Brad Smith: Greater Seattle Chamber of Commerce

Remarks by Brad Smith, General Counsel and Senior Vice President, Legal and Corporate Affairs
Seattle, Washington
October 21, 2010

BRAD SMITH: Well, thank you. I have to admit I was really reassured that you all didn’t get up and run to the door when you heard that the pass is closing at 6. I get to participate in a lot of events on behalf of Microsoft here and in Washington, D.C., and around the world, but this is a first. It’s the first time I’ve ever had an opportunity to speak at an event at the exact same time that there is a local event featuring the president of the United States. (Laughter.) I can see that you all quite wisely determined that one thing is crystal clear: This event has better food. (Laughter.)

I want to talk a bit today about my perspective, and really our perspective at Microsoft, about the future of this state. The opportunities and challenges that we have, and really more than anything else the chance that I think we have to do what, in fact, you all have been doing in this room over the last day and a half, and will have more of an opportunity to address this afternoon, really focus on what it is that we have the opportunity to do together.

When it comes to our perspective as a company, I actually think that one of the assets that we bring to Washington state is the fact that we are constantly engaged in community after community around the world. It is one of the benefits of creating a software product, or really a number of software products that get used on hundreds and hundreds of millions of computers. It’s one of the benefits of having subsidiaries in about 110 countries around the world. And it’s, frankly, one of the few benefits that comes from spending so many hours on airplanes, as great as they may be when they’re Boeing aircraft, flying from country to country throughout the year. It means that one is always having the opportunity to connect with government leaders and business leaders and community leaders in place after place, and really compare notes, and really understand what they’re trying to do, and then come back home and compare it to what is going on here.

I’m often struck when I think about these kinds of questions with the way the prime minister of Singapore put it about five years ago on the occasion of Singapore’s 40th anniversary, their 40th year of independence. He looked back at the four decades of their independence, and he remarked upon their great success. But he said for four decades, we have competed and succeeded on the basis of being cheaper than everywhere else in the world, and those days are over. We now have to focus on being better as well.

And, in effect, what he said was, in the world today two things matter: One is quality and the other is cost. And that is in some respects a rapidly unifying element in country after country and in state after state. There are some places that have advantages around quality. There are other places that have advantages around cost. But increasingly, everybody is having to think about both things.

The other thing that that statement really does, I think, is underscore the importance of creating a framework that one can use to start to define what we really care about. And then to use that framework to create a positive vision for where we want to go. So many times, so many debates in the world of politics, or in the sphere of government, are all about what people don’t want to see happen. People are opposed to this. Other people are opposed to that. That will always be part of the landscape. And yet, if we’re talking about leadership, and this is all about leadership here at Suncadia, I think the real question is, what is it that we, in fact, want to get done? What is it that we want to create going forward?

I often ask myself in my job, and encourage other people at Microsoft to ask themselves, you do so many things, if you could only do one thing what would it be? And it’s an incredibly difficult question to answer. But, in fact, the question was not one I dreamt up myself, it came out of a management book I once read. And what the book said was that leadership is fundamentally about one thing, it’s not what people often think, being a visionary, it’s not what some people suggest, it’s about inspiring others, it’s about creating clarity around the goal one is trying to achieve.

And in the years since I read that book, I’ve often found that I can do about two-thirds of my job just by going to meeting after meeting and saying, what is our goal? Let’s get clear on our goal. If you can get smart and energetic people pursuing the same goal, they’ll figure out how to get it done. But if they’re not pursuing the same goal, it doesn’t matter how many weekends or nights they work. They’re still not going to get much done.

And so for us, as we come together here, I think there’s a great opportunity to ask ourselves, what is our goal? How can we define it in a way that is truly clear and sustainable?

It’s something that we’ve been talking about in Redmond, it’s something that we’ve been talking about throughout the year in the Washington Roundtable, it’s something that we’ve been talking about increasingly in a number of groups around Puget Sound and across the state.

And I think increasingly we’ve come to this: We think there’s an opportunity for ourselves as a state to look ahead a decade and really define what we want in two ways. First, we should aim to be among the top 10 states in the country when it comes to quality of life, and I’ll talk more about what that means.

And the second is we should aim to get out of the top 10 states when it comes to the cost of doing business. If we can be in the top 10 for quality and stay out of the top 10 for cost, we will have the basis for a sustainable competitive advantage, and it will be a competitive advantage that will matter not only vis-à-vis the rest of the country, it will be the type of competitive advantage that we can bring to bear around the world.

The real question, as I’m sure you’re saying to yourself is, that’s great, but what does it really mean? And I think, more than anything, else that is precisely the conversation that we have the opportunity to have.

When it comes to quality, we think about a number of things. We can think about some areas where we’re great already, innovation. Washington state is the fourth largest state in the country, if you count the number of patents that were issued last year. We are a leader because of the innovation that is happening in businesses large and small across our state. That is a great thing, but it’s not necessarily a sustainable thing unless we focus on a number of other attributes of quality as well.

Certainly, one really big one that you all were talking about this morning is K through 12 educational achievement. We have a great opportunity to ask ourselves in K-12 what is it that we care about and how would we measure it, and then how would we know that we’re in the top 10. Well, one thing we might look at is the percentage of our kids that graduate from high school.

Today about 69 percent of our kids graduate from high school, or to put it another way, 31 percent of them do not. That means that we’re 35th in the country. If over the next decade we could move that from 69 percent to 80 percent we’d be in the top 10. We’d be in a heck of a stronger position to think about the future.

We certainly ought to be thinking about higher education, as well, and the number of bachelor’s degrees that we are producing. Of all of the attributes of our state there is perhaps nothing as ironic as this. We’re in the top five states when it comes to producing jobs that require a bachelor’s degree, and we’re in the bottom five per capita when it comes to producing people who are getting bachelor’s degrees.

There is only one way to sustain that, and that’s to import people who will take great jobs, while our kids do something else. That is a future that is hard to get excited about. As leaders we ought to be able to do a lot better than that. We need to focus on other issues like transportation. And there’s a lot that can go into asking ourselves what it is about transportation that we care most about, and how would we define and measure that.

Certainly just one example is the quality of our roads. When it comes to the percentage of our roads in good condition, we rank 23rd in the country today. It would be nice if we could get into the top 10. And there are other factors, as well. We should care about the safety net, and we should care about human services, and we should care about that regardless of whether we come from the nonprofit community, or the labor community, or the environmental community, or the business community, it matters to our community as a whole. And there’s other things that also make a really big difference, things like culture and arts and sporting event opportunities and certainly the environment. These are the kinds of things that I think we know intuitively and sometimes explicitly add up to what, in fact, already makes this a great state when it comes to quality. But there are some areas where we’re in the top 10, and there are some areas where we’re well below.

If we could agree on some common goals and some common measurements, and sustain each year the ability to see where we are, we would know how we’re doing. And it would frame the conversations that need to take place in Olympia and elsewhere, about the strategies that are most worth pursuing.

As I said before, we cannot ignore cost either. And when it comes to the cost of doing business, there are a few things that matter. Certainly, taxes matter. There are a variety of ways to measure the taxes that are imposed on business, depending on what you’re measuring and how. We’re typically somewhere between about 5 and 20 among the 50 states today. We’re not in terrible shape, but there are some opportunities to do better.

There are a couple of areas where we are in the top five states when it comes to cost. One is worker’s compensation cost for business and another is unemployment insurance cost for business. And there’s one area, frankly, where things are quite inexpensive here in Washington state, and that’s the cost of electricity. We’re among the five least expensive states in the country when it comes to that. So, in some areas we’re in okay shape, in some areas we’re in great shape, and in some areas we probably have some work to do.

The truth of the matter is that workers compensation and unemployment insurance costs are not costs that are a big issue at a company like Microsoft. But if we care about manufacturing, and we should, they matter a great deal. And if we care about the future of the aerospace sector, and we do, they matter a great deal. And I think we need to recognize that in the world today we, obviously, are competing as a state with other states, like South Carolina. The fact that we’re competing with South Carolina doesn’t mean we need to match South Carolina. But it does mean that we need to think about where we stack up.

And if we could get ourselves out of the top 10 when it comes to cost, there are still about 39 states that may be cheaper than we are. But if we could aspire to a higher level on quality, and reduce our costs somewhat, we really would have a stronger and more sustainable basis on which to create new jobs, and really grow this state.

Certainly for us as a company, not surprisingly, we focus pretty much all day every day about how to nurture innovation. That is our business. And when we look across the state and we look at the areas that have been doing well, and we look at the companies that have been creating jobs, they, too, have been doing a great job in nurturing innovation.

Ultimately, all of this brings us to one very strong conclusion, which is if we’re going to nurture innovation as a state, the number one thing we can do is strengthen education. That’s why we are so passionate about it.

And as we’ve thought more and more about it, it’s clear to us, as it was to many of you in the panel discussion this morning, that this comes down to a few key themes.

First, it needs to start early. There is probably no more efficient way to invest a dollar in education than to invest it in the first few years of a human life. In fact, recent studies, and not-so-recent studies from across the country have shown that if you look at low-income kids who don’t show up for kindergarten ready to learn, they only have a 50 percent probability of graduating from high school 12 or 13 years later. But if you can reach kids early in their second and third year of life, and expose them to the types of opportunities that so many of us probably took for granted either as kids or as parents, you can raise that high school graduation rate from 50 percent to 80 percent. And if we want to get into the top 10 states in the country for high school graduation, this is an incredibly effective way to invest some money.

Certainly we need to focus on what it means to have great K-12 education for the 21st century. And you all talked a lot about that this morning.

For us it certainly means focusing more on outcomes and results. After all, the one thing that everybody in business has to live with every day is that results matter, and we know that results matter for our K-12 education system as well.

We believe in investing in STEM, we believe in investing in teachers and teacher capability, we believe in focusing on teacher performance and student performance, and we definitely believe in the types of steps that the city of Seattle found the courage, both in terms of the city and the administration and the people who run the school district and the people in the teachers’ union, to come together as they did in the teachers’ negotiations this summer, and do something new, something new that is truly important in advancing the kinds of goals that we believe in when it comes to K-12 education.

We also know that higher education matters as well. The HEC Board estimated that in 2006 as a state we produced about 29,000 baccalaureate degrees, but they also estimated that as a state by the year 2018 we need to grow that number from around 29,000 to 39,000.

What we need to do in short is enable more of our kids to have the opportunity to go to college, and to make sure that they’re prepared in public schools to go, and to make sure that we stand behind them as a state so that regardless of their income level, regardless of their background, if they’ve got the ability, if they’ve got the desire, they’ll have the means to get through our six public universities. And that, too, is the kind of goal that will make us a top 10 state a decade from now.

Ultimately, when we think about all of these issues at Microsoft, we’ve been trying to think not only about what it is that matters, but how we can do something that is truly helpful, and that has really led us, it has certainly led me to think about a broader view of public service. People often go up to individuals, and they say, you know, isn’t it great that there are people in government who are devoting themselves to public service, and I’ll be the first to say absolutely. But we all have the opportunity for public service, whether we’re in government or not. And we all have the opportunity to broaden the way we play that public-spirited role.

Certainly part of it involves being advocates for improvement, thinking about new ideas and sharing them with each other. That’s what we’ve tried to do increasingly in advocating at least a few specific changes. And I think it’s something that people throughout this room do very well, it’s frankly perhaps the number one thing that people in this country do very well, they speak their minds, they contribute their money, sometimes they fund more political television ads on commercial television than any of us want to watch, but it is great to be a part of a robust democracy. It’s a wonderful thing.

But public service should start there, but cannot stop there. Our roles should start there, but not stop there. We all have the opportunity to be agents for change. We all have the chance to do something that is tangible, and more than anything else that’s what we’ve been trying to do as a company.

That’s why I’m spending time with the United Way this year. That’s why we at Microsoft donated a million dollars of the company’s money for the United Way’s Parent Child Home Program. It’s a program that aims to bring to scale early learning for low-income children in King County. It will cost $25 million over the next five years, and we knew that if we were the first to write a million-dollar check, we could help get it on its way.

It’s why we invested a lot of time and $3 million of the company’s money to focus on middle school math, and really partner with eight school districts in the Puget Sound area so we could take new steps to improve the curriculum to help 8th graders learn math better, in part because we recognize that that is such a key year, that is such a key course, and we knew from studies that if kids could make it through 8th grade algebra, they were likely to make it through high school and go on to college. And if they didn’t, they were likely to hit a dead end. So, we thought it was right to put some of the company’s resources behind it.

It’s why we as a company have invested $6 million to help create the Washington STEM Center, and it’s why I’m serving as vice chair of that board. We know from firsthand experience that STEM matters, not just to software but for people who build airplanes and repair cars, and do just about anything else in the 21st century that is likely to pay a really good wage. We want to see STEM education improve across this state.

And it’s why I’m spending some time this fall chairing the governor’s task force on the financing for higher education. We want to make it possible for more kids to go to college, and yet we know that especially in the current economic climate and for the foreseeable future it’s going to take a little bit of creativity and some hard decisions to get the financial foundation for our institutions right.

But in all of these ways, as so many of you are already doing, and so many others across our state have the opportunity to join, we need to not only be talkers, we need to be doers, and we need to be doers together.

And, in fact, that is, in some ways, one of the most important things about this conference, we need to build bridges. If there is one thing that we strive to do at Microsoft when it comes to speaking out on state issues, or local issues, it’s to start with some good ideas, and then recognize that there is a time that always comes that’s called the time for compromise. If you want to get something done, you’d better be prepared to compromise. You have to find a way to think both about your principles and your sense of pragmatism. And more than anything else, that is what guided us when we focused on transportation issues, and spoke out, frankly more loudly than we had ever spoken out in public, on the 520 Bridge issue this year.

It just seemed to us that about every 14 years, it’s okay to compromise, at least if you actually want to get something done. And what we need is get more things done.

Ultimately, we have some really big challenges. And it really involves getting better connected with people who, frankly, have a lot of differing and sometimes even opposing views. That’s something that we have lived through perhaps more directly and strongly than any other company in this country across the last decade. You know, nine or ten year ago, we were in this situation where we were in litigation with the federal government, 20 state governments, 26 foreign governments, 15 companies and 112 plaintiffs law firms in all 50 states. You had to go looking for people who agreed with you. And here in 2010, all of that is behind us.

You know, there were days when people would ask me, will it ever end? And I said, I am absolutely confident that it will end, and they would say, how can you be so sure? And I said, well, look, even the Hundred Years War ended eventually. (Laughter.) Everything ends; the question is, will it end in our lifetime? I’m not so sure about that. But it did.

And as I try to think about the opportunities and challenges that we have in this state, there are just a few lessons from that experience that certainly guide the way we think about the opportunity to engage with others across the state.

The first is you really have to get people in a good conversation. One of the most insightful events for me when I was dealing with these issues for Microsoft was when I went down to Silicon Valley early in this decade, and I found that the people that were unhappy with us were actually very much like us. They were from engineering companies, they had similar dreams, they thought about their businesses in similar ways.

And I asked myself, well, how is it that these people that are frankly so much alike have ended up in such a pronounced bitter disagreement? And when I thought about it, the conclusion was obvious: Everybody was spending way more time talking about each other than they actually were talking with each other.

And I think that that is a constant question one has the opportunity to ask oneself, and whenever you find that people are spending more time talking about each other than talking with each other, there should be a red flag that goes up in our minds and says we need to get together.

And we have a lot of additional opportunities to get together. This is quite possibly the single biggest step we’ve had the opportunity to take to address this need in this state, but of course it can’t be a one-week deal, it needs to become a part of every week throughout every year.

The second thing I learned was that you couldn’t make progress unless you started to build trust. And when I started talking with people, especially at other companies in our industry, the first thing they would say to me is, “But we cannot trust you.” And I would say, why? We just met. (Laughter.) And they said, because we know that what you want is different from what we want, and if we don’t want the same thing, we can’t trust each other. And I said, well, that’s not trust, that’s just expediency. That’s just a temporary alliance. That’s not trust.

And what I concluded over time was that trust is really about two things. It’s about saying what you think and then doing what you say.

Actually it’s hard to say what you think sometimes, because people are too polite to say what you think. You need to push yourself to say what you think in a respectful and in a polite way, but in a direct way and in a candid way.

But then you need to do what you say.

I recently was on the phone with the CEO of another company in our industry, somebody I’ve worked with and Steve Ballmer has worked with now for about five or six years, and we’ve competed every step of the way. And sometimes I interact with him, and sometimes Steve does. And we were talking about something, and I said, well, we will go do a particular thing. And I said to him, do you want me to follow that up and confirm that in writing? And he said, no, because if there’s one thing I’ve learned about you all is that your word is gold, and if you say you’re going to do something, I actually know you’re going to do it. And you don’t even need to write it down. And I know that if you’re not going to do that, you’re going to tell me that, too, which is often the case.

But that’s how you build trust, that’s how you build trust especially when you have people who have differing views and possibly even differing goals.

The third thing that I learned was that it’s all about starting down the path to progress. We would sit down with people, and one of the first things they would say was, you know, we can’t possibly agree on everything. And I would say, yeah, you’re right, there’s no way we’re going to agree on everything, but what we learned is that success almost never requires that you agree on everything, it just requires that you agree on something, and that you have the capacity to turn agreement into decision, and then turn decision into action.

And when you think about it that way, two things become clear: Few goals are too big, and few steps to pursue them are too small. It’s all about taking a step, even a small one, and then using that as the foundation to take the next step after that.

That’s why more than anything else I think that one of our goals should be to try to come together every fall and see if there’s even just two things that we think should get done in Olympia each spring. If we can do two things every year over the course of a decade, that will add up.

And so in some cases it may make sense to even start off a little smaller, and not worry about the things we disagree with, get to know each other better, learn from our collective experience, think about what we have in common and keep moving forward.

Ultimately, I think as we look to the future it’s important to look to our past and learn from that. Washington state has, in fact, had a pretty remarkable run. Really since the start of the Second World War, if you get down to it, there have been seven decades of incredible economic growth. And that’s a great thing, but there’s also something very sobering about it, because when you really look back at these last seven decades, there are two events that have in some respects made all the difference.

The first was an event in the late 1930s: Boeing built an airplane. It had almost no money. And when that airplane, the B-17, took off for the first time in 1935, it crashed. It was a tragedy; three people died. And the company’s future was truly in doubt.

There were two other companies building competing planes for the U.S. Army. And the good news for Boeing was that even though their plane had crashed, and even though their financial resources were so much weaker than their competitors, the plane had promise, and the Army paid the company to build 13 more.

And four years later, when the Nazis invaded Poland, and the United States government recognized that they were likely to need a whole lot of airplanes, Boeing had the plane ready to go.

And because of that faith in Boeing and their ability to win that one contract for those 13 planes, the future of Washington state was transformed.

And the good news for the state was that it was transformed yet again in 1980 when there was another company that was just as small as Boeing had been in 1935, holding on by its fingertips, to some degree, run by some kids, who actually didn’t even have the product that the largest computer company in the world, IBM, was asking for, an operating system for a personal computer.

But like Boeing, Bill Gates had a great idea, and he was able to get the operating system and put it together, and he had the contract of our lifetime as well when IBM decided to base its personal computer on that operating system from Microsoft. And yet again decades of economic growth have followed.

Those are great stories. They’re also sort of about luck. And ultimately they’re a little bit exciting and a little bit disconcerting as well. Can you really base the future of any area on your propensity to get lucky? It’s a hard, hard thing.

The fact of the matter is working at a company like Microsoft is really an interesting experience, because at one level it’s really exciting to be part of an economic engine for the state, but the responsibility it brings is more than a little daunting, too. You want to sustain your growth, because you know it matters to so many people, but you also want to do everything you can to broaden your base so that the future isn’t just about a couple of companies and our ability to get lucky. It’s all about building a future and investing in the next generation and their ability to learn and their ability to innovate and their ability to be smart, because if there is one thing we’ve learned, smart people who work hard and have great ideas are actually more likely to get lucky. They’re likely to make their luck for themselves if you equip them with all of the right ingredients.

But the other thing we know from all of the work we do around the world is that this story is the exception, it’s not the rule. Most places that have seven decades of economic growth typically don’t have another seven to follow. That’s not the way economic history works.

The truth is the centers of innovation and prosperity have constantly been shifting over time from Northern Italy to the Netherlands to England to New England to Detroit to Puget Sound and Silicon Valley. And when I visit these various places and I walk the streets of Milan or Antwerp or London or Providence, Rhode Island, or Detroit or Palo Alto or Bellevue, there are a couple of things that are really clear: When things are going well you see it in people’s eyes, and you feel it in the air; and when the moment passes you by and you are in an area of decline, you see it in those people’s eyes, too, and you feel it in their air.

More than anything else, we need to recognize that when we’re talking about sustaining our prosperity for the coming decades, this is a tall mountain to climb. Most people who are in the situation that we’re in frankly don’t stop, they don’t think and they don’t plan; they take it all for granted, and they just have this way of thinking that it will always continue until the day they wake up and it’s no longer there.

And the truth is even when people plan, more often than not they don’t succeed.

That’s why this conference matters. If we are going to succeed, we need to think about new ideas, we need to get clear about what we want to accomplish, we need to be creative in defining new strategies. But more than anything else, if we’re going to climb this mountain, and we can, we need to climb it together.

Thank you very much. (Applause.)

HOST: We have a few moments, a few minutes for questions of Brad. So, we’ve got our roving folks out, hand up, and we’ll take a question. There you go.

QUESTION: Hello. My name is Tim Bertell (ph).

I’m a Microsoft math school district participant, but I’d like to ask that you add one more thing to your list, a theme that you move us out of. Where do we rank currently on class size in the United States? Where do we rank currently on per pupil expenditure for students in the United States? Do you know?

BRAD SMITH: I actually don’t know the answer offhand. I’ll bet we’re not in the top 10.

QUESTION: We’re in the bottom five.

BRAD SMITH: Yeah, yeah, it’s — no, and I think you make a great point, and I have to say, you know, each time we think about this topic, we approach it from the perspective of we don’t know all the answers, and frankly even if we did, we wouldn’t want to have them, because the right way to have this conversation is to bring people together and engage in precisely the kind of discussion that you are constructing.

Fundamentally, what you’re asking is this: What is it that we care about, and where do we rank today, and what would it take to get to where we might want to be in the future? That is by definition a conversation that can only be had in a really high-quality way if a large number of people come together to discuss it.

So, I don’t claim to know the answers, but we know that people like you and others do, and it’s all about getting together to talk about it.

QUESTION: Brad, thank you very much. My name is Michael Campbell.

You spoke recently at the Seattle Rotary Club. I think somebody asked you a question about your plans to eventually run for office. I’m wondering if you would speak about that again. (Laughter.)

BRAD SMITH: When I said that you engage in public service without being in government, I was talking about the opportunity for most of us and I was definitely talking about myself.

Look, you know, I actually think that for those of us who are at Microsoft, the single best thing that we can do for this state is create jobs, and the second best thing that we can do for the state is engage with everybody else to work on what will make the state a better place.

And from what I can tell, there’s no shortage of people wanting to run for office, and that’s wonderful. I’ll even host some fundraisers for them. (Laughter.)

QUESTION: I’m Olga Addae from Seattle Education Association, president.

One very disconcerting bit of information that I haven’t heard in this whole topic — I’m very grateful to be here. I don’t see very many of my compadres here, I do not see very many Latinos or Latinas here represented. But one thing I would like to know — you travel the world. As an educator I certainly don’t travel the world that much for finances. But when we talked about the third rung, social justice, and we compared ourselves to China and Brazil and India, one of the things I do know about those countries is my compadres in those countries who work in labor get killed for organizing. So, that’s current day reality.

So, we are comparing ourselves to be building an economy with social justice included. So, I think when we have this conversation I think we need to look at those hard facts, too. Are we comparing ourselves to countries who do not have civil rights? And if we are, then how do we move that discussion forward?

BRAD SMITH: Well, I think you make a great point, and certainly for me it resonates in at least two ways. And actually both of these ways are sort of frankly part of my day job. So, I find myself addressing them all the time.

As a company that does business around the world, we have responsibilities, and we’re interacting with governments and we’re interacting with the groups of the sort that you mentioned in many, many places around the world, and we try to really think about what we’re doing and its impact in these areas.

Also when we engage in Washington, D.C., on the subjects such as the country’s trade policy, we think about this broad panoply of issues. There is no doubt that you are absolutely right, and yet I’ll also say that quality and costs still matter, but you’re also right, I think, to point out that some other things matter, too, and we should never allow ourselves to think that they’re the only things that matter.

The other thing that I just think is a really important point is the value of diversity, including the economic value of diversity.

I actually think that one of the things that has made Microsoft the strongest is the fact that we have employees from around the world. You know, in Washington state we have 40,000 employees. Over a third of them have come from other countries. In fact, they’ve come from 146 other countries. And they have about 15,000 dependents in Washington state that, among other things, we’re responsible for ensuring they’re in compliance with the U.S. immigration laws.

But it is amazing to me the way you go west of the Cascades now and, of course, there is a vibrant Indian community, and, of course, there is a vibrant Chinese community, there’s a vibrant Brazilian community; the truth is if there’s a language, we probably have about 100 people who speak it, including Bulgarian and Romanian and Hungarian.

And I just think this makes us so much more effective as a company and as a region in understanding the rest of the world, which, in fact, we want to have be our customers.

And I think we have opportunities to strengthen our diversity as institutions. I frankly think we have a great opportunity to build on the cultural diversity that we have, and do a better job as a region in attracting African-Americans and Hispanics and Latinos to our state, so that we’ll be better connected with other parts of the country where these populations are growing and becoming such an important part of the consuming public.

We need to keep making strides when it comes to the role of women and people with disabilities and LGBT in the workplace.

You know, of all of the things that I get to do, one of the things that I get to do that excites me every day is actually grow the diversity of our department, and in the last eight years we’ve gone from having 26 percent of our lawyers be women to 39 percent of our lawyers be women, and we’ve gone from 15 percent of our lawyers being people of color to 23 percent of our lawyers being people of color.

And as a company we’re trying to strive to do new things, too. Ultimately, the reason I believe in this is because I just think it is a prerequisite for global economic success. And we have some great strengths as a region when it comes to diversity. We should probably recognize that in some respects we are quite possibly in the top 10 in the country and in the world, and yet we probably also have a really big opportunity to go up even higher on that initiative, too.

HOST: Final question.

QUESTION: Thank you, Brad, for a very thought-provoking talk. I’m Jeanne Kohl-Welles. I’m a state senator from Seattle. And I chaired the senate labor and commerce committee for many years, I chaired the higher education committee.

And I would like to hear your comments about the structural constraints that the legislature operates under. Higher education we keep hearing has got to be enhanced in terms of funding. We need to retain our high-quality faculty. Yet we keep hearing about the need to cut more, even though 41 percent of our state employees are higher education faculty and employees. They have furloughs. We have the situation where we have the most regressive tax structure in the whole United States, dependent primarily on the sales tax. And any effort we make to make a more progressive tax structure gets halted and likely will again November 2nd.

Our hands are tied, and until we have some structural changes, we’re going to have the same thing happening over and over again in K-12 and in higher education.

BRAD SMITH: I think you address a very important issue, which is, in effect, as you put it quite rightly, the structural — I would call it the structural financial foundation for the state and state government.

And I would say a couple of things. First, don’t do anything that puts us in the top 10 for costs on yet another thing. You know, we’ve been public on the income tax for that reason. We don’t want to be the fourth or fifth highest state in the country when it comes to the top income tax rate, because frankly we don’t think we’re going to be able to attract the talent that we need to attract to keep creating jobs here.

So, we have a problem to fix, but let’s try to fix it without creating yet another problem that is going to really get in the way of our economic growth.

But that doesn’t mean there aren’t some problems that need to be fixed. We really do, as you point out, I think, have a very challenging situation with the state budget. I’m often struck on these budget issues because, for example, when I go to work for Steve Ballmer, we sometimes sit around and I’m the chief counsel and there’s the chief financial officer, and there’s the head of HR, and Steve sometimes sits down with us, and he decides what kind of work product he wants, and if it needs to be created in Word he gives it to me as the lawyer, if it needs to be created in Excel he gives us to the CFO as the finance guy, and if it needs to be created in PowerPoint he gives it to the head of HR. (Laughter.)

But to me budgets are about spreadsheets, because numbers do need to add up. And words matter, but you actually need to cut through the words to understand the numbers.

And at least as I understand the numbers, there are a couple of things that jump off the page. Right now, at least to many, about 70 percent of the costs in the state budget are fixed in advance. You know, they’re either K-12 or there’s a constitutional entitlement or there’s state Medicaid obligations to the federal government or they’re debt or they’re pensions.

And then when you get to a revenue shortfall, as we do today, as we look to the next biennium, there’s about a 12 percent gap between revenue and what are projected to be costs.

And, you know, to be honest, I’ve gone through having to cut 12 percent out of the budget. I mean, when the economy turned down, I had to cut 12 percent out of my budget. But I didn’t have 70 percent of my costs that are fixed. If you have to apply that 12 percent cut to the 30 percent that’s discretionary, that means you’ve got to cut that part of the budget by 40 percent, and you’re going to get at all of these things that you were mentioning about which so many of us care so deeply.

So, what I say when I look at that is, you know, we’re only going to solve this if we do two things. One is, yes, we’ve got to think about what is the right recipe for revenue and on the other hand, we’ve really got to look at our costs, and frankly we’ve got to look at the 70 percent and ask ourselves, how the heck can we get that in a more sustainable state, because we’re just not in a sustainable budget situation today, and there’s no way you can get your budget sustainable if you only look at 30 percent of it.

All of that is a long way of saying you are right, of all of the difficult and hard questions that we need to work through as a community, there are perhaps no questions that are more difficult in the short run than those that involve dollars and cents, because they all involve trade-offs, and there is a real conversation to be had, I completely agree.

HOST: Would you all join me in thanking Brad Smith. (Applause)


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