EXECUTIVE SUMMARY

The New York Public Library | June 7 - 8, 2016

The Future Ain’t What It Used to Be:Delight & Despair over Disruption

PRESENTING SPONSORS

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KEY THEMES SUMMARYYale CEO Summit

June 7-8, 2016 | The New York Public Library

A seasoned political pollster and consultant suggested that candi-dates win today not by playing to the middle, but by capturing the extremes. So few people vote that is it possible to be elected with the support of only a small fraction of the population, if that group is energized and mobilized. The media—which focuses on controversy and dissension—caters to these extremes. The pollster suggested le-veraging technology to disrupt how people vote, making it easier and more convenient for the masses to participate in elections.

Disruption in Politics Donald Trump (and to a lesser extent, Bernie Sanders) is trying to disrupt politics. Republican supporters argued that excessive regula-tion and taxes hurt innovation, and that labor unions exercise undue influence in the Democratic Party, which will stifle innovation in edu-cation. They see Hillary Clinton’s alignment with unions as hurting the burgeoning gig economy, and support Trump.

But most business leaders aren’t buying it. In a recent poll of Fortune 500 CEOs, 58% support Hillary Clinton over Trump, and at the most recent Yale CELI Caucus in Washington DC, only 6% favored Trump (other candidates were still in the race at that time). A leading finan-cier explained that the business community wants predictability. Hill-ary Clinton is seen as more predictable; Donald Trump is extremely unpredictable.

A Yale professor argued that America’s constitutional system has lasted, while attempts to replicate this model in other countries have failed, because almost always, the United States has had a strong political middle. But the future of this political middle is uncertain.

The Future Ain’t What It Used to Be: Delight & Despair over Disruption

Peter Orszag, Vice Chair, Lazard; Former Director, Office of Management and Budget

Alan J. Patricof, Founder & Managing Partner, Greycroft PartnersMark Penn, President, Stagwell Group; Former Top Clinton Campaign Strategist Jed S. Rakoff, Judge, Southern District of New York, U.S. District CourtStephanie Rawlings-Blake, Mayor, Baltimore, Maryland Ralph Reed, Chairman & CEO, Century Strategies; Founder, Christian CoalitionIrene Rosenfeld, CEO, MondelezStephen A. Schwarzman, Chairman & CEO, BlackstoneRuchir Sharma, Head of Emerging Markets & Chief Global Strategist,

Morgan StanleyAndrew Ross Sorkin, Editor, DealBook, The New York Times; Co-Anchor,

CNBCDavid J. Stern, Commissioner Emeritus, National Basketball AssociationMyron E. Ullman III, Executive Chairman, JCPenney CompanyZhang Ruimin, CEO, Haier Group

George S. Barrett, Chairman & CEO, Cardinal Health Richard J. Berry, Mayor, Albuquerque, New Mexico Byron W. Brown, Mayor, Buffalo, New YorkSylvia Mathews Burwell, 22nd Secretary, U.S. Department of Health &

Human ServicesWilliam H. Donaldson, 27th Chairman, U.S. Securities and Exchange

CommissionCatherine M. Engelbert, CEO, Deloitte LLPDavid Faber, Co-Anchor, CNBCGreg Fischer, Mayor, Louisville, KentuckyCarolyn G. Goodman, Mayor, Las Vegas, NevadaBrad Katsuyama, President & CEO, IEXAnthony W. Marx, President & CEO, The New York Public Library Teri Plummer McClure, Chief Human Resources Officer & Senior Vice

President, UPS Grover Norquist, President, Americans for Tax ReformNels Olson, Vice Chairman, Korn Ferry

The Yale CEO Summit, led by Yale Professor Jeffrey Sonnenfeld, was held on June 7 and 8, 2016 at the New York Public Library in New York City. This Summit brought together CEOs and other business executives; current and former government officials, including the Secretary of Health and Human Services; and mayors of more than a dozen U.S. cities. Also attending were leading academics, authors, and thought leaders.

Participants examined the theme “The Future Ain’t What It Used to Be: Delight & Despair over Disruption.” Sessions looked at whether disruption in politics is good, at disruptions in health care, disruptions in diplomacy and economic policy, disruptions in regulation, and startup disruptions in media and retail.

Legendary entrepreneur and business leader Zhang Ruimin, the CEO of Haier Group, was honored with the Legend in Leadership Award and renowned investor Alan J. Patricof was presented the Maverick in Leadership Award.

Participants included renowned leaders such as:

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•Changing how health care is delivered to be more integrated. Mandating payment changes like bundled payments will drive in-tegration and coordination, as payment penalties are doing in areas such as unnecessary readmissions post-hospital discharge.

•Using of data and information. Data can identify when variation occurs, what are the best treatments in specific situations, which providers are performing best, and much more. Data can help improve quality, drive efficiency, and make better decisions.

While there is a long way to go, over the past two years, at the same time that access to health insurance has increased, real per capita Medicare spending has declined. HHS has signaled the market and is begin-ning to drive change. Efforts are also under way to measure and pay based on qual-ity, but defining and measuring quality is extremely difficult. Initial efforts focus on areas where there is reasonable agreement.

Despite the controversy surrounding the ACA, 64% of CELI partici-pants believe the U.S. health care system is better off since the pas-sage of the ACA and only 33% believe the ACA should be repealed.

An area of consensus is the belief that far greater effort is needed to educate the public about value-based health care—what it is, how it works, what the benefits are—and to drive changes in consumer behavior, which is extremely difficult and will take time.

Other participants offered differing arguments including:

•Building a bipartisan coalition. One participant is leading an orga-nization focused on specific, practical goals such as create 25 million jobs, preserve Social Security and Medicare, and have a balanced budget. More than 80 members of Congress from both parties have signed on to support this agenda—after the election, of course.

•Divisiveness is ok. A leading political thinker asserted that having two parties moving in very different directions is good. The parties are strongly divided, represent strong ideologies, refuse to compro-mise, and appeal to their bases. It works for both parties.

•Checks on power are working. Another leading political thinker put forth that the constitution is not about “government working.” It is about protecting freedoms. By having a Democratic president and a Republican Congress, the public is voting to check the presi-dent’s power.

•Mayors get things done. Despite all of the political bickering at the federal level, may-ors are apolitical and pragmatic, and roll up their sleeves to get things done. They inter-act frequently and directly with constituents and focus on things that affect people’s lives every day.

Disruption in Health Care The health care system was not sustainable as it was, explained the CEO of a huge health care business. It had to change, this CEO ar-gued. Demographic changes, cost challenges, delivery system issues, and access problems all made the system prior to the passage of the ACA unsustainable.

Secretary of Health and Human Services Sylvia Burwell said that policy changes were needed to make fundamental changes with regard to access to health care, the quality of health care, and the cost of health care. Since the ACA was passed, access has increased dramatically, with more than 90% of the population having health insurance. Major steps are also being taken to address affordability and cost. These include:

•Changing how health care is paid for. HHS has set a specific goal that 50% of Medicare payments will be value based by 2018. Also, in many major markets, Medicare is paying providers who perform hip or knee surgery a “bundled payment” instead of traditional fee-for-service. This is a fixed fee to cover all costs of this episode.

Stephanie Rawlings-Blake, Mayor, Baltimore, Maryland

Joseph C. Papa, Chairman & CEO, Valeant Pharmaceuticals International, George S. Barrett, Chairman & CEO, Cardinal Health, and Irene Rosenfeld, CEO Mondelez

Catherine M. Englebert, CEO, Deloitte LLP and Sylvia Mathews Burwell, 22nd Secretary, U.S. Dept. of Health & Human Services

Peter Orszag, Vice Chair, Lazard; Former Director, Office of Management and

Teri Plummer McClure, Chief Human Resources Officer & SVP, UPS

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•A growing belief that too many Americans are in jail for non-violent crimes. Currently 2.2 million Americans are in jail, which is the highest number and percentage of the population of any country. It represents a 500% increase over the past 40 years, even though the crime rate has declined every year for the past 25 years. When someone is sent to jail, it destroys families and communities.

A reason for the increase in incarceration is mandatory sentencing for drug crimes, with sentences based on the weight of the drugs. Par-

ticularly troubling is the inequity of those who are in jail, with minorities accounting for 60% of the 2.2 million in jail. Leaders from the political left and right, along with many mayors, favor legislation to revise sentencing laws to decrease the number of people in jail for non-violent crimes and to address the systemic disparities.

•A view that too few executives were prosecuted for fraud after the financial collapse. 75% of CELI participants believe that too few executives have been prosecuted for fraud. One argument was that because it is difficult for prosecutors to prosecute individuals, prosecutors take the path of least resistance and instead bring cases against corporations, which simply choose to settle for large fines. But these fines hurt shareholders and employees, who are innocent, while those who perpetrated crimes face no penalties.

However, others argued that despite the desire of the public to assign blame to execu-tives, and despite significant efforts of pros-ecutors to put people in jail, few cases have been brought. The reason, these individuals argued, is not because prosecutors didn’t at-tempt to bring cases, but because there were not strong cases to be brought. As a leading defense attorney said, “Not all bad things that happen are crimes. Prosecutors would

bring cases if they could.”

Disruptions from StartupsEntrepreneurs and venture capital investors confirmed that the entrepreneurial climate in America is alive and well. Money continues to pour into startups, especially financial technology and life science firms. One CELI participant has invested in 50 companies just in the Bitcoin/Blockchain space. Another VC investor sees 50-75 new com-panies in New York City each week and 25 more in Los Angeles. Also, with concepts like WeWork—where entrepreneurs share office space and resources—and the emergence of cloud services, entrepreneurs can start businesses now with minimal capital.

But entrepreneurial disruptions are not limited to startups. There is disruption in home building with built-in appliances connected to the Internet of Things. There is disruption in telecom by using VOIP and the cloud. And there is even disruption in consumer products, through new types of social media marketing campaigns, like that by Oreo in the UK.

Disruption in Diplomacy and Economic PolicyExtensive concerns were expressed about China, both diplomatically and economically. China was termed as repressive, increasingly auto-cratic, and less welcoming. There is increased censorship and a grow-ing climate of fear. Pollution is high, affecting approximately 60% of the population, income disparity is increasing, and there is risk of a brain drain, with about 300,000 college students in the United States. The legitimacy of the government is based on economic growth; with a slowing economy the government is feeling tremendous pressure. These factors raise concerns about China.

On the economic front, one investor who has studied China closely sees troubling signs. To prop up its economy, China has engaged in massive stimulus and taken on tremendous debt. While the consumer economy is doing okay, the rest of the economy has slowed dramati-cally. Domestic capital is leaving the country, and China’s slowing economy has ripple effects for the rest of the world.

Others recognize that some industries in China are slowing and there is overcapacity in some areas, but still argued that China’s economy continues to grow at least 5%. While this is lower than the growth rate in previous years, it would make most other countries ecstatic. The services sector continues to grow and China created 14 million new jobs last year. In response to a comment about China currently experiencing a hard landing, one participant noted that Brazil—where the economy contracted by 5%—is experiencing a hard landing. China’s economy may be slowing, but that’s far from a hard landing. Also, Chinese companies are increasingly globalizing, making invest-ments around the world, including in the United States.

Participants expressed greater optimism about India, which shows growth of 7.5% (if the numbers can be trusted). The government is seen as taking positive steps, though bureaucracy remains. An investor from India warned, “India has consistently disappointed the optimists and the pessimists. So, keep expectations low.”

A former U.S. State Department official advised that the United States needs strong economic ties in the Asia Pacific region, which can be fostered through the Trans-Pacific Partnership (TPP). Also important is developing stronger relationships with India, Indonesia, and Turkey, all of which have large Islamic populations.

Legal and Regulatory DisruptionsThis discussion focused on three major topics:

•A prevailing belief that the capital markets are rigged. Among CELI participants—who are knowledgeable, educated, senior-level leaders—56% believe the capital markets are rigged. Those holding this view believe there is not a level playing field among all inves-tors and there is a lack of transparency. IEX is attempting to establish a new pub-lic stock market, with a level playing field and greater transparency. This concept is being strongly opposed by the existing exchanges, with the SEC planning to issue a ruling in the near future. IEX is favored by many institutional investors and would be a positive step toward combating the perception that the markets are rigged.

Brad Katsuyama, President & CEO, IEX

Jed S. Rakoff, Judge, Southern District of New York, U.S. District Court

Andrew Ross Sorkin, Editor, DealBook, The New York Times; Co-Anchor, CNBC

Melanie Kusin, Vice Chairman, Korn Ferry

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Maverick in Leadership AwardAlan J. Patricof, Founder and Managing Partner, Greycroft Partners

Legend in Leadership Award Zhang Ruimin, CEO, Haier Group

Sharon Oster, Professor, Yale School of Management, William Donaldson, 27th Chairman, U.S. Securities and Exchange Commission, and Jeffrey Sonnenfeld, Senior Associate Dean, Yale School of Management, presenting Zhang Ruimin, CEO, Haier Group with the Legend in Leadership Award

David Stern, Commissioner Emeritus, National Basketball Association, James Robinson, Co-Founder & General Partner, RRE Ventures, and Frederick Frank, Chairman, Evolution Life Science Partners, presenting Alan Patricof, Founder and Managing Partner, Greycroft Partners, with the Mavrick in Leadership Award