October 24, 2008
NOTE: This information is from a previously printed press release, newsletter, or other dated document. It is presented here for archival purposes only.
NORTHBROOK, Ill., October 24, 2008 -- On Thursday, Oct. 9, Keith Williams, president and CEO of Underwriters Laboratories (UL) spoke at the 14th Annual NEBS (Network Equipment Building Systems) Conference in Orlando, Fla. The event, which was sold out, focused on key industry topics affecting manufacturers, independent testing laboratories, suppliers and end-users of telecommunications equipment.
Below is a transcript of the speech:
Good morning. Thank you for that gracious welcome. It is an honor for me to be here today - speaking about UL is always a pleasure.
A couple of weeks ago, I had a perfectly good speech prepared, talking about a completely different topic.
Then the financial system had a "Three-Mile Island Moment" and I decided to change my talk and address concerns that we may all share about our economy's future and implications for the work and interests we share. What we are living through is unprecedented in our lifetimes.
We start with $49 trillion dollars. That's the total of America's debt. It's about $160,000 for each of us. 1-2 trillion dollars of that debit is toxic - about $3,000-$6,000 for each of us.
They're incomprehensible sums and perhaps exacerbated by deregulation in the 1990's and congressional pressure in the late 90"s and the early part of this decade for Fannie Mae and Freddie Mac to provide home ownership to non-creditworthy borrowers. It was like Congressional pressure for methadone clinics to sell cheap heroin.
Whatever the cause, we're now facing a likely severe and prolonged recession that will affect us all. My first question - although perhaps not your first question - "Can UL survive a prolonged, severe recession?"
My answer is "yes".
Over the past few years, we have rebuilt a shaky balance sheet and we are on a good financial footing holding cash; debt free. While our industry has undergone substantial consolidation, sometime with considerable leverage, UL has been conservatively on the sidelines so we are neither exposed to the turmoil of stock prices and shareholder expectations nor dependent on credit to open our doors. While the industry has been consolidating, UL has focused our investments on core service improvements:
- new labs for photovoltaics in California and China
- a new fiber optic lab in Melville
- a new HVAC lab in Texas
- a new lab in Guangzhou
- 1000 new people in Engineering and Lab Operations
- 350,000 hours internal technical training in the past 21 months
- deployment of Lean/Sigma and conversion to a process mentality
So, I'm confident that we will survive for a second century.
In recent days, I've been frequently asked, "what impact will a global recession have on the certification industry?" Clearly it will mean less work and less revenue - we are after all an engineering services company and our business is dependent on yours. I believe that a prolonged recession, if one happens, will put considerable pressure on the industry's weaker players and could well lead to further consolidation. If this happens, I remain confident that UL's solid balance sheet will allow us to be a consolidator and survive as an independent American company with expanded capability to serve global clients' needs.
Perhaps you are sitting in your seat wondering, "Why do I care?"
Well, if you work for UL, you certainly care.
But, for the rest of you this is important, too.
I spent the first 31 years of my career 0n your side of the desk - at GE and Medtronic. I learned a great deal in those years and one thing I learned was the value of having external forces that provide a regularity, a predictability, a rationality in the markets - lets call it coherence and trustworthiness. In the early 90's, I worked in China - I was the president of GE Medical Systems China - and my company was held liable by a court to pay damages in a civil lawsuit where we were neither the plaintiff nor the defendant. The legal system lacked coherence and trustworthiness and that hindered investment. Since that time, the Chinese government has made major strides to strengthen this external regularizing force. Still, we've seen examples where the absence or misapplication of market regularizing forces - forces providing coherence and trustworthiness - have led to bad outcomes:
- In 2007, we had serious issues with lead paint in toys leading to massive recalls. Toys had no regularizing force and the consequences were expensive in terms of reputation, money, and ultimately new federal legislation. The void of voluntary market regularization was Regularization with the force of Federal Legislation and Regulation.
- Last month, we had a tragic crisis of melamine in milk powder; causing babies to become severely ill and, in some cases, die. This event spread beyond China and beyond Chinese brands causing severe human and corporate consequences. This was a misapplication of market regularizing forces - the ministry involved allowed Sanlu (the provider) to self-certify conformity even though independent inspection was called for. They took President Reagan's "trust but verify" proverb and discarded "verify."
- Now, we are living through a financial crisis that results from dramatic weakening of market regularizing forces that began in the 90's with congressional pressure on Fannie Mae and Freddie Mac - leading to the sub-prime mortgage fiasco - and accelerated with the 1999 repeal of Glass-Steagall Act of 1933.
Personally, I'm a free market kind of guy. When I was first approached to leave Medtronic to join UL, I said "I don't want to be a regulator". Experiences with the FDA were fresh in my brain.
What I've learned since, why I joined UL, and what I want to share with audiences like you, is the beneficial difference of being a market regularizer vs. a regulator - beneficial differences that can promote healthy market growth, public acceptance of new technologies, confidence & trust, and fair competition.
So, what is a market regularizer?
I referred to one earlier - the legal system. A transparent legal system provides regularity, predictability and rationality - the characteristics of coherence and trustworthiness. You know what you must do and you can count on promises made to you being fulfilled. In short, it injects trust and therefore confidence into commerce. It makes markets bigger and more rewarding and sidelines bad actors.
Standards play a similar market-expanding role.
One type of Standards are Standards of Inter-Operability. From the early chaotic days of different cell phone standards to common global standards, we've seen dramatic expansion of cell phone use & therefore, revenues. One BlackBerry and one cell phone number serve me everywhere in the world. The consequence is a bigger market - the natural outcome and purpose for Inter-Operability Standards.
Safety Standards and conformity assessment are the market regularizing force that exclude bad actors, protect the industry's safety integrity, facilitate global trade, and (at least in America) have served to pre-empt some federal regulatory legislation. In short, standards & conformity assessment inject trust and therefore confidence and coherence into commerce and allow private, voluntary action to pre-empt public, involuntary regulation.
You've heard the saying "no good deed goes unpunished". Today's financial crisis may be punishment for the good deeds of the 90's where Fannie & Freddie worked to provide home ownership, albeit to non-creditworthy buyers. This is a punishment we're trying to avoid in our industry.
In this market environment, where do UL and the conformity assessment industry go?
In the simplest possible terms, it must be to make it easier, faster and cheaper for you to get new products and technologies to the market while maintaining coherence and trustworthiness in the marketplace. There are several ways that we can do this:
- As a standards development organization, we can support and promote global harmonization so that one day we'll reach the goal of "one standard - one test - one certification mark". This was one goal of our action 21 months ago to make UL standards free to our customers - removing internal financial measurement barriers to harmonization. Not all STP's are ready to address harmonization and we understand and respect that. However, we are ready & willing to support those who desire to move.
- As a certification body, we can act to simplify our process, build & retain sufficient capacity & competence. As I've mentioned, UL has been aggressive doing this, and we are beginning to see the results in our post-project experience surveys.
- As a certification body, we can also work to forward integrate our work with yours - starting our work at an earlier phase of your development cycle to eliminate redundant testing and costly test failures. First pass failure rates range from 15-50% across the industries we serve. These failures cost you time to market, cost to redesign and often scrap in materials and tooling. Working together in new ways we can dramatically reduce these numbers - helping you get safer products to the market faster.
- New Testing requirements such as hazardous materials, energy consumption, recycleability are rapidly emerging. As a conformity assessment group, we can work to develop competencies and capacities to serve these needs so that you can get all the marks and certifications you need for all the markets you want to serve. And this is a global need today, half of UL people are outside the US - across the globe from New Zealand to The Netherlands - and our capacity is expanding quickly.
- From the perspective of fair competition, we can work to prevent misuse of standards and terms of reference such as "NEBS". It is becoming more common that manufacturers, test laboratories and even certification bodies will evaluate a product to a named set of requirements - printed on the product and packaging - without that product fully complying with the standard requirements. We are concerned that this can be misleading to consumers and customers. For UL's part, we're working on various ideas to ensure transparency in UL product standard certifications. Our standards are, and will remain, public use documents. Our work will be to ensure fair and consistent application regardless of which certification body is using the standard. In doing so, creating fair, transparent competition and clear representation to consumers and customers. This is similar to the work undertaken by the Telecommunications Carrier Group over the past several years to ensure consistency in the area of NEBS testing."
- We can intensify the fight against counterfeiting. As the global economy weakens conditions for counterfeiters improve. In 2007 UL facilitated an international conference on IPR crime co-hosted by the RCMP and Interpol. It drew 400 people from 50 countries to Niagara Falls, Canada. This past June we had even more delegates at the 2nd conference in Halifax - delegates from industry, government, police agencies and more. The 2009 conference will be in Dublin - co-hosted by the Irish police & Interpol - and we expect an even better turnout.
One of result of the 2007 conference is Project Overshock - a cooperative effort of Interpol and the certification industry to attack organized counterfeiting of electrical products.
This work protects the public, our marks, and your business, and will be even more important as the economy weakens.
UL has existed for 114 years, from a one-room laboratory above a Chicago fire station to today's global footprint of 6700 people. Our mission has been the same - to protect public safety & reputable manufacturers and to promote the quicker adoption of new technologies through the development & application of standards. The trying times of today will, unfortunately, energize the unscrupulous and call on us to be ever more cohesive between SDO's, certification bodies and reputable manufacturers such as ourselves.