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Ivan Seidenberg is Verizon's chairman and CEO, and the new chairman of Business Roundtable, an association of chief executive officers of leading U.S. companies. From this discussion we gained insight into why he and other Business Roundtable members believe the economy will not return to pre-recession levels until the end of 2011. Interview conducted by Ken McGee on 18 September 2009.
Ken McGee: How do you think the U.S. GDP will end up in 2009, and how will that compare with 2010? Ivan Seidenberg: Well this is the big question. I think my instinct is that the surveys are going to reflect a polite optimism, but not a realistic view of where we are heading. McGee: Not a realistic view? Seidenberg: Well because everybody's trying to be polite. Everybody says the economy is stabilizing. What that really means is it's still contracting. And so some people say, "Well it's contracting at a slower rate," and my reaction to that is, "Well that's very interesting but it's still contracting." So have we bottomed out? This is an argument that's true. But again, we're not hiring. Inventories are not moving. Factories are not producing more goods. I just think we're still in what I would consider to be a trough, and I don't think there's a lot of momentum for growth right now. McGee: What about growth in 2010 versus 2009? Seidenberg: I think it should be marginally better, but that's to some extent based on easy (year-over-year) comparables McGee: When do you think we'll be meeting and surpassing 2008 levels of GDP? Seidenberg: All right. I don't have an answer to that, but I think the general consensus of the Roundtable members would be some time toward the latter part of 2011, heading into 2012. And I think that, when you look at all the value that was created out of financial services industries, insurance industries, nonmanufacturing things, replacing all of that wealth is very hard. So even as the economy gets its gait back – and I think it will to some extent – replacing that cash flow for those financially driven industries is going to be hard. So it's going to take two or three years. McGee: What do the Business Roundtable members want to see attained and surpassed before we start seeing a sustainable level of employment growth? Seidenberg: I think, from a broad CEO standpoint, we agree with some of the things that the Obama administration is trying to do in terms of fundamental fixes. What we may not agree with is the level of importance and the sequencing of the fixes. So let's take an example. Business Roundtable members absolutely think that a runaway deficit reduction is not contributing to economic growth. So we can make the case that we needed to do some stimulus, we needed to do some corrections; I don't think anybody would disagree with that. But I think the size of that deficit, and sort of the kitchen-sink effect of trying to fix other things on the back of that, has produced a sense that economic instability is still with us. As CEOs, we're all interested in consumers fixing their personal balance sheets faster. So to the extent that we can get everybody's 401(k) up a little bit, that we can create a little bit of job stability, that would all improve consumption and drive, all the things that occur when that happens. So certainly getting the banks corrected and getting the real estate industry stabilized would be something we would all think is a good idea. Then you get to some of the policy issues that are right – good energy policy, good healthcare policy, good tax policy – they're all very good things. We think that the administration and members of Congress have been having a good conversation, but it's a mistake to think, in isolation, those things will fix the issue without really focusing on personal balance sheets and things like the deficit. McGee: When do you see the level of employment returning to the level we saw before the recession? Seidenberg: I think there's a natural cycle. It's going to take one to three years to build momentum back up to put us where we were before. And the reason is because we're going to be different in two years than we were two years ago. We're going to be generating value and growth on a different basis. So it's going to be much more organic. It's going to be much more on the back of export-driven consumer products and real estate recovery, rather than financial services, insurance services, and those kinds of things. McGee: What, if any, permanent changes do you see unfolding from what we've just economically endured? Seidenberg: Well, I think you will see much more focus on the organic drivers of growth instead of the financial drivers of growth. I'm not a financial person by trade, but when you hang around in a CEO job, you listen to some of this stuff, and so you have liquidity issues and you have all this capital formation and everything – this is all good. And when the world is on a linear path up, all that stuff sounds interesting and it's true. But I think when you start to see what happened to us in this restructuring of the economy, you've got to get back to creating jobs in healthcare, creating jobs in energy, creating jobs in transportation, and so on and so forth. What IBM is doing on the smart cities is great. It's organic focus. It's going to take some time to develop all of the ripple effects, and the secondary and tertiary effects of jobs. It's a great thing. McGee: What do Roundtable members need to see for a return to capital spending at pre-recession levels? Seidenberg: You could say exports. But we've got a lot of issues now with respect to taxes and every other country misbehaving on protectionism. So we've got to work ourselves through the effect of that impact. But I think capital spending goes with business expansion. We're big, and we have big projects. I think what the banks will do with all big business at this time is gate it a little bit, so they have enough in reserve, so they don't get overexposed to any one thing. But I think what you're finding is that small business owners are having a problem, and most of the reason for that is they don't have the quality of the business plan presentations to warrant getting all that easy capital. So their ability to justify, while maybe every bit as strong as ours, is not perceived that way by the banks. And the banks are therefore being more conservative managing their own balances. But here's what I think. The minute there is a confidence level that organic growth can start to look a little bit more robust, I think the money gets looser. And when the money gets looser, the interest rates drop accordingly. McGee: Will Business Roundtable CEOs expect their companies' capital spending to change in the next six months? Seidenberg: I'd like to wait to see the final results to validate what I'm going to tell you. But I think most companies like us who are planning for 2010 have not built up a big uptick in capital spending. I think we're all looking at another year of de-levering, taking costs out, focusing on our bottom lines in a way that's different from growth. McGee: What are some regulations out on the horizon that Roundtable members are concerned about most? Seidenberg: We've all agreed that we'd like to participate in healthcare reform. We want to broaden coverage, we want to improve the distribution, hospitals and everything else. But what we don't want to do is add cost structure. That's not market-based. This is the issue. We're not having a big concern on how you're going to pay for healthcare, because you could pay for it by raising taxes, which has other issues. But the fact is we don't want to take a system that has gotten out of balance economically, and make it more uneconomical. Because you have a mandate for subsidies. So there's a whole string – I can go through this chapter and verse, I guess – but there's a whole string of new mandates and unnatural taxes to cover those mandates that will create other distortions in the system. We're worrying about distorting the natural development and innovation of products and services by all of a sudden having a new round of taxes on things that never had taxes on them before. Second, and I'm not an expert on this, but I can tell you the whole carbon cap and trade issue is a lightning rod for dialogue. So is the proposal of new taxes, new standards, just a whole bunch of issues. Setting aside any philosophical arguments over what the greenhouse thing is or isn't, there's a big debate about whether or not the mechanisms underneath cap and trade help the situation. And so all those regulations are subject to lots of battle at the Roundtable. I think a third thing that's subject to big discussion at the Roundtable is all that stuff around corporate governance. So this is where I think the cure is worse than the disease. It's a hard issue for us because the public is not on business's side when it comes to corporate governance issues. So we have to be smart. I'll give you an example. When someone says, you ought to have a separate chairman and CEO, or someone says, you ought to have a say-on-pay vote, those are debatable as to whether or not they improve governance or not. But when you say you're going to have a different method of proxy access, and let anybody run for your board seats, that's a huge violation of what we think is the right way to run a company and to create the right kind of accountability. So there are some things where the fight is worth the fight. There's also international taxes. They want to start reversing and changing all the rules of the game with respect to international tax. So if you're a company like Caterpillar or John Deere and you've got a global business and you're producing goods and services in another country, you're making money, you've got subsidiaries there, they want to apply a U.S. tax rate to those firms. To us, there's a whole series of things wrong with that, because some people in the White House call it loopholes and tax havens. I don't know, I think the rate in Italy is 20% on corporate taxes; the rate here is 35%. I don't know why if you're making money there, you're going to pay 35%. So I think there's a whole slew of sort of "tax terrorists" running around the planet, both in government and out of government, working on this. So we need to get this issue out of the emotional state and into a – more of a – what's the right symmetry here and what's the right outputs that we want from the tax laws, rather than to retroactively reach in and take something that looks like it's easy to take because you can. McGee: Do you think there's a consistent view of who should report directly to a CEO? Seidenberg: I don't know that there's any answer. But let me start out with this, and this is where I guess my old age comes in here. So the first thing you can do is go to your board and look at the job of your board. Boards are responsible for strategy, policy, governance. So you've got an audit committee by law, you've got a compensation committee by law, and you've got a governance committee by law. So the people in your company that do that should report to the CEO. That's easy, right? Now strategies are very interesting. Depends what kind of business you're in. So if you're in a business like ours, you would have people like the CIO report to you, because so much of what we do is driven by technology. McGee: Does your CIO report to you? Seidenberg: He reports to my COO. But I don't consider that not reporting to me. I think this is a process question. Everybody says if they don't report to the CEO, they don't have a seat at the table. That isn't quite right. So I think it's how you run the process. If you have the wrong people reporting to the CEO, you end up with dysfunctional behavior. Because most things get done in teams. So your engineer's got to work with technology people, and your marketing people have to work with your technology people. So you have to cluster things correctly. And that's a puzzle that every company has to solve in a slightly different way. And it doesn't get solved because the CEO has 26 people reporting to them, and that person integrates them all – that's a recipe for disaster. McGee: But do you think that there's a given that the head of sales must report to the CEO, the head of marketing must report directly to the CEO, etc.? Seidenberg: As a matter of fact, I would say the other way. There should be a rule that no one must report to anybody. It should be designed – each company should solve its own puzzle. And the best companies figure that out. McGee: I thought I'd invite you to have the final word. Looking into the future, near term, long term, wherever you want to go, do you have any closing comments? Seidenberg: Well, from a Roundtable perspective, I think that, to a person, we are all very optimistic about the power of all the things that could be done in all these industries we represent. Every industry has a view of the future that says there could be a lot more done. So we don't feel that America is trapped in this sort of election year model, where everything is being offshored and jobs aren't being created and wealth is being destroyed. I think we see that we got out of balance; there's no question the real estate industry and financial services sort of got out of balance. And you know, every 10 years something like this happens. Savings and loans that did it, that kind of thing. The wars created this. So what we have to get back to now is fundamentally addressing our balance sheets, focusing on our organic growth, and we'll fill that gap. And it's kind of amazing to think we could even anticipate getting back to 2008 levels by 2011 or 2012. You know, in other cultures, that might take 20 years to do. But I think in America, we're sort of impatient it isn't going to happen in the next two years. So I haven't heard anybody think we can't start to get back to those levels by 2011, and perhaps 2012. But not 2010. But having said that, I think it's a pretty positive environment to think that we could redeploy our capital and engage our systems across all these industries and reignite what's necessary to keep the country on the right track.  |
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