Generative AI is top of mind for all types of leaders, from Treasury Secretary Janet Yellen to J&J CEO Joaquin Duato

First up, Fortune editor-in-chief Alyson Shontell sits down with Johnson & Johnson CEO Joaquin Duato. The two discuss why Duato thinks J&J is in its “golden era”, as well as the potential of J&J’s consumer brands to compete with companies like L’Oreal. Duato talks about J&J’s ongoing R&D in the areas of robotics and AI.

In the second half of the episode, Fortune CEO Alan Murray talks to Secretary of the Treasury Janet Yellen about the current state of the economy. They discuss the narrow avoidance of a full government shutdown, U.S. and global investment in industrial development of products such as semiconductors, and generative AI and how it may affect productivity. Yellen also shares her predictions for interest rates, job creation, and the economy as a whole.

Co-hosts Alan Murray and Michal Lev-Ram provide context and reflect on the conversations throughout the episode.

Listen to the episode or read the full transcript below.

Transcript

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Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are exploring the changing rules of business leadership and how CEOs are navigating this change.

Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Alan Murray.

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Michal Lev-Ram: And I’m Michal Lev-Ram. Alan, I see you’re back in New York after a whirlwind few days in D.C. There was so much going on there, including our very own Fortune CEOI conference. I wasn’t able to attend, and I always have major FOMO when I miss any of our live events, but I want to know, how was it? What were the highlights? 

Murray: Michal, it was really, really good. So for listeners who don’t know, the Fortune CEO Initiative was created seven years ago to give CEOs of purpose-driven companies that really want to focus on improving their positive social impact on society, give them a forum where they could exchange ideas and best practices. We had about 100 CEOs in the room, and a killer program. You know, we’re gonna do a couple of those interviews here in a moment. But the thing I want to tell you is, I mean, we were talking about climate programs, we were talking about the political backlash against diversity, equity, and inclusion. We had the Secretary of Commerce and the Secretary of Treasury talking about the new industrial policy. But we kept coming back again and again to your favorite topic, which is generative AI. It’s clearly so obsessing the minds of business leaders right now, it was actually almost hard to get away from it. 

Lev-Ram: Okay. Well, you did cover a lot of ground though. And I know AI is super top of mind. But one of the interviews that we’re really interested in sharing with all of you was an interview that our editor-in-chief Alyson Shontell did with Johnson & Johnson CEO, Joaquin Duato. Tell us a little bit about that one. 

Murray: Well, it was a great interview, Alyson did a really nice job. I mean, the thing about Johnson & Johnson is it has been a purpose-driven company for many years. It has this famous credo that they really train everyone at the company in, and Joaquin was a perfect representative of that credo. I think you’ll get that in this conversation. 

Lev-Ram: And just for some background, Joaquin became CEO of J&J in early 2022. But he joined the company 34 years ago as part of Janssen Pharmaceuticals in his native Spain. He took over the company during a pretty rocky time for J&J, when the U.S. government had phased out the company’s COVID-19 vaccine that hurt its pharmaceutical division. There are some other hurdles as well, including, you know, we all know about this settlement: $9 billion class action lawsuit, alleging that J&J is baby powder had caused cancer. So lots of hurdles there. And I’m curious after listening to his conversation with Alyson, do you think Duato is up to the task? 

Murray: I thought he was impressive. I mean, Alyson definitely asked him about the challenges that you talked about, and how he led in the face of this kind of tumult. And he was very straight and very clear. And again, harken back to the Johnson & Johnson credo and its purpose, and then went on to say that he thinks the company is actually about to enter its golden era. 

Lev-Ram:Well, here it is the first of two interviews we’re going to bring out from COEI Johnson & Johnson’s Joaquin Duato in conversation with Fortune editor in chief Alyson Shontell. And later on, we’re going to also hear from Janet Yellen which Alan I hear you have a special relationship with… 

Murray: More on that later. Let’s listen to Joaquin Duato.

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Alyson Shontell: Joaquin, thank you so much for being here with us. So first, I should note Johnson & Johnson has been one of 49 companies to be in the Fortune 500 list every single year since we’ve made it since 1955. This year, they clocked in at No. 40. As Alan said, the health care and pharma markets have been booming. And you’ve been in the job for two years, but you’ve been at the company for 34. So you’ve seen quite a bit. Two years in, what’s your primary focus and biggest surprise since becoming CEO? 

Joaquin Duato: Thank you, Alyson. I’m proud to be the CEO of Johnson & Johnson. In our 130 years of history. We have had only eight CEOs. And I’m the first one who is not born in the U.S. and I’m proud to represent that. And certainly it’s a great legacy that we have had during this period. So In becoming CEO of Johnson & Johnson, I have a dual purpose. One is to remain a company that is true to our mission of addressing difficult to treat diseases. And the other one is to be able to continue to be a company, which is a principle based people base and maintains the reputation that we have had during such a long period of time. 

Shontell: Now, is it true that you didn’t get the job at first, I mean, at the CEO job, but you initially when you were interviewing 34 years ago-They said, No! 

Duato: It’s true. When I finished graduate school, I interviewed with Johnson & Johnson, and I didn’t make it to the second interview. So then I joined another company, a pharmaceutical company,and eventually found my way back to Johnson & Johnson and I be here for 34 years. 

Shontell: I mean, the longevity of your career there, I think is telling and the attrition rate is shockingly low at Johnson & Johnson, right? 

Duato: Yeah, it’s very low. It’s lower than the industry and our peer companies. And I think there’s a number of reasons for having low attrition. One is the size of the company that enables people to work in different sectors and have careers within Johnson & Johnson. Sometimes I say, Johnson & Johnson has its internal job market. The other one is that people simply like to work for Johnson & Johnson. Our engagement levels are high. People like to work for a company with a purpose in health care. We are a company that pays a lot of attention to inclusion. So everybody feels good when they come to work. And certainly we like to believe that we are a caring company, that we care not only for the patients, but also care for each other. So we try to have a strong health and wellness offering for our employees. So overall people like working in Johnson & Johnson and stay longer in Johnson & Johnson. Our average tenure, for example, in the U.S. is more than a decade. So people can do careers. And we’re happy of that. We are glad that people like to stay at Johnson & Johnson longer. 

Shontell: So when you became CEO, or even in your memo to become CEO, you’d said I think we should spin out consumer business. You’re Johnson & Johnson,can compete with L’Oreal there, what should it and so could you speak a little bit about Kenvue, which is the company that you spun out just earlier this year. It’s now publicly traded. How you why you did that? Why is returned to focus important for Johnson Johnson versus diversification of businesses? 

Duato: So Kenvue is our consumer company. So when you think about the Johnson & Johnson on the brands that you know about Johnson & Johnson, BandAids, Tylenol or baby shampoo, now they are all in Kenvue. Why did we decided to separate can be on create a global consumer champion with Kenvue because we thought that focusing on the consumer market and focusing on health care was going to deliver better results for consumers and for patients. For us, it was very complex to be able to compete with L’Oreal, as you mentioned, in skincare, and at the same time competing biologics with biopharmaceutical companies and in surgical robotics, with medical technology companies. So we thought there was a benefit for Johnson & Johnson to be exclusively focused on health care, on research and development on innovation. And that was going to create a better platform for us to be true to our mission, not only in the next two or three years or post IPO, but during a long period of time. 

Shontell: One thing I do want to make sure I hit on is that R & D is a huge part of Johnson & Johnson. What are you seeing in this space, you’ve said that this is the golden era for your business, that there will be more change and more positive movements towards curing disease over the next few years than you’ve seen in the last number of decades. So what are you seeing that’s exciting, what are the innovations? And what are you doing with things like robotics, AI? How’s that all changing the industry? 

Duato: Yes, so R &D is the the heart of an innovation based company. Last year, we invested $14.6 billion in R&D and Johnson & Johnson we are one of the largest, if not the largest investor in R&D life sciences. What we see now, it’s a combination of more knowledge on the biology and genetics of disease with an acceleration of that due to technology, things like artificial intelligence, machine learning, and now generative AI it’s helping us accelerate drug discovery, and it’s also helping us making medical technology smarter. In the surgical side. Surgeons are now able to utilize robotic assisted techniques, better visualization, better sensors, those instruments are connected, they can provide them in sites, they can significantly improve the average outcome of surgery. So those are things that are going to help accelerate in discovery and progressing in a way that we have not seen in the last century. 

Shontell: And one thing, we had a lunch previously, and you had mentioned that you imagine knee surgery, but being done by maybe a robot versus a surgeon, I mean, think about the precision needed, I might prefer a robot for something like that, and someone with a potentially shaky hand.

Duato: Absolutely all our instruments now have some component of  intelligence or connectivity. So our instruments now have sensors that can measure pressure, temperature to have visualization capabilities, which at the end of the day, software is digital, that give an idea of the surgeon of where they are in, are they going to interfere with a critical structure, and all that can be visualized. And we can even provide guidance to the surgeon real time for where they have to go. So that’s going to be transformational in the way we do surgery. And it’s going to help improve in the outcomes of a procedure, which is very common, I’m sure in the audience, every one of you have had some type of surgery in your life. So that’s important. If we can improve the outcomes and the quality of surgery. When I think about what we can do as a company, we have the range of technologies to be able to do what no other company can do. We can do cell therapy, but we can do robotic surgery we can do. We can do genetic or mRNA therapeutics. And we can do also smart implants. So there’s a lot of things that we can do as a company based on the number of technologies and capabilities that we have. 

Shontell: So as the leader of a company, you have to lead in good times and bad, and with the company’s largest Johnson & Johnson, there are hard things, and there are lawsuits. You’ve had talcum powder, lawsuits and opioid crisis to deal with, COVID, having your vaccine essentially be dismantled. How do you lead in those hard times? How do you encourage your team to not lose morale? Stay focused, stay focused on the mission when there’s a lot of hardship around. 

Duato: Yeah, we do it with conviction, conviction on the principles of our credo that by the way, this year is the 80th anniversary of the credo was written. And we do it by having a trajectory of more than 100 years in which we have always tried to do the right thing for the patient. When we make a mistake, we take responsibility and when the facts, the science and the law are on our side, we stand by our products. And we have been able to manage this, this balance during many years. But the people in the company working at Johnson & Johnson have a genuine passion of doing the right thing. And we don’t do it for the recognition. We do it because we have convictions. And those convictions normally help an organization to manage change. I’m convinced that purpose-driven organizations are much better in managing change. And our organization has a strong tradition of being a purpose-driven one we internally we say we are the original, mission driven company, based on the fact that our credo was written 80 years ago. 80 years ago talking about putting the patient first the employees, the communities, and then if you do the right thing, it’s going to be good for the shareholder was very innovative, very different. So I think that that’s part of the energy that people at Johnson & Johnson have in order to navigate the ups and downs that anything in life it’s going to present you with.

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Lev-Ram: That was a really interesting conversation. I think Joaquin put in such plain language, everything that we explore here on Leadership Next, when he said “purpose-driven companies are better equipped to manage change”. And Alan, I’m wondering if you have thoughts about that? 

Murray: Well, obviously I agree with that. But I think the other thing that I thought he captured very well was just the sense and there were other leaders in other industries who conveyed this same sense of the conference, that we are on the cusp of something very big here in terms of technological transformation. It will mean a lot to companies like his in the health care business. 

Lev-Ram: Yea, and I think it’s obviously always been a very competitive landscape in  J&J’s space, but it was interesting to me that he also talked about some consumer giants like L’Oreal as a competitor today. And by the way, little teaser here, we have the CEO of L’Oreal on an upcoming episode. 

Murray:Looking forward to that when I’m sorry, I had to miss that interview. 

Lev-Ram: Well you get to have FOMO to Alan once in a while. 

Murray: I do. 

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Murray: Jason Girzadas, CEO of Deloitte US is the sponsor of this podcast and joins me today. Welcome, Jason. Thank you, Alan. It’s great to be here. Jason, our ideas about work where we work when we work, how we work, all of those, have continued to evolve since the pandemic. Is that a problem for business? Or is it an opportunity for business? 

Girzadas: It’s a massive opportunity. Although I think the answer is less clear. It is a profound set of challenges to be sure. But in the end, it’s an opportunity to create a workplace, particularly in the face of more long term systemic talent workforce constraints and limitations that brings out the best of a workforce. So people can be their genuine self at work and can have heightened levels of productivity and feel supported in all that they do. But I don’t think the models are clear. And we’re seeing lots of experimentation. Whether that’s around hybrid and what does it mean to actually co locate in what degree of co-location matters, it’s also a function of how does technology get embedded into the workplace such that employees and workforces feel supported and enabled, and also the cultural elements related to diversity, equity, inclusion and feeling supported to be your genuine self at work. It’s the combination Alan, of all those factors that companies will innovate around and find novel ways to bring together that will be highly desirous of leading talent and will be a differentiator in terms of businesses using their workplace, and  their work processes to win in new and different ways. 

Murray: Jason, thanks for your perspective. And thanks for sponsoring Leadership Next. Thank you. 

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Lev-Ram: So Alan, the next conversation we’re sharing with our listeners is with someone who, to you, is not just the Secretary of the Treasury or the former chair of the Federal Reserve. So tell us, how do you know Janet Yellen?

Murray: Well, it was a long time ago, and I’m not going to say how long it was because that’ll say something about both my age and her age. But I got a master’s degree in economics at the London School of Economics. And it happened to be the same year she had just gotten married and she and her new husband,George Akerlof, team taught my macro economics course. So for six months, I would go in every day and get a what I’m sure was a brilliant but completely incomprehensible lecture from George Akerlof. And then in the afternoon, Janet Yellen would come in and tidy it all up. And I said to theSsecretary of the Treasury, that what little I know about macro economics, I know from her.

Lev-Ram: Not from her husband. 

Murray: Not from her husband! He’s brilliant. Everyone tells me he’s brilliant. So I’m sure he must be. 

Lev-Ram: And hopefully you got a good grade. 

Murray: I did. I did. I did very well. And and, and she said that it was an honor to have me as a student, which I suspect she says to all her students, but I’m gonna, I’m gonna take it as a personal accolade. 

Lev-Ram: But, but this was very exciting. She joined you on stage, actually, just a few days after the government narrowly avoided shutting down. It was a thrilling few days for all of us. And overall, it’s just a really complicated time for the U.S. and for the U.S. economy for a number of reasons. You know, as we’re seeing this unfold, it’s gotten even more complex. So as a whole, did you walk away thinking she was optimistic about the state of the economy? 

Murray: Two things. One is I think she’s optimistic. And two is, she still the same person who stood at the front of that classroom, so many years ago, and can take very complicated subjects and make them sound very simple and clear. So it’s worth listening to. Here she is. Secretary of the Treasury Janet Yellen. 

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Murray: Really, really appreciate you being here. So we had a wild weekend, you had a wild weekend. 

Janet Yellen: We’re waiting to see whether the government would stay open or shut down. 

Murray: And we and really all that happened was they kicked the ball down the road 45 days and Moody’s is threatening to, to, to downgrade U.S. debt. So I guess the first question for you is, is this mess going to change the relative optimism you had about the U.S. economic outlook? 

Yellen:Look, I’m very optimistic about the U.S. economic outlook. Short term, inflation is coming down in the context of an extremely strong labor market, what people would normally call a soft landing, 

Murray: Which is amazing, by the way, it hardly ever happens. 

Yellen: Correct. And it’s great, because, of course, we want to see inflation come down. It’s been burdening Americans, but we want to maintain the good strong labor market that we have. And we seem to be on that kind of path. And medium term, we’re in Now engaging in a very substantial program of investments to strengthen our economy, to boost our productive capacity, to boost productivity growth, to draw more American workers into the labor market, and to address long standing structural problems, like climate change and inequality across people, races and places. 

Murray: I want to talk about that. But before I do, I suppose I should let this group in on a little secret about our past. Yeah, which I hesitate to do, because it highlights my age, and may then also highlight yours. But But I have a master’s degree in economics, which I got at the London School of Economics for which was the one year that Secretary Yellen taught there. So she, she taught what little I know about macroeconomics, I learned from Janet Yellen. I have wonderful memories of you drawing ISLM curves and Phillips on that big blackboard. Great tools. So So I asked this question. With that in mind, the people who almost hung us up this weekend, are concerned about government spending, we have a budget deficit of one and a half trillion dollars. If I had said to you back when we were at the London School of Economics that we were going to end up in that place, I think you would have used your curves to show me that’s not a good scenario. So how is it that that’s okay?

Yellen: Okay. That’s a great question. And as Treasury Secretary, I feel it’s my job to worry about fiscal sustainability. So I do think it’s critical that we establish spending and revenue targets that put us on a path where fiscal policy is sustainable, and a path that’s consistent with solid, solid growth. And I believe at the moment, we’re on such a path. So one way to judge it, because our economy is now all about big numbers. And a trillion is certainly a big number. Our economy has a large GDP and so forth. I think the metric that I think is most relevant to judging fiscal sustainability, is the amount that we’re spending to service the debt, real net interest payments as a share of GDP, how much of our GDP goes to service the debt? And the answer over the next 10 years in the mid session review, which is the most recent budget forecasts that the administration prepared. The answer is 1%. So real net interest as a share of GDP is about 1%. That’s historically, completely normal. Some guidelines would say, try to keep it under 2%. But it’s 1%. For the next decade. Now, I will say that that budget does assume meaningful deficit reduction over the next 10 years, there were 3 trillion of deficit reduction incorporated into it, along with a significant program of investments in our economy, but ones that are financed by collecting greater revenues in a way that we think is fair, where the burden largely falls on corporations and very high income taxpayers. 

Murray: And I do want to come back to the investment piece of it. But before I do, I mean, the other thing that that assumption depends on is how high How long do interest rates stay? Which is a big issue, not just for the government, but for any company that’s carrying a substantial amount of debt, how long? Or how long? Are we going to, you know, are we going to have to roll over all our debt at rates that are double what we initially had? So tell them the answer. 

Yellen: The answer is, I don’t know. It’s a great question. And it’s one that’s very much on my end the administration’s minds. You know, when the administration came in it was the pandemic, we had had a decade of interest rates, short term interest rates were zero long term interest rates higher but very much lower than today’s interest rates. And the interest burden was almost non-existent at that point. Now, the forecasts we’ve made assume that interest rates will rise toward more normal levels. But we are seeing, especially over the last several months, a pretty significant increase in not only tenure nominal yields, but also real yields. And there’s a question mark, just why that is.

Murray: Why are we going back to something that looks more like the history prior to 10 years ago than the last 10 years? 

Yellen: That’s right. And that’s a very, I mean, that’s a very important question. One view is that it may take a longer period of somewhat higher interest rates to control inflation to keep it down. But medium term, interest rates will go back to more normal levels. It’s also possible that longer term interest rates will be higher than we thought. But I would point out that for many decades, the level of real interest rates not only in the United States, but in many advanced economies had been moving down. Yeah. And it was felt by most economists that there was strong structural reasons why that was occurring. 

Murray: You know, this is why I loved you as a teacher way back when, because you could explain to me both sides of the equation. The other thing we’ve been talking about here, today is the extraordinarily quick adoption of generative AI technology. I think Erik Brynjolfsson said earlier that most waves of technology take like 10 years before you start to see him in the productivity numbers, he thinks this one’s going to be much faster. We’ve seen lots of anecdotal evidence of huge productivity gains. If I studied my books correctly, way back then, big increases in productivity could make a huge difference to all the things we’re talking about growth, inflation, etc. We’ve had disappointing productivity for the last decade, are we on the verge of something significantly better? 

Yellen: So I will say, I’m not an expert in AI From what I understand, as you just said, the progress in this area is unbelievably rapid. And I think it could make a significant difference. As an administration as a country, we’re also working on a whole set of investments that should be productivity boosting over the medium term. We’re addressing the problem of crumbling roads and highways and an infrastructure that really hasn’t been appropriately designed for a modern economy. We have a huge, you know, we passed really a trifecta of legislation, the bipartisan Infrastructure bill, the Chips and Semiconductor Act, and then the Inflation Reduction Act. So we’re investing in R&D in ways we haven’t in decades, restoring us Leadership in Science and Technology. 

Murray: So you’re betting on a significant increase in productivity?

Yellen: Yes, but let me be careful because productivity growth, usually a 10th or two here is there is regarded as a big a big thing. So I don’t want to pull numbers out of a hat that are gigantic. I think there will be a payoff, but I don’t want to exaggerate. 

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Lev-Ram: Alan, Secretary Yellen does sound optimistic. But I’m curious. What about you? How are you feeling about the current state of the economy, not just after your conversation with her but after COEI in general and after spending a few days in our nation’s capital? 

Murray: Oh, Michal. It’s a complicated question. It was certainly mixed. I mean, it is pretty remarkable given that every CEO we talked to six months ago, was predicting a recession, that we are where we are- not in a recession, it looks like the fabled soft landing may actually happen. And that’s what she thinks and, and I agree with her, but that doesn’t mean there aren’t some storm clouds on the horizon. Certainly the fact that interest rates are as high as they are, and seem to be staying there. And so anybody with lots of debt is going to be saddled with extra costs, and we’re probably going to see bankruptcies and other problems and she talked about that some as well. But on the good side, going back to AI, 

Lev-Ram: What bankruptcies, and other problems? Yea, this sounds great!. 

Murray: You know, we got into geopolitics, but on the good side, and this goes back to AI, the potential for big improvements in in productivity and the macroeconomic effects that has in helping to bring down inflation and increase growth was on everybody’s mind. 

Lev-Ram: Yeah, it was really interesting. You know, I got to watch snippets from afar and follow the coverage. And like you said at the top, I mean, AI was kind of this, this thread throughout and definitely a silver lining. I know obviously, there’s a lot to be worked out there and a lot of risks and concerns, but also tons of opportunities, which we heard from both, you know, the DC types and the business types. 

Murray: Jennifer Tejada, who you know, who’s the CEO of PagerDuty, and was our co chair for the conference led a town hall discussion on the AI topic, and she said, I thought this captured it perfectly, that most of the big company CEOs seem to be caught somewhere between FOMO Fear Of Missing Out and FOGI fear of getting in. I thought that was a perfect way of capturing the moment. 

Lev-Ram: And well we all need new acronyms in our lives. So thank you, Jennifer for that. We definitely want to keep our listeners up to date as the way leaders lead continues to evolve and as the world does, and of course as AI enters the fray more and more.

Murray: We certainly will, Michal. And we’ll see you next week on a new episode of Leadership Next. 

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