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We're talking today about the
changes in the corporation

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and, particularly,
about the role

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that CEOs play in leading
American corporations.

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We're fortunate to
have John Reed with us.

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John is the former chairman
of Citicorp and Citibank,

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and then after Citicorp
merged with Travelers,

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he was the co-CEO
of the Citigroup.

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Then, as an indication of the
level of respect the business

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community has for
him, he was asked

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to serve as chairman of
the New York Stock Exchange

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from 2003 to 2005.

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So John, thank you
for joining us.

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Maybe, we could start just
by getting your perspective

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on what is the role
of the corporation

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in the American economy,
and, particularly,

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the responsibilities of the CEO.

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The role of the corporation in
the US has changed quite a bit,

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and I've witnessed
some of this change.

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My own personal view is
businesses' responsibility

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is to create customers,
satisfy the customer needs,

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and do so in a way that produces
decent financial results

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on an intermediate to
longer period of time.

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And obviously, there
is a social role

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for the institution itself.

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You typically employ
a lot of people.

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You invest in factories
or in office buildings

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or what have you, and so you
become a part of the community.

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And it's changed today.

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This idea of
shareholder value tends

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to define the role of the
company in economic terms.

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Why do you think the
role of the corporation

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has changed over the years?

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I first became CEO in '84.

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At that time, companies
were pretty well

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run by the management.

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The CEO was, obviously,
the key decision-maker,

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but management was really the
controlling group, if you will.

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I would say by maybe
15 years later,

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the investors had taken control,
and they have a very different

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set of objectives.

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And I think what happened
is, first of all,

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I think there was an
extended period of time when

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stock market didn't
give very good returns.

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There was pressure
from investors

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to get better performance.

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Somebody got the idea that, hey,
maybe we could scare companies

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into doing better.

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It started out with something
called greenmail, where

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somebody would take a
position in a company,

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maybe they'd own 5%,
6%, 7% of the company.

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Then, they'd go
to the management,

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and they'd say, look
guys, you really

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have some divisions
that aren't performing.

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You guys aren't on
top of your game,

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and we want better
performance from you.

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And if you don't, we're going
to lead some kind of shareholder

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revolt.

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Well, this took
hold, and managements

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that tried to ignore this
got into trouble, often

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were thrown out.

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Boards were changed, and
pretty soon the shareholders

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were in charge, and what they
said was: look management,

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we don't care what
you pay yourself,

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we don't care how many jets
you have flying around,

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but we want the
value of the stock

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to go up in a very nice way
and a very predictable way,

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and we want it next quarter.

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And by the way, it would be
nice if you would tell us,

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in anticipation, what it is
you might be earning next year,

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next quarter, so forth and
so on, something I never did.

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We never in Citi,
during the time

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I was there,
provided forecasts as

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to what we were going
to earn the next quarter

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or the next year because
they became targets,

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which if you were one penny
off, the price of stock

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would change.

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Certainly, we understand the
focus is more on shareholders

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and so on, but thinking about
the role of the corporation

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in the broader economy and
society, what do you think

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are some of the second and
third order consequences

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of this change?

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I think the biggest
consequence is

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you're getting very short-term.

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It's very difficult to spend
a lot of money training people

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if you're worried
about next quarter.

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You train people because you're
worrying about how they're

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going to perform over an
extended period of time

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makes that investment
well worthwhile,

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but it's very easy
to cut if you're just

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trying to hit a number.

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And the other thing is
where before maybe you

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kept a plant open that
maybe could be moved,

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but you've been
in that community

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for a long period
of time, you had

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a lot of workers who
were loyal to you,

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and you were loyal to them.

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Those decisions changed,
so all of a sudden you

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said: you know what?

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We can't afford to keep this
plant even though it's not

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really bad, it's just not
as good as it might be.

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So it's eroded the relationships
both with community

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and with employees.

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Suppose we wanted to get a
re-balancing of the corporation

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where it begins to address
some of these broader concerns

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as well as the concerns
of shareholders.

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Any thoughts on a path forward?

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I think this is a
question of values.

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A CEO can say,
look guys, I'm not

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going to maximize returns over
the next two or three quarters,

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but I am going to maximize
them over a period of time,

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and just begin to
adjust expectations.

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I think shareholder
value has a place,

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but it is a factor
amongst two or three,

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and I think the most important
thing is to expand this time

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frame a little bit.

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Don't say, hey, I'm
not interested in how

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the stocks are going to
perform, but let's say,

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I'm more interested in
how it's going to perform

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over the next 18 months.

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But the CEO is going
to have to give voice

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to that, because if
the CEO doesn't change

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his or her conversation, it's
going to be very hard for lower

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level people within
a company to start

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taking a somewhat broader
and longer look at things.

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We are in the
business here at MIT

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of educating the next generation
of corporate leaders and CEOs.

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What role do you
think institutions

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like ours should play
in this whole process?

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You have to get the
conversation going.

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In other words, if people
come in and simply say,

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hey, the only thing that
counts is shareholder value,

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and they don't think about it,
and they don't talk about it,

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and they don't say, well, what
are the implications of that?

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Well, then, it's
like going to school

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and saying the only thing
that counts is grades.

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I'm just going to get my grades.

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I think business schools here at
MIT, or other business schools,

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need to have the
conversation that says, hey,

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there's shareholder value.

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This is what it means.

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This is what it brings.

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Now, what are some
of the other values

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that need to be thought about,
and what is the juxtaposition?

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Because if you get the
conversation going,

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then each manager as he or
she goes out into the world,

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will begin to have a more
nuanced understanding of what

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it is they're trying
to accomplish,

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and they'll begin to
bring some balance.

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Well, this is great John.

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I really appreciate it.

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Thank you.