Agenda2010

Gun-shy CEOs around the world are wondering if 2010 possibly could be as bad as the last two years have been for the global economy, and for most of their companies. And they’re not sure of the answer.

So Chief Executive asked 12 CEOs of major companies in North America and elsewhere: What concerns you most about the year ahead for your industry and your company? What about the general economy and political environment? What needs to be done?

Here’s how they responded:

Energizing the Economy Jim Skinner CEO McDonald’s

But the world obviously is in a recessionary environment. Particularly if you look at the U.S., my greatest concern is about the economy and jobs. Here, and in the other countries where you have the highest unemployment rates, confidence is at an all-time low, which leads to less consumer spending. People aren’t comfortable as they think about the future. And it won’t get better until people feel like they can get up in morning, go to work and meaningful [jobs] that are secure.

Our franchise community is small-businesspeople, and they need to be in the game and influence decisions that are getting made relative to regulations— healthcare and immigration reform. But we’re not looking for government to initiate anything. To be able to create jobs is an inside-out job—it has to happen in the market place. And unless they limit regulations and legislation that would inhibit job growth, I’m not confident we will get there.  

McDonald’s is a $24 billion global restaurant chain, franchisor and iconic brand, headquartered in Oak Brook, Ill.

Fiscally Unfocused Patrick Byrne Founder and CEO Overstock.com

“Significant double-digit growth has returned for our company after three years of flat sales, but it has been accelerating quickly, so that I’m worried about the speed of growth stressing our infrastructure. Overall retail sales are starting to pick up, but the pickup is occurring online and not in bricks-and-mortar stores.

In the general economy, the best we can hope for—since we haven’t shot the zombie banks as we should have, which is to say  shoot them in the head— is that we’ll suffer the same fate as Japan and skid along the bottom, and be up or down 1 or 2  percent for years.

The worst case is that the economy does that for a while and then the next shock hits the system. It may very well be the commercial-mortgage-backed securities market, where there are potholes that may be bigger than in the subprime-mortgage mess. That could surface next summer.

The problem is that the U.S. is hopelessly fiscally profligate. We’re living in dreamland as an economy. We’re rapidly approaching the point where we can’t possibly deal with the debt. When the dollar cracks, the U.S. government will have  three choices: cut spending dramatically, raise interest rates and throw us into a great depression, or go into sovereign  default – which would be a whole new world.

We’ve got to separate the issue of government funding from government operations—like with healthcare, we should provide vouchers. And we need a two-tier flat-tax system that would put our economic blender on puree.  

Overstock.com is an $834-million Internet-retailing pioneer and industry leader, headquartered in Salt Lake City.

Global Collaboration Mathur Kent CEO Coca-Cola

“A number of important macro trends are shifting the economic order of the world, including the massive urbanization movement and the greater strain that will be placed by the growth of the middle class on resources, energy and commodities. In a world of constant— not cyclical, but constant—cost pressures, our productivity efforts have never been more important. Generating profitable volume growth is critical to our future success and most critical is growing the epicenter of our business, Coca-Cola.

We need to remember that the economic crisis, though global, is not uniform. It’s at different stages in different parts of the world as consumers are in different mind sets. Our company has not been immune to global economic conditions, and it is imperative that we remain focused on our long-term vision while also positioning ourselves to take advantage of the current environment.

Even in the face of economic turmoil, Coca-Cola continues to generate significant free cash flow, enabling the company to invest resources to win market share and to position us for future growth, including through opportunistic, niche acquisitions. My concern and focus are making sure the company will grow stronger as a result of current adversity. We must come out of this tumultuous period much better than when we entered.

By and large, we need to focus on collaboration. In my recent travels around the world, I have been encouraged by discussions I have had with leaders from various business and government sectors who all seem to be focused on cooperative, multilateral approaches to solving the economic crisis.

Coca-Cola, headquartered in Atlanta, is the world’s most widely known beverage brand, and reported $32 billion in revenues for 2008.

Superfluous Spending Richard Ward CEO Lloyd’s of London

  

“As a sector, we’re faced with falling rates, and that will challenge the profitability of quite a few companies. In 2010 and 2011, that will still require a focus on preserving capital.

We’re still in the throes of recession yet faced with the potential for inflation as governments tackle extraordinary deficits with money-printing exercises that clearly will have an impact. Inflation will hit us in insured values, replacement values, repairs—the whole of the claims cycle, and on the liability side as well.

The U.S. and U.K governments are embarking on a public-spending spree that is creating enormous holes in our public finances, and at some point that has to be addressed. Already in the U.K., there will have to be significant cuts in public services in the next two to three years.

In the insurance sector, we also have to remind politicians and regulators that insurance is very different from the banking sector and that regulatory actions required for banks don’t apply to insurance. We have our house in order with the regulatory regime in the U.S. and U.K.; it’s fit for the purpose.

I’m also concerned generally about governments taking a protectionist view of the world, which could be damaging to the recovery of the world economy. Protectionism won’t be good for our sector either.

Lloyd’s of London is the world’s leading insurance market, based in London, and wrote $25 billion of insurance last year.

Affordable Reform John Ballbach President and CEO VWR International

“We sell to anyone who has a laboratory. And what we’re faced with is mainly an industry challenge:that R&D investments by our major customers may be reduced as they cope with the increasing costs that are facing companies headquartered in the United States.

To the extent that research is being done in other parts of the world, the impact on our company from what’s happening in the U.S. shouldn’t be significant— with VWR’s global infrastructure, it should be an opportunity. A lot of research is shifting from the U.S. and Europe to the rest of the world, wherever Big Pharma and other research-heavy industries have opportunities to expand. Despite the economy, we’re making significant investments in expanding our infrastructure, primarily in Asia at the moment—India, Singapore and China.

And our industry is going to enjoy the benefits of the stimulus spending not only here but around the world, where  somewhere north of $40 billion in stimulus spending is coming into scientific research.

But I’m concerned about whether American companies can maintain competitiveness as we lob on additional costs. We’re taking a difficult situation and making it worse. I want to figure out a smart way to reform healthcare , but not without  understanding how we’re going to pay for it—and the impact on U.S. companies that are largely going to foot the bill.

VWR International is a $3.7 billion distributor of scientific and research supplies, headquartered in West Chester, Pa.

“Our company and our industry have to groom the next generation of talent that understands how much our world has changed and the fact that advertising and marketing will take very different forms going forward. We have to stay close to the marketplace, listen more closely and get more meaningful and actionable insights.

And this applies to [2010]. The talent wars already are heating up again. Obviously, 2009 was a very difficult year for almost everyone in our industry, but there are parts that are showing encouraging signs: The digital world we’re in continues to grow. Of course the industry has gone through difficult times, but we also have to remember that we are very resilient, and there will always be the need for connections between brands and markets. The most important question is:  How do we redefine that connection and define new market models that work?

In general, the realities of the environment and the new global [political] leadership have changed things. I doubt we’ll ever return to the world as we defined it before. So we have to have a more global mindset with respect to the markets that we serve. How do we find ways to be more moral about the value we provide in every exchange?

We’ve entered an era where marketing will be a service, not so much an interruption, so the market will need to catch up to  consumers and commit to messages that matter. That has big implications for our focus on digital, where we need to be purposeful, powerful and relevant. It will require very different stuff.

Digitas is a $550 million digital media and marketing agency and part of the Public is Group, headquartered in New York City.

“It appears that both the U.S. and the global economies are recovering, and in a few of the large emerging markets, like China, there is strong growth. However, in many markets, consumers remain hesitant about purchasing high-priced goods, such as cars. Consumer sentiment often lags economic recovery, and a key indicator for GM and the industry’s future will be how soon consumer sentiment improves.

Economic recovery has started in both the U.S. and the world. However, the recovery in most developed market remains fragile.  Uncertainties regarding natural disasters and man-made economic interruptions always loom. In addition, we carefully monitor energy prices because they can have a huge impact on consumer behavior.

The global economy has benefited greatly over the last few years from increased cooperation and coordination among the major economies. But in the context of current economic stresses, we hope governments will avoid a rash of protectionist actions that could derail the recovery.

The auto industry needs to remain focused on operating profitably in an era of weakened demand for autos, but also maintain strategic focus on the large emerging economies where growth potential is high. Government support and policies were instrumental in pulling economies out of a potentially deeper recession. Governments need to continue working together to assure that the global economies recover.

General Motors, headquartered in Detroit, remains the largest U.S.-based automaker, with 2008 revenues of $149 billion.

“The worst of the crisis is behind us, but recovery is going to be slow. The financial services industry will be first to recover, then manufacturing, then high-tech, where we’re involved [with IT services, business solutions and outsourcing].  COOs and CIOs around the world that we’re talking with are planning what to do in terms of expanding their businesses.

In our industry, we’re looking for renewed spending on discretionary projects. There’s the spending that goes to maintaining existing systems and making companies productive, and a discretionary portion for adding new capabilities.  Currently, discretionary spending is under lots of budget constraints, is under very tight monitoring and is happening very minimally. In emerging markets we see some opportunities, but they’re not very significant. We’re looking for signs that will change.

Also in general, I’m concerned about the potential for another major economic surprise or shock. I don’t have any specific reason to think there will be one, but until you see recovery in many markets and many industries, you have to be watchful.

Also, we fear the ups and downs of currencies—dollar- pound, dollar-euro. We’re unable to predict where this is going.  With the volatility currently in the market, it makes things very difficult. It’s important that the various currencies are kept relatively stable.

Otherwise, what needs to happen, country to country and industry to industry, is long-term investment in skill building and education.

Tata Consultancy Services is a $6 billion IT organization and a member of the Tata Group, India’s largest industrial conglomerate.

Cap-and-Trade Chaos Bob Murray President and CEO Murray Energy

 

“By far the biggest concern we have is cap-and trade legislation. It would be the largest tax increase in the history of the world, and it has nothing to do with the environment.

Frankly, it is insanity. It would eliminate 77 percent of the coal industry by 2030 and eliminate coal power, which fuels 50 percent of the electricity needed in America. Plus, it would transfer more than $2 trillion of wealth from 40 Midwestern, Southern and Rocky Mountain states to 10 states on the West Coast and in New England. I have 3,250 employees, and they’re all going to be destroyed by cap-and-trade if it ever becomes the law of the land.

I’ve met face-to-face with 23 senators and 21 Senate senior-staff personnel on this. I’m very concerned about CEOs of large  companies who are destroying America for their companies’ or their own personal gain, starting with Jeff Immelt of General Electric and John Rowe of Exelon.

Excessive regulation and runaway government spending is going to lead to drastic inflation and the destruction of our children’s future. It’s also going to make it nearly impossible to create a job in this country. Responsible voters need to immediately throw out the Democratic leadership of the House and Senate, and then the Obama administration. We don’t have much time.

Murray Energy, headquartered in Pepper Pike, Ohio, is the nation’s largest privately held coal producer and has current annual revenues of $1.3 billion.

Skittish Consumers Peter Marks President and CEO Robert Bosch LLC

  

“About 60 percent of our U.S. business is automotive, but the rest is consumer and industrial goods, where we are increasing activities, especially in the renewable-energy field, from geothermal heat pumps to solar panels. So this business certainly has a very positive outlook not only here but elsewhere, as a good deal of government stimulus money around the world goes to these kinds of projects. For instance, subsidies are required to develop the photovoltaic industry right now.

Automotive is a different picture due to the economic crisis, coupled with new fuel-economy expectations. Substantial change will be needed in the industry’s portfolio. It’s unrealistic to think that hybrids and electric vehicles will be the whole solution in the near future, so we need to deploy more proven technology— like our diesel systems, in the U.S.

I think 2010 will be a growth year again, but not all the bad news is over yet. Consumers are still pretty jittery; increases in real estate values aren’t there anymore and investments have diminished. And the U.S. economy is 70 percent dependent on consumer spending. There’s still some bad news in retail, and defaults on commercial real estate are coming.  On the automotive side, we see potential for a 12 to 15 percent improvement in North American production—but that’s coming off of a 45 percent reduction through August of 2009.

New fuel-economy requirements will help move the auto sector in the right direction. And for consumers, there are lots of stimuli for renewable-energy purchases both on the federal and state levels.  

Robert Bosch LLC, headquartered in Farmington Hills, Mich., is the $9 billion U.S. arm of the industrial conglomerate Robert Bosch GmbH of Germany.

Outmoded Infrastructure Donald Correll President and CEO American Water Works

 

“Same as for the last year or so, and impacting our business for the foreseeable future, we’re dealing with the aging infrastructure in our company and industry. It’s an ongoing battle when you have pipes in the ground that are 50 to 100 years old in some cases.

And in the current economic crisis, there are two more effects. We have to make sure we have access to capital, which got a little scarcer and more expensive last fall. That has become even more acute for some of the government-run systems as they deal with ongoing economic stress. Water and wastewater systems have dropped even lower on their priority lists.

A year ago we were all holding our breath, but we worked our way through it. Three or four elements of the stimulus package have had an impact on us, including the ability to issue more tax-exempt financing. But by February all of the [stimulus funds] should be played out or allocated for projects, and the construction and job creation from that may extend into 2011.

But longer term we need to focus more on state and municipal-level investment in the infrastructure of these systems.  Rising deficit spending and higher interest rates may lead to the need to find collaborative solutions, such as public- private partnerships with companies like ours.

American Water Works, based in Voorhees, N.J., is a $2.3 billion water and wastewater utility, the largest such investor- owned company in the U.S. It reported the second- largest IPO of 2008.

Reinvigorating Innovation J. Martin Carroll President and CEO Boehringer Ingelheim Pharmaceuticals

 

“Obviously, as a pharmaceutical company, our business cycle is more reliant on innovation than on any current economic backdrop, even the recession. With patent expirations, we have to reinvent the business every eight to 12 years. We have a couple of major products losing patents in 2010, Flomax and Mirapex. But we have five new products that are near the end of the pipeline, including two that could have approval by the end of the year.

During a downturn, people lose their jobs and insurance, and the ability to get medication and healthcare in general. So a key external element to us is [U.S.] healthcare reform, and we’re watching it closely. It’s a transformational event—for society, and certainly our industry—that’s going to occur. Because we’re in a business that we believe helps people prevent illness or stay out of the hospital, we’d like to see people have access. So we support the idea of universal health coverage. But we’d like to see it delivered through the private market, because the private market has the right  checks and balances and the right competitive environment—and the marketplace as a whole rewards innovation and keeps the  innovation cycle going in this country.

The Obama administration is trying to do this in a way that’s budget neutral, and that’s a good goal. Presenting that goal, they approached a lot of the participants in the healthcare market—including our industry—to see if there could be alignment around savings and productivity and efficiency measures. The cost savings we offered were a cornerstone to help.