CEO Q Interview with Med Jones - Expert Who Predicted the Financial Crisis - Economic Crisis by CEO Magazine

Content P6 - Editor’s Letter

Cover Story

Features

P14 - An Exclusive Interview with the Economic Oracle

An interview with Med Jones, one of the few experts who predicted the US economic crisis. • What is his advice and warning to the world’s richest families? • What are his predictions for the recovery? • What are his views on Obama’s economic policies? P26 - Barack Obama’s Small Business Plan • How will he support small businesses?

P30 - Senator John McCain’s view on America in a Global Economy • How can the government help America compete in a global economy? P34 - Wall Street Benefits Twice from the Bailouts • Bob Barr, the former Libertarian Party nominee for President of the United States writes about the political bailout fiasco and handouts given to Wall Street by Washington politicians P38 - Twelve Steps to Crack Down on Corporate Crime • Ralph Nader, the former Independent Candidate for President of the United States lays out 12 steps to crackdown on corporate crime, fraud and abuse

CXO Best Practices

P42 - Leadership Best Practices An interview with Donn Westerhoff, CTO of the US Central Command (CENTCOM ) • Lessons for leading in a mission-critical environment P46 - SAP on Linux – Reducing IT Cost by 60% • How CIOs can save money during tough economic times? A white paper by Naji Almahmoud – SAP Global Alliance, Novell Inc. P50 - Enterprise Amnesia: Have Organizations Lost Their Minds? • Using IT to improve enterprise risk management - An article by Jeff Jonas, Chief Scientist, IBM Entity Analytics

Q4 / 2009 | www.ceoquarterly.com

Editor’s Letter Welcome to the CEO Quarterly (CEO Q) Magazine CEO Q is a new executive education and organizational development magazine. Our mission is to encourage management best practices research and dissemination. We will pursue this mission by publishing the work of top management experts in a format targeting business and government leaders. The CEO Q editorial philosophy is to focus on breakthroughs in management thought. The authors are required to frame their findings in a format that saves the CEOs’ valuable time and effort in aligning and developing their executive teams. Every quarter, the editorial team identifies management best practices and lessons from the world’s most successful CEOs and their organizations. The goal is to provide C-level readers with new perspectives, insights, intelligence reports, expert opinions, objective analysis, case studies, white papers, and decision-making tools to help them address emerging opportunities and challenges. CEO Q is not a news magazine. Its content is designed for CEO continuing education, consulting, and coaching. It is an organizational development and executive communication tool. CEOs can share the magazine articles with their teams to promote best practices, with the board of directors to advocate new strategies, and with their clients to promote new products or services. Special CEO Reports In addition to our regular executive-best-practices articles, we occasionally publish special management reports on major global or regional business issues. In this edition, CEO Q provides a 360 degree view of the economic crisis. The special report features a comprehensive interview with one of the world’s leading experts on the economic crisis. The interview peels back the layers of misinformation, bias and confusion surrounding the crisis and government rescue plans. The report also shares critical information and non-partisan recommendations that we hope will empower your strategic planning process and start new conversations within the global business community. This issue of CEO Q is sponsored by the International Institute of Management (www.iim-edu.org) and the CEO Conference (www.ceoconference.org). We encourage you to learn more about the sponsors who made this special report possible.

www.ceoquarterly.com | Q4 / 2009

CEO Quarterly Magazine Website www.ceoquarterly.com Editor Rohan Kumar editor@ceoqmagazine.com Contact Us 10161 Park Run Dr. # 100 Las Vegas, NV 89145 USA Tel: (+1) 702. 294. 2779 Fax: (+1) 702. 982. 2746 Research & Editorial Team Alexandra Tkatch Bohdana Hevierova Helle Lauritzen Julia Grobecker Lena Dietrich Lena Jost Linda Kimeisa Manuela Moeller Advertising & Sales Mona Safie ads@ceoqmagazine.com Art Director Mireille Mod art@ceoqmagazine.com Webmaster Maj Jones tech@ceoqmagazine.com

The CEO’s Intelligence Report Global Economic News Briefing USA | Europe | Asia Pacific | Middle East | Latin America | Africa Global Economic Intelligence • Economists warn of a double dip recession • Warnings that policy makers should not repeat the mistakes of 1937, and exit too early • New world economic order takes shape at G20 • IMF cautiously optimistic about global prospects, says banks are well-capitalized, and eyes social unrest as unemployment rises • OECD expects recovery in 2010 everywhere but in Europe • Brazil calls for IMF reforms in order to fix the global economy • Global IPOs surge in Q3, led by buyout deals • China, India and Russia, eager to reduce their position in dollar-denominated securities, have expressed interest in buying IMF gold • Deflation is seen as a bigger problem than inflation • An attack on Iran could lead to $400 barrel oil and the crippling of the global economy • Calls for international coordination of exit strategies • Pittsburgh Summit Issues: Raising capital requirements for banks is not enough. Calls for financial reforms should include mechanisms for regulators to prick bubbles, direct controls of credit, a new definition of market risk, and executive compensation • The green shoots episode is over. The policy to wait for things to improve is failing • Stocks crash, and recover. Volatility is at an all time high • Forecast of more oil price hikes and the possibility of higher interest rates • UNCTAD report calls for new global exchange rate system, in which the dollar is replaced as the main global reserve currency. The Fed’s and the ECB’s

www.ceoquarterly.com | Q4 / 2009

relative monetary policy stances will determine the future of the dollar as the global reserve currency • There is a global dollar glut, which will weigh down on the dollar’s exchange rate in the long run • Global macro hedge funds are betting serious money against the economic recovery • Media cheerleading of the current bull market is counter productive • Warnings that proposed increases in capital adequacy ratio would make loans more expensive • Germany criticizes excessive G20 focus on external imbalances • Economists face credibility challenge towards their profession

USA Economic Intelligence • Euro-Dollar (at $1.45) at highest levels for a year on rising risk appetite- gold at $1000 per ounce breaches through highest level for 17 months • Insolvencies and higher unemployment would weigh on economic performance • Warning that the fiscal policies are rendering monetary strategy ineffective • In the new world economy banks, real estate and retailing will underperform other assets • President Obama to renew Ben Bernanke as Fed Chairman. He gives the Fed’s powers over toolarge-to-fail institutions; Proposals for derivatives are more modest • The Fed says it has no idea about why bond yields are going up • The Fed outlines four-point exit strategy; Not many people believe it. Questions arise if financial markets are fooled by the bad bank and accounting trick to improve bank assets valuation • Moody’s says bad bank scheme will not change

credit ratings • Lack of trust and transparency of the US banks stress tests • US is at risk if emerging countries reduce their foreign reserves • Global demand for US government securities is falling • Interest-only mortgage could become the next critical issue facing the US housing market . • There are no green shoots yet in the US car sector

Europe Economic Intelligence • A cautious return of debt market and leverage • The euro area has registered its first monthly current account surplus in over a year • European Commission says deficit-to-GDP ratio could be even higher than the previous 6% estimate • European Central Bank (ECB) makes huge profits from crisis lending • ECB warns of an uneven recovery • New issuance on European bond markets reaches all-time high • Euro area unemployment hits the highest levels for 10 years • The crisis may reduce the euro area’s potential output by 5% • The strength of the euro is weighing heavily on exporters • ECB tells banks to lend, and hints that it might intervene directly to channel money to the economy • The ECB’s intervention pledge, has helped the recovery of the covered bond market. • ECB injects liquidity of €442bn in the form of a 12month repo • A draft EU legislation to fine banks that reward excessive risk-taking • The economic forecasts are getting more pessimistic again. ECB says recession to continue all year, and will modestly recover next year • ECB’s stress tests are harder than the tests in the US • Calls to start raising interest rates in Europe • ECB is defying Germany and starting the money presses • Rivalry between UK and France threatens Europe’s position in financial derivatives • EU’s services sector declines

• Hedge funds say they will quit London for Zurich unless EU reforms are watered down • Iceland wants to join the EU by 2011; asked to sort their financial situation before joining and to recapitalize its banking system • French and German economic policy are so divergent that this might threaten the future of the euro • France and Germany issue a ten-point plan for the future of Europe. Want to keep Turkey out of the EU. The Turks are concerned about the shift to the centre-right in European politics • France wants to include a happiness index (GNH) in the official GDP measure • French car industry is in a state of collapse, despite stimulus subsidies • French deficit could hit 7% of GDP this year • France proposes carbon tax of €17 per ton of emission, a much lower rate than proposed by the Rocard commission • France increases stimulus expenditures in 2010 • French reform agenda is in opposite direction of Germany; no austerity or tax increases and differentiates between good and bad deficits • Germany sets up a bad banking scheme for the Landesbanken, which carry bad assets of some E600bn - or 25% of Germany’s GDP • German real wages stagnated during 2007 and 2008, as country pursue to raise competitiveness relative to the EU • Greek public debt rises to 112% of GDP • In Greece, housing prices resilient to the crisis • Greece politicians call for snap elections amid rising economic difficulties and inability to push through reforms • Austria is clamping down on foreign currency loans • IMF calls on Ireland to cut public sector pay and employment, and to raise taxes • Italian banks are not passing on interest rate cuts to their mortgage customers • The OECD has a deeply critical report of the Italian economy • Call for euroization in the CEE countries. • The Baltic economic depression has catapulted extremists into top position in the European elections • The two central banks reached E3bn swap agreement, aimed to strengthen Swedish banks when Latvia collapses • Swedish EU presidency wants to prioritize climate

Q4 / 2009 | www.ceoquarterly.com

change and financial crisis • Sweden says EU is wrong to penalize hedge funds and private equity groups • Swedish bank stocks collapse over Latvian problems • Relations between Spain’s government and industrialists have reached a new low • Moody’s downgrades 30 Spanish banks - largely because of the effect of the recession • Spain prepares for high increases in VAT and other consumption taxes • Spain seven-month budget deficit rises to 4.7% of GDP • Spain’s social dialogue is in danger of break-down, as trade unions resist demands to relax laws on dismissal costs • Bank of Spain wants consolidation of Spanish savings banks • 800,000 Spanish immigrants are driven underground by crisis • 20% of Spanish mortgages are at risk • Spanish house prices fall by 10%, and have more to fall • Spain, services sector is in free-fall • UK house prices seem to have stabilized • Russia’s equity markets lost some 24% as global risk aversion is rising once again

Asia Pacific Economic Intelligence • Asia’s recovery quickening • Ford begins work on 3rd China car plant in Asia • Asian Development Bank (ADB): Asia will expand faster this year • Japanese exports fell sharply in August due to sluggish US and Asian demand • South Koreans upbeat on building prices, interest rates • Indian rupee strengthens as stock gains attract capital inflows • India’s economic growth accelerated to 6.1 percent in the quarter ended June 30 • Half of China’s offshore investment of $65 billion was spent on Australia’s assets in 2008; • Fear that China’s checkbook threatens Australia’s economic sovereignty. Australia blocks China

www.ceoquarterly.com | Q4 / 2009

mine bid on security grounds • Australia population boom breeds economic fortune • Australia new home sales +11% • In Japan, the Democratic Party won a landslide victory; • In Shanghai, the stock market fell by 5.4%; • China will not save the world • China says it may use part of its forex reserves for strategic investments by Chinese companies in western industry; • China’s foreign reserves are exploding again; adding to the global imbalances. • Japan’s export sector continues in free fall during, with exports down over 40% yoy • China sees an increase in 30% investment demand; cuts imports by 25%

Middle East Economic Intelligence • Obama: “Time To Move Forward” with IsraeliPalestinian Peace • Qatar has the highest economic growth in the world in 2009. Estimated at about 13.8% • Qatar to finalize 25 year master plan for economic development • Gulf Cooperation Council (GCC) Sovereign Wealth Funds (SWFs) have lost an estimated $250 billion in US investments • The Islamic Development Bank (IDB) will increase financing for Islamic countries by +30% over the next two years, with 33% earmarked for road and transport projects • Oil prices on the rise. Boosts GCC recovery prospects • Despite the current market situation, the value of projects planned or under way in the MENA region is increasing tremendously. GCC alone has doubled to more than USD $ 2 trillion • GCC Monetary Union accord approved. UAE likely to rejoin Gulf Monetary Union • GCC to establish investment bank • The UAE and Switzerland led the global wealth ranking with millionaire households accounting for 6.1 per cent of all households in both countries -

almost 9 times the global average • Confidence in real estate markets in Gulf at all time low • Abu Dhabi Commercial Bank is close to completing the sale of $1.1 billion worth of conventional bonds to international investors, the bond is mainly sold to U.S. and European investors • Foreign ownership in UAE-listed firms rises • S. Korea predicts oil prices to rise to 75 USD per barrel in 2010 • Kuwait Central Bank sees improved economy and credit growth • Gulf companies have issued some $12.8 billion in conventional bonds over the 12 months to June 2009, a 15%jump from last year’s $11.2 billion • IMF expects Lebanon’s economy to grow 7% in 2009 • The Organization for Economic Cooperation and Development (OECD) predicts that Israeli gross domestic product would shrink by only 2% in 2009 and rise by 0.2% in 2010

Latin America Economic Intelligence • The Inter-American Development Bank (IDB) - The largest source of multilateral financing for Latin America and the Caribbean is poised to announce a US$1 billion arrangement for trade promotion co-financing with China Investment Corp • IDB approves $750M credit line for Argentina technology innovations • Colombia suffers worst recession in decade • Legalization of drugs spreads in Latin America • Venezuela seeks “anti-imperial” Africa front • Honduras coup and curfew costs economy $50 million daily • Peru is top emerging market • Latin America rebound to be strong • Brazil to raise rates as economic recovery quickens • Argentine budget gives moderate economic outlook • Chile’s most competitive in Latin America; weathers crisis • China & GCC are investing in Latin America • Mexico Central Bank maintains interest rate at 4.5% on an improved economic outlook • Brazil emerges from recession, led by domestic demand in Q2

Africa Economic Intelligence • African Development Bank (AfDB) plans dollardenominated global bond • AfDB and L-Bank issue most successful dollar bonds to date • AfDB asks G20 for more funding to fight crisis • AfDB doubles lending in response to the financial crisis • South Africa bonds fall on bets rate-cutting cycle has ended • South African non-farm jobs decline 0.8% On recession • South African inflation rate declines to 29-month low • Central Bank of Egypt (CBE) cut its overnight lending and deposit rates by 25 basis points on Thursday, saying it believed underlying inflation would remain within its ‘comfort zone’ • The Egyptian economy faltered last year after years of robust growth as global trade flows stagnated and revenue from tourism and the Suez Canal shrank. • Egypt urban inflation peaked at 23.6 percent in August 2008 but has since declined steadily to stand at 9.0 percent last month • Egypt’s FY economic growth likely around 5% Trade Minister • Egypt seeks to expand US trade zones • Nigeria economy threatened as US begins cut on oil reliance • Transparency International: Nigeria’s banking sector corrupt. ###

Q4 / 2009 | www.ceoquarterly.com

Cover Story An Exclusive Interview with the Expert Who Predicted the Financial Crisis What He’s Telling the World’s Richest Families About the Recovery

Med Jones President of International Institute of Management A U.S. based strategy think tank, and education organization www.iim-edu.org www.medjones.com

CEO Q Magazine had the privilege to interview Med Jones, one of the few economic oracles who predicted the global financial and economic crises. Med Jones challenged the US President’s State of the Union Address, the Federal Reserve Chairman, and the opinions of top economists back in January of 2007. In an interview with Reuters he warned about the subprime crisis, the real-estate bubble, and the fall out from the loss of confidence in the US economy. This interview took place after he gave the keynote speech on June 23, 2009 at an Investment Conference for the world’s richest families and investors, in Geneva, Switzerland. Jones talks about the US economic recovery and the outlook for the next five years, the emerging new world order, the decline of the US & the EU, the rise of China, the troubles of the financial industry, the North American Union and more.

CEO Q > Back in October of 2008 at the height of the crisis, when everyone was talking about the great depression and other doom scenarios, you predicted in an interview with CEO Q Magazine that the decline will bottom in 2009 and we could see a modest recovery in 2010. Is your outlook still the same? Med Jones > Yes, we could see a modest US recovery of about 1%. In the last few weeks we saw a slowing down of the decline and a lot of media talk about green shoots. My predictions are still valid. However, technical recovery is one thing and real recovery is another. The recovery will be a jobless one, some industries will recover faster than the others and the gross national recovery will not undo the damage anytime soon.

CEO Q > Will the recovery be V, U, L or W shaped?

These positive indicators are neither permanent or driven by healthy economic growth. They are the result of the government bailouts, the stimulus package, tricky accounting manipulation, and media cheerleading.

Med Jones > That is the wrong question, the economy goes through cycles, the right question is how it will behave in the short, medium and long term.

The problem of toxic assets is not resolved. The decline in US real production and other structural problems are still unchanged. Real recovery cannot be driven by more

www.ceoquarterly.com | Q4 / 2009

debt-spending. My forecasts still hold true:

earlier

• The reported unemployment rates could hit 10%. The real figures may reach double that rate. (counting those stopped seeking jobs or now have parttime jobs) • Credit cards and auto loan delinquencies (late and unpaid) will double from about 5% to 10% for credit cards, and about 0.6 to 0.9% for cars; • Residential real estate prices will decline about 10% and bottom in 2010. Commercial real estate will bottom in 2011 • Federal income tax will be reduced further by 30-40% • The Federal Reserve will continue to print trillions of dollars out of thin air which will pressure the dollar to decline in value. We will see higher gold and oil prices. CEO Q > What about the recent increase in investors’ confidence? Med Jones > Consumer , business or government confidence is fed by media cheerleading rather than fundamentals. Investors’ sentiments are volatile. Just watch and see the extreme swings in the stock markets. CEO Q > What is your economic outlook for the next 2 to 3 years? Med Jones > After the initial deflation due to high unemployment, the reduction in demand, and the continued depression of the real estate prices, we will more likely experience stagflation or higher inflation with no real economic growth due to lower dollar exchange rate causing higher prices of imported

The real US debt is much larger than announced....There is a risk for another major US economic crisis in 2015. Europe and Japan are not in better shape raw materials and foreign products. Most growth numbers will be driven by government debt-spending and inflation. The US economy will most likely suffer like the Japanese economy after their financial crisis. In the next decade, the real challenge for the US and other countries is to find a way to grow without excessive credit and leverage. CEO Q > What is your economic outlook for the next 3 to 5 years? Med Jones > Unfortunately, the world could experience another crisis caused by accumulated debt, social security deficit, the aging baby boomers and misdirection of massive bailout money to stock market and other risky assets. Countries that have high Debt-toGDP ratios and follow the same US economic policies will be hurt the most. Japan and some EU countries in particular Italy, Spain and Latvia could also suffer a lot. Economic growth neither comes from bailing out failing businesses, or from state-led infrastructure investments. It comes from technological innovations, hard work, and gains in productivity; these things come from the private sector and the entrepreneurs rather than state bureaucrats and private interest lobbies.

The current financial crisis, the bailout Ponzi scheme, the continued deficit spending, the misallocated stimulus funds, and the ballooning of the real uncalculated debt-to-GDP ratio of about 680% as opposed to the official number of 87%, could pose the greatest risk to the US economy. CEO Q > Are you saying the government is lying and that the real debt-to GDP number is 680%? Med Jones > This information is not new, most economists know about these numbers. It is just that the government uses different accounting standards for its agencies to make them look better. The 11 trillion dollar debt figure does not take into consideration the unfunded 57 trillion dollar of entitlement liabilities for Medicare, Medicaid, Social Security and the Federal government and military pension funds, and that is how you arrive at the 680% figure. In addition to the federal debt, the individual states budget problems and debts are all over the news The government spends 25% of its budget on these benefits. Up until 2007 the government

Q4 / 2009 | www.ceoquarterly.com

collected more taxes than it paid. It is estimated that Social Security funds will turn into negative cash flow by 2015 or even earlier. The rate of workers-tobeneficiary has gone down from about 17-1 to 3-1. People are living longer, birth rates are declining, and anti-immigration sentiments are increasing. These will lead to the reduction in social security or increasing of payroll taxes, reducing business profits and increasing inflation. The EU and Japan are facing even more troubles with their ageing demographics. Regardless of the timing of these unfunded obligations, if you want to invest in any entity (a person, a company or a government), you have to look at the debt-to-equity ratio, revenues and cash flow to see the solvency and ability of the entity to pay its debt and invest in growth. These indicators are getting worse across the board. The exact timing, the depth and the speed of the next crisis and the recovery from it depend on several factors. Current policies will delay the crisis but we will have to pay an even higher price later. One of the main reasons the US has been able to prevent the economy from collapsing, despite all the bad policies and massive currency printing, is because the dollar is the de-facto standard for international trade and the largest international currency reserves. The US is running on the goodwill of previous decades, once that is challenged or the dollar is replaced with a basket of international currencies, the US economy could crash, especially if the government does not stop spending or go back to healthy production-based growth and investments. CEO Q > If the risk is so high, then how do you explain the demand for US Government bonds and treasuries? Med Jones > The logic of most investors is that in a global economic crisis. US treasuries and currency are a safer bet than other investments. Now, we all

www.ceoquarterly.com | Q4 / 2009

know that the US government has debt obligation which is about $11 trillion. But that’s nothing compared to the $57trillion Social Security and Medicare entitlement liabilities. If we add the entitlement “debts” to the Fed’s Z.1 definition of debt, then US D/G calculation becomes 680%. When social security drains its trust fund around 2015, how will they make up the shortfall of money? • Social security bond auction? More t-bills? • Reduce payments? • Direct or indirect tax hikes? • Print more money and risk further devaluation of the US dollar? The US economy runs on credit. Credit is based on trust. The US government is betting that regardless of the increase in debt numbers, the national and global creditors and investors will still trust us. The problem is this is the exact same mindset that led to this financial crisis. They ignored the warning and suddenly woke up to a collapsing industry that is dragging along the entire economy. In my mind the next crisis is inevitable. The time frame is subject to government policies and the resiliency of American industries. The increasing consumer, corporate and national debt is the main driving force behind the next socioeconomic and political shock that we will experience. Connected to other forces, like b a l l o o n i n g i n v e s t m e n t a n d t r a d e d e fi c i t s , a n d g l o b a l l y t r a d e d speculative asset instruments, the economy will not withstand a chance. CEO Q > During your keynote speech in Geneva, you spoke about the New World Order and the decline of the US empire. What does this mean to American and global investors? Med Jones > The crisis challenged the existing global economic and geopolitical landscapes. In the next decade or two we will see a shift of wealth and power from the West to the East.

A few years ago, most analysts would have said that the US is the world’s sole superpower and will remain so for the next century. Some US think tanks were planning global domination. Power follows money. The US is buried deep in debt. Most of the current economic growth and GDP figures are debt-driven. The decline of the US Empire has begun. However, unlike the doom prophets who exaggerate with their predictions of a total collapse and civil war, I do not see that happening anytime soon. The decline does not mean the total collapse of the US. The US will remain an influential player on the world stage but will not control it -- just like the UK is still a key player on the world stage, but it is not an empire anymore. Currently each of Asia and the US has a share of the world’s economy estimated at 28%. In 20 years, the US’ share can be reduced to as low as 20% while Asia will increase its share to as high as 40%. CEO Q > Isn’t that a very grim view of the future of the US and a bit out of the mainstream? Med Jones > When I predicted the crisis, I was not in the mainstream, when I predicted the recovery I was not in the mainstream, but I was right on both predictions. Truth tellers do not usually win popularity contests. The duration of the interview does not allow for a detailed analysis of why I believe so, but I can share with you a few anecdotal evidences: • The move after the crisis from G7 to G20 thus expanding the member countries for setting the global economic agenda and influencing IMF monetary policies. • China, Brazil, and Russia started calling for a new global currency to replace the US dollar for international trade. • Some might argue that the US debt is not an issue. Italy and Japan have ratios of 110 and 217 respectively. My answer is that they are not superpowers! Japan’s economy has been suffering for 10 years trying to get out of the 1990s; they call it the lost decade.

The decline of the US empire has begun. There is a new world order taking shape CEO Q > But the US still has the most powerful military in the world? Med Jones > Military power is important, but money matters more. Remember the USSR! Their military power did not prevent their socioeconomic and political collapse. The US cannot financially sustain its current economic and foreign policies, military bases, and wars, they are too expensive and will bankrupt the treasury. History teaches us that all empires fall first from within. The wrong policies of the ruling elites led to the bankruptcy of their central banks and eventual decline. That is what happened to the USSR, and before them, the British, the Ottomans and so on. The best way to preserve your power is by not using it. The best way to grow your money is not by spending it, but by investing it. Unfortunately, the government is not investing in growth industries enough. The US government still thinks and acts as if it were a rich nation. The ruling elite were blind sighted by this crisis and if they remain in self-denial, they will be blind sighted by the next one. CEO Q > So, are you saying it is over for the USA? Med Jones > Not at all. There is a way out of this crisis and that is through the emergence of a new production industry, such as nanotechnology, alternative energy, and biotech. A new industry will generate enough tax revenues to pay the debt and attract more capital. The auto industry led the recovery after World War II. The IT industry led the recovery after the financial crisis of the Seventies. There are also other alternative growth strategies, such as the formation of a new North American Union similar to the EU or opening the doors to more productive immigrants. However, these controversial policies are difficult to pass, at least not in the next 5 years.

Q4 / 2009 | www.ceoquarterly.com

When the economy recovers, it will not be because of Bush’s and Obama’s bailout plans, it will be despite of them. It will be due to the hard work and genius of American entrepreneurs, engineers and scientists, who will rebuild the real engine of the economic growth. As global investors and world citizens, we are going through historical times. Those who do not learn from history are doomed to repeat it. CEO Q > What about the EU’s economy? Med Jones > I’m still undecided on the EU yet. I see a shift in its socioeconomic polices from left to right. If the leadership keeps focusing on the big picture, continues to invest in innovation, and expansion of member countries, decouples from the US, and moves toward more economic integration, then they will see more growth. If they follow the same US economic policies, or they become more conservative in their expansion and integration, then they will lag behind Asia. CEO Q > If the future of US and the EU economies are so uncertain, where do you see growth? Med Jones > There are several global investment opportunities; you can take a look at other economies like Australia with Debt-to-GDP of 11%, Russia’s 7%, and China’s 20%. Short-term, I especially like investments in Russia’s basic industries including mining, iron and gas, but you just have to be careful with the lack of corporate governance. These countries have more room to invest in developing their economies and their currency will be stronger going forward. There are many opportunities involving smaller countries with higher growth rate. Qatar, for example, has an astounding growth rate close to 14 % Unfortunately few investors have access to profit from these opportunities. CEO Q > Why did the world’s top economists and even noble prize winners miss the crisis? Med Jones > Experts missed the crisis because of three reasons (1) wrong economic decision

www.ceoquarterly.com | Q4 / 2009

models (2) groupthink mindset and (3) the lack of information and misinformation in the media. In such an environment, few have the insight and the courage to tell it as it is, and risk being ridiculed by other industry experts. It is not enough to know the facts, what is needed is the ability to see the big global picture and understand the dynamic interplay of key economic forces. Also, just because a person gets an award in one area of economic science it does not make him/her a master of that domain. Economists need to redefine their profession, schools need to redefine their curriculums, and the media needs to redefine its reporting sources and processes. CEO Q > Who is responsible for this crisis? Med Jones > The government and politicians from both parties, the Federal Reserve and the financial sector. Greed, lack of regulation, lack of information and misinformation in the media, incompetence, lack of transparency, and lack of corporate governance, are all factors that contributed to the state that we are in. CEO Q > That is a very hard criticism of the government and the Federal Reserve? Med Jones > Most of the global investment firms and stock markets follow the US Economic Indicators. Markets can gain and lose 10-20 % of their value based on the statements of the Federal Reserve Chairman and the Treasury Secretary. Throughout 2007 and half of 2008, Bernanke, the Fed Chairman, repeatedly stated that the economy was strong until it crashed in September 2008. Henry Paulson, the ex Treasury Secretary, said the US financial system was healthy, only a few months before its collapse. Why should you believe them now? If they knew what was going on, then they were participating in propaganda. If they didn’t know then it is simply incompetence. Which one is worse? Tim Geithner, the current Treasury Secretary claims that the US financial institutions are healthy and that they all passed the “stress test”. At the same time he agrees with his German counterpart, not to release

any information that could potentially hurt the banks. These anecdotal examples are proof that they are either hiding information from the markets or do not fully understands what is happening. Government officials should be accountable for their statements and actions. They should say it as it is and not try to manipulate the sentiments of the investors.

The economy will recover despite Bush’s and Obama’s policies not because of them

Did you know that Allen Greenspan, the previous Fed Chairman who until 2007 was considered the world’s top economist, looks at oddball indicators such as men’s underwear sales to determine the economic health and trends while at the same time, in his assessment of the health of US economy, he ignored the most important fundamentals such at debt-to-GDP ratio, investment and trade-deficits, the risk of over extended-leverage, and the role of prolonged low-interest rates in the formation of housing and financial bubbles. He even stated that he did not know there was so much gambling in the financial markets.

CEO Q > To be fair, you have to give credit to the Federal Reserve Chairman and Treasury Secretary for saving the economy from total collapse!

As you stated, except for a handful people, no mainstream economist from any government or any Ivy league university predicted the crisis. And when a few of us did, we were either ignored or ridiculed. So, do you think they know what they are doing now? At best they are learning now through very expensive trial and error. It has been proven that the existing economic forecast and investment decision models used by top government officials, market analysts and financial firms are flawed. They lack on risk management, make faulty assumptions, and/or put more weight on less relevant decision criteria than on the core fundamentals. They have misled investors and policy makers as often as they have helped them. The lessons here are: • Investors should not rely too much on economists who missed the crisis. They rarely agree on anything, anyway. • Economists need to redefine their profession and decision making models • The government must redefine the qualifications of the Federal Reserve Chairman, the Treasury Secretary and their teams • Governments should audit their Central Banks or the Federal Reserve.

Med Jones > The banks and the companies that were bailed out will give them credit. Their policies saved some companies at the expense of others and the price is yet to be paid by all of us. Henry Paulson, the ex-Treasury secretary, was the architect of the financial bailout during the Bush Administration. He is the ex-CEO of Goldman Sachs, he bailed out Goldman Sachs with $10B while letting their main competitor, Lehman Brothers, go down. Wall Street is the largest contributor to the Obama campaign with Goldman Sachs, Citigroup, JP Morgan Chase, UBS, and Morgan Stanley as the top donors. They are the largest beneficiaries of the bailout money. The top aid of Tim Geithner’s, the current Treasury Secretary, under Obama Administration, is Mark Patterson, a Goldman Sachs lobbyist; He oversees the government’s $700 billion financial bailout program. Patterson’s appointment is a clear violation of Obama’s promise to bar lobbyists from his government. Ask the government for the details of the bailout program, where did the money go? No one will or can tell you. Markets cannot function effectively and efficiently without independent policies, reliable and transparent information. Investors need to lobby their government representatives for unified regulations to protect local and global investors against conflict of interest via more disclosures, transparency, competency, and accountability acts, especially for government appointed officials. CEO Q > Do you think this crisis was the result of a conspiracy designed by some of the elites in Washington, the Federal Reserve, and the Financial Sector? Med Jones > I do not believe it was a conspiracy;

Q4 / 2009 | www.ceoquarterly.com

no group of people are powerful enough to control the results of such crisis. However, I have no doubt that there was a concerted effort by the industry elite and their lobbies. They used the period of confusion and lack of information during the market shock to scare the politicians to pass laws that let the tax payers pay for their mistakes; they used the fear and confusion that happen right after a mass shock to pass their agenda. This happened right after September 11 to push for the Iraq war by the military industrial complex and during the current financial crisis to push for the bailouts by Wall Street firms. A mass shock is a well known opportunity for passing unpopular agendas to serve special interests groups. Even politicians with good intentions cannot do much about what they do not know. What do you expect the government to do when their advisors tell them, “we will have to bailout XYZ companies or we risk total collapse of the US economy and social unrest”. But now the fear has subsided, and the picture is clearer. The real question will be how the government officials will handle the economy and the financial sectors. Will they just look the other way or will they take back the control. By the way, this is not only true in the US, this power struggle is more or less the same all over the world.

They used the fear and confusion that happen right after a mass shock to pass their bailout agenda CEO Q > What do you think is the solution? Med Jones > The solution is multi-dimensional; governance, transparency, competency, and accountability should be at the heart of new and comprehensive financial and political reforms. The Federal Reserve must be audited and must report to the Congress. Or a better solution is for the government to bypass the banks and print and lend

www.ceoquarterly.com | Q4 / 2009

money directly to home and business owners, thus eliminating the middle man and providing lower cost of money directly to the economy and stabilizing the real estate market and helping struggling businesses. But we all know that is unlikely to happen in DC because of the strong financial lobbies. CEO Q > So you are for strong market regulations? Med Jones > The prevailing view that free markets are self-regulating is false. Free market economists relied on internal risk management models; but nobody listened to risk managers when the risk takers were making all the profits in the banks. Markets are imperfect, and regulators are also imperfect: they’re also subject to decision errors and political influences. Market over-regulation can kill growth. You have to recognize that markets are inherently unstable. So, how best to avoid risk? You have to become an informed investor and focus on the fundamentals. This is the best risk management strategy. The government can help with disclosure and accountability acts. CEO Q > What about the regulation of executive compensation? Med Jones > Markets taught us that a CEO can destroy a global multi-billion dollar company and still leave with hundreds of millions of dollars in compensation. The dotcom and the subprime bubbles made a small percentage of managers and brokers very wealthy, while destroying the businesses, the retirement funds, investors’ wealth and the lives of many hardworking people. To understand the culture of Wall Street, the CEO of Merrill Lynch, John Thain, lost $27 Billion and paid $4 Billion in bonuses to its management. According to news reports, after the bailout, he spent $1.2 million on office decoration with $1,400 for a trash can. So much for ethics and respect of the investors’ agency, and so much for establishing confidence in the financial system and government tracking

of bailout money. Is there a greater anecdote for the dysfunction of our investment industry and regulations?

Free markets are not self-regulating CEOs, Board of Directors, and Investment Managers are agents of the investors. The current lack of regulations, allow the abuse of the agency by some agents for short term personal gains. There is a need for regulating the agency relationship. As investors we have to ask ourselves why we shouldn’t have full disclosure on the fees of mutual funds and their proxy voting records. I’m not saying that all agents are bad; in fact many of them are trustworthy. We need protection against the bad ones. I do not advocate a cap on investment advisors’ fees or CEO compensation. What I’m saying is that (internally) compensation should be tied to the right set of performance parameters and reporting should have more disclosures to protect the investors. Investors should at least get involved through shareholders’ voting for the selection and the compensation of the leadership and board of governance in the companies that they invest in. Knowing how boards function, I can tell you that they do not always work for the best interest of the investors. CEO Q > What is the best strategy to rescue the U.S. economy? Med Jones > The answer is still the same. I said before and I’m saying it again. The financial rescue plan or the economic stimulus package did soften the fall but it will not correct the economy, it will only delay the correction, and therefore, the real recovery too. The most cost effective and quickest method to stimulate the U.S. economy is to support job creation through investing in the creation of new businesses and innovation development. U.S. Census Bureau statistics show that 98 percent of all U.S. firms have less than 100 employees. These 27 million small businesses create over 85 percent of all new jobs and employ over 56 percent of all private sector workers. The main focus of development programs

should be innovation development, export and employment support through enterprise creation and growth. I said this before back in 2008. This solution would be much less of a burden to the taxpayers, it can be implemented without new legislation, and would have a much faster positive impact on the economy. It can be based on existing federal programs designed to direct federal funds to small businesses. The Small Business Reauthorization Act of 1997 stipulates that a minimum of 23 percent of all federal prime and sub-contracts be awarded to small businesses.

Boards of Directors do not always work for the best interest of the investors Oversight is critical to the success of the implementation of any rescue program. Effective and efficient program execution is necessary to avoid waste, fraud, and the abuse of loopholes to divert these funds to special interest groups. If the objective of President Obama is to lead the economic recovery through the middle class, then the job creation initiative through small business and innovation development, would be hitting three birds with one stone. The birds are; sustainable job creation, middle class support, and increasing U.S. businesses competitiveness through innovation development. This initiative would have a significant and immediate positive impact on the national economy. The European Commission has invested hundreds of billions of dollars in innovation and enterprise creation since 2002. I personally was on the steering board of 3 innovation EU research consortia from 2002-2006. I saw the impact of these investments first-hand. The result of the EU innovation support policies is that they quantum-leaped U.S. companies in Telecom, Aerospace, and several other industries. The Euro today is almost 50% more valuable than the US dollar, thanks in part to their strong industries. CEO Q > What solutions would you recommend? Med Jones > The U.S. economic problems are multidimensional, therefore the solution should

Q4 / 2009 | www.ceoquarterly.com

address all the dimensions of the problems, with careful balance between short-term and long-term impact. Economists from different schools and political parties can argue for opposing options. Each option has a benefit and a price to pay. In my opinion, there are several ethical issues for raising taxes on hardworking citizens to pay for the bailout of a group of investors, managers and companies who gambled with their money and made bad decisions. The fallout from subsidizing bad behavior can be serious, but ethics and politics are not the subject of this discussion. In order to succeed, the solution should be pragmatic, not ideological. The solution should not be led by either the liberal or the conservative socioeconomic schools. It is not reasonable to try to avoid market correction. Instead, the policies should focus on making the recovery faster, to enhance the competitiveness of U.S. industries, and to improve the business environment to attract more investments. The following is a partial list of strategies to establish trust in the US economy and reverse the cycle: • Let free markets correct themselves, while at the same time have proactive and rapid response policies. • The purpose of intervention should not be to favor one group over the other or to control the markets. The goal should be to minimize speculation and market shocks, thus maintaining a healthy business and investment environment which supports the global competitiveness of national industries and businesses Investments: • Rather than bailing out the failed banks with tax payers money and assuming toxic assets, establish a government bank to lend directly with low interest rates to home and business owners. This will stabilize the housing markets and prevent bankruptcy and the credit crunch. • Increase FDIC cap from $100K to $300K, this will establish trust in the banking systems • Provide tax holidays for new industries

www.ceoquarterly.com | Q4 / 2009

• Create tax-free zones for exports and tourism • Lower interest rates and tax rates for smaller and new businesses and foreign investments. This is important in order to attract capital, start new companies and create new jobs Governance: • Regulate to protect investors and consumers, but avoid over-regulation to slow or kill growth • Investment and credit rating agencies should answer to investors, not bankers, like the auditors they should have liabilities for bad performance • Raise banks’ mandatory reserves • Regulate to limit speculative-gambling investing • Reduce the cost of compliance and simplify Sarbanes-Oxley. What is needed is accountability not bureaucracy Political Reforms: • Keep state and federal spending in check. Reduce government size and expenses drastically • Change income tax to flat sales tax or value added tax (VAT). This will encourage investments and discourage consumerism • Change the way the government does business by creating performance-based job functions linked to business metrics and socioeconomic scorecards similar to the private sector with the focus on effectiveness, efficiency and competitiveness • Conduct public performance reviews of Representatives and Senators. Elections and reelections should be tied to detailed states and national metrics to minimize wasteful spending and the abuse of national resources by special interest groups • Instituting term limits on Congress and the Senate would reduce the abuse of power and the longterm access of lobbyists to politicians. Or limit campaigns funding to individuals and smaller amounts. • Audit the Federal Reserve • Reduce healthcare system costs. The high costs of the healthcare system come from 3 areas: labor, insurance and pharmaceuticals. The best way to overcome them is (1) open immigration policies for doctors and nurses to improve the healthcare

labor supply/demand ratio, (2) limit compensation caps on lawsuits (3) open the markets to global competition by importing medicine and technology from other countries (4) regulate the Insurance Industry (5) reduce patents duration and empower generic drugs. The worst 3 things a government can do are to (a) keep the status quo (b) raise taxes to fund a universal healthcare system • Reduce educational system costs and accreditation bureaucracy, allowing the private sector and online programs to compete more effectively • There are other options such as forming a North American Union or opening immigration doors to more productive professions, but those are politically difficult options

The worst 2 things a government can do are to: (a) keep the status quo (b) raise taxes to fund a universal healthcare system CEO Q > What could hinder the recovery of the U.S. economy? Med Jones > There are several possible scenarios. The complex governmental (and banking) accounting rules hide the fact that the current investment papers are overvalued and risky. This is very dangerous. National and global investors will sooner or later catch up with the fact that their investments are highly inflated and riskier than they thought. If reforms are not taken, the result could be the serious erosion of investors’ confidence. The confidence in U.S. economic policies is the single most important factor for recovery. The loss of confidence in the U.S. Economy could lead to the significant loss of the dollar value and the migration of capital from the U.S. financial markets to alternative international investment destinations CEO Q > What are the risks to the recovery? Med Jones > There are several risks including, but not limited to: • The devaluation of U.S. treasuries and other

assets • New waves of home foreclosures from variable rate mortgage loans that will reset in 2010 • New waves of major consumer and business bankruptcies (especially for large industries) • States’ bankruptcies • Double digit unemployment rate • Wrong economic policies (uncontrolled spending deficits and higher tax policies) • The sharp devaluation of US dollar • National political unrest • Wrong foreign policies (increased instability and decreased global collaboration) • Geopolitical and security risks • A war with Iran that could hike oil prices and cripple the global economy The combination of some of the counterproductive policies and bad news, can further damage investors’ confidence, thus sending the economy in a downward spiral and resulting in another “great depression”. Fortunately, the administration does have the tools to mitigate those risks and it is not too late to implement the needed economic reforms.

Forming a North American Union or opening immigration doors to more productive professions, are politically difficult options CEO Q > What is the best case scenario? Med Jones > There are several positive forces: • The deregulation and globalization of markets, capital and trade, information technology, better management, lean inventory and production systems will all help in a faster recovery. • New market regulations such as increasing mandatory banking reserves, increasing the power of the shareholders to manage executive compensation, and regulating credit reporting agencies will improve confidence in U.S. investments. • The lower dollar value will help exports, thus supporting foreign capital spending and growth. • The lower mortgage rates will allow investors

Q4 / 2009 | www.ceoquarterly.com

and first-time home buyers to get into the market thus reducing the market inventory and improving prices. • The proactive monetary and fiscal policies will help absorb the shock and help ease the credit market crunch (assuming the bailout plan is not abused by the banks to reduce their balance sheet losses, rather than passing the money to consumers and businesses). In a global integrated economy , the global investors (including the Chinese, Japanese and the Gulf Arabs), all want the U.S. to recover so that they can recover their investments. We can expect to see a collaboration with various central banks and investors which will help us overcome the crisis. It is unlikely that we’ll see these governments taking hostile actions which would cause the collapse of the dollar. • Oil prices can drop on lower demand, giving U.S. businesses and consumers a break. The government can invest in, and help develop new industries including biotech, alternative fuel, and nanotechnology, thus creating new jobs which will generate enough income to reduce the budget deficit.

The best way to restart the economic engine is to invest in innovation development and enterprise creation. Enhance the competitiveness of US industries and improve the business environment to attract more investments

About Med Jones

•

www.ceoquarterly.com | Q4 / 2009

Jones is recognized as one of the few experts who predicted the U.S. financial and economic crisis. He is quoted in worldwide media on the topic. He challenged the US President, Federal Reserve Chairman and the popular opinions of the world economists in January of 2007. His predictions were proven to be the most comprehensive and most accurate. This is validated by: 1. The Institute’s policy white paper “U.S. Economic Risks & Strategies 2007-2017 (June 2, 2006) A widely blogged paper. 2. A Press Release on PR.com - [US is] “headed to a major crisis” (February 2007) 3. Reuters interview on the real estate bubble, subprime mortgage defaults, and bankruptcies, “The worst thing that could happen to any economy is the loss of confidence (March 2007) While some experts warned about one sector of the economy such as the national budget deficit, or the US dollar valuation, or the housing bubble, Jones warned about a “major crisis”. He was the only expert who provided a complete 360 degree view of the economic risks, and outlined detailed risk mitigation strategies in June of 2006. Of all the experts who predicted the crisis, he was the first to predict an early jobless recovery in a CEO Q Magazine Interview (October 2008) and Reuters news release (January 2009) Jones is a non-partisan technocrat, his recommendations and strategies are blogged by democrats, republicans, and independents. For more information, visit: www.medjones.com

Obama’s Plan for Small Business

What Are Obama’s Policies to Support the Small Businesses of America?

Barack Obama The 44th US President www.whitehouse.gov

According to the U.S. Small Business Administration (SBA), there are approximately 25.8 million businesses in the United States and over 99 percent of all employers are small businesses. President Barack Obama is promising he will help small businesses by cutting healthcare costs, improving access to capital and investing in innovation and development. Lower Health Care Costs with a New Small Business Health Tax Credit: President Obama understands that the skyrocketing cost of healthcare poses a serious competitive threat to America’s small businesses. Small businesses are the drivers of job growth in the US economy, creating, on average, more than two thirds of net new jobs each year. Yet small business owners face unique challenges in providing healthcare to their employees, including higher administrative costs, lower bargaining power, greater price volatility and fewer pooling options. Obama will reduce the burden on small businesses by offering a new Small Business Health Tax Credit that will provide a refundable credit of up to 50 percent on premiums paid by small businesses on behalf of their employees.

www.ceoquarterly.com | Q4 / 2009

Obama’s Small Business Health Tax Credit will work alongside other aspects of his health care plan, including: • Access to a Low-cost National Health Exchange: Provide small businesses with new opportunities to buy low-cost, high quality health plans for their employees through a national exchange that will allow small businesses to get the same benefits of spreading risk and administrative costs over a large pool that larger businesses currently enjoy. • Reduced Volatility and Lower Costs by Reimbursing Catastrophic Costs: The Obama plan will reimburse employer health plans for a portion of the catastrophic costs they incur above a threshold if they guarantee such savings are used to reduce the cost of workers’ premiums. This reimbursement (often called reinsurance) is particularly important for small business plans, which can be overwhelmed by the costs of catastrophic expenditures for even a single employee. • Investment in Cost Reduction and Quality Improvement Strategies:

Aggressively lower healthcare costs by facilitating broad adoption of standards-based electronic health information systems, and other value-increasing innovations improving chronic care management, and increasing insurance market competition. Provide Zero Capital Gains and Other Tax Relief for Small Businesses and Start Ups: Eliminate all capital gains taxes on small and start-up businesses to encourage innovation and job creation. Support small business owners by providing a $500 “Making Work Pay” tax credit to almost every worker in America. Self-employed small business owners pay both the employee and the employer side of the payroll tax, and this measure will reduce the burdens of this double taxation. Expand Loan Programs for Small Businesses: Access to capital is a top concern among small business owners. Prior to becoming the President, Obama cosponsored the bipartisan Small Business Lending Reauthorization and Improvements Act. This bill expands the Small Business Administration’s loan and microloan programs which provide startup and long-term financing that small firms cannot receive through normal channels. Obama will work to help more entrepreneurs get loans, expand the network of lenders, and simplify the loan approval process. Support Innovation and HighTech Job Creation: Barack Obama believes we need to double federal funding for basic research, diversify energy

sources, expand the deployment of broadband technology, and make the research and development tax credit permanent so that businesses can invest in innovation and create highpaying, secure jobs. Create a National Network of Public-Private Business Incubators: Support entrepreneurship and spur job growth by creating a national network of public-private business incubators. Business incubators facilitate the critical work of entrepreneurs in creating start-up companies. They offer help designing business plans, provide physical space, identify and address problems affecting all small businesses within a given community, and give advice on a wide range of business practices, including reducing overhead costs. Business incubators will engage the expertise and resources of local institutions of higher education and successful private sector businesses to help ensure that small businesses have both a strong plan and the resources for long-term success. Obama will invest $250 million per year to increase the number and size of incubators in disadvantaged communities throughout the country. Invest in Women-Owned Small Businesses: Women are majority owners of more than 28 percent of U.S. businesses, but lead less than 4 percent of venture capital-backed firms. Women business owners are more likely than white male business owners to have their loan applications denied. Obama

will encourage investment in women-owned businesses, providing more support to women business owners and reducing discrimination in lending. To create greater opportunities for women business owners who would like to do business with the federal government, Obama will implement the Women Owned Business contracting program that was signed into law by President Bill Clinton, but was not implemented by the Bush Administration. Increasing Minority Access to Capital: Access

venture

capital

is critically important to the development of minority-owned businesses. Yet there has been a growing gap between the amounts of venture capital available to minority-owned small businesses compared to other small businesses. Less than 1 percent of the $250 billion in venture capital dollars invested annually nationwide has been directed to the country’s 4.4 million minority business owners. And in recent years, there has been a significant decline in the share of Small Business Investment Company financings that have gone to minority-owned and women-owned businesses. In order to increase their size, capacity, and ability to do business with the federal government, and to compete in the open market, minority firms need greater access to venture capital investment, as well as greater access to business loans. Obama will strengthen Small Business Administration programs that provide capital to minority-owned businesses, support outreach programs that help minority business owners

apply for loans, and work to encourage the growth and capacity of minority firms. Promote Small Business Ownership in the Communications Industry: Prior to becoming the president, Obama joined Senator John Kerry (D-MA) in calling on the Federal Communications Commission (FCC) to immediately address the issues of minority, women and small business media ownership before taking up a second review of wider media ownership rules. Obama has continued that fight by urging the FCC to establish an independent panel on minority and small business media ownership. Obama will support efforts to achieve diverse media ownership, particularly in an era of increased media concentration. Support Local Businesses Affected by Hurricane Katrina: In the wake of Hurricane Katrina, Barack Obama introduced the Hurricane Katrina Recovery Act to rebuild the Gulf Coast. This bill included language to increase the government-wide goal for procurement contracts awarded to small businesses owned and controlled by socially and economically disadvantaged individuals for recovery and reconstruction activities related to Hurricane Katrina. Obama also established a government-wide goal for procurement contracts awarded to local businesses in Katrina-affected areas of 30 percent of that total value for 2006 and 2007. Provide Emergency Relief: Barack Obama supported legislation to provide emergency relief to small businesses affected by a significant increase in the price of heating oil, natural gas, propane, or kerosene. This bill authorized the Small Business Administration to make disaster loans to assist small businesses that have suffered or are likely to suffer substantial economic injury as the result of a significant increase in the price of heating fuel. Support Rural Small Businesses: Support entrepreneurship and spur job growth by

www.ceoquarterly.com | Q4 / 2009

establishing a small business and micro-enterprise initiative for rural America. The program will provide training and technical assistance for rural small businesses, and provide a 20 percent tax credit on up to $50,000 of investment in small owneroperated businesses. This initiative will put the full support of the nation’s economic policies behind rural entrepreneurship. Promote Digital Inclusion: The lack of affordable, high-speed Internet access in rural, urban, and minority communities has created a digital divide between those who have access to the Internet and those who do not. This severely limits the growth potential of many urban and rural companies. Approximately only one-third of rural areas and half of urban areas have highspeed Internet at home or work. The areas affected by Hurricane Katrina have particularly suffered due to a lack of IT infrastructure. Obama believe that we can get true broadband to every community in America through a combination of reform of the Universal Service Fund, better use of the nation’s wireless spectrum, promotion of next-generation technologies, and new tax and loan incentives. As a key step to achieving full broadband access, Obama believes the Federal Communications Commission (FCC) should provide an accurate map of broadband availability using a true definition of broadband instead of the current 200 kbs standard and an assessment of obstacles to fuller broadband penetration. ### Editor’s Note: Write back to the editor and tell us if Obama’s small business support plan has been implemented in all its elements. Where did it succeed or where did it fail and why? Are his policies helping or hindering your business and how?

America in a Global Economy A Vision for Ensuring America’s Economic Preeminence in the Global Economy What is John McCain’s Vision for Supporting America’s Leadership in the Global Economy?

John McCain U.S. Senator (R-AZ) Former Republican Party Nominee for the US President 2008 www.johnmccain.com

According to John McCain, he will work to promote a strong and growing economy – an economy that creates jobs, increases wages, and helps American workers compete with rivals in any market in the world. He will pursue an economic agenda that places the need for low taxes, fiscal discipline, and economic opportunity for Americans above the special interests. His plan includes the following key initiatives: Ensure American Workers Continue to Benefit from Exports to Other Countries. American workers make and sell about $200 billion in heavy machinery to other countries every year. America’s workers export more than $70 billion in aircraft and parts, more than $148 billion in electrical machinery and equipment, and $106 billion in cars, trucks, and other vehicles. In all, one in every five American jobs depends on factory exports. Export is Essential for Small and Medium-sized Enterprises (SMEs) Growth

www.ceoquarterly.com | Q4 / 2009

Three key examples include Illinois, California and Florida Illinois: Illinois is the fifth largest exporting state. Its merchandise exports have almost doubled since 2002, hitting $48.7 billion last year. Top products include Machinery ($12.7 billion); Transportation Equipment ($7.5 billion); Chemicals ($6.2 billion); Computers & Electronics ($5.8 billion); and Appliances ($2.6 billion). Small and medium-sized enterprises (SMEs) generated nearly one-quarter (23 percent) of Illinois’ total exports of merchandise in 2005. A total of 13,891 companies exported goods from Illinois locations in 2005. Of those, 12,359 (89 percent) were SMEs, with fewer than 500 employees California: California is the second largest exporting state. Its merchandise exports have almost increased 45 percent since 2002, hitting $134.2 billion last year. Top products include Computers & Electronics ($43.7 billion); Machinery ($14.5 billion); Transportation Equipment ($13.7 billion); Chemicals ($10.4 billion); and Agriculture ($6.7 billion). Small and Medium-sized Enterprises (SMEs) generated more than two-fifths (43 percent)

of California’s total exports of merchandise in 2005. A total of 51,466 companies exported goods from California locations in 2005. Of those, 49,148 (95 percent) were SMEs, with fewer than 500 employees. Florida: Florida is the sixth largest exporting state. Its merchandise exports have almost doubled since 2002, hitting $44.8 billion last year. Top products include Computers & Electronic Products ($12.2 billion); Transportation Equipment ($7.2 billion); Machinery ($5.1 billion); Chemicals ($4.7 billion); and Appliances ($1.7 billion). Small and Medium-sized Enterprises (SMEs) generated nearly twothirds (61 percent) of Florida’s total exports of merchandise in 2005 – the highest of all 50 states. A total of 28,524 companies exported goods from Florida locations in 2005. Of those, 27,048 (95 percent) were SMEs, with fewer than 500 employees. Honoring Free Trade Agreements with America’s World Trading Partners. McCain will work to support multilateral, regional and bilateral efforts to reduce trade barriers, level the global playing field and build effective enforcement of global trading rules. Push To Ratify The Colombia Free Trade Agreement. American exporters now pay an extra $3.5 million in tariffs each day because we don’t have a completed trade agreement with Colombia. Colombia is a friend and crucial democratic ally. The stability of Colombia is more critical than ever as others in the region seek to turn Latin America away from democracy and away from America. Trade serves all

of these national interests, and the interests of the American economy as well. Support a Free Trade Agreement with South Korea. America exports nearly $50 billion in goods to South Korea, a key ally that deployed the third-largest contingent of troops to Iraq, and assisted in the rebuilding of Afghanistan. Reforming Worker Assistance Programs. John McCain understands there are vast benefits of a global marketplace, but they come at a cost for many, and we have an obligation to help American workers receive the training they need when plants close and jobs are lost. McCain will work to help displaced workers at every turn on a tough road, so that they are not just spectators on the opportunities of others. John McCain has made a commitment with reforms to expand and improve federal aid to American workers in need.

of any other government. It’s in the United States Congress, in the billions of dollars in subsidies served up every five years to corporate farmers. John McCain opposes the $300 billion farm bill to subsidize large commercial farms with an average income of $200,000, and an average net worth of $2 million while American workers and taxpayers struggle to buy food, because of rising prices. ### Editor’s Note: Write back to the editor and tell us if the Senator’s plan is put into action? Where he is succeeding or where he is failing and why?

Pursuing a Responsible Agricultural Policy: Seek an end to all agricultural tariffs, and to all farm subsidies that are not based on clear need. He will oppose any bill containing special-interest favors and corporate welfare in any form. John McCain will base America’s farm policy on the common good, with policies that help America’s small farmers to succeed, and America’s rural communities to survive and flourish once again. Open Foreign Markets Across the World to American Farmers. The biggest obstacle to this goal, however, is not to be found in any foreign market, or in the policies Q4 / 2009 | www.ceoquarterly.com

Wall Street Benefits Twice from the Bailouts Exposing Washington Special Interest Politics

Bob Barr Former US Congressman (R-GA) Former Libertarian Party Nominee for the US President (2008) www.bobbarr.org libertystrategies.org

Almost everyone has seen the story of how executives at AIG partied at a resort after the taxpayers were stuck with the bill for an $85 billion bailout—now being supplemented with another Federal Reserve loan of $37.8 billion. But what’s $440,000, including more than $23,380 for spa services, among friends when the taxpayers are paying? Normally politicians wouldn’t have any business complaining about the cost of a corporate retreat, but what might be unexceptional for high-flying companies in a booming economy becomes outrageous when taxpayers are getting stuck with the bill. In this case they are paying twice, with the company collecting a new loan because its bottom line is even worse than originally thought. Loan-two to AIG is small change compared to the extra benefits that Wall Street will receive. Many of the largest firms will be going to the spa, figuratively, at least. You see, someone has to manage all of the securities and other assets that the government plans on buying with taxpayer funds. And who better to manage them than the very companies that bought the bad paper in the first place!

www.ceoquarterly.com | Q4 / 2009

The Treasury Department has requested proposals for asset managers, and according to the Wall Street Journal, the government “wants large, established firms with significant assets to work for the government’s program.” That means managing at least $25 billion, and in some cases at least $100 billion, in private assets. There will be a lot of money in fees—typically 1 percent of the assets managed, which could come to as much as $7 billion a year or more if government purchases go past $700 billion, as is widely expected. Wall Street is looking forward to milking this latest cash cow. Since government jumped into the investment business, the Journal tells us that “a range of firms—from large investment banks to boutique real-estate companies—have been angling to grab some of the advisory business.” Representatives of some companies showed up in Washington to lobby even before Congress approved the bailout. And who can blame them? The Journal reports that “sales, financing and other traditional forms of real estate business have dried up with the credit crisis.” Of course, most of these firms

helped cause that very crisis. Most of the companies bidding for government business are suffering big losses and preparing to unload lots of bad paper on the government. Bad paper that other big companies with big losses and lots of bad paper will manage. And so the circle will go on endlessly, at taxpayer expense. The only problem is potential conflicts of interest, since companies will, notes the Washington Post, “be managing the assets while also selling their own troubled securities to the government.” But officials say they will attempt to “minimize” any conflict. No doubt, Washington won’t let a little thing like ethics stand in the way of letting everyone on Wall Street profit. Indeed, politics are starting even before the president’s signature on the bill is dry. One analyst predicts that the Treasury Department will focus bailout funds on regional banks and thrifts, thereby providing “critical political support for Treasury’s efforts.” After all, “Congressmen who had to swallow hard to vote for this thing will feel a lot better about it if they see the impact in their local communities.” Which is just another name for pork, like the spending programs and tax preferences loaded into the $700 billion bailout bill to win votes for passage. All of this is politics as usual in Washington, and it won’t change. Both parties supported the $700 billion Wall Street bailout, as well as the many other bailouts that preceded it.

Senator John McCain attempted to disguise reality by calling the $700 billion Wall Street bailout a “rescue,” but it’s obvious that the only people he and his colleagues were rescuing were the executives who had made bad investment decisions, as well as the politicians who had pushed increased mortgage lending, irrespective of cost, triggering today’s crisis. Now it turns out that the companies getting bailed out will benefit twice Both of them are part of the political establishment that helped create today’s economic problems. Neither of them will take the steps necessary to ensure that this sort of economic crisis doesn’t hit again. ###

About Bob Barr Bob Barr is the former Libertarian nominee for President of the United States (2008). He represented the 7th District of Georgia in the U.S. House of Representatives from 1995 to 2003, serving as a senior member of the Judiciary Committee, as Vice-Chairman of the Government Reform Committee, and as a member of the Committee on Financial Services. Barr runs a consulting firm, Liberty Strategies LLC.

Q4 / 2009 | www.ceoquarterly.com

Twelve Steps to an Effective Crackdown on Corporate Crime

Ralph Nader Former Independent Candidate for President of the United States 2008 A renowed attorney, author and political activist. He is the leading American advocate of consumer protection, humanitarianism, enviromentalism, and democratic government www.nader.org www.votenader.org

Ralph Nader, one of the most famous political activists in America, is proposing a crackdown on corporate crime, fraud and abuse.

and ignoring many corporate crime violators completely. There needs to be a strong corporate law and order will in the White House.

Among the reforms needed are resources to prosecute and convict the corporate executive crooks and to democratize corporate governance so shareholders have real power; pay back ill-gotten gains; rein in executive pay; and enact corporate sunshine laws, among others.

2. Ban Corporate Criminals from Government Contracts: The US should enact a tough, serious debarment statute that would deny federal business to serious and/ or repeat corporate lawbreakers. The federal government spends $265 billion annually on goods and services. These contracts should not support corporate criminals. These standards should also apply to procurement contracts in Iraq.

Below are twelve initial steps for an effective crackdown on corporate crime, fraud and abuse. The Nader campaign will return to this issue and expand the discussion on the solution to corporate crime and abuse. Twelve Steps to an Effective Crackdown on Corporate Crime 1. Increase Corporate Crime Prosecution Budgets: The Department of Justiceâ&#x20AC;&#x2122;s corporate crime division and the Securities and Exchange Commission have been chronically under funded and therefore do not have sufficient resources to combat the corporate crime wave in the United States. This results in inadequate investigation, settlement of cases for weak fines,

www.ceoquarterly.com | Q4 / 2009

3. Crack Down on Corporate Tax Avoidance: The US should punish corporate tax escapees by closing the offshore reincorporation loophole and banning government contracts and subsidies for companies that relocate their headquarters to an offshore tax haven. The IRS should be given more power and more budgetary resources to go after corporate tax avoiders. Publiclytraded corporations should be required to make their tax returns public. 4. Democratize Corporate Governance: Shareholders should be granted the right to democratically

nominate and elect the corporate board of directors by opening up proxy access to minority shareholders and introducing cumulative voting and competitive elections. Shareholders should be given the power to approve all major business decisions, including top executive compensation. Shareholders should be treated as the owners of the corporation since, in fact, that is what they are. 5. Expand Corporate Disclosure: Corporate sunshine laws should be enacted that require corporations to provide better information about their records on the environment, human rights, worker safety, and taxes, as well as their criminal and civil litigation records. 6. Rein in Excessive Executive Pay: Shareholder authorization should be required for top executive compensation packages at each annual shareholder meeting. Stock options, which now account for about half of the executive compensation, should be counted on financial statements as an expense (which they are). Tax deductions for compensation 25 times above the compensation received by the lowest paid worker in a corporation should be eliminated, as recommended by business guru Peter Drucker. 7. Fix the Pension System: Corporations must be held more responsible for the retirement security of their employees. At a minimum we need to give workers a voice on the pension board; not require workers to stuff their 401(k) plans with company stock; and give workers the right to control their 401(k) plans. In addition, an Office of Participant

The US needs to crackdown on corporate crime, fraud and abuse that have in the last four years looted and drained trillions of dollars from workers, investors, pension holders and consumers Advocacy should be created in the Department of Labor to monitor pension plans. 8. Restore the Rights of Defrauded Investors: Repeal the self-styled securities reform laws that block defrauded investors from seeking private restitution, such as the private Securities Litigation Reform Act of 1995, which allowed the aiders and abettors of massive corporate crime (e.g., accountants, lawyers, and bankers) to escape civil liability. 9. Regulate Derivatives Trading: All over-the-counter financial instruments, including derivatives, should be subjected to the same or equivalent audit and reporting requirements as other financial instruments traded on stock exchanges. Rules should be enacted regarding collateralmargin, reporting and dealer licensing in order to maintain regulatory parity and ensure that markets are transparent and problems can be detected before they become a crisis. 10. End Conflicts of Interest on Wall Street: Enact structural reforms that separate commercial and investment banking services and prevent other costly, documented conflicts of interest among financial entities, such as those that have dominated big banks and security firms in recent years.

11. Track the Extent and Cost of Corporate Crime: The Department of Justice should establish an online corporate crime database. Also, just as the FBI issues an annual street crime report, “Crime in the United States,” it should also publish an annual report on corporate and white collar crime with recommendations. 12. Foster a National Discussion on Corporate Power: Establish a Congressional Commission on Corporate Power to explore various legal and economic proposals that would rein in unaccountable giant corporations. The Commission should seek ways to improve upon the current state corporate chartering system in a world of global corporations and propose ways to correct the inequitable legal status of corporations as “persons.” The Commission would be led by congressionallyappointed experts on corporate and constitutional law, and should hold citizen hearings in at least ten cities followed by a report and recommendations. ### Editor’s Note: Write back to the editor and tell us if Nader’s proposal is being put into action? Where he is succeeding or where he is failing? and why?

Q4 / 2009 | www.ceoquarterly.com

CTO Leadership Best Practices

An Interview with Donn Westerhoff the CTO of US Central Command (CENTCOM) CEO Q interviewed Donn Westerhoff, the CTO of US CENTCOM about his leadership role in the organization. The interview provided some valuable insights into executive challenges, opportunities and CTO best practices.

Donn Westerhoff Chief Technology Officer (CTO) of CENTCOM He is also a member of DC CTO roundtable. www.centcom.mil The US Central Command (CENTCOM) promotes cooperations among nations, responds to crises, deters or defeats state and nonstate aggression, and supports development and reconstruction to help establish the conditions for regional security, stability, and prosperity.

[CEOQ] What are the key challenges for the CTO in a critical, complex, and global IT environment? [Donn] The US Central Command Area of Responsibility (AOR) stretches across more than 4.6 million square miles and 20 countries. While distance and time zone changes present difficulties in attaining real time information, the most significant challenge is that we incur continuous change. Our environment is dynamic; we must remain adaptable to all planned and unplanned events. Change management is a very critical aspect in our IT service. About 80% of everything that goes wrong within a network is usually due to unscheduled or undocumented changes. In large organizations, the change management process is difficult to define and even more difficult to follow due to continuous technology and environment changes. Change management should enable, not hinder, the organizational performance. Changes need to be handled efficiently and cannot

www.ceoquarterly.com | Q4 / 2009

be so arduous that it inhibits our movement forward. The key to success in change management is simplifying the process, maintaining business rigor, and automation. The objective is to establish a customer friendly process that has a positive impact on response time. [CEOQ] What about your personal challenges as a senior executive, when you first took over the CTO role? [Donn] In my organization, the first personal challenge I faced was the establishing of my role and responsibilities within the organization. My position is relatively new. It was put together in November of 2007, and my immediate challenge was to carve out my niche. My number one question was â&#x20AC;&#x153;what can I do to be an enabler to the people that work with me?â&#x20AC;? My job is not only to enable my workforce, but to enable the rest of the directorate to be successful. I also have to enable operations to be successful by finding the technologies, the processes, and the people to make it happen. I have to find the tools that will make their job easier and make our systems and network stable, reliable, and available.

[CEOQ] Can you give us an example of how you used IT to help the organization succeed?

[CEOQ] What are the critical success factors for leadership in the government sector?

[Donn] We are currently utilizing a web-based collaboration portal that helps to overcome distance and time zone challenges which improves communication for better decision-making. We also use a centralized network management tool to provide us with a consolidated common operating picture of the entire network to help our engineers and operators to monitor and troubleshoot the network more effectively.

[Donn] Leadership success is about vision and interpersonal relationships. No single person can make the organization successful. The success of the leadership in any organization is completely predicated on your ability to build positive interpersonal relationships. In my particular case, I have many stakeholders and a lot of projects that I am engaged with. So I have to build consensus and collaboration to the directions that they want to go. And I have to show the benefits of each project and frame it in a win-win proposition. The second piece of that is, having a vision and a direction. When asked the question, “Why do we do something?” There is an old adage that people like to say: “Because we have always done it that way!” This way of thinking is a recipe for disaster. While tradition, predictability, and consistency are important, to be competitive and a good leader in today’s changing environment you must have a vision and you must be able to take risks. It is critical to think outside the box and point to a direction that will give you an orchestrated effort to success. It is always about doing the right thing and making sure you include everybody. If I want to sum it up, as a leader you have to conceptualize, socialize, reconceptualize, re-socialize, then implement or deploy.

[CEOQ] What is the best executive leadership style for an organization like yours? [Donn] The servant-leadership style. As a leader, I have the responsibility by definition to accomplish the tasks and execute the will of my organization, as well as to ensure that my people are taken care of. I have an inherent responsibility to enable my people to be successful. It is my workforce that enables things to happen. Sometimes I have to compromise, and subdue my own needs in order to make others’ goals my primary concern. I also have to keep my ego in check; I am not the center of the universe. So, as a leader, the more that I can do to enable my people to do their jobs, the more successful our organization will be. My style of leadership is pretty much: articulate a vision, clarify the tasks, provide the tools, and give my people the freedom to accomplish their tasks. My role is to provide periodic guidance and knock down obstacles in their way.

[CEOQ] What is the role of innovation in IT Management? [Donn] Innovation plays an important role in organizational performance and it’s especially

essential in the IT Management sector. Effective managers always look for resourceful ideas and innovative solutions to complex problems. In this economic crisis, for example, one way to overcome budget limitations is to develop the most efficient and highly skilled IT and support workforce and to seek resources outside the government, such as establishing public-private partnerships. This enables expedited resolution of issues, the development of creative solutions, and meets the need of the government agencies who are asked to do more with less. Another method of innovation is recapitalization of functional assets in order to build on internal collaboration and utilize internal assets within the government. [CEOQ] Can you give us a specific example of a problem that you have solved in such manner? [Donn] We wanted to create a facility designed for the evaluation, engineering, testing, analysis, training, demonstration, and documentation of potential new technologies for introduction into the US CENTCOM environment. The limited budget was a major challenge. Thinking outside the box led us to the conclusion that we can obtain low cost resources by leveraging relationships with other divisions within our command and other military organizations that are life-cycling equipment. This also is requiring us to lean on outside resources and form partnerships to bring solutions to the problems we are facing and create a winwin proposition that enables everyone to be successful. The good news is when the facility is completed, it will have the potential to become a Command,

Q4 / 2009 | www.ceoquarterly.com

Control, Communications, and Computer (C4) Center of Excellence which will not only serve our directorate but serve the Command and all of our coalition partners. The purpose for the C4 Center of Excellence is to provide a state of the art information sharing environment while growing into one of the premier locations for C4 collaboration, research and design development, and education. Then, we can begin tackling complex issues with our partners such as systems integration and inter-operability. Going back to your earlier question, I think one other key success factor for any CIO or CTO is to have entrepreneurial skills. Most of what I do isn’t documented and charted but it is a form of building a business from within. [CEOQ] What are your criteria for selecting IT solutions? [Donn] Assured system availability, information protection, and content delivery are critical to our environment. We work in an environment where security will make or break you. Since our network is a heterogeneous network that is built by many organizations, our network operations are literally analogous to several different companies trying to play all together, each with different ideas and solutions which you can imagine is very difficult. From an operational perspective, the solution should be requirements driven and must validate a need for a particular capability. From an investment perspective, we select and evaluate IT products or solutions that are cost-effective, intuitive, and useful. The product or solution must enhance workflow and resolve a technical issue in order to satisfy the needs of the end user. There are many vendors that provide potential solutions and we employ a vendor agnostic process that allows us to select and evaluate how each IT solution fits and integrates with other systems in the network. The CTO must look at each vendor critically from a view of functionality, capability, long-term sustainability, and total cost of ownership. In a non-profit organization, the return is not necessarily monetary. For us, the return on investment, or ROI, is the

www.ceoquarterly.com | Q4 / 2009

optimal accomplishment of the mission in the least amount of time, with the least amount of effort. [CEOQ] We hear the industry buzzword “Agile IT” a lot, what does the term agile IT operations mean to you? And how does your Network Management Architecture help you achieve that? [Donn] Agility is our ability to adapt rapidly and cost efficiently in a proactive manner in response to environmental changes. Due to the nature of our mission, our environment is extremely dynamic and subject to constant change. For example, we might be responding to a crisis or natural disaster such as an earthquake or a non-combatant evacuation. We must be able to respond to these with resources and communications very quickly. We need to make and monitor network changes very quickly because as assets are moved, we must understand how the change will impact our network. Our network management architecture and network systems integration is a pro-active network management process that enables us to identify potential shortcomings, bottlenecks, congestion points, and traffic engineering issues. Because of this, we can now engage in a preventative fashion before they become serious and impact communications support. [CEO Q] How do you select your vendors? What do you look for in a vendor or in a partner? [Donn] We are a bit different from other IT shops, because we support a very complex mission-critical environment with real-time changes. IT for us is more than just about communication; it is about the safety of our operations and our people. We don’t work 9-5. So we need vendors who can partner with us and understand our environment very quickly, and can dedicate their resources to help us meet our mission. ###

SAP on Linux A Case Study: CIOs Can Save Up to 60% in IT Total Cost of Ownership Avoiding Vendor Lock-ins

Naji Almahmoud, Director, SAP Global Alliance, Novell www.novell.com

To avoid vendor lock-ins, and to reduce the total cost of ownership (TCO) of their IT environments, many companies are strategically moving to an open enterprise platform. One such example is the trend of many of the SAP ERP (Enterprise Resource Planning) software users are migrating to a LINUX Enterprise Server as their standard operating system. Novell’s SUSE LINUX is the first Linux platform certified for SAP solutions. It provides a centralized server and network services that result in long-term cost savings. Companies of any size and from any sector value the wide range of functions and services afforded by LINUX Enterprise Server — all with low license fees and sensible operating and maintenance costs. More importantly, SAP customers can benefit from a system that can cope with even the most exacting data center demands. Flexibility Is Key Siemens Business Services (SBS) GmbH, a leading global IT service provider, rates the flexibility of SUSE LINUX Enterprise Server very highly: “For us, the certification by

www.ceoquarterly.com | Q4 / 2009

prominent hardware and software manufacturers was and continues to be decisive,” says Michael Gebauer, project manager in the Application and Hosting Services department at SBS. The Siemens group uses mySAP ERP Human Capital Management (mySAP ERP HCM) to handle its payroll requirements for 170,000 employees, but wanted to find a new strategic platform for their mySAP ERP HCM installation that would provide better monetary value than conventional reduced instruction set computer (RISC) servers while boosting performance at the same time. After various test runs with different Linux distributions, SBS selected the Novell SUSE LINUX Enterprise Server. The reason; In conjunction with the new Intel servers, the system returned the best performance data and promised easier migration. A Ground-breaking Solution The Adaptive Computing infrastructure from SAP is based on the SAP NetWeaver technology platform. It decouples the software components from servers, operating systems, memory solutions, and

control instances. As such, almost any application can potentially run at any time on any server. This improves scalability and system performance, significantly increasing the efficiency and flexibility of the IT infrastructure. A number of other companies have already deployed SUSE LINUX Enterprise Server successfully as a component in the Adaptive Computing infrastructure from SAP. One such customer is Hella KGaA Hueck & Co., a leading international automotive supplier with close to 23,000 employees in over 20 countries. Increasing globalization prompted Hella to merge its production and trading companies, which were spread around the world’s major automotive industry sites and operated locally. To harmonize its process and system landscape, the company had to extend the use of core SAP applications across the group. Hella met these requirements with the Adaptive Computing infrastructure from SAP, running on a system composed of blade and rack servers from Fujitsu Siemens, storage systems from Network Appliance, and a Novell SUSE LINUX operating system. Among its successes, the project boasts high availability, increased flexibility, simplified administration, and a TCO reduced by more than 30%. “We are pursuing an optimal IT strategy with our new infrastructure,” says Hans Sudkamp, CFO at Hella. “It helps us to respond flexibly to the needs of the automotive industry and to offer top-quality, innovative products at reasonable prices around the globe.”

The potential benefits of Novell’s SUSE LINUX Enterprise Server are especially high when based on the Adaptive Computing infrastructure from SAP. IT operating costs can be cut by over 30 percent compared with customary Unix systems, and by up to 60 percent compared with mainframes. Major TCO Reduction Another success story is T-Systems, one of Europe’s major service providers for information and communication technology. As an application service provider, T-Systems provides different SAP solutions for more than 250 customers worldwide. Thanks to Adaptive Computing from SAP and SUSE LINUX, 50 to 60 customers can now be served by a single infrastructure. T-Systems uses the Adaptive Computing Controller tool from SAP as a component of the SAP NetWeaver technology platform. “The Adaptive Computing infrastructure drastically reduces IT operating costs,” says Alfred Leicht, focus solution manager at T-Systems. Together with SAP, T-Systems assessed the cost advantages of Adaptive Computing on SUSE LINUX and concluded that IT operating costs

could be cut by approximately 30 percent compared to conventional Unix systems. Compared to mainframe environments, the difference is even greater, with potential savings of up to 60 percent. ###

About Naji Almahmoud Naji Almahmoud is the Director of SAP Global Alliance, Novell Inc. For more information, please visit www.novell.com/partners/sap or email nalmahmoud@novell.com

Q4 / 2009 | www.ceoquarterly.com

Enterprise Amnesia How Organizations Lose Their Minds

Jeff Jonas Chief Scientist, IBM Entity Analytics www.ibm.com Blog: jeffjonas.typepad.com

Actually, organizations don’t have a mind. When an organization misses the obvious (e.g., when other relevant information is trapped elsewhere in their organization) and then takes incorrect action – one might call this “Enterprise Amnesia” – or simply forgetting what was known or should have been known. Enterprise amnesia poses a key challenge for CEOs and CIOs. As data volumes increase and as information systems become more distributed and complex, the frequency at which an organization overlooks opportunity or fails to assess risk is increasing. Enterprise amnesia is increasingly inexcusable, embarrassing, and costly. Two out of every thousand employees, hired by one large US retailer, were individuals who had previously been arrested for stealing from the same store that hired them. Enterprise amnesia occurs when organizations don’t properly manage their enterprise information assets. A lender called me every week for five weeks in the hope of interesting me in refinancing my home – notably I had already refinanced my home with them. It is inefficient, expensive, and at times carries even bigger consequences. In recent years a Vancouver, B.C., government agency gave an infant girl named Sherry

www.ceoquarterly.com | Q4 / 2009

Charlie over to a foster parent. Within a month Sherry was killed. During forensic scrutiny government workers discovered the foster parent applicant had been a known violent criminal. Some forms of enterprise amnesia simply make executives appear negligent. At other times this can lead to regulatory compliance issues, and in some cases suggest criminal negligence. The adverse consequences of inadequate information assets management are especially relevant in these turbulent economic times. Not only are organizations in desperate need to improve efficiency, it is also essential because amnesia-based blunders erode consumer confidence. The leading cause of enterprise amnesia is perception isolation. The dispersed enterprise data, held in transaction silos, represent the net sum of what the enterprise knows – its perceptions. And when this data is scattered across the enterprise, key data becomes undiscoverable. Today, organizations have numerous operational systems, each managing a specialized aspect of the business - each with its own information collection, behavior, rules, interfaces and data retention practices. Notably,

the decisions these systems make are made, for the most part, without any awareness of enterprise context. A marketing system may for example include a name on a direct mailing list of an individual that the business would have no interest in attracting (e.g., someone already terminated as a customer for criminal behavior). The transition from enterprise amnesia to enterprise intelligence has everything to do with better harnessing of an organization’s information assets. There are four essential ingredients required to transform an organization. Information must be discoverable, like things must be counted correctly, related things must be noted, and enterprise transactions need to be treated as much like questions as data. Ask someone in the organization to locate every record related to a specific address or phone number. Or more pointedly, ask if the emergency contact phone number in the human resources system can be searched. It may be shocking to discover the degree to which enterprise information is inaccessible. Therefore, it’s no surprise that internal investigations hunting for a suspected insider threat will never find out the phone number in the investigation if tied to the emergency contact of an employee. This is fixed with an enterprise-wide index – much like the index used by the library. Search for subject, title, or author and quickly find a pointer to related documents. Organizations will have indices on names, addresses, phone numbers, etc. Existing systems do not need to be re-engineered, rather a new policy must be established:

as new information arrives in operational systems, a library card (of meta-data) must be created and submitted to the central index. Note this index is not for one class of data like customers - rather it would also include job applicants, employees, vendors, arrests, investigations, and future prospects too. The advantage is that it is now possible to look in one place and find everything instantly, current to the sub-second (not periodically updated every few minutes or days). [Do not confuse this with federated search where there is no index - rather each system is called upon as needed.] Like things must be counted as such. Does the bank think five distinct individuals each have one bank account or does it know it is one individual with five accounts? If an organization cannot accurately count, the rest of the processes are going to be deeply flawed. Think of this as “single view of the citizen.” Locating the entity with any attribute locates all the enterprise content. This means when presented with only an email address, it is possible to locate customer records that never had this mail address in the first place. Technologies that detect and bind like entities together are sometimes called “entity resolution” or “identity resolution.” This will need to be done in real-time, not in batches, or the organization will be at risk of missing the obvious all month and only discover what was missed at month end. Related things must be noted. If an organization is going to clip some underperforming customers from the customer rolls, it would

be important to know when the customer is also closely related to one of its top five customers. This is relationship awareness. This type of intelligence is best managed in the index and discovered and remembered as the data from the enterprise arrives. Knowing who relates to who significantly increases an organization’s ability to triage risk and increase opportunity (e.g., improve retention). Enterprise transactions need to be treated as much like questions as data. With every new piece of data arriving in the enterprise the organization has learned something. Doesn’t it make sense that with each new data point it would make sense to think “If the organization knows this, has the organization learned something that matters?” Example: the organization qualifies a loan as low risk. Three weeks later a reorder for checks includes a new phone number – a data point that provides the necessary evidence to associate this new customer with other known fraudulent actors. When such data points fall into an organization’s lap today they risk going undiscovered, indefinitely. Whether an organization is intent on better managing risk or improving its ability to recognize opportunity – system infrastructure that permits enterprise information to be placed into context and enables the discovery of relevance at the point of the transaction, is going to be what differentiates one organization from another. And ultimately may differentiate the survivors from the non-survivors. ###

Q4 / 2009 | www.ceoquarterly.com