Staying The Course - European zeitgeist '09

CHRYSTIA FREELAND: We're very luck to have three leaders of three very different companies from three different countries. Dr. Dieter Zetsche of Daimler, come on up, please. Franco Bernabe of Telecom Italia. And Charlie Mayfield of the John Lewis Partnership. [APPLAUSE] We have until 11:30 and we're going spend 15 minutes with presentations and discussions with each of the leaders and then at the end, we'll have a group discussion and take your questions. And Dr. Zetsche's going to start with an eight minute presentation. I'm going to lean on national stereotypes and rely on him to be absolutely precise in his timekeeping, so that then I have a chance to ask him a couple of questions. And then we'll move on to Franco Bernabe. DIETER ZETSCHE: So, thank you very much, Chrystia. I hope you'll give me over a stopwatch so that I can do my job. Good morning to all of you. When I got the invitation from Google, there was a note attached that asked me to address one key question today. How has Daimler weathered the storm so well? I had to take a second look, because quite honestly, our last quarter was among our worst ever. And as you know, few automakers are doing any better these days. So I asked myself, did this invitation go to the right guy? It was only after a few more seconds that it dawned to me. My contribution was to be in the dinosaur session. Even though it was politely called, staying the course. But that only fueled my resolve to accept the challenge. So here I am, happy to be at Google Zeitgeist, and ready to share a few thoughts on how Daimler is staying the course by remaining responsive to change. In fact, Daimler is among the remarkable small percentage of companies that have been around for more than a century. And we all know why the percentage isn't higher. Success may breed inertia. For example, when you put a mouse into a maze with four different corridors, the animal will search them all for cheese. But once the mouse is accustomed to always finding cheese in one particular corridor, it will only go there. Even when the cheese is moved to a different corridor, the mouse will still return to the old spot. And worse, still, it will sit and wait there until it gets to the brink of starvation. I certainly hope no animals were harmed during these tests. But experiments like this one remind us that humans often tend to behave in similar ways. They keep looking for cheese in yesterday's locations instead of exploring new corridors. At Daimler, we try to avoid that through a continuous process of rethinking and reinventing. Let's begin with the former. The prevailing zeitgeist in terms of automobiles is that the best days are gone. But think again. There are nearly 800 million cars on this planet today. Yet there are almost 2.5 billion customers in China, India, and Russia alone, who still don't have a car. If those people were to buy a Daimler brand, such as a Mercedes or Smart car, our assembly plants would be busy for the next 2,000 years. Don't worry, our production plans are not based on that assumption. But my point is that even though our industry is facing overcapacity in the Triad, the world market for automobiles is anything but saturated. That's why the question is not if there is still demand for our product. The question is what kind of automobiles we need and how we should offer them to our customers. If your only window to the auto market is the popular media, you might be tempted to believe that customers today are interested in nothing but cars with alternative drive systems. Let's be frank, there is some truth to that. The market is changing. But it is still far from changed. Just look at our Mercedes Benz AMG, performance division. It recently posted record sales in the worst market in memory. By contrast, if any volume car manufacturer today sold nothing but hybrids, it would go out of business fast. Now, don't get me wrong. I'm not suggesting that green innovation is just hype. I'm convinced that it's here to stay, and for good reason. My argument is that the customer is, and will continue to be, a complex creature. That's why automakers have a fine line to walk. We need to develop alternative drive technologies and, at the same time, perfect the combustion engine that will power the vast majority of vehicles for years to come. Now, with the economic crisis in gear, this is like rebuilding a car while racing down a bumpy road. And just when you thought that you couldn't possibly have more on your plate, something else gets piled on. In Japan, for example, there's a new buzzword among young people called kuruma banare that roughly translates to demotorization. Even in Germany, the number of cars per person owned by those under 35 is constantly declining. Does that mean younger people are no longer interested in individual mobility? Probably not. But it could mean that they are more interested in access than in ownership. That's why we are rethinking our current sales model at Mercedes Benz cars. And one idea that might complement our existing structures is a car-sharing concept that we launched last year. It's called car to go. And the name says it all. You might think of it as a 19 euro cents per minute micro-lease program. The difference to conventional leasing is, the vehicles are distributed throughout the city, customers can simply hop in, drive where they want to, and then leave the car there for the next user. Frankly, in a company that's been selling cars for more than 100 years, some people think car-sharing borders on communism. But they still understand that the cheese might be moving to another corridor. In other words, this could be a growth business, especially in urban areas. There are 3.4 billion city dwellers worldwide. With another 180,000 more added to that every single day. Plus car-sharing brings tomorrow's customers into our cars today. And aren't our kids already socialized to share? They share music on MySpace, pictures on Flickr, and 140 characters of real time updates on their lives via Twitter. Although that's the one I just don't get. But no need to Tweet me on that. So why shouldn't they also share a Smart? In addition, cars to go could be our starting point for advanced telematic services. In the commercial vehicle sector, these services already account for up to 25% of total revenues. So why not take it to the next level with passenger cars? Car to car communication would allow real time traffic updates. You could access music or other files in the car that are stored on your computer at home. You could even have a personalized radio including tailor-made advertising. I enjoy the personalized ads I get through Google. At least I'm not getting Lexus offers any more. Or hairstyling tips. Of course, rethinking our customer preferences does not just mean car-sharing. We also need to rethink how people relate to our brands. And at Daimler, as you know, our flagship brand is Mercedes Benz. In times like these, some people believe that premium brands are a dying breed. Is that a major concern to us? Not really, to be honest. OK, the definition of what premium is may evolve and broaden. It will definitely include cutting-edge green technology. But the attraction of a green premium brand will not change, and why should it? Think of the food industry. Increased customer awareness for healthy food did not cut demand for pleasure of eating. Tofu simply isn't for everyone. But, what's widely expected today, is that the food production should be biologically sound so that people can enjoy great meals with a clear conscience. At the end of the day, the trend actually stimulated the demand for quality food. We might well see similar developments in the auto industry. That's a good thing because it will require the liquidity of premium customers as well as the engineering competence of premium manufacturers to bring green technologies to the market. In a world full of Tata Nano's, we would be highly unlikely to push the envelope in new technologies. Speaking of technology, let me spend a minute or two on reinventing. The very same week that I received the invitation for Zeitgeist, I also got some advice in the form of Jeff Jarvis' book, What Would Google Do? It may have been coincidence, or additional proof that Google really knows your habits. But either way, the author recommends an open source approach to allow customer participation in the development of their car 2.0. I guess you might call it, in their Linux way. The challenge is obvious. Our business is a bit different from that of Silicon Valley. Developing a vehicle is a multi-billion euro and seven year bet on the market. There is no better test than customers. A bad miss, bad timing, or even dumb luck, can put your company at great risk. But that doesn't mean we are ignoring smart ideas from the outside. In fact, we already employ our customer's brainpower. For example, a few weeks ago, one customer posted a command in the car to go a block and [UNINTELLIGIBLE] folks your software to locate the nearest mart won't work on my iPhone. But I created a solution myself, here's the link. Other users added their input, and now we have a better system. This kind of involvement is highly appreciated. The main virtue of open source engineering, namely collaboration, might indeed come in handy in the path for electric mobility. After all, oil is limited. The patience of our atmosphere isn't. So in the long run, it's either go green or go bust. Some of our alternative drive technology is already available. Two years ago, we put the first zero emission electric Smart cars on the streets of London. Customer feedback was very encouraging. In other words, the technology works. And since there is no silver bullet, we are prepared to offer different solutions for different mobility needs. Battery powered electric cars for short distance travel. Fuel cell cars for longer distances. And electric cars with an additional combustion engine to extend the range even further. Despite our progress, though, there are considerable challenges which we have yet to master. Especially in terms of bringing down battery costs and building up a new infrastructure. Today, the lithium ion battery pack for a single car can run well above 10,000 euros. And we can't even agree on a common [? block ?] to use in the Triad market, let alone a network for providing the cars with the necessary electricity. The same goes for zero emission fuel cell vehicles. Without hydrogen infrastructure, they are as useful as an iPod without iTunes. So, would it make sense to have more of an open source approach? Absolutely. It doesn't mean I expect our competitors to post their blueprints on our weblog. But we should talk and investigate the possibilities of closer collaboration in specified areas. Right now, no one in our industry has excess resources to shoulder the green shift on its own. And as each of the players is working separately, the progress is slower than necessary. And the price tag is higher than most customers can afford. The need for cooperation even goes beyond our own industry. Automakers, component suppliers, energy companies, and governments have to work together to address the issues that prevent economies of scale. For instance, a common block for eCars, a standardized hydrogen refueling procedure or consistent design of battery cells. In other words, a bit more open source thinking could well be to the benefit of our environment, our customers, and our industry. Ladies and gentlemen, going back to my reference to dinosaurs, we all know it didn't turn out well for those giant reptiles. Once theory is that a meteor slammed into the earth creating structural change in the environment. Ill-equipped for the aftermath, dinosaurs faced extinction. The auto industry today has been slammed by several metaphoric meteors. The global economic recession and the green revolution are just two prominent examples. No doubt, there are automakers that may be ill-equipped for these structural changes in their environment. Nevertheless, I hope I was able to provide some insight in how Daimler is working to adapt and guarantee its future. We are constantly rethinking our business and reinventing our products to maintain our traditional leadership position in the industry. I guess that underlines one major difference between entrepreneurs and dinosaurs. The former drive change instead of being driven by it. Or simpler still, if you're an entrepreneur and looking for cheese, be sure you check all the corridors. Thank you very much, I'm looking forward to the discussion. CHRYSTIA FREELAND: OK, well despite my appeal to Teutonic pride, Dr. Zetsche did go over a little bit. But I will ask him a couple of questions. When we're finished talking, in the intermission, I'm going ask you about how you raise children. Because this notion of the new generation being absolutely committed to sharing certainly does not apply to the two young girls I have in my house. Possessiveness still seems to be a strong trait of theirs. DIETER ZETSCHE: We'll discuss that after the session. CHRYSTIA FREELAND: OK, well, I'll get tips then. I wanted to ask you-- you've talked about the cataclysm which has hit the world economy, but particularly the car industry. And you specifically have dodged what is one of the dominant crises in the car industry right now, which is the Chrysler bankruptcy. You got out just in time. What is the lesson that you learned from Daimler's and your personal involvement in Chrysler? DIETER ZETSCHE: Well, first of all, size is not all. And there are many great ideas which you really can't ultimately judge upon without trying them out. So there were good reasons why we built the merger, but we had to learn within nine years that ultimately, the main idea that we could raise the brand equity of Chrysler, Dodge, and Jeep, so that they could afford to sell Mercedes technology to their customers, it was flawed. It didn't work. That was the main failure we had to experience. And I don't know if you could have known that before. Other than that, it was about execution and that scale doesn't work that well between a premium and a volume manufacturer. But that was probably the most important element. On the other hand, we learned a lot during that time. I think we got a much more openminded company, not just a [UNINTELLIGIBLE] based and [UNINTELLIGIBLE] minded car company. And that is very important to our future success. We are much more embedded in the United States by now and in the world all together. So I made the point on the one main experience. But there are many positive elements out of this experience as well. CHRYSTIA FREELAND: And how hard was it for you personally, and within the company, to accept that this wasn't going to work? That you had to get a divorce, as it were. DIETER ZETSCHE: I guess that people who follow that industry to some extent saw that I was very much engaged emotionally as well. I was a Chrysler guy and had a lot of fun living in Detroit and being together -- CHRYSTIA FREELAND: And you did the commercials? Dr. Zetsche is famous in the United States because he was the personal pitchman for Chrysler cars. DIETER ZETSCHE: Thank you very much. [OVERLAPPING VOICES] OK, anyway, I was there. CHRYSTIA FREELAND: I'm a journalist, I'm sorry. DIETER ZETSCHE: That is fine, that's your job. I'm not an actor, so that was not my job to do the commercials. So, I had a lot of fun this time. I met great people and we were really convinced that we could bring Chrysler to new frontiers and to new success. And we had our share of success during that time. So it was extremely difficult, and when I went back and looked at the overall situation-- saw the downside risk of tens of billions-- and the fact that there was no firewall. This was all Daimler Chrysler risk. And then, the much more limited upside potential. I had to come to the conclusion that we had to separate. And professionally it was the only right thing to do. And in hindsight even more so. Emotionally, personally, it was the most difficult decision in my life. But still I am glad that I made it. CHRYSTIA FREELAND: In your presentation, you expressed confidence in the continued value and the continued desire for premium brands, even in cars. I just want to ask you if you're not concerned that the current trend away from conspicuous consumption, away from a really showy purchase-- which some people might consider a Mercedes to be-- might not hurt you? That there might be a cultural shift towards more frugal things. DIETER ZETSCHE: First of all, there is no question that at a time like this, right now, where you have to restructure your company or you even have to lay off people, potentially, and other things like that, it's not the time to show the world, well, I'm a great guy and I just bought my new Mercedes. That is-- or BMW or whatever for this sake. So that definitely has a dampening effect on the purchase of a premium car. On the the other hand, we have been there before. During the oil crisis, or other crises. And we have seen that the basic intent to express yourself through the character of your car, or the brand of your car, is something which is very resilient to change. The way you want to express yourself and what you want to say might change. And you have to keep your brand active and moving in order to still be a target for that extroverted expression. But I don't think that there's a risk that people would not want to spend money in the future in order to show with their car what kind of person they want to be. And certainly not all of them want to be a Mercedes person. But certainly a lot of them-- and it's very important to travel the world and come to different places-- when you go to the Middle East, when you go to Asia, or other places, even now they don't understand that notion. Last month we sold 70% more Mercedes in China than the year before. So the world is still very heterogeneous. And I'm very much convinced that, like in other areas in the automotive world as well, people will strive for quality top-notch products, and Mercedes is a very good brand to offer that. CHRYSTIA FREELAND: OK, well, thank you very much Dr. Zetsche. We're going to move to Franco Bernabe and then we'll talk to Charlie Mayfield after that. Then we'll have a group discussion. And you guys can ask them more questions, maybe even about Chrysler if you'd like. Franco Bernabe is the CEO of Telecom Italia. He also has wide-ranging experience across a number of industries, including Fiat. So we do have a car theme running here. But also energy and some experience in China-- he's on the board of PetroChina-- so we'll be able to touch on some emerging market issues. In the green room, when our business leaders were chatting ahead of the discussion, I sensed a little bit of a war story one-upmanship. Whose market is the toughest and the most difficult right now? So I'd like to ask Mr. Bernabe, how hard is it right now-- in a mature economy, an economy which like the rest of the world, like the rest of Europe is struggling, Italy, how hard is it to sell people mobile phones? FRANCO BERNABE: Well, a mature economy. I think that mature is not is not a term that I like. And I don't like even innovation used in this framework. Because I think that not all that is new is good and not all that is good is new. And we have seen lots of innovation in the last few years in the financial industry that his led us to the present situation. And I think that this is something that we have to be very careful about. Now, what is-- I think it if you talk about innovation, I think that innovation has mostly to do with consumer preferences. It has nothing to do with technology, basically. In the mobile phones industry, the basic technology has been there for, I think, almost 60 years. It was used-- mobile telephony was used for military purposes back in the war, in the second World War. And then it was used by the military extensively in the '60s and the '70s. And then it was used professionally in the '70s and in the '80s. And therefore-- I mean all the bits and pieces of innovation were there at the time. What changed the world was really the fact that all of a sudden, there were companies realizing that you could change the paradigm of mobile telephony. I'll give you an example of what thinking was back in the '80s. In the '80s, there was one company-- I won't mention which one-- that thought that mobile telephony-- and it was supported by a very extensive study done by a famous consultancy firm-- CHRYSTIA FREELAND: Could it be McKinsey? FRANCO BERNABE: Ah, no no no. Nevermind. And this consultancy firm said, well, mobile telephony, it's a very professional market. In 2010, you will have only one million people using professionally mobile phones over the world. So that was a very wrong thinking on the path of some of the industry. Others thought at the time that what you really needed to do was to bring mobility to the entire population. To transform the concept of telephony from something that was related to the family, related to the household, related to the fact that you had it in the living room, something black there-- to something more personal. And that made a big difference. Then they started standardizing and therefore increasing economies of scale. They started thinking about infrastructure. And they did all the things that led-- at the beginning of the '90s-- to the revolution. And all the bits and pieces were concerning the consumer preferences. For instance, in the United States, the decision to have the receiving party paying for the phone calls led to a very much slower start of mobile telephony. I remember, back in the '90s, I wasn't there yet because I was busy with a much different industry-- I was the CEO of Eni. But I remember, in the States, people were laughing at me. Saying, oh look, you're coming from a country where everybody's walking in the street wearing a mobile telephone. I mean, this is simply ridiculous. And then, people didn't realize, that this is what people wanted-- I mean, people wanted to have a personal communication. And that was the great invention. It was not technology. It was the personal touch in communication that makes, really, the difference. And that is innovation. CHRYSTIA FREELAND: So, when it comes to the focus on consumer behavior-- and on being really consumer-driven in what you do in your business, how has this crisis changed what consumers want? FRANCO BERNABE: Well, what is happening now is that consumers feel very much worried about their future. And therefore, their savings rates are increasing. On the other hand, in some countries-- namely the United States, consumption has been really overextended in the past few years. So people now are saving more and are consuming less. Will this last for long? I think that, yes, it will last, because-- CHRYSTIA FREELAND: You think this is a long-term generational shift? CHARLIE MAYFIELD: Well, generational is a little bit too much. I think that people have to restore their savings rates and this will take some time. But given the fact that people want to communicate-- I mean people are always on the mobile phone, people communicate, people are browsing the net, and so on and so forth-- and people are being price sensitive about this kind of consumption. I think that people shift the burden on us. They want us to react, giving them more services at a lower cost. And that means that we have to increase the size. Dieter Zetsche was mentioning before that size is not the only point. But size is very, very important. Size is very important because you have to have economies of scale. And economies of scale means that you have lower costs and you can invest more. And investing more means that you give to your customers better services at a lower price. And this is what customers want. And want increasingly so now. CHRYSTIA FREELAND: So are you finding that you can keep the spending of your customers steady as long as you offer them more services for the same amount of money? Is that your goal right now? FRANCO BERNABE: Yes, but I think that-- of course, people want-- I mean, we are seeing a very interesting phenomenon now. We're seeing fixed data growing at approximately-- I'm talking about Italy-- growing a little bit close to 100% per year. And mobile data growing at 200% per year. Which means that people really want data in mobility. So, this-- CHRYSTIA FREELAND: --and that growth rate hasn't been hit by the recession? FRANCO BERNABE: It has not been affected. But it has turned into very little revenue for the mobile telephony companies that bear all the burden of investments and of giving the right quality of service to our customers. I mean, people want to browse more, to have mobility-- data mobility-- but at the same time, don't want to pay. So that makes size, scale, and efficiency very very important. I mean, we have to provide these kind of services to our customers at a lower price. In fact, the traffic is growing very much, but our revenues are not growing that much. Growing at a much much slower pace. So the focus on efficiency and concentration is very important. But at the same time, I think that-- going back to your first question on innovation. I think that the market as the data traffic growth is showing, is not saturated at all. And there are new areas where the market can be extended very aggressively. We've seen growth in voice traffic quite dramatically. And now we have sort of saturation in the voice traffic market. We are seeing growth in data traffic, very dramatically so. What will be the next thing? The next big thing, I think, will be the growth in traffic among objects. I think that in the medium term we will see objects being connected. I mean, objects will talk among themselves. CHRYSTIA FREELAND: Our refrigerator will talk to our television and talk to our computer, that sort of thing? FRANCO BERNABE: Yeah. Our car will talk to other cars and will give us an indication of how traffic goes. And, think about health. I mean, health is a growing area where sensors, monitoring, remote control, et cetera will increasingly gain ground. I mean, consider that in our economies, at least 7% to 8% of GDP is going to healthcare. Whatever can be done in terms of reducing health-- making remote control possible-- will greatly improve the efficiency of the healthcare system. CHRYSTIA FREELAND: I wonder whether there are any ways in which you're seeing this recession, this economic downturn, as an opportunity to sell your services even more? I know whenever I talk to Cisco, for example, their big obsession right now is telepresence. And they're always saying to me that their pitch to companies is cut costs, don't send people to lovely conferences like this, halfway across the world. Just make them sit in your conference room and spend half a million dollars on our telepresence system so they can talk to each other through telepresence. Is that an opportunity for you, too? Use phones more, use teleconferencing more, travel less? FRANCO BERNABE: Well, it's very strange. Because at some point, the industry thought that videoconferencing and video communication was the next big hit. In fact, you may remember at the beginning of-- when was it, 2000?-- when the auctions for 3G telephony were made. The industry thought that videoconferencing, videotelephony was the name of the game. But that proved to be a big flaw. Why? That's very strange, because looking with the benefit of hindsight-- because otherwise, nobody would have paid the enormous amount of money that was paid at the time for getting the licenses. What didn't work at the time? It was not the fact that people didn't want to use videoconferencing or videotelephony. It was the fact that people are used to a perfect environment in terms of lights. Because they're used to watching television. And therefore, people that appear on television are always perfectly illuminated. And when you use the telephone-- I mean, the illumination goes-- normally, you use the telephone with the sun behind you because otherwise it disturbs your view. And so you don't see anything. So the impact was, from the beginning, very negative. And therefore, what happened was that contrary to what the industry thought at the beginning, 3G telephony went almost immediately to the net. And now, the biggest growing area in 3G telephony is browsing. We have-- traditional data traffic is slowing down, and what we call innovative-- I mean, it's not innovative-- but, I mean, the new users of video communication, given also the new devices-- that is browsing, net browsing through mobile telephony-- that is the fastest growing area. So, I think that it's something-- when you were asking, what will be-- can there be something that enhances consumption in these difficult times? I don't know. What we have to do is to test the ground very much. To look at what consumers want. To be not arrogant in thinking of what the consumers want. Because there's always something that surprises you in terms of the consumer behavior. We need to understand, to listen to the consumer. And this is why I think our industry, like every industry, has to be much more-- two point what, 2.0 aware. Because we need to understand, we need to get from the consumer their needs and interpret them better. CHRYSTIA FREELAND: Now, like so many American and European CEO's, when Dr. Zetsche was talking about emerging markets. And this beautiful possibility that Chinese people will each have as many cars as Americans, there was this sort of tone of longing in your voice. You know a lot about China, particularly, Mr. Bernabe. I wonder if you could talk about what opportunities you see for your industry in China. And more generally, is China going to be the locomotive that helps pull the rest of the world economy out of these doldrums? FRANCO BERNABE: I've seen China-- I've been there, recently, two or three times. CHRYSTIA FREELAND: And you're on the board of PetroChina. FRANCO BERNABE: Yeah, and I'm on the board of PetroChina. And I've seen China moving very aggressively, unlike many other countries in the world. Moving very aggressively to counteract, to do something that will create, will bring, at least China out of the recession. And what they did almost immediately was to deploy a very substantial plan of infrastructure investment, mainly in the interior of China. I think, however, that they will shift away from a purely investment and infrastructure-based consumption model. And go towards a more consumer-oriented growth. And in doing so, I think that they will take the lead from the United States-- because the driving force of growth in the last 10 years has been the American consumer. Now the American consumer is out of business for the next several years, I think. It will rebuild its savings rates and it will have a hard time adapting until he feels that he is wealthy enough to start spending again. CHRYSTIA FREELAND: And borrowing again, more crucially. FRANCO BERNABE: Exactly, and borrowing again. But Chinese, I think, will do a great deal of work. And will help very much in addressing the needs of the recovery. CHRYSTIA FREELAND: OK. We're now going to move-- thank you very much-- we're going to move to Charlie Mayfield. Mr. Mayfield is the head of the John Lewis Partnership. And I think that he is in a particularly comfortable position at the moment. Because as a lot of us-- I think in countries all over the world-- are asking questions about the traditional Anglo-American model of capitalism, and that style of company, Mr. Mayfield is lucky to be running a company which is actually employee-owned. So, I wanted to start with that question. And to ask you what benefits you see in that style of running a company? And what, particularly in the aftermath of this crisis of global financial capitalism, other more traditional companies might have to learn from the way you do business at John Lewis? CHARLIE MAYFIELD: Yeah, thanks Chrystia. I was struck by listening to Lord Mandelson talking about values-based capitalism. And in a way, our business and its structure is all about values-based capitalism. It's not being some kind of quasi-communist model. It's not about being capitalism red in tooth and claw. It is somewhere in between those two points. And really, what we're trying to do, is to develop a strong, sustainable, and fair business. And I think that does have a lot of benefits. It does mean, for example, that when people here are talking to their shareholders, they probably have to get on a plane, or get on a phone, or go and visit them, or whatever. And their interest in your business may be, frankly, pretty short term and passing. In our business, the people who own the business are in the business. And I talk to them-- I can talk to them every day-- indeed, they talk to me every day. And we also have a culture of accountability where the management are accountable to the employees, to the shareholders. And that actually creates a very powerful culture. So, just coming back to what Lord Mandelson was saying about values-based capitalism, and he then went on to talk about the need for the right kind of regulation. I would say that you can get a long way with the right kind of culture. And that's what we try to achieve in our business. CHRYSTIA FREELAND: What about the downside? Do you ever worry that you have to run your company less efficiently than you might if your employees were just your employees and not also your shareholders? CHARLIE MAYFIELD: Well, I think there's some-- at times like this. You were asking Franco about what this recession has been like for his industry. I mean, retail has been pretty tough. Last year it was like a bushfire. October and November were an extraordinary time where the collapse of the financial markets spilled over incredibly quickly into consumer behavior-- driven partly by the availability of information and people being able to get information about what was going on. It happened very, very quickly. So that creates a huge amount of tension and a lot of pressure on any business. And I think in those short time frames, that is when your values come under pressure sometimes. And it's times like those that actually sort of make and break for trust. And when you're facing that kind of situation in our business, we will choose, quite deliberately, to prioritize our values over our short term profits. But I would say rather than that being a bad thing, actually, I think that is the foundation stone of our long-term sustainability and indeed the trust that we have with our customers. And for the long term in terms of consumer behavior, that's going to be vital. Some people think that-- in the past, less so now because we've moved very quickly to capitalize on the opportunity of the internet and in all sorts of ways we've changed our business-- but people sometimes say to me that, ah, John this partnership. Isn't it slow to change? And I think that there's a real contradiction there. Because I think you have to think about the quality of change. What we do in our businesses is we take care to talk to our employees. We want to tell our partners, as we call them, exactly why we're going to change. And we'll take time to do that and we'll involve them in it. And that can sometimes mean that we'll take longer to reach the point where we then say, right now we're going to change. But then when we do, we do so quickly. But crucially, we do so with their support. And I think a lot of companies think that if you plan in secret, you can execute fast. You can sometimes execute fast, but you leave behind you an awful lot of goodwill with your people. And so for me, I think it's about getting the right quality outcome. CHRYSTIA FREELAND: You've referred to this change in consumer behavior, which in a way has been a theme for us all morning. In your understanding of what's going on, is this permanent? Is this a step change? Or is there going to be a recovery six months from now and Britons will go back to borrowing lots of money even more aggressively than the Americans? And buying lots of expensive furniture and expensive food from Waitrose? Cars, also, and Italians, telephones. CHARLIE MAYFIELD: I mean, you know, it's interesting, isn't it? Everybody wants to talk about a V shape, a U shape, even an inverted square root was one of things that was offered the other day. I couldn't quite work out whether you had the little bit at the beginning, whether that was going up or down. But it's difficult to say. I think that we have seen a real shock to the world economy. I think there may be some short term recovery. I think we're perhaps seeing a little bit of that now. And after a period of such bad news, there's obviously an appetite to see some improvement. And I think we're seeing that. There's also a great propensity for the human spirit to want to see things as they'd like it to be as opposed to how it actually is. And I think we're perhaps seeing a little bit of that right now as well. But there will be-- CHRYSTIA FREELAND: --we're tired of all those gloomy headlines? CHARLIE MAYFIELD: Yeah, well exactly. Exactly that. Finished selling newspapers on gloomy headlines. Now let's try a bit of less gloomy ones, see if that works. So I think there's a bit of that going on. But there will be a recovery. I think it will be slow and it will be unexciting. It'll be long and slow and gradual. But underpinning it, I think perhaps behind your question, is, are we going to see a shift in consumerism? And I do think we're going to see a reduction in consumption. We're going to see lower levels of growth. I do think that retailers are going to face generally more difficult conditions because we've been able to benefit enormously from the sort of virtuous cycle of increasing-- well, of having greater disposable income for consumers driving greater volumes driving greater, or better, prices, and going around and around and around that loop. And I do think that some of that's going to move into reverse. I also think for retailers-- and this is good for customers but not necessarily good for retailers-- is there's going to be increasing transparency. And there will be a drive towards more commoditization of anything that can be commoditized. The internet will play a very big part in that. And the onus will be on retailers to have really distinctive product in order to survive. But also, I think we'll see a shift towards people placing more and more value on personalization. And indeed on service. I mean, I was in our shop in Southampton. We've got John Lewis and Waitrose. I was in the John Lewis shop. It's a great shop, we take over 100 million pounds just from that shop every year. And I was talking to a guy in the building just next door, where we run all the deliveries from. And he was telling me that we've started offering a service where we assemble your barbecue. And I thought it was just fascinating. Because, you know, this is not a prediction-- but something tells me that in 5, 10, 20 years time, we might make more money from assembling the barbecue than from selling it. And I think for retailers, there's going to be a very interesting shift taking place. And some will win, and some lose. Personally, I actually see this as a great opportunity. Because if you've got great people who really understand and are committed to your business, as we have with our partners owning it. If you do have good product, great product-- which again we focus a lot of that time and effort on in both Waitrose and in John Lewis-- and that product is backed up by strong ethical values and sourcing. And you can add to that, a host of different services and personalization. And a really strong relationship with the customer. Then actually I think it amounts to a tremendous opportunity. So I think we're going to a very changing picture, but an exciting one. CHRYSTIA FREELAND: My husband would certainly be thrilled to hear about this barbecue assembly service. But don't you think it goes a little bit against the time? Isn't now a time when all of us are trying to cut back on our spending? And actually more likely to tell our husband to read the manual again and set up the thing himself? CHARLIE MAYFIELD: It'll go, won't it. I mean, there will be moments of great frugality. But then, actually I do think that there's also-- a bit like Dieter was saying-- there is a desire in human beings to express themselves through what they own. Through the brands they have, what they wear, where they live. What things they have. And I don't think that we're seeing the death of consumerism. That would be hugely overstating the change we're seeing. But I do think we'll see some moderations. And the market forces are going to move along. You know, the recession is an interesting time. There's an analogy I like, I mentioned that it was a bit like a bushfire in retail. And after a bushfire, there were these seeds called fire ephemerals. And these seeds-- I think the giant sequoia is one of them, actually. Some herbalist here will correct me, but these seeds only germinate after a fire like that. And so, if you can imagine that sort of charred landscape. We will see new things appearing out of that landscape. But some of them, I think, will be very strong and enduring. I think we're going to be in a very interesting time, in a sense almost because of the great stimulus that was put into the western economies post-9/11, I think we've seen a delay of the changes that actually probably need to take place in the global economy. And we're living in a very interesting time. And we're going to see a lot of new things coming up. And I think some big challenges. But some big opportunities as well. CHRYSTIA FREELAND: As you survey that charred landscape and figure out how to thrive, what's your view on the point that Dr. Zetsche raised about size? Is this a moment when you are tempted to think, OK, if the British consumer is going to reset at a lower level than pre-crisis, I need to expand to other markets? CHARLIE MAYFIELD: I think some of the things that I've mentioned will mean that scale is important. And in order, for example, to drive margin growth, you're probably going to need to have some element of scale within that. But equally, I think it's most important if you're basically a commodity retailer in the retail world. And there are lots and lots of opportunities. And I think there will be more opportunities in many ways for value-added subsectors within any market and particularly within retail. And I think consumers are going to be even more concerned about values and about what they're buying as they are about the price and the commodity aspects of it. And we see that in our business. In terms of what people like about-- you know, particularly in our food business, in Waitrose-- you know, people are incredible interested in where their food is coming from. And I don't think that's going to change. It fits very closely with the whole green agenda. And so I think there will be a huge number of cultural opportunities and aspects based around values just as much as they are around scale. CHRYSTIA FREELAND: OK, I'll throw it open to questions in two or three minutes, so please prepare yours. And I'd just like to ask Dr. Zetsche and Mr. Bernabe to pick up on one point that Mr. Mayfield has discussed. And this is the whole issue of the nature of capitalism and the prestige of the CEO post-crisis. How profoundly are you having to rethink that, and how profoundly do you think it's being rethought in Germany? Have you had to change the way you behave? The way you behave with your employees? The way you behave vis a vis the government? DIETER ZETSCHE: Well, there's obviously not one stereotype of the CEO. How he was, how he has to be, or how he will be. That's certainly very different from person to person. There's no doubt that there's a big risk of people getting to the seat believing they are something special rather than understanding it's nothing else but the seat people are looking for and not the person on that seat. So people lose contact and lose touch to reality. That has been a risk. That has led to a lot of misbehavior. Loss of ethics. And in this sense, and I think that's the same basic thought, this crisis is something good. Because it really exposes that risk and shows the negative aspects of it and helps people to rethink and come back to values and ethics. So that's an absolute necessity. As much as trying to defend what has been done by many individuals, it would be wrong to say, well all those CEO's are-- I don't want to take the word-- crooks, for instance, is a nice word. Doesn't start with A so is much better. So we certainly are watched. First of all, we all got a negative title now and we have to be even more aware of what we do, how we act. It's more important how we act as examples than what we say we would do. We are very closely watched, and I think that's a good thing. For most of us, I hope that we don't have to change what we believe and how we act, be even more conscious about it. And those who would have to change are in the wrong seat anyway. CHRYSTIA FREELAND: Mr. Bernabe, what has the impact been on you and also more generally, on the way that CEO's are perceived in Italy? In your community? FRANCO BERNABE: I'll share very much what Charlie said before in terms of the accountability. It really depends on who you feel accountable to. And certainly, for a long period of time, most CEO's felt accountable, mostly, to the financial community. And I must say that the financial community likes greediness, likes speed-- as Charlie said before-- likes arrogance, a little bit. So this is something that you have to be very careful about. I just want to remember an episode that happened to me back in the '90s when I was the CEO of Eni. At the time, I was considered a very conservative manager, very hands-on, very safe pair of hands kind of management. And the entire financial community was pressing me to do more, to leverage the company, to speed up the process of transformation. And the example that unanimously was quoted to me was the example of Enron and of Ken Lay. And I was resisting those pressures. But you cannot imagine how strong those pressures were. I mean, you are doing nothing, you should emerge, you should do this and this and this. And nobody, really, I felt accountable to my company, to my people, to my responsibility first of all. And I suffered very much. So it means that you have to be very balanced and you to have an equilibrium. An interior, psychological equilibrium, to resist all these pressures. And now I think that the pendulum has swung back to a more decent kind of environment. I think that it's not any longer the time of arrogance. It's not any longer the time of greediness. For some time, the pendulum will swing back. It will not last long, however. I think that nobody learns from the lessons. And in three, four years time, it will be back again the same kind of thing. CHRYSTIA FREELAND: OK, well that's a very realistic, possibly slightly depressing thought. Except maybe arrogant listeners will be pleased that your time will come again soon. Any questions from the audience? We have six or seven minutes. And if you don't have questions then I'll just keep interrogating these poor gentlemen. But it would be nice to hear from someone else. Any more? Oh, come on guys. You all think journalism is really easy, but now that you're put to the test. Anyone? Going once... Thank you. AUDIENCE: Ryan Tuchey. I just wanted to ask whether you think that consumer demand is more what people really think they need or if it's driven by marketing? And I wonder how that may have changed. I'm wondering what you think is the actual need versus the marketing-driven perceivement. CHRYSTIA FREELAND: I'm going to ask Mr. Mayfield to start and I'm going to sensationalize your question a little bit. By saying, to what extent are you manipulating us into buying more than we really need, and that's probably causing the financial crisis? CHARLIE MAYFIELD: Well, I have to refute that one completely. I guess there's some manipulation in marketing. But more, I just don't think it can be sustained for very long. If it happens, it may happen in a small few instances for a short period. But more fundamentally, I just think that human beings have an innate desire for improvement. And if you've tasted a wonderful coffee or something, you don't want to have your instant freeze-dried variety anymore at home. You actually-- suddenly there's a market for home coffee machines. Or if you can suddenly get all your massive CD collection onto something this big. And you can walk around and play with it and do whatever you want with it. That's just-- that's a powerful force. And at the end of the days, I think that is what wins out. And it's about the people who can-- who are agile enough-- to take advantage of that in the value chain. CHRYSTIA FREELAND: Dr. Zetsche, need versus manipulation. Do we all need our own Mercedes? I do, but-- DIETER ZETSCHE: Well, all would be exaggerated. I do believe that especially when we talk about products with higher values, higher prices. You can put some makeup with the marketing, but you cannot create demand and desire. And you can shift it a little bit and portray what you have a little nicer, but at the end it's the substance of the product you offer which pleases the customer or doesn't. It might be different when you talk about something which costs a pound or two pounds. Then you might even do something which ultimately said, why have I bought that? I really don't want it. But with the product of-- CHRYSTIA FREELAND: So Mr. Mayfield manipulates more easily than you? In his business? DIETER ZETSCHE: I only said with small ticket items. It might go so far that afterwards you really wonder why you bought it. But I think in more serious purchases, you think about it some time. You go back and forth and compare. And then you listen to the marketing, potentially. But once again, it's only a little aura, a little atmosphere you can create around it but you cannot turn black into white. CHRYSTIA FREELAND: And what about-- this is may be a little bit further than your question intended-- but right now, in the U.S. car industry, some people are comparing some of the financing schemes that American car makers became very married to what was happening in housing. And that car makers are to some extent responsible for this sharp decline in the car market that they're facing because they fed consumers such cheap money to buy their products. Is that a fair criticism of your former Detroit colleagues? DIETER ZETSCHE: I guess so. It went up to balloon financing, where when you needed cash, you went and bought a car. And got some cash. And then, two years later you had to start to pay back. But even in these instances, I don't think that the customer bought a car which she didn't want. She couldn't afford to buy it. And that was a way how to afford what they wanted. So this criticism is certainly right. We pulled forward demand and now we have to live through the drought which comes after that. To some extent, all these scrapping fee programs in Germany, now and the U.K.-- CHRYSTIA FREELAND: --the clunkers for money, the money for junkers-- DIETER ZETSCHE: Same thing. So, customers will buy now and they won't buy tomorrow. And so we will just see the deep valley just a little later. But add to what I said before, just one more thing. Even though I don't think that marketing in itself could turn a customer-- manipulate him into a different direction than he really wants to go-- brand, at the end, of course, is the accumulation of experiences over a long period of time. And therefore, brand is a very strong argument to consider a purchase. And if you want to take branding and brand development under the umbrella of marketing, then I would somewhat modify what I said before. CHRYSTIA FREELAND: OK, Mr. Bernabe, in your industry, can marketing fool people into buying things they don't really need? FRANCO BERNABE: No, I think that Dieter and Charlie already explained what the process is and how it works. So I don't want to add anything on this. Perhaps I might take it a little bit farther. I think that we really would need some-- a new Thorstein Veblen to tell us what the new mechanism is. Because I see the conspicuous consumption mechanism working very well in the developing economies. One thing that strikes me very much is that, although in China you find many fakes, a Chinese would never buy a fake. The fakes are bought only by European and American tourists that visit China. So they would feel humiliated in buying a fake. And therefore, I mean, their aspiration is really to have the consumption pattern of the west. But in the west, I think that something is changing. It's not the conspicuous consumption kind of motivation that is driving consumption. Well, the thing it's driving, as Charlie's said very clearly before, is personalization. You see it very clearly. I mean, people want their own personal consumption pattern. That means brand, but it means individual building of a product or a service around the consumer. So, and each individual is different. So that poses big challenges to every one of us in the industry. CHRYSTIA FREELAND: Your point about the Chinese consumer reminds me of a joke the Russian oligarchs liked to tell in the '90s. And I won't bore you with the whole thing. But the punch line was, each guy has an Armani tie. And the guy who paid $2,000 rather than $1,000 for it is the one who's really proud of it. Same tie, but you wanted to pay more rather than less. Dr. Zetsche has-- DIETER ZETSCHE: I just think we at various times touched on one point which is important, too. That we see kind of a polarization. That on one hand, in most markets, we have the commodity type of product. Where it's about scale, about size thereby. And driving costs down and getting the lowest price. And then we have the premium part of the same market. Where it's about individualization, personalization where it's about quality and where price doesn't matter that much and the size doesn't matter that much. And that, I think, applies to most of the consumer markets we're talking about. And so, typically you can't give the one standard answer of what the customer is driven by. Depends on whether we're talking about the volume commodity part or or the premium part of this. CHRYSTIA FREELAND: And as we get richer, do we shift from being more commodity buyers to premium buyers? DIETER ZETSCHE: Interestingly enough, there are the same customers who in one segment act as premium buyers and at the same time, go to a cheap grocery store and are proud about that. So it's very complex, but that is what makes it interesting and challenging for all of us. CHRYSTIA FREELAND: OK, well I think interesting complexity is probably a good note on which to conclude. I hope you'll join me in thanking our business leaders who have really set us off to a rousing start. So thank you very much Dr. Zetsche, Mr. Bernabe, Mr. Mayfield-- [APPLAUSE] CHRYSTIA FREELAND: I've learned a great deal from this panel. We have a half hour coffee break. And then at noon, please come back. We have two of the most provocative thinkers about the economic crisis coming up-- thanks a lot.