fortune--2020-08-31--Credit Suisse aims to double its headcount in China in 5 years

Credit Suisse Group AG plans to double its headcount in China over five years as the firm accelerates its pursuit of the nation’s wealthy, seeking to move past a scandal that’s engulfed once-favored client and Luckin Coffee Inc. founder Lu Zhengyao.
The bank has largely normalized approvals for Chinese companies, ending the increased scrutiny on loans that followed allegations of fabricated earnings at Luckin and a slowdown to weigh the impact of COVID-19. Credit Suisse will add to its China workforce as it targets a 100% increase in revenue there, Asia Chief Executive Officer Helman Sitohang said in an interview. Its China securities venture had 154 staff at the end of last year, and the lender also offers financing, trading, wealth and asset management on the mainland.
Much of the firm’s build-out will focus on expanding advisory and investment banking services for the ballooning ranks of China’s rich. Sitohang’s plans are key to Credit Suisse meeting its goal of doubling the contribution to revenue growth that comes from ultra high net worth strategic clients over the next three years. Separately, the lender has embarked on a wide-ranging assessment of risk controls following a series of deals linked to troubled companies including Luckin.
“China is our strongest focus when it comes to headcount, and infrastructure growth compared to any country in the world,” Sitohang said. “The worst of COVID’s impact on the region’s business activity is behind us,” he said, referring to Asia.
Asia’s largest economy has the most millionaires after the U.S. and its financial opening this year has presented global banks and asset managers with an unmatched opportunity for expansion. Credit Suisse wants Asia to make up 25% of group revenue in a couple of years, from 17.5% now, people familiar with the matter said, declining to be named discussing internal matters.Play Video
The downfall of Starbucks Corp. rival Luckin and its billionaire founder blindsided Credit Suisse and other lenders, who are fighting to recoup losses on more than $500 million in margin loans. The Swiss bank, the lead underwriter for Luckin’s public offering, launched an internal review though Chief Executive Officer Thomas Gottstein has said it will continue to target China’s wealthy entrepreneurs.
Credit Suisse isn’t alone is setting ambitious hiring targets for China and will have to compete with the likes of Goldman Sachs Group Inc., JPMorgan Chase & Co. and others. Goldman Sachs plans to double its headcount to 600 by 2025, while Swiss rival UBS Group AG aims to do the same, taking its investment-bank staff to 400.
Sitohang made a significant hire in June with Wang Jing, who headed private banking at China Merchants Bank Co. Wang brought with her nearly three decades of banking experience, including helping to build the Shenzhen-based lender into the nation’s largest manager for high-net-worth clients.
Record Revenue
On the investment banking side, Credit Suisse in April became one of the latest global firms to win approval to take full control of a venture it has run with Founder Securities since 2008. Tim Tu and Daniel Qiu were this year named as CEO and head of investment banking and capital markets respectively for the China joint venture, which has so far struggled with revenue of $22 million last year.
About 30 bankers at the joint venture were pushed out in July as Credit Suisse plans to recruit fresh talent, a person familiar said.
The Zurich-based bank’s latest earnings point to other successes in its Asia push, with net new assets in the region’s private banking business swelling by 80% in the second quarter amid a trading boom. Wealth and investment banking advisory, the biggest growth areas, both posted record revenue in the first six months, driven by growth in China as markets recovered.
Sitohang, who has spent years turning around the Asian trading operation, ceded oversight of the unit in a global restructuring that’s folding trading into a new investment bank. The region’s markets division posted a 54% jump in revenue in the first half.
Gottstein announced the revamp at the end of July. The initiative includes a new cost savings program, a merger of its advisory and trading business and as many as 500 job cuts in Switzerland.
The plan is expected to lead to 400 million Swiss francs ($442 million) in savings, two-thirds of which will be plowed into global wealth management. Sitohang said he doesn’t plan to cut any jobs on his turf, since the region’s workforce is “lean enough.”
“The capital released doesn’t happen overnight, but the efficiency that we expect on the cost side as well as on the capital side will be deployed back into the wealth management,” he said. “Asia will be a priority.”


fortune--2020-09-01--Are cities really on the edge of a mass exodus?

One university may have the best COVID testing operation in the U.S.—and tests students twice a week

Simply put: That wave of migration out—coupled with delayed moves into cities—could set some cities back years or decades.
New York City already announced last week it would lay off 400 emergency medical service employees as it works to fill budget holes created from plummeting sales and hotel tax revenues. And if these moves come to fruition and aren’t replaced by people moving in, it could mean billions lost in state and local income tax revenues. That would set up deeper cuts in city services, or even widespread municipal bankruptcies.
Parents and remote workers in search of more space aren’t the only ones who would drive this migration wave. Jobless Americans are almost twice as likely to say they’d consider moving as a result of the pandemic (17%) compared to employed Americans (8%).
And 18 to 24 year olds are the age group most likely to be considering a move right now. (That’s not too surprising when considering most out-of-state moves occur before a person turns age 35, according to Fortune‘s review of U.S. Census Bureau data).


fortune--2020-08-31--Investors riding high on Apple and Tesla stock splits could get clipped, data shows

The first rule of successful investing is “buy low, sell high.” But anyone planning to apply that time-honored principle following today’s stock splits by Apple and electric carmaker Tesla should reconsider the guidance and its intent.
As much as Apple CEO Tim Cook and Tesla CEO Elon Musk would love for people to snap up shares in their companies now that the post–stock split prices are “lower”—as, indeed, investors did Monday, and for weeks prior—prospective stock-buyers best be wary.
While the companies’ share prices are lower, nominally, the price to own the same percentage of each company as before is not. A stock split is, fundamentally, a cosmetic accounting trick—and buying fractional ownership of these companies is, on a relative basis, more expensive than ever after factoring in recent gains in share price.
All for one and one for all
Apple’s 4-for-1 stock split reduced the company’s share price from about $500 per share to about $125—but quadrupled the number of shares to about 17 billion. Following the split, Apple’s share price climbed as much as 4% to more than $130 per share.
Apple recently became America’s first publicly traded company to surpass a market capitalization of $2 trillion. Its stock price is up 35% since its management announced the stock split on July 30, and it’s up more than 70% since the beginning of the year.
It’s a similar story for Tesla. The automaker’s 5-for-1 stock split dropped the share price from $2,213 to $444—and the share price rose nearly 13% to about $498 per share after the division on Monday. Tesla’s shares already rocketed up more than 80% since the company announced its plans for a split on Aug. 11.
Splitting shares, splitting hairs
Stock splits are a tactic that management teams use to make a company’s shares more attractive to retail investors. Since the move ostensibly lowers the price of a share, more small-time investors can afford them.
For retail investors, the logic behind buying shares solely based on the announcement of a stock split rests on a shaky foundation. In today’s world where stock trading is free across the major brokerages and where anyone can participate in fractional investing (in which people can buy fractions of a share), there’s no reason a high share price should pose a barrier to investing.
The most generous appraisal one can lend a stock split is reading it as a vote of confidence by a company’s board that they believe in the underlying health and future growth prospects of the company. Stock splits tend to draw attention to companies that conduct them—and increased hype can translate into more stock sales.
Short-term pain, long-term gain?
The academic literature on the performance of companies’ post-split stocks is inconclusive.
A well-known study led by David Ikenberry, professor of finance in the business school at the University of Colorado at Boulder, found that most company’s share prices rose in the years following a stock split for the period surveyed, between 1975 and 1990. An earlier influential study found no significant gains for the period between 1927 and 1959.
While Tesla has no history of stock splits—and the possibility that investors will reap a return commensurate with their zealotry defies better judgment—Apple’s stock splits in the past preceded price dips in the weeks that followed.
Apple has split its stock four times since it went public in 1980. On average, the price of Apple’s stock tends to go down in the weeks following a stock split: Selloffs dampened the price by 5.6% two weeks after split, on average, according to data from Kensho, a market analytics company, as CNBC points out.
While there might be some pain in the short term, investments may fare better in the longer term. Another assessment by Ally Invest, an online brokerage, found that Apple generally outperformed the market one year after its stock splits, on average.
Every company and every time period presents a unique moment, so it’s hard to use the past to predict the future. The dotcom bust, which followed Apple’s second-ever stock split in June 2000, wrecked investors’ returns. Economic uncertainty and the devastation caused by COVID-19 could spell trouble ahead too.
A mixed bag
Analysts can’t agree about how to grade Apple.
Some market watchers are bullish about the growth of Apple’s services business, despite antitrust concerns over how it manages its App Store. Apple could benefit from smartphone rival Huawei’s hardships, as the Chinese company struggles to contend with U.S. sanctions.
Eyeing what it believes could be a big year for iPhone upgrades, following the expected debut of the iPhone 12, investment bank Wedbush believes Apple’s stock could hit $150 per share in 12 months.
Others have dimmer expectations. Apple’s share price has already experienced an extraordinary run-up, and Barclays, for one, has marked down its 12-year Apple share price forecast to $100. “We see more downside than upside at these levels,” said Barclays analyst Tim Long in a note.
Uncertainties looming around the upcoming U.S. presidential election in November could hurt stocks in the coming months. Meanwhile, a still-festering pandemic threatens to flare up and cause deeper disruptions worldwide.
Then again, the Fed’s low interest rates could buoy the stock market and tech stocks for the foreseeable future.
The price isn’t right
Because tech stocks have been soaring to new highs lately, investors should have no illusions about the cost of the shares they’re considering buying. The share prices of Apple and Tesla are at all-time highs—buying in now is expensive, at least historically speaking, no matter what the nominal share price says.
The history of Apple stock price movements shows the price could go down, at least in the near-term. It’s one reason why people should think twice before jumping in right now on the basis of a stock split alone.
Before buying Apple or Tesla stock, ask yourself this: If you swapped each dollar bill in your wallet for four quarters, would that change how you valued the money in your pocket? Because that’s effectively all that’s changed with the stock split.


fortune--2020-08-31--‘Colonialism’ and crypto claims: Why the .io domain name extension faces an uncertain future

Bernard Nourrice was 5 years old when the boat came. Like the others, his family was told on short notice that they were to leave behind their lives on the island of Diego Garcia, in the middle of the Indian Ocean. Each family was allowed to quickly pack one suitcase and one mattress. “The British navy led us to the jetty. When we boarded the boat, they waited for when it got dark,” he recalls. Sharing the boat with a pig, a donkey, and a chicken, they set sail for the Seychelles, more than a thousand miles to the west.
The year was 1973, and the boat’s occupants were the last of around 1,800 people to be removed from the Chagos Islands under a five-year forced-deportation campaign perpetrated by the United Kingdom, which has claimed ownership of the islands for two centuries—and which refuses to give it up, despite a demand from the United Nations to decolonize the territory.
Located about halfway between East Africa and Indonesia, the tropical archipelago is strategically useful. The British had already started leasing Diego Garcia—at 10 square miles, the largest of the 1,000-plus islands—to the United States military in the mid-1960s. Now, to satisfy the terms of the deal, the U.K. was clearing the Chagos Islands of inhabitants, dismissed at the time by British diplomat Denis Greenhill as a “few Tarzans or Man Fridays.”
Nearly half a century later, the Chagossians—with health care workers Nourrice and Solomon Prosper acting as their representatives—are trying to reclaim their home, along with what is arguably its most lucrative resource: the “.io” web-address extension, widely used by technology startups owing to its “input/output” connotations.
The country code top-level domain (ccTLD) actually stands for “Indian Ocean,” and it specifically refers to the British Indian Ocean Territory, or BIOT. That’s the Chagos Archipelago.
In July, the Chagossians submitted a claim to the African Commission on Human and Peoples’ Rights, asking for a declaration to say they are the rightful owners of .io—a $50 million digital property they say is plagued by the criminality of cryptocurrency scam artists and money launderers.
“The Chagossians receive no income from any of these colonial activities nor have any meaningful input in their management,” the claim reads. “The [U.K.] and its BIOT administration has not only stolen the entire Chagos Archipelago and everything on, under, and above it but also engages in virtual and digital exploitation and even tolerates massive criminality in order to generate revenue.”
Some tech consultants and legal experts suggest that, if the U.K. were to give up ownership of .io, the extension could end up being retired. This would be a huge blow to the many thousands of companies that use it, which include the likes of seat-reservation outfit Seats.io and the Plan.io project-management tool. (Even U.S. Sen. Marco Rubio used a .io address, rub.io, during his 2016 presidential bid.)
But if they get their wish, the Chagossians hope it will be the first step on the road to reclaiming what they see as their asset. A couple of weeks ago, Nourrice and Prosper also sued the U.S. military for damages of up to $100,000 per islander, which their lawyer described as “only a small fraction of the back rent” for the Americans’ Diego Garcia facility, a crucial bomber base (and rendition vector) in the War on Terror.
“The original owners of the land need something for it,” says Prosper, who is currently unemployed due to a work-related injury. “It’s our property.”
Disputed territory
The Chagos Islands were originally settled by the French in the 18th century as a site for coconut plantations. The U.K. took control in 1814, following the defeat of Napoleon, and ended up tacking the islands onto another British colony, Mauritius, which lies over 1,300 miles to their southwest.
The Chagossian people are largely descended from the African slaves who were brought across in the early 19th century from Mozambique and Madagascar, to work the plantations.
By the mid-20th century, the British Empire was crumbling, and its African colonies were preparing for independence. But a few years before Mauritius gained its sovereignty in 1968, the British—who were already secretly in talks with the U.S. military—bought the Chagos Islands from Mauritius for 3 million pounds (around $79 million in today’s money). The islands became BIOT, and their inhabitants were dumped, impoverished, on Mauritius and the Seychelles.
Some, such as Nourrice, were taken directly to the Seychelles. Prosper, at the time an infant, was one of those who were first taken from Diego Garcia to the Chagos Islands’ smaller Peros Banhos atoll, in 1971.
“They left us for two years,” Prosper says. “Only one boat came in the middle of 1972, which brought a lot of sickness, diarrhea, vomiting. Two people died…We survived two years without any external help. In August 1973, they deported everyone from the Chagos to the Seychelles.”
However, by the end of the 1970s the Mauritian government was arguing that it had “had no choice” about the slicing-off of the Chagos Islands, and it began campaigning for ownership of the archipelago. A long-running legal dispute began, culminating in a nonbinding opinion from the International Court of Justice (ICJ), produced in February 2019 at the request of the United Nations General Assembly.
“The United Kingdom is under an obligation to bring to an end its administration of the Chagos Archipelago as rapidly as possible,” the ICJ found, near-unanimously. In May 2019, based on the ICJ’s opinion, the UN General Assembly demanded that the U.K. “unconditionally withdraw its colonial administration from the area within six months.”
“Because the detachment of the Chagos Archipelago was not based on the free and genuine expression of the will of the people of Mauritius, the decolonization of Mauritius has not been lawfully completed,” the General Assembly’s resolution read.
During the ICJ hearings, the U.K. said it “fully accepts that the manner in which the Chagossians were removed from the Chagos Archipelago, and the way they were treated thereafter, was shameful and wrong, and it deeply regrets that fact.”
But it refused to give up the islands. Now nine months past the UN deadline, the U.K. government insists it will only cede BIOT to Mauritius when it is no longer required for “defense purposes.”
But what about .io?
Virtual asset
The .io ccTLD was created in 1997. Country code top-level domains are generally supposed to be used by companies or residents of the relevant country—.de for Germany, .cn for China, and so on—but only American military personnel and British government officials live on BIOT, and only temporarily at that.
So .io has become one of the most popular extensions for the online presences of tech startups and cryptocurrency operations. More than 270,000 .io websites have been registered. According to the Chagossians’ claim, .io domain registrations bring in fees of $10 million each year, and the ccTLD has an overall value of around $50 million.
The British government does not handle the registration of .io domains itself. Instead, it contracted this task to a company called Internet Computer Bureau (ICB), which was until a few years ago run by a British entrepreneur named Paul Kane.
The terms of the agreement remain secret, but in 2014 Kane told me that a portion of the .io proceeds went to the British government, to be deposited into an account for the administration of the Chagos Islands. Responding to a subsequent parliamentary question that year from Lord Avebury, a liberal civil rights advocate, the government said that it had no such plans, because it received no revenues from ICB.
Kane did not respond to a request to be interviewed for this article. The U.K.’s Foreign and Commonwealth Office declined to comment on the Chagossians’ claim to the domain extension and again denied that the British government receives any .io proceeds.
In 2017, Kane sold ICB to Afilias, an American registry that also runs the .info and .mobi domains, for a reported $70 million. The rights to administer .io have always been a major ICB asset—the other ccTLDs in its portfolio are .sh (St. Helena) and .ac (Ascension Island), neither of which has .io’s cachet.
In February, the Chagossians approached Afilias/ICB in an attempt to get a “fair percentage of the acquisition price” and a cut of past royalties, and to place a Chagossian on ICB’s board, but they were rebuffed.
Afilias/ICB says the dispute over .io’s ownership is a geopolitical matter that falls “outside of our control or involvement.”
“ICB had no involvement in the establishment of the British Indian Ocean Territory or the treatment of its then residents in the 1960s. Nor is ICB a party to the [Chagossians’ African Commission claim] or any other dispute regarding the ownership of the territory,” the company told Fortune in an emailed statement.
Although the Chagossians have so far had little luck in their pursuit of .io, some in the tech world have been sensitive to their plight.
The Diagrams.net project, which provides diagramming software, was until earlier this year known as Draw.io; it stopped using the .io extension partly because of what it described as “a wonderful piece of modern-day British imperialism.” The U.K.’s GreenNet hosting collective refuses to register .io addresses for its users. And in the U.S., a group of .io-using startups runs a campaign to collect donations for Chagossian support groups.
Forced retirement
If BIOT’s ownership status does change, as the ICJ and UN say it should, there are some who believe it could spell the end of the .io ccTLD.
“In case the United Kingdom loses control of the British Indian Ocean Territory, that puts .io at risk,” says Florian Hitzelberger, a German lawyer who specializes in Internet law.
Hitzelberger says .io could be subject to “forced retirement” if BIOT is taken off the world’s official list of two-letter country codes. “Retired top-level domains are removed from the domain name system root, meaning all the second-level domains under them stop working,” he says. “But it’s not very likely to happen. The Soviet Union collapsed in the early nineties, but its ccTLD .su still exists and has not been removed from the root zone ever since.”
According to Michael Woller, a tech lawyer at the Austrian firm Schoenherr, the question of whether the Chagossians should have ownership of .io, or get a cut of the .io sale price and income, is more of a political question than a legal one—for now, at least.
“If there was some wrongdoing and if the indigenous people were wrongfully deported, of course one could talk about any assets associated with their former or actual territory being attributed to them,” Woller says. “From a political perspective, it is a valid claim, but you need to find the legal basis under international law—likely under British law—whether there is the chance to claim for some kind of compensation.”
As things stand, that seems like a long shot. In 2016, the U.K.-U.S. contract for the Diego Garcia base was renewed until 2036. All British governments since the 1970s have refused to budge on the issue of the Chagos’s return, and it is only recently that a major British party—the left-wing Labour Party—has said it would comply with the UN’s demand if it gained power.
SGS/NASA Landsat data/Orbital Horizon Gallo Images/Gallo Images/Getty Images
But even if the U.K. were to comply, that would mean the Chagos Islands going to Mauritius, not to the Chagossians—many of whom, like Nourrice, left Mauritius for the U.K. (A few thousand Chagossian islanders now live in the U.K., with many including Nourrice having won British citizenship through a 2002 law. A few thousand more live in the Seychelles, including Prosper, who returned there despite having also received British citizenship.)
It is not clear whether Mauritius’s government has interest in taking over the .io ccTLD—it did not respond to a request about its intentions. But Mauritius definitely wants to take over the military-base contract with the U.S., which it hopes would bring in tens of millions in rental dollars each year.
The Chagossians don’t want to lose out in any deal involving their home. “We need the Chagos Islands for ourselves, for the Chagossians, not for England or Mauritius,” says Prosper.
“The International Court of Justice in its advisory opinion has found the British presence in the Chagos Archipelago is unlawful. The UN General Assembly has ordered the United Kingdom to cease its occupation of the Chagos Archipelago [though the demand] is unenforceable,” says the Chagossians’ lawyer, Jonathan Levy.
“The momentum is moving somewhat in the direction of the Chagossians after 50 years. Now’s the time they need to start staking out property rights…Otherwise, you could see a transfer to Mauritius and nothing done for the Chagossians at all.”
Crypto claims
Perhaps unsurprisingly, given Levy’s background in both advocacy for emerging African states and restitution claims for cryptocurrency-fraud victims, a significant portion of the Chagossians’ .io African Commission claim involves complaints that “crypto criminal entities” are using the domain to defraud others and aid in money-laundering.
The claim references BitBlender, a “Bitcoin mixer” service for obscuring the origins of cryptocurrency transactions that reportedly shut itself down shortly after Europol’s 2019 takedown of rival Bestmixer.io. It also mentions various cryptocurrency Ponzi schemes, such as the infamous OneCoin. Both BitBlender and OneCoin used .io addresses that are now out of operation.
The Chagossians lay some of the blame at the door of Afilias/ICB, accusing the .io registry of choosing not to verify the true identities of those registering .io addresses.
But Afilias/ICB insists that it does not “tolerate misuse of the .io namespace.” Indeed, correspondence seen by Fortune indicates that the firm has tried to serve court papers on the administrators of some allegedly criminal .io sites, on behalf of Levy and his clients, but could only serve them at the offices of the privacy-masking services the site owners used to hide their identities; Afilias/ICB itself has no idea who the site owners are.
Afilias/ICB says it has in place “various policies, procedures, and technologies which seek to both proactively and reactively tackle any abusive or illegal activity identified or notified to us”—and legal experts say that is all the law requires.
Woller points out that the U.K., which is still in the Brexit transition period, for now still applies the EU’s e-Commerce Directive, a crucial piece of European tech law. He reckons Afilias/ICB qualifies for the protection given to “access providers” under the directive—meaning it isn’t liable for criminal activities taking place on websites accessed through an .io address, as long as it acts on reports of obvious infringements.
“I don’t think they have legal responsibility for criminal activities taking place on .io domains,” agrees Hitzelberger. “In general, a registry is not responsible for content published within its namespace.”
It should also be noted that, while .io remains a catchy naming element for crypto firms of all kinds, many illegal activities in this space tend to take place on the so-called dark web, where addresses end in “.onion” rather than more familiar web-address extensions such as .com or .io.
But whether or not the crypto aspects of the Chagossians’ claim hold water, the islanders still hope to one day secure .io. As Nourrice tells it, the current situation demonstrates the exploitation of his people.
“.io is money they make on the head of the Chagossians,” he says. “We never received a penny as compensation.”
This article was updated to correct the conversion of 3 million pounds in 1965 to today’s money.


fortune--2020-08-31--Zoom’s customer base soars 458% as it beats earnings estimates

No need to check the audio, Wall Street can hear Zoom loud and clear.
After the close of trading on Monday, Zoom Video Communications reported a stellar second quarter. The San Jose-based tech company’s second quarter revenue topped $664 million, up 355% year-over-year. And that beat analysts revenue estimate of $501 million, according to Refinitiv.
Zoom reported an earnings per share of $0.92, almost doubling analyst estimate of $0.45. And its paying customer base—those with at least 10 employees—grew to 370,200, up 458% year-over-year.
The stock, which trades under the ticker “ZM,” finished the day up 8.6% to $325. But after reporting, Zoom’s extended trading price climbed another 9%.
The company is among the top business benefactors of the pandemic, which has displaced millions of workers from office buildings and sped up digital transformation. Year-to-date the stock is up a staggering 373%.
“Organizations are shifting from addressing their immediate business continuity needs to supporting a future of working anywhere, learning anywhere, and connecting anywhere on Zoom’s video-first platform,” Zoom founder and CEO Eric Yuan wrote in the earning report.
And the move towards WFH isn’t going away anytime soon. A Fortune-SurveyMonkey poll between July 17 and 21 found 46% of all U.S. workers were remote at some point since the onset of the pandemic. And 83% of those remote workers would like to work fully or partially remote through at least the end of the year.
Zoom increased its revenue outlook to $2.39 billion for fiscal year 2021, which would represent a 284% increase over fiscal year 2020.


fortune--2020-08-31--Facebook enlists researchers to study its impact on 2020 election

Facebook is working with a group of third-party researchers to study how content and user behavior on the social network’s apps affect the 2020 election.
A group of 17 university researchers will look at how Facebook and Instagram influence issues such as political polarization, and whether people vote, said Talia Stroud, a communications professor at the University of Texas who is co-charing the research group. Users must consent to participate, and will be paid, says Chaya Nayak, who leads Facebook’s open research and transparency team. While Facebook is covering the costs to participants, the researchers are not taking money from the company. The researchers won’t need Facebook’s approval before it can publish its findings, the company said in a blog post.
“We thought it was incredibly important as a group that no one take money from Facebook,” said Joshua Tucker, a politics professor at New York University, and co-chair of the research group. “It was crucial to our independence.”
Facebook’s role in the 2016 election wasn’t widely known publicly until months later, when it was learned that Russian actors used the company’s services to sow division and spread disinformation. Facebook is often criticized for the divisive political content that appears on its platform.


fortune--2020-08-31--How long does it take to find out if you’ve been exposed to coronavirus?

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Say you catch the coronavirus on a Friday. If you took a test the next day, would it be able to identify an active infection?
This is just one of the plethora of logistical questions that comes with dealing with COVID-19. The incubation period of this virus is still variable, depending on your individual biology, according to a recent study published in the Annals of Internal Medicine.
You see, the way that a virus afflicts you is dependent on an “incubation period”—the number of days between when you catch a pathogen and actually show symptoms. With COVID, things are even more complicated because you may not show symptoms at all.
But simply being asymptomatic doesn’t mean you can’t spread the pathogen to plenty of other people. The mathematics of virology reside on a logarithmic scale. (If you can potentially infect two people, then those two people can each infect two other people, you get to a whole lot of infections pretty quickly.)
And that’s precisely why it’s so important to know whether or not you may be actively carrying the coronavirus—a piece of information that may very well be dictated by exactly which kind of test you’re taking.
For instance, a rapid response “antigen test,” which may return results on-site within a half hour, will be a more useful piece of information than a test that takes three days to return.
There’s another complication: An active coronavirus infection conducted via a rapid antigen test—such as a 15 minute along the lines of Abbott’s—has a higher chance of returning a false negative result than one which may rely on polymerase chain reaction (PCR) technology, according to Harvard Medical School. So you may need to take both a rapid response test and a followup PCR test to confirm an active infection.
“If you test negative for COVID-19, you probably were not infected at the time your sample was collected,” says the Centers for Disease Control (CDC). “This does not mean you will not get sick: A negative test result only means that you did not have COVID-19 at the time of testing or that your sample was collected too early in your infection.”
The Annals of Internal Medicine study states that the median incubation period for coronavirus is about five days. But it can span the gamut from two days to two weeks, further complicating the convoluted web of coronavirus diagnostics.


fortune--2020-08-31--I’m a Black Fortune 500 CEO. Here are 4 principles to guide companies in combating systemic racism

It has taken too long and involved too many senseless deaths—George Floyd, Breonna Taylor, and Ahmaud Arbery among them—but we’re finally experiencing a national awakening about the persistence of deep-rooted racism in our society. Many of us in corporate America have spoken out strongly about the need for change. Now, it’s time for action.
As someone who started his education at a segregated elementary school and is today one of just a few Black CEOs in the Fortune 500, I am an example of both how far the nation has come in addressing racism—and how far we have left to go. Some aspects of the overt racism of my childhood may be gone, but it’s given way to more subtle and insidious biases that are evident in everything from the racial wealth gap to the disproportionate effect of COVID-19 on Black communities, with an infection rate nearly three times that of whites, according to a report by the National Urban League. Still, I’m heartened that millions of Americans are now expressing a renewed, and hopefully permanent, desire for change.
America’s companies have an important role to play in making the U.S. a more just and equal nation. There’s no one blueprint to follow. Rather, each company must leverage its own unique purpose and strengths to make a meaningful contribution. However, there are several foundational and business principles that can guide companies in their efforts to advance real change.
Own your part
First, companies must make sure their own houses are in order. If diversity and inclusion are not already cornerstones of the corporate culture, then making them so should be priority No. 1. That means putting diversity and inclusion at the heart of decisions about recruiting, hiring, and developing employees; selecting company directors and leaders; and enriching client engagement. Not only is it the right thing to do, but it’s also a business imperative. More diverse companies have better outcomes, which benefits all stakeholders: employees, shareholders, and customers. According to a study from McKinsey, companies in the top quartile for ethnic and cultural diversity outperformed those in the bottom quartile by 36% in profitability.
Set the tone at the top
I believe that CEOs bear the ultimate accountability for cultural change. The tone is set at the top. Leaders at all levels will take their cues from what they see the C-suite saying, and more importantly, doing. That’s why I consider it part of my job to be TIAA’s chief diversity and inclusion officer. I don’t mean this literally of course (we have a top-notch leader who oversees these efforts at TIAA), but I do believe that the buck stops with the CEO when it comes to achieving a more diverse and inclusive culture.
Empower your people
Employees want guidance in how to translate good intentions into meaningful action. At TIAA, we recently launched our Be the Change platform to empower our employees to make a difference. We’re bringing people together (virtually) to build awareness, promote dialogue and connection, and spur anti-racist allyship and advocacy. Additionally, by using workforce planning tools to measure diversity across our organization, we are making sure our leaders are held accountable for cultivating strong, diverse, and inclusive teams.
Strengthen your community
Companies that want to make a difference can start by getting active in their own backyards. Community service organizations need our help in addressing the problems that keep racism entrenched. EVERFI is an example of a technology company that is helping empower communities with financial education by partnering with organizations to offer financial literacy programs.
At TIAA, we know that financial wellness and financial education are strongly connected—a recent TIAA Institute study found that African-Americans with a greater understanding of personal finance issues tend to be more likely to save and plan for retirement. We believe that working to increase financial wellness and education can have a positive impact in the lives of individuals and their families.
These are just some ideas of ways companies can combat racism. Progress will require being proactive and committed, no matter how long it takes. Racism has been with us for hundreds of years, and we’re not going to erase it overnight.
Throughout my own life, I’ve seen efforts to combat racism ebb and flow. Yet I believe that today we have a real opportunity to make lasting change. It will require that all sectors of society commit to playing a role—including corporate America. If we apply ourselves urgently, vigorously, and continuously, we may one day look back on this painful time as a turning point and recognize that those who have died needlessly did not die in vain.
Roger W. Ferguson Jr. is president and chief executive officer of TIAA.


fortune--2020-08-31--Trump and ‘Hallelujah’: Why it’s so hard to stop campaigns from playing songs, even when artists obj

Trump and ‘Hallelujah’: Why it’s so hard to stop campaigns from playing songs, even when artists object

When the sounds of Leonard Cohen’s “Hallelujah” blared over the close of last week’s Republican convention, it brought cheers from Donald Trump fans—but also anger from Cohen fans, and legal threats from the late songwriter’s estate.
The Cohen estate, it turned out, had refused the Trump campaign’s request to use the song, but the campaign had played it all the same.
“Had the RNC requested another song, ‘You Want it Darker’ … we might have considered approval,” noted a lawyer for the Cohen estate in a wry statement.
This sort of controversy is hardly new, however. Every selection season brings a new spate of headlines about a copyright kerfuffle involving candidates’ unauthorized use of songs. In the case of Trump, his campaign has attracted a torrent of criticism from the likes of the Rolling Stones and the estate of Tom Petty over its use of “I Won’t Back Down” and “You Can’t Always Get What You Want.” The campaign of his 2016 opponent, Hillary Clinton, also got into trouble for using Bikini Kill’s “Rebel Girl” without permission.
Meanwhile, rocker Neil Young recently took the unusual step of filing a lawsuit against the Trump campaign for playing “Rocking in the Free World” without his permission.
All of this raises the question of why politicians continue to flagrantly use songs without permission, especially in the U.S. where both major parties regularly call for aggressive protection of intellectual property.
The simple answer is because they can. U.S. copyright law provides for a so-called blanket licensing regime when it comes to public performances—meaning that those wishing to play a song can go to one of two royalty collection agencies, ASCAP and BMI, and pay a fee to use their catalogue of songs.
What’s more, the Justice Department has imposed a decree on both agencies for decades that requires them to license songs to all comers. The order is the result of the agencies cartel-like behavior in the past, and ensures they can’t arbitrarily withhold access to songs or gouge those who license the music.
The upshot is that blanket licensing has made it easy for everyone from cover bands to juke box operators to restaurants to play music in public. But as the Hallelujah episode shows, it also means groups can use hit songs for propaganda purposes, even if the songwriter believes such use is wrong or disrespectful.
In recent years, artists have begun asserting clauses that exclude the use of songs at political rallies from the blanket licensing regimes. And other musicians have claimed such use diminishes the value of their songs, and infringes on their so-called right to publicity.
But these legal arguments are very much untested, and it’s unclear if the Justice Department rules allow BMI and ASCAP to create an exception in the case of political rallies—skeptics say a venue that obtains a license is covered, regardless of the purpose of a given event. As such, Neil Young’s copyright lawsuit is likely to provide an important test case for whether musicians are able to stop politicians using their songs.
Ironically, despite its penchant for aggressive copyright enforcement, the U.S. lacks a system called “moral rights” that is common in many other countries, and would help the likes of Young and the Cohen estate, according to McGill law professor Richard Gold.
Gold, an authority on intellectual property, explains that moral rights permit artists to block the use of their work for a cause in which they don’t believe. In their absence, it can be hard for musicians to stop the use of their songs—even if it could lead to a false sense of endorsement.
“That is what happened here: by the Trump campaign using Cohen’s iconic song, some may be led to the (wrong) belief that Cohen supported Trump’s cause, even in death,” says Gold.


fortune--2020-08-31--Elon Musk is now the third-richest person in the world. Here’s how much he’s worth

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Elon Musk is the third-richest person in the world — at least for the moment.
Musk passed Facebook co-founder Mark Zuckerberg Monday as shares of Tesla continued their unrelenting rally after undergoing a forward stock split. As of 2:22 p.m., Musk was worth $111.9 billion compared with $111.2 billion for Zuckerberg, according to the Bloomberg Billionaires Index, which is updated at the end of each market day.
Musk has seen a meteoric rise in his wealth, with his net worth growing by $76.1 billion this year as Tesla shares surged more than 475%. Also helpful: an audacious pay package — the largest corporate pay deal ever struck between a chief executive officer and a board of directors — that could yield him more than $50 billion if all goals are met.
Tesla, a favorite among amateur investors on online trading firm Robinhood Financial, has been one of the largest beneficiaries of the boom in retail investing during pandemic lockdowns. At one point last month, almost 40,000 Robinhood accounts added Tesla shares during a single four-hour span. And the trend isn’t limited to the U.S.: South Korean retail investors have piled into Tesla this year and hold about a 1% stake in the American auto maker.
Tesla’s $454 billion market value now exceeds that of retail behemoth Walmart, the largest company in the U.S. by revenue.
Last week, Musk, 49, joined Zuckerberg, Amazon.com Inc.’s Jeff Bezos and Bill Gates in the rarefied centibillionaire club as tech stocks rose.
The heady pace of wealth accumulation in recent months is in stark contrast to the state of the global economy. Growth has slumped sharply since the pandemic began with companies laying off millions of workers and consumer demand cratering. The brunt of economic pain has been borne by young and lower-wage workers, whose jobs are typically more vulnerable to Covid-related layoffs.
The rising income inequality has provoked sharp responses from many progressive politicians and critics on the left. U.S. Senator Bernie Sanders this month introduced legislation to tax “extreme wealth gains” during the pandemic.
Musk still has a long way to become the world’s richest person. Bezos is worth about $200 billion.


fortune--2020-08-31--Can far-UVC light reduce the spread of COVID-19 indoors?

A decade or so ago, David Brenner, a professor of radiation biophysics at Columbia University Irving Medical Center in New York began thinking about the problem of drug-resistant bacteria. He’d lost a close friend to the scourge—that friend had gone to the hospital for routine surgery and died of a superbug he’d acquired while there.
Superbugs are a real concern and focus for the pharma industry, but Brenner, as a physicist, wondered if there might be something he could do: He thought about ultraviolet light. In so doing, he started down a path that has put him on COVID-19’s front lines.
For more than a century, we’ve known that UV light kills microbes, and germicidal UV light, at a wavelength of 254 nanometers (nm), has been used increasingly in recent decades to sterilize operating rooms, homeless shelters, and other spaces. But germicidal UV light can be harmful to humans—particularly the eyes and skin—and so its use is limited to spaces where humans will not be directly exposed. Brenner began to think about whether there was a type of UV light that could kill microbes but still be safe for the humans exposed to it.
In principle, there was: UV light at a wavelength of 222 nm (what many call “far-UVC”) cannot penetrate the eyes and skin. “We know exactly how far light can travel in any given material,” explains Brenner. “It’s pure physics.”
Brenner has spent the years since trying to drive forward the science to turn the insight into application. (He’s also given two TED Talks on the topic.) Though he was initially focused on drug-resistant bacteria, he and colleagues began thinking a few years ago about far-UVC and its potential to safely decontaminate air and prevent transmission of airborne viruses like influenza. His studies showed it worked: The light could efficiently kill aerosolized influenza virus in the air, in a setting similar to a public space.
Cue 2020, and COVID-19, a disease caused by a highly infectious respiratory virus thought to spread, to some extent, through airborne transmission. When Brenner learned of the outbreak of a novel coronavirus earlier this year, he and his team quickly organized a study to test whether the 222 nm light would efficiently kill aerosolized human coronaviruses—unable to get SARS-CoV-2 at the time, they used types that commonly circulate and can cause the common cold—the same way it did with influenza. It did, indicating that when continuously applied at the current regulatory exposure limit, far-UVC would inactivate roughly 90% of airborne virus in eight minutes and 99.9% in roughly 16 minutes. They’re currently running the same study with aerosolized SARS-CoV-2.
“It’s another weapon in our armory. A good one,” says Brenner, who emphasizes far-UVC is a powerful tool that should supplement existing safeguards like masks and social distancing, not replace them. Far-UVC is unlikely to prevent close range transmission via droplets that occur between close contacts, but it could do a lot to reduce airborne transmission of the aerosolized droplets that have been found to linger in indoor spaces for hours.
“We need all the weapons we can get,” adds Brenner.
At a time when the U.S. is struggling to navigate school and business reopenings amid a still-raging pandemic, you might expect far-UVC light would be in use everywhere in an effort to help reduce transmission. It’s not, for a few reasons, and some experts worry the high-potential tool is not getting the attention or investment it merits at this moment.
“We’re up to our ears in the promise of the technology,” says Ed Nardell, a professor in the departments of medicine and of global health and social medicine at Harvard Medical School and a professor in the departments of immunology and infectious diseases and of environmental health at the Harvard School of Public Health. “It’s absolutely not getting the level of attention it deserves.”
For the past several months, Nardell, as well as Brenner and other UV experts, have met over Zoom every Friday as a sort of ad hoc committee on 222 nm light and moving it forward as a tool that can be deployed to help reduce COVID’s spread. “It’s definitely underutilized, definitely understudied, definitely underfunded,” says Nardell who notes that at a two-day meeting of the National Academies of Sciences, Engineering, and Medicine on airborne transmission of COVID-19 last week, 222 nm light was only raised as something of an afterthought in the closing comments of a single talk.
“It’s a discipline issue,” he adds. “If you ask engineers in developed countries about how to get rid of an air contaminant, the first thought is ventilation, and the second thought is filtration. They haven’t learned about germicidal UV; it’s not even in their toolbox in this country.” Nardell notes germicidal UV light has been used in other countries to control tuberculosis and measles outbreaks; he ran a study that established safe dosing levels.
Beyond awareness, there are other issues slowing the adoption of far-UVC. While Nardell and his colleagues are quite confident that human exposure to it is safe—a couple, including an expert on UV’s effects on the eyes, have been exposing themselves to 222 nm light—he concedes “the safety studies aren’t there yet.” Challengingly, there was a study conducted several years ago in Dundee, Scotland, by one of the world’s top photobiology groups, in which two of four volunteers exposed to 222 nm suffered skin damage, though investigators concluded in two papers that the effect was the result of contamination by higher-wavelength light (the lamp was not well filtered). The Dundee lab is planning to repeat the study with many more subjects and a well-filtered lamp as soon as they secure funding for it, says Nardell.
Brenner, who notes the importance of establishing safety data, says his lab and others in the U.S. and other countries have conducted lots of studies demonstrating safety in a variety of systems—primarily studying human skin and eyes and skin in mice. His lab is nearing completion of a 60-week study in which they’ve exposed 100 hairless mice to 222 nm light—at doses much higher than the regulatory limit—for eight hours a day, five days a week. The mice are regularly being tested for overall health and eye and skin issues but have shown none thus far.
For its part, the FDA offers this primer on UV light and COVID-19 and says: “Currently there is limited published data about the wavelength, dose, and duration of UVC radiation required to inactivate the SARS-CoV-2 virus.”
While the researchers are focused on shoring up safety data, there are no regulations beyond limits on UV exposure levels that prevent businesses or other organizations from implementing far-UVC lighting.
There is indeed more demand for the lighting than there is capacity to make it at the moment. A small but growing number of companies—including Sterilray, a New Hampshire company that started working on 222 nm lamps in the early 2000s, and Ushio, a Japanese company that has been studying far-UVC since coming across Brenner’s work in 2013 and which introduced its 222 nm excimer lamp in the U.S. in 2018—make the lighting, but not at a huge scale. They’ve all been ramping up production since the start of the pandemic.
Ushio has experienced a drastic increase in demand coming from “hospitals, airplanes, schools, restaurants, offices, everywhere people are exposed to the ‘3Cs’ (crowded, closed, confined),” says Shinji Kameda, COO of the company’s U.S. unit. Ushio, which has partnered with America’s largest lighting company, Acuity Brands, plans to begin mass production in late fall.
Healthe, a Florida-based lighting company that recently got the backing of investor Matt Higgins, a Shark Tank guest judge and the CEO of RSE Ventures, has introduced a line of 222 nm products, from overhead lighting to a sanitizing entry gate, that are destined for Equinox gyms (as well as nursing homes, prisons, colleges, and other spaces) and already in place at New York’s Magnolia Bakery, the Space Needle, and facilities for the Miami Dolphins.
Nardell, along with his committee, is trying to organize a Round Robin in which the group would independently test the various far-UVC technologies on the market to ensure they are properly filtered and produce only 222 nm UV and not other, longer harmful wavelengths. He’s also concerned about the promises being made for some products; he is skeptical of portal-like offerings such as Healthe’s, explaining that far-UVC is most effective at continuously decontaminating air around people in occupied rooms (and to some extent, directly exposed clean surfaces). Far-UVC is not good at instantaneously disinfecting the body, and it can’t disinfect areas that are shadowed or that aren’t in far-UVC’s direct line. Healthe concedes its entry gate may not be as critical as its 222 nm products focused on air decontamination, but says it a valuable part of its layered approach to disinfection.
“That gives UV a bad name,” Nardell says. “We want to use it where it is effective and not pretend to use it where it’s ineffective.” Like Brenner, he hopes far-UVC becomes a disease-fighting tool that outlasts the pandemic.


fortune--2020-08-31--Neurologists aren’t so sure about Elon Musk’s Neuralink brain implant startup

Researchers gave mixed reviews of Elon Musk’s colorful demonstration on Friday of Neuralink, his sci-fi startup that’s developing a brain implant. The company’s technology, Musk hopes, will one day help paralyzed people walk and even save memories so that people review them like they leaf through photo albums.
Some researchers praised Neuralink’s work as showing significant refinement to existing technology. But others say the company isn’t offering much that’s new, and that its biggest speculative claims aren’t grounded in current science.
What is clear is that the stars of Friday’s show were several pigs, including one named Gertrude, which had a Neuralink implant that beamed live signals from the part of its brain controlling its snout. Those were turned into a stream of “snout boops” that tracked what Musk called “neural spikes.”
That in itself is nothing new. Professor Thomas Nowotny, of the University of Sussex, described the technology for recording neural signals as “decades old.”
Those bleeps and bloops, though, are meant to become the core of Neuralink’s most near-term real-world application: a bridge between the brain and body where nerves have been destroyed or disrupted. The company hopes to test the technology in patients paralyzed by spinal cord injuries and someday, Musk said, restore the hearing and sight of people who are deaf or blind.
Neuralink’s report card
Based on what he saw, Graeme Moffat, a neuroscience researcher at the University of Toronto, told NBC that Neuralink had made “order of magnitude leaps.” Stanford neuroscientist Sergey Stavisky also said the demo showed impressive progress from where Neuralink was in 2019.
Andrew Jackson, a professor of neural interfaces at Newcastle University, was somewhat less upbeat. “In terms of their technology, 1024 channels is not that impressive these days,” Jackson said in a statement, referring to the implant’s bandwidth for carrying data to and from the brain. “But the electronics to relay them wirelessly is state-of-the-art, and the robotic implantation is nice.”
During his presentation, Musk conceded that similar technology has existed for some time, both in labs and in real-world implants. For example, a 2017 study demonstrated that nerve signals could be used for precise control of prosthetic limbs. Musk’s pitch hinged in large part on the idea that Neuralink would dramatically improve on existing research.
From neurons to downloads? Not so fast
The biggest knocks on Neuralink came in response to the grandest predictions made by Musk and his passionate fans—that Neuralink could someday be used not just to stimulate neural pathways, but to actually transmit information back and forth to the brain. For instance, during Friday’s presentation, Musk speculated that “in the future you will be able to save and replay memories.”
That is a huge leap from the proven, if nascent, science of neural recording and stimulation.
“There is a big difference between recording brain cells and ‘reading thoughts,’ especially when it comes to higher-level cognitive functions we don’t understand as well,” Jackson said. “The idea of ‘writing to the brain’ is even more questionable…There are fundamental limitations to targeting specific networks of neurons in a meaningful way using electrical stimulation.”
The distinction is tricky, but crucial. There is still almost no scientific understanding of how the “boops” of electrochemical pulses in the brain become the subjective experience of thinking, feeling, or remembering.
Musk replied to Jackson’s comments on Twitter, with some characteristic snark. “It is unfortunately common for many in academia to overweight the value of ideas & underweight bringing them to fruition,” he said.
Musk, who is also CEO of Tesla and SpaceX, is indeed an entrepreneur, not a researcher. His goal is to refine and commercialize technology, rather than invent anything entirely new. On Friday, Musk emphasized that the main goal of his presentation was to recruit staff for Neuralink, a reminder that even what we saw was a very early demonstration.
And there may be some value even in ignoring what seem like scientific limitations today. Biomedical engineer Peter Bannister of the Institution of Engineering and Technology, an international professional organization for engineers, has defended Musk’s sci-fi–inspired rhetorical overreach, saying, “It’s important to remember that these ‘moonshots’ are essential to inspire the next generation of engineers and scientists.”


fortune--2020-08-31--5 of the best tips for navigating the pandemic at work from chief HR officers

Heads of human resources have a lot to talk about these days. There’s a raging public health crisis to deal with, which has forced many companies to transition to at least a partly remote workforce. There’s also a racial reckoning underway, which has brought issues of racial violence and inequities into the forefront, pushing organizations to grapple with uncomfortable topics—and, at least in some cases, take the steps needed to get to greater parity within their own ranks.
Caring for employees has never been harder, therefore, or more ripe for change. It’s no surprise, then, that during a recent virtual gathering of top female chief human resources officers, part of Fortune’s Most Powerful Women event series, the executives in the “room” had a lot to say—and to share.
“I’ve never seen so much best practice sharing,” Tracy Keogh, CHRO at tech giant HP, said to her peers. “With all the negativity and the downsides [of the current crises], that’s been a real bright spot for me.”
There are some silver linings to the current challenges facing HR officers: Being pushed to rethink the workplace, even when it happens for all the wrong reasons, can lead to fruitful results. “We were always wondering when that moment of disruption would arrive,” said Grace Zuncic, chief people officer at Chobani, and another participant at the recent event. “You never wish for it to come in the form of a pandemic, and yet, we have this opportunity to redefine how things will be done.”
Others jumped in with equally optimistic takes: “The new way of working creates opportunities in the area of inclusion and belonging, with remote work allowing companies to hire from anywhere,” said Tracy Layney, CHRO at Levi Strauss & Co. “I think there is so much opportunity embedded in this moment that if we just harness it, it can actually help us address multiple crises that we are facing right now.”
Yet there was little doubt that the biggest challenges are still ahead for heads of HR. “Returning our people back to our offices is actually going to be harder than removing them from the offices,” said Mala Singh, chief people officer at Electronic Arts. “It’s only been six adrenaline-fueled, acute months of work, and we’re not willing to say yet that how we have worked in this time should define what this company looks like going forward.”
One of the highlights of the video event was the embedded chat log, which lit up with tips and takeaways throughout the conversation. Here are just some of the takeaways, edited for clarity and brevity:
Do what you can to combat burnout. “We moved to no company meetings on Fridays so that people could take off without FOMO [fear of missing out]; it has helped tremendously.” —Ellyn Shook, chief leadership and human resources officer, Accenture
Communicate, communicate, communicate. (And use your people to do so.) “One of the best things we did was rely on our global site leaders. Each of our sites has a site leader, and we have a strong network, and they really leaned in during this pandemic and have become a trusted voice throughout. We also use our employee resource groups to advocate our messaging.” —Ruth Cotter, SVP of worldwide marketing, HR, and IR, AMD
When it comes to tackling racial inequality, get beyond the hashtag. “First, you have to look at what you believe as a person, then you decide who you are as a company. And look at it as the business problem that it is. Use your metrics to show you where you are, and set goals for where you want to go. The gap is where you set strategy. That’s how companies address business problems every day.” —Kim Seymour, chief people officer, WW International
Provide flexible solutions. “We’ve created a menu of flexible schedule options that managers can choose from in support of their employees; it has helped a lot. Like others, we do specific town hall sessions with managers to help them navigate through this.” —Ashley Goldsmith, chief people officer, Workday
Reevaluate how you evaluate. “For performance management, we decided to combine it with our goals and ask employees to tell us what three to five things they are most proud of, and what they need more or less of from their manager. We then had the managers respond to that and indicate what they need more or less from the employees. The hope is to start more of a dialogue and embrace empathy.” —Jill Larsen, CHRO, PTC


fortune--2020-08-31--3 ways to make sure corporate diversity and inclusion efforts have a lasting impact

“The fierce urgency of now.”
Martin Luther King Jr.’s words, spoken during the 1963 March on Washington for Jobs and Freedom, are, sadly, still as relevant today as they were almost 60 years ago.
The devastating killings of George Floyd, Breonna Taylor, and Ahmaud Arbery, among too many others, have stirred a national crisis of conscience as to the work still to be done for justice and equality for all. And the passing of civil rights icon John Lewis, a man who risked his life as he marched across the Edmund Pettus Bridge, reminds us all of the need to ensure our nation lives up to these very ideals.
In the past, corporate America has often let moments of change pass by. As a CEO and a board member of one of the nation’s leading financial services firms, we pledge this time will be different. We believe that in order to make real change, business leaders in our country should deploy our collective resources to help benefit society. While progress doesn’t happen overnight, we will begin now.
Corporate America’s response should go beyond platitudes and simply checking boxes on diversity initiatives. Diversity, inclusion, and equality are moral and business imperatives—companies can and should do better. This moment calls for business leaders to ask ourselves soul-searching questions as to how to tackle the root cause of structural racism within our own spheres of influence; while doing so, we also have to face some uncomfortable truths about how we operate today.
At Synchrony, diversity and inclusion have always been core to our corporate culture. If they hadn’t, we wouldn’t be in the position we are in today: Our eight diversity networks, employee groups open to all, help drive change from the ground up, with more than 10,000 employees (60% of our workforce), either joining groups with which they identify, or becoming partners and sponsors to better support their peers.
Yet the current movement from within, driven by candid dialogues with our Black colleagues as well as those from outside our company, has caused us to look even more deeply at our own corporate practices. We have a responsibility to drive systemic change to further integrate diversity and inclusion into our long-term business strategy.
Here are some of our key learnings to date:
Create an ethos of an inclusive culture
Removing unconscious bias starts with an ethos to build an inclusive culture; one that promotes candor and openness. We must do more than conduct diversity training. Corporate leaders have to build bridges through honest conversations with people whom they know and with whom they work. Only through authentic, continuous interactions at every level can the business community come to grips with unconscious biases and begin to eliminate them.
Through our recent listening and engagement efforts, our minority employees have shared that they feel pressure to fit into the majority culture. One Black colleague revealed the hours of preparation it took to style her natural hair in an effort to conform. We have heard from others who feel they have to not appear “angry” or “aggressive” in order to move up the corporate ladder.
(Read “Why I’ve decided to stop playing the ‘safe’ Black professional role in corporate America.”)
These experiences are part of what is a common occurrence for many Black Americans. Fostering an environment of candor and trust allows minority professionals to speak out about their life experiences outside the workplace. Being mistaken for the parking valet no matter how well one is dressed, or being wantonly stopped by the police are all too regular events for many. Hearing these stories from colleagues gives our employees a unique understanding of the challenges and needs of our diverse workforce and the customers we serve.
One way we can reject this oppressive mindset is by raising it with our peers. Being authentic cements stronger relationships and higher engagement, which are critical to opening up opportunities for all. By infusing an attitude of inclusion, where everyone feels accepted for who they are, businesses will be able to attract the best talent and realize exceptional performance over time.
Diversify your board
We believe companies will perform better if they capitalize on diverse talent, starting at the top and infused at all levels of the business. To guide companies into the future, we believe it’s critical to assemble an independent board of directors that possesses diverse backgrounds and skill sets that align with strategic business needs. This means pushing search firms to increase diverse representation, looking beyond traditional criteria, and setting clear goals on how future board seats will be filled.
Synchrony’s board of directors is among the most diverse in the financial services industry, with four women and four members with racially diverse backgrounds (out of 12 members overall). The board is an active one; its members engage with employees, attending company events and forums; their presence shows employees that inclusiveness stretches across the company at all levels.
Integrate D&I into long-term business strategy
To succeed at driving progress over the long term, we should treat diversity and inclusion no differently than we would an important business challenge, with new board-approved governance rules, imperatives, and accountability mechanisms that allow us to measure results and course correct as necessary.
Synchrony recently created a senior-level committee led by our president, chief diversity officer, and others. The committee is charged with developing an enterprise-wide strategy, setting measurable goals, and providing progress reports to our board and employees across all areas of the business.
Changing the face of leaders is key to driving innovation, becoming tomorrow’s employer of choice for future generations. This requires a data-driven approach, measuring gaps as well as progress while still employing the human touch overall.
Earlier this year, through our Advancing Diverse Talent program, we used data analytics to identify gaps in our hiring and promotion process. As a result, we put more focus on hiring, developing, and progressing talented underrepresented minorities, understanding that we needed to move the needle faster for Black or Hispanic employees to rise to senior leadership positions.
Consequently, we tied leaders’ performance metrics to diversity improvements, mandated diverse candidate slates for senior roles, and launched a new leadership program designed to advance diverse employees.
Our work as corporate custodians should extend beyond our companies as well. We have committed to creating new products and policies that could positively impact Black Americans and other minority communities. We are examining ways to deepen our diverse supply chains and investments in women- and minority-owned small businesses; we have committed $15 million in philanthropic grants to help nonprofits advance social justice initiatives, providing emergency relief to small businesses and assisting communities hit hard by the pandemic; and we are mobilizing resources to ensure employees can exercise their right to vote in elections.
During a crisis, it’s easy to feel energized, driven by a sense of purpose and motivation. It’s harder to maintain that work when crisis fatigue sets in, when the world moves on to the next major news event or catastrophe. We should not lose the momentum. We should push to ensure diversity and inclusion stay ingrained in our workplaces and in our lives.
What gives us hope is the next generation of leaders who are demanding justice and equal rights in our society and within our companies. That fact, along with a cultural mindset shift built on open, honest relationships, new faces among corporate leaders, and diversity as critical to long-term business strategy, is what we believe will, this time, truly move toward a world of equal opportunity for all.
Margaret Keane is the CEO of Synchrony. Paget Alves is a member of the board of directors of Synchrony and previously served as the chief sales officer of Sprint Corporation.


fortune--2020-08-31--Eyeing new subscribers, Netflix makes ‘Stranger Things,’ ‘Love Is Blind,’ and more available for fre

Eyeing new subscribers, Netflix makes ‘Stranger Things,’ ‘Love Is Blind,’ and more available for free

Some of Netflix’s more popular original shows and movies, including Stranger Things, Love Is Blind, and the Academy Award–nominated The Two Popes, are now available to watch for free without a subscription.
There is a catch for the television series—only the first episode of the first season can be viewed—but movies can be viewed in their entirety.
The free offerings are part of an effort by Netflix to lure more subscribers to the service. “We’re looking at different marketing promotions to attract new members and give them a great Netflix experience,” a company spokesperson confirmed to tech site Gadgets 360.
The titles, which also include Murder Mystery, Elite, Boss Baby: Back in Business, Bird Box, When They See Us, Our Planet, and Grace and Frankie, can be accessed globally with a variety of language options at netflix.com/watch-free. Notably, unlike Netflix’s paid subscription, a 30-second ad plays before each title.
Netflix has experimented with free access before, offering select titles to parts of Latin America and India—where it also recently tested a low-cost mobile-only subscription plan.
Netflix saw explosive subscriber growth in its first two quarters of this year, mainly attributed to the coronavirus pandemic. It added 26 million global subscribers in the first quarter and second quarter combined, compared with 12 million during the same period last year. But the company doesn’t appear to be resting on its laurels amid new competition from the recently launched Peacock from NBCUniversal and WarnerMedia’s HBO Max.
Disney+ is also a strong competitor, having reached 60 million subscribers less than a year after its launch.


fortune--2020-08-31--Trump’s quandary: Americans see the economy as getting worse even as economic data improves

At the onset of the pandemic the U.S. economy shrunk at its fastest rate in history. But by mid-May the economy had flipped, on paper at least, from contraction to recovery.
Since then, the jobless rate has fallen from its peak of 14.7% in April to 10.2% in July. Around 9.3 million Americans are back to work. And we’ve seen strong improvement in everything from housing, consumer spending, to manufacturing.
However, only 27% of U.S. adults see the economy as improving, while 57% say the economy is still getting worse. That’s the finding from a Fortune-SurveyMonkey poll of 2,478 U.S. adults between August 17 and 18.
And the direction of the economy is divided along political lines. Among Republicans, 58% see the economy as improving, compared to just 5% of Democrats. Meanwhile 14% of Independents view the economy as improving.
Americans’ pessimistic view of the trajectory of the economy is a challenge for President Donald Trump’s reelection campaign, which touts an improving economy.
And the president’s claim that he’s the only person who can fix the economy isn’t shared by the public: Among U.S. adults, 49% said Democratic nominee Joe Biden would do a better job as president handling the U.S. economy, compared to 45% who said Trump would.
*Methodology: The Fortune-SurveyMonkey poll was conducted among a national sample of 2,478 adults in the U.S. between August 17-18. This survey’s modeled error estimate is plus or minus 3 percentage points. The findings have been weighted for age, race, sex, education, and geography.


fortune--2020-08-31--Walgreens hires John Standley, former Rite Aid CEO, to run U.S. unit

Former Rite Aid Corp. Chief Executive Officer John Standley will run Walgreens Boots Alliance’s U.S. business, the drugstore company announced Monday.
Standley will replace Richard Ashworth, who left earlier this year to take a job as CEO of Tivity Health Inc. Co-Chief Operating Officer Alex Gourlay has been overseeing the U.S. business, which includes roughly 9,300 drugstores, during the search.
Walgreens is trying to revitalize its business amid broader shifts in the U.S. retail and health-care businesses. CVS Health Corp., its fiercest rival, purchased a health insurer, while Walgreens has inked a slew of smaller partnerships.
“I’m looking forward to accelerating execution of the strategic vision for the future of Walgreens,” Standley said in a statement.
Walgreens shares were down 1% at 9:58 a.m. New York time. They had lost about 34% this year as of Friday’s close.
Standley led Rite Aid for nine years, through two failed deals that left the company loaded with debt and much smaller than its rivals. Walgreens CEO Stefano Pessina praised Standley’s experience in the statement, saying it will allow him to “hit the ground running.”
Pessina earlier this summer announced that he will step down and move into the executive chairman role. The company is looking for his replacement.


fortune--2020-08-31--Stimulus deal update: With the Republicans’ latest offer, the parties are $900 billion apart

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After three weeks of silence between Democratic and Republican leaders, House Speaker Nancy Pelosi and White House chief of staff Mark Meadows discussed another coronavirus stimulus package on Thursday.
The meeting concluded without a deal, and Pelosi said the two parties were “at a tragic impasse.”
Pelosi told reporters on Thursday that Democrats offered to come down from their request for $3.4 trillion to $2.2 trillion. Meanwhile, on Friday the White House offered to come up from $1 trillion to $1.3 trillion.
Both parties rejected the other’s offer, however, they’ve moved closer in terms of size of the stimulus package. When the negations broke down on August 7, the two parties were $2.4 trillion apart. Now they’re $900 billion apart.
It’s unclear if Democratic and Republican party leaders will continue negotiations this week.
In the next coronavirus stimulus package, Democratic and Republican leaders would like to include items like a second round of stimulus checks, enhanced unemployment benefits, funding for testing, and another round of Paycheck Protection Program loans.
Apart from the total size of the stimulus package, the parties are also in disagreement on items including a steep increase in federal aid to state and local governments, which Democrats support, and COVID-19 lawsuit immunity for businesses, which Republicans support.
And with both the House and Senate on recess, a stimulus deal before September looks unlikely.


fortune--2020-08-31--ByteDance slams the possibility of a Triller-TikTok tie-up

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Since ByteDance was forced put TikTok’s U.S. operations up for sale, it seemed like just about every tech company had come circling. Over the past few months, names including Twitter, Alphabet, SoftBank and Microsoft had been in the mix. Oracle also came into the picture, challenging Microsoft, the frontrunner.
Even so, it’s odd to hear TikTok competitor Triller say it partnered with London-based investment firm Centricus Asset Management to submit a $20 billion bid for TikTok’s assets in the U.S., Australia, New Zealand, and India. While the smallest of the aforementioned tech companies commands a market valuation of $32 billion (Twitter), Triller is not even yet a unicorn.
And then it got weirder. TikTok, along with its parent company, denied receiving a bid from Triller, telling Term Sheet late Sunday that it had no plans to enter talks in the future.
“We are not and will not be in talks with them,” a ByteDance spokesperson wrote in a statement. “Still, we are flattered by how much they admire TikTok.”
So was there a bid, or was it just a publicity stunt?
While neither Triller nor its executive chairman Bobby Sarnevesht have yet to requests for comment from me, a Centricus spokesperson said the bid had been received “at the highest level” at ByteDance, and after ByteDance’s denial, Sarnevesht told The Verge that “either people multiple layers down aren’t aware of what is happening on the highest level or they may have their own agendas and aren’t happy about our offer coming in.”
Here’s the bottom line: Don’t expect a Triller-TikTok tie-up.
All this is coming after Triller sued TikTok earlier this year over a feature that allowed users to synchronize music with multiple videos. It also threatened to sue Apptopia, an app intelligence company, when the latter published a report suggesting that Triller had inflated download numbers. The startup claims it has a total of 250 million downloads across iOS and Android—but Apptopia suggested the figures were closer to 52 million. Apptopia later pulled the report.
A psychedelics IPO: COMPASS Pathways, a Peter Thiel-backed startup using “magic mushrooms” to treat depression, filed to raise up to $100 million in an initial public offering on Friday. As with any biotech in the testing phases, the company has yet to post a revenue and had a loss of $19.3 million in 2019. The company has slowed enrollment of new patients into its clinical trials as a result of the pandemic.
You won’t see a lot of the big-name venture capitalists here: First off, the psychedelics movement is promising, but still early stages—a little too early for some investors to even begin dipping their toes. Secondly, vice clauses. They’re the same reason why some venture capitalists aren’t rushing to be a part of the cannabis high. Many large-scale limited partners—for instance, pension funds—include clauses that prevent investments in sectors such as firearms, pornography, or, say, drugs.
Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com
VENTURE DEALS
- Viva Republica, the operator of peer-to-peer payment service Toss, raised $173 million. Investors including Sequoia Capital China led the round and was joined by investors including Aspex Management, Kleiner Perkins Digital Growth Fund, Altos Ventures, Goodwater Capital, and Greyhound Capital. Read more.
- Eruditus, a Mumbai-based company offering executive-level courses to students, raised $113 million in Series D funding. Leeds Illuminate and Prosus Ventures led the round and were joined by the Chan Zuckerberg Initiative, Sequoia India, and Ved Capital.
- Adlai Nortye, a China-based immunooncology medicines developer, raised nearly $100 million in Series C funding. Hangzhou Tigermed Consulting and Yingke PE co-led the round. Read more.
- NextPay Holdings, a Vietnamese e-payment solutions provider, is considering a private placement to raise around $60-$100 million in the first quarter of next year, ahead of an IPO in 2022. Read more.
- Fashionphile, a Carlsbad, Calif.-based seller of second-hand luxury accessories, raised $38.5 million in Series B funding. NewSpring Growth led the round. Read more.
- Movano Inc., a Pleasanton, Calif.-based healthtech company focused on chronic conditions such as diabetes, raised a $12.5 million bridge round. Investors were not disclosed.
- Steno, a Los Angeles-based legal service startup, raised $3.5 million in seed funding. First Round Capital led the round. Read more.
PRIVATE EQUITY
- Thoma Bravo completed the acquisition of Foundation Software, a provider of construction accounting software and payroll services for small- to mid-sized specialty contractors. Financial terms weren't disclosed.
- Funds advised by SK Capital Partners acquired 42.5 million shares of Venator Materials, a chemicals company, for about $100 million from Huntsman Corporation (NYSE: HUN).
- MSD Partners, Durable Capital, Headlands Capital, Deep Field Asset Management, and Declaration Capital invested $85 million (via private placement of convertible preferred stock) in Lindblad Expeditions Holdings, (NASDAQ: LIND), a New York-based travel company focused on lesser traveled places.
- A consortium led by BGH Capital and the Ontario Teachers’ Pension Plan Board entered into a revised buyout deal for Abano Healthcare Group (NZ: ABA), a New Zealand-based dental care company. The new deal values Abano at $78.78 million. Read more.
OTHERS
- Reliance Industries agreed to acquire the retail and wholesale business and the logistics and warehousing business of Future Group, an Indian conglomerate, for $3.4 billion including debt. Read more.
- Elliott Management is exploring a bid for Aryzta (SWX: ARYN), a Switzerland-based baking company, per Bloomberg. Read more.
- AT&T is seeking private equity investors to acquire a majority of its DirecTV satellite-television business, per Bloomberg. Read more
- SoftBank Group plans to sell $12.5 billion of the stock it holds in its Japanese wireless operation, per Bloomberg. Read more.
- BlueCity acquired LESDO, a Chinese lesbian dating app. Read more.
IPOS
- Reinvent Technology Partners, a SPAC formed by LinkedIn co-founder Reid Hoffman and Zynga founder Mark Pincus, filed to raise $600 million. It is targeting a company in the tech sector. Read more.
- Equity Distribution Acquisition, a SPAC formed by Sam Zell's Equity Group Investments, filed to raise up to $300 million. It plans to acquire an industrial business. Read more.
- Surf Air Mobility, a private plane membership company, received a $200 million commitment from Global Emerging Markets Group to take the company public. The company plans to go public either via merger with a SPAC or through a direct listing. Read more.
- GoodRx Holdings, a Santa Monica, Calif.-based app for discounting medicines, filed for an $100 million IPO. It posted revenue of $388.2 million and income of $42.7 million in 2019. Silver Lake, Francisco Partners, and Spectrum back the firm. Read more.
EXIT
- A consortium led by Clayton Dubilier & Rice agreed to acquire Epicor Software Corp., an Austin, Texas-based software maker, for $4.7 billion, including debt.
F+FS
- Dyal Capital Partners is targeting $5 billion for a fifth minority capital offering. Read more.


fortune--2020-08-31--Coinbase shuffles board ahead of rumored IPO, Marc Andreessen joins as observer

Coinbase announced on Monday that prominent venture capitalist Marc Andreessen is joining its board, alongside Gokul Rajaram, who is an executive at DoorDash and a veteran of Google and Square.
The moves come amid chatter that the San Francisco–based cryptocurrency giant, which was valued at $8 billion in late 2018, is preparing to go public in coming months.
The addition of Andreessen, who is joining as a board observer, is notable. A founder of the eponymous VC firm Andreessen Horowitz, he was an early advocate for cryptocurrency, and has been a longtime adviser to Silicon Valley CEOs, including Facebook’s Mark Zuckerberg.
“Since investing in 2013, I’ve seen Coinbase grow from an early stage startup into the most trusted and respected company in crypto,” said Andreessen in a statement. “Coinbase is the company that will help forge this future and bring crypto into the mainstream.”
The future of Coinbase, including any IPO, is likely to be a bellwether for the crypto industry as a whole. While the industry has grown enormously—the value of Bitcoin in circulation is now worth over $200 billion—and made inroads into traditional finance, crypto has not entirely shaken its outlaw reputation. In July, for instance, Bitcoin made international headlines when hackers hijacked the Twitter accounts of Elon Musk, Bill Gates, and others to solicit crypto donations.
Such incidents, however, may be declining in significance as more prominent individuals and institutions embrace cryptocurrency and its underlying blockchain technology. One notable milestone came earlier this year when it was reported that JPMorgan Chase—whose CEO Jamie Dimon once called Bitcoin “a fraud”—is now supplying banking services to Coinbase.
Coinbase has been tight-lipped about the timing or nature of a future IPO, but many tech watchers expect it to follow Airbnb, Palantir, Slack, and a parade of other so-called unicorns—private companies valued at over $1 billion—which have recently gone public or filed to do so.
A source close to the company speculated that Coinbase could wait until mid-2021 to announce an IPO, in part because the company is exploring the use of blockchain-based tokens as part of the offering, and that it’s awaiting regulatory approval to do so. Coinbase declined to comment on the speculation.
To make room for Andreessen and Rajaram, who is joining the board as a director, two longtime board members are stepping down. They are Chris Dixon, a partner at Andreessen Horowitz, who has been part of the company for seven years, and Barry Schuler, a prominent Internet company executive. Coinbase says both will continue to advise the company.
An earlier version of this story incorrectly implied Airbnb and Palantir had already gone public. It has been updated to reflect they have filed to do so.


fortune--2020-08-31--COVID-19 has another long-term side effect: A shrinking tax base

The coronavirus pandemic is the scourge that keeps on whipping—and its latest punishment is likely to be felt in dozens of states and municipalities across the United States as governments reckon with a massive and sudden loss of revenue. The widespread shutdown of businesses in the wake of COVID-19 didn’t just hammer sales from those businesses, along with the salaries of millions of workers, it’s also continuing to reduce the bounty that comes from taxing both of those sources of income.
Lower tax hauls from sales and personal income alone, according to recent projections, could cost state governments anywhere from $106 billion to $125 billion in fiscal year 2021, which began on July 1 in 46 states. The overall shortfall, however, could easily reach twice that amount when hits to other sources of state and local funds are factored in, says Jeffrey Clemens, an associate professor of economics at the University of California, San Diego, who published a working paper on the issue in June with Stan Veuger, an economist at the American Enterprise Institute.
The 50 states collected more than a trillion dollars in taxes in FY2019, the most recent year for which the U.S. Census Bureau has summary data. It was the eighth consecutive year state tax receipts had risen. Forty-eight states that year reported a bump in revenue, compared with 49 the year before.
Overall, more than two-thirds of that treasure derives from taxes on residents’ personal income (around 38%) as well as from general sales taxes (31%)—though the share from these and other sources (including taxes on corporate income, property, and sales of specific items such as gasoline, cigarettes, or alcohol) can differ dramatically from place to place. In Virginia, for instance, personal income taxes accounted for 51.9% of the commonwealth’s total net revenue collections in FY2019. Seven states, meanwhile—including Florida, Texas, and Wyoming—don’t levy a personal income tax at all. In the same vein, property taxes account for less than 2% of state revenues nationwide, but comprise roughly a quarter of the revenue Vermont raises each year.
While nearly all of these funding sources are vulnerable to economic downturns, personal income (which is clearly influenced by employment status) and general sales (which reflect the strength of consumer spending) have been particularly hit by the pandemic-related closures and restrictions on public gatherings.
The economic pain has been so sharp and swift that, over the past five months, 35 states plus the District of Columbia have released projections revising their FY2021 revenue downward—with at least 24 of those states slicing revenue estimates by 10% or more from pre-COVID forecasts, according to data gathered by the National Conference of State Legislatures. Seven states expect revenues to be down 15% or more. These revisions come on top of revenue losses in FY2020, when the shuttering of businesses began.
New Jersey now expects to be $10 billion in the hole, the state says. California predicted in May that state coffers would have an $18 billion shortfall—if the recession and recovery ended up looking like a “U” (with a brisk comeback following the equally brisk collapse this spring). An “L-shaped” recovery, for that matter, would leave it $31 billion underwater. That assessment, notably, came before this summer’s catastrophic and costly wildfires.
Alaska doesn’t have to worry about shrinking revenues from the personal income tax—it doesn’t have one. But its coffers are nonetheless getting thumped by the coronavirus. As recently as FY2019, the state got roughly a quarter of its $11.2 billion in revenue from petroleum royalties and related taxes. (Alaska calls some of these levies “severance taxes,” to account for the oil and gas that’s being severed from its land.) In the wake of COVID-19, however, state economists estimated a billion-dollar deficit, largely based on extremely low oil prices this spring—a crash they blamed on an “extreme supply and demand imbalance” caused at least in part by a global growth-killing pandemic.
The state’s dire fiscal outlook was based on a $37-a-barrel price for Alaska North Slope crude, and the price is up about 19% since then—so state budgeteers might be a little more sanguine these days. But it’s still way down from its $70 perch at the start of the year.
Even states that rely heavily on personal income and sales taxes routinely draw non-tax dollars from a litany of sources: universities, hospitals, highways, airports, parking facilities, parks, utilities, and a slew of other things that also fall under the heading of “own-source revenue.” States received $371 billion in these non-tax fees in 2017, the latest year available from the Census Bureau. But the story is largely the same here: Lots of these line items were bludgeoned in the economic shutdown and may get hit again if COVID-19 infections surge anew.
Cities and municipalities, which receive more than a trillion dollars in their own “own-source” revenue each year, are likewise facing budgetary nightmares. While two-thirds of those funds come from property taxes, which are relatively stable from year to year, the rest—which largely hails from sales taxes and fees—is just as affected by an economic downturn as the state revenue.
“My best guess would be that, if the economy is going to be 10% smaller over this coming fiscal year, then the whole of these revenues will probably be about 10% smaller,” says Clemens. In 2017, state and local own-source revenue totaled $2.4 trillion. That translates to a $240 billion gut-punch to states and cities.
And that has many state capitals desperately looking to Washington for help. Indeed, as Democrats in the House wrangle with the Trump administration and the Republican-led Senate over a new stimulus plan, financial assistance for states and cities remains a key sticking point. For now, the two sides appear to be at an impasse. If the stalemate continues, the hardest-hit states may have to start taking aggressive measures very soon.
Unlike the federal government, which can issue as much debt as it wants (and it has shown that it wants), state and local governments have much less leeway to borrow their way out of the ditch. “Most states, which face balanced-budget requirements, are not allowed to use long-term debt to finance general fund expenditures,” says Clemens.
Without federal aid, state and city workers will face significant layoffs, and there is almost certain to be a push for new taxes too. But all the various options on the revenue-raising side come with serious downsides, Clemens says: “Increasing taxes on sales affects families across the full-income distribution; raising income taxes risks chasing higher-income folks out of the state.”
In the end, the best (and most politically acceptable) option is likely to be a combination of cost-cutting and revenue-raising measures. “Most problems of this kind are best solved by not going all-in on any one financial lever, but rather by spreading some of the pain around,” says Clemens. “The best options for avoiding more-than-necessary economic disruption would be things like wage freezes of current state and local government employees—which, of course, includes, university faculty like myself.”