fortune--2020-01-22--When the IRS got tough on Microsoft, the tech giant got tougher

Eight years ago, the IRS, tired of seeing the country’s largest corporations fearlessly stash billions in tax havens, decided to take a stand. The agency challenged what it saw as an epic case of tax dodging by one of the largest companies in the world, Microsoft. It was the biggest audit by dollar amount in the history of the agency.
Microsoft had shifted at least $39 billion in U.S. profits to Puerto Rico, where the company’s tax consultants, KPMG, had persuaded the territory’s government to give Microsoft a tax rate of nearly 0%. Microsoft had justified this transfer with a ludicrous-sounding deal: It had sold its most valuable possession — its intellectual property — to an 85-person factory it owned in a small Puerto Rican city.
Over years of work, the IRS uncovered evidence that it believed laid the scheme bare. In one document, a Microsoft senior executive celebrated the company’s “pure tax play.” In another, KPMG plotted how to make the company Microsoft created to own the Puerto Rico factory — and a portion of Microsoft’s profits — seem “real.”
Meanwhile, the numbers Microsoft had used to craft its deal were laughable, the agency concluded. In one instance, Microsoft had told investors its revenues would grow 10% to 12% but told the IRS the figure was 4%. In another, the IRS found Microsoft had understated revenues by $15 billion.
Determined to seize every advantage against a giant foe, the small team at the helm of the audit decided to be aggressive. It used special powers that the agency had shied away from using in the past. It took unprecedented steps like hiring an elite law firm to join the government’s side.
To Microsoft and its corporate allies, the nature of the audit posed a dire threat. This was not the IRS they knew. This was an agency suddenly committed to fighting and winning. If the aggression went unchecked, it would only encourage the IRS to try these tactics on other corporations.
“Most people, the 99%, they’re afraid of the IRS,” said an attorney who works on large corporate audits. “The other 1%, they’re not afraid. They make the IRS afraid of them.”
Microsoft fought back with every tool it could muster. Business organizations, ranging from the U.S. Chamber of Commerce to tech trade groups, rallied, hiring attorneys to jump into the fray on Microsoft’s side in court and making their case to IRS leadership and lawmakers on Capitol Hill. Soon, members of Congress, both Republicans and Democrats, were decrying the IRS’ tactics and introducing legislation to stop the IRS from ever taking similar steps again.
The outcome of the audit remains to be seen — the Microsoft case grinds on — but the blowback was effective. Last year, the company’s allies succeeded in changing the law, removing or limiting tools the IRS team had used against the company. The IRS, meanwhile, has become notably less bold. Drained of resources by years of punishing budget cuts, the agency has largely retreated from challenging the largest corporations. The IRS declined to comment for this article.
Recent years have been a golden age for corporate tax avoidance, with massive companies awash in profits routinely paying tax rates in the single digits, or even nothing at all. But how corporations manage to do this and keep the IRS at bay is mostly shrouded in secrecy. The audit process is confidential, and the IRS, for all its flaws, simply doesn’t leak. Microsoft’s war with the IRS offers a rare view into how a giant company maneuvers to avoid taxes — and how it responds when the government tries to crack down. ProPublica has reconstructed the fight from thousands of pages of court documents, information obtained through public records requests and accounts from current and former IRS employees.
Microsoft declined to discuss its taxes in any detail. In response to extensive questions provided in writing, the company said it “follows the law and has always fully paid the taxes it owes.”
In 2010, the IRS announced that it was creating a new unit to audit international, intra-company deals. Tech, pharmaceutical and other giants had figured out how to use these dubious deals to avoid taxes on a colossal scale. It was hardly a secret: News articles had detailed how Google, Pfizer and others saved billions. Senate hearings ensued.
Despite the publicity, nothing changed. The trend, which had taken off in the 2000s, intensified. The losses to the U.S. Treasury in uncollected taxes ran well into the hundreds of billions of dollars. In 2016 alone, according to an estimate by economists including Gabriel Zucman of the University of California, Berkeley, U.S. corporations avoided $61 billion in taxes by sending profits to tax havens.
The concept was simple. A U.S. company sold its most valuable asset — for a tech company, its intellectual property — to a subsidiary in a place (Ireland, Singapore, Puerto Rico, etc.) where the tax rate was extremely low.
The details of these deals were monstrously complex, making it difficult for the IRS to prove they were done solely to dodge taxes. Essentially, the IRS had to argue that the company had set the wrong price for its intellectual property. And to do that, the agency had to understand the company, its markets and its prospects top to bottom. It was a near-impossible task, and the IRS suffered some key losses in court, which only emboldened companies to stake out even more aggressive positions.
In 2011, the IRS picked Samuel Maruca to lead the new unit. A partner at the prominent law firm Covington & Burling, Maruca had spent decades advising corporations on “transfer pricing,” as this area of tax is called, and facing off against the agency on audits. He came to the job, he said, to help fix a broken system.
Maruca is the picture of a tax lawyer (thinning hair, glasses). But unlike many of his colleagues, he expresses himself clearly, sometimes in moral terms. He told peers at industry conferences that the nation’s corporations had grown excessively bold. “We would all benefit,” he said, “from a resurgence of moderation and heightened regard for principle.”
Women in business suits walk past the local offices of Microsoft inside an office park, in Guaynabo, Puerto Rico, Tuesday, March 20, 2007. Brennan Linsley‚—AP Photo
To restore balance, the IRS “must produce some winners,” he said. “I really want to make a difference.”
Maruca built a team of about 60 — agents, attorneys and economists — with half recruited from outside the agency. For the IRS, this was a notable influx of talent. But it was still modest when compared with the scale of the challenge.
Among the key advisers on the new team was Eli Hoory, an attorney who had worked under Maruca at Covington and followed him over to the IRS a few months later. Hoory, then in his mid-30s, had a shaved head and prominent nose that gave him an angular appearance. Known for being extremely bright, he was also frank and outspoken, sometimes to a fault. A graduate of the U.S. Coast Guard Academy, he’d served as a reservist during law school and studied at the London School of Economics before landing at Covington.
Maruca and his team set about canvassing the IRS’ inventory to find good targets for producing “some winners,” as he’d put it.
Microsoft’s Puerto Rico deal almost slipped by. The week before Maruca started at the IRS in May 2011, the agency, which had already been auditing the transaction for four years, completed its work and sent Microsoft its findings.
That 2011 assessment by the IRS isn’t public, but it’s clear Maruca and Hoory were unimpressed. The IRS, they thought, had been credulous, accepting too many of Microsoft’s numbers. They also thought the IRS was set up for failure. The agency had been able to retain only one outside expert, an economist. If the case went to court, Microsoft would surely summon a cast of varied experts to undermine the IRS’ position.
It seems likely, given the size of Microsoft’s Puerto Rico transaction, that the IRS in May 2011 had hit the company with a tax bill in the billions. But Maruca and Hoory thought the agency was thinking small.
Maruca told Microsoft the IRS needed more time, and in early 2012, the IRS withdrew its findings. By then, Hoory had taken leadership of the audit. He began sending new document requests to Microsoft, asking for more interviews and considering what other experts the IRS needed to round out its case. Over the next three years, he and his team amassed tens of thousands of pages and conducted dozens of interviews with Microsoft personnel. (Hoory, who still works at the IRS, declined to comment.)
The evidence they assembled told a story. It revealed how Microsoft had built a massive Rube Goldberg machine that channeled at least $39 billion in profits to Puerto Rico. It revealed a workshop of outside consultants, economists and attorneys who, as they had with other corporate clients, meticulously planned a structure that seemed to have a basis in the law, even if it violated common sense.
The documents showed that Microsoft had been caught red-handed, Hoory believed. Despite all their care in preparing for an eventual audit, the deal’s architects had left damning evidence that, he thought, made it possible for the IRS to expose the sham.
In 2003, Microsoft had a decision to make. Since 1989, it had operated a manufacturing facility in the small city of Humacao at the eastern end of Puerto Rico. The factory existed because of a tax break, and that break was due to expire after 2005.
A 2003 company memo laid out the quandary. Microsoft had about 85 employees in Humacao burning Windows and Office software onto CDs. Doing that in Puerto Rico had saved the company almost $200 million in taxes over the years. Closing the plant and outsourcing Microsoft’s CD production when the tax break expired was the obvious choice. “The cost to manufacture one CD [in Puerto Rico] is from 1.4 to almost three times the cost of outsourcing,” the memo said.
There was one alternative to closing the plant, but it would “require very aggressive tax structuring and work,” according to Microsoft’s head of international tax, Glenn Cogswell, as cited in the 2003 memo. Microsoft could create a new tax advantage by using the factory as a means to stash U.S. profits. The memo dismissed that option as impractical.
But the next year, Microsoft changed its mind. KPMG, one of the “Big Four” accounting firms, made a persuasive pitch. Microsoft should engage in that very aggressive tax structuring, after all.
KPMG had “significant experience assisting Fortune 50 companies” faced with the same problem, according to a July 2004 PowerPoint presentation to Microsoft executives. KPMG could do for Microsoft what it had done for those other giant American corporations: send U.S. profits to the island.
Puerto Rico — which has an autonomous tax system even though it’s a U.S. territory — didn’t have a particularly low tax rate, but KPMG could fix that. Its partner in the San Juan office, the PowerPoint said, had “previously advised several U.S. clients on migrations of this type and successfully negotiated significant tax holidays for U.S. companies with the Puerto Rican government.”
The next month, a team of Microsoft executives met with KPMG to hash out the details. They made sure not to leave a paper trail. “This needs to be a verbal briefing with no handouts and no e-mail,” wrote Bill Sample, a senior Microsoft tax executive, in an email scheduling the meeting. “We will do this on the white board.”
Shuttling company profits from country to country was not a new idea for Microsoft. Not long before, it had conjured deals to send its profits in Asia to Singapore and its profits in Europe and Africa to Ireland. The Puerto Rico transaction, which would cover North and South America, would be the biggest and boldest yet.
Here’s how it would work. Microsoft’s Puerto Rican subsidiary would produce all the CDs for the American market. Because it was the sole producer, it would buy the exclusive rights to Microsoft’s technology. Those licenses would entitle the Puerto Rican company to a share of Microsoft’s American profits.
According to Hoory’s calculations, the factory subsidiary would send the parent company about $31 billion over 10 years — and receive almost $70 billion in profits in return over the same period. Instead of being taxed in the U.S., where the rate was 35%, the $39 billion difference between those figures would be taxed in Puerto Rico at a rate near 0%. It was a long-term plan that could continue indefinitely.
It didn’t matter that the transaction was fundamentally absurd. Microsoft would never actually sell its most valuable asset to another company, let alone to a little tropical factory. Still, there were rules for constructing and valuing deals like this, and Microsoft and KPMG set out to prove they were following them.
Minutes from meetings involving KPMG’s experts show them straining to fit the details together. “This work needs to be very detailed and [have] incredibly great documentation to refute any IRS issues,” read the notes for one meeting in March 2005.
One problem was that there was a rush to get the deal done that summer, but Microsoft’s factory wouldn’t be ready to produce 100% of the CDs that soon. As a result, the new Puerto Rican subsidiary would only be a company on paper, while the old Puerto Rican company was still pumping out CDs. In order for the transaction to seem genuine, the new Puerto Rican subsidiary needed to appear to be bona fide.
“What can we do to make this thing real?” was the question, according to the notes for another KPMG meeting. They had an answer: “Go out and do something substantial, so go out and use insurance. Point to a contract with a third party … [that] shows that something real is being done.”
The spitballing continued when KPMG’s team met with a group of Microsoft employees a few days later. “What happens when all info sent online?” was another conundrum, according to meeting notes. If customers downloaded the software instead of getting it on a CD that was produced in Puerto Rico, would the premise of the deal — that it was based on CD manufacturing — be undermined? They ultimately decided that wasn’t a problem, “because customers seem to want CDs, and we’ll put the servers down in PR and send them CDs too.”
KPMG kept its promise to land a rock-bottom rate from the Puerto Rican government. In exchange for Microsoft’s promise to hire an additional 46 full-time employees, Puerto Rico’s secretary of state agreed to grant the company a tax rate that ranged from 0% to 2% for a period of 15 years. A spokesman for KPMG declined to comment.
By the next year, Microsoft had shifted all CD production for the Americas to Puerto Rico. In a written self-evaluation, a Microsoft executive celebrated: “This was a pure tax play and because we took the factory live by July 1 we were able to start claiming the tax benefit as planned.”
But Microsoft wouldn’t be telling the IRS the transaction was a pure tax play. The two sides of the transaction were supposed to arrive at a fair, “arm’s length” price, one that an unrelated company might pay to another. Of course, Microsoft was dealing with itself, and no company of its size had ever sold anything like what it was selling. So, to arrive at a price, KPMG’s economists generated complicated models. These would provide protection if the IRS questioned Microsoft’s numbers. The price was supposedly impartial, based on a thorough analysis of all the relevant variables.
One document in particular exploded this fallacy, Hoory believed. Shortly after the deal went live, a consulting firm delivered a report to Microsoft about the Puerto Rican subsidiary. It valued the company at $30.4 billion. As Hoory later testified, the document was “effectively saying a company that was worth nothing or a nominal amount on June 30th, 2005, was worth $30 billion one day later.”
On Jan. 14, 2014, Hoory stepped in front of a room of Microsoft executives and attorneys from Baker McKenzie, Microsoft’s law firm for the audit. It was his first presentation of his team’s findings. He did not hold back, showing slide after slide that detailed the distortions and errors of the Puerto Rico deal.
“Deal of the Century Return on Investment” said one slide. According to the IRS’ analysis, the Puerto Rican subsidiary had been set up to reap a 200% annual return. It meant that Microsoft’s price for the transaction was not remotely plausible.
Hoory argued that just about every aspect of the deal should be valued differently. Just what those numbers were is not public, but it’s clear he thought Microsoft had caused the Puerto Rican subsidiary to substantially underpay for the software rights while overestimating how much profit the U.S. operation could legitimately send to Puerto Rico.
The presentation put Microsoft on notice. Their big, bold Puerto Rican deal was the target of a big, bold audit. After Hoory finished his presentation, Microsoft’s tax team “said they had to think a little,” Hoory later testified.
It’s routine for IRS agents to share initial findings with corporations under audit. The point is to see whether the two sides might come to an agreement or at least agree on certain aspects and narrow the number of issues under dispute. That was part of Hoory’s mission that day.
But a month later, Microsoft told Hoory and Maruca that it did not want to discuss resolution. Instead, the company wanted the IRS to finalize its findings. With that in hand, Microsoft could then move the fight to another part of the IRS: the Office of Appeals. There, Microsoft had good reason to think it would fare much better.
The Office of Appeals provides taxpayers big and small with an independent review. If an agent has gotten it wrong, appeals can fix it. The office also aims to stem the flood of tax disputes into the courts. It’s where taxpayers go looking to cut a deal.
IRS agents often grouse about working hard on an exam only to see an appeals officer slash the amount of tax owed. To some veterans, the Office of Appeals is known as “the gift shop.”
“No question, Exam hates Appeals,” said Gerry Ouellette, who served as an appeals officer on large corporate cases until 2012 and now works with a Boston firm that advises taxpayers facing audits.
But there’s a logic to the slashing, he said. One reason that tax bills are cut is because the IRS fears it may lose in court. Appeals officers are supposed to judge the “litigation hazard” of a case and put a number on it. For instance, an appeals officer who thinks the IRS is only 30% likely to prevail in court might settle for 30 cents on the dollar.
That’s particularly likely to happen on large, complex audits. According to a 2016 report by the IRS’ inspector general, appeals of transfer pricing audits reduced the amount of tax owed by an average of 81%.
Appeals officers often feel pressure to be lenient, said Willie Chin, a recently retired Appeals officer who handled corporate cases. “If I have to give up the penalty to resolve the case, to move the case along, that’s the idea: to move the case along,” he said. Large corporations rarely face penalties at all, a 2019 report by the IRS’ inspector general found, and when they do, they can count on an appeal to reduce or eliminate the penalties 94% of the time.
The story is different for taxpayers who aren’t represented by a battalion of attorneys and CPAs, Chin said: “In my opinion, we hammer the little guys and we let the big guys go.”
Maruca and Hoory knew all this. It was no mystery why Microsoft was so eager to appeal. But they also knew they could prevent it.
The IRS has the power to “designate a case for litigation” — in other words, force a taxpayer to skip Appeals and go straight to court. It is a move sure to anger a powerful adversary. Not only does an appeal offer the corporation a good opportunity to see the audit overturned, but it does so with the promise that it will keep the details quiet. The U.S. Tax Court, by contrast, is a public forum.
In March 2014, Hoory told Microsoft that the IRS was considering designating the case for litigation. The case was just too big and unique to send to Appeals. “It is such a huge divergence in numbers,” he later testified, “and we have put a lot of energy into it.”
Hoory’s move was aggressive, but not unprecedented. From 2010 through April 2019, the IRS designated 13 cases for litigation, according to agency documents ProPublica obtained through a public records request. The IRS refused to divulge a list of those cases, but the known instances include other large corporations facing transfer-pricing audits: Amazon, Coca-Cola and Facebook.
Maruca and Hoory had other, more radical ideas on how to tackle such a massive case.They wanted to hire a high-powered outside attorney to help the IRS. In the past, they believed, the IRS had failed in court on big, complex cases for two main reasons. The first was that the agency hadn’t done enough work uncovering evidence. It was an error they were well on their way to fixing, they thought. The other stumbling block was the agency’s inability to make a persuasive argument and tell a compelling story to a judge.
Maruca and Hoory wanted a legal star, someone with the experience of winning an enormously complex case against a gigantic foe. But such attorneys are typically found in elite law firms, where large corporate clients might balk at the firm representing the IRS.
Maruca and Hoory concentrated on finding top attorneys who didn’t usually handle tax matters. Their first choice was David Boies. He had beaten Microsoft before, when he represented the Justice Department in its landmark 1998 antitrust lawsuit against the company. But Boies had another case that created a conflict of interest and couldn’t take the assignment.
The IRS’ next choice was Quinn Emanuel, which describes itself as a “global litigation colossus without equal.” That fit the bill. In May 2014, the two sides signed a $2.2 million contract. It provided for two of the firm’s top partners, John Quinn and John Gordon, each of whom bill more than $1,000 an hour, to spend hundreds of hours on the case along with a small team of other Quinn Emanuel lawyers.
The IRS did this quietly. It wasn’t until late August 2014, on the third page of a letter to Microsoft about scheduling further employee interviews, that Hoory let word slip. The IRS “will have one or more contractors attend,” he wrote. This “may include outside counsel from Quinn Emanuel.”
It didn’t go unnoticed. For the next week, Hoory and Mike Bernard, then Microsoft’s U.S. tax counsel, fired letters back and forth. Microsoft requested a copy of the IRS “engagement letter” with Quinn Emanuel. Hoory, apparently determined not to be too helpful, responded that there was none. When Bernard expressed disbelief and asked more generally for any contract, Hoory sent over a copy of the main section of the contract.
Microsoft was “deeply concerned” about the role of Quinn Emanuel, Bernard wrote, because the firm represented Microsoft competitors like Google and Motorola. He asked Hoory for more details. “We have conflict, confidentiality and ethical concerns,” he wrote.
Hoory responded but also urged Microsoft to make it clear whether it would allow the Quinn Emanuel attorneys to participate in the interviews. When Bernard again asked for more detail, Hoory wrote that he’d been accommodating, but “we are at a decision point now.” Would Microsoft prevent the Quinn Emanuel attorneys from questioning witnesses? “If you do not agree or do not respond, the Service will consider alternatives,” Hoory wrote.
A few weeks later, Hoory arrived at Microsoft’s Redmond, Washington, headquarters with a team of a few other IRS employees, a couple hired experts and Gordon of Quinn Emanuel. On Microsoft’s side, two senior tax executives and a group of Baker McKenzie attorneys attended the interviews.
Microsoft’s outside attorneys kept a close watch on Gordon, the IRS’ outside attorney. Whenever Gordon repeatedly pressed a Microsoft employee for an answer, Daniel Rosen of Baker McKenzie jumped in. “This is being done under the proviso that you guys control this,” Rosen told Hoory, according to a transcript of one interview. “If you don’t control Mr. Gordon, then this is over.” A few days later, when Gordon pushed another Microsoft employee to clarify an answer, the scene repeated. “We’re done with this line of questioning,” Rosen said. “And Mr. Gordon’s not directing this witness to answer any questions,” he said, “Mr. Hoory can, but this gentleman cannot.”
By this time, the investigation had grown intense. Hoory and his team were racing to put their case together while pushing Microsoft to provide more documents. They were up against an approaching deadline. At the end of the year, the statute of limitations would expire. The law gives the IRS three years to complete an audit, and Microsoft had agreed several times to give the IRS more time, as large corporations often do. Microsoft had done this because it was hoping to resolve the audit without a messy court battle. Now that hope was gone, and there would be no more extensions.
As the clock ticked down, Hoory considered his options. Microsoft had both buried the IRS in paper — sending over 1 million pages, much of which Hoory later said wasn’t relevant — and, in his view, failed to send everything the IRS had asked for. If he hurriedly wrapped up the case, he ran the risk of missing crucial pieces of evidence. The stakes, he decided, were too high. So, yet again, he decided to take a remarkable step.
In audits of large corporations, the law grants the IRS a special power. It can issue a “designated summons” for documents and interviews that, with the approval of a federal judge, temporarily stops the clock. After the summons is resolved, the clock starts again. It’s a muscle move that wrenches away any control the corporation has over the audit.
Before Maruca and Hoory arrived in 2011, the IRS had not used this tool since 1996. Partly, that was because it clashed with an IRS culture that valued amicable relations with the country’s largest taxpayers. There was also the potential cost to antagonizing powerful opponents. But for Hoory, these were secondary concerns. In October 2014, the IRS issued a designated summons to Microsoft, demanding 48 categories of documents.
The IRS also summoned for interviews a roster of Microsoft employees, including Steve Ballmer, who’d recently left as CEO. KPMG, too, got a summons. The IRS then filed suit in a federal court in Seattle to enforce its demands.
Microsoft set out to quash the summonses. Its attorneys argued that federal rules exclusively permit IRS employees to question witnesses. The IRS had broken the law by allowing the Quinn Emanuel attorneys to question witnesses, according to Microsoft, and by essentially putting them in charge of the audit.
It was fundamentally wrong for the IRS to use high-powered litigators, one Microsoft attorney argued in a hearing, because “they know how to win, and that’s very different” than the IRS’ mission. The IRS was supposed to work with taxpayers to “find the right number,” she said, not focus on winning.
The marks of Quinn Emanuel’s obsession with winning were all over the IRS’ actions, Microsoft’s attorneys contended. It was the hired sharks who’d prompted the agency to deluge Microsoft with more document and interview requests. It was their idea to force those interviews to be under oath, as opposed to the more common IRS practice of conducting “informal” interviews. And it was their idea to knock on Ballmer’s door with a summons. “It’s not unusual, in high-stakes litigation,” said one of Microsoft’s attorneys, for law firms “to try to put pressure on their opponent by doing things like asking to depose the CEO.”
The dispute over the summons became an opportunity for Microsoft to put Hoory — and the sort of IRS that he represented — on trial. Hoory took the stand to defend the IRS’ actions.
At the hearing in August 2015, Philip Beck handled the questioning for Microsoft. A top litigator, he’d once been a hired gun for the government himself, having replaced Boies as counsel in the antitrust case against Microsoft. Now he was on Microsoft’s side, arguing against the government’s use of outside counsel.
Beck found Hoory to be a frustrating quarry. He would not be pinned down and had a detailed explanation for everything. After an hour of this, Beck complained, “Your Honor, we are never going to get done today if I get 10-minute answers for yes or no questions.” The judge urged Hoory to be briefer. “I will do my best, Your Honor,” Hoory replied.
Beck’s frustrations continued as Hoory clouded the simplicity of Microsoft’s case. But in one area, Hoory allowed a simple answer. Beck asked: Wasn’t this “the first time in the history of the universe” that the IRS had hired an outside law firm to help conduct an audit?
Hoory said that was correct, adding, “I guess I am a trailblazer.”
Microsoft’s complaints grew louder when Hoory and a Justice Department attorney presented the IRS’ side. In addition to laying out the Puerto Rico transaction, Hoory divulged details that made an obvious tax dodge look even worse. Microsoft’s lawyers called that “mudslinging” meant to “punish” the company “for daring to oppose the IRS.”
Hoory testified that Microsoft had used a growth rate of 4% for tax purposes while publicly reporting to investors expected growth of 10% to 12%. One error in their calculations, he said, had “understated revenues by approximately $15 billion.”
After almost four hours of testimony, Hoory stepped down. “It has been a long day,” U.S. District Court Judge Ricardo Martinez said. “Mr. Hoory talks a mile a minute, and it was hard to follow up on all of that.” He added, turning to Hoory, “Working for the IRS is a good job for you.”
Microsoft, meanwhile, was fighting on other fronts, too. Its attorneys pursued Freedom of Information Act requests to dig up as much as they could about the Quinn Emanuel hiring, eventually filing several lawsuits to force the IRS to turn over documents.
The company also turned to its friends in Congress for help. In May 2015, Sen. Orrin Hatch, R-Utah, then the chair of the committee that oversees the IRS, and who counted Microsoft as one of his top campaign contributors, fired off a letter to the IRS commissioner about “outsourcing” the agency’s audit of “a corporate taxpayer.” That “appears to violate federal law and the express will of the Congress,” he wrote, and the $2.2 million contract “calls into question the IRS’ use of its limited resources.” By that time, Republicans in Congress had cut the IRS’ budget by $1.5 billion from its 2010 peak. (A spokesperson for Hatch declined to comment.)
Then Sen. Orrin Hatch, R-Utah, talks with reporters in the Senate subway before the policy luncheons in the Capitol, May 12, 2015. Tom Williams—CQ Roll Call/AP Images
Hatch asked the IRS “to immediately halt” Quinn Emanuel’s work on the case. Microsoft filed a copy of the letter in court a few days later.
But Martinez ruled in favor of the IRS and its use of the special summons to suspend the statute of limitations and demand additional documents. He wrote that he was “troubled” by the IRS’ use of outside counsel since it was unprecedented and that the hiring might “lead to further scrutiny by Congress.” But, he wrote, “Microsoft has no factual basis for the grand assertion that Quinn Emanuel was or will be engaging in taxation or conducting the audit.” Rather, the firm’s role was “limited” and “under the direct supervision of the IRS.”
The IRS had clear legal authority to hire Quinn Emanuel and for its attorneys to question witnesses, the judge ruled. Microsoft would have to comply with the summons.
It was a setback for Microsoft. But as the court case ground on, the company and its allies went to work on Capitol Hill to make sure something like this never happened again.
In the autumn of 2015, a new trade group emerged. It was called the Coalition for Effective and Efficient Tax Administration, or CEETA. Among the members were Microsoft, the U.S. Chamber of Commerce and a host of other business and tech groups. The new coalition hired lobbyists at PwC, another Big Four firm and one with a stable of well-connected former government officials and congressional staff.
The new group’s clout soon became clear. In October 2015, just a few days after CEETA members fired off a letter to the IRS decrying the use of outside counsel on audits, Pam Olson, one of CEETA’s PwC lobbyists, sat down for a two-hour meeting with Doug O’Donnell, the head of the IRS division that audits large corporations.
“When it comes to the tax law, I don’t like the word ‘enforcement,’” Olson, who oversaw tax policy as a Treasury Department official in the early 2000s, said in a speech to corporate tax executives that December. “Let’s remember that the agency is the Internal Revenue Service,” she said. Olson forwarded a copy of her speech to O’Donnell, who responded, according to emails obtained by ProPublica, “Thanks for sharing — I appreciate your perspective.” He said he would pass it on to other senior IRS officials.
CEETA’s lobbyists stalked the halls of Congress, urging reforms in response to the IRS’ newfound aggression. They found a ready audience. In late 2015, a senior aide to Hatch participated in an online seminar for tax professionals along with a senior Microsoft executive. According to a description, participants discussed “the actions of an increasingly aggressive IRS” and the need for reform. (The aide, Christopher Armstrong, has since left Congress and now works as a lobbyist. He did not respond to requests for comment.)
“Focusing on litigation destroys cooperative relationships between taxpayers and the IRS,” read a document distributed by CEETA’s lobbyists to lawmakers around that time and obtained by ProPublica. The proposals targeted the three bold steps Hoory had taken in the Microsoft audit: CEETA wanted lawmakers to curtail the IRS’ ability to block taxpayers’ access to the Office of Appeals, rein in the use of designated summons and prohibit outside lawyers from questioning witnesses.
The IRS had used these tools to audit one of the world’s largest companies and in few other cases. From 2010 through 2019, it blocked appeals in 13 cases (not counting Microsoft’s), used a designated summons in one case other than Microsoft’s and hired an outside attorney on an audit once. By comparison, from 2010 through 2018, the IRS completed about 18,000 audits of corporations with assets above $1 billion.
But CEETA members warned that the tactics posed a threat to small businesses. The leader of one tech group testified before the House Committee on Small Business about the IRS’ use of “intimidation tactics.” And the Small Business and Entrepreneurship Council sent a letter to Sen. Rob Portman, R-Ohio, warning that small business owners “certainly do not have the resources to go up against a powerful $1,000-an-hour legal team in a tax dispute.”
A spokesman for CEETA, Brian Cove of Financial Executives International, said in a statement, “CEETA believed that IRS audit process changes often spread from one part of the IRS to another and could have an impact on small businesses.”
Portman introduced a bill that followed all three of CEETA’s recommendations. The next year, a bipartisan group of House lawmakers introduced a bill that largely mirrored Portman’s. CEETA cheered both times. (The lawmakers declined to comment.) Microsoft, Coca-Cola and Facebook, all companies that had had their path to appeals blocked, lobbied to support one or both bills, along with a collection of tech and business groups.
The ideas were ultimately included in a large, bipartisan bill called the “Taxpayer First Act” with a wide range of IRS reforms. The bill contained provisions similar to what CEETA had sought, though milder. The IRS would have a new process to follow in order to block appeals or designate summonses and would have to report to Congress when it did so. And the agency would now be barred from using an outside attorney to question a witness under oath. The bill passed overwhelmingly and was signed into law in July.
CEETA’s success sent a clear message to the IRS, one the agency appears to have heeded. In 2016, for example, when the IRS was locked in a battle with Facebook, the agency considered using a designated summons since the statute expiration was approaching. But the IRS did not use it, even though, according to an agency court filing, “the examination team had not completed its fact gathering efforts when the clock ran out.”
The era of daring, new initiatives has passed at the IRS. Instead, the agency appears to have largely avoided picking fights with large corporations and embraced the sort of cooperation urged by Microsoft and CEETA. In part, this is because the IRS is simply too weak. The agency has lost more than a third of its enforcement staff since 2010, and the result has been fewer audits. For corporations with assets over $20 billion, the audit rate has declined from about 100% in 2010 to under 50% in 2018.
The makeup of those remaining audits tells a story, too. The number of contentious audits, where corporations disagreed with the agency’s findings, have plummeted from 185 to 25, a drop of 86%. But audits that ended in agreement have stayed relatively steady over the years. Not surprisingly, audits ending in agreement tend to result in relatively small adjustments.
Microsoft, meanwhile, has continued to reap the benefits of its offshore deals. In 2017, the last year before the new tax law cut the corporate rate from 35% to 21%, Microsoft paid $2.4 billion in taxes on $29.9 billion in income, a rate of 8%. By that point, Microsoft had stored $142 billion in profits offshore, according to its public filings. Only two other U.S. companies had accrued more, according to the Institute on Taxation and Economic Policy: Apple, with $246 billion, and Pfizer, with $199 billion.
Bringing those foreign profits into the U.S., Microsoft disclosed in 2017, would have resulted in a $45 billion tax bill. Of course, the company didn’t do that. Instead, like other companies that stashed profits offshore, it waited for a better deal. There was good reason to wait: Back in 2004, for example, Congress had passed a tax holiday that allowed multinationals to bring home foreign profits at a tax rate of 5.25%.
At the end of 2017, the Trump administration and Republican Congress came through. The Tax Cuts and Jobs Act required U.S. companies to bring home those foreign profits, but at a one-time rate ranging from 8% to 15.5%. So, instead of a $45 billion tax bill, Microsoft says it will pay $18 billion under this provision, a savings of $27 billion.
Time marches on. But the IRS and Microsoft are still in court, the clock still stopped.
The two sides most recently brawled in 2016. As before, the fight involved Hoory and the IRS taking a relatively aggressive position, and Microsoft and its allies reacting with dismay.
The dispute began when Microsoft refused to turn over some documents, most of them involving KPMG, in response to the summons. Microsoft argued the documents were protected by a privilege for tax advice. The government countered with an inflammatory claim: The Puerto Rico deal was, as Hoory put it in a filing, “illusory in nature, serving no material economic purpose except to shift income to Puerto Rico” and was thus a tax shelter.
A tax shelter is something done mainly to avoid taxes, whether legally or illegally, and the law provides far less protection for advice on such a scheme. In response, Microsoft argued that its Puerto Rican company “was a real business with real risks and was not a tax shelter.”
Its allies jumped in to help, too. The Chamber of Commerce filed an amicus brief, arguing that “the extreme positions articulated by the government … would chill businesses from obtaining and relying on the uninhibited advice of their tax advisors.” Other business groups made similar arguments.
In May 2017, Martinez ruled that he would view the disputed documents privately and then decide whether they ought to be turned over. Nearly three years later, he has yet to issue a ruling. (The judge was still reviewing the question as of early January, according to a person in his chambers.)
And so, 12 years after the IRS began its audit of the Puerto Rico deal, eight years after Hoory began his work on it, and five years after the IRS sued to enforce its summons, the audit continues.
One day, the judge will issue his ruling. Soon after, perhaps, the summons will be fully resolved, and the clock will start again. A few months later, the IRS will, at long last, officially tell Microsoft what it owes. In all likelihood, Microsoft will then file a petition in U.S. Tax Court, thus beginning a new court battle. From there, the fight could shift to a U.S. appeals court. A further appeal to the U.S. Supreme Court is certainly possible.
And then, eventually, perhaps someday in the mid-2020s, the audit of Microsoft’s 2005 Puerto Rico deal will be done.
Update, Jan. 22, 2020: On Jan. 17, 2020, after this story was finalized for publication, but before it published, U.S. District Court Judge Ricardo Martinez issued his ruling on the remaining, disputed documents. It was another big win for the IRS in the case. (Martinez, who had taken the better part of three years to consider the ruling, issued it 10 days after ProPublica inquired about the delay.) Almost none of the documents were protected by various privileges, he ruled. Most crucially, he decided that all KPMG documents must be turned over, because the firm had been promoting a tax shelter. He wrote, “the Court finds itself unable to escape the conclusion that a significant purpose, if not the sole purpose, of Microsoft’s transactions was to avoid or evade federal income tax.” It’s an outcome that “serves the public interest,” he wrote, given the difficulty of the IRS’ task of discovering underreporting of corporate taxes. Barring an appeal, the ruling resolves the summons enforcement case and means the audit can now be completed by the IRS in the coming months.
This article is copublished with ProPublica, a nonprofit newsroom that investigates abuses of power. Sign up here to get their next investigation.


fortune--2020-01-22--The Conversation: Google and Alphabet CEO Sundar Pichai on managing a tech giant’s growing pains

Sundar Pichai, the 47-year-old CEO of search-ad giant Google, also became head of its parent, Alphabet, on Dec. 3, when the company’s cofounders, Larry Page and Sergey Brin, announced their intention to step away from day-to-day business. In his first interview since his promotion, Pichai sat down with Fortune at Google’s Mountain View, Calif., headquarters for a wide-ranging conversation that covered Pichai’s path to power, the heavy management load he carries, and the benefits and burdens of running a massive, no-longer-youthful company. This edited version has been condensed for space and clarity.
What to expect from the new boss
When did Larry Page and Sergey Brin tell you about the change?
Pichai: It was a series of conversations over time. As Google turned 20 last year [in 2018], that was the first time I think they probably started having longer-term conversations. Particularly when Google hit 21 in September, that was a kind of a milestone. They did actually speak about it with me in the context of the company turning 21, like a child ready to be independent. And they did want to play a different role as advisers and founders.
Alphabet was formed, and you became CEO of Google, in 2015. Now that you’re running both, does the rationale hold today? Do you still need Alphabet at all?
I definitely think so. It has allowed us to not have a single management team try to scale and deal with many different separate areas. And how we need to approach each of these areas sometimes can be very, very different. They are different businesses with different time horizons. Alphabet allows us to pursue some of the other areas with maybe different structures we need. So, for example, we have a very successful venture and growth investment portfolio¹, which allows us to partner literally with hundreds of companies.
And we can manage them with the discipline and the rigor of an investment company. Also I think with the “other bets”² we are definitely at a phase where, while we take a long-term view, we also want to marry that with the discipline of making sure they are doing well. The Alphabet structure allows us to set up some of these things as independent companies and to raise money from outside investors. So if you take Verily³, for example, we have world-class investors like Silver Lake and Temasek, and we have a board. It’s a proper functioning company.
A technologist-manager leads
You mention investment discipline. The non-Google part of Alphabet loses a lot of money⁴. Now that you’re in charge, should we expect to see more investment discipline?
The question is, how do you assess the value of the entity you’re creating and how do your other partners and other stakeholders? It’s a direction we had already gotten underway. But you will see me focused on that more and emphasize that more⁵.
Will you seek outside investors for additional Alphabet entities?
We expect most of the “other bet” companies to follow a process like that over time⁶.
I was interested to learn that while you’re an engineer, you’re not a computer scientist. You studied materials science. Why did you pursue a career as a manager rather than a technologist?
I worked in engineering for a long time. I was a semiconductor engineer. Some of my early work was on building a 1GB DRAM [chip] in ’95⁷. But with the advent of the Internet I realized it would have a profound impact on everything we do. I saw that shift and wanted to play more directly in the development of the Internet.
Your claim to fame at Google was overseeing the development of the Chrome browser. Why was that so important?
In 2004, Flickr and Google Maps and Gmail were part of this exciting development where the web was shifting from just being about content to actually running applications. This was the moment when we realized the browser was actually a platform, a modern operating system for the Internet.
We started working on Chrome around 2005. Chrome really found its footing in 2011 or 2012. These things take time, and that’s what innovation looks like.
Managing at scale
Google is so much bigger than when you started. As a manager, how do you confront bigness?
First of all, there are a lot of advantages of scale. It allows us to take a long-term view, be very user-focused, and pursue projects, even where the immediate value is not clear. For example, we started investing in A.I. very early on. One of the big shifts I made when I took over as the CEO was to really embrace an A.I.-first shift in terms of how we were building our products. Many years ago we had to invest tens of millions of dollars to build special A.I.-purposed chips. That was before it was clear what we would use all this for, but scale is what allows you as a company to kind of bet on those trends. But with scale comes definitely challenges. It’s tougher to execute at scale.
But you constantly find when companies are smaller, they make more decisions that are more like betting the company. Then they tend to get more conservative at scale. So how do you make sure as a company, you’re ambitious, you’re willing to take risks, you’re willing to be wrong, you tolerate failures as you embrace success?
Other than in “other bets,” what’s an example of how you’re doing that in core Google?
Quantum [computing] has been a 13-year effort for us. Many years ago we saw the opportunity to provide other companies with our cloud technology, but we realized it’s a deep commitment to drive that shift to be an enterprise-first company in our cloud area.
That’s the kind of commitment you take and the journey you take. So we place big bets all the time. But you have to work harder at making sure you’re effective.
It must be a personal challenge for a CEO too. How many direct reports do you have?
It’s about 16.
That’s a lot of people.
It’s a lot of people. It’s a big company⁸.
Do you intend to have a No. 2, a chief operating officer?
We have extraordinary leaders, people who are really empowered to run their businesses. And we have world-class functional leaders. I do think it’s a team sport. If you think, for example, about building the great “assistant” experience in the context of Google Pixel⁹, we need different teams to come together to make that possible. And we have very capable leaders. Take Thomas Kurian running Cloud¹⁰. He can make decisions for Cloud. And I partner with him closely.
So I’m hearing you say putting someone between you and your 16 direct reports is not currently a priority.
We have a structure that works well.
Let’s talk about Google’s famous culture. Last year you dramatically changed the company’s TGIF all-hands tradition¹¹. Why?
We are going to continue having TGIF, and we will always make changes to TGIF. Most employees, when they come into Google from the outside, regardless of the level they come in, they get blown away by the level of transparency within the company. Those are all cherished traditions of the company. It is just that when the company is over 100,000 people, at what unit levels do you kind of do those things?
But you were clear at the time that there had been a problem with information leaking from the TGIFs. That implies some employees could no longer be trusted.
At their scale TGIF had definitely gotten harder. Transparency without context is also not easy. When you have 1,000 people, everybody has shared context for what the decisions are. To try to do this at 100,000 people doesn’t always work in that centralized form. So those are the nuances of it. And so it’s something we are going to play with and evolve and continue. But we’ll work through it as a company. We always have.
Do you think Google employees are too entitled¹²?
Oh, no. I feel fortunate to have a company where employees deeply care about the work they do and the impact the work has.
Who do you see as your biggest competitors?
I’ve always worried as a company at scale your biggest competition is from within, that you stop executing well, you focus on the wrong things, you get distracted. I think when you focus on competitors you start chasing and playing by the rules of what other people are good at rather than what makes you good as a company.
Do you have a scenario you plan for in which regulators break up Alphabet on antitrust grounds?
At our scale we realize there will be scrutiny. We always engage constructively, and we take feedback to the extent there are areas where sometimes we may not agree with it. But obviously we understand the role of regulators.
How can you convince skeptics that Google can be trusted with users’ data?
Today, we provide some of the most important services out there for users. Every day users come to Google to ask us profound queries. Privacy is something we are constantly evolving and trying to do better. We think we can use A.I. over time to give more benefits to users with less data. That’s the direction we are working on.
Your emphasis on cloud computing seems to be a clear acknowledgement that Amazon has a business worth competing against.
We are a cloud-native company. As a company we operate many services with a billion users each, and we’ve been doing cloud as long as anybody else. It’s a big opportunity, but we are doing it because we genuinely think when we look at our technology we see that we can offer something differentiated and we are world-class in our ability to do so. We obviously have competitors. But why you do something is about user focus. You want to originate there, for that to be a true north.
Before we run out of time, I have my Fitbit on my wrist. I don’t see anything on yours.
I’m careful about [what I wear] because we’re constantly testing stuff, and I never know what’s released or not. We are obviously excited by the potential for using technology to help improve fitness and health outcomes for millions of people.
Last thing. You got a big raise last month. Do you and your wife have a plan for what you’re going to do with your wealth?
I’ve always viewed society having played a big role in helping me to reach where I am today, and our intent is to give back. I’ve always viewed my life as a phase in which I’m working hard and trying to achieve impact in the context of the work I do through the products we build. But there’s a phase of my life when I want to step back, and that will involve giving back to society.
Between the lines (footnotes)
(1) How Alphabet invests: Capital G is an in-house private equity fund that invests in growing companies. GV, formerly Google Ventures, takes smaller stakes.
(2) Outside the core: When Google created Alphabet,
it categorized noncore entities like Waymo self-driving cars and Google Fiber broadband as “other bets.”
(3) Talk about healthy R&D: Verily Life Sciences is Google’s health- related research arm, one of several health initiatives. It has worked on projects as diverse as glucose-detecting contact lenses and robotic surgical equipment.
(4) Is the sky really the limit?: Wall Street expects the non-Google part of Alphabet to lose as much as $4 billion
in 2019. The head of Waymo, for example, recently said the company has invested “billions” in that project alone.
(5) Is the new CEO less invested?: Alphabet’s stock
has jumped in 2020 on the assumption Pichai would be less beholden than Page and Brin to the “other bets.” This comment will fuel that fire.
(6) Help could be on the way: Only Verily and Loon, a balloon-based Internet project, have drawn outside investors. Alphabet has a total of eight other noninvestment entities that could be candidates for new capital.
(7) Life before Google: Pichai worked at chip equipment maker Applied Materials after getting a master’s at Stanford. He did a stint at McKinsey and earned an MBA from Wharton before join- ing Google in 2004.
(8) Headcount: Google has gone from garage size to gargantuan in the past two decades. In 2018, the company had 98,771 employees, according to Bloomberg.
(9) Hey, Google!: Google Assistant is its answer to Amazon’s Alexa. The service is built into its Pixel phones and other devices. The company says it has 500 million users.
Culture
(10) Empowered deputy: An ex-Oracle executive, Kurian joined Google last year and has been given broad authority and resources to compete against Microsoft and Amazon.
(11) Not in the garage anymore: For years Page and Brin hosted all-company meetings every Friday afternoon at which an ask-anything culture ruled. Pichai has scaled back the frequency and free- wheeling nature of the meetings.
(12) 17 types of tofu: Google is famous for its perks, from free rides to work to ubiquitous free meals and snacks to back massages and dry cleaning. Another prized perk: the ability to comment to management on anything employees like.
A version of this article appears in the February 2020 issue of Fortune with the headline “The Conversation: Sundar Pichai.”
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fortune--2020-01-22--Blossom Capital’s latest funding round showcases jump in U.S. investment in European venture funds

How this ‘ Two Popes ’ and ‘ It ’ producer is improving diversity in Hollywood while others just pay @ @

If it is possible to hear an eye roll down a phone line, I’ve just heard it.
I’ve just asked Ophelia Brown, the 33-year founder of London’s Blossom Capital, the question she is sick of answering: what’s it like to be a woman and a founding partner of your own firm in the still male-dominated venture capital sector?
“It really annoys me because I don’t think this should be part of the discussion anymore,” she says with a withering sigh. “People should be assessing us on our performance, the same way they do with any manager. The female part should be removed out of the equation.”
Brown’s Blossom is certainly performing. The firm announced Wednesday that it had raised its second fund, a $185 million investment pool aimed at Europe’s early stage startups, less than a year after closing its inaugural $85 million one.
That first fund is ranked in the top 5% of those raised in the U.S. and Europe last year, according to data from Cambridge Associates and Prequin.
That performance convinced Blossom’s own backers—which include U.S. institutional investors as well as wealthy individuals—to invest in the second fund, which took just three months to raise.
The new fund is further evidence of the influx of U.S. money into European venture funds and European startups. Funding rounds in Europe involving U.S. investors jumped to $16.6 billion last year, up from $10.9 billion in 2018, according to data from Dealroom, which tracks those flows.
Among the startups Blossom backed in its first round are business travel site Duffel, payments company Checkout.com, the rent-anything marketplace business Fat Llama, and the cyber security firm Tines.
Brown, who studied classics, philosophy and ancient history at the University of Oxford before getting an MBA at INSEAD, worked in investment banking before cutting her teeth in venture capital working for Index Ventures, one of Europe’s most established VC firms and also an active investor in Silicon Valley.
At Index, Brown helped oversee a number of the firm’s American investments, including financial technology startup Robinhood, the U.S.-based free stock trading app. (Robinhood co-founder Vladmir Tenev was reportedly an investor in Blossom’s first fund.)
After almost four years at Index, she became a general partner at LocalGlobe, a London-based venture firm that originally specialized in seed funding that was co-founded by long-time Index Ventures veteran Saul Klein and his father Robin Klein. She left to found Blossom in 2017.
Brown acknowledges that diversity is an important factor in Blossom’s approach—but she doesn’t like to view diversity through the monocle of gender.
“It is important to have a diverse partnership, but diverse in terms of race, ethnicity, and upbringing,” she says. “They’re all important.”
Blossom’s partners include two women—Brown and Louise Samet, who was a product manager at Swedish payments firm Klarna before becoming a tech investor herself—and two men, Imran Ghory, who was an engineer before entering venture, and Mike Hudack, a Facebook veteran who, in addition to his role at Blossom, was the chief technology and chief product officer at Deliveroo, the fast-growing food delivery business which is now backed by Amazon. Deliveroo announced earlier this week that Hudack is leaving the company as part of a large management reshuffle in which several other top executives are also departing.
Brown does allow that she and Samet assess companies somewhat differently than Ghory and Hudack. “Men and women do judge different products differently.”
She says that even though Blossom’s team is small, it doesn’t make investment decisions by consensus—in fact, Brown isn’t a big fan of a consensus-driven approach. “We have disparate opinions,” she says, and she says Blossom’s process is designed to draw out those disagreements.
Most venture capital firms that do early stage investing—defined as seed capital and Series A rounds —invest in a dozen to two dozen companies from a single fund. Blossom is fairly unique in taking a more concentrated—and risky—approach: it invests in just five companies each year, Brown says.
She says this allows the firm’s four partners to devote far more time to each portfolio company than is typical of most other VCs. But it also means greater risk, she acknowledges.
“We are not using the portfolio to diversify or derisk,” she says. “Every company counts for us.”
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fortune--2020-01-22--Trump’s Davos speech sought to appease business leaders. On climate change, it isolated them

When President Donald Trump took to the lectern at the World Economic Forum annual meeting in Davos, Switzerland on Tuesday and derided “the perennial prophets of doom and their predictions of the apocalypse,” there was little doubt of whom he spoke. Just an hour before Trump delivered his stump speech touting his economic bonafides, 17-year-old climate activist Greta Thunberg had gone off-script at a panel at the same event, reciting figures that indicate the world is on track to blow past dubious global warning levels in less than eight years.
“I know you don’t want to talk about this,” she said. “I assure you I will continue to repeat these numbers until you do.”
Trump’s speech recalled the criticism he’d waged at Thunberg when she was named Time magazine’s Person of the Year. Trump, who belittles climate concerns and pulled the U.S. out of the Paris Agreement, said the teen needed to chill out.
But there’s been no dialing down of Thunberg’s message in Davos, nor does it represent a fringe or alarmist view among attendees. In fact, her cry for action has picked up steam at the annual mountaintop summit, reverberating around the crowd of top government and business leaders, many of whom are newly converted to the climate crisis.
The annual meeting’s theme alone, “Stakeholders for a Cohesive and Sustainable World,” points to climate change’s steady climb up executives’ risk assessments.
Greta Thunberg seemed to be the target of President Donald Trump’s criticism of climate change activists at the WEF 2020 annual meeting in Davos on Tuesday. FABRICE COFFRINI—AFP/Getty Images
Last week, BlackRock CEO Larry Fink issued a letter to fellow chief executives in which he said his firm would weigh environmental sustainability in making investment decisions. “It’s very clear, we in the capital markets, we bring risks forward,” he said at a Bloomberg event in Davos on Tuesday. “We don’t wait until the risk is in front of us.” In explaining the timing of his decision, he cited a barrage of client questions about framing a portfolio around climate change considerations. “[M]ore and more people are believing in some form of the [climate change] science if not all the science,” he said.
Likewise, Microsoft last week pledged to become carbon negative by 2030 as part of a wider sustainability push.
Questions remain about the feasibility of both commitments, but nevertheless they’re indicative of business’s speedy pivot to align itself with action on climate change. The economic implications of environmental catastrophes and pressure from younger generations of employees are accelerating the trend, KPMG CEO Lynne Doughtie told Fortune.
But as business examines its role in climate change, as well as possible solutions, it’s also coming to the realization that unilateral action isn’t enough.
“I take a lot of blame as a private company, but I can’t do it alone,” Zurich Insurance CEO Mario Greco said in a panel discussion in Davos. He said insurance firms had the “tough job” of deciding what to underwrite “based on ethical standards” and “compliance with the Paris agreement.”
“We don’t know exactly how the [insurance] industry should restructure itself; we’re not supposed to do that,” Greco said. Insurers are left to stop funding—a “brutal reaction to a market displacement,” he said. A global agreement on such matters is a potential solution, Greco added, but “a global agreement, if anything these days, is almost unthinkable.”
Fink also expressed skepticism that governments would intervene in meaningful ways.
“[G]overnments are so focused on electioneering and two-year election cycles, four-year election cycles, that we’re not seeing any true long-term planning,” he said. Climate change, Fink said, “requires real planning…climate change is not something that the Federal Reserve and all the central banks are going to be able to fix.” Rather, he said, “[I]t’s going to be fixed by a combination of public and private…and it’s going to require a great dialogue on moving this forward.”
On Tuesday, that kind of cooperation seemed a long way off—at least as far as the U.S. is concerned. In addition to ridiculing those who fear the climate crisis, Trump didn’t mention the words “climate change” at all—or, for that matter, how his government might help business address it.
For more coverage of the 2020 World Economic Forum annual meeting, click here.
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fortune--2020-01-22--GM’s Cruise unveils new self-driving car without steering wheels and brake pedals

From the outside, a new self-driving car from General Motors resembles a basic white minivan with an orange roof. But inside, it lacks some typically important features: a steering wheel and pedals for gas and brakes.
Cruise Origin, an all-electric autonomous car from GM’s Cruise subsidiary, was unveiled Tuesday night during a splashy media event in San Francisco. Unlike GM’s conventional automobiles, you can’t buy it. Instead, it will be used to ferry passengers of a planned ride-hailing service, akin to Uber and Lyft. The company did not say when or where that new ride-sharing service would debut.
The idea, however, is that drivers will be unnecessary. If so, steering wheels and foot pedals are of no use. It’s currently illegal for companies to test self-driving cars without any human safety drivers, but the company said it is talking with regulators to obtain waivers.
The new car, developed in partnership with Honda, comes amid a race for leadership in what is considered to be the next frontier in transportation. Alphabet’s Waymo, for instance, operates a nascent ride-sharing service using autonomous cars in Arizona that it says has 1,500 monthly active users. Meanwhile, last summer, Volkswagen said that it would invest $2.6 billion in the self-driving car startup Argo AI, majority owned by Ford.
Numeric display to open the doors of the Cruise Origin.
While on stage, Cruise CEO Dan Ammann revealed few details about Origin, like when it would debut on public streets or specifics about the proposed ride-sharing service. Instead, he pitched the new car as an example of a futuristic ride-sharing service that’s good for the environment and affordable.
“We need a huge number of people to use the Cruise Origin,” Ammann said, adding, “That won’t happen unless we deliver” on a goal of making the car inexpensive to produce and operate.
Ammann said that Cruise expects to produce the vehicles for “roughly half the cost of what a conventional electric SUV costs today,” without elaborating. He also bragged about the Origin’s “modularity,” which means that Cruise would be able to easily upgrade the car by swapping in new components.
Each Cruise Origin “will have a lifespan of well over one million miles— that’s six times more than today’s average car,” Ammann said. Additionally, Cruise will operate its ride-hailing fleet of Origins “all day and night.”
People can get inside Origin through its two doors that slide open like you’d see at a supermarket. Instead of using door handles, customers presumably punch a code on a keypad to get inside.
The interior of the Cruise Origin
Inside, there’s seats for up to six people—three people sitting on one side and three on the other with empty space in between. The seats are uncomfortable, like the thin cushions that cover ironing boards, although that may change as more people sit on the seats and they soften over time.
While riding, passengers can see information about their ride, like how long it will take to reach the destination, on two computer displays that hang from the ceiling.
One of the Cruise Origin’s display screens.
As a sign of its progress, Cruise said that it has been testing a rideshare service in San Francisco, using employees, and that those cars have traveled a million miles.
“No doubt what we laid out here is ambitious, but we are moving fast,” Ammann said.
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fortune--2020-01-22--Apple iCloud: How safe is it from hackers?

For years, Apple has tried to be the loudest proponent of digital privacy. But a new report casts doubt on the extent of the company’s privacy commitment and its willingness to block law enforcement from obtaining user information.
Apple quietly abandoned plans to add end-to-end encryption to content in iCloud, the company’s digital storage locker, Reuters reported. That means Apple can decrypt user data saved there, including all text messages, photos, and videos, and hand that data to law enforcement.
Two years ago, Apple had considered implementing end-to-end encryption on the service, according to the report. But Apple shelved the project after the FBI complained.
Apple did not respond to a Fortune request for comment.
Apple’s privacy practices are currently under scrutiny after President Donald Trump and U.S. Attorney General William Barr blasted Apple for not building so-called “backdoors” in iPhones that let law enforcement agencies unlock encrypted data and access it. The criticism came after Apple declined a government request to unlock two iPhones owned by Mohammed Alshamrani, who allegedly killed three people at a naval air base in Pensacola, Fla.
For years, Apple has argued that such backdoors harm user privacy because they could be exploited by hackers. But the latest Reuters report suggests that law enforcement can easily get access to data stored in iCloud as long as they provide Apple with a warrant.
Apple already uses end-to-end encryption on iMessages sent between users and on the data stored locally on iPhones and iPads. It helps users protect the data they stored on their devices, including for those who don’t use iCloud as a backup.
Riana Pfefferkorn, associate director of surveillance and cybersecurity at Stanford University’s Center for Internet and Security, says that Apple has bowed to law enforcement pressure by failing to add end-to-end encryption for content stored in iCloud. She calls the decision a “safety valve” for Apple because it lets the company share data with law enforcement while still appearing to side with privacy-focused users by giving them end-to-end encryption for the data they store on their iPhones.
“Apple typically encrypts those backups in a way that provides security against hackers while still also enabling Apple to provide the decrypted data to law enforcement,” Pfefferkorn says.
As an alternative to using iCloud, users could back up their data by storing it directly on their devices, says security expert and Miami University law professor A. Michael Froomkin. However, he cautions that local data storage is an imperfect solution because users who lose their phones also lose their stored data.
Ultimately, Froomkin gave Apple a “B+” for how it secures data. Customers would be better off if Apple used end-to-end encryption, he says, but the current reality—that Apple keeps a key that can unlock stored iCloud data—is better than nothing.
“End-to-end encryption would be substantially better,” Froomkin says. “But let’s not confuse failing to do that with doing nothing.”
More must-read stories from Fortune:
—A.I. in China: TikTok is just the beginning
—Inside big tech’s quest for human-level A.I.
—Medicine by machine: Is A.I. the cure for the world’s ailing drug industry?
—A.I. breakthroughs in natural-language processing are big for business
—A.I. is transforming the job interview—and everything after
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-22--The CDC says the deadly coronavirus from China has now come to the U.S.

This is the web version of Brainstorm Health Daily, Fortune’s daily newsletter on the top health care news. To get it delivered daily to your in-box, sign up here.
Happy Tuesday, readers—I hope you enjoyed the long weekend.
The Centers for Disease Control (CDC) confirmed on Tuesday afternoon the first case of a deadly strain of coronavirus in the U.S.
The so-called 2019 Novel Coronavirus (2019-nCoV) causes respiratory illnesses and has caused an outbreak of lung disease in Wuhan, China, and has since spread to other parts of China and Asia. The patient in the U.S. had returned to Washington from Wuhan recently and is now in isolation at the Providence Regional Medical Center in Washington.
“While originally thought to be spreading from animal-to-person, there are growing indications that limited person-to-person spread is happening. It’s unclear how easily this virus is spreading between people,” the agency wrote in a statement on Tuesday.
There are worries that the coronavirus outbreak could escalate into a full-blown pandemic if not contained quickly. The trouble is, millions of Chinese residents are set to travel for Lunar New Year celebrations, leading to heightened screenings at airports.
To date, there have been at least six reported deaths linked to the virus in Asia. Washington health authorities cautioned that the isolated case shouldn’t cause a panic, and likely poses a low threat of setting off an outbreak.
Read on for the day’s news.
Sy Mukherjee
sayak.mukherjee@fortune.com
@the_sy_guy
DIGITAL HEALTH
Medicine by machine. Fortune's latest issue includes a fascinating package on artificial intelligence—and of course, it wouldn't be complete without a deep dive into the use of A.I. in medicine. Jennifer Alsever delves into the companies using A.I. to develop drugs and parses through what's the hope and what's the hype. Read it here. (Fortune)
The big business of baby making. My colleague Beth Kowitt has a must-read on the big business of fertility as more and more couples put off having children until later in their lives and the reality that one in eight couples have trouble conceiving. Here's one big takeaway: "For all its momentum, the modern fertility industry remains a relative newborn. That freshness is part of its potential, but also its risk. There are medical insiders who say it’s still the Wild West of medicine, under-regulated and commercially driven, with certain players overpromising what treatment can do," Beth writes. (Fortune)
INDICATIONS
FDA approves Horizon's rare eye disease drug. The Food and Drug Administration (FDA) is already continuing its 2019 drug approval bonanza. The agency has approved Horizon Therapeutics' Tepezza, the first-ever drug to treat a rare thyroid eye disease that causes serious vision problems. The treatment is expected to be a blockbuster drug for Horizon. (Nasdaq)
THE BIG PICTURE
Study: Juul use doubled among young adults in one year. A new study suggests that young people's use of Juul vaping devices rose dramatically between 2018 and 2019, with the most prominent rise being a tripling among those aged 21 to 24, followed by a doubling among those between the ages of 18 and 20. (Reuters)
REQUIRED READING
Inside Big Tech's Quest for Human-Level A.I., Jeremy Kahn
Industry Standouts: The Companies Most Admired By the Business World, by Scott DeCarlo and Matthew Heimer
A.I. Breakthroughs in Natural Language Processing Are Big for Business, by Jeremy Kahn
Sign up for other Fortune newsletters.


fortune--2020-01-21--Super Bowl LIV ticket prices surge as Chiefs, 49ers secure spots in the big game

The Kansas City Chiefs haven’t been in the Super Bowl since 1970—and that’s making this year’s NFL championship an especially hot ticket.
Secondary market prices for Super Bowl LIV surged 14% once the Chiefs and 49ers were locked in to compete for the 2019-2020 NFL championship, according to TicketIQ. As of Tuesday morning, the cheapest ticket on the site was $4,546 for an endzone nosebleed seat.
As with any big game, there are some ticket prices that are jaw dropping. A single ticket for a corner suite at the Hard Rock Stadium in Miami is going for $439,007 on TicketIQ.
Over at TickPick, the average Super Bowl ticket is going for $5,050, an 18% jump over last year’s game (though a bit lower than Super Bowl 52, when the Eagles topped the Patriots).
If history is any indicator, you can expect those prices to rise over the next two weeks, too.
“Currently, this is the second highest average price over the last 10 years, with an asterix [sic],” said TicketIQ in an email. “The highest average price came in 2015, when the market was busted because of speculative short selling, which means there’s an argument that this is the highest ever at current prices. If prices continue to climb, it’s not out of the question that 2020 could break the $10,000 average mark.”
Things are just as robust at Ebay-owned StubHub. Individual ticket prices on that site start at $4,539 and go as high as $16,250. A suite will run a gob-smacking $929,586 (and StubHub has partnered with FinTech company Affirm to let people pay off those tickets for up to a year, with interest.)
SeatGeek prices start at $4,500 and go as high as $47,000.
Super Bowl LIV will be played Feb. 2 starting at 6:30 p.m. ET.
More must-read stories from Fortune :
—The World’s Most Admired Companies in 2020
—Fertility Inc.: Inside the big business of babymaking
—A.I. breakthroughs in natural-language processing are big for business
—Industry standouts: The companies most admired by the business world
—The forces behind Boeing’s long descent
Subscribe to Fortune’s forthcoming Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-21--Want to stop an outbreak in its tracks? Start with trust

DAVOS, Switzerland—The key to building resilient health care systems around the world is rebuilding trust in health care. That was one of the fundamental points made in a fascinating panel discussion I moderated this morning on the first official day of programming here at the 50th annual meeting of the World Economic Forum.
The gaps in the global health safety net are widening in a number of areas, from recurrent shortages of essential medicines to rising human resistance to vaccines—the last of which is leading to outbreaks of infectious diseases, such as measles, that were thought to be under control.
“Vaccination is all about preventing the unseen enemy from getting to you. The same [goes] with antibiotics—we take them for granted because we think that we’re going to live forever, ” said Dr. Jayasree Iyer, executive director of the Access to Medicine Foundation, a Netherlands–based nonprofit that works with (and prods) pharmaceutical companies to do more to bring essential medicines to those living in low- and middle-income countries. But to make the delivery of such medicines effective and far-reaching, she said, “you need to build that sense of trust. And that’s the biggest drawback with the work that we do. You know, the pharmaceutical industry is just not trusted by the community.”
Iyer continued. “So when the pharmaceutical industry brings out a new product, whether it’s a vaccine or a new medicine, people hesitate to take it on board,” she told the audience. “Trust starts in a simple way. Even in the face of antimicrobial resistance, I mean, do you really need to promote your antibiotics? Do you really need to spend all the money on marketing, which puts more pressure on price for health systems?”
“I think it’s that simple,” Iyer said. “Trust comes when you stop doing all the bad things.”
Governments in many parts of the world, too, have largely failed in their responsibility to educate people about why these medicines are important, Iyer added. For governments to succeed in that task, they must be trusted—and confidence in them is waning, she pointed out.
That sad lesson, indeed, is reinforced by the widely followed Edelman Trust Barometer, of which the 2020 edition was released two days ago, on the cusp of the WEF meeting. The general public simply does not trust leaders to deal with society’s major challenges, the report found—but officials in government face the most distrust, with just four in 10 people confident that their country’s leaders are up to the job. “In a majority of markets, less than half of the mass population trust their institutions to do what is right,” the survey’s authors noted.
Between 2019 and 2020, trust also fell across each of the 15 business sectors that Edelman tracks, with the biggest drops in consumer confidence happening with regard to both tech and entertainment companies. Sixty-nine percent of people around the globe still trust health care companies, which is down a point from last year.
So who do we trust to solve the world’s woes? Scientists and “people in my local community,” the communications company found.
Which is one reason why Iyer’s organization has been so focused on developing trust at the community level, she said on stage this morning at the WEF Congress Center. Dr. Ann Kurth, dean of the Yale University School of Nursing and a professor of epidemiology at Yale’s School of Public Health, agreed that community involvement is essential. That’s why she is encouraging nurses—and there are some 4 million registered nurses in the U.S. alone—to run for public office. “We’re going to do the first candidate school for nurses because, again, we’re a trusted profession,” she said. “I don’t care if you’re right wing, left wing, centrist—just run for something locally and get engage in policymaking and leverage. Whatever trust you do have, [use it] to move towards better health policy.”
For more coverage of the 2020 World Economic Forum annual meeting in Davos, click here.


fortune--2020-01-23--Sundance 2020: Hunting for the next indie hit and what it may be worth

Blossom Capital founder Ophelia Brown is tired of answering questions about her gender

With this year’s Sundance Film Festival kicking off in Park City, Utah, on Thursday, film buyers will be on the lookout for the next big indie sensation.
But if last year’s box office results are any indication, a Sundance hit doesn’t necessarily translate into a box office hit.
At Sundance 2019, buyers—in particular, Amazon Studios—shelled out big bucks for movies that seemed to have broader box office potential.
For the most part, that bet hasn’t paid off. Aside from Lulu Wang’s The Farewell, which has been a critical favorite as well as a box office success, none of last year’s festival acquisitions have hit it big in theaters. (We’re not counting the documentary Apollo 11, a box office success, because it was acquired before Sundance.)
Box office disappointments
At last year’s Sundance, Amazon shelled out a whopping $27 million for a pair of comedies, Late Night, starring writer Mindy Kaling and Emma Thompson, as well as Brittany Runs a Marathon. Though the movies set the festival crowd abuzz, they didn’t generate the same level of enthusiasm when they hit theaters last summer.
Late Night earned $15.5 million at the domestic box office, and Brittany Runs a Marathon took in just over $7 million, which isn’t great once distribution costs, publicity, and marketing are factored in.
“There are a number of examples of terrific films that came out of Sundance and that for whatever reason didn’t break out as had been hoped. Sometimes it’s just kismet, the zeitgeist, or a particular set of circumstances, the competition, the marketplace,” says Paul Dergarabedian, a senior media analyst with Comscore.
Blinded by the Light, a musical drama set to Bruce Springsteen hits, seemed like a sure thing out of last year’s festival, where Warner Bros. imprint New Line purchased it for $15 million. During the film’s opening weekend in August, it eked out a disappointing $4 million.
“You’re seeing pretty clearly that movies coming out of the festivals are really being challenged,” Warner Bros. president of domestic distribution Jeff Goldstein told Variety at the time. “Unfortunately, audiences are spending money on the bigger spectacle films. The smaller niche movies are having a harder time finding their way when competition from content providers is making it harder to break through with an audience.”
Streaming services have disrupted the model for success
Theatrical grosses aren’t as important for streaming services such as Netflix, Amazon Prime Video, Hulu, or Apple TV+. Their business model isn’t based on box office grosses but rather on creating relationships with filmmakers, expanding content libraries, and gaining subscribers. If a big festival purchase manages to attract publicity, buzz, and possibly awards, it could make financial sense for a streaming or a cable network.
Last year at Sundance, Netflix bought Extremely Wicked, Shockingly Evil and Vile, a drama starring Zac Efron as Ted Bundy, for a reported $8 million.
Adam Driver stars in “The Report,” which dramatizes a congressional staffer’s quest to detail the CIA’s post-9/11 torture program. Atsushi Nishijima—Amazon Studios
Meanwhile, hoping for Oscar glory, Amazon shelled out $14 million for writer-director Scott Z. Burns’ well-reviewed post-9/11 CIA thriller The Report, starring Annette Bening and Adam Driver. It had a brief theatrical run (just long enough to qualify for the Academy Awards) before hitting the service. Amazon didn’t release any box office or streaming data, so it’s hard to gauge the film’s commercial success, but it failed to nab any Academy Award nominations.
Jennifer Salke, head of Amazon Studios, has said that box office returns are not the ultimate gauge of a film’s success.
“We look at it completely differently,” she told IndieWire last year. “Our customers love us having a great selection of movies on the service. We look at it that way. The theatrical is there for, you know, hopefully we have a hit movie or something great happens. But if not, we know the value of what those movies provide on the service for our customers. So it works for us.”
The theatrical market for indies has shrunk
There is some concern in the industry that deep-pocketed streamers have driven prices sky-high and that buyers, including film independent distributors, may have cold feet after last year’s box office disappointments. It doesn’t help that the theatrical marketplace for independent films (those not produced by the major Hollywood studios) has constricted as mega-blockbuster franchises dominate.
Neal Block, head of distribution and marketing for independent distributor Magnolia Pictures, which has distributed many Sundance films, recently told Filmmaker Magazine that 2019 was “a tough year for the theatrical marketplace. Potential audiences are flooded with pretty bad news all day, and it’s harder and harder to get them to pay to see a film that isn’t sold to them as uplifting or as a piece of entertainment.”
With the glut of content available on various platforms, it’s harder than ever for indie films to break out—especially in movie theaters. Still, it seems as if there’s always one Sundance film that manages to reach a broader audience.
The cast of “The Farewell” includes Awkwafina (center), Tzi Ma, Diana Lin, Lu Hong, Jiang Yongbo, Chan Han, Aoi Mizuhara, and Li Xiang. The film caught the attention of indie studio A24 at 2019’s Sundance Film Festival. Courtesy of A24
In 2019, that was The Farewell, which indie distributor A24 nabbed for around $6 million following a bidding war. It’s gone on to gross $17.7 million domestically.
“For me, The Farewell is the best-case scenario for a Sundance movie,” says Dergarabedian. “That movie had a lot going for it. It’s a very family-friendly, warmhearted film. It got great reviews. While $17.7 million may not even be the catering budget on a massive blockbuster, for a movie like this [that’s largely subtitled], that’s a really nice performance.”
Documentaries are in demand
Meanwhile, documentary films continue to be a hot commodity—particularly since they seem to perform well on streaming services, and, occasionally, in theaters. In 2018, three Sundance documentaries grossed over $12 million in theaters, with Won’t You Be My Neighbor?, the Mister Rogers documentary, totaling over $20 million. None of last year’s documentary acquisitions from Sundance reached that level of box office success.
Independent film distributor Neon picked up a number of films at last year’s festival, including Honeyland, the winner of Sundance’s best world documentary prize and other awards.
A scene from “Honeyland.” The Macedonian documentary about beekeeping just made history as the first film to receive Academy Award nominations for Best International Feature Film and Best Documentary Feature in the same year. Courtesy of A24
Though its box office results underwhelmed when it was released in theaters last summer (it’s grossed just over $700,000 so far), Honeyland is far from a failure. After all, the Macedonian documentary about beekeeping (which has 99% critical approval on Rotten Tomatoes) just made history as the first film ever to be nominated for the Academy Awards for Best International Feature Film (previously known as Best Foreign Language Film) and Best Documentary Feature in the same year.
One documentary that will be looking for distribution at this year’s festival is the new film On the Record, from Academy Award–nominated directors Kirby Dick and Amy Ziering. Oprah Winfrey recently backed out as executive producer of the project about sexual assault allegations against hip-hop mogul Russell Simmons. It had previously been slated for release on Apple TV+.
What to expect at this year’s festival?
Despite some box office disappointments, the overall consensus is that the Sundance bidding frenzy will continue this year—as long as the individual movies deliver. “As always, it all depends on what’s there, but I think we’ll continue to see big outlays for good movies,” says veteran sales agent John Sloss of Cinetic Media.
A number of the buzziest films heading into Sundance already have distribution, including The Assistant, a thriller inspired by the Harvey Weinstein scandal. Indie distributor Bleecker Street will release the film in theaters later this month. Searchlight Pictures, Disney’s newly branded indie division, will screen Downhill, a dark comedy (a remake of the Swedish film Force Majeure) starring Will Ferrell and Julia Louis-Dreyfus, and Wendy, a reimagining of Peter Pan, from Beasts of the Southern Wild director Benh Zeitlin.
Netflix is bringing a number of films to this year’s festival, including the Taylor Swift documentary Miss Americana; Lost Girls, the first fiction feature from Academy Award–nominated documentary filmmaker Liz Garbus; and The Last Thing He Wanted, a political thriller starring Anne Hathaway, Ben Affleck, Willem Dafoe, and Rosie Perez. Other companies set to premiere films at this year’s festival include the indie A24, Hulu, cable networks HBO and Showtime, Sony Pictures Classics, and Focus Features, Universal Pictures’ indie division. Of course, they’ll also be on the hunt for more movies.
Regardless of box office potential, it’s clear that a high-profile festival buy still carries cachet in the industry—and that’s priceless.
“In the independent or specialized film world—and certainly at film festivals —it’s about the quality of the movie, the critical response, that’s of the utmost importance,” says Dergarabedian. “The box office is just gravy.”
More must-read stories from Fortune:
—Awkwafina Is Nora From Queens team: Asian-American representation is not a “fad”
—Parasite director Bong Joon Ho dissects his tale of two families
—The History channel’s aliens and UFOs content continues to blossom as Project Blue Book returns
—What does Parasite’s best ensemble win at SAG mean for Oscar?
—These Oscar Best Picture nominees are “problematic,” but will that matter?
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