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Changing leadership demands discussed at industry summit

STANFORD -- Capitalism now spans the globe but persistent problems such as income disparities call for new vision, industrial leaders were told at the opening session of the World Economic Forum's industry summit at Dinkelspiel Auditorium Sunday, Sept. 18.

The three-day conference brought to campus about 700 people from 47 countries, mostly industry executives and government ministers but also academic scholars and scientists. Prominent Stanford alumni and faculty were evident among those who attended the conference both for its overview sessions on the changing world economic-political situation and for sector-specific sessions ranging from textiles to computers.

The fourth such conference organized by the Geneva-based World Economic Forum, the summit was hosted this year by Stanford, with assistance from the California Institute of Technology and the University of California-Berkeley. Conference participants could choose to spend a fourth day touring either of the other two universities.

In his welcoming address, Stanford President Gerhard Casper used Stanford's relationship with the Silicon Valley to stress the role university education plays in economic development. He called technology transfer here a "bodily contact sport" involving "the rubbing of mind against mind."

"Graduates of research universities have a much larger impact on the economy than specific inventions created or discovered by those universities," partly because the graduates have learned from their professors how to be open to and regularly incorporate new ideas, Casper said.

"Since 1971 alone, over 300 full-time ongoing companies have been founded by members of the Stanford community. Large enterprises such as Sun Microsystems, Silicon Graphics and Cisco go back no further than the beginning of the last decade.

"As everybody talks about the ever-escalating speed of change, it is important to remember that in order to cope with that change, we need people who are trained in the quest for new knowledge of fundamental properties and processes, regardless of the potential for application of that knowledge."

New leadership opportunities

The opening session of the conference focused on the changing environment for industrial leadership, with speakers stressing that business leaders cannot leave to governments the task of addressing social issues.

Issues that need to be addressed, they said, include growing income disparities and aging populations in the industrialized world, massive infrastructural investment and potential environmental degradation in the developing world, and the need for capitalism to show the former socialist bloc countries that a market-based economy can improve the lives of average citizens.

Optimistic notes were sounded by several speakers, particularly John E. Bryson, chairman and chief executive officer of Southern California Edison and a member of the Stanford Board of Trustees. Bryson said he believes there is "more opportunity for private institutions to empower people" in developing countries than in previous decades and for individuals to take leadership roles within global companies.

A decade ago, Bryson said, his company was a regulated utility limited geographically to serving Southern California. Today it has a subsidiary that applies the organization's knowledge of alternative energy development to building facilities as far away as Spain and Indonesia.

"Titles are increasingly less relevant" in corporations, he said, and "work teams that arise and disappear are becoming the normal way of doing business." The private sector is increasingly investing in infrastructure, such as telecommunications and energy, which, he said, reduces governments' capital needs and frees them of substantial risk in the developing world.

Bryson's themes were discussed in more detail the next day at a session on development trends in China, Japan and East Asia. Direct foreign investment from abroad is playing an increasing role in development of infrastructure such as energy, telecommunications and transportation, speakers said.

"The first element of leadership is recognition of the extraordinary times we are in," said Condoleezza Rice, provost of Stanford University and former special assistant to the president of the United States for national security affairs. At the opening session, she called this the "most hopeful time for the international system since the end of World War II, because of the major structural shift brought on by the end of the Cold War."

"The collapse of the socialist alternative is a very positive development in the long run if the economic prowess [of the former Soviet bloc states] can be harnessed as it was for Japan and Germany after World War II," Rice said. The collapse also has "left the Third World with no alternative to recognition of private property rights and foreign investment."

But, she added, leadership requires more creativity and poses a moral challenge. The moral challenge is "whether or not the lives of people are actually going to get better or worse" in the former socialist countries that "missed gaining their place in the division of labor and specialization that took place after World War II."

In the former Soviet empire, there are "whole towns and cities" with skilled workers but no income base, she said, because they previously made military products for which there is no longer a market.

On a trip to Russia this summer, Rice said, she was pleased to see "the beginnings of a middle class" because "a democracy can flourish with capitalism if there is a strong middle class." Unfortunately, she said, the middle class cannot be composed merely of "exploiters, Mafia and apparatchiks." Western Europe may find itself with "hostile have-nots in the other half of the continent," she said, if it does not find ways to assist the economic transition. She criticized the European Community, in particular, for "shutting its doors" to agricultural products from Poland.

Leaders also must learn to "speak to the aspirations of individuals for a better life," Rice said. "I do not mean it is the business of business and government to have equal outcomes, but upward mobility and equal access for all is important." Without some effort, she said, "we may not see the victory of capitalism last."

Many leaders in the world are appealing to "narrow national and ethnic interests, the most tribal of instincts, to use difference as a license to kill" instead of speaking to "community values and forgoing that which separates us," she said.

Rice suggested that her audience recognize information technology as "a good that all can share" and that leaders "speak to common values, not just dissonant ones."

Managing risk, legal systems

At the same opening session, Lewis W. Coleman, vice chairman and chief financial officer of the Bank of America, stressed that leaders should take responsibility for serving their customers' needs, not just their own short-term interests. In banking, he said, the fastest growing business is the sale of financial derivatives to corporations and individuals who are trying to manage their financial risk.

The instruments have become so complicated, he said, that they are "probably incomprehensible to the average CFO." Recently, a large greeting company sued a financial institution claiming just that, he said.

"There is no such thing as a sophisticated customer for last week's new derivative product," Coleman said. "I believe our role is to explain risk, to present alternatives and to understand what our customers' needs are."

If financial institutions do not do that, he said, they risk their reputations and the collapse of the market for their new products.

Coleman, who is also a member of the Hoover Institution's Board of Overseers, suggested that corporations need more executives who encourage thinking about more than short-term profits.

"Very few people are willing to subordinate the urge to win," he said, "and to sit back and take a broader look at where victory really is."

Stanford's Casper urged that leaders give some attention to improving the rule of law around the world. "I think we are doing very poorly all over the world on that."

The West, he said, has done "quite well at preserving democratic rights but less so on protection of people's expectations," which go beyond property rights, he said, to due process and legal systems that are perceived as fair and as "relatively simple and straightforward." Many of the current regulatory schemes, he said, are "mind boggling."

Stanford economist Michael Boskin expanded on the problems of the industrialized economies in a Monday morning session, where he said the impact of an aging population in the industrialized world is "not widely appreciated."

Not only will consumer demands change dramatically, he said, but the tax burden will increase substantially in the G-7 countries as the ratio of retired people to workers grows. The aging trend, he said, is the result of the aging of the World War II baby boom, the decline in birth rates since, and the increase in life expectancies of those who reach age 65 since most of the countries established their old-age pension and health care policies.

"The fraction of the population that is a net income recipient [from the government] is going to grow and those people happen to be the people with high voting trends," Boskin said. "When you get a majority of them, you have a very unstable democracy."

Distributing economic benefits

Maurice F. Strong, chairman and chief executive officer of Ontario Hydro and the secretary general of the United Nations' 1992 Earth Summit, echoed Rice's concerns about a growing gap between material aspirations and opportunity. His focus, however, was on the problem in industrialized countries such as Canada and the United States.

Capitalist democracies, Strong said, need to learn how to become "as efficient at distributing" their economic growth as they are at generating it.

Noting that many unskilled and semi-skilled Canadians have remained unemployed after Canada's recovery from the last recession, Strong said Western democracies may now face a tradeoff between "economic efficiency and social stability." The benefits of productivity growth are accruing disproportionately, he said, to "a highly mobile group that can readily move across national borders. The gaps between rich and poor are deepening."

Effective leaders, in his view, are those who "master the art of helping individuals" identify their opportunities and who find "the link between individual behavior and that larger system of cause and effect."



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