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© 2015 Dow Jones & Company. All Rights Reserved. THEWALL STREET JOURNAL. Monday, June 22, 2015 | R1

U.S. ECONOMIC GROWTH may be listless, butthere are signs that could change in the comingmonths.

That, at least, was the conclusion one coulddraw at this year’s gathering of global chief finan-cial officers at The Wall Street Journal’s CFO Net-work conference. The CFOs clearly see a tighteninglabor market—a sign of economic momentum.

“We’re seeing increased competition for tal-ented employees,” Kedrick Adkins Jr., CFO of theMayo Clinic, said at the gathering in Washington,D.C., last week. “It’s across the organization.”

“Our market for talent is very hot right now,”added Dan Fairfax, CFO of Brocade Communica-

BY JOHN BUSSEY AND VANESSA O’CONNELL

For CFOs, Signs of a Stronger EconomyAt The Wall Street Journal’s annual conference, the talk was of tighter labor markets and higher wages

JOURNAL REPORT

Paul Ryan on global tax reform, R4 | Shaun Donovan on reaching a big deal, R4 | Jim Yong Kim on the outlook for emerging countries, R5 | Gary Burnison on what CEOs should focus on, R5John Noseworthy and Bernard Tyson on a different approach to health care, R6 | Charles Penner on shareholder activism, R6 | Keith Higgins on pay-disclosure rules, R8

Jason Furman on the state of the economy, R8 | Kevin McCarthy on the Republican agenda, R9 | Debbie Stabenow on the Democrats’ view, R9PLUS The CFO Task Forces’ Recommendations and CFOs’ Top Priorities, R2

INSIDE

tions Systems Inc.Similarly, while U.S.

employment data showswage growth barely levi-tating, the CFOs see it abit differently. When asked about wage increasesat their companies in the coming year, fully 30% ofthe CFOs said they’d be higher than last year. Only3% said lower.

True, the CFOs said, the economic momentumis somewhat clouded by a lot of unresolved issuesin Washington, particularly tax reform. Regulation,cybersecurity and increased shareholder activismalso were top of mind at the conference.

But even the possibility that trade deals may bein for a rough patch didn’t seem to bother theCFOs all that much. For instance, Michael Froman,

the chief U.S. trade nego-tiator, told the CFOs theyshould take heart in thepromise of new tradepacts. He spoke while de-

bate over the proposed Trans-Pacific Partnership,an Asia-wide trade deal, flared on Capitol Hill justa few blocks away.

The CFOs weren’t exactly excited about thedeal. About 22% said the TPP would have a posi-tive effect on their companies. The vast majoritybelieve it wouldn’t affect them one way or theother. Bob Shanks, Ford Motor Co.’s CFO, stood inthe audience to say the pact needs rules that keeptrade partners from manipulating their curren-cies—a tactic that can make exports more price-competitive.

Free trade is on the minds ofmany U.S. business executivesthese days as the White Houseseeks to push through a land-mark Pacific trade deal with Ja-pan and 10 other countries.

The current U.S. trade repre-sentative, Michael Froman, anda former one, Charlene Barshef-sky, sat down with The WallStreet Journal’s John Bussey todiscuss the issue.

Here are edited excerpts:

TPP and ChinaMR. BUSSEY: Let’s assume theTrans-Pacific Partnership gets toa vote. What does this trade dealhold in store for U.S. companies?MR. FROMAN: Our market alreadyis an open market. We have anaverage applied tariff in the U.S.of 1.4%, and we don’t use regula-tions as a disguise barrier totrade.

So what we’re trying to dothrough these trade agreementsis, first, just proportionately re-duce the barriers we face to ourexports. The average applied tar-iff in TPP countries is three orfour times as high as ours. It’s70% on autos, 50% on machinery,35% on chemicals, 50% on beef.These will either be zero ormuch lower than they are now,creating more opportunities forAmerican firms to compete and

to export products abroad.At the same time, we’re using

the trade agreement to raisestandards in these other coun-tries, including putting disci-plines on state-owned enter-prises, so that when theycompete with our private firmsthey have to do so on a commer-cial basis, [without the benefitof government subsidies.]

MR. BUSSEY: China isn’t part ofthe TPP. Is that a problem?MS. BARSHEFSKY: China is themajor player in the Asia region,so one of the big questions ishow to reconcile TPP with aChina not in the TPP.

There are a couple of [op-tions]. One is China eventuallyjoining the TPP. That could onlyhappen if China could come upto the very high disciplines inthe TPP that Mike and his teamhave set out. Another is for theU.S. and China to agree on cer-tain modifications of China’scurrent regime to make it, overtime, more compatible with TPPstandards. A third is to take the[trade] agreements China has inAsia, which don’t include theU.S., and decide that over timethose agreements ought to ei-ther merge with TPP or findsome means of harmonization oraccommodation between the

two.What we don’t want to see is

an Asia divided into two tradingblocs, one headed by the U.S.,one headed by China. If coun-tries in the region have tochoose, the answer won’t be fa-vorable to the U.S.

MR. BUSSEY: Is China preparedanytime in the near future tomake the kinds of concessionsyou’re talking about?MS. BARSHEFSKY: China isn’tclose now. But as it restructuresits own economy it might find itin its interest to deal with theTPP countries on a TPP basis.

MR. BUSSEY: Ambassador Fro-man, a lot of Democrats and alot of unions say TPP is a jobkiller. What do you say to that?MR. FROMAN: I go back to thefact that we’re already compet-ing as an open economy in theglobal economy. We know thatevery billion dollars of addi-tional exports supports some-where between 5,000 and 7,000jobs and that those jobs pay upto 18% more, on average, thannonexport-related jobs in thesame sector. Firms that exporttend to invest more in researchand development. They hiremore, and they pay their peoplemore. So we view this as a way

of creating more jobs and creat-ing better jobs, higher-payingjobs.

Currency manipulationMR. BUSSEY: Currency manipula-tion has also come up. The autoindustry, particularly, says,“Why are we negotiating this,when we’ve got a Japan that’sdriving its yen down, making itsexports cheaper in dollar termsand hammering us?”MR. FROMAN: We completelyagree this is a serious issue, andwe are doing things about it.

Japan is interesting because itisn’t intervening in its currencyin the way other countries have.It has expanded its monetarybase through something close toquantitative easing, as our Fed-eral Reserve did. We think it’simportant to deal with this bilat-erally and through the G-7, G-20and the International MonetaryFund, but we are quite reluctantto [push for] binding and en-forceable provisions on mone-tary policy. In other countries’point of view, it might be quanti-tative easing that expands themonetary base and has an effecton relative currency values. Wecertainly wouldn’t want to sub-ject our Federal Reserve to bind-ing and enforceable trade sanc-tions.

Michael Froman and Charlene Barshefsky argue for its passage

Retired Gen. Michael Hayden on why the UnitedStates is such an easy target for hackers

PAULMORS

E/DOW

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“It’s unfortunate that the administrationchooses not to do that,” he told Mr. Froman.

The CFOs’ generally upbeat attitude and confi-dence extended beyond corporate performanceand economic outlooks. Almost all of the execu-tives at the CFO Network conference said theirboards depend on them for leadership on mattersbeyond finance. Maybe it’s no surprise, then, that76% of the crowd also agreed with this statement:“I have what it takes to become CEO someday.”

Mr. Bussey is an associate editor of The WallStreet Journal. He can be reached [email protected] or on Twitter@johncbussey. Ms. O’Connell is a Wall StreetJournal news editor in New York. She can bereached at vanessa.o’[email protected].

Shameon theU.S.

In Defense of a Pacific Trade Pact

Few are as qualified to speak,or as outspoken, as retired Gen.Michael Hayden on the topic ofcyberespionage. Gen. Hayden, af-ter a career in the U.S. Air Force,became the only person to haveserved as director of both theNational Security Agency andthe Central Intelligence Agency.Today he is a principal at theChertoff Group, a global advi-sory firm focused on securityand risk management.

The Wall Street Journal’s edi-tor in chief, Gerard Baker, spokewith Gen. Hayden about hisviews on Chinese hacking, the se-curity risk to companies globally,and a U.S. political climate inwhich the general says Ameri-cans haven’t decided how theywant the government to respondto cyberthreats.

Edited excerpts of their con-versation follow.

How serious?MR. BAKER: How serious abreach of security was the recenthacking of the Office of Person-nel Management? [Hackers stolemillions of personnel recordsfrom the agency functioning asthe federal government’s human-resources department.]GEN. HAYDEN: The current storyis this was done by the Ministryof State Security—very roughlythe [Chinese] equivalent of theCIA. Those records are a legiti-mate foreign intelligence target.If I, as director of the CIA or

NSA, would have had the oppor-tunity to grab the equivalent inthe Chinese system, I would nothave thought twice, I would nothave asked permission.

So this is not shame on China.This is shame on us for not pro-tecting that kind of information.

This is a tremendously bigdeal. And my deepest emotion isembarrassment.

MR. BAKER: How does it happen?We always hope America hasgreater sophistication.GEN. HAYDEN: There are threelayers: the government system,the political system and popularculture. So, the governmental sys-tem: Raw incompetence is thebest explanation I can offer you.That’s at the executive-branchlevel. At the political level, we be-gan last week in Washington withreining in the renegade NationalSecurity Agency for actually hav-ing phone bills—yours and mine—up at Fort Meade. Wednesday, wehave the Boston Police Depart-ment shooting someone who iscommitted to behead people. AndThursday, we learned that OPMhad lost four, make it 14, millionsets of records.

At the level of popular cul-ture, we Americans have not yetdecided what it is we want orwhat it is we will permit ourgovernment to do in this cyberdomain. And until we makethose decisions, these kinds ofevents are more likely.

MR. BAKER: If the federal govern-ment can be infiltrated in thisway, what hope can you offer tocompanies?GEN. HAYDEN: American militarydoctrine says this cyber thing isa domain. There are no rivers orhills up here. It’s all flat. All ad-vantage goes to the attacker.That’s one reality.

Then, all of us just fell in lovewith the ease and convenienceand scale, so we decided to takethings we used to keep if not ina safe, at least in our deskdrawer, and put it up here,where it’s by definition morevulnerable.

No. 3, we still have a bunch ofscrimmages down here in physi-cal space about what it is youwill let your government do tokeep you safe. We have no con-sensus whatsoever up here inthe cyber domain.

What’s the impact for you?The impact is the next soundyou hear will not be a digital bu-gle signaling the arrival of thedigital cavalry to come save theday.

The government ain’t coming.You’re not quite on your own,but you are more on your ownup here [in cyberspace] than youin your lifetime have ever expe-rienced being on your own downhere.

Asymmetrical threatMR. BAKER: One thing the U.S.government won’t do: China and

other countries use their intelli-gence agencies to obtain com-mercially valuable informationto benefit their companies orstate-owned enterprises.GEN. HAYDEN: We only steal stuffto keep you free and to keep yousafe. We do not steal stuff tomake you rich. I know of fourother countries that can say thoselast two sentences. Everyone elsesteals for commercial advantage.

I’ve met with PLA 3 [the Peo-ple’s Liberation Army, Third De-partment], the Chinese cyber-stealing thing. I never had thisconversation with PLA 3, but Ican picture it as: “You know,we’re both professionals. Yousteal stuff, I steal stuff, but youknow, fundamentally, you’re juststealing the wrong stuff.…Youcan’t get your game to the nextlevel by just stealing our stuff.You’re going to have to innovate.

And as soon as you start to inno-vate, you’re going to be as inter-ested as we are in people notstealing your innovation.”

MR. BAKER: Do you think thatChinese companies, especially inthe technology fields, are rou-tinely operating essentially onbehalf of the Chinese governmentand using whatever means theycan in the U.S. market to obtainintelligence information?GEN. HAYDEN: All enterprises andmajor players need to pay atten-tion to the needs of the govern-ment of the country of whichthey are a part. At one level, itwould be unconscionable for acompany like Huawei not to beresponsive to Chinese national-security needs.

MR. BAKER: That doesn’t seem toapply to Apple, does it?

GEN. HAYDEN: Apple and Googlewant to create encryption forwhich they could not provideyou the key. Their businessmodel will not survive if theAmerican government has a spe-cial relationship with them thatrequires them to surrender thiskind of information.

As Baidu and Huawei becomeinternational companies, theywon’t survive either if they’reseen to be tools of the Chinesegovernment.

MR. BAKER: Does the U.S.A. Free-dom Act, phasing out bulk col-lection of phone records by theNSA, make Americans safer thanthey were before or—GEN. HAYDEN: They are definitelynot safer. They are more com-fortable, but they are definitelynot safer. It remains to be seen ifthey are less safe.

‘We only steal stuffto keep you free andto keep you safe. Wedo not steal stuff tomake you rich.’

‘One of the bigquestions is howto reconcile TPPwith a China not

in the TPP.’

CHARLENE BARSHEFSKY

‘We’re using thetrade agreementto raise standardsin these othercountries.’

MICHAEL FROMAN

R2 | Monday, June 22, 2015 THEWALL STREET JOURNAL.

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REPRINTS AVAILABLE

The Task Forces’ PrioritiesCFO Network executives split up into five groups to debate their

management and policy agendas in the following areas. Here are their top recommendations.

ALL THAT CASH

1 SHARE CAPITALSTRATEGY

Create decision hierarchy ofhow to use your cash. Articu-late capital allocation strategyto shareholders. Clarity onmanagement’s strategy andprocess will remove investoruncertainty. Act consistently.

2 REFORM INTERNA-TIONAL TAXES

Advocate for a more efficienttax system to encourage com-panies to return cash to theU.S., including through territo-rial system, flat rate, and repa-

triation holidays. The moneycan benefit the U.S. economy.

3 INVEST INTERNALLYInvesting in capital proj-

ects, research and develop-ment, and new hiring can helpcompanies expand into newmarkets, develop new products,improve productivity and gener-ate sustainable organic growth.Focus on investing for the longterm.

4 MAKE ACQUISITIONSA disciplined acquisition

strategy can lead to growth

and improved performancethrough operating efficienciesand improved management ofthe combined companies.

CO-CHAIRSKaren McLoughlin, CFO,Cognizant Technology SolutionsLori A. Varlas, Senior VicePresident, CFO and Secretary,Central Garden & Pet Co.

SUBJECT EXPERTJim Kaitz, President and CEO,Association for FinancialProfessionals

INCENTIVES AND HEALTH CARE

1 LEVERAGE TECHNOL-OGY, DATA ANALYTICS

Know the demographics,health-care utilization and hab-its of your workforce. Navigatestate-level regulations to findthe best outcomes. Reduce reg-ulatory barriers to data sharing,telemedicine and innovation.

2 PURSUE CARE-MAN-AGEMENT STRATEGIES

Offer well-designed disease-management programs thatshow more promise for imme-diate savings and positive ROI.Take an active role in follow-uptreatment. Move the definition

of health care from just theemployee to the familydecision-maker.

3 SEEK HEALTH CAREVALUE AT ALL LEVELS

Direct workers to a higher-per-forming, smaller group of pro-viders. Leverage patient cost-sharing incentives in a clinicallysmart way through value-basedinsurance design. If providerscan improve outcomes at re-duced costs, reward them.

4 REDEFINE CONSUMER-DRIVEN HEALTH CARE

Give employees the information

and incentives to make thesmartest, most cost-efficientdecisions, both in choosingplans and determining healthevents.

CO-CHAIRSMark Guinan, CFO andSenior Vice President, QuestDiagnostics Inc.Francis J. Shammo,Executive Vice President andCFO, Verizon CommunicationsInc.

SUBJECT EXPERTA. Bowen Garrett,Senior Fellow, Urban Institute

FOSTERING INNOVATION

1 SPACE TO DREAMInnovation is a mindset.

Give people the space to dreamand freedom to be curious.Don’t bog down employees inquarterly activity, let them thinkthrough things so that they caninnovate. Celebrate failure.

2 RECRUIT ANDDEVELOP INNOVATORS

Talent is what drives innova-tion. If you want innovation youneed to recruit and developpeople who are comfortablewith change and have naturalcuriosity. Hire employees whoare willing to challenge the sta-tus quo.

3 CUSTOMER ASINNOVATOR

Live and breathe the customerexperience. Innovation musttransform into value creation.Change your way of thinkingand experimentation. Interfacewith the customer, and get outof the office to see how theyuse your product.

4 CROWDSOURCESOLUTIONS

There is no monopoly on ideas.Get past silos and find ways todrive sharing across the com-pany—both between units andup and down the managementchain. Ask the right questions

and push for survival of thefittest.

CO-CHAIRSHope Cochran, CFO, KingDigital Entertainment PLCDominique Thormann,Executive Vice President andCFO, Renault; Chairman,RCI Banque

SUBJECT EXPERTBeth Altringer, Head ofDesirability Lab and Lecturer onInnovation and Design, HarvardSchool of Engineering andApplied Sciences and HarvardGraduate School of Design

(Chief financial officers exceptas noted)David Adams, Aimia Inc.Kedrick D. Adkins Jr., MayoClinicMichael J. Angelakis, ComcastBertrand Badré, World BankGroupRajiv Bansal, Infosys Ltd.Richard Beckert,CA TechnologiesJay S. Benet, Travelers Cos.Michael Berman, GeneralGrowth Properties Inc.Bruce Besanko, Supervalu Inc.Eric Brandt, Broadcom Corp.Judy L. Brown, Perrigo Co.Stuart Burgdoerfer, L BrandsPaul Carbone, Dunkin’ BrandsHope Cochran, King DigitalEntertainment PLCGary Crowe, Ricoh AmericasJatin Dalal, Wipro Ltd.Marcia Dall, Erie InsuranceGroupAndrew Davies, VimpelCom Ltd.George S. Davis, Qualcomm Inc.Robyn M. Denholm, JuniperNetworks Inc.David M. Denton, CVS HealthFredrik Eliasson, CSX Corp.Kevin Entricken, WoltersKluwer NVDaniel Fairfax, BrocadeCommunications Systems Inc.Edward J. Fitzpatrick, GenpactMark Flaherty, Sally BeautyHoldings Inc.Daniel Florness, Fastenal Co.Frank Friedman, Deloitte LLPArt Garcia, Ryder System Inc.Mark Garrett, Adobe SystemsWilliam J. Gerber,TD Ameritrade Inc.Robert Glenning, HackensackUniversity Health NetworkDipak Golechha, NBTY Inc.Christopher Govan, Onex Corp.Paul Graves, FMC Corp.Patrick Grismer, Yum! BrandsMark Guinan, Quest DiagnosticsBob Gunderman, WindstreamHoldings Inc.Brad Halverson, Caterpillar Inc.Katherine Harper, Tronox Ltd.Robert W. Hau, TE ConnectivityMichael Herring, PandoraMedia Inc.Scott Hill, IntercontinentalExchangeDavid Holtze, GlobalVice Chairman, Finance,Ernst & YoungAmy Hood, Microsoft Corp.Jay Horgen, AffiliatedManagers Group Inc.Robert F. Hull Jr., Lowe’s Cos.Greg Iverson, Vice President,Finance, Chief AccountingOfficer and Treasurer, ApolloEducation Group

Jamere Jackson, NielsenHugh F. Johnston, PepsiCoJohn M. Jureller, FrontierCommunications Corp.Joseph Lemaire, ExecutiveVice President, Finance,Meridian HealthKevin Lenahan, Atlantic HealthSystemOlivier C. Leonetti, WesternDigital Corp.Gerard Mattia, HSBC NorthAmericaBillMaw,LiquidnetHoldingsInc.Carrie S. McIntyre, InterstateHotels & Resorts Inc.Karen McLoughlin, CognizantTechnology SolutionsFrank Mergenthaler, InterpublicGroup of Companies Inc.Michael Monahan, PitneyBowes Inc.Thomas Naratil, UBS AGAlan Nicholl, Canfor Corp.Peter Oleksiak, DTE Energy Co.Bill Oplinger, Alcoa Inc.Aldo J. Pagliari, Snap-on Inc.Donald Parker,SAS Institute Inc.Kenneth S. Parks, WescoInternational Inc.Mark Peek, WorkdayFrank Perier Jr., ForestLaboratories Inc.James Perry, Trinity IndustriesJulie A. Piggott, BNSF RailwayKaran Rai, ADS Inc.John Reddy, Spectra EnergyPaul Reilly, Arrow ElectronicsJoseph W. Ritzel, Day &ZimmermannDavid Rowland, AccentureSandra E. Rowland, HarmanInternational Industries Inc.Eric Rychel, AlerisBrian Schell, BATS GlobalMarkets Inc.Stephen Scherger, GraphicPackaging Holding Co.Anna Sedgley, Dow Jones & Co.Thomas Seifert, SymantecFrancis J. Shammo, VerizonCommunications Inc.Bob Shanks, Ford Motor Co.John Shrewsberry, Wells FargoHarmit Singh,Levi Strauss&Co.Ewout Steenbergen, VoyaFinancial Inc.Gordon Stetz, McCormick & Co.Ralf P. Thomas, Siemens AGGregory Thompson, AxiallDominique Thormann, RenaultCarol B. Tomé, Home Depot Inc.Kenneth R. Trammell, TennecoScott Ullem, EdwardsLifesciencesLori A. Varlas, Central Garden& Pet Co.Robin L. Washington, GileadSciences Inc.Vanessa Wittman, Dropbox

Woody Woodall, FidelityNational Information ServicesE. Lee Wyatt, Fortune BrandsHome & Security Inc.

PARTICIPATING GUESTSBeth Altringer, Head ofDesirability Lab and Lectureron Innovation and Design,Harvard School of Engineeringand Applied Sciences and Har-vard Graduate School of DesignCharlene Barshefsky, SeniorInternational Partner, Wilmer-Hale; U.S. Trade Representative(1997-2001)Gary D. Burnison, CEO,Korn/Ferry InternationalShaun Donovan, Director,Office of Managementand BudgetMichael Froman, U.S. TradeRepresentativeJason Furman, Chairman,Council of Economic AdvisersA. Bowen Garrett, SeniorFellow, Urban InstituteJohn R. Graham, D. RichardMead Jr. Family Professor ofFinance, Fuqua School ofBusiness, Duke UniversityGen. Michael Hayden, Principal,Chertoff Group; Director,Central Intelligence Agency(2006-2009); Director, NationalSecurity Agency (1999-2005)Keith F. Higgins, Director,Division of CorporationFinance, U.S. Securities andExchange CommissionJim Kaitz, President and CEO,Association for FinancialProfessionalsJim Yong Kim, President, WorldBank GroupJames A. Lewis, Director,Technology Program, Centerfor Strategic and InternationalStudiesKevin McCarthy, U.S. Represen-tative (R., Calif.);House Majority LeaderJohn H. Noseworthy, Presidentand CEO, Mayo ClinicCharles Penner, Partner, ChiefLegal Officer, JANA PartnersPaul Ryan, U.S. Representative(R., Wis.); Chairman, HouseWays and Means CommitteeDebbie Stabenow, U.S. Senator(D., Mich.)Bernard J. Tyson, Chairmanand CEO, Kaiser Permanente

CFO NETWORK MEMBERS

THE PURSUIT OF CYBERSECURITY

1 SET TONE AT THE TOPCEO and the board need to

prioritize the issue, and seniormanagement needs to drive aculture of vigilance and ac-countability. Help stakeholdersunderstand the implications ofa breach, and that cybersecu-rity is everybody’s job.

2 MATCH INVESTMENTTO RISK

Accept that cybersecurity is acritical element of enterpriserisk management, like foreignexchange, political risk, interest

rates, and it can be managed.Take stock of where the risk is,and how to keep it lockeddown.

3 BUILD ANDTEST RESILIENCE

Consider worst-case scenarios.Develop a response plan. Testit.

4 EVOLVE ALONGWITH THREATS

Understand that you’re neverdone. Hackers constantlychange their methods and tools

for intrusion. Protecting againstthe attacks of yesterdaydoesn’t mean you’re safe today.

CO-CHAIRSPatrick Grismer, CFO,Yum! Brands Inc.John Shrewsberry, SeniorExecutive Vice President andCFO, Wells Fargo & Co.

SUBJECT EXPERTJames A. Lewis, Director,Technology Program, Center forStrategic and InternationalStudies

RETHINKING THE CFO

1 BRING BROADPERSPECTIVES

The CFO should be a thoughtleader for and with the CEO.The CFO should be a comple-ment to the CEO and provide abalanced perspective, to thor-oughly explore alternatives. TheCFO should broaden the con-versation with key external andinternal stakeholders.

2 DRIVE VALUETHROUGH INTERNAL

PARTNERSHIPSThe CFO provides insight andeducation around various chal-lenges and opportunities, suchas helping the company makevalue-creating business deci-

sions. The finance chief createspartnerships throughout thebusiness, ensures the financeteam thinks broadly about thebusiness.

3 BE AN INTEGRALPART OF THE BOARD

AND LEADERSHIPBoards should consider thevalue of having the CFO on theboard, ideally as an officialmember of the board. In thisrole, the CFO should activelycontribute as well as guide, ed-ucate and hold accountable ex-ecutive officers and directors.Boards should think thisthrough.

4 REFRAME ENTERPRISERISK MANAGEMENT

The CFO should drive enter-prise risk management to bebroad—not only to addressrisks, but to be a form of valuecreation.

CO-CHAIRSBill Oplinger, Executive VicePresident and CFO, Alcoa Inc.Vanessa Wittman, CFO,Dropbox

SUBJECT EXPERTJohn R. Graham, D. RichardMead Jr. Family Professor ofFinance, Fuqua School ofBusiness, Duke University

JOURNAL REPORT | CFO NETWORK

THE CFOS’ TOP PRIORITIES

The task forces at the CFO Network conference presented their recommendations to the fullconference, which voted these the top overall priorities:

1 BRING BROADPERSPECTIVES

The CFO should be a thoughtleader for and with the CEO.The CFO should be a comple-ment to the CEO and provide abalanced perspective, to thor-oughly explore alternatives. TheCFO should broaden the con-versation with key external andinternal stakeholders.

2 SET TONE AT THE TOPFOR CYBERSECURITY

CEO and the board need toprioritize the issue of cyberse-curity, and senior managementneeds to drive a culture of vigi-lance and accountability. Help

stakeholders understand theimplications of a breach, andthat cybersecurity is every-body’s job.

3 REFORM INTERNA-TIONAL TAXES

Advocate for a more efficienttax system to encourage com-panies to return cash to theU.S, including through territorialsystem, flat rate, and repatria-tion holidays. The money canbenefit the U.S. economy.

4 SHARE CAPITALSTRATEGY

Create decision hierarchy ofhow to use your cash. Articu-

late capital allocation strategyto shareholders. Clarity on man-agement’s strategy and processwill remove investor uncertainty.Act consistently.

5 RECRUIT ANDDEVELOP INNOVATORS

Talent is what drives innovation.If you want innovation you needto recruit and develop peoplewho are comfortable withchange and have natural curios-ity. Hire employees who arewilling to challenge the statusquo.

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THEWALL STREET JOURNAL. Monday, June 22, 2015 | R3


In discussions of corporatetax reform in the U.S., interna-tional issues loom large. U.S.-based companies are holdinghundreds of billions of dollars inprofits abroad to avoid payingtaxes on that income at home,and some have moved theirheadquarters overseas to coun-tries with lower corporate taxrates.

The result is a smaller taxbase in the U.S. and less moneyavailable to fuel the nation’seconomy.

Paul Ryan, chairman of theHouse Ways and Means Commit-tee, sat down with The WallStreet Journal’s Kimberley Stras-sel to discuss the internationalaspect of tax reform and theprospects for legislative action.Here are edited excerpts.

A dangerous plan?MS. STRASSEL: Last week youand Sen. Orrin Hatch sent a let-ter to the Treasury Departmenttalking about this big OECDplan, the Base Erosion and ProfitShifting Project, [which aims toharmonize the international taxsystem].

It hasn’t gotten a lot of atten-tion, but it seems to be a reallybig deal. Talk a little bit aboutwhat was in the letter and howyou see that in terms of yourown efforts to work on the taxcode here.

REP. RYAN: Orrin and I comefrom the school of thoughtwhich believes in tax competi-tion, not tax harmonization,which means we want to seecountries compete for more free-market lower barriers, not try-ing to harmonize everybody’staxes up.

MS. STRASSEL: [The latter] is ex-actly what this project is at-tempting to do.REP. RYAN: Correct. It also is at-tempting to basically grab a taxbase of our domestic corpora-tions. So we want to make surethat our Treasury has a unitedfront against that direction.

The other issue is that itbrings attention to having todeal with tax-based issues insuch a way that we make surethat we give America a placewhere it’s a haven for capitalformation.

They call it stateless incomeor highly mobile IP income. Wewant to make sure that Americais a place where it makes senseto keep those decisions here, tobase those operations here be-cause of our favorable tax treat-ment of that.

MS. STRASSEL: What are the big-gest threats to U.S. businesses ofthis project?REP. RYAN: The biggest threat isthat you will have a system

where there’s no haven for lowertax rates and that we have othercountries trying to assert theirjurisdiction into our domesticfirms to tax them, where webreak down these traditionallyobserved international legal bar-riers between firms and betweencountries.

MS. STRASSEL: There seem to beother things, too, like disclosurerequirements in this.REP. RYAN: We’re very concernedabout intellectual-property pro-tection. We’re very concernedabout data protection and theprivacy of firms.

It’s probably in our interest tosee if we can move quickly to dosome international reforms thataddress this issue so as to cau-terize it in a way to prevent thecorporate tax base from beingeroded so that we have a taxbase to work with when we docomprehensive tax reform.

MS. STRASSEL: So this adds tothe urgency of doing somethinghere?REP. RYAN: That’s right.

Prospects for progressMS. STRASSEL: It seems thatwe’re heading in a direction atwhich you may not have a baseto reform at a certain point.REP. RYAN: If the corporate taxbase erodes so much because of

Don’tHarmonizeTaxes. Lower Them.Paul Ryan wants to make sure other countries don’tget the chance to grab part of the U.S. tax base

Tax MasterThe U.S. has the highest central-government tax rate for corporate incomeamong the 34 countries in the Organization for Economic Cooperation andDevelopment.

THEWALL STREET JOURNAL.

* Effective rate for companies with annual profit above €2.289 million ($2.6 million)

Note: Rates are flat or top marginal tax rate on corporate income

Source: Organization for Economic Cooperation and Development

U.S. 35.00%

France 34.43*

Belgium 33.00

Australia 30.00

Mexico 30.00

New Zealand 28.00

Portugal 28.00

Spain 28.00

Czech Republic 19.00%

Hungary 19.00

Poland 19.00

Slovenia 17.00

Germany 15.83

Canada 15.00

Ireland 12.50

Switzerland 8.50

TOP 8 BOTTOM 8


all of these international rules,or because of our absolutely in-ferior tax system or tax treat-ment of U.S. corporations, wewon’t have a tax base with whichto actually reform our tax code.So for those of us who wantcomprehensive tax reform, wethink it’s important to make surethat we stabilize our tax base sowe can get to that day.

Now, can we do that with thispresident? There’s a big differ-ence between our view and thepresident’s view.

He believes we should havehigher tax rates on individuals.We think they should be lower.And when eight out of 10 busi-nesses in America are what wecall pass-throughs, LLCs, soleproprietors, sub S corporations,their top effective tax right nowbecause of this president is44.6%.

The international average taxrate on businesses is 25%. So wehave to get these rates downacross the board. That is some-thing that the administrationdoesn’t share with us. So there’san impasse.

The question is what can wedo in the meantime that gets usa step in the right direction.

And as we’re looking at that,we’re looking at the interna-tional system.

We want to move to an ex-emption system [where compa-nies can repatriate foreign earn-ings without paying U.S. taxeson them]. We want to make ev-ery day a repatriation day forfirms.

MS. STRASSEL: So what can youdo that gets you a step in theright direction?REP. RYAN: We think a conver-sion from a world-wide [taxa-tion] system to an exemptionsystem is something that wewould like to think is in thecards, meaning possible. Tax ex-tenders [extending tax breaksdue to expire at the end of theyear] is something that appliesto both sides of the code thathas to get done.

And we believe many of theseprovisions ought to be madepermanent.

MS. STRASSEL: Where do youthink the administration is mostlikely to want to work with you?

REP. RYAN: We do talk with Trea-sury quite a bit about interna-tional conversion and extenders.There’s also a component aboutthe fact that if you convert froma world-wide system to an ex-emption system, there’s sort of aone-time slug of money thatcomes into the system.

MS. STRASSEL: What’s the timingon this?REP. RYAN: It’s going to be thissummer and fall. As we gothrough the summer, we’re goingto continue exploring the inter-national. And then in the fall iswhen if we do something, wewould have to execute. On theextenders, we want to do this asearly as possible in the fall.

‘There’s a bigdifference betweenour view and thepresident’s view.’

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VOICES FROM THE CONFERENCE

“Sometimes, bigger is easier, not harder, in Wash-ington. What I mean by that is that, if you pull to-gether the tax extenders that need to be extended,if there is some kind of budget deal at the end ofthe year with business tax reform and the HighwayTrust Fund, sometimes it’s actually easier to get allof that done together in one big deal.”

Shaun Donovan, Director, Office of Managementand Budget

YELLOW CYAN MAGENTA


What’s going right—andwrong—with the world’s devel-oping economies?

We put that question to JimYong Kim, who took over aspresident of the World Bank in2012. In this discussion with TheWall Street Journal’s RebeccaBlumenstein, he talks about thecountries that impress him themost, how to spur private invest-ment in emerging nations andwhy it’s vital to fight povertyand income inequality.

Here are edited excerpts ofthe conversation.

A trip around the worldMS. BLUMENSTEIN: Take us on atour of the emerging economies.We started out the year feelingvery pessimistic about theirprospects. Is that changing now?DR. KIM: For this year, the ex-pected rate of growth is 4.4%. Atone point we thought that lowoil prices would spur growth.But still we’re seeing it as a dragon the economy.

Also, there is currency uncer-tainty. When you have the diver-gent monetary policies across

the United States, Europe andJapan, especially with the risingdollar, you see currency move-ments toward the United States.That affects the exchange ratesin developing countries. The im-pact of Russia and Brazil con-tracting has also been serious.

So it’s different depending ondifferent countries. In Africa andmany of the commodity-export-ing countries, the slowdown inChina has had a big impact.Whereas in 2000 China made upabout 1% of total developing-country exports, it’s now thebiggest trading partner with theentire developing world.

But if you step back and say,“So what about Africa?” DespiteEbola, Africa continues to grow.It grew all through the periodafter the crisis. There are stillgreat prospects in Africa.

China is going to grow atabout 7% this year. We think it’sbecause they’re going forward ina controlled, thoughtfully doneshift of their growth model frominvestment and exports to onefocused more on services andconsumption.

We’re also impressed with In-dia. India, for the first time in 15years, is going to have a highergrowth rate than China. I metPrime Minister Modi last year inearly July. I was impressed withhow focused he was.

MS. BLUMENSTEIN: Over the longterm, are you optimistic enoughabout India where you see itsupplanting a China role?DR. KIM: Prime Minister Modi isin a very complicated countrythat has big problems still. But Ihave to say the impact of thisone leader on our own sense ofwhere things are moving hasbeen profound.

MS. BLUMENSTEIN: Could youtalk about the Middle East? It’sall in such turmoil, but yet youfeel that it’s very important forboth the World Bank and for pri-vate business to support Egyptand the region.DR. KIM: People have said thatthe Arab world is like a tent withtwo poles. One is Saudi Arabiaand one is Egypt, and both haveto be stable for the region to bestable. We’ve done a lot of workin Egypt over time. I met withPresident el-Sisi, and I was veryimpressed with his commitmentto tackling major issues.

Having said that, there arechallenges. I went to Luxor.Egyptian antiquities are one ofthe great resources for the en-tire world. It’s really stunning.But at the same time it’s one ofthe very poorest regions. There’sa huge agenda with Egypt.

Our goal is to end extremepoverty by 2030. By 2020, halfof all people living in extremepoverty will be living in fragileand conflict-affected situations.I’ve asked my vice presidentworking in areas where there’s alot of fragility, “Do we have anew take?” For example, ad-dressing radicalization, are therethings we can do to help tacklethis?

TheOutlook forEmerging CountriesWorld Bank President JimYongKimon China, India,theMiddle East, Africa and the impact of inequality


Source: World Bank THEWALL STREET JOURNAL.

Forecast annual GDP growth, in constant 2010 U.S. dollars

Getting Back on Track?The World Bank sees economic growth in developing countries as a wholestaging a recovery after a dip this year, with India's growth rateovertaking China's this year and Brazil's economy returning to growthnext year after shrinking this year.

IndiaWorld Developing countries China Brazil

2015 2016 2017-2

0

2

4

6

8%

Appealing to investorsMS. BLUMENSTEIN: In terms ofprivate investment, you’re think-ing of going on a roadshow, cre-ating different types of invest-ment vehicles to entice theprivate sector into these coun-tries. Could you explain?DR. KIM: If you look at just oneparticular need in developingcountries, financing for new in-frastructure, it’s about a trilliondollars a year. If you look at allof the official development assis-tance put together, it’s about$130 billion. Then you add in allthe funding that’s provided bythe multilateral developmentbanks, and it doesn’t even get tohalf of what the need is.

We need to get some of thecapital sitting on the sidelinesmoving for these infrastructureinvestments. Infrastructure in-vestments in developing coun-tries provide a great potentialreturn on investment for sover-eign-wealth funds, for equity in-vestors, for just about anybody.

But the perception of risk isholding people back. We feelthat if we get together with allthe other multilateral develop-ment banks, with private-sectorplayers, we can effectively de-risk those investments. So evena teacher’s fund or a pensionfund will feel comfortable in-vesting.

MS. BLUMENSTEIN: How con-cerned should we be about in-equality around the world?You’ve spoken about the role oftechnology and how if you’re astudent in Africa, you can seehow the other half of the world

is living, and that’s changing theworld in fundamental ways.DR. KIM: It’s happening every-where. I went to see PresidentEvo Morales in Bolivia. He said,“I’ll meet with you, but you needto go to 14,000 feet and we’regoing to play soccer.” I neverplayed soccer in my life, so itwas a challenge. But as we werelanding the helicopter at 14,000feet, the most remote village inall of Bolivia, they were takingpictures of us with smartphonesand they could see Miami-basedSpanish-language telenovelas.

So everyone knows how ev-eryone else lives. It isn’t justthat the people who don’t haveaccess to jobs and education andincome are resentful. It’s thatthe analysis is beginning to tell

us that higher levels of inequal-ity are a drag on growth.

The IMF just came out with astudy saying that countries re-ally should focus on improvingincomes to the bottom 20%, be-cause that spurs growth muchmore than increasing the rela-tive incomes of the top 20%.

For us, it means trying tospur investments that will leadto private-sector growth thatwill create jobs and lift the in-comes of the bottom 20% to40%. That’s what we focus oneverywhere.

We cannot do it just with do-nor assistance. We cannot do itjust with loans to governments.We’ve really got to get privatesectors moving in all thoseplaces.

‘Despite Ebola,Africa continuesto grow.’

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VOICES FROM THE CONFERENCE

“As a CEO, there aretwo constituencies thatyou have to focus on.And only two. They willbe the arbiters of yourperformance. And that’syour customers and yourpeople. That’s it. If youget those two right, ev-erything else will sortitself, including that in-vestor constituency.”

Gary D. Burnison,Chief Executive Officer,Korn/Ferry International


Shareholder activists have anally in Charles Penner, a partnerand chief legal officer at JANAPartners, an investment firmwith $11 billion in assets undermanagement, and a record ofsupporting activist campaigns.The Wall Street Journal’s DennisBerman spoke with Mr. Pennerabout shareholder activism, itssuccesses, and what some mightconsider its excesses.

Edited excerpts of their con-versation follow.

MR. BERMAN: So the letter comesin to the board or the CEO. TheCFO is probably immediatelybrought in. What’s your adviceabout what they should do whenthe activist shows up?MR. PENNER: My advice, and Ithink most shareholders’ advice,is to engage. If you look at thecampaigns where we’ve had aneasy time of it, it’s where com-panies take it for granted thatthey can stiff-arm us and not en-gage in debate.

It obviously doesn’t make theanalyst and the proxy advisoryfirms happy. But if you look at itand say, “Look, we’ve got a goodargument here and these guysare wrong and we can showthem that they’re wrong,” we’rethe type of firm that will listento that and respond.

MR. BERMAN: What percentageof situations would you say thatyou’ve presented your detailedanalysis, the management comesback and you say, “Oh, you knowwhat? They’re right?”MR. PENNER: It’s statistically in-significant. But it could happen.Look, we don’t throw stuffagainst the wall and see if itsticks. So by the time we’re sit-ting down with you, I think thatit’s unlikely we’re going to be100% wrong.

Misuse of assetsMR. BERMAN: If there is a biggermacro criticism, it is that activ-ism is pushing for more share-holder returns largely throughdividends or buybacks. The Jour-nal did a recent analysis thatshowed that U.S. companies arenow putting more into buybacks

Charles Pennermakes the casefor shareholderactivism

ADifferentApproach toHealth CareTwo health-care executives onhow they are able to reduce costs—while improving quality

It’s a question at the heart ofarguments about health care:How can the industry put a lidon soaring costs and still deliverquality, innovation and choice topatients?

For insights, The Wall StreetJournal’s Laura Landro spokewith two health-care executiveswhose organizations are re-nowned for innovative practices:John H. Noseworthy, presidentand chief executive of the MayoClinic, and Bernard J. Tyson,chairman and CEO of KaiserPermanente. Here are edited ex-cerpts of their conversation.

Data-driven resultsMS. LANDRO: Kaiser has reallyembraced electronic medical re-cords. Tell us about how the bigdata in your system has enabledyou to identify the highest-costpeople and look at ways to inter-vene, and use e-visits—not hav-ing to go to the doctor.MR. TYSON: I can’t imagine whatit would be like to run an organi-zation taking care of 10 million-plus people on a paper-basedsystem. We now have all 10 mil-

lion people on the electronichealth record. I was told recentlywe have something like 100petabytes of data. Somebodyasked me, “How much is that?”and I said, “A lot.”

Our physicians have been ableto study, through the data, theefficacy of care and to look atthe practices that produce dif-ferent outcomes. We’ve beenable to aggregate data to betterunderstand how to take care of,for example, different ethnicpopulations. We’re more effi-cient and effective because nowwe’re targeting to different dis-eases, to different populations,to different outcomes. That is al-lowing us to do things very dif-ferently. Last year, we did 20million e-visits. That is youemailing your doctor. It is an in-teractive process in a secure en-vironment where you’re gettingthe information that you need.

MS. LANDRO: Dr. Noseworthy, tellus about what you’re doing foremployers like Wal-Mart.DR. NOSEWORTHY: For 18 years,we’ve been the exclusive pro-

Source: Commonwealth Fund THEWALL STREET JOURNAL.

We're No. 11 (of 11)The U.S. was last overall in a ranking of 11 countries' health-caresystems by the Commonwealth Fund, a private foundation that promotesimprovements in health care

Overall ranking ofhealth-care systems

U.S. ranking in various aspects ofhealth care

Care that is effective, safe, coordinated andpatient-centered

QUALITY 5

Patients can obtain affordable health careand receive timely attention

9

Health-care spending as a percentage of GDP,as well as efficiency in treatment and administration

11

ACCESS

EFFICIENCY

Care that doesn't vary because of income11EQUITY

Mortality amenable to health care, infant mortality,and life expectancy of a healthy 60-year-old

11HEALTHY LIVES

1 U.K.

2 Switzerland

3 Sweden

4 Australia

5 GermanyNetherlands

7 New ZealandNorway

9 France

10 Canada

11 U.S.

and dividends than into capitalspending. Long term, the theorygoes, that is dangerous to U.S.competitiveness and corporate-level competitiveness.MR. PENNER: I don’t think anyoneis arguing for irresponsible re-turns of capital. The Economistalso did a study of the 50 big-gest activist campaigns in theU.S., the most recent ones. Theyfound that not only did profit-ability go up and better returnsfor shareholders, but capital in-vestment [and] R&D went up. Sothere is a bigger picture here.

But just speaking for us per-sonally, we’ve never in my opin-ion advocated for an irresponsi-ble return of capital. You have tohave a stock that’s undervaluedand a clear plan to correct thatundervaluation. And you need tohave a situation where there’snot any higher and better use ofcapital.

Companies who have been un-der pressure to return more cap-ital than they thought was re-sponsible, like Apple and Amgen,had reputations as being respon-sible toward capital. Theyweren’t just hoarding cash forno reason. And they were able tofight back. So I see your point.I’m sure that there are irrespon-sible returns of capital. I think,though, to lay it all at the feet ofactivists is going a little far.

A rose garden?MR. BERMAN: It sounds from yourpoint of view as if activism is arose garden. Obviously it isn’tthat simple. If you had to, whatsort of letter would you write tothe activism community abouthow they’re doing things wrong?MR. PENNER: Well, I’m trying toget out of the premise since Idon’t agree with it. I mean, I’m

going to say two things. One:Shareholder democracy is like ev-ery other form of democracy; it’sthe worst form of government wehave except for all the otherones. It won’t always be perfect.People will have bad ideas. Idon’t think bad ideas are the soleprovenance of shareholders.

I would say, though, to the ac-tivist community, that people arewatching. We have a very goodtrack record over the, say, 10 to15 years since activism has reallybeen going on. If we start pro-posing things that are irrespon-sible or if people start pointingto situations we’ve been in-volved with and saying, “Well,look, there is a company thatthey took and dragged down,”the BlackRocks and the T. Rowe’sand the Vanguards will quicklywithdraw their support. We ob-viously have to be cognizant.

MR. BERMAN: One can make theargument that shareholder activ-ism is driven mainly by the biginstitutional money managerswho’ve thrown in their lot withyou because they are gettingpressured from ETFs and need toshow some returns.MR. PENNER: Sort of. We’re basi-cally a market-driven mechanismto address underperformance atcertain companies. The mecha-nism is you take a small stake ina company and bring about thechange that used to happen pri-vately. The gatekeepers are thebig institutions seeking returns.Without their support, we wouldshrivel up and die.

But it’s a free-market re-sponse to a problem, which isthat it doesn’t make sense formost shareholders to spend thetime and the money and theheadline risk to do this.

‘I don’t thinkbad ideasare the soleprovenance ofshareholders.’


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vider of transplant care for Wal-Mart, regardless of where theiremployees live. In January, theyextended that exclusive contractfor the care of women withbreast cancer or patients withlung or colorectal cancer.

They will send those recordsfor all those folks who work atWal-Mart for us to review. If webelieve additional diagnostics ortreatments are needed, they willpay the entire cost of those pa-tients going to [clinics in othercities] for diagnostics and careand send the caregiver for thatcare at no cost to the employee.

It is an extraordinary benefit,but it makes good sense to Wal-Mart because the diagnosis willbe accurate. The care will be assafe as it can be, as cutting edgeas it can be, and the patient willget back to work. They’ve recog-nized that the avoided costs forcomplex care in a highly engi-neered system like Mayo savesthem money. It’s a lot less ex-pensive if they do the right thingand do it quickly and help thepatient get back, and it’s alsogood for their employees.

MS. LANDRO: A lot of times, yourtreatment plan will involve notdoing as much aggressive careas was originally decided by thepatients’ local doctors?DR. NOSEWORTHY: Yes.

MS. LANDRO: But in other cases,you will be providing care but ata more cost-efficient basis evenwith hotel bills and flights to theclinic and all of that?

When the Activists Call

DR. NOSEWORTHY: And patientsneed not always go [to clinics toget help]. A young woman we re-cently saw from Kentucky foundshe had breast cancer. [Her localdoctors] consulted us; just asthey were about to treat her,they realized she was pregnant.

They said, “Oh my gosh, whatdo we do about that?” We wereable to coach them on how tomanage that young woman’sbreast cancer and her pregnancy.She got great care. She neverleft Kentucky. The costs werelow, and all of that was donekeeping the patient local. Shegot great care and the costswere [relatively] minuscule.

Striking a balanceMS. LANDRO: One of the concernsis always, “If I’m trying to con-trol costs, I’m not going to getthe best care.” How do you makethose decisions?MR. TYSON: The fact of the mat-ter is our system is differentfrom the rest of the industry.The industry is on a fee-for-ser-vice basis, is volume driven.

I’m not suggesting these arebad people, and we’re the goodpeople. But if I’m getting paidevery time I do a procedure orsee you, and that’s the way theincentive system works, eventu-ally I will justify that behavior.

What we’ve been able to doover the years is to bring out-come-based data to the argu-ment and to show that our phi-losophy is there is no such thingas a global statement, like, “Tobe cost effective, to be more af-

fordable means that you’re goingto skimp on quality.” In fact,we’re showing just the opposite.

For instance, one of the issueswe’ve been working on is cuttingthe sepsis rate in our hospitals.

MS. LANDRO: Sepsis, as you allknow, is a very dangerous bloodinfection.MR. TYSON: We said, “There is noreason why someone should goto a hospital and pick up a bac-teria germ and die or have morehospital stay.” We’re on our wayto our goal, which is zero. [It’staken] a lot of work over theyears, but we’ve improved qual-ity and we’ve [ultimately] low-ered costs. Now you’re not stay-ing in the hospital longer andGod forbid, you’re not dying.

Another example is knowingthe different treatments thatwould work in individuals andpopulations and then buildingthe systems around that. It al-lows us to be much more effi-cient in diagnoses, in treatmentand in prevention that allows aperson to stay much healthier.DR. NOSEWORTHY: Cost avoid-ance by reducing infection, re-ducing readmissions—all thosethings are terrific. And it re-quires an engineered, team-based approach to do that. Thisis hard work. You invest an aw-ful lot of money in doing that, asBernard mentioned. [But yousave money at the end.]

The effects of the ACAMR. LANDRO: Have you seencosts go up since the Affordable

Care Act?MR. TYSON: Health-care costshave been going up, so let’s be alittle bit careful that we don’tsay it’s because of the ACA. Infact, I think that that’s part ofthe complexity of what’s goingon in the health-care industry.

We all have to work to makehealth care more affordable anddrive down costs while we im-prove quality and improve ac-cess to care. There is still a lotof work to go on. But with theAffordable Care Act, the earlyindications are for those individ-uals who never had coverage,who might have gone in for carethrough emergency departments,now that they have coverage,they can come through the frontdoor of the health-care system.

We’re discovering that thereare illnesses and challenges thatthey have been having that wenow are treating. In our systems,we’re able now to figure out thebest way to care for them overtime that hopefully will levelthose costs out and start todrive those costs down or makethem more manageable.DR. NOSEWORTHY: I don’t thinkit’s any surprise that companiesthat have health-care plans arebearing a lot of the cost of car-ing for those who didn’t have in-surance. That’s not to say it isn’ta good thing to do, but it isn’tsurprising. And Bernard is obvi-ously taking the long view thatultimately those who haven’thad insurance will find a homeand get appropriate care to pre-vent and treat early.

‘Cost avoidanceby reducinginfection, reducingreadmissions—all those thingsare terrific.’

JOHN H. NOSEWORTHY

‘We’re moreefficient andeffective.’

BERNARD TYSON


Special Advertising Feature

Aspart of the cost cutting that came with the economic downturn several years ago, many companies prioritized making supply chains leaner.

Today, the growing complexity of global supply chains, alongwith a stronger demand for reduced time tomarket, is causingmany of those same

companies to view supply chains in a fundamentally different way: as a potential source of profit and a competitive advantage.

Leading this new approach are forward-lookingCFOs who are increasing their role in management ofthe supply chain and building more collaborative rela-tionships with supply chain leaders. For many, the pay-off is impressive: According to a study by Ernst & Young,nearly half of CFOs who have forged these deeper re-lationships say they have boosted EBITDA by at least5 percent, compared with only about a quarter of CFOswhomaintainmore traditional finance relationships.“In the past, CFOs focused on logistics as a procure-

ment exercise,” says Art Garcia, executive vice presidentand chief financial officer for Ryder System, Inc., a lead-ing provider of commercial transportation, logistics andsupply chain management solutions. “When they digdeeper and understand that logistics is intrinsically tiedto P&L, they begin to evolve the supply chain model tounlock savings and opportunities.”

LOOKING BEYOND COSTSCFOs who take a more expansive view of and role

within supply chains — a practice some have dubbedholistic supply chain finance— can help to reduce timetomarket and lead times, ensure timely delivery of criti-cal supplies, and prioritize giving the highest level ofservice to themost important customers.This holistic view can also produce less obvious ben-

efits. “When the CFO looks at the supply chain as morethan a pure cost play, the supply chain can be moredeeply aligned with the strategic vision of the compa-ny,” Garcia says. “For example, decisions of where youmanufacture products might be affected by what mar-kets you want to penetrate in the future.”Finally, it can help to uncover hidden risks. Consider

the example of a small foreign supplier that needs to se-cure financing from a bank in its home country — andfaces an exorbitant finance rate — before it can ship a

product to its partner. Here is where the partner com-pany can step in. Through the collaborative efforts ofits finance, procurement and supply chain functions,the firm can gather more precise information about thesupplier, such aswhether delivery targets are beingmet,to help assuage lenders. This in turn reduces risks andcosts passed to the partner company.For all these benefits, however, this approach re-

mains largely at odds with the traditional CFO stance ofarm’s-lengthmonitoring of and reporting on the supplychain.The same E&Y survey found that only 26 percentof CFOs have a collaborative business relationship withtheir company’s main supply chain executive. “That isa tragedy for companies,” says Jonathan Byrnes, a se-nior lecturer at the MIT Center for Transportation &Logistics. “It reflects an obsolete way of looking at sup-ply chains.”

PROBING PROFITABILITYAccordingtoByrnes,changebeginswhenCFOsdevel-

op a deeper understanding of the profitability of differ-ent customer groups: “If youunderstand that a customeris highly profitable, it can be a great investment to holdmore inventory for that customer in reserve.”Conversely,he adds, if a customer is not highly profitable, “having alonger order cyclemay bemore beneficial.”Given that the most profitable customers are not

necessarily the largest or most obvious, gaining this in-sight can be difficult to achieve when the finance and

supply chain functions do not work closely together.In the same way, supply chain costs can be misunder-stood if they are not probed deeply enough by the CFOworking in lockstep with cross-function colleagues.“Companies need to understand the true costs of

supply chains beyond shipping, rail and trucking costs,”Ryder’s Garcia says. “A lot of regulatory and safety costsare embedded in the structure, as well as the back-office costs and other costs like recruiting drivers. If acompany has handled its own supply chain for manyyears, it can develop inertia, not realizing it can gaingreater savings by outsourcingmany of these services.”

DATA DRIVES COLLABORATIONAmong CFOs forging new partnerships, many are

embracing analytics tools to gain a more granular un-derstanding of the true costs and opportunities lurkingthroughout the supply chain.“You can only add value to the supply chain if you are

able to slice and dice the data more precisely,” Garciasays. “But it’s not only about having the right data. Youalso need the right mindset, where you are open tochanging the supply chain structure from time to timeas new opportunities present themselves.”Armed with such a mindset and the right data, CFOs

can teamwith their supply chain counterparts—aswellas personnel in sales and other departments — to plankey initiatives that will bring larger returns.“When you begin looking at supply chains in this

broader way as a vehicle of profitability,” says MIT’sByrnes, “you understand that the only greater role aCFO should have than supply chains is making sure thecompany does not run out of money.”

Joe Mullich has received more than two dozen awards forwriting about business and other topics.

By Joe Mullich

“When [CFOs] dig deeper and understand

that logistics is intrinsically tied to P&L, they

begin to evolve the supply chain model to

unlock savings and opportunities.”

— ART GARCIA

CFOs DRIVE PERFORMANCETHROUGH GREATER ROLE IN SUPPLY CHAINS

©2015 MICHAEL AUSTIN C/O THEISPOT.COM

Your competitor’s biggest assetshouldn’t be your supply chain.

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Jason Furman has been Presi-dent Barack Obama’s top eco-nomic adviser since 2013.

As chairman of the WhiteHouse Council of Economic Ad-visers, he has had a voice on is-sues ranging from the debt ceil-ing to trade. He sat down withThe Wall Street Journal’s GregIp to discuss the economy andwhy he thinks things will pickup. Here are edited excerpts:

Does age matter?MR. IP: The economic numbershave been pretty disappointingthis year. The first quarter wasnegative. A lot of the data havebeen mushy. Should we be wor-ried that the economy is flaggingagain?MR. FURMAN: In mid-June of lastyear, the economy looked a lotlike this.Then we saw a reallystrong second half last year.

I continue to think a lot ofwhat was powering the economylast year was consumers. They’re70% of the economy. They’re de-leveraged. They’re confident.They have higher real earningseach month due to lower gasprices. And so I continue tothink they will be a good part ofour economy. It has taken a littlebit longer to get going, but wedid start to see that in May.

MR. IP: Many people believed thedrop in gasoline prices wouldboost consumption. But thus far,it seems to have gone into sav-ings, not spending. What are weto make of that?MR. FURMAN: I think it has beenreally puzzling. If you look at thejump in the savings rate, it wasunusually large.

Now we just got revised datafor March and April that raisedconsumer spending. May was alot stronger, so I think those sav-ings numbers will come down.And when they do, that will leadto elevated consumer spending.So this may be just the normalbumps and wiggles in the econ-omy that are hard to explainshort term, but that make moresense over a longer period.

MR. IP: It’s hard to believe butthe expansion is now, as of thismonth, six years old, which isslightly longer than the averagepostwar expansion. Should webe worried about another reces-sion coming along soon?MR. FURMAN: There has been a

The State of the EconomyJason Furman on why he thinks things will pick up

Keith Higgins, director of theDivision of Corporation Financeat the U.S. Securities and Ex-change Commission, sat downwith The Wall Street Journal’sDennis Berman to discuss someof the regulatory issues compa-nies are facing. Edited excerptsof the conversation follow.

CEO payMR. BERMAN: Pay-ratio disclo-sure. It was in Dodd-Frank.Maybe you can remind everyoneof the requirement and tell uswhere we are in actually makingthis happen.MR. HIGGINS: It requires compa-nies to disclose the total com-pensation of the chief executiveofficer, the median compensa-tion of their workforce, and theratio of those two numbers. It’spretty simple.

MR. BERMAN: But?MR. HIGGINS: The biggest con-cern that we’ve heard is that thestatute requires the mediancompensation of all employees.And the way the commissionproposal expresses that, “all em-ployees” includes the entireworkforce.

MR. BERMAN: Some peoplewanted you to exclude certainworkers.MR. HIGGINS: Foreign employees.Look, a lot of people don’t thinkthat this disclosure is materialor useful information for inves-tors. That it’s meant to nameand shame. We have heard that.It is the statute, it’s the law ofthe land, and the commissionwas directed to implement that.

So the commission came upwith a proposal that the bestway to read that is the way itnaturally sounds, but to provideas much flexibility as we couldto allow companies to use statis-tical sampling and other estima-tion methods to try to determinethe median compensation for aglobal workforce.

MR. BERMAN: So what does thatmean?

PayDisclosure FlexibilityKeith Higginson Dodd-Frankand the SEC


MR. HIGGINS: You don’t have toput all your 240,000 employeesinto a spreadsheet and ask Excelto find the…

MR. BERMAN: That’s not thathard. “Sum all,” and “Find me-dian.”MR. HIGGINS: The problem—Idon’t deny these are real con-cerns—is different payroll sys-tems, different ways of payingpeople in different countries.Not everybody has sort of a W-2compensation number like in theU.S. that you can come up with.

And so companies rightfullysaid, “Look, we want to get thisright. We take our obligationsseriously. And if we really aregoing to do this right, it’s goingto be very, very expensive fornot a lot of benefit.”

MR. BERMAN: So a CFO can say,“We’re going to take a core sam-ple and dig a few inches, andthat will be sufficient.”MR. HIGGINS: But you don’t haveto find every employee’s com-pensation to get to a median.When you read your newspaperand it talks about the medianhome price in the U.S., my guessis that they don’t take data fromevery single home sale over aperiod of time. There’s a statisti-cal sampling that gets done.

MR. BERMAN: So what’s your ad-vice to the CFO who has to go infront of her board in two weeksand say, “On the agenda is pay-ratio disclosure”?MR. HIGGINS: The proposal is outthere. It’s under consideration.We’re working up recommenda-tions for the commission.

My advice would be to bringin the statisticians, the HR peo-ple, before you go to the board.And let’s figure out a way thatwe can choose a reasonablemethodology that will be ascost-effective as possible.

IFRS vs. GAAPMR. BERMAN: There is a move-ment to try to simplify financialreporting around InternationalFinancial Reporting Standards.Give us the update.MR. HIGGINS: What the IFRS—that’s Jim Schnurr [U.S. chief ac-countant] and the office of chiefaccountant at the SEC—has saidrecently is three principalthings. One is, there does notseem to be any huge cry foradoption of IFRS in the U.S., atleast by the filer community.Maybe that’s an understatement.There isn’t really even a sub-stantial amount of support foran option of filing in IFRS.

On the other hand, we think asingle global set of high-qualityaccounting standards would bein everybody’s best interest: in-vestors, companies and the like.There’s not yet a path forwardon that. I think the idea is tocontinue to work, FASB [Finan-cial Accounting StandardsBoard] and the IFRS to work toharmonize where possible.

And Jim has floated recentlythe idea that if companies wantto present IFRS information intheir U.S. filings, and are con-cerned about them being non-GAAP measures [Generally Ac-cepted Accounting Principles,the standard widely used in theU.S.], maybe we need to providesome relief to filers.

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‘A lot of peopledon’t think thatthis disclosureis material oruseful.’

lot of economic research on thisquestion, and it pretty consis-tently finds that expansionsdon’t die of old age. It isn’t thatthe longer it’s gone on, thehigher the probability of goinginto a recession.

There is almost a constantprobability of going into a reces-sion in any given year. So I don’tthink there’s any reason to beworried about the age of the ex-pansion. And by the way, we’restill not fully recovered. We’realmost there, but there’s stillslack in the labor market. Thereare still ways in which we aren’tback to where we should be.

But I do think we always haveto be prepared for ups anddowns in the economy and tohave a more robust system that,to some degree, automaticallyresponds as an economy startsto turn down.

Potential growth areasMR. IP: This town is all abuzzabout the president’s efforts toobtain trade promotion author-ity from Congress, with the ideabeing to consummate the Trans-Pacific Partnership that’s been inthe works for a while. Can TPPactually change the slow-growthmode that the U.S. is stuck in?MR. FURMAN: I think that thereis still a lot of potential in ex-panded trade to help with ourproductivity growth—and pro-ductivity growth is key to ouroverall economic success.

First, there are high tariffs ina number of areas, agriculturebeing one of them. Second, a lotof the countries we’re dealingwith here have very significantnontariff barriers, which issomething the U.S. tends not tohave. We have a very open,

transparent, level playing field.A lot of the countries we’re ne-gotiating with in TPP don’t, sowe’re trying to [fix that].

If you look at a standard eco-nomic model, it shows that justthose types of effects, loweringtariffs, could add about $75 bil-lion to the U.S. economy annu-ally. And that could be an under-statement, because expandingthe size of the market expandsinnovation.

AUDIENCE MEMBER: My name isBill Moore. As a citizen and CFO,I’d say the economy is still veryfragile out there. House priceshaven’t risen as much as peoplewould hope. People are still un-derwater. Another aspect ofwealth is investments. Couldsomething like a correction inthe equities market have a rippleeffect on the economy?MR. FURMAN: There’s no ques-tion that part of what deter-mines consumption is wealth.People took a really, really bighit to their wealth in 2007 and2008. It was much larger thanthe hit to wealth that precipi-tated the Great Depression. Andpart of what we’ve seen sincethen is a really long, painful pro-cess of deleveraging by consum-ers and businesses.

I don’t think we’re all the waythere yet. The housing sectorisn’t fully healed. The flip side ofthe housing sector not beingfully healed is that it still has alot of potential in it. I thinkwe’re actually not buildingenough houses right now. Creditis too tight for many households.And as we rectify those issues,that will be one of the sources ofadded growth we can expectover the next few years.

‘We’re still notfully recovered.We’re almostthere, but there’sstill slack in thelabor market.’

Health.It’s a team sport.We don’t just fill prescriptions. We partner with doctors,hospitals and employers to help patients manage theirconditions for better outcomes at lower costs.

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Before medicine canreach the disease, ithas to reach the patient.


What does the Republicanpolicy agenda look like from theother side of the aisle?

The Wall Street Journal’s Ger-ald F. Seib sat down with Demo-cratic Sen. Debbie Stabenow totalk about wrangles over thefree-trade deal with Asia, the Ex-port-Import Bank and the possi-bility of a budget showdown. Be-low are edited excerpts of theirconversation.

Moving the trade dealMR. SEIB: What’s your prognosisabout where Fast Track isheaded? What can be done todeal with your concerns aboutcurrency manipulation?SEN. STABENOW: We need to ex-port our products, not our jobs.How we frame what we do is in-credibly important, in terms of alevel playing field in a globaleconomy for our businesses. InAsia, where their No. 1 tradebarrier is currency manipulation,one of the rules we should havein place is a requirement for anenforceable currency-manipula-tion provision.

Sen. Rob Portman and I had abipartisan amendment, and it al-most passed.

It’s very serious. All we haveto do is ask our friends fromFord Motor Co. or other manu-facturers about what is happen-ing. Currency manipulation justbetween Japan and the U.S. hasmade the difference between$6,000 up to $11,000 on theprice of a vehicle. Think aboutcompeting with that kind of dif-ferential on the price of yourproduct.

MR. SEIB: When we get to the endof this long and winding road,do you think there will be a free-trade agreement with Asia?SEN. STABENOW: Probably. But Ithink this has taken a turn thatthey did not expect at all in theHouse. It’s going to be tricky toget out of it. I also don’t thinkit’s fair and would adamantlyoppose moving forward on any-thing that did not make a com-mitment to our own workerswho’ve been displaced.

Protecting the bankMR. SEIB: What’s your view ofthe prospects for keeping the Ex-Im Bank alive?SEN. STABENOW: I remember

Sen. Debbie Stabenow on the prospects for a tradeagreement, the Ex-Im Bank and a budget deal

TheViewFrom theRepublican SideHouse Majority Leader Kevin McCarthy talks highways, infrastructure, the Ex-Im Bank and growth


Eight months after an electionthat expanded GOP control overboth houses of Congress, what’shappened to the Republicanagenda? And what does it meanfor business?

The Wall Street Journal’s Ger-ald F. Seib spoke with HouseMajority Leader Kevin McCarthyfor an inside look. Below are ed-ited excerpts of the conversation.

The trade situationMR. SEIB: Your first order ofbusiness this week is to try torescue Fast Track and by exten-sion a free-trade agreement inAsia.

The logical thing to do wouldto be to take Trade AdjustmentAssistance, which Democratslike, and the Fast Track TradePromotion Authority, which Re-publicans like, and put themback together. Why don’t youjust do that?REP. MCCARTHY: That’s in es-sence what we did, but thatdidn’t work.

MR. SEIB: You did the opposite.You broke them apart.REP. MCCARTHY: They were neverbroken apart. There were twovotes, because you will not getenough Republicans to vote forTAA. And you will not get

enough Democrats to vote forTPA. That’s why you separate it.

MR. SEIB: Unless you as the mas-ter vote whipper bring them intoline and say, “You’ve got to votefor this stuff.”REP. MCCARTHY: There became adecision in the Democratic lead-ership that they were going tochange what they’d done before.They think this is the only wayto kill trade. So they don’t wantto do anything.

What if we just pass TPA andsend that to the president’sdesk? Then, they may be morethan willing to do TAA.

Trade’s very important ifwe’re going to have growth. Ialso think it’s very important forour standing in the world today.I believe we’re going to get thisdone.

Highways and tax reformMR. SEIB: There are a whole se-quence of issues that are of im-portance to people in this room.There’s the Export-Import Bank.There’s funding for a highwaybill and infrastructure. Andthere’s the question of passing abudget and getting a new debt-ceiling resolution passed withoutbasically going to the brink.Walk through the next few

months on those issues.REP. MCCARTHY: Highway is amajor problem in America. Wemake policy in the world of poli-tics. If you thought, “Well, whydon’t you just raise the gasolinetax?” Well, politically that willnot make it. Let’s think of some-thing else. How do you have afunding mechanism where youcould actually fund a five-yearplan?

There’s a coalition that caresabout highways, but there’s alsoa coalition that cares about taxreform. There’s a way that if youtook the highway bill today andyou extended it toward the endof the year, and you had tax re-form and highways combined soyou could find also a pay-for inthere, those are two coalitionsthat are married together.

MR. SEIB: Are you suggesting atax reform that’s not revenueneutral, that raises money sothat you can create some fundsfor highways? Are you talkingabout repatriation?REP. MCCARTHY: I’m not talkingabout raising taxes. But I see somany American companies haveso much money overseas, be-cause that’s the way the struc-ture works. I do not like the ver-sion that the president has, but

The Democrats’ View

Source: Pew Research Center telephone survey of 2.002 adults in the U.S.,conducted May 12-18; margin of error: +/-2.5 percentage points THEWALL STREET JOURNAL.

Bad ReviewsA Pew Research Center survey found dissatisfaction with the performance of the Republican-controlled Congress

Do you approve or disapprove ofthe job the Republican leaders inCongress are doing?

From what you have seen or heardabout events in the new Congress,in general, do you think theRepublicans in Congress arekeeping the promises they madeduring the campaign, or not?

On balance, do you think the newCongress has accomplished morethan you expected in its first 100days, less than you expected, orabout what you expected?

Disapprove72%

NotKeepingPromises

65%

Aboutwhat wasexpected

53%

Less thanexpected

37%Approve22%

Don't know/Didn't answer

6%


12%


6%

KeepingPromises

23%

More thanexpected4%

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I think another version couldwork, and a big chunk of moneycan come. So that could be aone-time funding of highways.And highways could have fivemore years to figure out howthey’re going to fund them inthe future.

Tackling the bankMR. SEIB: Export-Import Bank.Obviously, not a popular itemanymore in many corners ofyour caucus and the party. Butsomething that’s supported bylots of the business community.Where does that go?REP. MCCARTHY: I voted for Ex-Im last time, mainly because itwas short term, and there weregoing to be reforms. I’ve notseen the reforms. They tell meEx-Im is profitable. If it’s profit-able, then why doesn’t some-body else fill the void?

Ex-Im, if nothing happens, itexpires. I do not believe some-thing’s going to happen by June30. In the Senate, they had asemi-test vote where they hadoverwhelming support.

I think what will probablyhappen at the end of the day, theSenate looks like they havevotes. It’ll probably come to theHouse.

I think the leadership of Ex-

Im would have been smart to re-alize they had a problem. Theywould have solved their problemearly. It’s better to solve yourown problems than to think thatyou’re going to let the Houseand Senate solve your problemfor you.

A growth agendaMR. SEIB: Let’s imagine the worldthat you hope evolves over thenext couple of years, which is tosay, the Republicans retain con-trol of the House, you control theSenate, and you get the WhiteHouse.What’s the Republican pro-

growth agenda look like underthose conditions?REP. MCCARTHY: Overall tax re-form, so you can be competitive.A national energy policy. I’ll gothrough five things, but if youwere able to do those two,you’re going to be competitive.

Third, immigration reform.Our system is broken. Fourth, ifwe created America today, wewould never create the agenciesin which they are set today. Youcannot write the flow chart theway it is. So I have a group ofmembers that is going throughall the agencies. Make themstreamlined. Make them open.My principles? Effective, effi-

cient and accountable.Then the fifth. I would focus

on our foreign policy.History always repeats itself.

In America today, people wouldsay, “The world’s like 1932,”maybe. I say, “It’s 1979.”

When was the last time youwatched Americans being heldhostage? Iran? Today with ISIS.When was the last time a U.S.ambassador was killed on for-eign soil? That’s a direct reflec-tion of the respect or the fearthat other countries have of us.In 1979 in Afghanistan and Ste-vens in Libya.

When was the last time theSoviet Union invaded anothercountry? Afghanistan. And now,Russia and Ukraine today.

I don’t tell you all that toscare you. I tell you that to ex-cite you.

Because the pendulum hadswung so far then, we didn’tlook at it so much as party. Welooked at putting it back to-gether and working.

Now, that pro-growth agenda,we should not wait to the nextelection. We should run thatagenda today and have it put inthe debate for whoever becomesthe nominee on either side, onwhere we’re going to makeAmerica grow.

‘I think theleadership ofEx-Im wouldhave been smartto realize theyhad a problem.’

times when we authorized theEx-Im Bank on a voice vote.

We’re talking about the abil-ity to compete and sell our prod-ucts around the world. Everyother country we’re competingwith has some financing mecha-nism.

Now, we know the largest fi-nancing contracts are to largebusinesses. But 80% of the indi-vidual financing deals are smallbusiness. And why would wegive that up? This should not bea partisan issue.

Stalled on infrastructureMR. SEIB: One of the oddities ofWashington these days is thateven for the things on which youthink there is broad bipartisanconsensus, there isn’t. One is thehighway bill, the pot of moneythat pays for road repairs andimprovements. More broadly, in-frastructure improvement. Thereseems to be a bipartisan consen-sus that the infrastructure needssome serious work. But neitherof those things seem to be hap-pening either.SEN. STABENOW: We have 45days from today before the High-way Trust Fund is empty. Chinais spending 9% of its GDP rightnow on infrastructure. Last timeI was there, I was speaking at aglobal auto leaders summit, andthey proudly rolled out for metheir 20 new international air-ports.

I was in Brazil with the secre-tary of agriculture a year ago.They were rolling out their ro-bust rail and road effort to make

sure they could bring their agri-cultural products to the ports.And we’re looking there, justtwiddling our thumbs.

I just came from a press con-ference that had people frombusiness and labor and others.We desperately need you to helpus break through. There’s also ageneral philosophy that there isno role for government in theUnited States of America.

Looming showdown?MR. SEIB: Are we going to have abudget crisis? And a debt-ceilingcrisis?SEN. STABENOW: They can abso-lutely be avoided. It takes peopleof goodwill to come together andto do that. One of the thingsthat’s worrisome to me is thatwe’ve spent the bulk of this yeardoing things that we tried to dolast year, but they got filibus-tered and stopped. We’ve wasteda lot of time.

Our Republican colleagueswant to fund the Department ofDefense but then basically un-dercut every other part of thebudget. We’re going to say no tostarting that process. We wantto work out an agreement now,not when the funding runs outOct. 1. Not when there’s a threatof a budget shutdown or govern-ment shutdown, but right nownegotiate.

We’re saying, “Let’s, on thefront end, agree to how we’regoing to responsibly invest inthose things that we need to doas America, and cut those thingsthat we don’t.”

‘We need toexport ourproducts,not our jobs.’

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