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									A transcript for
The Silicon Valley Leadership Group
8th Annual CEO Business Climate Summit
Panel Discussion #1 B Enhancing America‘s Competitive Edge
IBM Almaden Research Center
April 22, 2011

Panel members, introduced by Pasquale Romano, President & CEO, Coulomb Technologies
Rachael Myro, KQED, Host, The California Report
The Honorable Zoe Lofgren, Chair, California Congressional Democrat Caucus
Kim Polese, Chairman, ClearStreet, Inc.
Hank Nothhaft, Chairman & CEO, Tessera
Ron Sege, President & CEO, Echelon

Mr. Guardino: ... With that, it is such a pleasure to present…the co-founder and former CEO of
2Wire, who sold that successfully in October, and now the CEO of Coulomb Technologies, Mr.
Pasquale ―Pat‖ Romano, who will introduce our first panel.

Mr. Romano: Thank, you Carl. (applause) It was interesting. When Carl asked me to do this
introduction, I started reflecting on why this panel, which is entitled, ―Enhancing America‘s
Competitive Edge,‖ meant so much to me personally. My father moved to the U. S. in 1957. He
emigrated here from Italy, and his reasoning, and I‘ve asked him many times, and the answer is
very consistent, is he thought he could build a better life here. It was a very attractive place. And,
you know, I have three kids. I‘m sure a lot of you are parents. And what I‘m compelled to do is
leave the next generation as competitive a United States as the one that attracted my…father to
this place in the first place.

Every CEO and senior officer here knows that our innovation economy is absolutely the most
creative in the world. I think the stats that Carl gave you just…back that statement up in spades.
We also know that it‘s not a birthright.…Every day that we get up, we have to earn that. We have
to earn that right. The world is getting to be a much smaller place, and other nations are getting
much, much wiser. Whether the competition is from China, India, Singapore, the EU, South
Korea, or even Russia, we see governments and businesses partnering together to create a
competitive edge for their companies and their economy.

Now America can and must step up to meet these new challenges so compete not only in its
home markets—and, by the way, its home markets only make up 5 percent of the world‘s
population—but also to compete in a global market where that 95 percent of the population
resides. So I think this is going to be a great discussion.

To lead this discussion this morning, this panel will be moderated by a top journalist from
KQED. She‘s the host of the California Report. This is Rachael Myro here on the left. The
panelists include the Honorable Zoe Lofgren, our Congressmember from Silicon Valley, and also
the chair of the California Democratic Congressional Caucus, seated in the center. Welcome,
Zoe! Next we have Kim Polese, the board chair of ClearStreet, sitting next to Zoe. The
SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                     Page 1
gentleman here, second from the left, Hank Nothhaft, is president and CEO of Tessera, and
author of the soon-to-be-released book, Great Again. Looking forward to that! And last but not
least, Ron Sege, president and CEO of Echelon Corporation, at the far right. So, with that, I‘ll
turn it over to Rachael. Thank you very much.

Ms. Myro: Thank you all for joining us. Thank you to our panel members for being here today.

Q:      (Ms. Myro) Well, given what we‘ve just heard, I‘m going to toss the first question to the
        Congresswoman, given also that you serve on the judiciary committee of the House of
        Representatives. When is the federal government going to either lift or remove the cap for
        H1B visas or green cards?

A:      (Rep. Lofgren) Well, I think that‘s really not the question. We need reform of the entire
        immigration system, but certainly at the high end of immigration. I‘ve been working for,
        really, a year to put together a bill that provides green cards for master‘s [degree] and
        above recipients…from American universities in STEM (Science, Technology,
        Engineering and Mathematics) fields that reforms the H1B program, because there are
        problems with it. Not, I think, with the companies that are represented here today, but
        there have been structural problems.

Q:      Problems…like what?

A:      (Rep. Lofgren) Well, for example, there was a wage set in the program, and a variety of
        outsourcing companies hire at the level I, which, for computer programmers, is about
        $46,000 a year; whereas computer programmers actually earn in the valley $80,000 or
        $90,000 a year. So that‘s a problem in terms of undercutting American workers, and it‘s
        also a disincentive for young people to go into the field.

        So if you look at who is receiving H1B visas, the top recipients are Indian outsourcing
        companies who apply for no permanent-residence visas for their workforce; whereas our
        good American companies, 80 or 85 percent of their H1B visa holders are the
        beneficiaries of petitions. What we want are the best and brightest to come here, stay
        here, create businesses here, and that‘s what this bill does, in addition to providing startup
        visas, because we want jobs to be created. I‘m glad that Google is in Mountain View
        instead of Moscow, and I think it has broad support among engineers, among companies.
        I‘m looking for a Republican co-sponsor if anyone can help me on that.

Q:      Well, you‘ve heard that call-out, and I suppose that answers my next question, which is
        whether we can find bipartisan support for a business-friendly measure in a climate
        where, you know, the sides seem pretty dug-in against each other.

A:      (Rep. Lofgren) Well, I hope so. I‘m an optimist, or I couldn‘t be in this job; but, you
        know, I‘ve gone privately to Republican members who have been willing to work on
        reform measures in the past, and none of them have stepped forward at this time, because
        immigration is kind of a toxic topic in certain parts of the country. I don‘t think, really,
SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                    Page 2
        here, but there‘s a fear level about sort of the Tea Party anti-immigrant section, and
        whether there will be a political price to pay for stepping forward. I‘m hoping that we can
        put that to one side, and move forward anyhow. I think we‘ve about run out our string.
        We can‘t continue this situation.

        I‘m going to go to the Stanford graduation this June. Half of the Ph.D. recipients in
        computer science are going to be students from other countries. We want to keep them
        here. We want them to do their startups here. We don‘t want to force them to go home
        and do their startups and compete against us, if they want to stay, and most of them do.
        So I really think – I have a sense of urgency that we need to do this, and, as I say, I‘m
        optimistic. I‘m trying to find a Republican co-sponsor. If I can‘t find one in the next two
        weeks, I‘m going to introduce the bill with Democrats, and then I‘m going to turn to the
        business community, and ask you to really talk to our friends on the other side of the
        aisle, and have some people show a little bit of courage to step forward and do this
        important thing.

        The President also has the ability to do some things under existing law, and I have written
        him a 10-page letter outlining various things he can do under current law that would make
        immigration work better, in a more sensible way, and I‘m hopeful that he will do some of
        those things, as well – some of it on the business side, some of it – I mean families that
        are needlessly being separated who are otherwise eligible for visas under the law.

Q:      Kim, can you explain for us why American companies don‘t simply hire more American

A:      (Ms. Polese) Actually, first, I‘d like to thank Zoe for her work on this incredibly-
        important issue for U. S. competitiveness. It‘s…important, obviously, to take a
        thoughtful, pragmatic approach here. It‘s easy to politicize this issue, and Zoe has just
        done an incredible job of driving through what I think is a very smart solution to the

        The problem is, I think, twofold,…or the opportunity, I should say, is twofold. We…are a
        nation built on attracting the best and brightest from all over the world, and the valley, in
        particular, has benefited from that. At the same time, we have to make sure that…we
        have a homegrown best-and-brightest workforce, as well. And so the companies that are
        hiring here in the valley are looking, frankly, for the best workers who can fill the gaps
        that exist in their workforce. This is not about displacing workers. This is about filling the
        gaps for specialized skills, frankly, that we are not…generating enough of in
        our…students coming out of school.

        So [there are], I think, two things we need to do. One is make sure we‘re not sending
        home the best and brightest, as Zoe mentioned; and second, we need to make sure that
        we‘re actually graduating students coming out of K-12 as well as higher education who
        are skilled in science and math and engineering. So, as a company, as a CEO, I‘ve always
        looked for, first, U. S. citizens who can fill those jobs. If I can‘t find a U. S. citizen who
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        can fill the job, I‘m going to look for whoever can fill the job, because I want to make
        sure that my company is as competitive as possible; and, at the same time, I‘m going to
        put every…ounce of energy I can into ensuring that we as an industry, as business leaders,
        are supporting improvement of STEM skills in U. S. citizens and students who are
        graduating from K-12 as well as higher education. So it‘s not about displacing jobs; it‘s
        about filling the gaps, and it‘s about, again, making sure that we‘re not cutting off the
        lifeblood that‘s made this country and this valley so strong, which is immigration.

Q:      Ron, is there anything you want to add to that?

A:      (Mr. Sege) Just that I can‘t…believe we can‘t reach bipartisan consensus on this issue.
        You know, like Pat, my dad is an immigrant. He pioneered vacuum-tube technology at a
        company called Varian Associates. You know, most of you are familiar with it. It created
        thousands and thousands of jobs here in the valley, and, you know, as an employer, I
        would just echo what…Kim said, which is I‘ve got to find very specific talent. I want to
        find it here. Our company is based here; but if I can‘t find it here, then I‘m going to go
        find it someplace else, and I can‘t find all the talent that I need, because it is so
        specialized. So we need more qualified people here in the valley to continue to create
        wealth here, and it is a bipartisan problem.

Q:      Now it‘s interesting. We…do live in an immensely talent-rich state here in California,
        and it‘s something that you see reflected in the number of patents that we issue, not just
        now, but for a long time running at this point. Congresswoman, I know you‘ve been
        meeting with the head of the U. S. Patent Office, who‘s a former IBM executive, and so it
        should come as no surprise to them that there‘s a kind of ridiculousness about how
        long…patents take to process. I believe it‘s dropped down with the Obama administration
        from 36 months to 20 months, but you know, we‘re talking about –

A:      (Rep. Lofgren) That‘s the product cycle, you know?

Q:      Yeah, it‘s the product life cycle of two or three products, certainly, when you‘re talking
        about high technology, med technology. Is there any sense of urgency in Washington, D.
        C., that this is the kind of thing that needs to be addressed sooner rather than later?

A:      (Rep. Lofgren) Well, I think there is a sense of urgency, and I‘d like to compliment the
        new patent office. Kappos is very focused on improving the office. The technology is
        incredibly dated. It needs to be updated. There needs to be training and adequate staff to
        look and review the patent applications. Much of the focus has been on the so-called
        patent-reform bill, which is really about patent litigation. That is a serious problem. We
        marked up a bill in the House Judiciary Committee last week that I think is not quite
        where it needs to be yet, but it‘s a step forward.…In talking to Hank, while we were
        waiting to come on, there is a section that‘s of great concern to startups and to the V. C.
        world having to do with the grace period and prior art, that there was a colloquy between
        Senator Hatch and Senator Leahy that we wanted to memorialize in the legislation itself.

SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                  Page 4
        Unfortunately, although the chairman agreed with it, what…came out was a travesty. I
        mean it just completely rewrote patent law, and so I really threw a hissy fit and got it
        removed, and now we‘re trying to write language that truly reflects what we thought was
        a bipartisan agreement. But part of the issue is resources. We have diverted occasionally
        resources from the office. It‘s all fee-supported. There is no taxpayer money in the office,
        and my firm belief, and I think the belief of the entire judiciary committee, is that all of
        the fees need to stay in the office and improve the office, and we need to come up with a
        situation where you don‘t have to defensively patent every single small change, and yet
        you have strong protection for real inventions and…quick turnaround of high-quality

Q:      There seems to be, to some extent, a certain political disconnect between Washington, D.
        C., and California. Members of both parties are very clear they can come here to get
        money for their political campaigns; but then, when it comes to issues that are important
        to those very same business leaders from the Golden State, we see odd anomalies. No
        offense to Detroit, but why do they get a regional patent office –

A:      (Rep. Lofgren) Don‘t ask me to defend that decision!

Q:      -- you know, and we don‘t?

A:      (Rep. Lofgren) Well, I was stunned and surprised that Detroit was selected as the first
        satellite patent office…David Kappos told me,…you know, that he went through criteria,
        and the number of laid-off engineers who would be available, and I was not persuaded.
        But there are going to be a number of other satellite offices, and I have suggested that,
        really, the next one needs to be in California – hopefully, in Silicon Valley, and I expect
        that the next one will be in California. I hope it‘s in Silicon Valley instead of Southern
        California, but even if it were in Southern California, that would certainly be more
        proximate than Washington, D. C., or Detroit.

        You‘re right. I mean I…get frustrated when some of my colleagues – I mean there‘s a
        constant stream into the valley. I come home every week, and yet, when you put
        something up for a vote, they‘re not necessarily standing with the high-tech world,
        and…it is distressing to me, and the best way for all of you to deal with it is not to return
        their phone calls until they understand technology, and stand up for it.

Ms. Myro: I think that might be the headline that comes out of this panel discussion.

Q:      (Ms. Myro) Hank, you‘re the executive champion for the Silicon Valley Leadership
        Group, spearheading this effort to try to get a regional patent office here. Break it down
        for us. Why does that help for, say, a company like Tessera?

A:      (Mr. Nothhaft) There are a lot of benefits that would come out of that, but before I move
        on to that topic, I just wanted to address briefly the [issue of] Congress not necessarily
        listening to their constituents as it relates to the patent office. So, first of all, the pendency
SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                        Page 5
        for patents, or the time it takes to get a patent, has improved slightly under David
        Kapposs‘ leadership. He‘s a fabulous new leader of the patent office. He came right from
        IBM here in the valley and has done a magnificent job.

        Unfortunately, he‘s strapped with limited budgets and [antiquated] technology. So the
        pendency has only improved slightly. The five-year plan has a strategic goal of reducing
        pendency to 20 months. I can assure you, if pendency was 20 months right now, we‘d all
        be dancing in the streets; but that hasn‘t happened.

        Secondly, with the budget fight going on in Washington, I don‘t know if anyone realizes
        [it], here, but under this new continuing resolution (CR) that was just passed to keep the
        government running, diversion of funds from the patent office continues. So, since 2002,
        Congress has taken $1 billion from the patent office from fees we paid in for future work
        that we paid to have done; and, under this continuing resolution, they‘re continuing to
        siphon off $100 million to $150 million a year, which has frozen the office. So there isn‘t
        going to be a remote office in Detroit. That program is frozen, all overtime, etc.

        To the point of why it would make sense to have an office here in Silicon Valley, about
        25 percent of all the patents in the United States are filed in California. So, first of all,
        you want to be close to your customers so you can have a two-way dialogue, and have a
        transmission belt, if you will, between your customer base and the agency, serving the

        Secondly, there‘s been a lot of research done that if you have face-to-face discussions
        with the examiners, it reduces the number of errors, and does speed up the process quite

        And third, we‘re very proud of our talent pool out here in Silicon Valley. I mean we are
        still the seat of innovation in the world, and right now, the patent office limits their hiring
        to basically people that are willing to commute to the patent office from around the
        Beltway, because you have to appear at the patent office twice a month if you‘re a patent
        examiner. Twice a month. So even you‘re a telecommuter, and you live in California, you
        would have to pay your own way to California. So, by moving here to California, and
        being able to hire in this market, it would vastly expand the experience-level talent pool
        that would be available to the patent office. So those are some of the reasons why we
        should have a well-funded local patent office.

Q:      Kim, can you explain for us what it would mean for your company if we did have one?

A:      (Ms. Polese) Yes. In fact, let me take the startup perspective here. This is an issue that‘s
        as important for large companies‘ protecting their patent portfolios as it is for small
        companies that are…both needing to protect innovation and also make sure they can
        move at the speed that…we need to move, to be competitive. And just an example of
        this,…in a former company of mine, we were hit with a frivolous lawsuit over patent
        litigation that basically was trumped up, and was exploiting the fact that this system is
SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                     Page 6
        broken. We ended up having to settle even though…we were not at all at fault, and this is
        a very typical situation. It happens every day in the valley.

        There are such things as ―patent trolls‖ that just basically sit there and try to, again,
        exploit the inefficiencies of the system. So this is an incredible drag on innovation, and,
        frankly, U. S. competitiveness. It‘s very, very important for…small companies as well as
        large companies to get this fixed, and fix it right.

Q:      Is this the case for companies, and Ron, perhaps you can speak to this, you know, in other
        developed economies, where even a startup needs to have a battery of lawyers and
        lobbyists just to get off the ground?

A:      (Mr. Sege) You know, I haven‘t made a study of it, but…I will say, it‘s a huge problem
        here, and I would just reinforce what Kim said. You know, I‘ve been involved in
        companies with big patent portfolios for 20 years now, and I have to say that we‘ve
        probably spent as much time defending ourselves against frivolous lawsuits as we have in
        actually creating the patents in the first place; and, unfortunately, the technologists – it‘s
        not just the lawyers who get involved – but the engineers end up being distracted, you
        know, testifying, depositions, you know, etc., etc. So tort reform, I think, is as important
        as shortening the cycle time, which is critical, too.

A:      (Rep. Lofgren) If I could just add [to the discussion]. I mean we fell short year after year
        on changing some of these litigation problems. It was intensely frustrating to me. I mean
        I‘ve been working on it since 1997. We passed a good bill out of the House. The Senate
        didn‘t pass it; but as we have fighting those battles, the courts actually have made some
        improvements.…For example, eBay took a case all the way to the Supreme Court, and
        got the reform that was necessary on injunctions that really were an invitation to hold
        companies up. So there has been some progress made.

        You‘re right on the CR. It‘s one of the many reasons why I voted against it, but the
        underlying bill does preclude diversion of funds, and it also eliminates the proximity rule
        so that we would have the ability to hire. We‘re…trying to make some progress.

A:      (Mr. Sege) Yes, I agree.

Q:      Congresswoman, as you well know, not every threat comes packaged in a pinstripe
        suit.…Cyber security is a huge issue for companies big and small and for individual
        consumers. Is that at all on the agenda of Congress, or, for that matter, the White House,
        given all the drama we‘ve been seeing over the budget and the wars, for that matter?

A:      (Rep. Lofgren) Yes and no.…The Department of Homeland Security has one of the
        major allocations of responsibility on cyber security, which, I think, is a dreadful mistake,
        honestly, because…I don‘t think they have the talent pool necessary to adequately deal
        with it. The problem is that the repository for our best minds in that field is the NSA, and

SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                    Page 7
        many of us have big problems in turning over the civilian side of this question to the
        NSA. I mean that‘s really an issue.

        At the end of the last Congress, Sen. Lieberman and Sen. Collins had a bill that almost
        passed, and most of the people I know in the valley thought it would be a dreadful
        mistake. I mean sometimes, you know, legislation is worse than the status quo. So, you
        know, I think, as we move forward, it‘s important that whatever we do is carefully
        attuned to what the private sector is doing. The federal government is not the innovator in
        this issue. It‘s the private sector that is, and needs to take the lead. So whatever we craft
        needs to have not only collaboration, but incentives, rather than some management effort
        by the federal government over the private-sector Internet.

        Now, having said that, the Defense Department is, and properly is, very active in
        defending the nation and themselves from constant cyber attacks; but…there‘s never a
        time when it‘s ―done.‖ I mean every time you have some defense put together, there‘s a
        new attack. This is going to go on for the rest of our lives, and we need to put the
        resources there with a mind towards civil liberties, which could be very severely
        compromised with the wrong move forward, I think.

Q:      Hank, given how innovative the criminal side of things is, how fast-moving, does it seem
        better to…company leaders like yourself to just try and handle things on the private side
        [rather] than look to government either for protection or for legislation?

A:      (Mr. Nothhaft) I think the government has to play a key role in cyber security, in that
        sort of the Internet changed everything, in my mind. A lot of the issues that we‘re talking
        about, whether it‘s off-shoring, outsourcing, immigration issues, and what-have-you, the
        Internet changed everything, and it certainly did change it in cyber security.

        So, as a public-company CEO, actually, the threat of the issues around hacking, and
        stealing information, has suppressed our willingness to really implement technology. So
        the threat of this attack is suppressing our use of the technology available to create better-
        managed, more non-hierarchical, better communication vehicles within our company. So
        it is a real tax on the economy, the very threat of being attacked.

Q:      Can you give a specific example of that?

A:      (Mr. Nothhaft) Sure. There are great tools today to make online databases available to
        your individual board members, who generally have very busy schedules, travel around
        the world, and what-have-you. So the debate in our company, and, I‘m sure, at many
        companies here in the audience, is do we really want to take the risk of providing access
        to that kind of data remotely? It would, you know, actually improve the communication,
        the decision-making process, in the company, offset by the threat of somebody hacking
        into that database, and making use of it in some malware sort of way. And, so far, we
        have been unwilling to take the risk, though we continue to debate it, ‗cause we think it is
        a very significant risk to our business.
SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                     Page 8
Q:      The dreaded fear of the rogue laptop disappearing.

A:      (Mr. Nothhaft) Yes.

Q:      Ron, anything you want to add to this?

A:      (Mr. Sege) Just I agree with what the Congresswoman said. I think this is…a private-
        sector problem. I will say it does illustrate the other problems that need to be solved. I ran
        a part of a security company at my last job, and my assessment is that the most innovation
        in security is happening outside the United States. you know, most of the hackers come
        from there; therefore, the best and the brightest are also there, and getting access to that,
        you know, talent, right, from a positive perspective, we need to make sure we solve these
        other problems with education and the right kind of immigration.

Q:      Congresswoman, one of the biggest concerns that a lot of CEOs have listed in this year‘s
        Business Climate Survey is the question of corporate tax reform, or the lack thereof. The
        last comprehensive reform took place in the mid-1980s. Is this at all on the agenda in the
        next two years in Washington, D. C.?

A:      (Rep. Lofgren) It may be. I mean the President has suggested, and the Speaker of the
        House, Mr. Boehner, has also indicated an interest in tackling this…issue. It‘s very
        complicated, and it‘s not easy to do, because every single tax loophole has somebody who
        loves it. I mean it‘s there for a reason, and removing it is not going to be – I mean it‘s a
        huge fight, which is why it hasn‘t happened yet.

        We have one of the highest tax rates and the lowest takes among corporate taxes, which is
        a crazy situation, and I think there‘s broad agreement that that should change. Meanwhile,
        I know, and we‘ll probably get into it, there are discussions [as to] that should we take
        little things that might—not ―little,‖ but ―pieces‖ that might—make a difference.

        I do think that the mood – We‘re not doing this in a vacuum. I mean the mood in the
        country is very sour, and I‘m not suggesting that anything improper was done, but when
        people say, ―Well, General Electric didn‘t pay any taxes,‖ people feel very hostile
        towards that, and…feel that, you know, somebody is really playing them for a fool.
        They‘re paying their taxes. So this is a very rough environment to put together a tax-
        reform plan that works for business. It‘s going to be attacked by right and left and it‘s a
        very daunting thing to do. So, yes, it‘s on the agenda. Will it actually get accomplished? I
        don‘t know. It‘s one of the reasons why I‘m glad I‘m not on the Ways and Means

Q:      Kim, if you got a call from somebody on the Ways and Means Committee saying, you
        know, ―What‘s your prescription for changing the equation so that corporations feel like
        they‘re being supported by their federal government, and don‘t need to go chasing lower
        corporate tax rates around the world; but, conversely, delivering more into the U. S.
SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                    Page 9
        coffers so the American citizen feels like they‘re getting a good deal?‖, what would you

A:      (Ms. Polese) I‘d say, first of all, we need to connect the dots between U. S. companies
        being able to be competitive, and job creation, because there‘s a direct link there. And
        oftentimes, I think that‘s forgotten in the political discourse.

        The fact is, other countries are not standing still. We have incredible new global
        competition, and those countries, as governments, are attracting employers, wooing
        employers, including manufacturing operations, with a business-friendly environment and
        a competitive tax policy. So the tax policy really needs to be competitive and predictable,
        so that we don‘t have, from year to year, changes that businesses can‘t anticipate. I would
        state the case –

Q:      So what‘s an example of that? Like if you were to pick one thing that, you know, gets
        under your skin?

A:      (Ms. Polese) Well, for example, extending the R&D tax credit. The R&D tax credit is an
        incredibly important tool to ensure, again, that U. S. companies are innovating and
        staying competitive globally. And, right now, we can‘t anticipate year-to-year whether
        that tax credit will exist. That‘s an easy solution, but right now, it‘s sort of done in…fits
        and starts, and that‘s one that we can do very, very easily.

A:      (Rep. Lofgren) It ought to be permanent.

A:      (Ms. Polese) It ought to be permanent.

Q:      Hank?

A:      (Mr. Nothhaft) I agree with that 100 percent. When it was passed in 1986 as part of the
        American Recovery Act, it‘s now been extended 14 times, generally for a couple years at
        a time. Last year, it went to the end of the year, and we didn‘t know whether we were
        going to have one or not. Also, if you look at the other OECD (Organisation for
        Economic Co-operation and Development) countries, we‘re no longer competitive as to
        the rate of the R&D tax credit. We‘re about 24th on the list, and so I would not only
        recommend that we make it permanent, you know, I would strongly recommend that we
        actually raise it…from 14 percent to 20 percent.

        The other thing, though, back to tax reform, I would admonish the government that [one-
        size-fits-all] government does not work. So a lot of legislation that comes out of
        Washington never takes into account that a small company of 200 employees shouldn‘t
        be regulated in the same way as companies that should be, like an Enron or an MCI, and
        so we have these one-size edicts.

SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                   Page 10
        So if we are going to change the tax code, let‘s concentrate on the multinationals and not
        the 200-person startup here in Silicon Valley. It‘s the multinationals that clearly have
        options. They can decide to globalize and move employees around the world. Small
        companies actually don‘t generally have that choice, and so the multinationals have voted
        over the last 10 years. They have created 2.9 million jobs offshore in the last 10 years,
        and they have decreased employment in the United States by 2.4 million. So that‘s the net
        result of a large company being able to look back and say, ―How much does it cost to hire
        an engineer in Romania? What‘s the tax rate in Hungary? Maybe I should have a facility
        in Ireland. I wonder what kind of deal I can get for building a plant in China?‖ And so
        those are the complex issues that should be looked at with a carve-out for small

Q:      It‘s interesting that you raised this issue, because a lot of people are talking right now
        about repatriating a lot of the money, the headquarters, the taxes that are going to other
        countries. But how do you propose getting past the fact that other countries have
        [awakened] to this issue, and they‘re moving faster than we are?

A:      (Mr. Nothhaft) Well, we…created the problem, so I‘m confident we can fix it, number
        one. I‘m a ―half-full‖ person, so I think we should be highly optimistic about our being
        able to solve some of these difficult problems.

        The issue around repatriation is, if we don‘t repatriate the money, we‘re continuing to fuel
        a vicious cycle. So, for example, let‘s say I‘m the XYZ multinational, and I‘ve got $4
        billion in India that I‘ve earned, and I don‘t want to repatriate the money right now,
        because of the tax rates in the U. S. I‘m compelled to reinvest that money in India and
        continue to grow my operation, making it even more difficult to pull out or retrench from
        that market.

        So I think clear heads should prevail. I think we should come up with some reasonable
        agreement if we can to incentivize companies to bring the money back. So what if they
        buy stock back? So what if they pay dividends to their shareholders? That‘s what
        capitalism is all about, and most of the shareholders live in the United States, and can
        choose to invest and spend that money here in the United States, perhaps educating
        somebody, sending a child through college, or buying a new house, or remodeling it, or
        what-have-you. So I am absolutely totally in favor in of coming up with any kind of a
        reasonable plan to get that money back to the United States, incentivize our
        multinationals from continuing to invest so heavily overseas, and having U. S. citizens
        spend that money here in the good old U. S. of A.

Q:      Congresswoman, do you have anything to add to that?

A:      (Rep. Lofgren) Sitting here in Silicon Valley, that makes total sense to me. You know,
        we‘ve got over a trillion dollars…of earnings that can‘t be brought, or won‘t be brought,
        back to the United States because of the effective tax rate, and we could use a trillion
        dollars of investment in the United States.
SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                  Page 11
        So, you know, having said that, things don‘t look the same in the Ohio Valley as they do
        in the Silicon Valley, and we have to come up with a consensus to move forward. I mean
        Barbara Boxer has been a tremendous advocate for this in the Senate, but I happen to
        know that there are some other Senators who are skeptical, to be kind; and so I think that
        there is an opportunity to accomplish this, but it‘s going to be different, I think, than the
        last time it was done.

        The last time it was done, there were so-called ―no-strings.‖ There [were] funds brought
        back. Much of the funds were used for dividends, to buy back stock. Those are not bad
        things, but…it was over-sold. There was an expectation that there would be direct
        investment in job-creating activities, and if there were jobs created, there was no
        measurement of that; and, as we know in the valley, if you can‘t measure it, it doesn‘t

        And so we have to come up with a consensus, and I think what it will be is some sort of
        trigger, that you‘ll get the tax benefit when a certain set of activities that are job-creating
        are undertaken; and I think if we could reach that consensus quickly, we actually have an
        opportunity to get this done, and I think that would be terrifically great for the United
        States, and it will create jobs, and it will be good for innovation. So I‘m a little bit upbeat
        on the possibilities here.

Q:      And yet, as you point out, for voters, jobs, jobs, jobs. That‘s a phrase they like to hear, no
        matter where they are on the political spectrum. ―Increase shareholder value‖ doesn‘t
        quite carry the same appeal.

A:      (Rep. Lofgren) Well, for those of us who have pensions, you know, there is some value
        to that, but you‘re right. Job creation is the mantra of the day.

Q:      Can you speak to that, Kim, just in terms of communicating to the general public, how
        ―shareholder value‖ benefits people who don‘t consider themselves rich?

A:      (Ms. Polese) Again, you know, many people who aren‘t ―rich‖ do have pensions, do have
        401(k)s, so there‘s a direct link there between, you know, when the company does well,
        the stock does well, and shareholders do well; but, at the same time, as has been said, I
        think there are numerous ways that money can be put to put to work. Job creation is one. I
        don‘t think we should try to legislate that at the…corporate level. I think, again, as a
        country, we‘ve been smart about figuring out the right solutions to generate, you know,
        the best benefits for businesses, including jobs.

        So trying to get too granular about legislating what companies do, I think, is not a good
        idea. This does take a balanced approach. I think one other important fact to keep in mind
        is the U. S. is the only country that double-taxes corporate earnings – offshore, and then,
        bringing those earnings back, again; and that‘s, again, in this global competitive
        environment, just untenable.
SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                     Page 12
Q:      You know, the Obama administration has sort of set $250,000 per household as a kind of
        cutoff point in terms of budget planning [as to] who gets to bear more of the tax burden as
        we try to work off the deficit; but, for people who live in certain coastal megacities,
        $250,000 doesn‘t actually go that far. Congresswoman, do you hear from people here
        [who are] worried that they‘re being classified as the…mega-rich of America?

A:      (Rep. Lofgren) Actually, not, no. You know, I‘ve lived in this valley all my life, and it
        certainly has changed. When I grew up here, there really wasn‘t a tech presence. Now
        tech is the engine that drives the economy, and certainly, if you have an income of
        $250,000 for a family, you‘re not a rich person in the valley. But what‘s being discussed
        is to have a tax rate for people whose income is over $250,000 what it was under the
        Clinton administration. I mean it wasn‘t like the end of world when the Clinton
        administration [had it], and the Reagan administration. So most of my constituents call in
        and…they‘re not troubled by that.…It‘s the marginal rate, and it‘s not going to destroy
        their family.

        What I am hearing from my constituents is tremendous concern—I know the governor
        will be here later—about what‘s happening to the public infrastructure of this state, the
        public schools that were great when I went here, and now are under pressure. I went to a
        ―sciencepalooza!‖. Thank you, Silicon Valley, for supporting it. Like hundreds of kids
        from East Side San Jose schools…were there, and, as I walked up to speak, there was a
        boy who had…created nano-particles, and he was explaining to me how he did it. This is
        a 16-year-old kid. I said, ―How do you know?‖ He said, ―Well, we don‘t have an electron
        microscope, but a company has offered it, but I don‘t have to check, ‗cause the oven
        wouldn‘t get hot enough at the school.‖

        I‘m going, Okay. This kid was not bitter about it. It was a learning experience for him.
        But if we just can‘t have the basic infrastructure in our public schools, how are we going
        to turn out these young scientists and bright people? And so my constituents are saying,
        ―That‘s a concern. Let‘s do an oil-severance tax and put it into public education. I mean
        even Texas has an oil-severance tax.‖ That’s what I‘m hearing from people in the valley
        who want to have those things that matter, the creative civil society that works.

Q:      Investing in infrastructure is certainly something the Chinese government has expressed a
        lot of enthusiasm for, and I‘m wondering, Ron, if you can speak a little bit to the fact that
        American companies often find themselves competing against Chinese companies,
        especially in the arena, for instance, of solar-panel manufacturing. And it‘s so hard to
        fight against the subsidies, the tax credits, the real-estate deals. You could just go down
        the list of ways that Chinese governments, both their federal government, and their
        regional governments, make it easier for those companies to operate and to succeed than
        here in the U. S.

A:      (Mr. Sege) A lot is made of subsidies, you know, etc., and I won‘t…argue that one way
        or the other. I will say, you know, we‘re in the smart-grid business at Echelon, and the
SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                  Page 13
        good news is, we‘re doing very well there. We‘re among the market leaders. The good
        news is, we export a lot out of Silicon Valley. The bad news is, most of our business
        comes from overseas, in Europe, in Latin America, and in China.

        And, you know, I haven‘t been at the company very long. However, I think there‘s a
        correlation between governments‘ taking leadership roles in defining the problems that
        need to be solved with innovation, and then setting simple goals, and measuring progress
        against those goals. So, in the EU, there‘s the 20-20-20 mandate that‘s really driving
        smart-grid investment and innovation: 20-percent reduction in carbon; 20 percent from
        renewables; and a 20-percent improvement in energy efficiency. And the consequences?
        All countries in the EU are investing in that.

Ms. Myro: We have something similar to that here in California.

A:      (Mr. Sege) But you know, we don‘t.…We do have something similar in California, and
        that was just passed, the renewables, [Senate Bill 2 (First Extraordinary Session)], which
        was phenomenal, but at the government—the federal government—level, we don‘t have

A:      (Rep. Lofgren) You‘re absolutely right.

A:      (Mr. Sege) And, in China, you know, they said 300 million homes will be connected to
        the smart grid in five years. That‘s part of their five-year plan. They‘re measuring it every
        year. They‘re going to get it done in three years, and it‘s driving tremendous innovation;
        and, you know, maybe there are some subsidies, but [there are] also companies like, you
        know, ours, that will benefit, creating jobs here in America because of that government
        focus and priority.

A:      (Rep. Lofgren) If I could say, you‘re absolutely right, and we passed a bill out of the
        House last year that wasn‘t perfect, but did much of what you said, as you know. And
        the…pollution industries, I mean coal and oil, swarmed the senate, and blocked it from
        passage. I mean it‘s really – it‘s a travesty. So California, and thank goodness, we‘ll have
        our governor here, is once again setting the standard; and, because of our…population,
        we can actually move the country to some extent by setting these standards as, thank
        goodness, the governor has been willing to do.

Q:      We seem to be talking in a sense about a shift -- the West Coast, a little bit more focused
        on innovation; the East Coast, a little bit more focused on legacy industries. And so, in a
        sense, it‘s a world-view shift that I‘m hearing people here talk about. Is there a way we
        could engage one of California‘s other big industries, advertising, to change the tenor of
        the discussion?

A:      (Rep. Lofgren) If I can, I don‘t think it‘s just the tenor of the discussion. I‘m back on the
        Science Committee, and we meet every week, and the chairman of the committee is a
        dear, older guy, but he‘s from Texas, and he‘s into oil, and, you know, they have a
SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                   Page 14
        discussion about how clean energy is the end of the economy, and I keep saying, ―No,
        no.‖ I mean I‘m from Silicon Valley. Clean energy is jobs. It‘s innovation, and it‘s a
        completely different world view, but it‘s funded by monied interests, including coal and
        oil, who have no interest in innovating. They have an interest in keeping things exactly
        the same; and so, you know, it‘s advertising, yes; but I think, to some extent, it‘s exposing
        who is saying what, and why, and we‘re moving in the other direction, and the Supreme
        Court has now given free rein to private investment that is not disclosed in political
        advertising, and you can see the difference. In California, we require disclosure on ballot
        initiatives, and when you see that the oil companies are for it, the voters vote the other
        way. People don‘t have the benefit of that information in other parts of the…country.

Q:      Like you mentioned earlier, change usually means that somebody‘s ox is about to get
        gored, and they don‘t typically take it lying down. And I wonder if that‘s the reason we
        see resistance to high-speed rail, which is something that a lot of Californians have been
        talking about for some time; but high-speed rail‘s success probably means increased
        competition for airlines, for car makers, for the people who are looking for construction
        projects for roads.

A:      (Rep. Lofgren) Well, I mean I think that‘s true. California voters stepped up to the bat
        and said, ―We‘re gonna do high-speed rail.‖ The only plan in the United States for actual
        high-speed rail is here in California; and, as you know, not only did our taxpayers step
        forward, but the Obama administration outlined high-speed rail as a major goal, provided
        funding; and, as other states – I mean I think some of it‘s ideological, where governors
        have turned the money down in other states, and we‘ve been scrambling to get it; but the
        CR that Hank mentioned takes the money away, and Paul Ryan‘s budget eliminates the
        high-speed rail program.

        I think that‘s very short-sighted. I mean, you know, if you go to Europe, obviously, the
        distances are different in Europe, and it‘s a smaller place, and easier to have high-speed
        rail; but I want to have high-speed rail in…our state,…and in our country. It will be good
        for transportation. It‘s good for air quality. I mean the highest asthma rates in the United
        States are in the Central Valley of California, and it has to do with I5 and transportation,
        and we need to get off of dirty energy, and onto clean energy for foreign-policy reasons,
        for economic reasons, and for environmental reasons; and to step away from that is a
        huge mistake.

A:      (Mr. Nothhaft) Can I just add to that? I‘m for what I call ―smarter government,‖ so let‘s
        say we ahead with high-speed rail. The thing that I would add to everything the
        Congresswoman said is that somehow, like China, and these other industrial entities that
        we‘re competing against, tie a lot of the commitments that U. S. companies make to get
        into their market to some kind of a joint transfer of technology, or some involvement in
        their economy. So I would like to see that kind of tie-in to our major infrastructure
        projects here in the U. S. So, you know, whoever, as we develop new technology, or the
        technologists and industrialists that play into that system, there should be some creation
        of value-add that‘s left behind in the U. S. economy when that project is done, either in
SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                  Page 15
        the way of new technology, new manufacturing capabilities, so that we can compete in a
        world market more effectively with the technology that comes out of that project.

Q:      It‘s interesting that you mentioned that, because what‘s happening now is that foreign
        governments, the Chinese government, the Japanese government, they‘re lobbying
        California in particular, saying, ―You know, we won‘t just build the trains for you. We‘ll
        finance this project.‖ How about that? I mean it‘s pretty hard to argue against that.

A:      (Mr. Nothhaft) Well, that‘s not to say we shouldn‘t allow them to do it. I‘m just saying
        we should do it in a smart way, so there‘s a quid-pro-quo for their involvement in the
        project. It goes beyond just building it.

Q:      Is there an…economic argument to be made for high-speed rail? I mean it‘s very
        appealing to a lot of people on an individual level, on an environmental level, but would
        it help companies in California to have that?

A:      (Mr. Nothhaft) I‘m not qualified to make that case, but if we do ahead, and I know
        there‘s a lot of debate around it, I certainly would want to do it in an intelligent way, if I
        could say that. So here we have Caltrain, I think, which is a real asset to the area, and a
        real vital aspect of our infrastructure, not being funded. It has no permanent funding
        source. So let‘s go ahead. Let‘s build high-speed rail, but let‘s integrate it into Caltrain,
        the BART system, etc. I‘m always flummoxed when I see subway stations, not just in
        California, but in Washington, D. C., at Reagan National Airport, being built away from
        the terminal, instead of integrated into the terminal. I just never have gotten that. I didn‘t
        get it up here at San Francisco, either. So if we‘re going to build an integrated system,
        let‘s doing it intelligently, and integrate it through the rest of the fabric.

A:      (Rep. Lofgren) If I could talk about – I mean there‘s a lot of – In addition to…just
        building such a huge system, and the economic activity that that will generate, one of the
        issues that CEOs have identified continues to be the cost of housing for their workforce.
        Right now, or before the economic collapse in 2008, we had a substantial number of
        Silicon Valley employees living out in the Central Valley, driving for two hours, creating
        pollution. Actually, with high-speed rail, you could have affordable housing in a place
        like Modesto and be 25 minutes away, and it would be clean and non-polluting and

        So, you know, we‘re not going to be – We‘ve done, and the Manufacturing Group, or the
        Leadership Group now, has done a terrific job of focusing on housing, garnering support
        and the like, but to be able to integrate the economies of the State of California through
        transportation that works in a clean and fast way, has economic benefit that you really
        can‘t even completely quantify. I just think it would give a real boost in the arm for
        California. And I agree with you on Caltrain…I think there‘s been some consensus with
        Anna Eshoo‘s leadership to try and make that whole thing work with the high-speed rail.

SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                    Page 16
Q:      Well, with that, Congresswoman, I‘m going to let you have the last word. It‘s time to
        move on to our next panel. I want to thank all of our guests for joining us here today.
        Let‘s give them a round of applause. (loud clapping)

April 27-28, 2011

SVLG 8th Annual CEO Business Climate Summit Panel #1 of 3 -- April 22, 2011                 Page 17

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