fortune--2020-08-07--The school of the future looks a lot like the school of the past

Stock valuations have been this high only three times in history .
What happened next should give investors pause

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For many students who defaulted to remote learning this past spring, it’s become abundantly clear that a virtual “one size fits all” approach to education cannot replace in-person learning.
Homeschooling and private tutors existed—especially for those who can afford such services—well before the pandemic, but a cottage industry of new education startups has surfaced in the past few months as it became painfully clear that classes over Zoom were not sustainable. Not for students, not for teachers, and not for parents.
Only a little more than half of U.S. K–12 schools and colleges have provided tentative reentry plans for the 2020–21 school year, and many of them are maintaining remote classes for at least the first few months. With school already back in session in some parts of the U.S., and back-to-school season kicking off in the next few weeks elsewhere, parents are crunched for time in determining how effective (or not) online learning is for their children.
“Parents are nervous about the fall,” says Joseph Connor, cofounder of SchoolHouse, a Philadelphia-based company that is developing so-called micro-schools. “They lived through the spring and want something better for their children. Parents want to see their children engaged in learning and collaborating with their peers. No parent thinks that their children can learn solely through technology. Parents want their children to learn from excellent teachers.”
Some parents who had the time and resources started taking initiative as soon as this past spring, establishing “micro-pods” with nearby families. Similar to the idea of establishing pandemic “bubbles” to maintain a bit of socializing while distancing from everyone else, these micro-pods group together a handful of students with a private tutor. Not only do the students get a chance to interact with classmates around the same age in real life, but private tutors can also make much more money on average in these settings than in public schools and some private schools. And if everyone follows the rules about social distancing and mask wearing, as well as other CDC guidance, then students, teachers, and parents can all get back to some semblance of normalcy while minimizing risk of COVID-19 exposure, versus returning to school with the general population.
Relief for parents
Founded before the pandemic was declared, SchoolHouse launched in January 2020 as an agency providing teachers for small groups of children in at-home micro-schools. But the company insists this is not homeschooling. In what might seem like a throwback to Little House on the Prairie, SchoolHouse describes these pods as “real schools” with classes taught by qualified, experienced teachers that take place in a family home or backyard. Class sizes are small, with groups of five to eight students total, and there are mixed age-level groupings.
“SchoolHouse was inspired by the American tradition of the one-room schoolhouse,” Connor, 32, explains. “In most small towns, all of the students met in a single room. There, a single teacher taught the curriculum to several grade levels of children. The most important factor in those children’s education was the quality of the teacher. We similarly believe that most academic outcomes are derived from great teaching. We have updated the SchoolHouse model for the 21st century and are excited to allow parents, students, and teachers to try it.”
For Giulia Arencibia, 41, it was difficult trying to figure out the best way to structure her family’s day and the best location within the house for remote learning to take place. Her three children are spread out through ages and grade levels: a 12-year-old entering seventh grade, a 10-year-old entering fifth grade, and a 5-year-old entering first grade. Before the pandemic, they all attended the local public school. But as for many students, the transition to online learning was very difficult for her children.
“I was not very familiar with the remote learning platform that the school uses, so I had to do research and spend quite some time trying figure it out,” Arencibia says. “There was a lot of trial and error trying to figure out what worked best for each child and how I could complete my daily tasks with homeschooling. While we did get the work done, I still don’t feel like we necessarily did it well, even after three months of remote learning. It felt like we were constantly treading water.”
“We have updated the SchoolHouse model for the 21st century and are excited to allow parents, students, and teachers to try it,” says cofounder Joseph Connor. Courtesy of SchoolHouse
The micro-school approach made sense for Arencibia’s family for several reasons, she says. Her main concern with remote learning (or even a hybrid model) was that it might not provide students with enough access to their teachers. For a child starting school and learning to read, or for a child shifting from elementary to middle school, these next six to 12 months are critical to their development.
“There are both academic and social-emotional skills that they need to be working on right now,” Arencibia says. “Micro-schooling will give them access to teachers who can help them learn in a way that I can’t. I have always had respect for teachers, but never more so than now. There’s a big difference between understanding something and being able to teach it in a meaningful way, [versus] Googling so that you have a vague idea of what is going on.”
Arencibia stresses that children also need interaction with other children in order to develop emotionally and socially. Her school district in Westchester County, N.Y., is planning on a hybrid model in which students attend school only two to three hours per day and then spend the majority of the day at home doing remote learning. But Arencibia is concerned that’s not enough time with peers and outside of the house for normal development. Thus, she chose the pod option because she says it enables children to increase their interaction with peers, but in a more controlled setting, so that they can be careful about virus exposure.
New opportunities for teachers
With tutoring available for students in kindergarten through eighth grade, SchoolHouse is seeing demand spread out relatively evenly across all grade levels and all over the country, Connor says, with spikes in metropolitan areas that have already announced a complete transition to online learning. For example, the Los Angeles Unified School District announced on July 13 that the schools would not reopen for the fall, and SchoolHouse saw a 3,600% increase in traffic from Los Angeles County.
“No matter where they are located, parents are all in a similar position of trying to figure out what to do for the fall,” Connor says.
To ensure a safe environment during the COVID-19 pandemic, SchoolHouse teachers are trained to follow protocols that are said to meet or exceed state regulations. Depending on location and preferences, this may include daily temperature checks, mask wearing, access to hand sanitizers and frequent hand washing, appropriate social distancing, and written health attestations from parents to ensure no one attends group classes if they are sick or have been potentially exposed. And SchoolHouse requires that every teacher pass a background check and undergo vetting by its internal safety team.
SchoolHouse cofounder Connor on tutor workloads: “They will of course plan, but they can choose when to plan, so it is different from the schedule of a typical school, which has mandated hours.” Courtesy of SchoolHouse
From a potential tutor’s perspective, the pod model might sound like an ideal situation under the current circumstances. To start, they are putting themselves at less risk in a smaller group with the potential of outdoor lessons, versus going back to a crowded traditional school building.
Austin Boehm, 32, a micro-school teacher with SchoolHouse in Mahopac, N.Y., has chronic health issues that make him hesitant to return to in-person instruction. With a master’s degree in secondary math education, Boehm has been teaching middle and high school math for eight years at public and charter schools. Most recently, Boehm spent the past two years teaching full-time at a private independent school in New York City.
Boehm says he would likely have continued in his previous role had the school returned only to remote learning. However when plans were announced to reopen, he knew he couldn’t commit to that and the accompanying unknowns.
“I am more than apprehensive about returning to a traditional school environment; it’s not something that I would consider at this time,” Boehm explains. “I feel that everything has to do with community spread, which is still widespread in many parts of the U.S. And given the nature of the coronavirus, it could return to the New York community within this school year.”
Boehm joined SchoolHouse in June after the cofounders reached out to him via email. And as a teacher specializing in math, Boehm says he’s most excited about teaching content that is slightly outside of his normal niche.
“At the beginning of my career, I had hoped to teach science but was guided into math by the economic recession and evaporating funding for science positions,” Boehm says. “I’ll have the opportunity to revisit this discipline and simultaneously continue to grow my math toolkit by expanding the content with which I’m intimately familiar. Getting to see students interact and collaborate in a normal fashion and hopefully provide a sense of normalcy in learning is something that I also look forward to facilitating.”
Tutors also have the chance to make considerably more money in private employment compared with teaching in a public school, which has historically offered notoriously low salaries. Connor says SchoolHouse teacher salaries are roughly the same, if not more than many private school jobs, with benefits. And there are two schedule options: five days a week, five hours a day with four to eight students, or three days a week at four hours a session with four to eight students.
“The ability to make my own rules, do my own research, and determine protocols in direct communication with a small group of students and parents ensures that the environment I operate within will minimize the risks that are under my control,” Boehm says. “The part I love about teaching—regardless of a pandemic—is being in the moment instructing and working with students. I dreaded the constant meta-cognitive distractions about my safety that I anticipated would happen while I was teaching in a traditional return to school instruction.”
Boehm says he could see himself sticking with private tutoring in this fashion in the long-term, especially if it continued to provide opportunities for other work simultaneously or merged with his personal passions in education. “I have found private tutoring in general to be significantly more compensation than both public and private full-time teaching, and in the right opportunity, to also be intellectually stimulating and fulfilling. So I could see myself continuing to lead a pod as a supplement even once I’m a public-school teacher.”
Arencibia says SchoolHouse was an ideal choice for her family because the company is extremely selective about the teachers they work with: “They are also very flexible and work with parents to determine the right number of hours of schooling needed, what the curriculum will focus on, and where and how the schooling will take place.” Courtesy of SchoolHouse
However, it’s unavoidable to observe that only families with enough disposable income will be able to afford private tutoring. And while the children of these parents will be able to continue with their learning in a more stable manner, many more students will be left behind, at the very least by a year, with the potential fallout reverberating for years.
There have been movements in some U.S. states to offer financial assistance to lower-income families that would cover tuition for micro-schools in cases where children with existing conditions wouldn’t be able to return, owing to the risk of contracting COVID-19 or if the schools weren’t reopening at all. But much like the second stimulus package being hammered out in Congress right now, nothing concrete has come about yet.
“There is no question that an educational divide is connected to an economic divide, a health care divide, a criminal justice divide. And we know that this is all part of a racial divide,” says Simone Marean, co-CEO and cofounder of Girls Leadership, a grass-roots organization supporting education for K–12 girls, with a focus on Black and Latinx students, in the United States. “This can be a moment in time when those existing disparities not only continue, but worsen. Or this could be a turning moment when we stand up and finally address the inequities in our school system that have existed all along.”
As a mother, educator, and leader of an educational nonprofit committed to helping young people exercise the power of their voice, Marean says these issues are top of mind for her as well. The Girls Leadership organization, she says, is seeing the mental health challenges that adolescent girls already face—including unprecedented levels of anxiety and depression that are rising for girls much faster than boys—become intensified during the pandemic.
The pod model, she notes, does give students the benefits of socialization without the pressures that come with socializing through visual platforms. “Micro-schools help students stay focused on a larger community and remind them that they are not alone in this experience,” she says. “If we can do this in a safe and healthy way, then we can help young people stay connected to their common humanity.”
But while it is possible to recover academically from this experience over the next several years, she warns the mental health consequences will be long-lasting.
“We need to use the reality of this moment to ask ourselves how we can rebuild school systems as an equitable foundation of voice, leadership, and power for our democracy,” Marean says. “The long-term goal needs to focus on addressing the systemic bias that creates barriers for students that disproportionately impact students of color, both in this moment of remote teaching, and when they return to school.”
Nevertheless, for parents who have the means, micro-schools may be the best option for the time being, not only ensuring their children can continue to receive a quality education but also so adults can get back to their own jobs. For Arencibia, her goal is to keep things moving along in the best possible way so that when things go back to normal, her children are ready.
“I hope that micro-schooling helps my children stay on track with their education and social skills,” Arencibia says. “By having more interaction with a teacher and their peers, we can try to get closer to a more normal learning experience. Hopefully, one day this pandemic will pass—and when it does—we will all have to resume school, work, or whatever we were doing before this happened.”


fortune--2020-08-07--A White House proposal to delist Chinese companies could upend this year’s IPO market

Despite the rapidly deteriorating relations between China and the U.S., Chinese companies continue to seek out America’s financial markets as a space for initial public offerings. But a new proposal issued by the White House on Thursday could put a stop to that by requiring hopeful Chinese firms to provide documents that Beijing prohibits them from sharing.
“The United States is the premier jurisdiction in the world for raising capital, and we will not compromise on the core principles that underpin investor confidence in our capital markets,” Treasury Secretary Steven Mnuchin said in a statement Thursday, as the White House released recommendations related to Chinese company listings.
The group’s recommendations build on a bill passed by the Senate in May that is currently awaiting review by the House. The legislation calls for foreign firms that fail to provide the Security and Exchange Commission with audit documents for three years to be delisted from U.S. stock exchanges. The bill was introduced after more than $300 million in fraudulent sales were uncovered at then–Nasdaq-listed Luckin Coffee, prompting the Chinese coffee shop’s forced delisting.
Thursday’s proposal brings that timeline forward slightly, suggesting that noncompliant firms be delisted as early as 2022. Notably, the proposal also recommends the SEC prohibit new companies from listing at all—even prior to 2022—unless they are already able to turn over audit materials. Many of them won’t be.
“Because of the law in China, companies cannot simply hand out the required information to the U.S. regulator,” Clement Chan, managing director of BDO, told Fortune in June, when the Senate passed its legislation. Under Chinese law, it is illegal for companies to submit audit information to foreign governments without Beijing’s consent, which it never gives. Beijing often claims company audits are state secrets that can’t be shared.
The SEC has complained about Beijing’s stance for at least a decade but has taken few definitive actions against it. Chinese companies continue to list on U.S. stock markets—25 in 2019, down from 35 in 2018—and U.S. investors continue to pour in cash. Just last week, Li Auto, a Chinese EV company, made a stellar debut on the Nasdaq, raising $1.1 billion despite the political headwinds.
“U.S. investors want to take part in the growth of China’s new economy,” says Fan Bao, chairman and CEO of China Renaissance, an investment bank. Bao says that Li’s successful Nasdaq offering demonstrated that U.S. investors still welcome “quality Chinese assets.”
Experts argue that the rules proposed by the Senate and the President’s working group might not “protect” Americans who invest in Chinese firms as much as they will prevent U.S. stock markets from earning money off of Chinese listings.
Without Chinese firms, U.S. stock markets would lose a major revenue source. Market operators, like the NYSE, charge companies huge one-off listing fees as well as annual administrative fees and transaction fees on every trade. What’s more, the U.S.-listed Chinese companies covered by the Senate bill have a combined market cap of $1 trillion, equal to 3% of the U.S.’s total equity market cap. On average, they collectively trade around $8 billion per day—6% of total U.S. turnover, according to a China Renaissance report.
“These companies have many alternatives. Capital markets are global, and most investors are indifferent to where stocks are listed,” says Bob Bartell, global head of corporate finance at Duff & Phelps. Hong Kong has already emerged as a popular alternative for Chinese stocks seeking an IPO or a secondary listing. Retail and institutional U.S. investors can invest directly in Hong Kong–listed stocks, while there are more hurdles for foreign investors seeking stocks listed in mainland China.
China electric-car maker Xpeng has raised $900 million in private fundraising over the past month in preparation for a suspected IPO in the U.S. this year. But given the White House’s new proposal, the Chinese carmaker might have to change course. Chinese peer-to-peer financing firm Lufax is also preparing a U.S. IPO this year, while China’s WeWork alternative, Ucommune, has bailed on a planned IPO but is still eyeing a backdoor listing in the U.S.
For now, Chinese firms are still welcome to list in the U.S. For the working group’s proposals to go into effect, the SEC needs to release an official draft for a public comment period, which can last up to two months. The entire process might stretch beyond the November election, which could usher in a less hawkish administration.
“We think companies may have to wait for further clarification on the recent proposals of the U.S. administration. And we expect negative news flows around the 2020 U.S. election,” says Bruce Pang, head of macro and strategy research at China Renaissance. “The clouded uncertainties and regulatory risk would put companies to ponder long and deeply.”


fortune--2020-08-07--Global investors dump shares as Trump’s executive orders spook the markets

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Happy Friday, Bull Sheeters. It looks as if the equities rally will be snapped today as U.S. futures point to a rough open. Investors are on edge after President Trump signed executive orders on Thursday evening against Chinese tech giants Tencent and ByteDance’s TikTok, signaling a dramatic escalation in trade tensions between the two economic powers. Jitters over today’s jobs report isn’t helping investor sentiment.
It’s shaping up to be a risk-off day.
Let’s check in on the action.
Markets update
Asia
The major indexes are all in the red, with the Hang Seng leading the way lower, down 1.7% in afternoon trade.
leading the way lower, down in afternoon trade. At one point on Friday, investors wiped $46 billion off Tencent’s market cap following President Trump’s executive order barring U.S residents from doing business with the popular social media platform within 45 days . Trump unveiled a similar order targeting TikTok .
off following President Trump’s barring U.S residents from doing business with the popular social media platform within . Trump unveiled a similar order targeting . The Trump Administration isn’t done there. It’s also looking to push through a long-sought order granting American regulators access to the audit books of Chinese companies that list on U.S. exchanges.
Europe
The European bourses were mostly flat at the open. The benchmark Stoxx Europe 600 was down 0.1% a half-hour into the trading session.
were mostly flat at the open. The benchmark was down a half-hour into the trading session. Germany , the engine of the EU, saw a record jump in factory orders in June. It’s an encouraging sign that, even though German manufacturing output is below pre-crisis levels , the recovery is in full swing. In an investor note this morning, analysts at Berenberg said the German economy is recovering “ faster than we had initially expected .”
, the engine of the EU, saw a record jump in factory orders in June. It’s an encouraging sign that, even though German manufacturing output is , the recovery is in full swing. In an investor note this morning, analysts at Berenberg said the German economy is recovering “ .” More gloom for the airlines sector: Germany’s Lufthansa doesn’t see a recovery in commercial aviation before 2024, and that it will have to cut jobs to weather the crisis.
U.S.
U.S. futures look set to snap the impressive week-long rally across the major exchanges. The futures dropped sharply after Trump announced the executive orders on Chinese tech firms.
look set to snap the impressive week-long rally across the major exchanges. The after Trump announced the executive orders on Chinese tech firms. The big jobs report comes out before the bell and economists are expecting the economy will have added 1.48 million jobs to bring the unemployment rate to 10.6% . Analysts are warning a miss could jolt the markets. Those jitters are weighing heavily on futures at the moment.
to bring the to . Analysts are warning a miss could jolt the markets. Those jitters are weighing heavily on futures at the moment. Washington has set itself a Friday deadline to reach a deal on a new stimulus package and there’s still little progress. Trump says he’ll sign an executive order if a deal isn’t reached.
Elsewhere
Gold is flat, but not for long. It’s on a record run.
is flat, but not for long. It’s on a record run. The dollar is up.
is up. Crude is down, with Brent trading above $45/barrel.
By the Numbers
1.48 million. The estimates on today’s non-farm payrolls report are all over the place, with the consensus coming in at a tick below 1.5 million new jobs added in the past month. (The so-called “whisper number” is worse: 1.1 million jobs). If the consensus number proves correct—a big IF—that would send the unemployment rate lower by a half-point to 10.6%. Investors are a bit on edge over this report. Yesterday’s jobless claims numbers came in at a slightly better 1.2 million, but it still marked the 20th straight week in which more than 1 million Americans filed for unemployment insurance. Most market observers have given up on the V-shaped recovery narrative. The question is: at what point will that realization sink market sentiment?
11,108. Yes, tech bulls. That’s the Nasdaq’s closing price yesterday (give or take a few fractions of a penny). The Nasdaq’s current rally is at seven straight. Trump’s tech trade war looks set to snap that string. Still, the tech-heavy exchange is up 7.4% in the past 30 days, and nearly 24% YTD. In closing above 11,000 mark, the Nasdaq passed an important psychological hurdle, says Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance. “Momentum typically takes on a life of its own, so we’re unwilling to metaphorically ring the bell that the top is in in technology stocks,” he says. “If anything, they are likely to keep going up for longer – but we are increasing our level of caution and are looking at other areas of the market that may provide better risk/reward at this point like industrial or even certain financial companies.”
36. Gold is up 36% YTD, setting fresh records just about every day. As we discussed here yesterday, that trend looks to continue as long as central banks are printing money and lawmakers are green-lighting trillion-dollar bailout packages. What’s the next stop? $2,500? $3,000?
***
Postscript
The Bull Sheet newsroom has been sharing space with my wife’s foundation since the start of the lockdown in March. It’s tight quarters. While it’s been business as usual for me this week, it’s been crisis management of the worst kind for my wife.
She’s been working round-the-clock, conducting conference calls and Zoom meetings in English, Italian and French. The crisis? Beirut. And specifically, how to get vital supplies and funds to the Saint Antoine Dispensary as a humanitarian crisis threatens a city that was already on the verge of economic collapse.
The Saint Antoine Dispensary is a health clinic that sits in Roueissat, in the northwest section of Beirut. It’s been providing vital free health care to locals since the late 1980s, at the height of the Lebanese civil war. (I first learned about the story of Saint Antoine Dispensary about a decade ago, and even rounded up a filmmaker and crew to bring the story to the screen. But, alas, that documentary project fell through. Some day, I tell myself.)
In 2005, the Good Shepherd Sisters took over the clinic just as much of Lebanon was being overwhelmed by refugees, mostly Iraqis who’d lost just about everything during the war in their country. In a cruel twist, a few years later the cycle would repeat itself, this time with Syrian civil war refugees streaming over the border with their families and little else.
The modest little clinic in the hills of Roueissat has an open-door policy. It operates out of a Shia neighborhood, but, in classic Beirut style, provides health care to all faiths—more than 6,000 families in all.
The early reports we were getting out of Roueissat were heartbreaking—even from a city that’s all too familiar with heartbreak. Homes were destroyed. Food was scarce. The air was unsafe to breathe. Tempers were flaring as all faith—whatever meager trust there was—in the government was blown away by Tuesday’s deadly explosion. Meanwhile, the medical needs of the community were, and still are, skyrocketing.
I’ve been debating the past few days whether I should even share this story about Beirut here in Bull Sheet. There’s a clear conflict of interest in me using this space to mention the clinic and the people of Roueissat. This is my wife’s job. And this is a tragedy involving people I care deeply for.
This has been a rough year, and I think what makes the “Postscript” work is that it’s become a good place for me to share my thoughts and observations, the things that get me through the tough times. But I can’t stop thinking about Beirut, and I feel a bit powerless to help in any meaningful way beyond saying this:
Please consider donating to the Lebanese Red Cross, the Good Shepherd International Foundation, or other organizations doing crucial work in Lebanon at this time.
I promise to have a more uplifting Postscript or two (or more) next week.
Until then…have a nice weekend, everyone. Stay safe.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
***
Today's read
Beware the vaccine. That's the message from Goldman Sachs analysts who warn that a COVID-19 vaccine breakthrough could seriously mess with the markets in ways most investors aren't calculating. Here's how.
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Market candy
31.1
The famous Shiller P/E hit 31.1 on Wednesday. According to Fortune's Shawn Tully, that's a really big deal for the much-watched equities value indicator. It's the highest the figure has hit in almost two years. So, he writes, "the question naturally arises: How have investors who bought at these what look to be rich prices fared in the past?" It doesn't look good for investors.


fortune--2020-08-07--Is the COVID crisis busting business bureaucracy?

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
Is the COVID crisis busting business bureaucracy? That’s the question I asked business guru Gary Hamel, who has a new book coming out next week entitled Humanocracy–which is his alternative to bureaucracy. I’ve been hearing stories from executives about how work from home has flattened hierarchies, democratized information, impaired micromanagement, focused on outcomes over inputs, and encouraged digitization and innovation. In the process, has it also weakened corporate inertia and–to use Hamel’s subtitle–moved us closer to Creating Organizations as Amazing as the People Inside Them?
Not so fast, says Hamel. “In any crisis, power moves to the periphery,” he says. “By definition, a crisis pushes power out. No hierarchical organization can handle the information processing demands and the decision-making requirements that a crisis presents.” But will the changes last? “We’ve gone through other crises, and typically bureaucracy reasserts itself rather quickly.”
Bureaucracy has been the bane of business leaders for decades. The conversation with Hamel reminded me of this piece I wrote for The Wall Street Journal in 2010, entitled “The End of Management”–adapted from my book, The Wall Street Journal Essential Guide to Management. Twentieth century management was all about creating systems that made people part of a bigger machine. Twenty-first century leadership needs to set them free from the machine and empower them to innovate. The challenge, to use ex-IBM CEO Lou Gerstner’s metaphor, is to make the elephant dance.
Yet Hamel contends progress has been, well, nonexistent. Despite talk of a gig economy, the percentage of the U.S. labor force working for companies with more than 5,000 employees has swollen to a record 34%, from 29% in 1987. And “the number of administrators, managers and supervisors…has more than doubled” over that period, while all other jobs increased by less than 50%. “Bureaucracy has been growing, not shrinking.”
I asked Hamel whether the acceleration of digitization across industries that has occurred during the pandemic would help beat back bureaucracy. His response was, in essence, that while digitization may provide new tools for combatting bureaucracy, it doesn’t do the job by itself. Most such efforts simply graft “new practices and new processes on the old bureaucratic root stock.”
So what’s the antidote? In the book, Hamel and coauthor Michele Zanini call for a return to first principles—new ones that focus on empowering people. It’s worth the read.
More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Trump vs China
President Trump has moved against Chinese tech firms, hard. Yesterday he signed executive orders banning U.S. firms or persons from transacting with TikTok parent ByteDance or Tencent's WeChat. The orders take effect in 45 days. TikTok is threatening legal action. Tencent's share price plummeted by over 6%, though it should be noted that only WeChat is affected here—Tencent's other investments are not, which is good, as they also include the likes of Fortnite-maker Epic Games and Spotify. The White House also proposed forcing Chinese companies with U.S. listings to give those up, unless they comply with new audit requirements. Fortune
Twitter labeling
Twitter is to start telling users which accounts are run by state-affiliated media, such as China Daily, Russia Today, Sputnik and others. However, the labels won't be put on the accounts of outlets such as NPR and the BBC, on the basis that these are just "state-financed media organizations with editorial independence." Politico
NRA suit
New York Attorney General Letitia James wants to dissolve the National Rifle Association on the basis of alleged corruption and illegal conduct. Her suit alleges that the NRA diverted $64 million away from its charitable mission for personal use by leaders including Wayne LaPierre, over just three years. James: "The NRA’s influence is so powerful that the organization went unchecked for decades while top executives funneled millions into their own pockets." Fortune
Trump warnings
President Trump's advisers avoided giving him military options in his dealings with Iran and North Korea, because they feared him accidentally taking the U.S. to war. Senior Pentagon officials even warned Iran that they could not predict what the president would do. That's according to (attributed) accounts contained in a new book by CNN's chief national security correspondent, Jim Sciutto. CNN
AROUND THE WATER COOLER
BA cuts
British Airways says it is making progress on its planned job cuts, which are to total 12,000 lost employees. Half that tally have already agreed to take voluntary redundancy. BA's remaining employees will get letters today, telling them whether they're staying or going, and–if they're staying–whether they would need to accept a new contract. Reuters
Contact tracing
The EU is setting up a "gateway" system to allow interoperability between various countries' contact-tracing apps, so they work across borders. However, the system will likely only use apps based on the decentralized approach that is backed by Google and Apple. So no luck for people using the French or Hungarian apps, which went for the centralized model that raises privacy fears, but produces a bit more useful data for health care workers. And also no luck for people visiting France, which is a problem because a lot of people in Europe do just that. Financial Times
Stock valuations
Fortune's Shawn Tully looks at stock valuations, which have only been this high three times in history, and tries to figure out what happens next, based on what happened after those three previous occasions. "Conclusion: A 31.1 CAPE is a dangerously high starting point for buying stocks. The price investors are willing to pay for each dollar of earnings will probably shrink from here. And EPS is already getting pounded by the COVID-19 lockdown, and the idea profits will soar in the recovery to compensate for the fall in multiples, and then some, is far-fetched." Fortune
VP pick
Journalist Constance Hale and management professor Ella Bell Smith write for Fortune that the need for vice presidents to offer "leadership muscle" is being overlooked as people debate who Joe Biden should pick as his running mate. All the women on his shortlist have the necessary grit, they write, but the ideal candidate will also need influence and grace. Fortune
This edition of CEO Daily was edited by David Meyer.


fortune--2020-08-07--TikTok threatens legal action in response to Trump’s executive order banning the app

Popular short-video app TikTok said in a Friday statement that it will consider legal action to challenge President Donald Trump’s Thursday executive order restricting TikTok’s U.S. operations over national security concerns.
The company said it was “shocked” by Trump’s order, which takes effect in 45 days and prohibits companies and individuals under U.S. jurisdiction from conducting any transactions with ByteDance, the Chinese tech firm that owns TikTok.
“We will pursue all remedies available to us in order to ensure that the rule of law is not discarded and that our company and our users are treated fairly—if not by the administration, then by the U.S. courts,” TikTok said in the statement on its website.
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According to the text of the executive order, the U.S. is restricting TikTok over concerns that the platform could spread “disinformation” and share U.S. user data with the Chinese government. It also cited TikTok’s alleged censorship of content deemed politically sensitive by China’s government.
TikTok says it has never shared data with the Chinese government or censored content at Beijing’s request.
“There has been, and continues to be, no due process or adherence to the law,” TikTok said of the U.S. government’s handling of the popular video platform.
Microsoft is currently in talks with ByteDance to purchase TikTok and take over its U.S. operations, a deal that would exempt TikTok from the executive order’s restrictions. Trump said he would support the Microsoft deal if the U.S. government received a portion of the sale price, an unusual and likely unfeasible presidential request.
TikTok argued that the executive order was issued “without any due process” and said the Trump administration over the past year has “paid no attention to facts, dictated terms of an agreement without going through standard legal processes, and tried to insert itself into negotiations between private businesses.”
The Trump administration on Thursday issued a similar executive order to restrict Tencent Holdings–owned social messaging platform WeChat.
TikTok has become a flashpoint in the ongoing geopolitical disputes between the U.S. and China and emerged as a symbol of the countries’ bifurcating technology ecosystems. ByteDance has employed numerous strategies to avoid a U.S. ban on TikTok, including hiring lobbyists to advocate on TikTok’s behalf in Washington; offering to divest its stake in TikTok’s U.S. operations; setting up data servers outside mainland China; and establishing a “Transparency Center.”
TikTok even withdrew from the Hong Kong market after a sweeping national security law passed there gave authorities substantial power over the Internet and data in the region.


fortune--2020-08-07--Trump’s WeChat executive order sends shares of Tencent parent on wild ride

President Donald Trump on Thursday signed two executive orders restricting U.S. operations of Chinese-owned social media platforms TikTok and WeChat, citing national security concerns.
The orders will take effect in 45 days. Their scope is not yet clear, but according to the text of the twin orders, they will prohibit U.S. individuals and companies from involvement in “any transaction that is related to WeChat” or TikTok’s Beijing-based parent company ByteDance.
Shares in Tencent Holdings, the owner of WeChat, had plunged 6.8% by midday—their biggest drop in two years—after news of the executive order and speculation that the restrictions would affect a wide range of gaming and social media companies in which Tencent has a stake. At one point, the share slump took as much as $46 billion off of Tencent’s market value.
A U.S. official later clarified that the restrictions will apply only to WeChat, not Tencent’s other properties, which saw Tencent shares recover some losses. Tencent’s wide-ranging investment portfolio includes stakes in U.S. forum site Reddit and in the companies that developed gaming sensations like Fortnite and League of Legends.
TikTok did not immediately respond to an emailed request for comment. A Tencent representative declined to comment.
TikTok, which is owned by Beijing-based tech firm ByteDance Ltd., could be exempted from the restrictions if a Microsoft purchase deal goes through. If it doesn’t, and the Trump administration bans the app, it will apply to U.S. users but will not affect consumers in China, where a local version of the app called Douyin is available.
But a ban on WeChat, it seems, would have a more global reach, as it is a vital communication tool for users in the U.S. and China. Overseas Chinese and members of the Chinese diaspora use WeChat to talk to their relatives and friends in the mainland, where many other social messaging platforms like Facebook and WhatsApp are blocked by government Internet controls. WeChat is widely used by American firms in China to make deals and communicate with employees and customers.
WeChat’s in-app mobile payment platform, WeChat Pay, is ubiquitous in China, and some retailers in the U.S. offer it too; its ‘red envelope’ function is a common way for Chinese students and young professionals in the U.S. to receive traditional Chinese New Year cash gifts from relatives in China.
U.S. Secretary of State Mike Pompeo on Wednesday told U.S. companies to remove “untrusted” Chinese apps, including TikTok and WeChat, from U.S. app stores, saying the apps threatened U.S. users’ data security. TikTok and WeChat have denied that the Chinese government has access to U.S. user data, and both companies store U.S. user information on servers outside mainland China.
The executive orders represent “an unprecedented intervention by the U.S. government in the consumer technology sector,” Eurasia Group analyst Paul Triolo wrote in a Friday Eurasia Group briefing. They also mark “the first time the U.S. government has attempted to ban a software application running on millions of mobile phones within the U.S.”
One question raised by the order, Triolo wrote in the report, is whether the mainland China versions of Apple and Google app stores will also be required to remove the apps. TikTok isn’t available on the mainland, but for WeChat, or Weixin, as it’s called in China, “this would be a major disruption for one of the most widely used of China’s social media apps and could severely disrupt Apple’s business in China.”


fortune--2020-08-07--The TikTok effect: U.S. ban could doom the global ambition of Chinese tech

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The Trump administration’s threat to ban the Chinese-owned short video app TikTok unless it is acquired by a U.S. company could spell trouble for other Chinese technology companies with global ambitions.
U.S. Secretary of State Mike Pompeo said on Wednesday that the U.S. wants to ban “untrusted” Chinese-owned apps and impose new restrictions on Chinese cloud providers and handset makers, saying they pose data privacy and national security risks. Pompeo specifically named TikTok, which is owned by Beijing-based tech firm ByteDance Ltd, and WeChat, the popular Tencent Holdings-owned social messaging platform.
Executive orders Trump signed Thursday seemed to make good on Pompeo’s warnings. They take effect in 45 days and ban any U.S. firm or person from transacting with TikTok’s parent ByteDance or WeChat.
Microsoft Corp is currently in talks to buy TikTok, a move that could appease the Trump administration and anger Beijing. Should that happen, analysts say it could lead to more U.S. companies buying and operating Chinese-founded apps or force Chinese tech firms eyeing U.S. expansion to look elsewhere.
“All signs for the U.S.-China relationship are spiraling down, so why would Chinese companies try to push against this huge tidal wave, when they can just focus on other markets where they’ve had pretty good success already?” said Dev Lewis, a fellow at Hong Kong-based think tank Digital Asia Hub.
‘Unprecedented territory’
A U.S. government eager to crack down on China-based companies means Chinese tech firms could have to choose between “los[ing] out on the critical U.S. consumer market” or “sell[ing] to a U.S. entity to alleviate the security concerns,” said Daniel Elman, an analyst at Nucleus Research, a Boston-based information technology research firm.
During a Monday press conference, Chinese foreign ministry spokesperson Wang Wenbin declined to comment on the potential sale of TikTok to Microsoft, saying the ministry does not comment “on the specific business activity of the relevant companies.”
A boy wearing a TikTok face mask uses a mobile phone outside a shop in Mumbai, India on July 29, 2020. India’s government banned TikTok in June. Now other countries are considering bans, too. Himanshu Bhatt—NurPhoto/Getty Images
Yet a Tuesday editorial in government-owned newspaper China Daily said Beijing would not accept the Microsoft acquisition, which President Donald Trump said he would approve if the U.S. government got a cut of the deal—an unprecedented and possibly illegal assertion of presidential power. The China Daily editorial said Beijing may retaliate if the Microsoft deal goes through, calling it a “planned smash and grab” by the Trump administration. It’s unclear what measures Beijing could take in response.
TikTok is the first homegrown Chinese Chinese app to attract a broad user base in the U.S., where it’s become a cultural phenomenon. The TikTok episode represents “unprecedented territory” for the U.S., Lewis said.
“Since the start of the Internet, the U.S. has never really had to contend with a foreign company in the tech space that’s successful in U.S. consumer data—this is sort of the first case where a foreign app has actually been popular with U.S. consumers,” Lewis said.
In a statement to Fortune, TikTok touted its 100 million U.S. users and said it plans to be in the U.S. “for many years to come.” The app has repeatedly denied charges of content censorship and data sharing with the Chinese government.
Challenges of the U.S. market
Chinese tech firms have long struggled to find success in the U.S. market—but that hasn’t stopped them from trying.
Chinese tech giants Huawei Technologies and Xiaomi Corporation, two of the largest smartphone makers in the world, have so far failed to penetrate the U.S. smartphone market, owing to a mix of tough competition, carrier requirements, and, in Huawei’s case, a spot on a government blacklist over national security concerns.
Xiaomi said in 2018 that it had plans to enter the U.S. market; in January this year, a Xiaomi executive told CNBC the company was still planning a U.S. market debut, even after the U.S.-China trade war upended the U.S. expansion plans of several other Chinese companies.
Attendees of TikTok’s Creator’s Lab 2019 in Tokyo in February 2019 take video clips using their smartphones. Lawmakers in Japan are some of the latest to consider bans of the short video sharing app. Shiho Fukada—Bloomberg/Getty Images
The U.S. market still appeals to China’s biggest mobile platforms too. China’s ubiquitous digital payment services Alipay and WeChat Pay each have roughly 1 billion users globally. They’ve expanded into the U.S., but they are used mainly by the Chinese diaspora and tourists from China, and only some retailers offer the payment option.
Looking to other markets
The threat of bans or forced sales could quash the long-held U.S. aspirations of such Chinese tech firms and encourage them to consider other markets for growth. But some of the most obvious alternatives to the U.S. share Washington’s skepticism.
India had been a massive growth market for China until its government banned 59 Chinese-owned apps, including TikTok and WeChat, at the end of June. It banned 47 more apps in late July over national security concerns.
Alibaba Group’s web browser UC Browser was India’s second-most popular browser behind Google Chrome with 130 million users, but the Indian government barred it as part of the sweeping ban.
A group of lawmakers in Japan said last week they will submit a proposal to the Japanese government to restrict the use of TikTok and some other Chinese apps over data security concerns.
British member of parliament Neil O’Brien said this week that the U.K. government should conduct a security review on TikTok before the company establishes offices in London, one of the cities TikTok is reportedly considering for its global headquarters.
At least one Australian politician called for a TikTok ban last month, and Canberra launched a national security and data privacy review of the app. However, Australian Prime Minister Scott Morrison said on Tuesday the government did not find evidence to warrant a ban. “But people should know that the line connects right back to China and they should exercise their own judgment about whether they should participate in those things or not,” he said.
In a statement Microsoft issued Sunday about its potential purchase of TikTok, the company said the deal would involve Microsoft “owning and operating TikTok” not only in the U.S., but in Canada, Australia, and New Zealand too.
Southeast Asia, meanwhile, is more welcoming to Chinese firms, Lewis said.
Indonesia, for example, is already a big market for Chinese apps. In 2017, Alibaba’s UC Browser gained a 41% market share there. It’s likely to remain an important site for user growth as the world’s fourth most populous country with a young population and a growing number of Internet users. What’s more, Beijing and Jakarta have strong diplomatic ties, and China is Indonesia’s largest trading parter.
Lewis said that Africa, where U.S. tech doesn’t yet have a dominant foothold, is another region where Chinese tech might expand.
The divvying up of countries along pro-China or pro-U.S. lines appears to be the phenomenon of ‘decoupling’ occurring in real time. However, the process of decoupling—the large-scale severing of the U.S. and China’s entwined supply chains, financial systems, and Internets—could “wax and wane” for years, said Andy Kennedy, an associate professor at the Australian National University’s College of Asia and the Pacific who researches Chinese tech.
“The political impetus behind decoupling is powerful, but so is the economic attraction between the world’s two biggest economies,” Kennedy said.
The ‘Great Firewall’ comparison
Washington has escalated its attacks on Chinese tech in recent weeks, but the battle to police the Internet is hardly one-sided.
Some of the biggest U.S.-based social media players, including Facebook, Twitter, and Google-owned sites and apps, for years have been inaccessible in China due to the government’s ‘Great Firewall,’ the infrastructure that blocks websites and censors content. Beijing has said it will allow U.S. companies to operate in China if they comply with Chinese government Internet controls.
The U.S. crackdown on TikTok has drawn comparisons to Beijing’s Firewall, but at least prominent voice says the two are quite different.
Kai-Fu Lee, a leading artificial intelligence expert who heads the tech investment firm Sinovation Ventures, worked for Google in China between 2005 and 2009. (Until 2009, Google operated a separate, censored version of its search engine in China.) He said in a Chinese-language statement on Tuesday that Google’s experience in China and TikTok’s case in the U.S. are “not comparable.”
When Google decided it didn’t want to comply with China’s rules, “it decided to withdraw” from the mainland, Lee said. With TikTok, Lee said, the U.S. government did not provide information on what the app could do to continue operating in the U.S. as a Chinese-owned company, nor did the U.S. provide evidence for its complaints against the app.
In a Tuesday letter to company staff, ByteDance’s famously low-profile founder and chief executive Zhang Yiming called the proposed sale of TikTok to Microsoft “unreasonable.” But, Zhang said of Washington, “Their real objective is to achieve a comprehensive ban [of TikTok].”


fortune--2020-08-08--Trump to sign an executive order to extend enhanced unemployments benefits as stimulus talks fall ap

Trump to sign an executive order to extend enhanced unemployments benefits as stimulus talks fall apart

Why are Black-owned businesses twice as likely to close during the pandemic ?

President Donald Trump announced Friday evening plans to sign an executive order to extend enhanced unemployments benefits—which expired the week of July 25—through the end of the year. Trump said he could sign it by the end of the week.
The president also said he’ll sign orders to extend the deferment for student loans and forgive student loan interest, extend eviction moratoriums, and defer some payroll taxes until the end of year.
This announcement came after negotiations on a broad stimulus bill between Democratic and Republican leaders broke down on Friday. That bill would have included a second round of stimulus checks, enhanced unemployment benefits, and a number of other measures to help Americans cope with the pandemic.
The enhanced unemployment benefits passed in the CARES Act, which ran out in late July, paid $600 per week onto of state unemployment benefits. Trump declined to say how much the benefit would payout weekly through his executive order.
It is likely that Trump’s executive order will face legal challenges. Democratic leaders this week said that Congress, not the President, has the constitutional power to control the purse strings of the federal government.
“Probably we’ll get sued,” Trump told reporters Friday when he announced the executive order.
It’s also unclear if this executive order would kill talks for another stimulus package, and thus a second round of stimulus checks. On Friday Democratic leaders offered to bring down their dollar ask on the broad stimulus package if Republicans similarly increased their offer.
“We reiterated in very strong terms our offer: We come down $1 trillion from our top number, which was $3.4 trillion, and they go up $1 trillion from their top number, which was $1 trillion. And that way we could begin to meet in the middle,” Senate minority leader Chuck Schumer told reporters Friday.
White House officials balked at that Friday offer made by Democrats, citing their unease with sending more than a $1 trillion to state and local governments. Trump relayed that sentiment when he announced the executive order on Friday.
“They want to make up for many many years of bad [state] management,” Trump told reporters Friday when explaining why he won’t agree to the amount Democrats want for state and local governments.


fortune--2020-08-07--It’s time to rethink power

It’s time to rethink power

Fortune redefines power, it’s time to get real about what it means to be a Black working mom, Facebook gets another open letter, and a photo essay about COVID’s impact on New York is a testament to pain, loss, and resilience.
But first, your self-care advice week in review, in Haiku.
I thought I’d have six
pack abs by now, a book deal
or a cooking show.
Did I even start
that language course? Do I speak
French yet? I’d know, right?
I can’t remember.
Good advice comes in post-it
note sized nuggets: Drink
water. Go outside.
Look up. Phone a friend. Or two.
Stop doom-scrolling!
Parfois une belle
vie est juste devant toi.
In any language.
Wishing you a simply happy weekend. Aric Jenkins will be off for the next two weeks, looking up, going outside, and hopefully enjoying life.
Ellen McGirt
@ellmcgirt
Ellen.McGirt@fortune.com
On point
We need to talk about power Fortune’s annual Most Powerful Women in business list is more than 20 years old now, and has focused on four major criteria: The size and importance of the woman’s business in the global economy, the health and direction of the business, the arc of the woman’s career, and her social and cultural influence. But this year, we’re looking for something new — how she has wielded her power to shape her company and the world to address a pressing social need. We’re looking for women with some skin in the game, and we’re open — someone who instituted policy changes to help pandemic-stricken workers, instituted a measurable sustainability initiative, remedied the racial/gender wage gap. Nominate the powerful women you admire below. And let’s redefine power for good.
Fortune
Black mothers in the workforce Yesterday I moderated a panel co-produced by the amazing folks at Hello Sunshine about Black working mothers — so often the family breadwinners, so rarely the CEOs…or the people who get venture capital or picked for the high potential pool, or meaningful advancement at work. I was joined by five incredible women who did not hold back: Blessing Adesiyan: Founder & CEO of Mother Honestly and Villo; Alexis Jemal, Assistant Professor of Social Work at Hunter College; Eve Rodsky, the New York Times best-selling author of Fair Play: A Game-Changing Solution for When You Have Too Much to Do (and More Life to Live); Katica Roy: Gender economist and the CEO and founder of the software company Pipeline, and Michelle Silverthorn, founder & CEO of consultancy, Inclusion Nation. There was laughter, there were tears, we may have accidentally started a SuperPac. (I’m not sure I’m joking.) The conversation was outstanding, but the comments will give you life. Enjoy.
Black Mothers In The Workforce
Twenty state attorneys general call on Facebook to do more to end discrimination on the platform They got right to the point. “Although Facebook has made some progress in counteracting the use of its platform to dehumanize and demean, that is just the beginning of what is necessary,” the attorneys general wrote in a public letter. “Private parties, organized groups, and public officials continue to use Facebook to spread misinformation and project messages of hate against different groups of Americans. In many cases, these messages lead to intimidation and harassment of particular individuals online.” Facebook is already experiencing a widespread advertiser boycott — including Coca-Cola, Best Buy, Ford and Verizon—nudged by civil rights organizations to put pressure on the company.
TechCrunch
The Black book club, reimagined While the sisterhood of Black women readers has been an important, if largely under-documented force in American history, the idea of a literary gatherings has taken on an even richer life under quarantine. Iman Stevenson does a beautiful job tracing the history of Black literary societies from the 19 th century to the present, and the value of their key, organizing principle: Conversation away from and uninformed by the white gaze. But now more than ever, these conversations matter. Referring to the newish Noname Book Club, an online reading group created by Los Angeles-based rapper Noname, focused on texts by authors of color, Stevenson says, it’s a timing thing. “People are turning to [these Black-led clubs] in the midst of a virus that has alienated people from their communities and a continuing global conversation about anti-Black racism.”
New York Times
On background
NYC: A pandemic in pictures There is a new and bittersweet meme going around, a month-by-month photo array depicting of a celebrity’s journey through the pandemic – each portrait, starting around March, a picture of increasing alarm, fear and despair, until it dead ends into the same numb expression. (Reese Witherspoon. Viola Davis. Mindy Kaling, come on.) It’s so funny, it hurts. But Daniel Arnold’s beautiful photo essay in the New York Times manages to build on that progression, keeping it real with poignancy and reverence, capturing what it felt like to be in New York in the earliest days of looming dread and into lockdown, through grief and deep despair, and then a flicker of hope. It’s been a journey, New York.
New York Times
Why do people love the Confederate flag? When Donna Ladd, a journalist based in Jackson, Mississippi, asked why people still love their Confederate flag despite its history, the answers were mostly what you’d expect. But the history itself is at issue. White resentment from the Civil War and Reconstruction persists in Mississippi; along with a high number of casualties, the state went from being the richest from slavery to one of the poorest. But a revised version of Civil War events underlies their efforts to “preserve their history,” and Ladd is admirably armed with facts that dispute the idea that the South seceded over state’s rights and not slavery. But the wounds still seem fresh. “People like me … it’s in our blood. We know about our family, their sacrifices,” says Larry McCluney, Jr, a national officer in the Sons of Confederate Veterans. “Slavery was an issue, but not the cause.”
The Guardian
Let’s talk about system change Sheila Cannon is a researcher and assistant professor of social entrepreneurship at Trinity College Dublin. In this fascinating piece, she explores what it actually takes to get entrenched systems and societal attitudes to change, using what she’s learned, in part from her research on the LGBT movement in Ireland and the decades long quest to turn same sex relationships from a crime to a human right. In this case, she’s tackling climate change, building on the momentum created by Greta Thunberg, the teen Swedish climate activist. The idea is to not adopt “token gestures” that may hurt more than they help. “System change happens when we don’t take our assumptions for granted, which allows more and more people to question the status quo,” she says. Click through for her whole rationale and be prepared to do some soul — or bottom line — searching. “Capitalism may seem permanent, but research shows that systems inevitably change over time, and are ultimately created and reinforced by us. But in order to change anything, people must question their own role in the system first.”
Silicon Republic
raceAhead is edited by Aric Jenkins.
Today's mood board
The cleanup is underway in Beirut. Click here to learn how to help in the aftermath of the devastating explosion that has left at least 137 dead and 4,000 injured.


fortune--2020-08-07--Why are Black-owned businesses twice as likely to close during the pandemic?

Stimulus update : ‘ A lot of progress ’ made on enhanced unemployment extension , but ‘ major disagreement ’ @ @ @ @ @ checks

The coronavirus pandemic has disproportionately impacted Black-owned businesses, which have shuttered at nearly twice the rate as small businesses in the U.S. overall, according to new research from the Federal Reserve Bank of New York.
The New York Fed’s data indicates that there was a 41% drop in the number of Black business owners between February and April of this year, as the pandemic forced huge swaths of the U.S. economy—particularly the retail, restaurant, and service sectors—to shut down.
That compares with a 22% decline in the number of active business owners in the U.S. at large, including a 17% drop in white business owners. Latinx and Asian business owners were also hit disproportionately by the pandemic, with their numbers falling by 32% and 26%, respectively.
The New York Fed’s report highlights a number of reasons why Black-owned businesses have been hurt so badly, noting that such businesses are significantly more likely to be located in COVID-19 “hotspots.” Forty percent of receipts from Black-owned businesses are concentrated in only 30 counties across the U.S., most of them in metropolitan areas with large Black populations—and of those 30 counties, 19 of them are among the top 50 COVID-affected areas in the nation.
The report also cites “significant coverage gaps” in the federal government’s flagship small-business bailout initiative, the Paycheck Protection Program. While PPP loans reached an estimated 17.7% of eligible businesses nationally, several of those 30 counties with the highest densities of Black-owned enterprises saw coverage rates demonstrably lower than that—including Bronx County, N.Y. (7%); Wayne County, Mich. (11.6%); and Prince George’s County, Md. (12.2%).
When also factoring in that Black-owned businesses “were less likely to enter the pandemic from a strong financial position than white-owned firms,” the New York Fed says the crisis “left Black firms with little cushion” to deal with the economic damage wreaked by COVID-19. Based on a criteria of profitability, credit score, and the use of retained business earnings to fund the business, only 42% of Black-owned enterprises qualified as “healthy or stable” going into the pandemic, compared with 73% of white-owned firms.
“Even the healthiest Black firms were financially disadvantaged at the onset of COVID-19,” the report notes.
The New York Fed’s analysis concludes by suggesting that the next round of COVID-19 relief measures “should be more targeted geographically to focus on the hardest-hit areas and communities.” It also says that the crisis raises “structural questions about the presence of banks and access to credit in communities of color”—given the fact that Black-owned businesses tend to have “weaker bank relationships,” and that financial institutions are “relied on to administer federal, taxpayer-supported relief programs” like the PPP.


fortune--2020-08-07--Stimulus checks and enhanced unemployment delayed further with Democrats and Republicans unable to c

Stimulus checks and enhanced unemployment delayed further with Democrats and Republicans unable to compromise

Our mission to help you navigate the new normal is fueled by subscribers. To enjoy unlimited access to our journalism, subscribe today.
Update: President Donald Trump said Friday he’d bypass Congress and sign an executive order to extend enhanced unemployment insurance and other aid.
Democratic and Republican leaders left their Friday meeting without an agreement—or much progress—on a broad stimulus bill, which would include a second round of stimulus checks to help Americans cope with the pandemic.
“It was a disappointing meeting. We reiterated in very strong terms our offer: We come down $1 trillion from our top number, which was $3.4 trillion, and they go up $1 trillion from their top number, which was $1 trillion. And that way we could begin to meet in the middle,” Senate minority leader Chuck Schumer told reporters Friday.
Schumer told reporters that White House officials rejected that offer.
Treasury Secretary Steven Mnuchin walked out of the Friday meeting and told reporters the two parties are closer on a number of issues, including for schools. But disagreements remain on state and local funding and enhanced unemployment benefits. The latter, which was $600 per week, expired the week ending July 25.
“We have asked them for a specific comprise on state and local, and specific compromise on [enhanced] unemployment. We have not received proposals [from Democratic leaders] on that,” Mnuchin told reporters Friday. “I think if we can reach an agreement on state and local and [enhanced] unemployment, we will reach an overall deal. If we can’t, we can’t.”
The White House, Senate Republicans and House Democrats all support sending another round of $1,200 stimulus checks to Americans.
It’s unclear if the two parties can come to an agreement by the end of Friday—which marks the Republican self-imposed deadline. White House chief of staff Mark Meadows told reporters Wednesday a stimulus deal would become much less likely to pass at all if Republicans and Democrats don’t make progress or agree to a deal by the end of the week.
Data released Friday also showed that the unemployment rate dropped from 11.1% in June to 10.2% in July, soundly beating consensus estimates. However, it means 16.4 million Americans are still out of work—three times the jobless levels pre-COVID-19. A jobless rate remaining above double-digits could pressure Congress to make a deal.


fortune--2020-08-07--Americans are renouncing their citizenship in record numbers

Few would describe the year 2020 as the best of times for the United States. But for a growing number of Americans, the situation has become so intolerable they have cut their ties with the country altogether.
According to a recent survey of government data, 5816 Americans renounced their citizenship in the first six months of 2020. That is more than a ten-fold increase from the last six months of 2019, when 444 citizens gave up their passports.
The surge in renunciations during the first half of 2020 also breaks a record set in 2016 when 5,409 Americans gave up their citizenship over the course of the year. And it already outstrips the record level of renunciations that occurred in 2016 when 5,409 people in the United States turned in their passports.
The new data, which was compiled by Bambridge Accountants and drawn from the Federal Register, does not provide reasons for why the list of former citizens—everyone from Jose Abaya to Stefan Zwicky—gave up their passports.
But based on past years, federal tax rules likely explain many of the renunciations. Unlike nearly every other country, the U.S. levies tax based on nationality rather than residence—meaning many Americans abroad are forced to file with the IRS (and in some cases pay tax) even if they haven’t live stateside for years.
That burden, however, is no different from what it has been in the last several years—suggesting the recent surge in people renouncing their U.S. citizenship has been caused by other reasons, such as the pandemic or political turmoil.
For those tempted to give up their U.S. citizenship in favor of another passport, the process is not simple—or cheap. In order to cut ties with Uncle Sam, would-be expatriates must pay a $2,350 departure fee. And as Fortune earlier reported, Americans must also pay any back taxes they owe the IRS before they can renounce their citizenship.


fortune--2020-08-07--Susan Rice sells Netflix shares ahead of Biden’s VP announcement

Former national security adviser Susan Rice, a Netflix director, sold some of her shares of the video streaming company worth $305,323 this week as speculation swirls that she is among the candidates to be Democratic presidential nominee Joe Biden’s running mate.
A spokeswoman for Rice said the sale was unrelated to politics and was made under a stock trading plan she filed more than three months ago under Securities and Exchange Commission rules.
“Ambassador Rice’s sale of a fraction of her Netflix stock has nothing to do with VP speculation,” Erin Pelton said.
Rice, who also served as the U.S. ambassador to the United Nations, is being vetted as a possible running mate for Biden. He’s expected to announce his choice next week.
The share sales followed the exercise of options and were disclosed in an SEC filing Thursday night. Netflix stock has nearly doubled in the past year. Rice, who was named to the company’s board in 2018, exercised her options at $508.68. As a Netflix board member since 2018, Rice receives 125 stock options a month as part of her compensation package.
Rice’s net worth was somewhere between $14.7 million and $28.5 million, according to a 2016 financial disclosure statement she made as President Barack Obama’s national security adviser. Those assets do not include her two homes, and her husband Ian Cameron’s inherited wealth could make their family’s assets significantly larger.


fortune--2020-08-07--Trump’s WeChat ban could hurt iPhone sales in China

President Donald Trump’s order banning U.S. companies from doing business with Chinese messaging app WeChat could damage iPhone sales in one of Apple Inc.’s most important markets.
The order would block all transactions involving WeChat, which would prohibit Apple from distributing WeChat to mobile devices through its App Store. WeChat is central to digital life in China. It’s the go-to app for a billion people for shopping, payments, email, web browsing and all forms of business and personal communications. Many Chinese don’t use phone numbers or emails. Visitors to the country have to download the app and load it with money or risk not being able to pay for even small purchases.
Without access to WeChat, consumers would likely balk at buying an iPhone in China and other parts of Asia. An online forum popular with stock investors asked users if they would give up their iPhones or WeChat if Apple eliminated the app from its store: They voted to ditch their phones by a margin of 20 to one.
China accounts for about 20% of Apple’s iPhone sales, so pulling WeChat off the App Store “would be a serious hindrance,” said Anand Srinivasan, an analyst with Bloomberg Intelligence.
While Google’s app store is banned in China, there are alternative ways of installing apps on Android software that powers the rest of the world’s smartphones. A spokesperson for Apple did not return a request for comment.
Trump’s order could also prompt China to retaliate, damaging Apple even further. Much of the Cupertino, California-based company’s manufacturing is done in China, and if the country targets Apple’s exports that would impact its business globally, Srinivasan said. China could also restrict the supply of materials, such as rare earth metals, that are key ingredients of iPhones.
“This is a war with battles on multiple fronts and the battle has now escalated into software,” he said.
Apple’s shares were down 1% Friday in New York after closing at a high of $450.85 on Thursday. Apple has gained 53% this year.
Trump’s executive order goes into effect in 45 days, but there are many outstanding questions and plenty could happen between now and then. The president has been known to walk back or introduce exceptions to his proclamations after the fact. Apple could also open its operating system to let users download apps without going through the App Store, but that would be a major change for a company that has always carefully guarded access to its ecosystem and takes a 30% fee from many apps.
If the ban does go ahead and Apple doesn’t have a workaround, Chinese consumers who have the money to buy an iPhone will likely turn to the country’s home-grown, high-end smartphone maker: Huawei. In that way, the order could end up benefiting a company that Trump has sought to squeeze out for years.


fortune--2020-08-07--Stimulus update: ‘A lot of progress’ made on enhanced unemployment extension, but ‘major disagreemen

Stimulus update: ‘A lot of progress’ made on enhanced unemployment extension, but ‘major disagreement’ is delaying it and stimulus checks

Update: President Donald Trump said Friday he’d bypass Congress and sign an executive order to extend enhanced unemployment insurance and other aid
Democratic and Republican leaders are set to meet Friday to discuss a broad stimulus bill, which would include a second round of stimulus checks to help Americans cope with the economic fallout of the COVID-19 pandemic. The two parties are finally making progress, including on replacing the expired $600 weekly enhanced unemployment benefits. They’re still in disagreement, however, on funding for states and schools.
“We have major disagreement between us on the schooling in terms of the dollar amount, but also how the money would be spent. The president is insisting that most of the money they are allocating would go to schools that are opening [in-person] … but across the country school districts are saying largely, overwhelmingly that they will be opening virtually or in a hybrid fashion,” House Speaker Nancy Pelosi said on MSNBC Thursday.
Treasury Secretary Steven Mnuchin told reporters Thursday evening that the two parties are closer on issues including another round of PPP loans, a second stimulus check, eviction protections, and rental payments. Mnuchin even said “we’ve made a lot of progress” on enhanced unemployment benefits—which expired the week ending July 25 and were a major point of disagreements between the two parties.
Among other remaining major points of disagreement between Republicans and Democrats is state and local funding. Democrats would still like to see over $1 trillion set aside for state and local governments, which are dealing with massive COVID-19 related budget shortfalls.
“We’re still very far apart on that [state and local government funding]. The president is not going to do a deal that has a massive amount of money to bail out state and locals,” Mnuchin said Thursday evening.
The White House, Senate Republicans and House Democrats all support sending another round of $1,200 stimulus checks to Americans.
It’s unclear if the two parties can come to an agreement by the end of Friday—the Republicans self-imposed deadline: White House chief of staff Mark Meadows told reporters Wednesday a stimulus deal would become much less likely to pass at all if Republicans and Democrats don’t make progress or agree to a deal by the end of the week.


fortune--2020-08-07--The tax credit that could save our economy

These past few months have proved two hard truths: first, that we can neither spend arbitrarily nor overregulate economically during the COVID crisis, and second, that we need a set of targeted but temporary means to protect American residents and preserve our economy.
This is especially true when it comes to housing and jobs. While many families have received a reprieve through stimulus checks and unemployment benefits, too many are falling through the cracks and struggling to pay bills or dependent on others for such payments as rent.
Renters and landlords are both vulnerable. More than one-third of U.S. households rent their homes, meaning that over 100 million Americans live in rental housing. And many landlords are dependent on monthly payments to support themselves, along with their employees if they own businesses. Both a wave of evictions or a wave of landlord bankruptcies would trigger an enormous housing crisis in our country.
Twentysomethings and households with incomes of less than $50,000 a year have almost half the homeownership rate of households earning more than $50,000. Young adults and lower-income families—a core part of our workforce—will be disproportionately affected by inaction or an overreaction. Miami residents have much to lose, given that the city proper has the third highest number of renters in the U.S. at 68%, after Newark and Jersey City, N.J.
Any federal government decision over the next few days on rental policy is crucial. The CARES Act eviction moratorium just ended, but even if it were still in effect, a moratorium alone won’t solve the problem without provisions that support tenants and landlords.
We propose a better solution that protects renters and landlords for another quarter, using a similar tool that the U.S. utilized to disseminate millions of stimulus checks: a refundable renter’s tax credit (RTC). A refundable tax credit would be the quickest, most reliable way to reach renters in most need.
People who rent their primary home and don’t own a home on the side will be able to claim the RTC every month on the rent they pay. To target the tax credit at low-income renters, it would be capped at 40% of the monthly income each family or household earned last year. Borrowing also from the design of the stimulus checks, the credit would phase out above $75,000 in income if you are single, or $150,000 if you are married, but would be larger for families with children.
Because the RTC is targeted and temporary, it would bolster economic and social sustainability until more jobs are created and hardworking Americans can get back to work. Families won’t be compelled to suddenly move to larger apartments or to rent more space than they need. Families won’t be evicted in the middle of a pandemic, and landlords won’t also be forced into bankruptcy owing to missed rent. Instead, it will keep families and landlords whole through another peak in this economic catastrophe.
In the city of Miami, this would mean up to around $1,500 a month in assistance for a family of four making $40,000. The RTC program would last for four months initially, but could be extended by Congress if needed. We estimate that, all told, the cost would come to around $30 billion a month. On average the credit would cover more than 80% of rent for low- and middle-income families; for many of them, it would cover the whole bill. Even over four months, our idea would cost less than many of the ideas Congress is considering for the next $1 trillion–plus fiscal stimulus package.
Our recovery will be a marathon, not a sprint. The RTC is one more step in this marathon. We have a long way to go, and we need solutions that address the one-third of our country that remains vulnerable. The RTC would protect families, avoid disastrous evictions, and prevent landlord bankruptcies—helping our country and our economy heal.
Bibi Hidalgo is cofounder of Future Partners and a former economic appointee in the White House and U.S. Treasury.
Francis X. Suarez is the mayor of Miami and vice president of the U.S. Conference of Mayors.
Ernie Tedeschi is a private sector economist and former U.S. Treasury economist.
None of the authors have a financial interest in the advice offered in this article.
This article is written in memory of Patrick Hidalgo, who devoted his life and career to combating income inequality.


fortune--2020-08-07--Capital One is fined $80 million for huge data breach

The U.S. Treasury Department has fined Capital One $80 million for careless network security practices that enabled a hack that accessed the personal information of 106 million of the bank’s credit card holders.
The Comptroller of the Currency said in a consent order Thursday that Capital One failed in 2015 to establish effective risk management when it migrated information technology operations to a cloud-based service.
It said the bank’s own internal audit failed to identify “numerous weaknesses” in its management of the cloud environment and “engaged in unsafe or unsound practices that were part of a pattern of misconduct.”
The consent order said Capital One has committed to fixing the problem. In an emailed statement, the company said it has in the year since the breach “invested significant additional resources into further strengthening our cyber defenses, and have made substantial progress in addressing the requirements of these orders.”
Among the largest of its kind on record, the 2019 breach compromised about 140,000 Social Security numbers and 80,000 bank account numbers. The accused hacker, former Amazon software engineer Paige Thompson, has pleaded not guilty to charges related to the breach.
Thompson, a transgender woman, is set to stand trial in February. Her lawyers have sought to have her released to a halfway house where she would have better access to mental health care, but the judge in the case denied the request saying she was a flight risk and a danger to others.
No evidence has emerged that Thompson sought to benefit financially from the hack.


fortune--2020-08-07--Independent restaurants are already in a perilous situation—and it’s about to get a lot worse

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Dining remains the hardest-hit industry for unemployment as a result of the COVID-19 pandemic, based on the latest figures published Friday in July’s jobs report.
One in four U.S. jobs lost during the pandemic have been in restaurants and bars, and the total jobless rate sits at 10.2% as Congress continues to debate a second stimulus package and a replacement for expired $600 unemployment benefit. The U.S. Bureau of Labor Statistics (BLS) jobs report found the total number of unemployed Americans stood at 16.3 million in July, an improvement from the 23.1 million unemployed in April as some states have, at least partially, reopened their economies.
And yet, independent restaurants have only received approximately 8.1% of Paycheck Protection Program (PPP) dollars despite facing the worst job losses across major industries, according to the Independent Restaurant Coalition (IRC). The grassroots organization, led by a number of chefs and restaurateurs nationwide, warns that 11 million independent restaurant employees will lose their jobs forever without immediate action.
“The July employment report shows that PPP isn’t working for restaurants, and another loan program won’t work either,” the IRC wrote in a statement on Friday. “PPP was an eight week solution to an eighteen month problem, and we need additional relief from Congress urgently to ensure there are jobs we can return to next year. Restaurants are already in more debt than ever before, paying back PPP loans, suppliers, or our employees. One in three are expected to permanently close by the end of the year. We need grants to help offset the cost of reopening when it’s safe to do so.”
Most states provide unemployment benefits up to 26 weeks, but supplemental $600 checks each week from the federal government have proven critical for millions of out-of-work Americans to continue paying their bills since mid-March. However the federal unemployment funding expired at the end of July, and Congress hasn’t moved any closer to renewing unemployment benefits anytime soon. While some states have stepped in to offer extra unemployment funding for as much as 20 extra weeks, without additional unemployment funding as the pandemic continues and many businesses remain shutdown, millions of Americans are at risk of defaulting on rent, mortgages, and other bills as well as just putting food on the table for their families.
Restaurants and bars, especially when compared to other retail businesses, have struggled with reopening, whether it be trying to comply with constantly changing regulations for outdoor seating and installations to just getting patrons to social distance and wear a mask when possible. The effort has become so overwhelming for many businesses that they re-closed altogether rather than putting their employees’ physical and mental health at further risk.
Even for dining establishments that can reopen, many states still prohibit indoor service in order to curb the spread of COVID-19, and those that can serve outdoors often have to reckon with mercurial summer weather between heat waves and torrential storms passing through. Al fresco dining is running against the clock as permits for extra curbside and parking spot seating are set to expire in September and October as many cities anticipate car traffic to pick up again once summer is over. Even for restaurants that survive that long and are financially able to install outdoor heat lamps (despite their energy consumption), winter is still coming, and outdoor dining will not be feasible in many regions at all, reducing service back to takeout and delivery.
While there has been more of a spotlight on the restaurant industry’s problems in the last few years—especially on the treatment of female employees in the wake of the #MeToo movement—the pandemic has further exposed deeply-engrained misogynistic and racist attitudes, prompting some leaders in the industry to call for a complete overhaul of traditional business practices when a complete reopening is possible.
On Thursday, 50 restaurant owners—including Tom Colicchio, David Chang, and Danny Meyer—publicly proposed the “Safe and Just Reopening Plan,” developed in partnership with One Fair Wage, a nonprofit led by advocates for restaurant workers to end the sub-minimum wage for tipped workers.
The four-point plan calls for the elimination of the sub-minimum tipped wage, allowance of tip sharing with back-of-house and kitchen staff (which is legal elsewhere, but not in New York despite extending that benefit to other industries in January), payroll tax relief, and the establishment of a 5% safe reopening surcharge that restaurants can charge.
The surcharge coupled with tip sharing are critical as restaurants struggle to get back on their feet but also commit to paying a full minimum wage, rather than subsidizing wages by tips, which many critics have called out as an inherently racist practice that also perpetuates sexual harassment. One Fair Wage president Saru Jayaraman told Eater that restaurant owners moving toward eliminating the tipped minimum wage—which wouldn’t happen overnight but rather over the next five years—would require more legislative support, which is why the plan also advocates for tip sharing and surcharges.


fortune--2020-08-07--Joe Biden’s childcare plan will benefit working families—but basic income would help even more

With his $775 billion childcare plan, Joe Biden has run headlong into history—reigniting a conversation about family support that the U.S. effectively abandoned almost 50 years ago.
Biden’s promising idea, announced late last month, evokes 1970s-era, bipartisan enthusiasm for national childcare policy. But the presumptive Democratic presidential nominee is missing a second idea that struggling families need just as much: a guaranteed income.
Recent leaders—including 17 sitting city mayors—have seen wisdom in the universal basic income concept, and it’s no wonder. Poverty is the biggest predictor of engagement in the criminal justice system. A full third of Black and Latino children grow up impoverished.
Pairing a guaranteed income with universal childcare is the most obvious way to lift these kids out of poverty and enable their parents to build careers and fuller, better-educated lives for themselves and the next generation.
It doesn’t have to be a party-line issue. No less a Republican than President Richard Nixon included a minimum income in his antipoverty plan in 1969. His proposal for poor Americans passed with bipartisan support in the House.
Then Senate Democrats and Republicans killed it. Democrats thought the plan’s parameters were too narrow and wouldn’t help enough people; Republicans thought it would cost too much.
Since then, observers including scholar Martin Gilens have suggested racial bias—including a fear that too many Blacks would benefit without working—contributed to the proposal’s failure. In truth, aid would have gone to both the working and nonworking poor while undercutting the stigma associated with traditional federal welfare, which for years had no time limit.
New restrictions to welfare materialized under President Bill Clinton, whose administration ended the guaranteed poverty assistance through a false narrative: that families had generations-long dependence on the aid and needed a stronger work ethic. It was another narrative with a decidedly racial undertone. Most families received the help for less than two years, statistics showed.
A replacement program, Temporary Assistance for Needy Families, or TANF, carries a five-year time limit. TANF has left more parents, largely mothers and children, in deep poverty. Even states with the most generous benefits leave recipients with income at 40% to 60% of the poverty threshold.
Although Clinton’s original plan envisioned childcare assistance for working families, public funding hasn’t always allowed for that provision. The result: Many parents have remained unable to pursue the jobs that would help pull them—and their families—out of dire hardship.
It’s a familiar pain, as the debate over government support for children and childcare has stretched across decades. In 1972, Nixon vetoed a national childcare policy on grounds that it would “Sovietize” America’s children. He said the plan to ensure care, known as the Comprehensive Child Development Act, was “anti-family.”
The veto followed by an economic downturn was largely successful in scrubbing childcare from the national agenda. Further, early-’70s propaganda suggested laws supporting childcare would limit a family’s ability to take the kids to church, along with other fallacies.
Around the same time, the religious right argued the availability of childcare would lead to a breakdown in the traditional family structure. Still, recent survey data show broad-based support for government involvement in childcare across the political spectrum.
Now the coronavirus pandemic and economic downturn are bringing all parents’ needs into sharper view. The Biden plan would help almost immediately, delivering $775 billion over a decade to increase the childcare infrastructure and provide tax credits for childcare; tax relief for parents who provide home care for children and older adults; and a health care option that would offer paid family and sick leave, summer programs, and after-school care.
Biden’s plan, which guarantees universal care for 3- and 4-year-olds, adopts many ideas from the Child Care for Working Families Act of 2019, which was sponsored by Sen. Patty Murray (D-Wash.) and Rep. Bobby Scott (D-Va.). When it was introduced in the House, it had 175 Democratic cosponsors and one Republican: Rep. Christopher Smith of New Jersey.
Given how many Black and brown children live in poverty without quality childcare, the plan would be a victory for racial justice. Its introduction alone marks a momentous and welcome disruption to the national discourse, which the right wing has long refocused from helping families to cutting spending.
As a nation, we have been too busy stigmatizing the poor and allowing racial bias to interfere with efforts to support families. Let’s go back to where we left off in the early ’70s: Use this moment to respond to the street demonstrations and harness the momentum of the Biden platform to lift up childcare—and family care—in a broad-based way.
One way to promote racial justice is to provide access to universal quality childcare and a guaranteed minimum income. Let’s start with Biden’s plan.
Elizabeth Palley is a professor and director of the doctoral program in the School of Social Work at Adelphi University. She is coauthor of In Our Hands: The Struggle for U.S. Child Care Policy.