♪ francine: a titan of british industry, his five decade-long career has seen him work as chairman of companies as diverse as centrica, tanzwater, and cadbury, where he oversaw the 11.5 billion pound takeover by croft. now he holds the same position at bae, one of the biggest defense and aerospace companies in the world. today on "leaders with lacqua," we meet sir roger carr. what will be the most transformational agent of change for your industry in the next five years?

sir roger: i think the most significant change is going to be driven by really, artificial intelligence. i think it's the application of that in the development of capability in particularly aircraft, but not only aircraft, land, sea, and air will also benefit. so, the advancement of ai drives change in the capability of the industry. francine: and this is artificial intelligence, not augmented reality? or is it both? sir roger: i think it's a combination of all of those things. i think what we're doing is taking technology further and further into the capability of all types of aircraft, particularly in both their stealth capability, their ability to detect, to sense difficulty, and to use attacking capability through the use of intelligence. francine: so, how quickly will that change? it's already gone very fast with

leaps and bounds. will it double that? sir roger: i think the maths are difficult to say. this is a constant process of change and the evolution is driven by the capability of people and the learnings of people, but we've seen in the last five years advancement at levels we would never have thought possible. and i think we will see that as a continuing theme. francine: so what does it mean for you, innovation and having the right people to drive that? sir roger: innovation, mission-critical people, absolutely vital. so, education systems that produce first-class people who have a real sense of commitment to the engineering area, but math, science, all of the stem subjects in school, leading through to training programs, which, as you know, we do. we train 800 apprentices a year, 300 graduates. all of these things are making sure we have our own stock of excellent people and it's those people that will help drive change and not just in our company of course, but the industry. francine: will it also change

the way we travel? sir roger: well, i think if you take the extreme, there is the potential through the use of new engine capability over a period to be in australia in four hours. it's an objective, but the beginnings of the work to make that happen are in train today. francine: okay, so what needs to happen for me to travel to australia in four hours? sir roger: we need to go forward in time a little. we need to see the capability of engines, the technology of engine capability move on in itself. but that come at a basic form, is here today. it needs to be developed and enhanced and grown so it becomes a commercial capability, rather than just a scientific ability. francine: is this national pride? is it a race between the u.s., the u.k., china, and others about who can get this technology first? sir roger: well, i'm going to put china in a different compartment, but i think with the u.s. and the u.k., there is also cooperation. this is something that's going to help the world move on and

sharing knowledge and sharing technology between all of our allies and friends is the way we can make the greater progress. francine: how will your industry become bigger or change? so, is it a change or will it also become bigger in size? sir roger: i don't think it's necessarily about size. there is critical mass already. the major players in the defense industry are substantial in scale, they have considerable capability, and they have deep roots in their various area of specialization. so, it's not a question of size. it's an investment of people in the capability and the leverage of the existing scale to meet the requirements of the customer . and the customer is getting more demanding, looking for a more competitive product, looking for people who are focused on customer service rather than simply the provision of technology. it's a combination of all of

those things that today's customer needs and that we have to respond to. francine: up next, leading in turbulent times. we talk about how bae is dealing with geopolitical uncertainties and what roger carr sees as the biggest global risk. ♪

francine: u.s. president donald trump's big push on nato states to lift military spending is providing a welcome benefit for bae. but the defense giant is headquartered here in london and

is also contending with the uncertainties surrounding brexit. how is the business preparing for these geopolitical uncertainties? roger carr is still with us. will governments in general spend more money on defense given the geopolitical uncertainties? sir roger: well we're certainly witnessing that now. i think on a wide scale, where -- the recognition that we are in an unstable environment and where risks are increasing, are driving governments to recognize that investments in defense is something they have to do. their first job is to protect their people and that's what we help do. i think we'll see a continuing trend, at least for the foreseeable future, of what we have seen in particularly the united states, but also in australia, where australia's decision to invest materially in their own defense capability, to have a sovereign capability is

something we have benefited from. we've just secured a $20 billion order to build ships in australia. but it's also a recognition by australia that to have homegrown skills, domestic capability, in a provision of a defense capability that they need in an uncertain world. that's now evident in their budget and their belief that this is going to continue. clearly north america is exactly the same. francine: what's your biggest concern? is there risk out there that you struggle to try to keep on top of? sir roger: well, like everything, there are lots of risks. i would say a risk that's not just about our industry, but it is very important to our industry is the risk of cyberattack. that's state led cyberattack. what we're developing is vital to the nation and the security of the nation. it's also probably some of the most advanced capability in the world, and therefore of significant interest to people

who may be don't have our best interest at heart. we have to make sure we are cyber protected and have layers of capability in the business to make sure that penetration is at least difficult, if not impossible. and we work for the impossible all the time. francine: so how much do you spend on protecting yourself against cyber attacks compared to, for example, innovation? sir roger: they are in separate compartments. cyberattack has to be part of our committed expenditure. this is non-optional and we continue to invest in it. it's both people and system development and it's working with government. we spend at the moment probably collectively about 11% in r&d of our revenues. when you shrink that to a percentage of product rather than service, it is more than that. so, we make a strong commitment to r&d. some of it is with government support. they put money into the program alongside our own money.

so we are, we have unity of purpose. we have a joint commitment financially. and an out-turn that is a benefit to the company and the nation. that's the way we're trying to develop it. francine: you said you put china in a different compartment. why? sir roger: well, they're not an ally. that's a starting point. and they have their own ambitions from the military point of view, which may not actually always sit alongside our own. we have to respect that china are an important part of the world economy and that trading with china is important, but we also have to respect the fact that from a military point of view, they are not part of nato and therefore we work with partners who are part of nato rather than others. francine: we used to talk about the arms race with china. what's the next frontier? the space race? sir roger: i think space is part of everybody's frontier. there's no question that it's

there today, whether it's through satellites, gps. how do we live our lives today? we live a lot of it through the capability in the skies. that's an area where it's important we have a degree of control and we have certainty, so there is a space element to this, but all aspects, land, sea, and air are under constant evolution and constant development. and we have to both respect that and help lead that process. francine: you have a number of positions for a different number of companies. which is the one that you liked the most? sir roger: that's like asking which children do you love the most? [laughter] sir roger: i have enjoyed really all of the roles. i've been very fortunate. i've had some really interesting roles and they have been very different. that's why it's not possible to pick one. the bank of england was a particular experience. i was the deputy chairman in the period of the world financial crisis and i saw very able

people working under incredible pressure to deliver a result where there was no blueprint. fascinating. the bbc, another fascinating period of my life. and in the industrial area, i would say whether it's been in the chocolate business or the energy business, both of which i 've been, both have had their challenges. both have had their interest. for me, i have to say that i've been fortunate probably to take my last chairmanship in a company that has all my interests. it has engineering, military, geopolitics, involvement with government. all of those things come together in the current job, which i am very privileged to have. so, i'm enjoying today, but i value the past. francine: but how much of your current job is actually being a lobbyist, being a politician, speaking to government, and how much of it is actually business? sir roger: well, all of those things are the same. we are in partnership with government, whether it's here, america, australia. we are a partner.

we're on the same train with the same destination, which is the provision of the highest form of security we can offer. there are times when we are in different carriages and we may have not quite the same ambition on price and cost, but fundamentally, if we do not have a partnership mentality, then we're not working in the nation's interest, and that's why this job is interesting. you're working for your shareholders and everybody respects that, but what you do for your shareholders has to provide a product for your customer that is competitive, that does the job, and is a product of working together rather than working apart. francine: does the america first policy mean that we're testing globalization? is it on hold? sir roger: i think in the defense industry and for our company in particular, we have a very large part of our business,

maybe 40% of our business is in the united states. we have a very special trading arrangement in the u.s., where we're seen as a u.s. company. we have a very privileged position and we are very pleased to have that. i think in the world at large, there has been a period where the public have been concerned about what has happened as a result of globalization. it has needed business to try to address that by really demonstrating in their behavior, in what they do, the way they pay themselves, the way they work for the customer, that globalization is ultimately a force for everybody's good, rather than a damaging move. now, politics of course then come to play and we see pockets now of a very different attitude where protectionism is starting to be visible. it's a dangerous course to take. i think it's potentially one of a stepping process toward rebalancing economies, but ultimately, the world is a better place for open markets

and free trade, because that's where everybody ultimately benefits. francine: what do citizens worry, what are they afraid of? does it go back to the financial crisis, that people will feel left out? maybe it's not necessarily globalization, but technology? sir roger: i think it's all of those things. we've had a very difficult period where the financial difficulties were an accelerator of something that was already happening. globalization was part of the change that everybody is feeling. if you add financial challenge to a time of job challenge, you magnify the problem. and for those that are not in the have area but in the have not, this has magnified their problem and it's fractured the relationships between business and society. behavior of business, not only in the way it conducts itself, but in the way it pays itself, but in the training it gives to people who need to have new

skills developed. these are the responsibilities of business in order to heal that fracture that occurred. an it's something that i think many businesses are now clear that it is their responsibility and that they have to do. and i think that's the right attitude. francine: is it the same fracture that led to the brexit vote? sir roger: i think it's a matter of judgment, isn't it? there's no doubt that was part of it. if you were in fact left out, if you felt your future prospects were extremely limited, and unless there was a major change nothing is going to get better, then potentially you voted for major change. i think, sadly, that may have been on a false premise, and the change that may occur may be, at least for a time, more challenging rather than less. but i think that may have been a motivator for behavior at the time, and one can understand

that if you feel you're a have not, and you compare yourself with those that appear to be ever richer, it will provoke behavior for requiring change for you to have a fairer place in society. so a fairer place in society is what we should all be looking towards. francine: does protectionism or anti-globalization actually change the way you look at your supply chain? sir roger: i think protectionism, i'm never a supporter of. i think that ultimately leads to bad conclusions. protection never helped anybody, and competitive edge is something we must all strive for . and free markets drive a competitive edge. is the wayr me, forward in the fundamental. francine: do you worry about your supply chain because of the things that are going on? it's quite difficult to see where business ends and geopolitics starts in certain cases. sir roger: i think the supply chain in our particular industry, in this business, the supply chain is well-known for us. it's well-defined.

the brexit element has little impact on that. what is important in our own supply chain is important in the nation. it is productivity, it is skills, it is being competitive, so that the whole chain, from the smallest supplier to the end product manufacturer, is more competitive in a world where , whatever the outcome of any political move, competitive edge is something we are all going to need and more of. francine: coming up, roger carr was one of the founding members of the 30% club. he tells us it was one of the easiest decisions he ever made. we talk diversity next. ♪

francine: sir roger carr started his career at a computer programmer before rising through

the ranks to oversee some of the most iconic companies in the u.k. but it's not just business, he is a prominent champion of women in the workplace. he was one of the first executives to sign up to the 30% club, which aims to boost to the presence of women in board rooms. roger carr is still with me. why did you decide to be one of the founding members of the 30% club? sir roger: well, that was probably the least difficult decision i've ever had to make. we want the best talent in business, and to exclude 50% of the talent of this country and the world, in fact my wife and daughter would argue that it's probably more than 50%, why would you exclude women from that? it makes no business sense. so, i had always believed that, i had always felt that a mix of men and women produces, particularly in a board room, but really any working environment, better dynamics,

better atmospherics, better outcomes. so when the 30% club was formed and helen morsi, now dame helen morsi was the initiator of that, she wanted people who believed in the principle to argue for business rather than for women. and she chose people to do that who were, i would say, seasoned, rather than old, but seasoned, typically gray-haired, who could be advocates for something that was all about business, not about women. and i think that was the key to making this resonate with the business community. francine: has it resonated? sir roger: well, i think it has. if you look at the board population today, and we have an ambition of 30%, if you look at the ftse 100, you will see large scales of achievement of that across the piece. i think when we are looking in

the future, what we've got to do is to make sure that seeing the board visibility is not the end of the story. we have to keep working on the pipeline. we have to ensure that young people coming into the business, young women feel that there is a career path that is practical, deliverable, where they can have a balanced life, but where they can look forward to senior positions based on their merit, rather than simply their gender. and the 30% club, above all, has said merit first, gender is a plus, and if we keep doing that, building the supply chain of people as we look to the future in the operational areas of the company, then we'll see a broader population in the business in total, which should

be all our ambition. francine: why do we need quotas in 2018? sir roger: i don't think we ever wanted quotas. i think 30% was an aspirational total. it was no more than that. i have been very much against quotas because i think they're the meaning. they make it appear that you have to fill it with women, whether they're good enough. that's not what business wants, it's not what women want. everybody wants to get their job, male or female, on merit first of all and when they've got that, the mix of gender i think typically provides a better outcome. and diversity does not stop at gender, it's a much broader issue, which i think we're all seeking to address, but gender was the most visible target and the most obvious one. that's why i got involved. francine: what kind of leader are you? do you micromanage? do you step back? are you very involved? sir roger: like all leaders, i think you adjust behavior to circumstance. if you take what's the role of

the chairman, there is the absolute textbook position of chairman, looks after the board, and the chief executive looks after the company. and the operations of the company. and that's a great place to start. i think behind that, it's about the chemistry and the way the two people function together, and that really is about recognizing first of all who does what, so clarity of purpose. i think secondly, an understanding that you're working as a team, so you have to leverage the skills of each and make sure you apply them collectively to the benefit of the company and the shareholders. and finally, to respect the fact that neither of you wants surprises and neither of you want trip wires. and if you have those at the heart of your relationship, then i think you'll find it to be productive and helpful. francine: was there a day that you realized that you were indeed a leader? a tough day or an easy day were somebody said something that made you think, i can do this? sir roger: i think if you start

to believe you are a leader, you 're in a dangerous place because this is an evolution and it never stops. i think what you have to believe at the outset is you want responsibility. and you will take responsibility . and if you have that as a general belief, then if you apply the basics of being authentic, being visible, having integrity, trying to do a good job for its own sake, and doing it every day, if you try to do those things, then i think you will find leadership is given to you, and then you must take the opportunity. francine: what is the best piece of advice you've ever been given? sir roger: i think as a young man, really certainly to have an ambition for the future, but to respect the fact that you will only ever achieve that if you deliver day by day. and it is the combination of focus on the daily product, but ambition for the long-term horizon that i think is a helpful piece of advice.

francine: sir roger carr, thank you. sir roger: thank you so much. thank you. ♪

abigail: coming up on "bloomberg best," the stories that shaped the week in business around the world. the u.s. and china call a trade truce, but it is not as simple as that sounds. >> there is something of a disconnect. >> what are the exact items? we do not have details yet. >> a lot of volatility and angst in washington, d.c. reverberating in the markets. >> more battling over brexit. a key vote approaches. opec and its allies gather for a critical meeting. >> 1.2 million barrels per day is the number. >> some of that is fairly insignificant for us. >> investigators debate over the yield curve. pore