Obama's Business Report CardJane Sasseen
How does the business community think President Barack Obama is doing? As he hits the 100-day mark, there's little doubt the new President is getting high marks overall for his 24/7 moves to revive the economy. And the favorable sentiment on Obama's job performance reflected in many public polls is also mirrored in the views of many business executives.
"We're happy with the general outlines of what he's done; things are starting to take hold," says John J. Castellani, the president of the Business Roundtable. Castellani says he's been impressed with the "intensity" of the Administration's focus. "They're working very hard to get things moving forward."
Much of that obviously rests on the speed and aggressiveness with which the President pushed forward his massive, nearly $800 billion stimulus bill. While most of the money is just now starting to flow—and complaints that it is trickling out too slowly are on the rise—many businesses are nevertheless starting to see orders come in—and jobs saved—that otherwise would not have existed.
While the Administration's performance in sorting out the mess in the financial sector has been shakier, many executives nevertheless give the Administration and the Federal Reserve credit for rolling out a host of measures aimed at helping struggling homeowners, reviving the moribund banking system, and thawing the frozen credit markets. With mortgage rates down sharply, lending expanding, investors lining up to join in the Treasury's subsidized efforts to clean up the banks' toxic mortgage assets, and interest rate spreads moving back to more normal levels, there is a palpable sense of relief in executive suites—as well as in the markets—that the worst of the crisis may be over.
Support from Buffett and Unions
Still, when it comes to the broader agenda of the business community, the picture is considerably more mixed. In part, points out Jack Quinn, a former top Clinton Administration official who now heads the lobbying firm Quinn Gillespie & Associates, that's a reflection of the fact that the business community is hardly monolithic—or hardly has monolithic interests. On controversial issues such as instituting a cap-and-trade regime to control harmful carbon emissions, many alternative energy companies back it wholeheartedly. No surprise: They stand to make a bundle. But traditional coal utilities and intensive energy users are much more skeptical about any aggressive adoption of such a system. They fear it will raise costs and make them uncompetitive.
More important, Obama entered office as something of a question mark to many in business. On one hand, he had far greater support from business leaders, including the likes of Warren Buffet and Google's (GOOG) Eric Schmidt, than Democrats traditionally gain. At the same time, many business leaders worried about the anti-trade, and often anti-corporate, rhetoric that permeated the campaign. The massive role labor unions played in helping get Obama and congressional Democrats elected also raised fears of a sharp pro-labor tilt.
Now, with a little more than three months under his belt, the President has dispelled some of those doubts, but not all. Despite the overall favorable grade Castellani gives the Administration, he adds: "There are still some things that remain troubling."
Big corporate tax increases, and doubts over cap-and-trade are at the top of Castellani's list.
At the same time, he adds, Obama's willingness to intervene in a fairly heavy-handed way in the struggling auto and finance sectors is raising new questions about whether his Administration is going too far in politicizing corporate governance. A big worry is the intrusion of the government into pay, board selection, and other areas of corporate governance; not surprisingly, the lecturing, legislating, and general wrangling over executive pay at banks and investment firms is setting off warning bells well beyond the financial sector. "In the finance community and the investment community, I sense there's a lot of buyers' remorse among people who were supportive of [Obama]," says Anne Mathias, director of research at Concept Capital's Washington Research Group.
So overall, how has the business agenda fared in the first 100 days? In our special inaugural double issue, BusinessWeek looked at 10 key issues of critical concern to the business community. What follows is a look at what has happened and what lies ahead. As the Administration settles in and moves beyond salvaging the economy to tackling its top priorities, the real test will come. The second 100 days are likely to be a lot tougher than the first—and, adds Castellani, "a lot more telling."
Card check is dead. Long live card check.
It was perhaps the most contentious item on the agenda as Obama came into office. Business vowed to kill the union-backed card check—the nickname for a legislative proposal that would make it easier to unionize. Workers would be able to opt for a union by simply signing a card, rather than having to submit to a secret election. Backed by a multimillion-dollar lobbying campaign led by the U.S. Chamber of Commerce, priority No. 1 for much of the business community has been to ensure that the bill never makes it out of Congress. But labor, which played a huge hand in getting Obama elected and strengthening the Democrats' hold over Congress, is also playing for keeps. It, too, has poured money and personnel into the fight over the bill.
Despite their newfound prominence in Washington—union leaders such as Andy Stern, head of the Service Employees International Union, have been frequent visitors to discuss policy at the White House—labor's efforts seemed to be coming up short for a time. Although Obama has endorsed the bill, his Administration hasn't fought for it. And as business upped its lobbying pressure, moderate Senate Democrats such as Blanche Lincoln of Arkansas, home state of fervently anti-union Wal-Mart (WMT), have balked at the bill as written. The Democrats came up at least several votes short of the 60 needed to impose cloture and thereby avoid a filibuster on the bill. Indeed, it seemed, even if they finally seated Minnesota Democrat Al Franken and all 59 Dems in the chamber ultimately supported the bill, they still would need to convert one Republican. With none stepping up, business lobbyists were celebrating as they declared card check all but dead.
They may have celebrated too soon. With Pennsylvania Senator Arlen Specter's surprise switch to the Democratic Party on Apr. 28, a new chapter in the battle is about to be joined. "This brings card check back," says Mathias of the Washington Research Group.
The bill won't come back as currently constituted. Specter made this clear in the statement he issued announcing his party switch. "I will not be an automatic 60th vote for cloture. For example, my position on employee free choice will not change," he said of card check.
But passing the bill as currently constituted was no longer a realistic possibility anyway. With Specter's switch, a compromise that would make unionizing easier and give labor much of what it wants becomes much more likely. Already the outlines of a deal are being quietly discussed on Capitol Hill: While the secret ballot would be retained, companies would be required to hold union elections shortly after workers indicate they want one. Labor, not just management, would also be allowed access to workers on site to make their case before the election, and penalties would be increased for companies that violate the new rules, harass workers, or otherwise delay elections. "It's not that [labor wants] an end to the secret elections," says Mathias. "It's that they don't want employers to stall for six months, harass and intimidate the workers in the meantime."
Though Specter in recent months has said the time wasn't ripe for compromise, he has indicated support in the past for such changes. As a Democrat in a pro-union state—rather than a Republican fighting for his life against a conservative primary opponent—he will be much freer to back workers openly. If a critical group of moderate Democrats, of which Specter is now a part, can agree on such changes, something not so different from card check may find life after all.
The new Administration has devoted considerable time and energy to ending the wave of foreclosures and trying to revive the housing market. Indeed, on Obama's 99th day in office, the Treasury offered up its latest measure, which would help lenders and homeowners renegotiate troubled mortgages even when the homeowner has taken out a separate home-equity loan against the property. Problems adjusting those so-called "second lien" loans have stymied earlier efforts to boost loan modifications. At the same time, the Administration has worked closely with the Federal Reserve to push mortgage rates down to around 4.5%, chiefly through purchases of mortgage-backed securities by Fannie Mae (FNM) and Freddie Mac (FRE).
The moves have generally drawn praise from officials inside and outside the financial industry, though results have been slow to appear so far. The housing market remains moribund: Prices are still falling, although more slowly than early in the year. And while the low rates have begun to spur buying in some markets, many believe that more concrete efforts are still needed to bring first-time home buyers and real estate investors back into the market and to help set a floor in housing prices. While lobbyists for the construction and housing sectors are pushing particularly hard, this view has broad support in the business community, too.
Castellani says the Roundtable is working on new proposals it will suggest to the Administration within a few weeks that would bring down mortgage rates even further.
"More needs to be done to spur demand and help bring the first-time buyer in," he says. "Clearly the political imperative has been to deal with foreclosure, but the economic imperative is to deal with demand."
On one critical front, however, the financial industry has plenty of reason to celebrate: A measure that would allow judges to modify mortgages in bankruptcy, which has been fiercely opposed by lenders, has stalled for weeks in the Senate. Although it has the Administration's nominal backing, officials haven't done much to push it through Congress. But Democratic senators could bring a modified version of the measure to the floor as soon as Apr. 30, and they are canvassing for votes among moderate Republicans—as well as from Senator Specter. If something does eventually pass, it will likely take more compromise—perhaps so much that few troubled homeowners will benefit from the remedy.
It all adds up to incremental progress with much remaining to be done, analysts say. But that's not so bad, all things considered, says Jaret Seiberg, a policy analyst with Washington Research Group. "It's only 100 days. There's not a single issue in the financial crisis that can be solved in 100 days," he says. "But the system is more stable today than it was in January, and certainly more than it was in the fall. To me, that's a major accomplishment."
No sooner was the election over than Obama surprised people right out of the gate with a late November video message to California Governor Arnold Schwarzenegger's Climate Summit, saying that climate change was a top priority. "It was a wake-up call," says Dow Chemical (DOW) lobbyist Peter Molinaro. Given the financial crisis, many Washington hands had expected Obama to put climate on the back burner.
Since then, Obama has kept up the pressure, appointing people such as Carol Browner and Stephen Chu to top jobs. Browner is now pushing for a coordinated approach across the Administration from her post as White House climate and energy czar, while physicist Chu is rushing to boost renewable energy projects by, for instance, jump-starting his Energy Dept.'s once-moribund loan guarantee program. Obama also told the Environmental Protection Agency to grant California's request for a waiver allowing the state to set tougher auto emissions standards and to further rule that carbon dioxide emissions endanger the public health and welfare.
Meanwhile, representatives Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) followed through on their promises to introduce climate legislation before the spring was over. There's a surprising amount of business support for the general idea of putting caps on carbon emissions and allowing the trading of permits for those emissions rights. Even lobbyists for Peabody (BTU), the big coal-fired utility that once fought any action, say the company supports the idea.
But now that the debate is for real, the fault lines between sectors—and between companies in the same sector—are showing. The biggest issue: Should the permits, each of which would allow a company to emit a ton of CO2, be auctioned from the start, so that a utility or cement plant has to buy millions of tons worth? Or should some of them get handed out free, reducing the cost of the transition? Obama and many members of Congress have called for a 100% auction. But powerful forces against that idea—led by the coal-fired utilities that could be hit hardest—have already ensured at least a compromise.
Beyond that, the Administration has moved quickly on a variety of fronts, from international mercury negotiations to slowing offshore drilling. "It's been a remarkable 100 days," says Gregory H. Kats, managing director of Good Energies, a renewable energy investor. "He has taken on more issues than anyone ever expected."
Much the same could be said for the President's ambitious plans to reform health care. Given the massive problems in the economy and the financial sector, many expected this, too, to quietly disappear from his agenda. But Obama has stuck to his pledge to make health care a top priority so far, despite considerable criticism that now is not the time to propose an expensive new government program. "Health-care reform is no longer just a moral imperative, it is a fiscal imperative," Obama told insurance executives, business leaders, and hospital administrators at a White House health-care summit he convened in early March. "If we want to create jobs and rebuild our economy, then we must address the crushing cost of health care this year, in this Administration."
Note the emphasis on cost. Obama insists that reducing double-digit health-care inflation must be just as important, if not more so, than extending coverage to the uninsured. That stance has been met with enthusiasm from U.S. corporations struggling to pay for soaring employee health-care benefits. Obama also won kudos from corporate executives for his health-care-related budget proposals, particularly $19 billion earmarked for a rollout of electronic medical records. Many consider this a critical first step toward reining in costs and improving health-care quality. However, the budget did not address the biggest source of rising costs—the fee-for-service payment system that reimburses doctors and hospitals for the quantity of procedures they do, not the quality.
Despite his insistence on health reform, though, Obama has not presented Congress with a detailed reform proposal. Instead, the White House wants legislators to hash out a bill in the hopes that they will be more likely to support legislation that emerges from their own committees. He has an ally on the hill in Senator Max Baucus (D-Mont.), chairman of the Senate Finance Committee, who has pledged to have a bill ready for voting by June. The most contentious proposal on the table, and one endorsed by Obama during his campaign, is for the establishment of a publicly funded, Medicare-like insurance company to compete against private insurers. Private insurers are furiously lobbying against this "public option," and some Republicans have called it a deal breaker. So far, other business leaders have stayed out of this debate.
Whatever else they think of Obama and his first few months in office, there's one thing uniting much of the business community: stout opposition to the tax hikes Obama has proposed for business. "The business community sees itself as a big target," says Hank Cox, a vice-president of the National Association of Manufacturers. The Administration and Congress "need money; guess where they're going to get it?" In early may, NAM plans to fly some 200 executives from around the country into Washington to lobby Congress against the planned tax increases, among other things.
Throughout the campaign, Obama pledged to end tax breaks he believed were encouraging companies to shift jobs and investment abroad. And when he proposed his budget in February, he demonstrated that he meant it: By far the biggest change on the corporate tax front was his proposal to raise $210 billion in new revenues by going after foreign tax breaks, including limiting the ability of U.S.-based multinationals to defer paying taxes on the income they earn overseas until they repatriate it. Obama and his economic advisers argue that this break gives companies an enormous incentive to earn an ever-larger share of their profits overseas, rather than at home.
The move has unleashed a wave of opposition among U.S. multinationals and large trade associations. In recent weeks, the U.S. Chamber of Commerce, the Business Roundtable, and others have formed a broad-based lobbying coalition, called Pace4jobs, to argue that the move will cost the U.S. more jobs than it gains. They argue that the plan will leave U.S.-based companies vulnerable overseas because foreign rivals won't have to pay the 35% U.S. corporate tax rate—instead paying the tax rates in effect overseas, which in general are considerably lower. As a result, they say, U.S. subsidiaries will become less competitive, costing them market share and profits. Many executives claim it will leave them vulnerable to foreign takeovers and cause even more U.S. headquartered companies to move abroad. "Do we want to have U.S.-based multinationals that are world leaders? Yes or no?" asks Jim Owens, CEO of Caterpillar (CAT). "If the answer is yes, we've got to figure out how to get a fair amount of [tax revenues] from them while still allowing them to compete in the world."
The fight is likely to be fierce—and to go on for much of the year. So far the Administration has offered few specifics on how it would go about modifying deferral and the treatment of foreign income, or to whom the changes would apply. Owens and other corporate representatives are pushing for any change in deferral to take place within the context of a debate over the corporate tax structure as a whole. They argue that the 35% overall rate—the second highest statutory rate among developed countries—should be lowered in exchange for trimming back some of the tax breaks that mean few companies pay anywhere near that effective rate. But as long as the U.S., unlike virtually any other exporting country in the world, taxes the income its companies earn overseas, they also believe deferral should be left untouched.
The business community is unlikely to get that last wish, though it may get the first. Obama signaled in a March meeting with the Business Roundtable that he was open to knocking down the statutory rate in exchange for a cleaner tax code. And Representative Charlie Rangel (D-N.Y.), the powerful chair of the tax-writing House Committee on Ways & Means, has signaled that he wants a comprehensive deal, too; deferral and a lower overall rate, along with the elimination of other breaks, are all part of a corporate tax overhaul that Rangel has been planning since 2007. The Washington Research Group's Mathias says the debate could drag on through early next year, or even be postponed until after the 2010 elections, depending on how the economy is doing.
All of which means that deferral isn't likely to be eliminated any time soon—but no matter how strong the lobbying fight put up by the business community, it's not likely to survive untouched. The question is whether businesses will end up paying a greater or lesser share of the overall tax burden when all the changes are ultimately made. "If Congress moves on deferral, it will have to be done as part of a broad reform; business will say, 'Give us rate cuts in exchange,'" says Dan Clifton, Washington-based policy analyst for Strategas Research Partners. "But for many companies, the trade-off many not be enough to offset the lost benefit if deferral is ended."
Because the Obama campaign had major financial backing from Silicon Valley and was loaded with advisors hailing from the tech world, many assumed that the White House would hit the ground running with far-reaching technology initiatives. But this has turned out to be one area where the Administration has gotten off to a slow start. The $7.2 billion set aside in the stimulus plan to make broadband service ubiquitous and much faster fell far short of the $30 billion to $50 billion many in the industry had expected.
Moreover telecom companies, including AT&T (T) and Verizon Communications (VZ), are so wary of the program's potentially onerous rules—the strings that usually come attached with federal money—that they may sit out the first round of grants. The telecom giants are concerned that once finalized, the program will include burdensome regulations forcing them to open their equipment to rivals or otherwise hamper their ability to manage broadband networks. With many of the rules that will govern the program yet to be defined, they also worry that the program could get bogged down in too much bureaucracy.
Some Internet service providers are also reluctant to sign on to the broadband stimulus, further delaying and undermining the effectiveness of a program whose aim is to bring high-speed Internet access to areas of the country with little or no fast Web connections.
In their place, however, the Obama Administration may be getting a new group of unexpected partners for its broadband plans: State and local governments are eager to play a leading role in bringing rapid Internet connections to the nooks and crannies of the American landscape. Colorado, Ohio, Tennessee, and Virginia are planning to seek stimulus money.
Broadband isn't the only area in technology where the Administration has been slow off the mark. Preoccupied with the financial crisis, it has been slow to get its tech team in place. Julius Genachowski still has yet to be confirmed as the next chairman of the Federal Communications Commission. A new congressionally mandated coordinator of intellectual property enforcement has yet to be appointed. And Obama's chief technology officer—former Virginia Technology Secretary Aneesh Chopra—wasn't named until Apr. 18. One of Chopra's top jobs will be to develop and supervise a strategy to simplify government and improve public health and education services through information technology. He is to unveil an "open government directive" in the next few weeks. The Administration also will soon begin a review of federal cybersecurity efforts.
It was expected to be the first big battle in the education arena. Instead, the Obama team appears to have sidestepped a fight over No Child Left Behind by postponing it. Instead the Administration is laying the groundwork for its own education reform agenda, for which it will use part of $100 billion in stimulus money approved by Congress.
The business community appears to support Education Secretary Arne Duncan's plan to use billions of stimulus dollars to advance reforms, including more robust teaching standards, higher-quality teachers in poor schools, and merit pay for high-performing teachers. Business regards the reforms as a necessary step to produce better science and mathematics graduates. Next, Duncan will officially announce what he calls his Race to the Top Fund—a $5 billion pool of money for a group of up to 15 states willing to aggressively pursue his entire reform agenda.
Once the Administration feels that the changes it is proposing have traction—perhaps in 2010—it will seek to hash out a new version of the Bush Administration's No Child Left Behind law.
Add one more to the President's long to-do list: Obama wants to move forward with a plan for comprehensive immigration reform. Administration officials say he will speak publicly about the issue in May and will assemble a task force this summer to begin discussing possible legislation. Like the Kennedy-McCain bill that failed in Congress in 2007, a new package would likely include a path to citizenship for the estimated 12 million undocumented workers in the U.S. "The elements of a package have been widely discussed: better enforcement and the regularization of [undocumented] immigrants," says Alexander Aleinikoff, dean of the Georgetown University Law Center and a member of the Obama transition team's immigration task force.
But unlike the 2007 attempt, a new proposal isn't expected to allow additional workers to join the American workforce on a temporary basis. Most labor unions oppose expanding guest worker programs, and immigrant advocacy groups have agreed to put off such proposals as long as the job market deteriorates. "What is different now is the downturn and rising unemployment," says Aleinikoff. "It will be impossible to push a large-scale temporary worker program."
That will disappoint employers in industries from nursing to crab picking to farming, who say they desperately need workers in spite of rising unemployment. Technology companies like Microsoft (MSFT), which has long advocated increasing the number of skilled H-1B visas available in the U.S., say they're still facing shortages of workers for cloud computing, search, and other emerging areas. In April, senators Dick Durbin (D-Ill.) and Charles Grassley (R-Iowa) introduced legislation that would add new restrictions and enforcement measures to the H-1B visa program.
Obama clearly wants to move comprehensive immigration reform forward, in part to please the considerable Latin American constituency that helped him get elected. But despite his best efforts, it's doubtful that the President will be able to claim victory on this heated and divisive issue as long as the economy continues to sputter.
Since taking office, the Obama Administration has embarked on the most comprehensive government effort to curb executive pay in history. Not surprisingly, most of the action thus far has centered on the financial industry. The Feb. 13 stimulus bill included a last-minute amendment crafted by Senator Christopher Dodd (D-Conn.) that broadened the basic pay restrictions found in last October's financial rescue legislation by, among other things, expanding the use of clawbacks for ill-gotten gains, eliminating golden parachute payments for departing executives, and requiring board-level approval for such luxury expenditures as corporate junkets. The measures would apply to all financial institutions that get funds from the Treasury through the Troubled Asset Relief Program (TARP).
The restriction that got the most attention, however, was one that would bar top executives from receiving bonuses that exceed one-third of their annual pay. Any bonus would have to be in the form of restricted stock, which could not be cashed out until the TARP money has been repaid in full. Some pay experts said the move would encourage banks to pay back TARP as soon as possible—which Goldman Sachs (GS) is trying to do—or risk facing a brain drain of talent.
President Obama has also been a proponent of a nonbinding shareholder vote on executive compensation—the so called "say on pay" provisions. Such companies as Pfizer (PFE) recently adopted this, sensing it will become law later this year. But that quiet shift has been all but drowned out by the big hullabaloo in March, when it was revealed that AIG (AIG) had doled out $165 million in bonuses to executives in its teetering financial products unit. In the ensuing public furor, many gave their bonuses back and Congress debated levying punitive taxes on those and other bonuses, although such talks have stalled.
The issue may have cooled but the heat is hardly off. On Apr. 6, Securities & Exchange Commission Chair Mary Schapiro announced that the agency will be looking at new rules for how boards assess risk—and a key component will be a look at whether compensation structures encourage excessive risk taking. That's also a big part of broader discussions under way at the Treasury and White House as they work on plans to overhaul the financial-services industry's regulatory system. Congress, too, remains in the act. One big question: Will it try to mandate some or all of the pay restrictions already placed on TARP firms for those who haven't received government funds as well?
When Obama took office, the prevailing wisdom was that front and center in his trade policy would be enforcing existing agreements while dialing back on the new trade accords his predecessors favored. Today trade experts are thinking differently.
The President and Ron Kirk, his Trade Representative, have begun to talk up a relatively proactive agenda. On his recent trip to Mexico, Obama said that, contrary to what he said in the heat of the campaign, he will not seek to amend the North American Free Trade Agreement with Canada and Mexico—at least not soon. In addition, Kirk says that he will try to win quick passage of a bilateral trade agreement negotiated with Panama during the Bush Administration. Right behind it will be a much criticized bilateral deal with Colombia.
What has changed? One thing is the economy. Analysts say the crisis means Obama doesn't have the luxury of risking being perceived abroad as protectionist. But Obama may never have been as cautious on trade as some concluded, either.
Enforcement will hardly disappear from the agenda in any event. Days after his Apr. 23 speech in Washington promoting the Administration's commitment to free trade, Kirk published an op-ed piece in the San Francisco Chronicle arguing the need for strong and effective protection of America's intellectual property. In the coming days, he said, he will send a report to Congress on the effectiveness of intellectual property protection and enforcement around the globe. The Administration still must answer to politically powerful labor unions and their backers in Congress, which partly blame existing trade agreements for the nation's job losses. If Obama doesn't convince them he's doing all he can to assure a level trading field for U.S. companies and workers, his efforts to move ahead on Columbia and Panama won't be any more successful than his predecessor's.