Obama: What Business Thinks

It was 4 p.m. on Mar. 23 when the e-mail from the White House went out to a handful of prominent executives, including CEOs Jeffrey Immelt of General Electric (GE), David Cote of Honeywell International (HON), Robert McDonald of Procter & Gamble (PG), and Antonio Perez of Kodak (EK). Two weeks earlier, at an occasionally testy meeting with the Business Roundtable, IBM (IBM) Chief Executive Sam Palmisano and others had told President Barack Obama and his advisers that they had big problems with his proposal to raise more than $200 billion, in part by curtailing multinationals' ability to defer U.S. tax payments on overseas profits. Now, Valerie Jarrett, the top White House adviser responsible for relations with the business community, wanted to follow up. Would they care to join her, Chief Economic Adviser Lawrence H. Summers, and Treasury Secretary Timothy Geithner on a conference call at 2 p.m. the next day to talk about the Administration's proposal?

In the hour-long conversation that resulted, the corporate executives gave Obama's economic policymakers an earful. On the campaign trail, the President had used populist language to demand an end to what he called loopholes that encourage companies to ship jobs overseas. The executives feared that meant he wanted to eliminate deferral altogether.

One by one, the bosses warned that the Administration's move would gravely damage U.S. companies' ability to compete overseas. "It was a broad-based reaction that said, 'Look, we understand there's a problem and a need for revenue,' " Cote says. " 'The thing we don't want you to do is put us at such a disadvantage to our worldwide competitors that we just can't get anywhere.' "

Message received. By the time the Administration released a more detailed proposal in May, it had ratcheted back to a more limited position on deferral, combined with an end to other more questionable international tax breaks. Pressured as well by congressional opposition—much of it spurred by intense corporate lobbying—the White House team soon moved the plan to the back burner. Administration sources now say the measure will likely return only as part of a comprehensive overhaul of corporate taxes, as the executives sought. "We expressed substantial concerns, and they were very responsive," says another CEO who was on the call.

The truce reached on tax deferral has helped defuse some of the tensions between the Obama Administration and business, but not all. Case by case, the President and his team impress CEOs with their accessibility, knowledge, and willingness to listen. Many corporate chiefs, though, remain unsure of what to make of Obama, and many can't tell how well he understands the challenges they face. That wariness has only been accentuated by the antibusiness tone many felt the new President and his advisers took as they moved to stem the financial crisis in the winter. "I think there's a fair amount of trepidation in the business community," says Robert Greifeld, CEO of Nasdaq OMX Group (NDAQ).

To Obama and his economic staff, such anxiety—and even hostility—are more than a little baffling. Many of those "who think we're antibusiness seem to forget that it was just three or four months ago, when, at great political expense, we yanked them out of the fire," Obama told BusinessWeek in an interview on July 27. Later, he added: "My working assumption has always been, if the market could do it better, have the market do it."

As Summers is quick to point out, much of the Administration's long-term program—reducing dependence on foreign oil, cutting the crippling growth in health-care costs, and bolstering the skills of America's workforce—is designed to address longstanding business complaints. "We are very mindful that you can't have employees without employers," he says.

"Very Solid Marks" Such willingness to tackle long-ignored problems has kept a solid core of executives and investors in Obama's camp. "He inherited a real mess, one that requires difficult decisions," says Mohamed A. El-Erian, CEO and co-chief investment officer of asset management giant Pimco. "I'm impressed by how bold he has been on the political front and how quickly he came up the learning curve in terms of the trade-offs between short-term policy imperatives and longer-term ones."

Others credit the Administration with defusing the financial crisis. Robert Wolf, head of the U.S. arm of Swiss bank UBS (UBS), gives the Administration "very solid marks" in managing the stabilization of the banks and the economy. "My view is that a severe meltdown would have occurred if not for [their] quick action," he says.

Business leaders also agree they have had surprisingly wide access to the President and his top advisers. Some even say the doors are more open than they were during the Bush years. "I don't always agree with him, but I've found him a good listener," says Pfizer (PFE) CEO Jeffrey B. Kindler, who has met with the President and his top advisers roughly a dozen times to hash out health-care reform and other issues.

With the President pushing his ambitious agenda through Congress, such one-on-ones will be key to building up support and wearing down the opposition. It's a hard slog. As soon as the Administration calms some executives on one issue like foreign taxes, another proposal or action—cap and trade, public health insurance, the General Motors and Chrysler bailouts—gives corporate bosses pause.

"Each and every one of Obama's policies brings problems," says Tom Stemberg, former CEO of office supply retailer Staples (SPLS) and now managing general partner at Highland Capital Partners, a Lexington (Mass.) venture capital firm. "The higher tax rates are a disincentive to invest. The health-care bill, as opposed to providing a strategic safety net, is throwing a burning blanket over the American economy. And the bailout of the big auto companies is something one would expect to see in France or Germany."

Some in business are gearing up for a fight. The U.S. Chamber of Commerce, the country's biggest business lobby, is moving aggressively to battle aspects of the health-care and energy reforms it doesn't like. The Chamber is also raising $100 million to fund an advertising and lobbying campaign to defend the free enterprise system against what it sees as overbearing government policymakers and antibusiness activists.

Building Credibility To quiet what she calls "the rumblings" in the business community, Jarrett has devised the outreach program of Presidential sessions and other Washington gatherings. "This is a work in progress; it takes time to build trust," she says. "But you'd be hard-pressed now to find a CEO who has spent any time with the President who has found him unresponsive." The President's team has also consciously sought to tone down the rhetoric that targeted business as the bogeyman. "Everyone understands that the populist anger was a mistake," says one Treasury official. "It doesn't do us any good to create unnecessary enemies."

The Administration has been most successful in winning over key players in health care and energy. The series of deals the White House cut with drugmakers and hospitals has come thanks to support from companies like Pfizer and hospital giant HCA. Obama's willingness to ease up on plans to fully auction off carbon-emission rights helped gain the backing of utilities Duke Energy (DUK) and American Electric Power (AEP) for his cap-and-trade proposal to reduce climate change. Of course, big industry players are motivated to cooperate. With change all but inevitable, much better to help write the rules than have them written for you.

Less visible have been the efforts to engage with an array of business leaders. Besides Jarrett, the President's Economic Recovery Advisory Board, led by ex-Fed Chief Paul Volcker, has proved to be a key conduit to the business community. White House economic adviser Austan Goolsbee, who manages the panel day-to-day, talks to GE's Immelt every week on issues such as infrastructure and making the stimulus more effective. UBS's Wolf has advised on financial and housing topics.

Jarrett and Chief of Staff Rahm Emanuel have begun holding "off-campus" dinners with executives such as Immelt, James W. Owens of Caterpillar (CAT), and Paul S. Otellini of Intel (INTC). Wolf is helping set up another in New York for early August. Geithner, too, will soon be meeting more frequently with a broad cross-section of nonfinancial executives.

Then there are what surely must be the most coveted tickets in town: invitations to small, private events with the President. At a recent lunch in a dining room just off the Oval Office, Coca-Cola (KO) CEO Muhtar Kent, Ursula M. Burns of Xerox (XRX), Randall L. Stephenson of AT&T (T), and Honeywell's Cote spent 90 minutes with Obama. Over a meal of steamed salmon and broccoli, the President and the four CEOs discussed how the lessons of the 1980s—when U.S. companies threatened by the Japanese sharply boosted productivity—might apply today. Jarrett says Kent explained how he had trimmed Coke's annual increase in health-care spending from more than 8% to 2%.

If business has been surprised by the access, some still wonder whether it is doing much good. "They do outreach—they don't exactly do intake," complains one lobbyist for a major financial firm. Health-care reform is one especially hot issue, says Jay Timmons, head of government affairs for the National Association of Manufacturers: "Are they listening? While the doors are wide open for dialogue, it's too early to tell if our concerns will make it into the final health-care bill."

Input vs. Directives NAM, the Chamber, and many other business groups have been meeting regularly with the Administration and Congress since last fall as the details of health-care reform began to be hashed out. Summers and Commerce Secretary Gary Locke also met with NAM's board in June. Yet Timmons says many of the concerns raised by business were ignored in the initial bills as they emerged from Congress. In the House, for example, Democratic lawmakers proposed a tax of up to 8% of payroll on companies that don't cover their workers, a public insurance option that would compete with private insurers, and a surtax on the wealthy that would raise $544 billion over a decade. The business groups also complain that the bills' cost controls are not strong enough to keep health-care expenses in check.

Administration officials counter that there's a difference between having input and getting your way. "If by 'having input,' do they mean we'll listen to them, of course we do," says one top economics aide. "But if by 'input' they mean literally being allowed to write legislation, as apparently happened in the previous Administration, then no, we're not listening to them."

Bob Shrum, the longtime Democratic political strategist, says there is a debate within Washington's business and lobbying community over whether to take a seat at the table and work with the Administration or just to say "we oppose it." He thinks the debate is at a tipping point. "If [Obama] gets a health-care bill, that will reinforce the view that you ought to work with the Administration," says Shrum. If Obama fails, he adds, business may try even harder to block initiatives altogether. That outcome would hardly be good for Obama, business, or the economy.

    Before it's here, it's on the Bloomberg Terminal.