up in debt levels was a matter of human behavior and that cheap, available debt in an inflationary environment was the root cause. One key lesson learned from this cycle is that debt markets drive the equity markets although review of historical data indicates that this lesson is not new.
Gary Shilling blamed speculation in part for the credit crunch. Shilling′s key lessons learned were that regional economies cannot be decoupled in a global environment and that future cycles will continue to be global in nature. He cautioned that the dynamic between inflation, deflation and debt levels would be important to watch for the duration of this cycle.
James Gellert discussed the rating agencies at length and their role in credit cycle. Although not solely to blame, the rating agencies were enablers in providing excessive credit to the market and "there has not been a significant focus on accuracy with the ratings," he said. Gellert also brought up the faulty incentive and compensation structure between the debt issuers and the agencies. He said more competition is needed in ratings to provide an alternative model to S&P, Moody's and Fitch. "In terms of the credit rating agencies, not a lot new has been learned from the credit crisis, but a least people are aware of the problems," Gellert said.
The panelists discussed the savings rate of U.S. households at length, and the panel agreed that savings would continue to be higher than historical levels. The economists disagreed slightly on the magnitude of savings, with estimates ranging from current levels of 4 percent to 5 percent for the foreseeable future to increases of 1 percent per year for 10 years.
Alexander Friedman discussed the impact of the cycle on the developing economies of the world and the tangible ramifications of decreased aid to the poor.
The panel seemed to develop a consensus that the U.S. economy will experience flat to low growth over the next three to five years, but the speakers stopped short of providing predictions. All agreed that governmental policy moves create a great deal of uncertainty in the market and discourage investors and lenders from putting capital out due to confusion as to what may happen next.
Alexander Friedman
Chief Financial Officer, Bill & Melinda Gates Foundation
James Gellert
President and CEO, Rapid Ratings International
Bruce Kasman
Chief U.S. Economist, JPMorgan Chase
James McCaughan
CEO, Principal Global Investors LLC
Tue 4/2811:00 am - 12:15 pm
Reinvestment from Washington, Recovery in California
Lockyer said California's operating shortfall is projected to grow dramatically in coming years, and outcomes from the May 19 election could increase the deficit by $6 billion. To make matters worse, the state routinely borrows in the summer to meet short-term cash needs. This summer it needs $13 billion to 16 billion, but financial institutions and banks the state used to deal with either don't exist anymore or can't lend the money. Because Lockyer sees no possibility of a tax increase, the only apparent solution is to cut the budget.
California has been at the forefront of the economic downturn in many ways, Kevin Klowden said. The state was one of the first to feel the downturn; it's among the national leaders of property devaluation and unemployment; it has one of the lowest credit ratings; and its economy is closely tied to the global economy. Furthermore, according to Lockyer, California has been subsidizing other states by sending more money to Washington, D.C., than it gets back.
The state faces particular challenges because so much of its budget is determined by voters, Klowden said. Such direct democracy is both a blessing and a curse because it's hard for voters to authorize giving up things, he said.
Richard Hartnack spoke for businesses when he said it's hard to make the argument to open locations in California because it's more expensive on every possible level. Shareholders, he said, don′t care about sunshine and good weather.
Dale Bonner emphasized, however, that California is not racing to the bottom for certain types of jobs. He argued that California should draw on its strengths, including its universities, national research centers and ability to attract innovators and entrepreneurs.
Bonner stressed that there must be an interagency process to ensure that the state maximizes the stimulus money′s impact. He said agencies need to align strategies so that one project doesn′t slow down another, to screen for "shovel-ready" projects, and to understand the best distribution of money across the state. It's important, he said, to focus not just on where the money is going but on how it's being spent.
The stimulus money is preventing things from getting worse, Klowden said, but much of what the state needs to do must come from within. Bonner, at least, was cautiously optimistic that California will use the current crisis as an opportunity.
Dale Bonner
Secretary, Business, Transportation & Housing Agency, State of California
Bill Lockyer
Treasurer, State of California
Tue 4/2811:00 am - 12:15 pm
The State of Stem Cell Research
"Tremendous work is going on right now at the speed it should be going on," John McNeish said. However, the hype is more than is warranted at the moment, according to Brock Reeve.
He said patients are seeking out scientists to participate in their clinical trials, even when such trials are many years and millions of dollars away. Alan Trounson agreed, saying the public does not understand the long gap between creative science and drugs that are ready for clinical trials.
"In my opinion, there′s almost been a conspiracy of hype," R. Alta Charo said. The controversial nature of federally funded stem cell research led patient groups to over-promote the potential of stem cells to press their case for funding, she said. Sympathetic politicians did the same to their constituents, setting off a chain reaction that has slightly distorted the scientific reality.
At the same time, it's important to remember the huge potential that stem cells hold, McNeish said, particularly in pre-clinical drug testing. Animal testing is a vital part of drug research, but translating a drug's effectiveness from animals to humans is extremely unpredictable.
McNeish said it generally takes at least $100 million to get a drug into clinical testing. It is exactly for that reason, Reeve said, that the ability of stem cells to better replicate real human conditions in laboratory settings is so crucial. Stem cells could save billions of dollars and years of research by catching problems before clinical testing, benefiting both pharmaceutical companies and consumers.
This potential has become much easier to pursue since President Obama eased federal restrictions on embryonic stem cell research, the panelists agreed. "We are entering a massive growth phase, where there will be terrific opportunities for people to engage," Trounson said, citing both venture capitalists and pharmaceutical companies.
Reeve said much of the progress is because of the simplification of the current patchwork of research laws across different states. "If you′re trying to move significant research forward, having that sort of variation just gets in the way," Reeves said, mentioning the crucial need for collaboration among researchers.
Soon, Charo said, it will become clear whether the limit on progress was the lack of funds and scientists to move forward, or the science itself.
Margaret Anderson
Chief Operating Officer, FasterCures / The Center for Accelerating Medical Solutions
R. Alta Charo
Warren P. Knowles Professor of Law and Bioethics, University of Wisconsin, Madison
John McNeish
Executive Director, Pfizer Regenerative Medicine
Brock Reeve
Executive Director, Harvard Stem Cell Institute
Alan Trounson
President, California Institute for Regenerative Medicine
Tue 4/2811:00 am - 12:15 pm
Climate Change: Next Stop, Copenhagen
The panel was largely in agreement that a cap-and-trade system is the best approach to limiting and reducing carbon emissions, but expressed skepticism regarding the auction system of carbon permits being backed by the Obama administration, which would put revenue into hands of politicians in Washington. Robert Hahn of the American Enterprise Institute was highly doubtful that a cap-and-trade bill would pass if it contains an auction component because American industry would not sit idly by and say, "Sure, we'll be happy to give the money to the government."
Neil Eckert of the Climate Exchange solidified the feeling by stating that he prefers cap-and-trade because it generally puts the money outside the hands of the government, which may be tempted to use it for general fund purposes, and straight into financing alternative or clean energy. Andrew Treusch advocated a North American cap-and-trade system, since Canada is so economically tied to the United States; he added that the political will to implement this idea exists.
The panel also weighed in on the desired outcomes from Copenhagen. Eckert suggested setting a global long-term market, establishing a framework for the carbon market as well as providing certainty by mapping out its future. This will involve understanding that China will come to the table — but via the corporate route rather than the governmental route — and setting achievable targets.
On the topic of how to bring developing countries — specifically China, India, Brazil, Russia and Indonesia — into the fold, the panel agreed that a system of functioning, verifiable offsets are a key prerequisite. These would drastically reduce the cost of a carbon-trading system, but to work, they need a mechanism for standardized and demonstrable standards.
The discussion then turned beyond emissions controls and toward dealing with the actual effects of global warming. Do we have ways to cope? Hahn noted the obvious need to adapt but furthered that we have no idea about the costs of that process. Treusch reported that since 2oC or more is already expected, Canada is preparing for rising ocean levels, a reduction in permafrost and changes in agriculture. Eckert stressed that "we need every tool in the box." He also believes that some form of emergency liquidity would be extremely helpful. Any progress is positive but we need financial and physical adaptation, sea walls, carbon markets and taxes, etc., to counteract the threat.
Ivan Gold of Perkins Coie noted that actions taken by individual countries may have collective consequences. He believes there are too many people putting too much stress on natural resources, setting the stage for future conflicts. The panel also added that the poorest nations will be the most adversely affected by climate change, which could have costly and dangerous geopolitical consequences.
Neil Eckert
CEO, Climate Exchange PLC
Ivan Gold
Senior Counsel, Perkins Coie LLP
Robert Hahn
Senior Fellow and Executive Director, Regulatory and Market Studies, American Enterprise Institute for Public Policy Research
Tue 4/2811:00 am - 12:15 pm
Next-Generation Internet Innovations: Changing the Way We Live and Do Business
The Internet and mobile applications are alive and well despite the state of the economy, moderator Andrew Miller said. He characterized the crisis as "mostly a bank and financial crisis and not a direct hit on the Internet."
Mike Zapolin agreed, saying Internet advertising revenue will grow by $50 billion, narrowing the gap between the 21 percent of media consumed online and the 7 percent of advertising revenue spent on the Web. Jim Safka said innovation is so hot that now is a best time ever for companies who have capital to invest in the Internet.
Peter Neupert was not as effusive. Although Neupert is willing to concede that the Internet is in the second or third inning of innovation, he wondered how long the innings really are. To illustrate his point, he referenced the evolution of convergence. Neupert said convergence was in its nascency 13 years ago and still isn′t a reality.
Andrew Miller conceded that some innings are longer than others, adding that some industries such as commercial insurance haven't fully harnessed the Internet to expand their business. However, the panelists agreed that the Internet has been an amazing tool to allow individuals to put their businesses on a global platform and to build large-scale Internet businesses with smaller capital outlays.
The role of video was another hot topic. Zapolin discussed the importance of video and the growing role it will play in conveying media, and he praised Google's integration of video into its search results. Safka acknowledged that videos have a higher click rate than text links but cautioned that media distributors have not figured out the user experience in video.
Neupert provided a unique perspective of the role of the Internet in health care. Unlike other industries, health care has been markedly slow to adopt Internet technologies because it's a "cottage industry." He said there is more health information online now — a lot of it good content —but medical professionals complain the content is often on the fringes of reputable medical research.
The panel also turned its attention to the limitations of the Internet. Soenen said the biggest limitation to innovation is the speed of the Internet itself. He attributes the slow development of convergence to the lagging speeds and thinks improvements "will radically alter the rate at which internet innovation occurs." Another limitation is fear, Soenen said, but older people eventually will grow more comfortable with the technology.
The panel was enthusiastic about the opportunities but said companies have to let go of their old ways to succeed. The Internet will displace some traditional business models, but has the potential to help entrepreneurs maximize their potential, the speakers said.
Peter Neupert
Corporate Vice President, Health Solutions Group, Microsoft Corp.
Jim Safka
CEO, Ask.com
Michael Soenen
Former Chairman, CEO and President, FTD Group Inc.
Mike Zapolin
Co-Founder, Internet Real Estate Group, Music.com and InsuranceQuotes.com
Tue 4/2811:00 am - 12:15 pm
The X-Prize Model: Driving Innovation in Health Care
According to Diamandis, humans are "genetically bred to compete" and "fundamentally, you get what you incentivize for." To date the foundation has launched one prize per year focusing on core areas: life science, energy and environment, exploration, and educational and global development. Teams don't compete solely for the prize, but also for the revenue and publicity generated by the competition. Diamandis emphasized that the U.S. has become increasingly risk adverse, and the X Prizes are a response to encourage risk-taking.
Samuel Nussbaum of Wellpoint commented that we are currently living both in the best and worst of times for health care. Sequencing of the human genome will enable personalized medicine to become a reality, yet there are more than 46 million uninsured Americans. The U.S. health-care system is largely uncoordinated and inefficient, he maintained, noting that over half of the care delivered does not actually advance medical outcomes, and there is large variability in the standards of care, locally, regionally and nationally. Meanwhile the health of Americans continues to deteriorate as obesity rates soar.
Nussbaum concluded his remarks with staggering metrics on the U.S. health-care system, declaring that 5 percent of Americans account for almost 50 percent of health-care costs. Wellpoint's partnership with the X Prize Foundation is meant to find solutions to address the unsustainable state of American — and global — heath care.
The Grand Challenge for the Healthcare X PRIZE is designed "to create an optimal health paradigm that empowers and engages individuals and communities in a way that dramatically improves health value." The guidelines challenge participants to improve health value by more than 50 percent in a 10,000-person community during a three-year trial. In order to effectively compete for this prize, teams will need to fundamentally change health financing and care delivery, while creating new incentives and better outcomes for both individuals and the community.
Samuel Nussbaum
Executive Vice President, Clinical Health Policy, and Chief Medical Officer, WellPoint Inc.
Patrick Soon-Shiong
Chairman and CEO, Abraxis Bioscience; Founder and Co-Chair, Chan Soon-Shiong Family Foundation
Billy Tauzin
President and CEO, Pharmaceutical Research and Manufacturers of America
Tue 4/2811:00 am - 12:15 pm
CEO Conversation: Steve Cloobeck on the Value of Providing Excellent Service in Difficult Economic Times
Cloobeck came out of retirement two years ago and purchased Sunterra, a public company specializing in hotel timeshares. But the company was in terrible shape. "They were a hospitality brand in thought, but nobody was taking care of it day to day," said Cloobeck.
More importantly, however, the Sunterra management team was missing the point. "Timeshare is not about real estate — it's about taking care of your guests." Sunterra received 60-70 complaints a day — complaints so loud that Cloobeck said they qualified as hate mail. But no one from Sunterra ever responded. The guests were completely ignored. The entire operation was crying out to be re-engineered to focus on customer service.
Cloobeck decided immediately that the company needed to be rebranded. Instead of hiring "a fancy ad agency," they did it themselves. The first strategy was to send customer surveys to their guests in the United States, Canada and Europe and ask them why they were so unhappy. Next Cloobeck and his team took to the blogs. They went to chat rooms to talk directly to the customers. "Nobody had talked to the customers for years and years and years," said Cloobeck.
Based on the results of this customer research, Sunterra was transformed into Diamond Resorts International (now a private company). The new brand has three main tenets: simplicity, choice and comfort. But most importantly, Cloobeck maintains that "we never say no."
According to Cloobeck, no request is too small. If a guest prefers the floral soap that was used during their last visit, a hotel staffer will go find it. If a guest is celebrating a birthday or an anniversary during their stay, they'll find flowers in their room on arrival.
Diamond has 23,000 beds in 21 countries, with more than 400,000 timeshare members. Cloobeck himself has sampled 25 pillows to find the most comfortable one to distribute throughout the properties. He also travels to all of the properties and drops in unannounced to test the quality of service for himself.
When asked about how he is coping with the tough economy, Cloobeck acknowledged that Diamond had been forced to make some adjustments. In October 2008 approximately 500 personnel were let go, most from corporate offices. Cloobeck was also forced to raise maintenance fees by 27 precent.
But Cloobeck believes that for a healthy company, "this is the time to expand," so Diamond is looking to acquire additional properties. The company is currently working to open a location in Greece, and European guests have also requested a location in the Middle East. Diamond Dubai may not be far behind.
Tue 4/2812:15 pm - 2:15 pm
Lunch Panel
A Discussion With Nobel Laureates in Economics: Whither Capitalism?
In thinking about how to address the economic crisis, Gary Becker says he would use the first principle of medicine: do no harm. He pointed out that although the U.S. economy is currently facing a number of issues, it is fundamentally powerful and should not be dramatically altered by excess government intervention. Instead, specific changes should be made to attack the weaknesses of the system in the form of regulation that would be more automatic and rule-based rather than discretionary.
His fellow Nobel laureate Myron Scholes added that regulation often has unintended consequences. He proposed that while financial institutions may be regulated, their functions cannot be regulated and that these functions will continue even if financial institutions are regulated to the point of destruction. Tying economic fluctuations to his namesake option pricing model, Scholes explained that volatility increases the value of options and is conducive to learning.
But restoring global confidence in the U.S. financial system is a key step toward economic recovery, according to Nobel Prize-winning economist Roger Myerson. "The rules of the game matter," explained the game theorist, attributing the historic success of Wall Street in part to the political and legal framework in the United States. He foresees economic growth resuming "when some kind of credible financial reform package is articulated and passed through Congress."
On the question of whether capitalism will survive, Myerson was quick to point out that a capitalist system provides mechanisms that solve complex problems in efficient ways. Going one step further, he claimed that a well-functioning financial system "requires respected and wealthy captains of industry." When moderator Michael Milken revealed that in a recent survey, only 53 percent of Americans believed capitalism is superior to socialism, Becker questioned the accuracy of the statistic, arguing that the American public most often votes in the direction of free markets. Citing recent changes in India and China, he stated "capitalism is by far a much more successful at eliminating poverty."
Discussing a longer-term problem facing the United States, the panel proposed solutions for issues in K-12 education. "If indeed one of the secrets to the success of the United States was the fact every decade from 1880 to 1960 the average person in the United States added one year of schooling, why have we not found an effective solution to this issue?" asked Milken. Resistance to change seemed to be the culprit.
Applying free market principles to the education system, the panel agreed that schools should compete in a system that rewards performance, thereby allowing market forces to determine which teaching methods are most effective. According to Becker, human capital makes up about 75 percent of all economic value and therefore a small increase in human capital could more than offset losses in financial capital.
Gary Becker
Nobel Laureate, 1992; University Professor of Economics and Sociology, University of Chicago
Roger Myerson
Nobel Laureate, 2007; Glen A. Lloyd Distinguished Service Professor in Economics, University of Chicago
Myron Scholes
Nobel Laureate, 1997; Chairman, Platinum Grove Asset Management
Tue 4/282:30 pm - 3:45 pm
Can Global Finance Survive Nationalization, Regulation and Reform?
A veteran of Wall Street since 1961, Jim Robinson III of RRE Ventures expressed strong assurance it will survive as the seat of global capital. He suggested market participants overlooked the importance of size and complexity, and never deployed the technology necessary to truly manage these risks. As a result, the business model may have been changed irrevocably. In terms of government policy, he suggested that the stimulus plan, coupled with "easy money," has helped to offset the contractionary impact of corporate deleveraging on the economy.
Robinson jokingly suggested that Congress represents the new risk, given that it may oppose regulatory reform. He further emphasized the importance of maintaining Federal Reserve independence, and suggested that the Fed is best suited to lead regulatory efforts.
Meredith Whitney of the Meredith Whitney Advisory Group reported being more worried by problems at IndyMac, Washington Mutual and Wachovia — since these "struck at consumer confidence directly" — than by failures at Bear Stearns and Lehman. Problems developed, she suggested, because trillions of dollars in loans were underwritten using poor math, while banks "bled reserves" and added leverage.
While Whitney felt government intervention was necessary, she believes that it came at a price. She also noted that U.S. regulatory agencies are "super-siloed" and that the SEC relies heavily on information provided by firms. Whitney forecast that roughly 10 banks, all nearly the same size, will survive. She suggests banked will not be permitted to repay TARP money, but instead will be expected to absorb other firms.
Leon Wagner of GoldenTree argued that the proportions of this crisis are unprecedented, and believes markets will be smaller as a result. He traced its origins back to the market′s failure to monitor leverage. His comments regarding the ambiguities associated with TARP (for example, is proprietary trading with TARP money permissible?) found strong resonance with the other panelists.
Global finance cannot survive without Wall Street, insisted Peter Weinberg of Perella Weinberg Partners. He attributes the survival of banks worldwide to intervention from global governments. Failing to permit banks to quickly repay TARP money would, in his view, harm market dynamics. He suggested that the continued presence of large firms is inevitable, noting that boutique industries rely upon large firms for their existence.
Like the other panelists, Weinberg vocalized several related questions regarding TARP (who is subject to its provisions?). Regarding failed banks, he suggested they could continue to operate in an open receivership rather than liquidate. Weinberg also cautioned against trying to "predict" the crisis in hindsight, on the basis of current knowledge. Any CEO who tried to reduce leverage four years ago would have, in his view, been sent into early retirement.
The panel discussion relating to bank accounting was particularly interactive, and no clear consensus was achieved. Panelists noted that IFRS in Europe permits banks to transfer assets to accrual accounting, and that recent FASB changes permit a more flexible accounting for illiquid assets. Robinson stated that he likes mark-to-market, but believes alternative methods that provide robust information on asset valuation may be more appropriate for banks. Weinberg warned of the potential dangers of altering language to benefit a particular institution(s). Meredith Whitney suggested that mark-to-market and accrual accounting, in the long run, are equivalent. Banks either take a hit immediately, or bleed ROA, such that accrual accounting is playing constant catch-up.
James Robinson III
General Partner, RRE Ventures
Leon Wagner
Chairman, GoldenTree Asset Management
Peter Weinberg
Partner, Perella Weinberg Partners
Tue 4/282:30 pm - 3:45 pm
The Global Battle for Commodities
Mark Cutis
Chief Investment Officer, Special Situations, Abu Dhabi Investment Council
Josh Eastright
Global Product Manager, Energy and Commodities Markets, Bloomberg LP
Mari Kooi
CEO and Founder, Wolf Asset Management International LLC
Mark McLornan
Founding Partner, Agro Terra Ltd.
Neal Shear
Managing Partner, Apollo Commodities Partners
Tue 4/282:30 pm - 3:45 pm
A Conversation With Lynda Resnick: Demystifying the Creative Process
Introduction By
Tue 4/282:30 pm - 3:45 pm
Responsible Investing: Making Informed Investment Decisions
Considering the effects of environmental, social and governance factors could make for equal if not better returns in the long run, Barbara Krumsiek said. Calvert Group Ltd. looks at the quality and sustainability of earnings and the quality of management in prospective investments, she said.
Harold Bradley said those issues already are accounted for in any reasonable investor's system of evaluating companies. "Bad governance leads to bad investment decisions," he said. If an environmental or legal issue is going to result in litigation, that is a financial risk that should be considered before investing. Besides, Bradley said, the definition of a socially responsible investment is subjective.
"I am assaulted with the green venture funds coming to see me. Right now, the biggest green investors in the world are ExxonMobil and British Petroleum. Are they good or bad?" Bradley said.
David Marchick outlined principles that The Carlyle Group has adopted: incorporating environmental, social and governance factors into investment decisions, engaging stakeholders, and showing transparency. While he agreed that these principles were probably already part of Carlyle's decision process, formalizing the framework had changed some of Carlyle's decisions.
Marchick said one potential investment appeared to have excellent financial returns, but Carlyle's concern about the company's labor relations caused it to reject the investment.
The issue of how to deal with a conflict between financial factors and responsible investing was of real concern to the panelists. Sean Harrigan said activism in proxy voting is one way to address the problem. Krumsiek pointed to Calvert′s interest in communicating with boards of portfolio companies to promote board diversity. She also favors say on pay, or the ability to vote on executive compensation packages. Bradley concurred, saying a long-term view of performance for executives would more closely align management′s interests with those of investors. He also said claw-backs should become a major part of the discussion of compensation.
Betsy Zeidman
Research Fellow and Director of the Center for Emerging Domestic Markets, Milken Institute
Sean Harrigan
President, Los Angeles Fire and Police Pension Commission
Barbara Krumsiek
President, CEO and Chair, Calvert Group Ltd.
David Marchick
Managing Director and Global Head of Regulatory Affairs, The Carlyle Group
Tue 4/282:30 pm - 3:45 pm
Investing in Iraq
Iraq is a leading source of human capital in the region and is motivated to re-establish its presence after years of war and unrest, and the international business community is interested in getting a stake in a country that will be a leader in the region, panelists said. But a dramatic increase in foreign capital will only occur upon stabilization of the overall security in the region, they said.
As security in the region increased dramatically from 2006 to 2008, so has U.S. interest in direct investments, John Sullivan said. Much of Iraq's potential lies in the young, urban, literate Iraqis who make up three-quarters of the population, he said. Nevertheless, panelists said investors need of real commitment from Iraq to accept foreign investments.
While 90 percent of the Iraqi government's revenue comes from oil and gas sales, Charles Ries said opportunity exists in other economic sectors, including agricultural development and human capital. He said the Iraqi government has become more open recently to infrastructure and development investments from foreign companies. For a full deployment of international investments, Ries said, the Iraqis need to establish a legal structure to regulate competition, liability protection, land ownership, intellectual property and, ultimately, compliance with World Trade Organization rules and regulation.
According to Zeki Fattah, Kurdistan is a model for the economic development in Iraq. The region, near Syria, Turkey and Iran, has a population of 5 million — 18 percent of Iraqis. After the destruction of war, the region has undergone major changes. Infrastructure has been rebuilt, and urbanization has taken place. The region is open to the private sector, and except for South Korea and the United States, all major economies have set up trade offices there. To give investors confidence, new laws have been passed guaranteeing repatriation of profits and protecting foreign investors from nationalization and expropriation.
Fattah said Kurdistan has capital but lacks technology, management and human resources. Highly educated individuals have emigrated from the region and have failed to return.
Zeki Fattah
Senior Economic Advisor to the Prime Minister, Kurdistan Regional Government
Charles Ries
Senior Fellow, Rand Corporation; former U.S. Ambassador to Iraq for Economic Transition Initiatives
John Sullivan
Partner, Gibson, Dunn & Crutcher; former Deputy Secretary, U.S. Department of Commerce
Tue 4/282:30 pm - 3:45 pm
Global Health: New Business Models
Kari Stoever observed that in many cases, such as with neglected tropical diseases, easy fixes exist, but delivery is the big problem. Health philanthropies know where the need is and pharmaceutical companies have donated the medicine, yet they cannot actually deliver the medicine to the communities that need it.
Stoever suggested that one of the reasons for this failure is the need for a regional financing structure that allows communities and regional governments to focus their resources on the particular set of diseases most relevant to the area. Janice Culpepper noted that the Gates Foundation uses grants to encourage pharmaceutical companies to enter into product development that they wouldn't normally touch, such as developing new mosquito pesticides, which do not have a compelling market driver. Culpepper added that this works in part because of public opinion, with pharmaceutical companies desiring to be seen as good global citizens.
Larry Brilliant added that another very specific method of funding global health in underserved markets is to have the rich subsidize care for the poor. According to the Seva model, wealthier clients needing eye care pay for a private room, subsidizing the poor, who cannot otherwise afford care. Seva found that one paying customer subsidizes three unpaid ones (getting the same quality care). Via this model, one of their centers in Nepal has seen enormous revenue surpluses despite treating 80 percent of their patients for free. Alternately, in Bangladesh, Seva convinced Muhammad Yunus to give microloans to individuals needing eye surgery, requiring the loans to be repaid when the person can work again.
In all of this, panelists emphasized the need to listen to communities and practitioners regarding local needs. Stoever also put emphasis on the need for greater efficiency in health spending. She recommended rewarding efficiency, for instance, by having a carry-over, rather than a "use it or lose it" system.
Creative solutions like this are required to address the issues of health funding generally. Much of the financing for diseases is forced into silos such that, even though schistosomiasis appears to be strongly correlated with the higher prevalence of AIDS in young women in Mozambique, practitioners in that country cannot use to $700 million in AIDS treatment funding to help address schistosomiasis.
Culpepper stated that one way around this would be to get people not traditionally from the health field to weigh in on health issues to get new information and new thought into the system. She suggested that agencies are underutilizing human capital because they think only researchers in America and Europe can solve these problems.
Panelists concluded that global health agencies should be looking to everyone they can for answers, even if they are outside the methods traditionally embraced by the public health community, and look for a new way to work in the poorest parts of the world. Potter agreed: "This is where all of us as leaders have to step up and challenge the companies with which we have affiliations."
Janice Culpepper
Senior Program Officer, Infectious Disease Development, Global Health, Bill & Melinda Gates Foundation
Myrtle Potter
President and CEO, Myrtle Potter & Company LLC
Kari Stoever
Managing Director, Global Network for Neglected Tropical Diseases, Albert B. Sabin Vaccine Institute
Tue 4/282:30 pm - 3:45 pm
India's Human Capital: Educating the World's Largest Population of Children
Grace Pinto of Ryan International Group has started more than 200 private schools across the country. Among the biggest challenges are the rules and regulations for creating private schools in the different states in India. As a result, she said it is important to develop a friendly relationship with the state and national government to create more educational opportunities for children. Pinto also noted that one must take into account the different languages and cultures that exist in the country when creating schools in different states.
If a foreigner is interested in investing in India′s educational system, she said, it is essential to have a credible Indian partner to help navigate the educational system. While is it challenging to start up a private school as a foreigner, it is possible through private-public partnerships, Pinto said. Moderator Dilip Thakore emphasized how challenging it is to create private education institutions in India and said the government "doesn′t want to do it themselves, but they don′t want others to do it."
Pramod Maheshwari brought about another point about the competitiveness of higher education in India. Although only 10 million students will continue onto higher education, there are just six educational institutes that meet global education standards. Thus private career coaching to prepare students for acceptance into these institutions is a competitive business. Accessibility to career coaching is a major challenge, and one way Maheshwari said that United States can help is through technology that will allow the delivery of education to remote, rural locations. The fact that 80 percent of rural schools do not have electricity remains a major problem.
Another challenge is teacher absenteeism of around 25 percent, Jeremy Williams said. "Part of the problem is that there is a disconnect between the learner and the teacher," he said. In addition, little has changed in India's curriculum in the past 60 years, and teacher training is far outdated.
Anand Sudarshan was more optimistic, saying opportunities certainly exist in India. Individual aspirations are extremely high, and the lengths to which middle-class families will go to for their children′s education is remarkable, he said.
An audience member asked about the lack of education for girls. Generally, girls are not allowed to continue beyond fifth grade, Pinto said. However, the private sector has been able to reach out to young girls by providing evening classes. Special education is weakness in India's public education system, but private schools are addressing the issue, including Pinto′s Ryan Group.
Pramod Maheshwari
Founder and CEO, Career Point
Grace Pinto
Managing Director, Ryan International Group of Institutions
Anand Sudarshan
Managing Director and CEO, Manipal Education
Jeremy Williams
Chief Academic Officer, Knowledge Universe Education
Tue 4/282:30 pm - 3:45 pm
Developing, Selecting and Training the Next Generation of Leaders
Each of the panelists shared theories on the qualities shared by good leaders. As Robert Damon of Korn/Ferry International said, "Talent makes a difference." He identified good leaders as those who are self-aware, realistic optimists and are never satisfied with the status quo. Jeffrey Cohn of Spencer Stuart, who does succession planning for large organizations, suggested that effective leaders demonstrate practical intelligence, social savvy and the emotional intelligence to question their own assumptions.
John Haley from Watson Wyatt boldly suggested that sometimes the best leaders are those who take risks — and those individuals may not have succeeded in their previous position. All agreed being a good team player is integral to being a successful and effective leader.
Ilene Lang of Catalyst observed that the CEO leadership shortage around the world may be in part due to women being held back from high-level positions. She questioned why women — who represent more than 50 percent of college degree-holders and more than 50 percent of middle management — hold only 15 percent of business leadership positions in the United States. She suggested that CEOs hire those people who are like them, resulting in more white men at the top levels of a company.
Damon offered an opposing point of view, hypothesizing that women will break through the barriers that exist as the Title IX generation matures in the workplace. His firm is researching the notion that equality in college athletics will result in significant differences in the leadership style of women. As competition, leadership and team skills are reinforced through team sports, more women will advance to leadership roles over the next 10 years.
The securing good leadership for any given company lies in the hiring and development process. Lang suggested it is important to bring more people into the hiring process that have different perspectives in order to advance leaders who will branch out from traditionally held stereotypes of what a CEO should be. She argues that diversity improves an organization. Lang also suggests that accountability through metrics and goals will encourage an organization's leaders to take employee development seriously. Haley suggested companies need to set up a process for two-way communication so employees will know what they need to do to succeed.
Damon contended that leadership development only advance when leadership values are incorporated into the company culture. Cohn suggests that companies identify employees with a high potential for leadership early in their careers and groom those individuals through mentoring and development programs. When these high-potential leaders are promoted, it results in better succession planning for key positions across all levels.
Jeffrey Cohn
New York Practice Leader, Spencer Stuart
Robert Damon
President, North America, Korn/Ferry International
John Haley
President and CEO, Watson Wyatt Worldwide
Ilene Lang
President and CEO, Catalyst Inc.
Tue 4/284:00 pm - 5:15 pm
Institutional Investors: It's a Whole New World
Scott Minerd
Managing Partner, Guggenheim Partners; CEO and Chief Investment Officer, Guggenheim Partners Asset Management Inc.
Tue 4/284:00 pm - 5:15 pm
Alternative Medicine Joins the Mainstream
That healing process, panelists insisted, requires a lifestyle that promotes the health of the mind and the body. Better health for the wider population will require a shift in the paradigm of thinking by individuals, their health-care providers and the broader health-care system.
What's wrong with the way that we think about health starts with the individual. There is too much credit given to the role of genetics, said Dean Ornish of the Preventive Medicine Research Institute. "Our genes are not our fate," he said. Research about the impact of behavior on health outcomes overwhelmingly supports the notion that lifestyle is more important than genetics. Heart disease could be prevented in 95 percent of cases through better living, Ornish maintained. He presented evidence showing that gene signals that turn on cancer can, in fact, be turned off by healthy living. On the flip side, Bill Nelson of Johns Hopkins noted that the deleterious effects of maternal malnutrition during pregnancy can be passed down to a woman's child and even grandchild in the form of adult-onset diabetes.
People undervalue the importance of mental and spiritual connections to the functioning of the physical body. Stress and fear shorten longevity, said Deepak Chopra, which implies that negative approaches to induce behavioral change — such as restrictive dieting or scare tactics — are counterproductive to health. Careful reflection and awareness about our dietary choices will not only increase enjoyment of food, but also motivate individuals to eat better and eliminate unhealthy behaviors. Chopra shared the story that his success with quitting smoking came from focusing on his desire for the cigarette, rather than mindlessly consuming it.
The panelists agreed that health-care providers are actually part of the problem. They are trained as technicians to look at the body as a machine, and to treat disease rather than to promote health.
Today, however, medicine is undergoing a revolution, said Nelson. Where it was once reactive, it is increasingly proactive, and will evolve with a greater preventive emphasis in the future. Providers who do not believe that patients will change their lifestyles fail to understand how to approach the process in a positive and health-promoting way. We must reframe the reasons for healthy living, said Ornish. It's not about fear of dying and risk-factor reduction but the joy of living.
But health-care reimbursement policies must follow suit. Ornish has been successful in getting Medicare to cover lifestyle changes that may be even more effective than expensive, invasive and risky cardiovascular procedures. "It's not really evidence-driven medicine. It's reimbursement-driven medicine," Ornish said. "If we change reimbursement, we can change medical practice and medical education."
William Nelson
Marion I. Knott Director and Professor of Oncology, Johns Hopkins School of Medicine; Director, Sidney Kimmel Comprehensive Cancer Center
Dean Ornish
Founder and President, Preventive Medicine Research Institute; Clinical Professor of Medicine, University of California, San Francisco
Tue 4/284:00 pm - 5:15 pm
A Conversation With Vinod Khosla: The Shift to Renewable Energy Requires "Innovation Capitalism"
In his portfolio are 50 clean tech companies that he hopes will develop technological innovations that will revolutionize energy. Khosla said the energy problem is so massive that it can′t be solved by government funding. It must be addressed by the private sector through the proliferation of technologies that achieve unsubsidized market sustainability.
Khosla expects a carbon-constrained world, with so many legislative and political initiatives being sought to reduce the amount of carbon emissions. As a result, developing sustainable alternative fuels is critical, he said.
He expressed interest in the development of cellulosic ethanol, a biofuel made from wood, grasses or the non-edible parts of plants. Although ethanol made from corn and soybeans is a useful stepping-stone, Khosla sees ethanol made from non-food sources as a more important and useful resource to replace fossil fuels.
Khosla stressed the importance of addressing climate change through a cap-and-trade system. "We have to have cap and trade; we don′t have a choice," he said. Khosla said developing countries with smaller per capita gross domestic product shouldn′t have absolute carbon caps but could participate in relative terms.
He compared climate change to homeowners insurance. While insurance is common, climate change is a far greater risk than fires or floods and should be handled as such. In fact, Khosla argued, climate change poses a greater challenge than terrorism or nuclear proliferation.
As an investor, Khosla has been interested in improving the efficiency of lighting, batteries, motors, pumps and air conditioners because of the profit margin. He recognizes that hybrid electric cars are a step in the right direction to reduce some emissions and improve mileage, but their cost makes them a less feasible option to solve the energy problem.
He advised investors to identify the most promising trends in technology by looking at what doctoral students are studying at the top science and engineering programs.
Khosla referred to the importance of "black swans," extraordinarily rare events that completely change the paradigm. The financial downturn would be classified as a negative black swan, while technological innovations to redefine energy would be a positive black swan. "I′m a technology optimist," he said, predicting that by 2030 fossil fuels would struggle to compete with newly developed renewable energies.
Tue 4/284:00 pm - 5:15 pm
Transformative Technologies in K-12 Education
Nevertheless, the panelists said a lot of bad technology exists; as Bruce Friend said, it's just as easy to bore and disengage students online as it is in the classroom. Greg Gunn said a lot of technology that is time-consuming for teachers and lacks a clear instructional purpose has been shoveled into classrooms.
Friend said he's concerned because teachers often fail to use technology in transformational ways. Some schools with technology don't use it, he said, and many teachers are proud just to be using PowerPoint.
Teachers who embrace technology are replacing those who don′t, Friend said. Technology grows more sophisticated every year, and online content can easily be adapted to changes in science and technology. When Pluto was downgraded from a planet, K12 Inc.'s online materials reflected it the next day, Packard said.
Traditional education now is in many ways the same as in the 1920s when Firestone and Ford needed workers for factories, Friend said. Technology can help by developing 21st century tools that customize education to multiple learning needs. Gunn said trying to organize a classroom around individualized instruction approaches impossibility without technology, calling the challenge the "human genome project in education."
The panelists agreed that transformative technology requires a great deal of capital and needs to be brought to scale to justify the cost. Caprice Young said, "Technology-integrated learning is not about faster or even cheaper but better and different and much more customized to the next generation of kids." Friend said public-private partnerships are necessary to meet capital needs.
Bruce Friend
Director, SAS Curriculum Pathways
Greg Gunn
Chief Scientist and Co-Founder, Wireless Generation Inc.
Ronald Packard
Chairman and Founder, K12 Inc.
Tue 4/284:00 pm - 5:15 pm
The End of Export-Driven Development: Searching for China's Next Growth Engine
David Tao said consumption as a fraction of GDP in China is 37 percent compared with 75 percent in the U.S., with exports making up a large share of the difference. At the same time, demographic projections cited by Perry Wong show that, in 20 to 30 years, the average worker will have to support more than 3.5 elderly Chinese. With a high rate of savings and a decline in exports, these numbers will force China to restructure its economy.
China will have to deal with two areas that went unaddressed during its decades of export and infrastructure-driven expansion. One, the environment, has been receiving more attention in China in recent years. "China will run out of water before it runs out of capital," Timothy Dattels said.
The other area is social and human capital. China is already investing in human capital through higher education. McGregor said university enrollment has ballooned from 3.4 million in 1998 to 21 million in 2008. Wong said social safety nets, insurance and pensions are all key neglected areas. China's pension fund holds just $63 per capita, he said, while the admittedly troubled U.S. Social Security system has 100 times that per capita. As with education, the government is taking some steps, devoting a large portion of its economic stimulus package to insurance programs to drastically increase coverage, panelists said.
The group focused on the government's ability to solve problems with a strong hand. "The irony is, regulated industries are actually good places to invest in China," Dattle said. "Yes," McGregor agreed, while making clear the potential consequences: "But you can get thwacked."
Timothy Dattels
Partner, TPG Capital
David Tao
Vice Chairman, Beijing Municipal Overseas Returned Chinese Federation
Perry Wong
Senior Managing Economist, Milken Institute
Tue 4/284:00 pm - 5:15 pm
Global Aid Workers: Heroes on the Front Lines
"We used to be able to go out with a big red cross on our jeep or a U.N. sign on our car and it was a cone of immunity. That has changed," recounted Larry Brilliant of the Skoll Urgent Threats Fund and Google. According to the panel, this dramatic shift from aid workers being immune to becoming targets is due in large part to deeply held misconceptions about intentions of aid workers. "Part of the problem we face with violence toward aid workers is misconceptions about the role of foreigners," Brilliant observed.
Caryl Stern of the U.S. Fund for UNICEF agreed, noting some of the practical reasons aid workers face increased violence. "Attackers know aid organizations have good jeeps, so they steal ours. They also know that whatever violence they cause, they get a chance to get their message to the press," she remarked. These security concerns not only create a sense of danger in some regions, but have significantly increased the cost of delivering supplies.
Despite the growing safety concerns, aid organizations are still operating thanks to a committed and courageous group of individuals who feel a calling to humanitarian work despite the personal risks. Aossey stated, "Most of our volunteers do it in large part because they really want to help the communities, and because doing the work provides a lot of meaning and impact in their lives." The panel agreed that these individuals doing incredible work in tough regions are the true unsung heroes. The best way to prepare these workers and support them in the field is with appropriate training.
The panelists also discussed the down economy and its effect on the work of NGOs and aid workers. According to Brilliant, many organizations are already suffering because some foundations just don′t exist anymore. Stern noted the effect that the economy was having on the U.S. Fund for UNICEF, sharing that some big donors have disappeared, but individuals and families that give small donations remain consistent in their giving. She shared, "The people that give us small, consistent donations tell us they have decisions they can make with their money, but the children UNICEF serves never had a choice to begin with." This continued support helps make it possible for NGOs and global aid workers to address some of the world′s most challenging problems.
Cinny Kennard
Senior Fellow, USC Annenberg School for Communication's Center on Communication Leadership and Policy
Caryl Stern
President, U.S. Fund for UNICEF
Thomas Tighe
President and CEO, Direct Relief International
Tue 4/284:00 pm - 5:15 pm
Dispelling Myths: The Real Role of Women in the Middle East
Most people assume the captain was from a Muslim country, Nashat said, but he was Israeli. In fact, most religions demote the status of women, she said. The misconception is that the trait is more prominent in Islamic culture.
Nashat said the treatment of women was institutionalized as the study of science, math and humanities emerged, then the division of labor ensued. Because women bore children, it seemed natural that they would stay at home for their protection and that men would dig the canals and build the homes. Those roles became the societal norm. During the Crusades, priests wrote about their glimpses of Islamic society, spreading misconceptions. "The Crusaders brought back an image of women in Islam as sex objects," she said.
Then, in the first Gulf War, Nashat said, women were educated and trained to enter the work force as their husbands left to fight. When the men returned, the women balked at going home, as happened in the U.S. after World War II.
Nadereh Chamlou of the World Bank offered three main thoughts. First, female entrepreneurship is vibrant and growing throughout the Middle East and North Africa, a trend that should not go unnoticed. The success of these entrepreneurs paves the way for greater women's empowerment. Second, the current business environment provides a more level playing field for women than expected. It is easier to promote women's rights and opportunities as entrepreneurs, drawing on a deep-rooted tradition that dates back to the wife of the prophet, who was a leading businesswoman of her time. And third, the younger cohort of women is just as educated as the men of their generation. This has created a new dynamic that may be similar to the effect of the baby boom generation in the U.S., which achieved many gains on women's rights.
Neveen El Tahri, who started working at Chase National Bank in the 1980s and started her own company in 1994, said a disparity between men and women isn't seen in Egypt. "Equality between men and women has existed in Egypt for a long time," she said. But within her own company, she has seen more women than men with long-term vision.
Laurie Brand
Director and Professor, School of International Relations, University of Southern California
Nadereh Chamlou
Senior Advisor to the Chief Economist, Middle East and North Africa Region, World Bank
Guity Nashat
Research Fellow, Hoover Institution
Tue 4/284:00 pm - 5:15 pm
Focusing on the Balance Sheet: A New Approach to Family Wealth Management
Haverstick said too many family planners focus on financial products and securities and don′t consider housing needs, investing in hard assets, an affordable lifestyle, cash-flow requirements or even liabilities. He suggests a new paradigm that focuses on analyzing cash flow and risk management.
He started with a case study on a hypothetical individual, Hiram Smith, the founder and majority owner of a publicly traded company who borrowed against the company stock to invest in other assets. His assets include the family residence, vacation homes, agricultural land, private equity and hedge fund investments, and an extensive collection of fine art and antiques.
With the decline in the stock market last year, the bank liquidated his stock and issued a margin call for a few hundred million dollars. This puts Smith in a precarious position. If he declares bankruptcy, according to the Sarbanes-Oxley rules, he would never be able to hold an executive position in a public company again. If the bank were to force a liquidation of assets, it would likely be poorly compensated. The best solution would be to offer Smith a workout plan, letting him keep his job and lifestyle and giving the bank a better chance of recovering its losses in the long run. However, with banks under excessive scrutiny nowadays, this might not be possible. What′s the solution?
A good outcome would entail a private loan to help Smith out. Private investors often provide such mezzanine funding, and the terms aren′t too onerous. Haverstick said. He cited one such loan for $500 million with a five-year term at LIBOR plus 4.5 percent, plus 20 percent of the upside on the borrower's investments in private equity and hedge funds. The loan was cross-collateralized by first liens on the borrower's primary residence, land holdings and direct investments. Such a loan would have allowed Smith to keep his job and given him room to come back up over the next few years.
Such out-of-the-box thinking is the real value that family wealth managers will be offering in the future, Haverstick said.
J. Scott Magrane Jr.
Managing Director, Coady Diemar Partners LLC
Rick Moreno
Managing Director, BlackRock
Tue 4/287:00 pm - 9:00 pm
Dinner Panel
A Political Discussion
Willie Brown
Former Mayor of San Francisco; former Speaker, California State Assembly
Harold Ford Jr.
Chairman, Democratic Leadership Council; Visiting Professor of Public Policy, Vanderbilt University
Ed Gillespie
Former Chairman, Republican National Committee (RNC); former Counselor to President George W. Bush
Rush Limbaugh
Host, "The Rush Limbaugh Show"
Wednesday, April 29, 2009
Wed 4/296:30 am - 7:45 am
New Energy in Canada
Andrew Treusch of Environment Canada, a national Canadian body responsible for environmental policy and programming, presented the various and rather aggressive initiatives and goals for meeting the global climate challenges. On the domestic front, Canada has pledged to reduce greenhouse gases by 20 percent by 2020 and by 60 to 70 percent by 2050. Canada has also set a target of using 90 percent renewable energy by 2020, a goal that they hope to meet by taking advantage of abundant access to hydropower. On a global level, Treusch explained that 75 percent of global emissions come from the major economies, with China presenting a particular point of concern. Canada is optimistic about working with the Obama administration on these issues.
David Abel of the VerdeXchange Institute offered a regional perspective from California. In light of policy issues and political hurdles, his assessment of energy in California is that no single form, such as coal, oil, nuclear or natural gas, is likely to dominate. California, he said, is trying to change the mix of fuels used to meet current energy needs but given the targets laid out politically and how quickly these energy sources will change and develop, it's unclear how California may deal ultimately address climate change and sustainable energy.
Lynde Coit of Plasco Energy Group asserted that green technology is extremely expensive. His company recently built a state-of-the-art power plant to convert landfill waste into usable energy. He believes that governments must find a way to encourage private investment into green technology because we cannot meet the environmental challenges with tax dollars alone.
As the discussion closed, Treusch pointed out that despite Canada's focused and aggressive environmental policies, it will amount to very little in terms of reversing some of the damaging effects of our current energy consumption without global participation, particularly from China and the U.S.
David Abel
Chairman and Managing Director, VerdeXchange Institute
Wed 4/296:30 am - 7:45 am
Vistage Breakfast
By invitation only
Wed 4/296:30 am - 7:45 am
From Carbon to Silicon: Transforming Natural Resource-Dependent Countries to Knowledge-Based Economies
Wed 4/298:00 am - 9:15 am
Reading the Financial Tea Leaves: Indicators to Watch
Panelists see the potential of recovery in the market, but no quick fixes exist. As Meredith Whitney put it, "The American economy is resilient, but it′s going to be a long haul."
With the morning′s release of a second straight quarter of 6-plus percent declines in gross domestic product and a loss in wealth of nearly 50 percent since late 2007, Whitney pointed to a less obvious but equally perilous indicator of market health — fleeting consumer credit. As much as $2.7 trillion in unused credit will be recalled by banks in the near future, harming both consumer spending capacity and sentiment, Whitney said.
David Solomon said volatility will be affected in the short term by the results of the federal stimulus package, the likelihood of future funding, and what borrowers' obligations will be. Among Solomon's signposts for recovery is improved access to credit. He noted that corporations have done better in the past six months but have a long haul ahead. Another indicator is stabilizing home prices; until prices stabilize, both consumer behavior and commercial credit access will continue to suffer, he said. And, finally, financial losses must end.
Rebecca Patterson introduced several leading indicators that are out of the mainstream but offer invaluable insight into market health. Advertising expenditures, a luxury for cash-strapped firms and often involving multiple-month contracts, offer companies' forward-looking self-assessments. In addition, she said one can infer the health of the Euro zone from Belgian National Bank statistics tracking new manufacturing orders, which make up a large share of goods sold in France and Germany.
Solomon and Todd Boehly pointed to high-grade debt as having a lot of upside in the current market. And Patterson said, "One of the least appreciated opportunities is a basket of soft commodities." Given current conditions, an investor would receive the same protection other commodities offer, a great entry price, flat supply and recovering demand, he said.
No one on the panel fears rampant inflation in the next 18 months, but the level of government intervention and market reactions going forward make inflation beyond that a real concern. Several panelists pointed to exogenous events as the primary concern for future economic stability, while consumer anxiety-driven market volatility remains an ongoing concern.
Nonetheless, the panelists were ultimately bullish on the market opportunities to be had. "We look at it as bad economy, great prices," Boehly said. "There are more interesting ways to make money now than there have been in a long time."
Rebecca Patterson
Managing Director and Global Head of Foreign Exchange and Commodities, J.P. Morgan Wealth Management
David Solomon
Managing Director and Co-Head of the Investment Banking Division, Goldman, Sachs & Co.
Wed 4/298:00 am - 9:15 am
Social Networking in the Political World
Because of social media, minority groups and others are represented in a more comprehensive way, panelists said. The Internet generally — and social media specifically — has become a transformative force in how everything in the world is done, including and especially politics.
As the panelists reflected on the use of social media during the 2008 presidential campaign, Jason Calacanis pointed out that Barack Obama was the candidate best -suited to use the medium because of his willingness to interact with and engage all people. Rasiej noted that Obama used the word "we" 10 times more frequently than the other candidates in both the primary and general elections and used the word in a way that resonated with the public.
Mindy Finn suggested that the Republicans lost not because of the Internet per se but because they were perceived as being out of touch. She added that people today are most interested in collaborative and socially engaging platforms online.
The audience was shown two viral videos from the 2008 presidential campaign. Rasiej introduced the term "videocracy," referring to the new wave of individuals creating online videos to convey their unique message to the world. In the next few years, he said, online videos will become a more important medium of communication, even shrinking the space available for pure text.
Scott Goodstein said companies and political campaigns can no longer simply put out a press release and launch ads on radio and television and then assume they are finished. Engagement with people via social media is an essential component of any communications strategy, he said. Goodstein, who worked on the Obama campaign, spent lots time answering questions from individuals and responding to friend requests from Obama supporters on social networking sites.
In addition to large presidential campaigns, social media has the potential to provide a successful platform for other areas. With regards to smaller, local campaigns, the panelists agreed that social media can empower groups that otherwise would be at a disadvantage. Finn said private-sector companies can learn from the experience of successful political campaigns and invest the resources necessary to use social media effectively. Most companies have been slow to adopt social media and actively use online tools, Finn said.
Although social media has become a lucrative venture for many, Rasiej pointed out that Facebook founder Mark Zuckerberg sees his social networking site as a tool to create a new social dynamic, facilitating collaboration and relationships.
Jason Calacanis
Founder and CEO, Mahalo.com
Mindy Finn
Co-Founder, Engage; former Director of eStrategy, Romney Presidential Campaign
Scott Goodstein
Founder, Revolution Messaging; former External Online Director, Obama for America
Andrew Rasiej
Social Entrepreneur; Futurist; Founder, Personal Democracy Forum
Wed 4/298:00 am - 9:15 am
Alternative Public Education Systems: Delivering a High Quality K-12 Education in the 21st Century
Panelists discussed three alternative models: charter schools, mayoral control and gubernatorial control. The unifying theme was accountability.
Christopher Cerf addressed New York's experience with mayoral control, the courage required to assume leadership and the benefits of making one person accountable. "There is no silver bullet," he said, and further work is needed, but many improvements have been made under mayoral control.
Eva Moskowitz said identifying and holding a point person accountable "makes perfect sense" but is insufficient in and of itself for educational success. Mayoral control achieves accountability but does not automatically provide much control over decision making, she said. Richard Riordan agreed, describing the challenges Los Angeles Mayor Antonio Villaraigosa faces in managing five public schools.
Panelists spoke to "empowered leadership" and said one reason charter schools tend to be successful is because they include both accountability and delineated leadership with decision-making abilities.
Moskowitz said an underlying problem with the public education system is that labor contracts are designed for adults not for enhanced learning. Steve Barr said he has worked successfully with labor unions when setting up charter schools. Contracts are written in reaction to systems, he said, so fixing the system impact contracts, too. If the educational system recognizes and respects teachers, contract changes can be achieved. Barr agreed, though, that holding a single person accountable is necessary for success.
After accountability, "the next stage of education redesign is the portfolio management approach," Paul Pastorek said. He discussed Louisiana′s experience with a recovery school district implementation after Hurricane Katrina. Leadership was passed to the governor, and the state now has a streamlined central office that pushes control to the school level and functions as an "evaluator of the operator."
He said "diffused responsibility" characterizes the current public education, and that must be addressed at every level when rethinking the system. "We know how to better educate our children," he said. "But until we′re able to hold someone accountable, we′re just whistling in the wind."
Steve Barr
Founder and Chairman, Green Dot Public Schools
Christopher Cerf
Deputy Chancellor, Strategy and Innovation, New York City Department of Education
Eva Moskowitz
Founder and CEO, Success Charter Network
Paul Pastorek
State Superintendent of Education, Louisiana Department of Education
Richard Riordan
Former Mayor, City of Los Angeles
Wed 4/298:00 am - 9:15 am
Power to the People: Rebuilding the Electrical Grid for the 21st Century
An updated electrical grid is "a vital component of any movement that we have toward increased use of solar and wind energy," moderator Joel Kurtzman said. Although 100 square miles in Arizona could provide all the nation′s electrical needs if currently available technologies were deployed there, it would not be feasible to transmit electricity to the entire country using the current grid, said Alan Salzman of VantagePoint Venture Partners.
Modernizing the aging electrical grid will present "enormous opportunities and returns, both for consumers and investors," Salzman said. By upgrading to a "smart grid," energy providers will have the flexibility to tap into renewable energy sources and the ability to better monitor and manage their transmission line networks.
The global investment into electrical grids is projected to be $16 trillion in the next 20 years. The industry will focus heavily on increasing power storage, electricity generation, transmission capacity and grid security.
Arnold Leitner of SkyFuel Inc. said thermal energy, such as heat contained by large volumes of salt water, is an efficient and environmentally friendly method of storing power. Currently, the electrical grid has virtually no storage capacity, so it has been difficult to make use of sources such as nocturnal wind that occurs in certain areas of the country.
Ron Stoltz of Sandia National Laboratories said there is no security oversight of the national electrical grid because of the fragmented nature of regulation. The U.S. electrical grid is regulated by more than 130 agencies at the federal, state and municipal levels. "There is no way that this country will achieve its energy requirements without a fundamental change in regulation," said Tom Casey of Current Group.
The shift toward electric vehicles also will affect the grid. "The electrification of vehicles is a certainty; everybody in the industry understands that′s where we′re going. But the grid and the infrastructure need to improve for that to occur," Salzman said.
Electric vehicles will act as mobile stores of energy and may be able return power to the grid during times of peak demand. While Leitner questioned whether consumers would be willing to put energy back into the grid, others on the panel were confident that incentives and education would encourage consumers to participate.
Tom Casey
CEO, Current Group LLC
Roger Conway
Director, Office of Energy Policy and New Uses, Office of the Chief Economist, USDA
Arnold Leitner
CEO and President, SkyFuel Inc.
Alan Salzman
CEO and Managing Partner, VantagePoint Venture Partners
Ron Stoltz
Manager, National Energy Innovation Initiatives Project, Sandia National Laboratories
Wed 4/298:00 am - 9:15 am
Scaling Up Risk Capital to Small and Medium-Sized Enterprises in Emerging Markets
Betsy Zeidman
Research Fellow and Director of the Center for Emerging Domestic Markets, Milken Institute
Matthew Gamser
Principal, Advisory Services, East Asia and Pacific Department, International Finance Corp.
John Lyman
Program Manager, Google.org
Sucharita Mukherjee
Senior Vice President, IFMR Trust; CEO, IFMR Capital
Wayne Silby
Co-Chairman, Calvert Foundation; Founding Chair, Calvert Social Funds
Peter Tropper
Principal Fund Specialist, Private Equity Department, International Finance Corp.
Hubertus van der Vaart
Co-Founder and Executive Chairman, Small Enterprise Assistance Funds (SEAF)
Troy Wiseman
Chairman, CEO and Co-Founder, TriLinc Global
Wed 4/299:30 am - 10:45 am
Oil and Energy Security
Panelists Mikkal Herberg of the Pacific Council on Energy Policy and Amory Lovins of the Rocky Mountain Institute both stressed that developing countries (particularly India and China, where the process of motorization speeds along) are keenly aware of their role in driving up oil prices and also worried about their dependence on imported oil. But as Lovins pointed out, they are also moving to utilize leapfrog technology as an integrated part of their policies. "China's leaders are deathly afraid of falling into the oil trap we did," said Lovins, adding that because of this, many pundits who are simply extrapolating energy demand from past demand are probably overestimating the impact. Still, the impact is not minimal. Herberg pointed out that China is adding 11 million cars a year to its fleet.
Considering the likelihood of increasing demand, Passell asked panelists to comment on the viability of "brute force drilling" to supplement supply in the U.S. Robert Hahn of the American Enterprise Institute said that a cost-benefit analysis has suggested drilling in some areas (such as the outer continental shelf) might be worth opening up. But both he and the other panelists did not believe that increased drilling in the U.S. would help to lower oil prices.
Commenting on the plausibility of drilling in the Alaska National Wildlife Refuge (ANWR), Hahn said that there are certain expectations of the future that he believes could make that profitable, but Lovins countered that it is extremely expensive and risky to drill in ANWR due to the crumbling and indefensible infrastructure of the Trans Alaska Pipeline. If someone were to destroy part of that pipeline in the winter, he warned, "all that hot oil would congeal in a couple of weeks to the world′s biggest chapstick."
Concluding that there were few supply-side solutions that are going to make much of a difference, particularly given the resource nationalism and insecurity around many of the existing proven reserves, Hahn and others said that price effects and efficiency gains would be the best ways to change demand. Herberg maintained that the U.S. will continue to be the global delinquent until we raise the cost of oil. Nyquist chimed in that the main question is whether the U.S. can weather future oil shocks, and if the government decides we can, then we should "let the market do its thing"; otherwise there may be room for interventions or mandates.
Robert Hahn
Senior Fellow and Executive Director, Regulatory and Market Studies, American Enterprise Institute for Public Policy Research
Mikkal Herberg
BP Foundation Senior Research Fellow for International Energy, Pacific Council on International Policy
Scott Nyquist
Director and Leader of Energy Practice, McKinsey & Company
Wed 4/299:30 am - 10:45 am
Marketing 3.0: Reaching Consumers and Getting Them to Buy
The landscape of doing business has fundamentally changed with recent economic developments, said Keith Ferrazzi of Ferrazza Greenlight and Starbucks′ Michelle Gass. Gass in particular noted a move away from "conspicuous consumption" to the purchase of products based on their value and affordability.
Gass said this requires new approaches from businesses. "You′ve got to be in a position to be nimble and adjust your marketing strategy," she said. As an example of an innovative strategy, Gass and Ferrazzi both cited Starbucks' use of digital channels to advertise free coffee for voters on Election Day.
Frank Luntz of The Word Doctors.com said businesses need to know precisely what customers want and use that information to customize advertising and marketing. He said his consumer research found that, in a difficult economy, "Men want more money, and women want more time." A successful marketing campaign will capitalize on these concepts, he said.
Stephen Cloobeck of Diamond Resorts stressed the importance of combining awareness and use of new media with "old-fashioned" approaches to enhancing a brand. "It′s about customer service," Cloobeck said in describing his company's view of marketing.
Cloobeck said aggressively serving customers redefined the flagging reputation of the company he acquired. His resort managers are instructed to constantly attend to guests' needs, call frequent customers personally to thank them for their loyalty, and acknowledge and remedy customer complaints.
"It′s our mandate worldwide to say we apologize and then fix it as soon as possible," Cloobeck said.
Julie Woods-Moss of BT also discussed the value of human interaction. She described BT′s efforts to use social networking to increase communication within an organization, saying the tactic increased productivity. She said customers also value personal interaction. "We′re actually overlooking the good, old-fashioned contact center," she said.
"At the end of the day, it's really the relationships in your lives that are going to power your growth," Ferrazzi said.
Michelle Gass
Executive Vice President, Marketing and Category, Starbucks
Julie Woods-Moss
President, Strategy, Marketing and Propositions, BT
Wed 4/299:30 am - 10:45 am
Health-Care Reform: Once More Into the Breach
The experts discussed the current and future impact of universal coverage and decreasing health-care costs by changing the delivery and prevention systems for chronic care. All panelists — representing insurance companies, advocacy groups and academics — supported universal coverage for the currently 46 million uninsured Americans.
Kenneth Thorpe of the Partnership to Fight Chronic Disease said the average cost of coverage for a family is about $12,000. The fundamental challenge of requiring everyone to have health insurance is affordability, he said. The estimated cost of covering the uninsured for the next 10 years is $1.5 trillion to $1.8 trillion.
Private insurance companies generally are not in favor of a public plan for the uninsured. Samuel Nussbaum of Wellpoint Inc. said such a plan likely would be based on current Medicare reimbursement rates, which are 20 percent less than those of private insurance. Today, the cost of Medicare's underpayments is passed on through private insurance.
Nussbaum, who leads one of the largest insurance companies at more than 35 million members, said 5 percent of Wellpoint′s members are responsible for 55 percent of reimbursement costs, so addressing those high-risk members is key to lowering costs. Nussbaum said the focus should be on prevention and wellness, better management of chronic care and promoting evidence-based medicine.
Wellpoint has achieved cost reductions by actively engaging consumers at home and working to prevent chronic illnesses, Nussbaum said. This includes encouraging inexpensive or free access to preventive measures such as blood pressure drugs and glucose testing for diabetes.
Commenting on high readmission rates of Medicare patients and the inefficiencies of the health-care system, Nussbaum said, "(Currently) someone′s inefficiencies are someone else's revenues." Addressing those issues requires aligning payments with outcome and changing the incentives of the health-care system, he said.
Chris Singer of the Pharmaceutical Research and Manufacturers of America said employers — large ones especially — should get behind the effort to reduce chronic diseases, which account for the bulk of health-care costs. The indirect costs of chronic illnesses to employers dwarf the direct costs to the health-care system, Singer said. These savings flow directly to the bottom line of the company, which benefits from increased worker productivity.
Margaret Anderson
Chief Operating Officer, FasterCures / The Center for Accelerating Medical Solutions
Marian Mulkey
Senior Program Officer, California Healthcare Foundation
Samuel Nussbaum
Executive Vice President, Clinical Health Policy, and Chief Medical Officer, WellPoint Inc.
Chris Singer
Executive Vice President and President International of the Pharmaceutical Research and Manufacturers of America
Kenneth Thorpe
Executive Director, Partnership to Fight Chronic Disease; Robert W. Woodruff Professor and Chair of the Department of Health Policy & Management, Rollins School of Public Health, Emory University
Wed 4/299:30 am - 10:45 am
What's the Grand Old Party to Do? The Future of the Conservative Movement
Kathryn Lopez of the National Review Online called it "Obama Chaos Syndrome." Not only do Obama's personal talent and charisma obscure his liberal agenda, but he also has enacted so many liberal policies that the conservatives have not yet figured out what to focus on.
Byron York of the Washington Examiner said some of Obama's critics had discredited themselves by calling him a fascist and a socialist and misusing these terms.
Political analyst Amy Holmes blamed conservatives for being "hyper respectful of the president" and the media for "over-cheerleading the president." But Jonah Goldberg of the Los Angeles Times saw a clear rationale for this. Obama "was the clear winner, which gives him a legitimacy that Bush and Clinton didn't have with their opposition."
Andrew Breitbart of Breitbart.com and the Washington Times saw a larger liberal conspiracy at work. "The left declared war on George Bush and marketed Obama as the magic pill." Then once in office, they put conservatives on the defensive by going after Rush Limbaugh.
So what is the GOP to do? Holmes stressed the need for Republicans "to nurture new and diverse voices." Lopez suggested the party "look at the state level and look in business" to find new faces.
Beyond people, are there issues the GOP should focus on? Asked Bennett, "Do you double down on the economy?" "Yes," said York, "that is the only bet." "If the Republicans can't win back the economy issue, they might as well be a Star Trek convention or a Civil War reenactment group," Goldberg said.
There was division among the panelists as to where to place to the blame for the GOP's poor electoral results in 2006 and 2008. York blamed the Republicans themselves. Referencing the Iraq War and the poor response to Hurricane Katrina, he predicted that "the Republican Party made some enormous mistakes and they may have to pay for them for a while."
But Breinhart blamed liberals. "They control ABC, NBC, CBS, Oprah and Ellen . . . They turned Sarah Palin into the next George Bush . . . They can demonize anyone."
Andrew Breitbart
Publisher, Breitbart.com and Big Hollywood; Columnist, Washington Times
Jonah Goldberg
Columnist, The Los Angeles Times
Amy Holmes
Political Analyst; former Senior Speechwriter for Senate Majority Leader Bill Frist
Kathryn Lopez
Editor, National Review Online
Byron York
Chief Political Correspondent, Washington Examiner
Wed 4/299:30 am - 10:45 am
Financial Literacy: An Issue of American Competitiveness
The financial markets depend largely on consumer confidence, so the more knowledgeable consumers are about the markets, the better off the markets will be, panelists said.
"We′ve got to fix the system, not the individual," said Sean Cleary of Strategic Concepts.
Among the causes of this financial illiteracy is the increasing complexity of finances over the past century, said Richard Hartnack of US Bancorp.
Fifty years ago, he said, it was difficult to get into huge amounts of debt; a home loan typically came with a fixed rate and lasted 30 years. Today loans are multifaceted. "We need to help people understand how to buy and consume," Hartnack said.
David Simon referred to financial literacy as a sort of "alternative medicine" to help remedy the economic downturn.
"There is a massive amount of greed in a capitalist system. The only way to protect yourself is through financial literacy," moderator John Bryant said. Cleary agreed, saying the only people who succeed in a market economy are those with monetary know-how.
Cleary has teamed up with the U.S. President′s Advisory Council on Financial Literacy to educate South Africans. In the first year, the program reached 7,000 children in schools and 200 in college. The target for the next academic year is 25,000 students.
Beverly Daniel Tatum of Spelman College said most of her students depend on loans for tuition but don′t totally understand the process. A major reason students of color do not graduate from college is because of money rather than academics, she said. "We need a tool kit to help students get through this."
Tatum encourages her students to understand philanthropy. Their tuition is just 46 percent of the actual cost of their education. The remainder is subsidized by donations. "I want my students to understand how to pay it forward," she said.
To reach out to U.S. adults, Charlie Rahilly of Premier Radio Networks uses his media outlets to communicate with consumers and connect them with resources to better understand finances.
John Bryant
Founder, Chairman and CEO, Operation HOPE; Vice Chairman, U.S. President's Advisory Council on Financial Literacy
Sean Cleary
Chairman, Strategic Concepts (Pty) Ltd.
Charlie Rahilly
President and CEO, Premiere Radio Networks
David S. Simon
Executive Vice President, Citigroup Inc.
Wed 4/299:30 am - 10:45 am
Ensuring the Worlds Water Supply
One theme was the need to consider the links between water, energy and carbon, and to develop solutions to those problems in an integrated manner. Another point was the need for greater coordination between different government agencies, and also entities outside of government, to ensure that technologies and management options for dealing with impending water crises are not accidentally stifled by bureaucracy.
The importance of linkages between water and other environmental concerns is crystal clear in California, where, according to Yoram Cohen of UCLA, "19 percent of California's electricity goes to moving water." There are several solutions to this. Cohen and Joseph Boystak of Brightwaters Capital both emphasized that as we go forward, we need to focus on building a distributed water infrastructure somewhat analogous to smart grids and distributed generation in the electricity world; this is a smarter strategy than spending hundreds of billions of dollars just to maintain what we have. Cohen pointed out that when we properly account for the full transportation cost of bringing water to southern California from northern California or Colorado, even desalination is financially viable in many ocean communities.
The panelists provided examples of water-purification technologies that are already viable or soon will be, and interest in such technologies is justified given the burgeoning urban population. As noted by Paul Pelosi Jr. of the San Francisco Commission on the Environment, we are for the first time living in a world housing more than half its population in urban areas. Yet still, as pointed out moderator Roy Doumani of UCLA, 70 to 80 percent of water used goes to agriculture. Panelists agreed on the need for conservation in this area.
But regardless of our technological know-how in either urban areas or agricultural lands, all panelists agreed that solving our water problems required coordination and streamlining of the regulatory and financing process. According to Cohen, it takes seven to eight years for desalination plant to get fully permitted. Pelosi and Susan Weil of Lamont Financial Services Corp. cited the tremendous amount of stimulus money soon to be available for water — but in Weil's words, here in California we are not set up to "push it through the funnel" of Sacramento.
Paul Soto of Craton Equity perhaps summed it up best when he noted there is really no technical obstacle, but one fundamental challenge: the need for "unprecedented collaboration."
Joseph Boystak
President and CEO, Brightwaters Capital LLC
Yoram Cohen
Director, Water Technology Research Center; Professor, Henry Samueli School of Engineering and Applied Science, University of California, Los Angeles
Paul Pelosi Jr.
President, San Francisco Commission on the Environment
Tom Soto
Managing Partner, Craton Equity Partners
Susan Weil
Partner, Lamont Financial Services Corp.
Wed 4/299:30 am - 10:45 am
Fostering Change in Africa: Transforming a Continent Through Innovative Business and Philanthropy
Nazeem Martin said there are a few common perceptions of Africa: dark Africa; dictators; romantic Africa; and industrious Africa. A person's perception determines whether he sees opportunity, which decides whether he will invest in Africa.
Africa is relatively stable politically, which has created numerous opportunities for economic growth and job creation, Martin said. Recently, remittances and cash flow into Africa have been increasing, creating greater opportunities for businesses to grow. Martin warned, however, that potential investors first must understand the environment, including the particular country′s traditions, cultures, laws and regulations.
Aleem Walji said the way people think of philanthropy in Africa must change. The continent is disproportionately young, and its youth could either be an opportunity or an obstacle, Walji said.
Walji said empowering Africans to create their own online content can shed light on issues on governance. A community in Ghana was able to demand more money for their schools after the budget was posted for all to see. Using technology to generate data, Africans can share content and hold officials accountable.
Martin warned that there is a risk of instilling a culture of dependency when it comes to aid and that relief groups should consider actively involving the local community. Martin said aid should help provide the skills people need to lift themselves out of poverty, not get stuck in a perpetual cycle of dependency.
Africa's economy is shaped largely by policies adopted in respective countries. Martin said one problem with governance is that political officials stay in power too long in African nations. Rod MacAlister said he is seeing a trend toward better leadership on the continent. MacAlister further emphasized the many opportunities available in the middle market in empowering people who will then create jobs for the local population.
Rod MacAlister
Managing Director, Africa Middle Market Fund
Nazeem Martin
Managing Director and CEO, Business Partners Ltd. and Business Partners International
Aleem Walji
Head of Global Development Initiatives, Google.org
Wed 4/299:30 am - 10:45 am
The Business of Social Networking
Gina Bianchini
CEO and Co-Founder, Ning Inc.
Paul Pluschkell
CEO and Co-Founder, SpigIt
Wed 4/299:30 am - 10:45 am
Reviving Israeli-Palestinian Economic Cooperation
Opportunities exist in high-tech fields like information, communications and technology, or ICT, said Israeli entrepreneur Zvi Schreiber of G.ho.st and Palestinian venture capitalist and ICT expert Saed Nashef.
Together with Yadin Kaufmann, an experienced Israeli venture capitalist who funded Veritas and Tmura Venture Funds, Nashef is establishing Middle East Venture Capital, which focuses on Palestinian ICT companies and startups.
"Palestinians are well-placed to capitalize on the growing market in Arab-language content and mobile applications," Nashef, a Microsoft veteran, said. The Palestinians are technically savvy, and ICT is resistant to political volatility while opening global doors, offering high-paying jobs and fostering local stability.
With offices in the West Bank and Israel, G.ho.st is experiencing exponential growth in international virtual computing services and garnering international awards. CEO Zvi Schreiber talked about the challenges and achievements of his Palestinian-Israeli team of 30. Joking that he is probably the only CEO who has never visited his own company′s central office, Schreiber described how the company uses videoconferencing as a main management and meeting tool. He said his is the first Palestinian-based company to attract international venture capital (Benchmark Capital).
Coincident with these developments is the first planned community at Rawabi, in the West Bank. Amir Dajani from Bayti Real Estate Investment Company manages this first of its kind project, which will provide 5,000 residential homes in a mixed-use community that includes retail, a high-tech business cluster, a research university campus, education facilities and a multi-purpose cultural center. The cost of construction is estimated at $500 million, said Dajani who emphasized the job-creation potential of the project. He estimated the project will bring 8,000 -10,000 construction positions, 3,000-5,000 permanent jobs for residents and various employment opportunities for nine surrounding villages.
East Jerusalem presents its special challenges, but entrepreneurial spirit and opportunities exist there as well. With a focus on "what can be done now independent of 'final status' outcome," Steven Zecher of Strategy Partner highlighted opportunities in Jerusalem in international tourism, business networking, business skills training and targeted branding. These industries are scaleable and strengthen local brick-and-mortar businesses, providing greater value for tourists and opportunities for local youth, Zecher said.
All projects and entrepreneurs could potentially benefit from U.S. involvement through the Overseas Private Investment Corporation. James Williams of OPIC sees great economic opportunities in Palestinian communities as OPIC helps organize private-sector financing and equity while serving unaddressed needs by providing small-business loans and offering innovative instruments such as specialized insurance for political risk and trade disruption.
These successes encourage local banks to lend locally instead of investing overseas. Local lending has been problematic, said James Prince of the Democracy Council. The Palestinians receive significant aid, but political and security instability has encouraged local banks to invest overseas, he said. Reversing this trend is important because local banks are best-positioned to support local small business.
Other business challenges are the restricted physical movement of people and goods and the need for greater emphasis on investment and development instead of security and politics, panelists said. Technology reduces some physical movement challenges, but the absence of high-tech economic development zones complicates business operations where Palestinians and Israelis need to come together to produce goods and services, they said. The current security checkpoint and administrative processes are inefficient, complicating travel and making business planning and operations relatively difficult and expensive. Where physical projects materialize, solutions are a prerequisite for the completion of the project itself. For example, in Rawabi building materials will need to be transported and an access road must be built.
"Strengthening the economy of Palestinian neighborhoods is in Israeli interests," Israeli Consul General Jacob Dayan said at the end of the panel. The "everything or nothing" approaches are gone, he said. Israelis and Palestinians are working together to strengthen the economy through private development, to expand the Palestinian middle class and to foster and sustain democracy.
David Pollock
Senior Managing Director, Bear Stearns/JPMorgan.; Chairman, Milken Institute Israel Center
Amir Dajani
Deputy Managing Director, Bayti Real Estate Investment Company
Jacob Dayan
Consul General of Israel in Los Angeles
Saed Nashef
General Partner, Middle East Venture Capital Fund
James Prince
President, Founder, The Democracy Council
Zvi Schreiber
Founder and CEO, Global Hosted Operating SysTem (G.ho.st)
James C. Williams
Director of Insurance, Overseas Private Investment Corp.
Steven Zecher
Principal, Strategy Partner
Wed 4/299:30 am - 10:45 am
Rx for Failing Schools: High Test, High Tech
Some panelists suggested starting with the technology students are already familiar with — their own. "We have to figure out how we can integrate the tools that kids bring to school, like by having lessons they can listen to on an iPod," Carlos Garcia said. "Imagine if we could find a way to use text messaging in an instructional way. In education we′re just so far behind where we could be."
Judy Burton said her organization's public charter school network uses a combination of technology and focusing on student performance to enhance instruction and measure adherance to state standards.
"We′ve changed our grading system from being based on a teacher's assignment of work to a student's proficiency on a state standard," Burton said. "Via technology, we won′t communicate a specific grade about how a student did on a book report, but how they did in relation to a state standard."
Marlene Canter also advocated focusing classroom technology on measuring student achievement. And Donald Knezek recommended measuring achievement beyond the use of standardized tests. "We measure what kids can do on standardized tests, not how many college-level classes they′ve taken or what they′ve actually learned upon leaving high school," he said.
Another recommendation by panelists is to provide tools allowing teachers to instruct at all levels within a classroom, not just to the median. James Konantz suggested using technology to help teachers base instruction on individual students' needs.
Engaging students is a significant challenge to overcoming low student achievement, panelists said. "We aren′t engaging students the way we should; it′s an antiquated way of teaching," Canter said.
Panelists said education must go beyond textbooks to involve other mechanisms. "Textbooks are a resource but not even a primary resource for us," Burton said. "We rely on concrete learning experiences."
In the end, the panel agreed that, while technology has its benefits, effective teachers are most important. "You must have an effective teacher in front of every classroom. If you don′t start there, no matter what technology you use, you won′t be successful," Burton said.
Judy Burton
President and CEO, Alliance for College-Ready Public Schools
Marlene Canter
Member, Los Angeles Unified School District Board of Education
Christina Cleugh
Education Consultant; Former Online and In-Classroom Teacher and Trainer
Carlos Garcia
Superintendent, San Francisco Unified School District
Donald Knezek
CEO, International Society for Technology in Education
James Konantz
Regional Vice President, K12 Inc.
Wed 4/2911:00 am - 12:15 pm
The Role of Finance in Strengthening the Economy
Continuing the parallel, Simons stressed the importance of independently verifying all information, performing due diligence and checking the facts, regardless of the source. Like the systems of the human body, everything in the economy is related, and repairs must be made holistically, he said.
"Housing has created economic problems that we will have to work through," said Lewis Ranieri opf Ranieri Partners LLC. Still, Ranieri was bullish on the future. The U.S. economy is "within shouting distance of the bottom," he said, and home affordability is at its lowest point in 25 years. "At the cost of the bond holder, at the cost of the taxpayer, we are resetting a person′s wealth in their home," he said.
Ranieri termed the government restructuring of home loans and foreclosure forbearance as an unprecedented transfer of wealth and said actions taken so far have been effective. "TALF worked," Ranieri said, referring to the Federal Reserve′s Term Asset-Backed Securities Loan Facility, intended to help market participants meet the credit needs of households and small businesses.
Michael Milken cited data from past recessions and recoveries. New-home sales and housing starts were the early indicators of recovery, while the unemployment rate and payroll employment lag recoveries. Looking at the correct metrics is critical to judging the health of the economy, much like kidneys are early indicators of disease, Simons said. "The system doesn′t fix itself over night," Ranieri said. "You have to give it time."
The mechanism of wealth creation has changed from manufacturing in the decade after World War II to the commoditization of information in the 1990s. Wealth creation in the 2000s will come from the commoditization of air and water, said Richard Sandor of Chicago Climate Exchange Inc.
As an example of a financial solution to a social problem, Sandor cited the U.S. reduction in atmospheric sulfur dioxide. Initial estimates to reduce acid rain were $2,000 per ton, but it now trades on the Chicago Climate Futures Exchange at $61 per ton because of financial market innovations. Numerous societal and financial benefits have come from the reduction in acid rain, including substantial health-care savings. Sandor stressed the need for the U.S. to move to a national electricity grid similar to natural gas trading.
Ranieri expressed concern about current legislative actions threatening the rule of law and potentially undermining the sanctity of contracts. Removing the rights of creditors without appeal is a slippery slope, he warned.
Finance can provide elegant solutions to public policy issues via dynamic, transparent markets, panelists said. Sandor stressed the need for a national cap-and-trade program along with a comprehensive renewable-energy program. Acceleration of the flow of credit to the critical factors in the economy will lead to the end of the recession and aid the transition away from government support. "We have the basis of everything we need. We just need to execute at this point," Ranieri said.
Lewis Ranieri
Chairman, Ranieri Partners LLC; Founder, Hyperion Private Equity Funds
Wed 4/2911:00 am - 12:15 pm
Global Risk
Miscik, of Kissinger Associates, identified three hazards: the risk of the unknown — not knowing how long the downturn will last or how bad it will get; the risk of opportunism — people taking advantage of the downturn to achieve malicious objectives; and the risk of unintended consequences — that solutions may create problems of their own.
Asked why experts did not see the crisis coming, Miscik criticized those who relied too much on quantitative tools. These tools created confidence because they were based on models that predicted good results. Scandella went even further, calling these models "exceedingly bad" because they were based on value at risk, a calculation he said "has no meaning."
Karen Monaghan of the National Intelligence Council spoke to the second-order risks caused by the economic downturn, the risks of political and social instability in countries across the globe.
The panelists discussed whether the swine flu, the latest global threat to make headlines, is risk or hype. When determining the true threat of the flu or other events, experts must make decisions while facing uncertainty, and Miscik applauded the Mexican government for its quick action and communication with other countries.
The panelists discussed various hot spots that pose risks to the global market, including China, Russia and Pakistan. Russia, which Monaghan called a "wounded bear," is of particular concern to the global market because of the recent devaluation of the ruble. If oil prices remain low and Russia's downturn continues, panelists warned, the government may pursue aggressive strategies to avoid the appearance of weakness.
Despite an apparent de-escalation of the downturn, several vulnerabilities remain for the United States and its global partners. Miscik pointed to consumer credit card debt and commercial real estate, and food scarcity remains a primary concern across the globe.
Scandella predicted a change of global leadership toward China that will leave the United States and Europe behind. Yet, the Milken Institute′s Joel Kurtzman cautioned, "Perhaps the riskiest bet of all is to bet against the United States."
Jami Miscik
Vice Chairman and President, Kissinger Associates
Karen Monaghan
National Intelligence Officer for Economics and Global Issues, National Intelligence Council
Wed 4/2911:00 am - 12:15 pm
The Mobile Web
Mobile media devices are becoming intrinsically linked to one's sense of self, said Len Lauer of Qualcomm, because you "don′t leave home without the mobile device." The devices are a way to bring connectivity to those in rural areas in both the U.S. and abroad. However, as the devices increasingly permeate the market, mobile Internet companies face challenges in privacy and user acquisition and retention.
Manufacturers such as Nokia and Qualcomm are exploring using the mobile Web to expand Internet into developing countries that lack the infrastructure for wired service, including more of the 2.6 billion people who live without a phone.
Mary McDowell discussed Nokia′s Life Tools program that provides Internet access using 35-year-old technology and slower Internet speeds. Life Tools lets individuals in rural India who have GSM coverage access the Internet for educational and agricultural purposes via an easy-to-use graphical user interface. Lauer said similar initiatives can serve more people in developing countries via handsets with a $17 entry price or bring browsing to any home that has a television via a modem and an applications processor.
Qualcomm also is working with the federal government on a broadband initiative to increase access for rural Americans. Greg Skibiski of Sense Networks is excited about bringing people on the grid because it allows companies to track the physical locations of mobile customers and use the information to predict outbreaks of disease, challenges to public safety and other purposes that could improve the quality of life for people in developing countries.
For those with ready access to the wired Internet, what will lure them to the mobile Web and keep them there? In five to 10 years, Lauer said, all devices will be connected to each other via local area networks or even wider networks. Lauer is confident mobile devices will be developed that will allow the convergence of consumer electronics, wireless and computing in one device but cautions against companies developing a cheap notebook computers as the answer.
McDowell agreed that convergence is coming but said the mobile Web is "about the transformation of the Internet, not rendering pages on a tiny screen." She said the mobile Web also should be harnessed to deliver custom content. While the panelists agreed that applications on systems like the iPhone are exciting, some wished for portability between devices.
Privacy is a key issue, given that user information is a major source of data about users and their habits. Skibiski said that individuals should have possession, use and disposal rights to their information and that companies should diligently dispose of an individual′s information after it has been analyzed.
Len Lauer
Executive Vice President and Chief Operating Officer, Qualcomm Inc.
Mary McDowell
Executive Vice President and Chief Development Officer, Nokia
Greg Skibiski
CEO and Co-Founder, Sense Networks
Wed 4/2911:00 am - 12:15 pm
The Rise and Fall of the U.S. Mortgage and Credit Markets Roundtable
James Barth of the Milken Institute outlined the major factors that led to the crisis in the mortgage and credit markets in the United States, drawing on the extensive research and data contained in his new book, The Rise and Fall of the U.S. Mortgage and Credit Markets. These included issues that are commonly cited, such as lax monetary policy, the ability of lenders to pass along risk and the failure of rating agencies, but also some factors that are often overlooked, such as the procyclicality of regulation (the tendency for regulation to be loose during good times but much more stringent in financial downturns). Barth pointed out that regulation of the financial system is overly complicated, causing inadequate enforcement and a lack of accountability.
When comparing the economic situation in the United States to the situation in other developed countries, Eichengreen forecast that many European and Asian countries are likely to have more severe and lengthier recessions. Although investors around the world bought up securitized U.S. mortgages, he doesn't believe the American financial system was entirely to blame for the world's financial crisis. Poor financial decisions were made at various financial and government institutions in Europe; panelists noted excesses in the financial industry in Iceland and Germany. "How could the Icelanders allow their banking and financial system to grow to eleven times their economy?" asked Eichengreen.
Alan Boyce of Absalon proposed that an alternate system of mortgage lending, similar to the one in Denmark, would reduce the number of foreclosures in times of declining real estate prices. The system would distribute risk among the loan originator and the ultimate owner of the mortgage while giving upside potential and downside protection to homeowners; it would structure mortgage-backed securities in the same transparent manner that has long been used successfully for corporate bonds. He noted that Denmark had a substantial run-up in home prices, but is weathering the aftermath of the bubble without the turmoil experienced elsewhere. Boyce is currently working to encourage the implementation of the system in the United States.
When asked to predict when the housing market will bottom, the panel of experts suggested that until economic growth resumes, real estate prices are likely to continue to decline. Although only 10 to 15 percent of mortgages are currently in delinquency or foreclosure, the situation can become much more grave by the end of the year if we do not take bold action, warned Boyce.
James Barth
Senior Finance Fellow, Milken Institute; Lowder Eminent Scholar in Finance, Auburn University
Barry Eichengreen
George C. Pardee and Helen N. Pardee Professor of Economics and Political Science, University of California, Berkeley
Wed 4/2911:00 am - 12:15 pm
CEO Conversation: Outlook for India With Infosys CEO Kris Gopalakrishnan
Nowhere is this trend more evident than in the information technology sector. Infosys CEO Kris Gopalakrishnan elaborated on the key drivers of India′s rapid expansion in IT and shared his expectations for India and the region.
Gopalakrishnan said three factors have kept the Indian economy on track during the downturn. The government tightly regulated banking activities, leading to careful lending practices and relatively few of the leverage issues that have plagued the other economies. Additionally, rising incomes have driven India′s economy. The middle class has grown from 100 million to 300 million people, Gopalakrishnan said,and this has created, "an engine for sustained growth." Finally, because of rapidly growing wealth and fairly recent trade liberalization, significant pent-up demand exists. As evidence, Gopalakrishnan pointed to the sale of 11.5 million mobile phones in a single month.
Moderator Komal Sri-Kumar asked about the success of the Indian economy, especially with respect to IT, in the past 15 years. Gopalakrishnan noted that in 1991 the Indian government began liberalizing the economy and easing trade barriers. Then, to prove the strength of Indian technology products, the industry adopted a Japanese Kaizen-style approach to quality control and improvement.
Fundamental to this effort were education and the early adoption of training systems to develop IT professionals, Gopalakrishnan said. Today, Infosys alone has the capacity to train 40,000 people annually, he said. He also suggested that in some ways India′s global business practices have benefited from having roots in U.S. and British methods.
Sri-Kumar and Gopalakrishnan also discussed vulnerabilities in the Indian and regional economies, with Gopalakrishnan outlining short- medium- and long-term concerns. The revelation of election results in mid-May poses the most immediate concern, he said. The lack of a strong coalition coming out of the election is not guaranteed, he said, and stability is less likely if post-election coalition building must occur.
Further, turbulence at each of its borders may have a negative effect on India's stability, especially considering Pakistan′s ineffectiveness in combating the Taliban.
Looking further into the future, Gopalakrishnan said having 15 percent of India′s GDP come from 70 percent of its people is not sustainable. The large agrarian-base economy is particularly at risk, he said. The basis of this risk is the opportunity for education, Gopalakrishnan′s long-term concern for the nation. Infosys has spent $116 million in the past year on education, but he says education is still too hard to access for most.
Komal Sri-Kumar
Managing Director and Chief Global Strategist, TCW Group Inc.; Senior Fellow, Milken Institute
Wed 4/2911:00 am - 12:15 pm
Early Childhood Education at a Crossroads
Roger Nuegebauer of the World Forum Foundation said early childhood education has exploded since the middle of last century.
"Today we find that three out five children in the United States are enrolled in early childhood education as opposed to one in 10 in the 1960s," he said. "Today early child care is a $45 billion business employing over a million individuals in the United States."
Eric Karolak of the Early Care and Education Consortium laid the groundwork for the debate. "As much as has happened and as significant as an investment has occurred, there are questions about what′s next. Are we going to follow a traditional institutional model or we going to follow a child-centric model?" Karolak said. Among his other questions: Should the nation lean toward a public, private or hybrid model for early childhood education? What standards should be set for these programs?
Glen Thomas, California secretary of education, said California needs "regionalized services and regionalized boards" to address early childhood education. "The needs of Imperial County are not the same as the needs of Santa Barbara County," Thomas said. "It is very difficult to have one model, one voice for kids across these areas."
The labor pool is another issue in California, said Dennis Vicars of the Professional Association for Childhood Education Alternative Payment Program. "The potential number of workers is shrinking along with the right worker pool," he said.
Panelists said that childhood education in the United States is at a crossroads. A sound investment strategy and proper goal-setting is needed to assure smarter, stronger and more confident children, they said.
Ken Jaffe
President and Executive Director, International Child Resource Institute
Eric Karolak
Executive Director, Early Care and Education Consortium
Roger Neugebauer
President, World Forum Foundation
Glen Thomas
Secretary of Education, State of California
Dennis Vicars
Executive Director, Professional Association for Childhood Education Alternative Payment Program
Wed 4/2911:00 am - 12:15 pm
You Are What You Wear: A Conversation With Dr. Deborah Nadoolman Landis, Hollywood Costume Designer of Indiana Jones and Michael Jackson's Thriller
This is an unfortunate pairing for the Academy Award-nominated costume designer: The gaudiness and extravagance of Halloween have "so little to do with what we (costume designers) actually do." Quoting James Laver, Landis said, "Clothes are never a frivolity: they always mean something."
For Landis, costume design goes beyond the superficial. More than masks, capes and drapes, costumes help create icons, she said. "It's all about the people, people!" Landis said. Though what costume designers do is often considered behind-the-scenes work, it is integral to storytelling in theater, film and television. While production designers create the "where" — a detective's office in The Departed, the high school field in Juno — costume designers create the "who," she said.
Landis took the audience on an anthropological journey using slides depicting "real" people from Namibia to Australia and on-screen characters such as Sacha Baron Cohen's Borat and Diane Keaton's Annie Hall, to demonstrate the way clothing and costumes mark period, locale, occasion and status.
But there′s more to Landis' work than simply finding items to match the time and place that a script identifies: Landis researches her characters to find them in "the arc of (his or her) life." Films, Landis said, require "a huge suspension of disbelief. You are asked to believe that the people in the movie have had a life before the movie started and when the movie ends, continue their (lives)." Costumes are the vehicles for creating authentic characters.
Being a successful costume designer often means convincing the audience that you didn't really work at all. Unlike the world of fashion, which draws attention to itself, what costume design does is "help you forget about costumes and help you become totally involved in people′s stories."
As examples, Landis listed several Oscar winners for best actress. To win an Oscar, Landis said, "you had to be ugly in the movie" because "pretty doesn′t win." The most powerful performances came from actresses who portrayed their characters convincingly, becoming "real people" to be believable.
Actresses and actors aren't, however, the only ones who are what they wear, she said. Everyone conveys different things with their clothing and accessories. If we are what we wear, Landis said, then what we wear "is an amalgam of stories."
Wed 4/2911:00 am - 12:15 pm
An Interactive Discussion About Social Networking
Libert said today's business leaders have lost their way. Business isn't about the products and services being sold or the dollars and cents that are made. It's about the people receiving the goods and services and the relationships they have with the companies, he said.
He used as an example the former CEO of General Motors, who claimed that customers had it wrong about the quality of GM vehicles. The issue has little to do with quality and everything to do with the failed relationship between the automaker and its customers, Libert said. Profit is not the end; community is the end.
While many business leaders claim to want feedback from their customers, they want to control that feedback heavily, he said. They are afraid of inviting a truly open and frank discussion because that will make them vulnerable. As a result, leaders want to manage feedback in a way that prevents full and honest communication.
But it's not about them. Libert presents online social networks for employees and customers as one solution to this culture of fear. These networks are teaching companies that they have lost their way. "Social networking is cool, but it′s the beginning of an even cooler change," he said. It's about how we think of ourselves as humans.
Libert was joined by an assistant, Matt, who eased the room full of business leaders into the world of online social networks and showed them how easy it is to create a forum for feedback and discussion that would allow the businesses to learn from honest, unfiltered interactions with their employees and customers.
Matt relieved many concerns people had about social networking sites. In fact, many things employers feared the sites would bring into the workplace already exist there. At the same time, business leaders were missing out on a lot of benefits associated with online social networking tools.
The session really was meant to take business leaders out of their comfort zone by inviting a conversation with employees and customers that, however unpleasant it might seem, was in their best interest. In fact, many customers have created their own spaces online to discuss a company′s products or services; the problem is that the company isn't part of the conversation.
Wed 4/2911:00 am - 12:15 pm
PACE Finance: Innovative Funding to Accelerate the Retrofitting of America's Buildings for Energy Independence
The recent emergence of Property Assessed Clean Energy, or PACE, bonds has given cities and states the tools to lead the charge for improving energy efficiency. In the PACE framework, cities and counties form financing districts that could issue bonds to provide financing for residential and commercial property owners to voluntarily retrofit buildings and make improvements such as installing solar, wind or geothermal energy systems.
Property owners would repay the loans over 20 years through a special property assessment, with the paper secured by a super-senior position, much like any property tax. Up-front costs for owners are dramatically reduced, which improves return on investment and the internal rate of return and doesn't discourage them from opting in.
Dan Probst of Jones Lang LaSalle estimates that the potential market size for retrofitting buildings is anywhere from $600 billion to more than $1 trillion. About 75 percent of commercial buildings are more than 20 years old.
Challenges to embracing PACE bonds exist on financing and legal fronts. For financing, the question relates to how you enable these relatively small-scale financings that have local, non-standardized appearances to work within the large-scale municipal bond market.
Craig Hill of Northcross, Hill & Ach Inc. said a Department of Energy guarantee would enable a standardized, marketable product. The DOE guarantee would provide a Treasury bond surrogate with related liquidity and an interest-rate reference. It also would serve as a powerful catalyst for retrofitting with virtually no long-term credit risk —the bond has a lien not only on the revenue stream of the property but also on the property itself. Amory Lovins of the Rocky Mountain Institute said the DOE credit wrap would help provide the protocol for pooling, packaging and securitizing the savings from these retrofits.
Regarding the legal challenges to PACE financing, the panel was slightly less certain, given the infancy of the initiative. Hill mentioned that trying to move the retrofit lien ahead of the mortgage note in seniority can be difficult to do unilaterally. Cisco DeVries of Renewable Funding LLC said it depends on whether you set up the assessment district in a traditional manner. Then, DeVries said, it's "just like any other tax assessment," which frequently moves super-senior without the lender's consent.
Lovins likened the retrofits using PACE bonds to a "double whammy" because they increase the cash flows of the asset, leading to lower loss reserves because risk decreases, and increase the asset's value. The bonds have a lien on both. Because the program is opt-in and needs pull-through to make an impact, the key is for cities and counties to educate property owners and help implement retrofits. The policy goal should be for a transparent, easy-to-use, standardized and correctly incentivized process for retrofitting, using PACE financing with reliable, certified vendors doing the retrofitting.
When pressed further about lenders and their appetite to embrace the super-senior position of PACE bonds, Lovins compared it to health insurance. Would a health insurance company want to encourage its enrollees to exercise and eat right? "They should!" he said.
Erik Caldwell
Energy Policy Advisor, Office of the Mayor of San Diego
Cisco DeVries
President, Renewable Funding LLC
Thomas Gackstetter
Director of Energy Efficiency Programs, Los Angeles Department of Water & Power
Craig Hill
Principal, Northcross, Hill & Ach Inc.
Dan Probst
Chairman, Energy and Sustainability Services, Jones Lang LaSalle
Wed 4/2912:15 pm - 2:15 pm
Lunch Panel
Global Overview
The U.S. economy will thrive on its strengths, such as the powerful effects of education, the growth of trade and the creation of new technologies, Nobel laureate Gary Becker said. The financial sector will face increased regulation, "some of which will be good and some that will be counter-productive," he said. He also sees an increased concern with energy, innovation and more economic power veering toward Asia.
The panelists agreed with Becker's notion of a power shift. Kris Gopalakrishnan of Infosys Technologies said consumers are driving the shift. At the same time, he sees interconnectedness among economies within Asia and worldwide. India's economy has slowed because of its dependence on foreign economic investment. Still, consumers are becoming wealthier, and they are investing more in their children's education, he said.
"Here, again, there is an opportunity to collaborate more," Gopalakrishnan said. The recession could bring about innovation that will drive significant changes in technology and health.
Keng Yong Ong of the National University of Singapore agreed but said the recession shows how much China still depends on the U.S. The best outcome for China from the recession would be to reduce its dependence on the U.S., which will take time, he said. Then, the value of China′s own traded goods will increase, and Asia will move up the technological ladder as more manufacturing returns to the U.S.
Ong says the U.S. is still the No. 1 market. "No one can beat the American consumer in spending," said Ong, to laughter from the audience. Going forward, Ong predicted more saving in developed countries and less saving in Asia as consumers begin improving their own lifestyles.
As all countries reevaluate their economic systems and operations, the shift of power could also mean a shift — and perhaps redistribution — of the burden, according to Karen Monaghan of the National Intelligence Council. She is confident the power will remain with the United States.
"It′s one thing to sit at the table," Monaghan said, "but it′s another to be willing to carve the turkey. I don′t think the other players are willing to take that role."
Gary Becker
Nobel Laureate, 1992; University Professor of Economics and Sociology, University of Chicago
Karen Monaghan
National Intelligence Officer for Economics and Global Issues, National Intelligence Council
Keng Yong Ong
Director, Institute of Policy Studies, Lee Kuan Yew School of Public Policy, National University of Singapore
Wed 4/292:30 pm - 3:45 pm
TARP: A Look at What Happened From Inside the Treasury Department
That exchange and others came during the Q&A portion of a panel on how the Troubled Asset Relief Program, or TARP, came about.
Despite rumors of a Barclay's deal, there was no buyer at the table that was ready to guarantee Lehman's liabilities, Nason said. Bear Stearns was a different story because JP Morgan was willing to guarantee the liabilities, he said.
Audience members also wanted to know why the TALF program — short for Term Asset-Backed Securities Loan Facility — required assets to be rated by S&P, Moody's or Fitch, given that the agencies themselves helped contribute to the credit crisis.
"Hank (Paulson) used to say, 'We′re doing this with duct tape and fishing wire.' That′s what the ratings agencies are," Nason said, referring to the previous Treasury secretary. The ratings agencies are useful as third-party validation, he said.
Asked about Wachovia vs. compared with Washington Mutual, Nason said WaMu was handled according to the process the government has in place for failed depository institutions. What bewildered Nason was the market's surprise that bonds that had been trading at cents on the dollar also cleared at cents on the dollar. So when a similar situation arose with Wachovia, Nason said, there was considerable debate inside the Treasury Department about whether it should be handled the same way WaMu was. Ultimately, he said, they decided to do it differently because they thought doing otherwise would cause a major crisis in confidence in banks.
The discussion of the TARP program included a timeline of the "inflection points" leading up to Sept. 17, 2008, when the acronym was born. In April and May 2008, after JP Morgan acquired Bear Stearns, Treasury officials began considering whether the primary dealer credit facility was large enough to support investment banks. In July, Treasury became worried about bulge bracket investment banks, Freddie Mac, and Fannie Mae. Officials approached Congress for the ability to backstop the government-sponsored enterprises, and that bill was signed into law July 30.
"The entire month of September was an inflection point," Nason said, as he outlined the events of the conservatorship of the GSEs, the Lehman Brothers bankruptcy, the government investment in AIG, Bank of America′s acquisition of Merrill Lynch, and, ultimately, the creation of the TARP program.
Communicating the need for and the terms of the TARP program was a significant challenge, according to Kevin Fromer, another former Treasury official. It was difficult to sell the package to members of Congress and difficult for Congress people to communicate to their constituents. They returned to Washington angry because they were hearing that businesses in their districts were seeing credit tighten.
But the TARP program was not just about providing credit to the economy, Nason said. There was another major purpose: stabilizing the overall financial system. The reason Treasury officials approached Congress in the first place was to prevent the total breakdown of the financial system, and a significant portion of the program was intended to buffer against losses.
The panel's outlook for the next two years was not encouraging: double-digit unemployment through 2010 and continued valuation problems with many of the assets on banks′ balance sheets.
Kevin Fromer
Former Assistant Secretary for Legislative Affairs, U.S. Department of the Treasury
David Nason
Former Assistant Secretary for Financial Institutions, U.S. Department of the Treasury
Phillip Swagel
Former Assistant Secretary for Economic Policy, U.S. Department of the Treasury
Wed 4/292:30 pm - 3:45 pm
Reverse Oil Shock in the Middle East
"As I sit in Abu Dhabi and look out from the seventh floor, the world is changing," said Peter Barker-Homek of the Abu Dhabi National Energy Company. Barker-Homek says literacy and industrial entrepreneurialism are on the rise, and a middle class is emerging. He attributes the growth to leaders who have stimulated an environment of economic freedom, high rule of law and startup-friendly policies. The Gulf Cooperation Council, North Africa, China and India may not be growing at the same pace as in years past because of the financial downturn, but these regions are still growing, he said.
Naveen El Tahri of Delta Holdings for Capital Investments agreed. "Egypt is named as one of the 10 least vulnerable countries in the world," he said. While the effects of the oil shock and worldwide economic crisis are visible — including a 61 percent decrease in what was once considered the best-performing stock market in the region — Egypt remains a safe haven for the Arab world and is being used as the "backdoor" of Europe, El Tahri said.
The effect of declining oil prices is still clearly visible in private-sector investments, panelists said. Jason Peers of the Middle East Association says the petrochemical and steel industries in particular have felt the pain.
However, reverse oil shock will not be a "mortal blow" to the region, said David Scott of the Executive Affairs Authority of Abu Dhabi. He said Abu Dhabi views this as the ideal time to invest so that "when this crisis is over, they′ll be ready and open for business with the necessary infrastructure of a more diversified economy."
Other key issues the panelists predicted in the Middle East′s future: A shortage of natural gas, a diversion of crude oil to produce electricity, a smaller carbon footprint, and the need to invest in technology that will directly address these issues.
Peter Barker-Homek
CEO, Abu Dhabi National Energy Company (TAQA)
Jason Peers
Group Chief Executive, Jasper Capital Ltd.; Chairman, Middle East Association GCC Region
Wed 4/292:30 pm - 3:45 pm
CEO: How Will It Stop Being a Dirty Word?
Marshall Goldsmith
Executive Coach, Speaker, Author
Oren Harari
Author; Professor of Management, University of San Francisco
Sir Ken Robinson
Author, The Element: How Finding Your Passion Changes Everything
Wed 4/292:30 pm - 3:45 pm
Market Solutions to Global Climate Change
Panelists focused heavily on pending legislation for a greenhouse gas cap-and-trade system that would allow industries to swap pollution credits to keep emissions within a specific cap.
Many panelists said the battle lines around the bill are forming along geographic lines rather than party affiliation. Gregory Arnold of CE2 Capital Partners said the split is between states that derive their power from coal and those that don't.
Former California Gov. Gray Davis agreed, pointing out that California derives much of its energy from natural gas and is more in favor of a cap-and-trade system. The consensus among panelists is that a national cap-and-trade system is no longer an "if" but a "when."
Panelists explored specifics of enacting cap-and-trade, including questions of cost, complexity and flexibility. In terms of cost, Safeway′s Joseph Pettus said his company favors the system and is already taking some measures. But he cautioned against the program acting as a de facto tax on business.
On the complexity side, panelists raised concerns about gaming the system and the potential for abuses. Neil Eckert of the Chicago Climate Exchange said Europe has implemented cap-and-trade, and the results were much the same as the Y2K scare surrounding the millennium. That is to say, after much hand-wringing, at five minutes after midnight, the lights were still on.
Davis said it is important to get the bill right from the beginning to provide long-term certainty to companies and investors. While changes and adaptations could be permitted after passage, Davis said, any cap-and-trade bill should be vetted by stakeholders so a workable bill is enacted.
Chris Hunter of Climate Change Capital echoed the importance of a well-designed cap-and-trade program but noted that any system designed by humans will inevitably be subject to gaming by other humans. As a result, it's unfair to single out cap-and-trade as particularly vulnerable to manipulation.
Moderator Bob Moon of NPR's "Marketplace" concluded the panel by asking each member to predict when the cap-and-trade bill would pass. Some panelists said the U.N. climate change conference in December would act as a catalyst, forcing Congress — or at least the House — to pass a bill beforehand. The consensus was a bill would be enacted sometime in 2010 with actual implementation a year or two later.
Gregory Arnold
Co-Founder and Managing Partner, CE2 Capital Partners LLC
Gray Davis
Former Governor, State of California; Of Counsel, Loeb & Loeb LLP
Chris Hunter
Vice President, Climate Change Capital
Wed 4/292:30 pm - 3:45 pm
Financing Israel's Future
Yadin Antebi
Commissioner of Capital Markets, Insurance and Savings, Ministry of Finance, State of Israel
Zvi Chalamish
Consul and Chief Fiscal Officer for the Western Hemisphere, Israel Economic Mission, Ministry of Finance
Stanley Gold
President, Shamrock Holdings Inc.
Carl Kaplan
Managing Director, Koret Israel Economic Development Funds
Scott Tobin
General Partner, Battery Ventures
Wed 4/292:30 pm - 3:45 pm
A Conversation With Sumner Redstone: If You Could Live Forever, What Would Life Be Like?
Redstone — who′s really 85 — shared his views on health, business management, success and romance in an expansive conversation with Larry King.
King began the session by asking Redstone about his health regimen. "I eat and drink every antioxidant known to man," Redstone said, describing an approach to health that he credits for surviving prostate cancer. "My doctor says I have the health of a 20-year-old," Redstone said. "I feel better than I did when I was 20, honestly." He also extolled the virtues of moderate consumption of liquor, saying he enjoys vodka in the evenings. "Vodka is an antioxidant."
The conversation then turned to his management of CBS and Viacom. He attributes the success of his companies to his hiring excellent leadership, noting the talents of Les Moonves and Philippe Dauman.
"I don′t tell Les or Philippe what to do. But when they ask for my advice, I give it to them," Redstone said.
King pressed Redstone on his management style, noting, "Your business reputation is hard-nosed." Redstone was quick to dismiss such claims, arguing that he creates a sense of family in his companies. "Talk to the people who work for me; they love me,' Redstone said. "It pays off to have people feel that they′re part of a family and not an employee."
At the same time, Redstone proudly acknowledged his competitive nature. "I have been competitive all my life. I am fiercely, obsessively competitive," Redstone said, adding that the characteristic has served him well in business and in crisis. Redstone described his brush with death in a hotel fire, which he survived by hanging from a third-story window by his right hand. He detailed his painful recovery from the injuries, including burns on his legs so severe that medical staff feared he might not live. But after six surgeries that included extensive skin grafts, he survived and defied doctors′ expectations that he would never walk again. "The reason you′re alive is you," Redstone said the doctors told him. "The will to live saves many people from death."
Redstone said his love of life extends into the realm of romance. "Like most men, I find attractive women attractive," Redstone said. The bachelor added: "The most attractive women are married."
He characterized himself as a man intent on enjoying life to the fullest. When asked by King whether he feared dying, Redstone responded: "Why should I be afraid? I′m not gonna!"
Wed 4/292:30 pm - 3:45 pm
Politics, Economics and Culture: The Language of America
Language is about building an emotional connection. Presidents Clinton and Obama share this indispensible skill. Obama is going as far as using behavioral scientists to help him craft his message.
At the other end of the spectrum, Republican candidate Rudy Giuliani aired an ad that used the word "results" three times in six seconds. The message was clear: The Democrats offered change; the Republicans offered results. Luntz, author of Words That Work: It′s Not What You Say, It′s What People Hear and a leading consultant to political candidates and Fortune 100 companies, advises political and business leaders to retain their authenticity.
"If it′s not real to that state, that city, or that product, then don′t do it," he said. In a tough economic environment, companies must realize that "you don′t sell the product, you sell the experience." The experience is emotional, not purely intellectual. Business is becoming increasingly unpopular, and business leaders need to become much more personal in their approach, he said.
Language is key. Luntz examined several instances in which changing the language changed public perception. Most people do not support welfare, for example, but they support assistance to the poor. "We don′t believe in the program, but we believe in the mission," Luntz said.
The same is true of "school vouchers" vs. "opportunity scholarships" and "development" vs. "revitalization." Scholarships are a "ticket to the future," but a voucher is nothing more than a piece of paper, he said. In the same vein, "development" sounds mechanical and impersonal, but "revitalization" is about bringing back life to a community, Luntz said.
To regain credibility, business leaders should change their language and their approach. Americans are demanding accountability, responsibility and efficiency. If corporate America needs further affirmation that change is needed, its leaders should reflect on a recent survey that found 23 percent of Americans believe socialism is a better economic system than capitalism, while just 53 percent chose capitalism.
Moving forward, the goal should be to individualize, personalize and humanize one′s message. President Clinton was a master of this talent, Luntz said. He regularly got up from his chair, looked a voter straight in the eyes, bit his lower lip, and proved that he felt your pain.
Wed 4/294:00 pm - 5:15 pm
Outlook for the Entertainment Industry
In many ways, industry challenges remain the same: create good content, develop new opportunities for consumption and maximize monetization. The new media and mobile applications complement existing capabilities, though the industry is still in the process of sorting out the monetization. A self-proclaimed "old television guy," Leslie Moonves of CBS sees broadcast remaining an integral part of the media portfolio, but without the huge margins it once enjoyed. Television is well-suited for "American Idol" and the Super Bowl, whereas Internet services like Hulu can draw audiences with reruns.
The executives' largest concern is with market structure. Moonves concurred with News Corporation's Jon Miller that major productions are bigger than ever and small start-up productions are doing well, since they are so inexpensive to produce and can afford to appeal to niche audiences. The challenge is the middle-market segment, where studios were accustomed to good, steady returns over the years.
While digital migration offers great promise to new talent and big-name superstars, the middle-market segment is filled with established actors and writers who have long been able to make a good living but are now bearing the brunt of changing market conditions. This market segment was at the center of the recent labor strife with no readily apparent solution at hand. While Chernin admits that management perhaps got off on the wrong foot and didn't act quick enough to dispel the us-vs.-them rhetoric in recent labor negotiations, the industry's future depends on bringing all parties together to solve this middle-segment issue.
The panel pointed to Hulu's success as an excellent example of studio work in this area. Miller relayed how Hulu reflects viewer preference for high-quality products and their acceptance of long-form works with advertising over the Internet. Well-suited for television reruns, the Hulu advertising approach is one that agencies know how to do well and offers targeted marketing opportunities. While Moonves noted that targeted marketing efforts can miss portions of the audience, it points to a need within the industry for more insightful means to measure digital media consumption.
Producer Brian Grazer is confident the theater experience will remain strong, while noting revenue streams matter. As Moonves remarked, everyone is trying to keep their heads above water with revenue while figuring out how to monetize the new digital content and outlets, especially mobile applications. "It is about creating quality content that tells a story, whether it is a two-minute clip or a two-hour movie. The challenge is getting enough revenue to continue high quality content."
Miller sees the enterprise-level strategy as a major challenge, while Grazer is concerned about fear within the business that drives management to prognosticate what people like. "As long as it doesn't compromise artistic integrity, the media should be flexible." As this panel revealed, Hollywood is focused on attaining the flexibility to succeed at providing quality content for whatever media the consumer desires.
Peter Chernin
President and Chief Operating Officer, News Corporation
Brian Grazer
Producer and Partner, Imagine Entertainment
Jon Miller
Chairman and CEO, Digital Media Group, News Corporation
Leslie Moonves
President and CEO, CBS Corp.
Wed 4/294:00 pm - 5:15 pm
Sustaining Sustainability
Howard suggested that sustainability represents an improvement, not a sacrifice — better products that enhance the quality of life. However, he implicitly differed from other panelists in arguing that global sustainability cannot be achieved via a series of small market niches. He stated that green products can and should be better as well as less expensive. But in terms of developing nations, he suggested that localized, small-scale industries are sufficient to produce change. While the initial cost cannot be ignored, Howard suggested that the long-term economics strongly favor this type of change. Al Gore's vision, in his view, is right: a better, clean, green future that produces jobs. Howard argued a cap-and-trade system that prices carbon emissions would motivate positive change.
Profitability is the key to motivating change, stated Mike Italiano. He argued that green manufacturing is not only more profitable, but safer and better as well: green firms make more money while helping the environment. Green business, from his perspective, is a disruptive technology that challenges the status quo. As a result, he expects markets to facilitate sustainability. He suggested that regulation will also play a central role in the transition, noting that recently more than 900 coal plants were slated for construction, but local and state laws slashed that number to 10. Italiano believes a new global climate agreement is imminent, and joked there may be a future in developing "green convertible securities." He also speculated that the global economic slowdown may have reduced climate pollution by as much as 50 percent.
Audra Jones of the International Business Leaders Forum emphasized that developing economies must receive benefits from green technologies, and suggested firms can be more effective in this regard by working collectively, focusing on emerging markets and fostering consumer awareness. Jones argued that firms should willingly share proprietary technologies for the benefit of developing economies.
Firms that proactively address these issues stand to benefit, injected Matt Kistler of Wal-Mart. However, he echoed a common theme among panelists that consumer behavioral change, which requires education, is a prerequisite for sustainability. Kistler suggested that consumers, who have adopted some but not all of the desirable behaviors, need to be better educated about the underlying value propositions.
Sharon Nunes of the IBM Systems & Technology Group underscored three complementary trends: increasing regulation, increasing consumer demand for corporate sustainability and cost savings from sustainability (e.g., reduced resource consumption). Nunes argued that a sustainable water supply is critical as is IT innovation.
While she noted that some studies suggest that IT contributes 2 to 3 percent of all carbon emissions, Nunes also believes that IT has the potential to reduce emissions by many multiples of that percentage. She stated that "cross-boundary" innovation and governmental investment in green technologies is a must. Germany, she noted, is a premier manufacturer of solar systems, only because the German government first invested in the industry.
Robert Bucklin
Executive Vice President and Chief Corporate Banking Officer, North America, Rabobank International
Steve Howard
CEO, The Climate Group
Mike Italiano
President and CEO, Market Transformation to Sustainability (MTS); Founder, Capital Markets Partnership
Audra Jones
Americas Director, International Business Leaders Forum
Matt Kistler
Senior Vice President, Sustainability, Wal-Mart Stores Inc.
Sharon Nunes
Vice President, Strategic Growth Initiatives, Big Green Innovations, IBM Systems & Technology Group
Wed 4/294:00 pm - 5:15 pm
Innovation Out of Necessity: Incubating Solutions in Israel
Venture capital in the '70s and '80s caused Israel to become the research and development center of the world, Margalit said. Today many global corporations have centers in Israel, and Israel continues to start many of its own companies. Margalit′s hope is that Israel will shift from being an R&D center to a center for creative capital. To do this, he said, Israel needs to engage in partnerships with other countries. Startups cannot be local, he said, they must be mini-multinational.
Yitzhak Peterburg of the Milken Institute described how Israel is an emerging powerhouse for the life sciences. Thirty-five percent of civilian research in Israel is in life sciences, a young industry that is advancing quickly.
Israel has one of the highest numbers of scientific articles published by GDP; its ratio of medical device patents per capita is nearly the same as that of the U.S.; and the number of biopharma patents per capita is high and increasing, Peterburg said. Israel has 140 health information technology companies, and electronic health records cover 100 percent of the population. Just 8 percent of Israel′s GDP is spent on health care, compared with around 17 percent in the U.S., and this percentage has stayed stable over time, he said.
Dorit Inbar spoke passionately about the film industry in Israel, which she said is made up of professional and talented personnel. The Israeli government invests around $18 million per year in the industry, mainly in productions, and there are co-production treaties and tax incentives for investment.
Israel is trying to encourage entrepreneurialism through several innovative programs, and Isabel Maxwell described how the Israel Venture Network initiates and incubates entrepreneurship to help fill gaps that can′t be filled by government alone.
The panelists said Israel has great opportunity for investors at home and abroad. Israel, Margalit said, is "a small place, and you can make a big impact."
Dorit Inbar
General Manager, New Foundation for Cinema & Television
Erel Margalit
Founder and Managing Partner, Jerusalem Venture Partners
Ron Maron
Director, Business Development, Israel-U.S. Binational Industrial Research and Development Foundation
Isabel Maxwell
Director and Chair of the Social Entrepreneur Fellowship Program, Israel Venture Network
Yitzhak Peterburg
Senior Visiting Fellow, Milken Institute; Former CEO, Clalit Health Services; Former President and CEO, Cellcom Israel Ltd.