THE ASPEN INSTITUTE

ASPEN IDEAS FESTIVAL 2012

DOES MAXIMIZING SHAREHOLDER VALUE ENDANGERAMERICA'S GREAT COMPANIES?

Greenwald Pavilion,1000 N Third Street,

Aspen, Colorado

Sunday, July 1, 2012

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LIST OF PARTICIPANTS

HOWARD SCHULTZ Chairman, President, and Chief Executive Officer of Starbucks Coffee Company

JOE NOCERA Op-Ed Columnist at The New York Times Business Commentator for NPR's Weekend Edition

LYNN A. STOUT Distinguished Professor of Corporate and Business Law, Clarke Business Law Institute, Cornell Law School, Author of The Shareholder Value Myth and Cultivating Conscience,

SHELLY LAZARUS Chairman, Ogilvy & Mather

THOMAS DONALDSON Mark O. Winkelman Professor at the Wharton School, University of Pennsylvania Director, Zicklin Center for Business Ethics Research

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P R O C E E D I N G S

(9:00 a.m.)

MS. SAMUELSON: Good morning. I'm Judy

Samuelson. I'm with the Business and Society Program here

at the Aspen Institute, but operate out of New York. And

we're glad you're all here. For many of you this may be

your first session. You're just joining kind of part two

of the Ideas Festival, and I'm delighted to welcome you

for what I think is going to be terrific next couple of

days.

This is tough competition this morning. When

you're up against Katie Couric, you got to worry. But

given the topic, we know that you all think that either

women do already have it all or there's no reason to work

on this problem anymore. So we're glad you've all chosen

to be here.

There are tracks at the Ideas Festival and you

could be in the economy track or you can be on another

track. This one is tagged economy, but I actually think

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it's about values, and it would easily fit within the

values track because we're talking this morning about how

we think about what business exists to do. And I think

that value and what we carry into that is one of the most

important questions of our day.

We've got a fabulous panel lined up. At some

point we'll open it up to Q&A and wait for a mic so we can

make sure we hear your question well. And at this point

it's my delight to turn it over to Joe Nocera of The New

York Times who is well equipped to lead this panel this

morning. Thank you, Joe, and to all of you for joining us.

MR. NOCERA: Good morning, everybody, thanks for

being here. We -- I am a little horse, so I may have to

use my water a little more than normal. We have a

wonderful panel here and I am going to introduce

everybody, and then I'm going to tell you we're going to

do it a little more free form than these things normally

go because two of our panelists are academics who have a

lot of questions they want to ask the corporate executives

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on stage as well. So this -- and we're also -- I'm a big

believer in having plenty of time for audience Q&A, so we

are going to do that. All I ask when we get to the Q&A

portion is that you ask a question.

(Laughter)

MR. NOCERA: Sometimes I know that's a tough

thing to ask, but that's what we ask. To my far left is

Lynn Stout, a distinguished professor of corporate and

business law at Cornell. She has been studying the issue

of shareholder value for much of her career in corporate

performance and the interrelationship or lack therefore.

Her most recent book, which I believe is just out --

MS. STOUT: Yeah --

MR. NOCERA: -- is called The Shareholder Value

Myth: How Putting Shareholders First Harms Investors,

Corporations and the Public. So as you can see she has a

strong point of view. To my immediate left is Tom

Donaldson, our other academic, who is the director of the

Zicklin Center for Research and Business Ethics at

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Wharton. He comes out not only from a corporate

performance perspective but from a business education

perspective. And we're going to talk to him about that.

Howard Schultz, of course, is the founder,

chairman, chief executive and president. I didn't know

you were the president too --

(Laughter)

MR. NOCERA: -- of Starbucks. Wow, and I bet if

he went into a Starbucks he could work the machines. As

you may know, Howard has powerful thoughts about, if you

saw him yesterday, powerful thoughts about the importance

of values in a corporation and how that should drive

profitability as opposed to simply focusing on shareholder

value. And I just want to point out that in this

morning's New York Times, on page 7, Starbucks has a

letter that Howard wrote about the need to get America up

and running again and what we can all do to try and help

make that happen.

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And last but not least is Shelly Lazarus, the

chairwoman of Ogilvy & Mather, one of the great

advertising people in the United States and she's also a

director at both Merck and General Electric, and we're

going to ask her about corporate performance and values

from a director's standpoint.

I'm going to start with Lynn because one of the

things that struck me about your book, which I think is

really an excellent piece of work, is that you take apart

the idea that there is a legal foundation behind

shareholder value. Now, I happened to be in the room when

shareholder value was invented. It was 1982, Waldorf

Astoria, and Boone Pickens was trying to take over City

Service, his very first deal.

And in the old days, in the '80s, the raters

were saying the shareholders own the company, the

executives don't care enough about the shareholders, we

want to change the dynamic so that the shareholders, the --

what the shareholders want and profitability and

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maximizing profitability is what comes first. If you

would ask Boone today how that all worked out, he would

probably say not so well.

But through the course of those decades, a

mythology surrounded shareholder value, which is that not

only is it what corporations ought to be doing, but it's

what they are required to do by law, and that there are

fiduciary responsibilities to shareholders that sort of

preempt every other value. Lynn says that's not true.

And so I'd like to start with Lynn and ask you to talk

about quickly why it isn't?

MS. STOUT: He said you weren't in the room, but

you are associated with the entity that caused all the

problems and that was The New York Times.

(Laughter)

MS. STOUT: And the story actually begins

earlier in 1970.

MR. NOCERA: It's always The New York Times.

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MS. STOUT: It's always The New York Times. It

actually begins earlier in 1970 when Milton Friedman

published a very famous article in which he said the only

social responsibility of corporations was to increase

their profits, and he made a very interesting statement.

He said shareholders own companies. And Milton Friedman

may be a Nobel Prize winning economist, but I'll tell you

he's no lawyer.

And so I'm going to reveal to you something.

Now, how many people in the room are lawyers, especially

corporate lawyers? Okay, I'm going to reveal something

that us corporate lawyers already know, and that is that

legally shareholders do not own corporations.

Corporations, as the Supreme Court has been careful to

remind us, are legal persons. They own themselves.

Shareholders own things called shares. And

they're really a contract with the corporation that gives

shareholders very limited rights in very limited

situations just as bond holders have a contract with the

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corporation and employees have a contract with the

corporation. So we have this interesting situation -- oh,

and as to maximizing shareholder value, that's not in the

law.

And you know, how you can tell? The case that's

always cited in support of this proposition is nearly a

century old, comes from a jurisdiction that is a nothing

in the corporate law world and didn't involve a public

corporation to begin with. It was actually a fight

between shareholders in a closely held corporation. I

speak, of course, of the famous Dodge versus Ford.

Now, any lawyer will tell you if the only

corporate law case you can cite in support of a

proposition comes from Michigan instead of Delaware, is

almost a 100 years old, and doesn't deal with a public

corporation in the first place, you have to be very

suspicious as to whether that's the law. And it's not.

Delaware, which is, of course, the state where

over half of the Fortune 500 companies are incorporated is

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very clear. If it's not in bankruptcy or being -- or

about to go private in a takeover, the directors of a

public corporation have, and I'm quoting the Delaware

court now, "No per se duty to maximize shareholder value."

And so is that enough of a start, Joe?

MR. NOCERA: That's great. Howard, you come at

this from the perspective of somebody who has built a

fabulous company and who has believed virtually from day

one that there have to be -- that maximizing profitability

cannot be the only value. So why don't you just give us

the sort of 3-minute summary of your point of view here,

profit versus value?

MR. SCHULTZ: Well, I think we've always

believed that you can't build a company unless you're

balancing profitability with a social conscience. And I

think the story of Starbucks has a lot to do with looking

at that through a different lens, looking at it through

the lens of people. And I can get very emotional about

this because the essence of Starbucks is not the

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shareholder. It is whether or not the people of Starbucks

are embraced and they are valued as much as the

shareholder.

So in 1988, when we were a private company and

we looked at the future of the company, we did something

that no one else had ever done before and that was we gave

shares to our people. And the reason I'm upset about this

in a sense is that we're arguing about something we

shouldn't be arguing about. The shareholders today cannot

succeed unless the people are rewarded and valued.

As a private company in America in 1988, we

decided we were going to dilute shareholder value and give

equity in the form of stock options to our employees.

Fourteen percent of their base pay was going to be

rewarded in shareholder shares. Well, let me just -- let

me explain this. The private shareholders of Starbucks at

the time went crazy and they said are you kidding, you're

going to give equity to the employees? We're a private

company. How could you do that? And we said we will

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retain the people. They will perform better and we will

exceed shareholder value because we will exceed the

expectations of our people.

And I think the essence of business today has it

all wrong. It's not shareholder value. It's in building

an enduring and sustainable enterprise. And the only way

you can do that by exceeding shareholder value is to

reward your people.

And I think we have to understand something.

It's whatever organization you're building, whatever

company, whether it's high-tech, whether it's insurance,

whether it's coffee, every organization is based on one

thing, whether or not the people come to work believing

trusting and are part of something larger than themselves.

That's the only way business can succeed.

And I think it's interesting to me that we're

still arguing over a subject that really should've been

put to rest a long time ago. Shareholders cannot win on

the backs of their people. The only way shareholders can

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win is if you reward the people along with the

shareholders and you tie shareholder value to the value of

your employees.

MR. NOCERA: Well, you know, just my perspective

is that you may say this is a battle we shouldn't be

fighting anymore and you may be right, but it actually

seems to me that we're more or less at the beginning of

this as opposed to the end just in terms of the way

shareholders respond, the expectations that are put on

CEOs, the short term focus and the pressure that's put on

a CEO like your friend at Procter & Gamble, you may want

to tell people about that, when the stock is

underperforming, whether it's their fault or not.

MR. SCHULTZ: Well, I spoke yesterday by saying

that I've a good friend, Bob McDonalds, the CEO of Procter

& Gamble, one of the great companies in the world and one

of the great people running a public company is under

tremendous pressure because his European business, the

customers and the value of money is so difficult there

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that people are not buying as much soap as they used to,

and they are blaming him.

Well, it's wrong. You can't put pressure on

people to do things if the environment does not allow it

and there has to be patience and tolerance. At the same

time you can't make short term decisions either in the

marketplace or internally by taking benefits away from

people just because you're having a bad quarter or two.

You've got to build long term value for the shareholder by

taking a long term view for the company.

And I think if you look at the history of

companies, those companies that have done that have

produced the highest value for the shareholder. And I

think we're still arguing about this and discussing it,

but it's the wrong premise.

MR. NOCERA: Shelly, from the perspective of a

corporate director, how much time gets spend on these

kinds of things and what is your perspective in terms of

the need to boost the share price versus these other

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values?

MS. LAZARUS: Well, it was -- we had a

fascinating moment in the GE board about, I'd say, 2 years

ago, and one -- it's actually quite a collegial board and

very strong people. One board member said at one point

but what we have to do is think about the stock price at

which point the other 15 board members just piled on this

man and said, no, really, the role of the directors is to

ensure the long term health of the company.

So I think time horizon is really important in

these conversations. And while I think everybody is aware

of the share price for sure, I think the sense of the

boards that I sit on is that the role of the directors is

to ensure the long term health of the company. And one of

the things the board has to do is kind of protect the CEO

from all the pressure that he is feeling from the

investors who have a more short-term horizon.

And to that point I just like to add to

something that Howard said, my own perspective, on how do

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you think about building that long term value for the

company is that -- you know, it's interesting that every

company in the world almost, if you ask them if they are

market driven, they say yes, of course, we're market

driven. With the exception of Russia during the Stalin

period or China under the communist that used to just

write plans about production, every company inherently is

market driven.

Well, in my business I watch the market. The

market has spoken. The market cares about what kind of

company is manufacturing the products and services that

they are buying and they -- if you don't tell them whether

or not you're a good corporate citizen, in my experience,

they impute values to you. They know who the good guys

are and who the bad guys are. And the younger the

consumer is, the more they care.

MR. NOCERA: Yet your CEO, Jeff Immelt, has

spent much of his tenure being under pressure from

investors because the stock price -- I mean he walked into

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a tough situation.

MS. LAZARUS: Oh, absolutely.

MR. NOCERA: And it's been in tough situation

for him all along.

MS. LAZARUS: Absolutely. And he could've --

there were moments where he could have taken some moves

that would've boosted the share price in the short term,

but they wouldn't have been the right decision for the

long term value of the company in his view and with the

backing of the board.

MR. NOCERA: Tom, let's talk about this from the

perspective of a business educator and what gets taught in

terms of values, what doesn't get taught in terms of

values and what the problems are at the business school

level.

MR. DONALDSON: Well, actually I wanted to pick

up on Shelly's point. I want to disagree just a little

bit, not so much with your characterization of the board

or the boards that you see, but with how we train people

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to be board members. I end up being in corporate

governance workshops and sessions trying to train people

who are already quite prominent to be independent, not

exactly board members. And I can tell you from the

standpoint of what they get taught, the kind of thing that

you're talking about doesn't show up. It doesn't show up.

Now, when you attend a board meeting, you begin

to hear about it. And that actually brings me to the

point that I want to focus on, which is I think part of

the problem lies with people like me. I think part of the

problem lies with business educators. I'm concerned about

the future of American business. I'm not just concerned

about the failure of government to handle things. I'm

worried about that, not just worried about presence greed,

excessive greed. I'm worried about how we train people to

be hired managers, especially in large corporations.

Think of the story of the MBA who comes in on

the first day to a school. I see them. We have 800

students that appear every year. They come in and they

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are looking for tools to help them, they are looking for

credentials. They bring with them, by the way, a kind of

common sense conception of responsibility, of purpose and

so on.

What happens in the next 2 years? Well, we give

them the tools. We teach them how to calculate net

present value, how to do regression analysis. We give

them the five forces strategic Porter model, capital asset

pricing. All of these tools interestingly enough assume,

although interestingly, very few say out load, I think

that's interesting, that the sole function or purpose of

the firm is financial success for the owners.

By the time they leave, what's happened? In

effect they have had some of these common sense notions

trained out of them. It's death by neglect, death by

permission in effect. And we haven't provided them any

story to replace it. So what my concern is we don't have

the tools in business schools today to explain what smart

people, smart business leaders like Howard or Bill

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Budinger in the office, people who have created great

corporations know all along, and that is to be a leader

you've got to give people a sense of purpose, you've got

to give them a sense of meaning to help them do what they

need to do.

MR. NOCERA: Well, when you -- you have a center

for business ethics. How many students go to it? I mean,

how -- do they walk past your door? I mean, what happens?

(Laughter)

MR. DONALDSON: You know, it's interesting.

MBAs are very concerned about the image of the school that

they're attending. I mean, that's part of what they are

paying for, credentials. So I -- well, I shouldn't tell

the story, but I recall some students who gathered

together with me and the dean and they wanted more

courses, electives, that would focus on ethics, purpose,

et cetera et cetera. And at one point of the meeting I

said, well, now by the way, how many of you will take this

course? And nobody raise their hands.

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(Laughter)

MR. DONALDSON: They said, well, we have to get

the nuts and bolts stuff to get out.

MR. NOCERA: Lynn, one of your views is that the

emphasis on stock performance really hasn't worked very

well. So in addition to being a myth that it's a

fiduciary responsibility, it's a myth that it actually

works. You've got some statistics from your new book.

MS. STOUT: Absolutely. Yeah, I think it's

always valuable to pay attention to facts. So let me give

you some facts, and these are things we know. Okay, we

all know the unemployment rate is up, right, and we all

know that inequality is rising, but here's some things

that you may not know. Between 1997 and 2008, the number

of companies listed on U.S. exchange has declined from

8,823 to only 4,501. So the population of public

companies has declined 40 percent in a 10-year period. If

this were a species, we'd call it endangered.

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According to Steve Denning at Forbes, the life

expectancy of a typical public corporation has declined

from 75 years in the 1940s to 15 years today. There is

some evidence that our corporations are less innovative.

They account of a smaller percentage of the patents that

are filed worldwide than they used to. We all know that

executive pay has risen dramatically, but we also know

that simultaneously shareholder returns have declined.

The last year has been -- you know, the last

decades, actually it's now the last 15 years, have been

described as the loss decade for investors and this

actually starts somewhat earlier. Roger Martin at the

Rotman School in Canada has calculated that between 1933

and 1976, shareholders who invested in the S&P 500 enjoyed

real compound average annual returns of 7.5 percent.

After 1976 this average has dropped to 6.5 percent.

MR. NOCERA: So Lynn, what has happened? In

other words, everybody talks about pay for performance and

nobody really talks about pay for values or pay for

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purpose or -- what has actually been happening?

MS. STOUT: Well, I'm going to actually say, you

know, I'm a hard headed economics type. I actually have a

case book in law and economics. I don't worry about

values. I leave that to you guys, you business people.

Here's a professor. I'm going to be hard headed. But

what's happened is that we're learning is that pursuing

shareholder value is bad for shareholders as well as

pretty much everyone else with the exception of some hedge

funds and some executives.

And I trace this series of problems, the suite

of problems that are reflected in these statistics, they

have a lot of causes, but one of the causes I think is

ideology, and the widespread acceptance of this very

simple, I will actually say, simplistic, idea that

corporations are run well when they are run to maximize

shareholder value, which is almost always ultimately

measured by share price.

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And that makes a fatal mistake. It teaches

business people, many of whom, and we have two on the

stage here, have resisted the notion because they know

better, but it tells business people that they are

supposed to run their companies according to the metric of

a hypothetical entity, a non-existent entity, this

hypothetical shareholder that only cares about what

happens to the share price of one company tomorrow.

And that hypothetical entity is a functional

psychopath, seriously. Shortsighted, opportunistic and

willing to exploit employees, self destructive, pursuing

shareholder value at one firm even though it harms their

other interest, their interest in their jobs and their

environment and their returns from their other investments

and psychopathically unconcerned about the welfare of

other people, the future generations of the planet.

MR. NOCERA: I've never met any CEO even close

to that explanation.

(Applause)

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MS. STOUT: Right, I know.

MR. NOCERA: I don't know what statistics you're

reading, but those are not the people who are running

American companies.

MS. STOUT: No, don't misunderstand me. I'm not

saying those are the people who run American companies. I

know a lot of business people. I actually think they

score pretty well compared to say, I don't know,

professors, on ethics and values. The problem is that the

business people are under pressure to run their

corporations according to the psychopathic ideal.

I'm not saying that's your goal. I'm saying

you're constantly subject to pressures to do it even

though ironically enough at the end of the day the

structural pressures, it's not evil people, it's not evil

shareholders, it's not evil executives, it's a system that

is now structurally designed to produce results that are

bad for almost all of us.

MR. NOCERA: Howard, you look like you disagree.

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(Laughter)

MR. NOCERA: Well, Howard, how are you paid?

MR. SCHULTZ: I have a salary like you, Joe.

And we get a bonus that is tied to EPS and return on

equity. And Starbucks has obviously, you know, the last

12 months or so had a record year, record revenue, record

profit, record stock price.

But I think just going back to what you said and

really the topic of this conversation is at the end of the

day it's really about what you are measuring and rewarding

inside your organization. I can't remember a conversation

honestly at any Starbucks meeting where I've heard

somebody say this is going to be good for the stock price.

I've never heard it.

The only issue that we're talking about at the

center of every room is our customers and our people, and

trying to do everything we can to exceed expectations.

And the lens in which we manage and build the company is

trying to do the right thing for them. And I think the

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litmus test for us all the time is, is this decision going

to make our people proud because if it isn't they are not

going to support it and execute it, and is this going to

be good for the customer.

And I think when you're managing a business with

that kind of framework it's very easy to do the right

thing. Now, we all have pressures. I understand exactly

what you said, but you're the leader of the company and

we're leaders and we're paid to be leaders and we're paid

to be moral people. We're not paid to justify the wimps

and the short term mentality and the pressure of Wall

Street, which is no longer a quarter to a quarter and 5

minutes. But we're not going to play their game. The

game we're going to play is we're going to build a great

sustainable enduring company by trying to do the right

thing.

And as I said yesterday, and we're going to make

mistakes and we're not perfect, but we are going to

perform over the long term. And I think getting back to

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all of this is Starbucks employs 200,000 people. We're in

the people business. We can't create value for the

shareholder if you don't create value for your people.

It's a pretty simple formula.

MR. DONALDSON: And let me push you just a

little bit on that.

MR. SCHULTZ: Yeah.

MR. DONALDSON: I think you know how much I

admire what you've done and this sounds great. But as you

put it, you're in the people business. You sell a premium

product, you sell a product that you can get a price

premium for in part because of the image. If you were

manufacturing ball bearings and having to sell them B2B,

business-to-business, to somebody else, if it wasn't so

important that the people in front of the customer had the

enthusiasm but just that they made the ball bearings at a

cheap price that's competitive in a commoditized market,

wouldn't it be different?

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MR. SCHULTZ: You know, I think every industry

has its own challenges. But I think if you look at many

of the industries or in a commodity type business, those

businesses that win are the businesses that are doing the

right thing. I mean, I understand your question. It

would be harder. But I'm not in that bus. I can't really

answer that question.

MR. NOCERA: Shelly, what about -- you know,

you're on boards of two different companies, GE is GE,

always has been, kind of always will be. But then there's

Merck. Merck is under enormous pressure as are all big

pharmaceutical companies as the pipeline dries up, as they

are trying to figure out different business models. Is

there a different set of pressures to be on a board of a

company like that?

MS. LAZARUS: I think the issues are the same.

I mean I don't -- I think -- you know, one of the things

that I find interesting about all these conversations is

we don't talk a whole lot about revenue. I mean, you

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know, to have a long term health company you need revenue.

And so the conversation, a lot of the conversation in most

of the meetings is how do we drive revenue.

And so in the instance of Merck, in

pharmaceuticals, if we don't have a pipeline, we don't got

no revenue because after 7 years, the drugs go off patent.

And so it's actually critical, back to people. And how do

you get the good pipeline? We get the good pipeline

because you have the best scientist. And you create an

environment for them that is conducive to their coming up

with new exploration.

So there too, I mean, even with all the

pressure, you got to feel the pressure, you got to take

the pressure, but you can't let the pressure get down to

the people who are doing the work because what they have

to focus on is making great drugs. And without them the

whole game is over. That's the thing, is you can tweak it

for a month, you can get the numbers better for a quarter,

but at the end of the day in this, I would say for any

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business, but in this particular business, it has such a

long horizon, you're going to be nowhere 3 years from now

if all your scientists get up and leave and you don't have

the drugs. If I were thinking about shareholder value,

that's the way I would define it, is are we going to have

a pipeline of drugs that is -- will make a difference to

people and will keep the company successful and prosperous.

MR. NOCERA: Which is in itself a form of

purpose. I mean Apple --

MS. LAZARUS: Yes, but it's revenue-driven

purpose, yes, yes.

MR. NOCERA: I mean, Apple Computer has long

viewed itself as both a company that builds devices but

also a company that helps make life a little better in the

world.

MS. LAZARUS: Oh, absolutely.

MR. NOCERA: And that's the purpose that really

drives it. Well, it seems to me, listening to the four of

you, and listening to you two push back, that the

3333

perspective from inside the corporation is a little

different from the perspective of the people outside the

corporation. From inside the corporation it feels to me

like you're trying to create a company or you are creating

a company with purpose, a company that's trying to look

out on the long term and trying to kind of put up a kind

of shield against the short term pressures that are

inevitable. But from the -- but, wait let me just --

MS. STOUT: Just a marker, not inevitable. But

we'll get to that.

MR. NOCERA: Right. And so from -- you know,

Carl Icahn isn't going to make a run at Starbucks but

there are a lot of companies where he is and there's a lot

of companies where Bill Ackman is going to take a stake

and say if we financially reengineer this company we'll

all make a lot of money as you just did with Burger King

for instance. A company that -- I mean, whatever you

think of the burgers, the company has been a pinball

machine for financial engineers. I mean, everybody gets

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rich except on Wall Street. So the question I really want

to ask is, how do you change the perception, not from the

person inside the corporation, but from the shareholders

on the outside, how do you that?

Tom, what are your thoughts about that?

MR. DONALDSON: Well, I think in the end it's a

shift that's almost generational. It's deep, and because

I'm an educator, I think a lot of it has to do with what

we teach the leaders who are going to be manning the

tiller. Lynn, I don't want to beat you up but it seems to

me you're --

MR. NOCERA: Go ahead, go ahead.

MR. DONALDSON: -- part of the problem here. I

just heard you say I want to be -- I'm an academic. I

want to be tough minded. I don't want to talk about

values. And I can't tell you how prevalent that view is.

How did we get in to this situation, those of us who tried

to teach and create theories about business? We invented

a beautiful hammer, a beautiful powerful hammer; analysis

3535

of data, a hypothetical deductive model, the testing of

hypothesis, the tough minded stuff.

The problem with this, and it's very powerful,

is it doesn't do very well at understanding purpose

because purpose is not something you study out on the

road; it's something as a leader you create. And so to

use the old saw when the only thing you have is a hammer,

everything starts looking like a nail.

MR. NOCERA: So I mean, like, did you want to

say, respond to that?

MR. SCHULTZ: Well, I think, you know, one of

the things that we did the last couple of years is that we

went around, not for any other purpose, just to

communicate our strategy and what it is we had to in the

next couple of years with our key institutional

shareholders who have held Starbucks stock for a while.

And we talked about that there is -- we're witnessing a

seismic change in consumer behavior.

3636

And as a result of that we're going to need to

make significant long term investments in social digital

media and mobile payment and mobile commerce. And I think

they understood because of the long term opportunity and

obviously the performance and the license that we had

based on their confidence and trust in us as people.

But what I wanted to say is as leaders of

companies you have to invest in those relationships as

much as you do with your people, your board, because those

relationships are going to define ultimately your stock

price. And I think you can't be insulated from that just

because you're running a company. You have to invest in

those relationships as well.

MR NOCERA: Go ahead, Shelly.

MS. LAZARUS: No, I was going to say we -- I

also think we have to start educating everybody about the

fact that there's not a -- there's not an either or choice

between doing the right thing and making money. I mean,

and I take the example of GE, of ecomagination, which Jeff

3737

Immelt from the first minute that he presented that

concept said this is not about doing right for the

environment for the sake of doing right for the

environment. This is about making money.

The reason we're going to make money from

ecomagination is that the world cares about the

environment. And everyone of our customers -- because

they're mostly B2B -- every one of our customers is

looking for products that are going to be -- do more with

less, more conservation, more green, so locomotive engines

that don't pollute and light bulbs that don't give off

pollution as well and -- but he kept saying from the start

that this is a business proposition that will make us

money and so, you know, green is green.

And ecomagination today is, it's billions of

dollars of business. It's its own division within GE. It

is billions of dollars of business to GE every year. You

don't have to make a choice. It's the same thing. You

know right is on our side. It's doing the right thing now

3838

actually drives revenue. And when that happens, you don't

have to get to these conversations about do we trade off

doing the right thing for profit. It's the same thing.

You know, green is green.

MR. NOCERA: All right, Lynn, I'm going to give

you a chance to defend yourself. And I'm going to try to

open it to questions in about 5 minutes or so.

MS. STOUT: Okay. And actually I'm going to

welcome Tom's criticism. He is right to go after me for

ignoring values. And just in my defense, my book before

this one, the title was Cultivating Conscience. So I do

take them seriously. But I don't think as much as

important as values are I don't think values enough are

going to do it. We have an extraordinary CEO here and an

extraordinary chair. But a lot of other CEOs and chairs

are mortals and this is what they have to worry about.

So here's another fact for you. In 1960, annual

share turnover for firms listed on the New York Stock

Exchange was only 12 percent implying an average holding

3939

period of about 8 years. By 1987, this figure had risen

to 73 percent. By 2010, the average annual turnover for

equities listed on U.S. exchanges has reached an

astonishing 300 percent annually implying an average

holding period of 4 months. How do you talk about long-

term values to a shareholder who's going to be owning your

stock for 4 months? There's a deep structural problem

here. And you lawyers, you get to smile quietly.

I think one of the reasons why I can see it is

that a lot of the problem has come from changes in the

law, that people who don't spend their days studying, you

know, what the SCC or the IRS has done lately are not

aware of. But one of the reasons why we see this

incredible hyper-frenetic trading is that the cost of

trading has come done dramatically. Why has it come down?

Well, among other things, I don't know how many

of the people in the room remember this, we used to have a

transaction tax on trading stocks. Now, we're taxing

everything else today. And if the Obamacare goes forward,

4040

we're going to start taxing. There will be sales tax on a

little old lady's purchase of an artificial hip for a hip

implant, right? We're taxing hip implants. We're not

taxing stock trades. Now, another thing that's happened

of course, you all remember --

MR. NOCERA: Well, wait, stop. Stop right there.

MS. STOUT: Yeah.

MR. NOCERA: So how do you -- how do the

corporate people on this panel feel about a transaction

tax?

MR. SCHULTZ: Well, Joe, that's -- I have no

opinion on that.

MR. NOCERA: Okay.

MR. SCHULTZ: I'm not in the business of

transaction tax. I'm not in the business of short term

trading. I'm in the business of creating long term value

for multiple constituents.

4141

MR. NOCERA: Could you tell the story you told

yesterday about the hedge fund guy who called you up in

the throws of --

MR. SCHULTZ: In 2008, during the cataclysmic

financial crisis when we were really trying to navigate

through a very tough period, maybe 6 months into the

crisis I got a call from one of our institutional

shareholders who I had known for many years. He's held a

stock for probably a decade. And he said to me, you have

the perfect opportunity and all the cover in the world to

cut the health care benefit out of Starbucks.

We've been providing health insurance for over

20 years. That line item this year is $260 million. And

I said to him, you know, I understand why you're calling.

But you need to understand if we cut that benefit, it

would literally fracture the culture and values and

guiding principals for our company. We couldn't do that

and we wouldn't do it.

4242

And I said to him very politely, without

arrogance, if you feel that a no-decision on that is

worthy of you cutting your holdings in the company, then

you should do it. And a week later I found out that 50

percent of his shareholdings in Starbucks had been cut in

half. And I said, okay, fine, he made his decision. But

we stood for the long term purpose of the company.

And I think even if the stock goes down, that

wasn't going to phase us. It was going phase our board.

It was going to phase our intent. We were going to manage

through the crisis. And I think also what I said

yesterday is you can't have good values just because you

have a tail wind. You've got to have good values when you

have a head wind and believe and have confidence and faith

that you're going to manage through it, and we did. Not

because we're perfect or better than anyone else. It's a

story that's true and authentic. But there's lots of

stories like that, of fantastic companies and fantastic

CEOs that are always doing the right thing. They just

4343

don't get the ink.

MS. LAZARUS: But I think, if I could just -- I

think, Howard, that's also where you need a strong board

because if three more guys had done the same thing -- I

mean, the board's got -- that's when some board's get

shaky, you know. And that's why you see CEOs changing

too, that the board start to feel all this pressure from

investors. And you got to hang in there and remember all

over again what the long term purpose of the company is.

MR. NOCERA: I'd like to open it up to

questions. Right there, sir.

MR. GANS: Thank you very much. My name is

Mitchell Gans. I teach at law schools in New York tax

courses. And so I'm thinking about the article in The New

York Times some months ago which was principally about, if

I recall correctly, GE and it's tax avoidance strategies.

And I'm wondering about that from an ethical or values

perspective. And I'm particularly interested, of course,

given the panel, I'm particularly interested in the kinds

4444

of discussions that might occur in the board room about,

you know, is that doing the right thing.

And, of course, this is all against the

backdrop, from my perspective of teaching tax, it's all

against the backdrop of changing norms really about tax

avoidance strategies in general. I mean, the IRS and the

Department of Justice indeed have -- you know, there's

kind of been a paradigm shift. I mean there are tax

lawyers now who are actually sitting in jail for merely

because they wrote opinion saying that certain tax

strategies worked and the governments disagreed. So

anyway I'm wondering about the discussion in the board

room about is that doing the right thing and is it

coinciding or is it contention with the objective of

making money.

MR. NOCERA: Wow, Shelly, you weren't expecting

that one really?

MS. LAZARUS: Well, actually it's not a hard

question to answer because I really don't think it was an

4545

issue of ethics and values. And frankly, it really didn't

come to the board because it was just -- we have a

strategy to pay the least tax that we can pay. I mean,

that's part of -- I mean, I don't how to get to a strategy

that says, oh, let's pay a little more; we're feeling

better this year. I mean, it's -- I think the whole way

the system is structured is -- has people working to sort

of minimize taxes. I think that's what's expected.

Now, the thing that caused the real brouhaha was

that in the year where this all came about is GE lost

billions of dollars. You know, it's did the company want

to lose billions of dollars? No. But when you lose

billions of dollars, you don't pay tax. I mean, as far I

know -- I mean, there are lawyers here. I don't know. As

far as I know that's not required. And so I think if I go

back to The New York Times -- so The New York Times ran it

as a front page story, that GE pays no taxes. And that

was true, but I don't believe that for GE and the board at

that moment in time it was an ethical issue.

4646

Now, whether it's a larger ethical issue for

society, government, corporations, you know that's a

different conversation. But in the GE instance, I think

what caused the whole concern was a horrific year for the

company where the stock fell from $40 bucks to $20 bucks.

And one of the outcomes of that was that we didn't owe any

tax.

MR. NOCERA: Yes, sir. Grab a mike.

MR. JONES: Thank you. I'm David Jones. I was

chairman of the board until a couple of years ago of a

Fortune 100 company called Humana and now run a venture

capital firm. And I wonder if you could comment on the

importance in this context of balancing short term against

long term of both management and board members owning

material amounts of stock not having options to buy it

later but actually owning it.

MR. NOCERA: Could you just expand on the

question a tiny little bit? I'm not quite sure what

you're getting at.

4747

MR. JONES: Sure. Well, the pressure here

supposedly is that the hedge funds who were trading in and

out of your stock or hooting and hollering that you got to

do this or that today to improve the price in a week. And

if the management, in my experience, and the directors

have actual shares that they own and it matters to them,

my experience very strongly is that's pretty easy to

resist because you can make an investment today that will

pay off in 3 or 4 years. That's what Howard is talking

about, right, keep your work force focused and caring

about the values?

MR. NOCERA: I think, Joe, what he's asking is

whether or not there's been policy change for section 16

officers and board members?

MR. JONES: It's not a legal question. It's not

a legal question. It's -- does it matter whether the

agents and the fiduciaries have a long term interest in

the value of the entity?

MR. NOCERA: Oh, from their own stock holdings?

4848

MR. JONES: From their own personal perspective?

MR. NOCERA: Okay. Nobody knows.

MS. STOUT: All right, I'll weigh in on this.

MS. LAZARUS: I don't think it should. No, I

mean, I don't think it should.

MS. STOUT: I'll just give you two historic --

I'm big on facts. That's what they pay me to do. Two

facts. Before Congress changed the law in 1993, to

require public corporations to tie pay to some objective

performance metrics, CEO pay was based largely on a flat

salary -- I was very glad to hear of your salary

arrangement -- with some share ownership which was

normally done just -- the CEO themselves thought it was

appropriate to buy and hold stock. It was thanks to this

legal intervention, ironically enough, that suddenly

companies felt compelled to start using stock options, and

we all know where that has landed us.

Second fact, actually a CEO of Monsanto, a

former CEO of Monsanto who read my book send me a

4949

wonderful e-mail and he said that he had detected a change

in the culture, and back when he was the CEO, no self-

representing CEO would sell his own company stock. The

norm was if you were selling your own company stock you

were telling your shareholders that you didn't believe in

the company.

And that that changed a couple of decades ago

and suddenly CEOs were advised -- and I'm wondering, Tom,

if maybe your folks at Wharton had something to do with

this. Maybe the finance department went in and told the

CEOs they had to rebalance their portfolios, right.

MR. DONALDSON: Call me back.

(Laughter)

MR. NOCERA: Right here.

MR. CORDIAN: Thank you. My name is Rick

Calderone, I'm a professor at Georgetown University, and I

relate to Tom that I've known for a while since his good

old days at Georgetown. And I deeply, deeply relate to

the responsibility we have in business schools to train

5050

our future managers, future leaders because of what they

need to do and I always maintain the thesis that business

schools are manufacturing facilities of overhead.

Hopefully that's an intelligent overhead.

But in any event, the bottom line is the

following. I think that metrics condition behavior. And

if metrics condition behavior. There are three dimensions

that we have been discussing today. One is the financial

dimension, financial performance. The other one is

operational performance, and the third one is social

performance. I would argue that the financial performance

has been way -- I mean, is ahead of the pool of the other

metrics which can be done objectively. And that's why

it's so easy to measure them.

Operationally, depending on how you evaluate the

whole thing is also okay. And we could argue, without

getting too much into the whole thing, that there is a gap

between the financial performance and the operational

performance. But the one that has been left out of this

5151

equation is the social performance.

So what I want to know, particularly not from

the academics, but from the other two, is which ones are

the metric you would recommend, like our key. Because,

you know, I understand the passion that you put into

telling the people that they should and create this sense

of community that you created Starbucks. But when we

teach at our business schools, we don't have you there.

And then not all of them are going to be working for

Starbucks. So how do we develop a set of metrics that at

least will put in their head, this is the carrot that will

close the three sets of metrics; the financial, the

operational and the social?

MR. SCHULTZ: I certainly respect that you are

professor and you want a metric.

(Laughter)

MR. SCHULTZ: But I -- but this is not the real

world. We don't sit in a room and measure metrics. Let

me tell you a very brief story. Last month -- and I think

5252

this will hopefully give you an illustration. Last month

we went to China. We have a 1,000 stores in China. We

went to Beijing and Shanghai. We went there for a very

unusual unorthodox reason, to have annual meeting. Not an

annual meeting of shareholders, an annual meeting of

parents. Parent's of our employees in Beijing and

Shanghai. Can you imagine that?

You can't put a metric on that. There is no

metrics. What it is, is a sensitivity, an understanding.

And the understanding is the family unit in China and the

one child within that family is everything to the parents.

We had an obligation, a responsibility, if we're going to

build a long term business, thousands of stores, to build

the relationship with the parents. There is no metric for

that. It's an understanding that business is not just a

financial metric or a financial goal. It is a -- it's a

narrative and in that narrative is a number of things that

you have to do to be successful.

5353

And there is this new relevancy and the new

relevancy is the innovation that we all have to have in

the market place, you also have to have in the social

responsibility of being an external good employer to the

community but also innovation to your employees. Doing

things for them that are unaccepted that they see value in

and that they want to embrace and as a result perform.

There's no metric for this.

MS. LAZARUS: But, Howard, wouldn't you -- but I

would answer that there is no social metric, that the

social piece drives the financial performance and the

operational performance. What you're just talking about

is everything you did in China drives your enterprise in

China.

MR. SCHULTZ: Yeah. And I'm sure we'll be more

successful as a result of doing the right thing.

MS. LAZARUS: But I think -- I actually think

it's a trap to separate out the social piece. I actually

do. I'd think it's not the thing you do after you do

5454

everything else. It's not sort of -- we'll run our

business and then we'll be good guys. It's what's

happening now is it's going to the core of the business,

that the business has to be responsible. And this is my

own view and that the most successful businesses that you

look at do have that inherently at their hearts.

MR. NOCERA: Tom.

MR. DONALDSON: Yeah, let me just jump in. I

agree very much that it's horribly difficult to measure.

But I would submit that because of a tendency for it to be

more toxically joyful at the top of the organization. In

other words, I mean, we measure this stuff. and it is

true that the view is rosier about the ethics and social

responsibility of the firm if you survey the people at the

top in contrast to ways down. So we can deceive ourselves

that we have to sometimes try to take the temperature of

the organization.

Now, this entire movement that flourished in

Europe for the last decade-and-a-half in social

5555

accountancy. And it's very fancy. It has a record that I

think is unblemished by success.

(Laughter)

MR. DONALDSON: In other words it has failed at

almost every turn. But, what I find -- I mean, when I am

pushed to take the temperature of an organization, instead

of looking at the black letter principals, the codes of

ethics, the credo statements, all that stuff, I listen to

the stories that are told. And that way you can get to

their culture. And in Starbucks just what wonderful

stories there are that probably almost everybody working

at Starbucks knows about. If those stories aren't there

and they aren't good, you've got problems.

MR. NOCERA: Sir, you had your hand.

SPEAKER: A quick question. This is a real

question for the fact lady. Tell us the story behind

those two numbers; 75 years of average age to 15 and that

enormous drop. What's the story behind those two numbers?

5656

MS. STOUT: First of all I'm the stout lady, not

the fat lady.

MR. NOCERA: He said fact. He said fact.

(Laughter)

MS. STOUT: Oh, fact. See I'm feeling --

(Laughter)

MS. STOUT: I am clearly feeling guilty over the

dessert last night.

(Laughter)

MS. STOUT: But now you'll all remember, won't

you? This is the story and it's an interesting one. It's

a mix of things. First of all, lots of our public

companies have blown up. There are no CEOs from Enron

here, right? Or any of the other companies that have

failed, some of them in a very dramatic fashion, in the

last 8 years.

Part of the story is public companies are going

private like Dunkin' Donuts. They don't want to deal with

their public investors. Part of the story is that

5757

companies that are private don't want to go public any

longer. And there is an interesting part of the story

that I think has been missed. And here you go, Joe, story

for someone. Maybe not for you, but someone at The New

York Times. A lot of the companies that are going public,

the few, they're actually what I call closet private

companies because they're going public with dual class

share structures that make sure that the founders maintain

voting control so they're not subject to pressures from

these short term traders.

And by the way, Howard, I will point out, I

think you find -- the puzzle I had for Howard is how can

his company resist these short term pressures if they have

public shareholders? Now, I know the answer. A lot of

your shareholders are your employees. That helps. So

that's the story behind the fact.

MR. NOCERA: You know, just for the record

though, public companies going private is not entirely

benign to get out of the glare and the short term

5858

pressures. A lot of times public companies going private

puts more pressure on because they've been taken private --

by private equity people who have an exit -- who want an

exit strategy, have an exit strategy. Sometimes they go

private -- I mean, who was the CEO of Chrysler who --

Nardello (phonetic).

MS. LAZARUS: Nardelli.

MR. NOCERA: Nardelli, you know, was reported to

say, thank God, I'm now at private company. Nobody gets

to see how much money I make anymore, because his pay

package at Home Depot had been a cause of considerable

controversy. So, you know, yes, there are plenty of

instances, Fidelity Investments or Cargill (phonetic)

immediately come to mind, companies that have been private

for a really long time, want to stay private, and do so

very specifically because they want to make the kind of

business investments and judgments and long term thinking

that they think is right for their companies. But a lot

of companies go private, you know, basically because they

5959

want to cash out. I mean, let's be honest here.

Let's take another question. Somebody from --

oh, God, all the questions are on this side. Okay, sir.

SPEAKER: Howard, as an entrepreneur myself

believing in your total philosophy myself, I have 13,000

plus associates at our organization or private enterprise.

And I find it difficult to find benchmarking to take it to

the next level of really associate, a shareholder. I

don't know where to go to, to really find information that

would shortcut long term investigating and networking to

really take to the market to help our people grow and feel

better about the organization because we intentionalized

our culture 16 years ago mirroring everything you do, but

we're a private enterprise. So where would you suggest

that someone like myself or other entrepreneurs here go

for more education along the philosophy that you share

with your people?

MS. SCHULTZ: Let me ask you a question. Do

think there is -- there needs to be a bifurcation between

6060

the way you treat your people, value people or grow your

people between a private and a public company because I

don't see the distinction?

SPEAKER: We're private and we're all about our

people. We hold our people in the highest esteem with

gratitude and respect.

MR. SCHULTZ: Do they have equity?

SPEAKER: They do not, but I'm saying because

our margins we don't enjoy as much margin maybe as you do,

I don't know. You know its margin, holes, whatever the

case maybe.

MR. SCHULTZ: Yeah.

SPEAKER: But I'm looking to learn, to

understand more to bring it our people so we can do a

better job for the people.

MR. SCHULTZ: Okay. I'd be happy to talk to you

offline. That's a very broad based question. I think

there are a lot of private companies that have done a very

good job in creating value for their people, an exit

6161

opportunity for their people, in terms of equity. But

I'll be happy to talk to you about that.

SPEAKER: Thank you.

MR. SCHULTZ: You're welcome.

MR NOCERA: Yes, sir, you've had your hand up

for a while, right. I'm pointing at you, sir. You're on.

MR. STROBE: Richard Strobe (phonetic), Beta

Drug Society (phonetic), Europe. Just one point regarding

the overall discussion. Shareholder value, as we

discussed it, is man made, right? It's not God-given.

It's not an eternal law. So it's subject to change.

What I'm wondering is there enough thought about

where should we really make changes, what are the levels

to make changes because the one point I would add is if

you look inside many corporations today -- and I think

Howard Schultz's company maybe rather a very good

exception. But I don't think this is the general picture

if you look inside, not a CEO, but to the employees in the

companies, you find a world of cost-cutting, of reduced

6262

investment, of higher pressure, of reduced benefit et

cetera, et cetera. And so I'm wondering is there a way to

move maybe the current philosophy in a better direction

and what would you see are the levels?

MR. NOCERA: Tom, why don't you take that first?

MR. DONALDSONL: Well, Lynn is best qualified to

talk about shifts in the way we interpret, say, the form

of the corporation and so on than I. But a lot of it for

me does come back to how we train professional managers.

And I use the term professional, and I've got to confess

that most of my colleagues would disagree that even people

who graduate from Cornell or Wharton and so on, having

spend 2 years studying this stuff, are professionals.

Professionals, that term is resisted because it does carry

some sense of responsibility along with it. So my sense

is that's one of the big shift.

If you're Howard Schultz and you're the founder

or if you're the leader of a family corporation that has

had an identity, that's thrived over, say, a couple of

6363

generations, your job is a heck of lot easier. Bring in

the hired gun that we trained at Wharton, and what we've

trained doesn't relate very well to what you really have

to have in the end in order to get the job done. Now,

that's just part of the solution, but that's where I would

begin.

MR. NOCERA: Anybody else?

MR. SCHULTZ: I think one thing we haven't

talked about is the young people -- and you made a comment

earlier which I think is worth repeating. The younger

generation coming into an organization today, I have

found, come in with a high degree of cynicism. For two

reasons, it's a cynical generation because they don't

believe in institutions as much as we did, we have. And

probably they've worked for a company or an organization

before coming to Starbucks or another company and they've

been disappointed or let down. So we certainly are very

conscious of that first 30 or 45 days to make sure that

the tribal knowledge, the imprinting, the culture and what

6464

we stand for is really presented in a way that's honest

and authentic.

The other thing that we do which I think has

been very helpful, on a quarterly basis, everywhere in the

world we are standing up in an open forum like a town hall

meeting with no notes and we're talking about the company

for 5 minutes, and then just like this it's an open mic

and there is no retribution for criticism and concerns,

and we've been doing that for years. And in that

environment, you get such honest communication and it

travels. And then internally we've developed a social

media channel where everyone is connected inside the

organization so that there is tremendous transparency

about what we're doing and when we're not doing well.

And the other think I'd like to say is that you

shouldn't misunderstand that we are a performance driven

organization and the culture of the company is linked to

that. And that is a contract and responsibility we all

have. We have to perform for the culture to exist.

6565

MR. NOCERA: Over here.

MR. LEVEEN: I'm Steve Leveen, CEO of Levenger,

a small private company. And the focus this morning has

been on young people in business school, which is a very

important focus. But my question has to do with all the

other young people who don't even consider business school

because they want to change the world. So how do you --

how do we -- here's my question, how do we reach these

young people who want to change the world and convince

them that they can do so in business, that capitalism can

be a tool for social good?

MR. NOCERA: Anybody?

MS. STOUT: All right, I'll leap in on this one.

I think one of the reasons why they are so cynical is --

by the way, for what it's worth, I love corporations. I

adore them. They brought us penicillin and, you know, and

airplanes, which even though it's horrible to fly in them,

it really beats a covered wagon, right? They brought us

so many wonderful things.

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But if you look back during the era of what was

called managerialism, which by the way sounds a lot like

what Howard's talking about, you will see that companies

not only produced good returns for shareholders, they also

produced steady secure job for employees, they paid lots

of government taxes, they regarded themselves as citizens

that had obligations to their communities, they were

dedicated to producing quality products.

And as a result, they were viewed as

institutions that although imperfect, contributed to

society broadly. And I think as a result of some of the

changes, we've seen both cultural changes, which are the

specialty of the other three people here, and legal

changes, which are my specialty, there's a widespread

perception that corporations are not doing that anymore.

My own view is it's very reversible. You know

the heart of capitalism, what Adam Smith talked about, was

business that made both parties better off, that grew the

pie, as opposed to making small group off at the expense

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of everyone else. That's what business should be, and I

think it is largely, but it's failed that standard enough

that that's why our young people are cynical. And we need

to move it back to that ideal form of capitalism that

contributes to peace and prosperity for large numbers of

people.

MR. DONALDSON: Let me just add one quick

thought. There are increasing numbers of young people who

are just rejecting the old models and going out and trying

to do it. And they deserve our applause. There are two

simple things we need to do. I mean, Howard has been a

leader in focusing on small business and getting

businesses started. There are two things we need to do;

one, we shouldn't tell them it can't be done and the

second thing is we need to lend them money. And that's in

part what Howard is doing.

MR. NOCERA: I think -- actually do we have time

for one more? Who's my boss here?

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MS. STOUT: There's a lady over there. There's

a lady over there.

MR. NOCERA: Okay.

MS. STOUT: I'm doing my gender thing. There's

a lady over there.

(Laughter)

MR. NOCERA: Okay. Ma'am?

MS. BENDER: Hi, I'm Grace Bender (phonetic).

I'd like to first say to Mr. Schultz I'm going to go home

and buy more of your stock. And I would like to know -- I

wish there was some way you could rate companies to see

who is doing social things in their company. But you

mentioned that the hedge fund person called you and talked

to you about the insurance and you weren't going to drop

it. I don't know how many shares he was able to dump, but

that affects the market. Do you think these hedge fund

people should be able to talk the CEOs and sort of do that

because their dumping can affect your stock hugely? And

do you think it's the hedge funds or the day traders that

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are causing more of the disruption in the market place,

the stock value?

MR. SCHULTZ: One thing I should correct. It

wasn't a hedge fund who called, it was a classic

institutional shareholder very-well-respected company.

But, you know, any shareholder can call the CEO. The

question is, is the CEO going to call back?

(Laughter)

MR. SCHULTZ: And -- but I think, you know, the

system needs to be examined clearly. I think day trading

and the algorithms that exist today in terms of how

quickly something could happen has nothing to do with the

performance of the company that could drag the stock down.

These things are systemic and -- but I must say, it's not

something candidly that I think about at all. What I

think about is our core business and how we can improve

it. I'm not thinking about all the things that might

drive the stock up or down.

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MR. NOCERA: Shelly, do you have any last words

of wisdom?

MS. LAZARUS: Just what I said before. I think

I actually think it comes down to the long term, you know,

growth of the company, that right is on our side, that

people care about the ethics of a company and that when

it's perceived as being strong and the company caring

about the environment, they buy more of the stuff. And at

the end of the day when they buy more, good things happen.

MR. NOCERA: And on that note we close. Thank

you all. Thanks to our panel.

(Applause)

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