fortune--2020-12-03--Wall Street culture clash: When Coinbase met Cantor Fitzgerald

In his new book, Kings of Crypto: One Startup’s Quest to Take Cryptocurrency Out of Silicon Valley and Onto Wall Street, Fortune senior writer Jeff John Roberts depicts the rapid rise of Coinbase, the digital currency exchange. Coinbase has become one of the dominant platforms for the trading of Bitcoin and other cryptocurrencies, and the company has generated plenty of controversy along the way. In this scene, Roberts captures the wide cultural gap that separated the fintech upstart and its entrenched Wall Street competitors in Coinbase’s earlier days.
For a story about one of Coinbase’s fellow fintech startups, the brokerage Robinhood, click here.
Adam White had seen a lot of things in the Air Force and at Harvard Business School. And since joining Coinbase as employee number five, he had risen to run GDAX, the company’s exchange for professional cryptocurrency traders. Now, in the fall of 2017, GDAX had become a cash cow as Coinbase steamed toward $1 billion in annual revenue, and White was ready for a new challenge. He figured he could handle anything the business world threw at him. Coinbase’s CEO, Brian Armstrong, threw Cantor Fitzgerald at him.
The famous firm embodied every stereotype of Wall Street’s clubby culture. Working at Cantor Fitzgerald meant wearing suspenders and three-piece suits. It meant spending hours over expensive steak dinners and fine scotch, braying about how much money you made.
And as befit Cantor’s reputation as an A-list banking and brokerage firm for many of the world’s wealthiest and most sophisticated companies, working there also meant enjoying a coveted status. Cantor is one of only a handful of firms that the Federal Reserve Bank of New York has designated to act as a market maker for federal securities, which means acting as Uncle Sam’s bond broker.
It was now White’s job to sell Cantor on the benefits of crypto and doing business with Coinbase. The fabled firm, he hoped, might want Coinbase’s help in offering Bitcoin to its clients or perhaps hear White’s explanation of how blockchain—the technology underlying cryptocurrency—could one day transform the process for clearing securities. Meanwhile, a tie-up with Cantor would be a feather in the startup’s cap and go a long way toward legitimizing a crypto industry many still saw as disreputable.
White met reps from the firm on 59th Street in a tower overlooking Central Park. Cantor Fitzgerald’s headquarters had long been located at the top of the World Trade Center’s North Tower until a Boeing 767 jet stuck the building five floors below them on September 11, 2001. The firm lost 658 employees—two-thirds of its New York workforce—including the brother of CEO Howard Lutnick. Defiantly, Lutnick brought the firm’s trading markets back online the next week, saving the company and eventually paying out benefits to relatives of employees killed in the attack.
Now, Lutnick stood at the head of a phalanx of Cantor staff who had come to meet White. White did not meet phalanx with phalanx. He brought the friendly, self-effacing, and easygoing disposition of a native Californian and little more. Lutnick quickly noticed White wore no tie and arrived with no retinue. And then he saw the title on his business card: General Manager.
In Silicon Valley, titles—like clothes—are often informal, sometimes creative, like “Digital Prophet” or “Innovation Sherpa.” Many startups treat titles like a rack of hoodies—pull one off the rack, try it on, try another. Find one you’re comfortable with. Old-line finance firms, on the other hand, where high achievers earned nicknames like “Human Piranha,” treat titles as critical badges of power and status. Ranks like “executive managing director” and “senior managing director” matter. They send important signals about who is worth investing time in, who is serious, and who can be ignored. Lutnick scoffed at the idea that Coinbase would send a “general manager”—whatever that was—to waste his time. Didn’t they know who he was?
“So I sat down with this big, sharp-elbowed financial company, trying to work a deal,” White recalls. “There must have been a dozen of them and there was just me. Then the CEO laughs at me and goes, ‘Hey, GM, are you going to make my coffee?’ I came out to New York and got my ass handed to me by old-school traders.”
Humiliated, White went home without a new client for Coinbase. But he would get the last laugh. One year later, he would join a new cryptocurrency venture launched by Wall Street giant Intercontinental Exchange, becoming its president soon after—a sign that even the most traditional New York financial firms were coming around to crypto.
Reprinted by permission of Harvard Business Review Press. Excerpted from Kings of Crypto: One Startup’s Quest to Take Cryptocurrency Out of Silicon Valley and Onto Wall Street, by Jeff John Roberts. © 2021 Jeff John Roberts. All rights reserved.


fortune--2020-12-03--Robinhood’s next adventure: Stealing market share from the rich

Vlad Tenev, like so many CEOs these days, is working from home. A thin 33-year-old with jet-black hair down to his shoulders, Tenev has joined a video call to discuss how his company—Robinhood, maker of the wildly popular eponymous stock-trading app—plans to capitalize on its recent growth.
But he also has other transitions on his mind. A father of two, Tenev explains that his younger child is in the final stages of potty training—a milestone that feels especially significant given Tenev’s own upbringing. “When I grew up, in Bulgaria, there were never enough diapers available,” he recounts. “So there was huge pressure to move on from diapers.”
Though he now lives in tony Palo Alto, Tenev brings up his childhood experience with Communism frequently, invoking the economic hardships and deprivations that the system inflicted. In his view, the failures of Communism validate Robinhood’s über-capitalist mission, which is to help neophyte investors build wealth by buying stocks.
Robinhood is only seven years old, but its pursuit of that mission has shaken up the brokerage industry in profound ways. Its sleek app-based features have made it the go-to investing platform for people under 40. The upstart boasts 15 million accounts, according to investment bank JMP Securities, on par with decades-old rivals like Charles Schwab and TD Ameritrade; it added 5 million accounts in the first three quarters of 2020 alone. Its rapid rise has forced incumbents to emulate its innovations, most notably zero-commission trading, which virtually all brokers now offer. And its ease of use and unabashed cheerleading for stocks have made it synonymous with a new species of investor dubbed the “Robinhood trader”—a cohort disparaged by many financial pros, but one whose influence is reshaping assumptions about how to invest.
For Tenev and his 35-year-old cofounder, Baiju Bhatt, long-term success—including profitability and a public offering—depends on guiding those traders toward affluence. Robinhood believes it can emulate what Schwab did two generations earlier, acquiring younger customers that the rest of the industry has ignored, then providing more lucrative financial services as those customers mature.
For this strategy to work, however, Robinhood must prove it can attain maturity itself. The company’s stumbles on tech execution, regulatory compliance and customer service have prompted skepticism about its ability to offer products and advice to wealthier clients. Other critics have faulted the Menlo Park, Calif., startup for promoting risky trading. Even as Tenev wrangles toddlers at home, he’ll need to bring discipline to a company prone to behaving like a hormone-addled teenager.
Signing up for Robinhood can feel like navigating a lazy mobile video game. Exuberant screens promise, “There’s free stock waiting.” Others offer a “Robin’s reward” digital scratch-and-win ticket—which in my case deposited $3.24 worth of an obscure health care stock into my new account. Within 10 minutes, I was able to trade stocks and stock options. It’s all a quantum leap from the last time I opened a brokerage account, five years ago. That process took days, involved fax machines, and, needless to say, offered no scratch-and-win prizes.
I’ve since experienced the design nudges that Robinhood uses to encourage trading. Flurries of notifications arrive, unbidden, to alert me to price moves in stocks I own. (I receive frequent pings about that health care stock.) When I do something new, an on-screen confetti shower celebrates my move.
Little wonder, then, that Robinhood has grown so quickly and generated such feverish activity. In the second quarter, its users traded nearly 60 billion shares of stock, a 150% year-over-year increase, eclipsing totals at Schwab and E*Trade. In June, the startup outstripped its rivals for the first time on a widely watched metric called daily average revenue trades, posting an average of 4.31 million, half a million more than runner-up TD Ameritrade.
Robinhood’s dominance is no fluke. It caught on by deploying the right technology at the right time: It launched in 2013, just as smartphones became ubiquitous. Bhatt and Tenev, who met at Stanford University, also absorbed the Silicon Valley ethos that design is king. The pair labored over Robinhood’s interface, teaching themselves typography and iOS design while riding Caltrain commuter rail and fine-tuning the app by asking countless strangers to try it. They also pulled off the startup trick of persuading early customers to refer friends, creating buzz without the expense of a marketing campaign. It didn’t hurt that their Stanford circle featured a who’s who of future Valley moguls, including Snapchat founders Evan Spiegel and Bobby Murphy, Instagram’s Kevin Systrom, and media gadfly and venture investor Josh Constine, who could serve as the duo’s informal brain trust.
Robinhood also employed customer-acquisition tactics that other brokerages had seldom tried. Commission-free trading has attracted the most attention but equally important was requiring no minimum investment, which meant customers with very little cash could immediately assemble stock market stakes.
Its strategy is reminiscent of San Francisco–based Charles Schwab, the former upstart that made stock trading accessible to smaller investors in the 1970s with lower commissions and everyman marketing campaigns. Incumbents took a dismissive view of Schwab, says Chip Roame of Tiburon Strategic Advisors; heavyweights like Merrill Lynch let Schwab hoover up small investors while they catered to “priority households” with far more assets. “Now, Schwab has four times as many clients because they grabbed them while they could,” says Roame. “That’s what Robinhood is doing.”
Five decades later, the pattern could be repeating itself—dismissiveness included. In interviews, executives from older brokerages praise Robinhood’s app but express doubt that the company can provide the guidance customers will demand. “Gamification and confetti might get new traders in the door, but investors need a lot more from a firm they trust with their money,” says Barry Metzger, SVP of trading and education at Charles Schwab. “The app is just one part of it.”
In a year of unprecedented financial shocks, few were more surprising than the wave of retail investors—investors trading from personal accounts—that sloshed into stocks in 2020. Piper Sandler’s Rich Repetto, a veteran brokerage-stock analyst, estimates that retail investors’ share of trading has jumped from a longtime baseline of 10%–15% up to 20%–25%, as amateurs homebound by the pandemic ride the ups and downs in stocks. That leap is one reason the average daily volume of shares traded soared from 7 billion in 2019 to 11 billion this year.
Tenev and Bhatt’s company has undeniably contributed to that increase, so much so that “Robinhood traders” has become disparaging shorthand for investors who pile into stocks without regard for business fundamentals. And indeed, Robinhood users helped fuel recent bubbles in shares of bankrupt brand names like Hertz and J.C. Penney. Still, Robinhood insists that caricatures of its customers are unfair, and that most aim to buy and hold stocks—behaving like investors, rather than traders.
Robinhood customers are younger than the industry norm, with a median age of 31; 70% are millennials or Gen Z. They’re also more ethnically diverse. According to a survey Robinhood commissioned, 60% of their customers are white, compared with 78% at other brokerages. Nineteen percent of Robinhood users are Hispanic, 10% are Asian, and 9% are Black—figures close to the makeup of the U.S. as a whole. (Women remain underrepresented at Robinhood and its rivals, accounting for about a third of customers.)
This young clientele may be buying stocks, but they’re not building much wealth yet—at least not at Robinhood. Investment bank JMP Securities estimates that the average Robinhood account balance is less than $5,000. Robinhood declines to comment on this estimate, but if accurate it’s a far cry from its competitors: The average balance at Schwab, for instance, is $255,000. Still, Robinhood executives say that their young customers have a different approach to investing than earlier generations—and that Robinhood’s tools could suit their needs well as they acquire more assets.
Schwab has four times as many clients [as older competitors] because they grabbed them while they could. That’s what Robinhood is doing. Chip Roame, Tiburon Strategic Advisors
Inexpensive, low-maintenance index funds and ETFs were the democratizing force in investing in the 2000s and 2010s. But Howard Lindzon, an early Robinhood backer and founder of investing site Stocktwits, says that many young investors avoid index funds—which may own controversial assets like oil or tobacco stocks—and instead buy shares of brands they trust, like Netflix and Disney. Tenev, meanwhile, notes that buying fractional shares of pricey stocks like Google and Amazon is particularly appealing to this generation. Through Robinhood, they can arrange to automatically purchase partial shares of such blue chips every payday.
These à la carte tactics don’t offer the diversification and protection against risk that index funds do. But with zero-commission trading, building a portfolio by buying dozens or hundreds of individual stocks is no longer cost-prohibitive. And customers who prefer funds and ETFs can still buy them on Robinhood. Whatever approach they employ, Tenev says he anticipates more customers will direct automatic paycheck deductions into Robinhood accounts, the way savers do with IRAs and 401(k)s. That will keep them in the fold as they grow wealthier, offering Robinhood an opportunity to sell them profitable products and services.
Robinhood executives are tight-lipped about what those products and services will be or when they’ll arrive. But Tenev tells Fortune that Robinhood could eventually take a more active role managing customers’ assets, and a 2019 deck about the company’s future describes plans to offer IRAs, mortgage lending, and property and life insurance. “When you see the products roll out, it will fit into a coherent long-term narrative,” says Tenev.
Those who knew Tenev and Bhatt at Stanford say the pair were more bookish than boorish. Tenev says personal wealth has never been their primary motivation—notwithstanding that they will likely become billionaires if Robinhood goes public. “We both wanted to be physics or math professors,” says Tenev. “You don’t do that because you want money.” (Bhatt was on paternity leave and unavailable for interviews during the reporting of this story.) When they launched Robinhood, the duo said they were inspired by the ideals of Occupy Wall Street; their corporate namesake, of course, is a folk hero who stole from the rich.
Still, like many of their tech-startup forebears, the founders have been criticized for forsaking populist principles in the pursuit of hyper-growth. For Robinhood, that criticism has revolved around both its gamified, casino-like design and its business model. And in the arena of options trading, the combination of those factors has put the startup on the defensive.
Robinhood earns more than 70% of its revenue through a process called “payment for order flow” or PFOF, which generated $453 million for the startup in the first three quarters of 2020, according to securities filings. (The remainder of Robinhood’s revenue comes primarily from lending securities and from Gold, a $5-a-month premium service whose features include margin trading and more-detailed market data.) PFOF involves routing customer trades through market-making firms, in return for a fee; the market makers benefit by earning money on the spread between bid and ask prices when they execute the trades. Routing orders through market makers can also help customers get more favorable prices on their trades, but it’s usually an either/or proposition; if the brokerage gets a PFOF fee, the customers won’t get price improvement.
While controversial, PFOF is commonplace: Larry Tabb, a markets analyst at Bloomberg Intelligence, notes that PFOF fees are what allow brokerages to offer free trades in the first place. The situation is murkier, though, when it comes to PFOF for options—contracts that give investors the right to buy or sell shares at a fixed price in the future. Options offer alternative ways to profit from share-price movements, but their pricing can be fiendishly complicated, and trading them is usually the province of professionals. Market makers offer considerably higher PFOF payments for options trades, in part because they generate higher margins—and options-related fees account for 62% of Robinhood’s PFOF revenue, according to Piper Sandler.
Not coincidentally, Robinhood’s app frequently reminds users that options are an option. During my test-drives (albeit after I selected “I know what I’m doing” during sign-up), hitting “trade” on any stock called up a large “Trade Options” button that appeared above the more pedestrian “Buy” or “Sell” choices. Selecting “Trade Options” leads to invitations to select puts and calls—the most basic contracts—but also to try exotic “multi-leg” strategies involving multiple contracts, with names like “straddle,” “strangle,” and “Iron Condor,” tactics that wouldn’t sound out of place at a pro-wrestling match.
These nudges irk critics, who say the options game is one novices shouldn’t play, not least because pros can take advantage of newbies’ inexperience. Ranjan Roy, a former Bank of America options trader, wrote a widely shared essay explaining why veterans refer to amateurs as “the gravy.” “If you trade options all day, you’re going to lose money,” Roy tells Fortune. Benn Eifert, founder of an investment fund that uses options to ride out market volatility, says that successful options trading requires sophisticated software and substantial math proficiency. He expresses dismay over Robinhood’s tempting interface. “It’s totally shocking to me that it’s not a major legal issue for them,” he says.
Read an excerpt from Jeff John Roberts’s forthcoming book, Kings of Crypto, here.
Robinhood has, in fact, been fined by industry group FINRA for issues related to its PFOF practices, while the SEC is poised to impose a fine of its own. And scrutiny of how it encourages options trading has increased in the wake of the June suicide of one of its customers, who left a note blaming the company for letting him accumulate over $700,000 of debt while trading options. (It later emerged that the 20-year-old had failed to understand that the negative balance he saw on-screen was much higher than his actual debt.)
Most people aren’t yearning for a call to customer support. They don’t want to talk to an agent. They just want the quickest solution to their problem. Vlad Tenev, CEO, Robinhood
Robinhood has promised to overhaul its options platform and to offer better disclosure about PFOF practices and more educational material for traders. Tenev says that stories about options trading don’t reflect the habits of most customers: Only 13% trade options, and fewer than 2% of those try multi-leg strategies. Others connected to Robinhood are less apologetic, seeing condescension in the criticism. “There’s a shocking level of sophistication in the order flow,” says an executive at one of Robinhood’s market-making partners. “It’s not like it’s Aunt Millie in Nebraska trading puts and calls.” Lindzon, the early Robinhood backer, acknowledges that some customers make bad decisions—but argues that it’s paternalistic to stop them. “You’re going to let a kid drive a car or buy a Juul, but you’re not going to let a kid decide what stock they’re going to buy?” he asks.
Other public relations scrapes have dented Robinhood’s reputation, as have technical meltdowns that left users unable to access the site during peak trading days. By mid-July of this year, Robinhood had been the subject of 473 complaints to the Federal Trade Commission, compared with 126 for Schwab and 69 for Fidelity—which have comparable numbers of customers. The discontent has arguably been aggravated by Robinhood’s approach to customer service. Unlike traditional brokerages, which field armies of agents to hold clients’ hands, Robinhood does not provide customers with even a phone number, leaving them to seek help via the app.
Tenev appears to have internalized the tech credo that automated solutions are preferable to the old-fashioned (and expensive) alternative of hiring humans. “Most people aren’t yearning for a call to customer support,” he says. “They don’t want to talk to an agent. They just want the quickest solution to their problem.” Nonetheless, in a bow to reality and to its own future ambitions, Robinhood is hiring hundreds of agents to staff call centers in Arizona and Texas. The company says these agents are now making outbound calls in response to digital requests for help—but it has no immediate plans to publish a phone number.
Robinhood’s awkward adolescence hasn’t kept it from raising very grownup sums. In September, the company announced it had raised $660 million in a new funding round from prominent venture capital firms including Andreessen Horowitz and Sequoia Capital. Following two earlier rounds this year, Robinhood has raised $2.2 billion in total, with a current valuation of $11.7 billion. The gusher of cash amounts to a bet that Robinhood will challenge or even eclipse the old guard.
It is also a bet that Tenev is ready to run a public company. Robinhood is expected to announce an IPO in the coming months, and the company said on Nov. 20 that Bhatt would step down as co-CEO, leaving Tenev as sole chief. (Bhatt will remain on Robinhood’s board and work on product development.) Tenev is reading history to find leaders to emulate. “Alexander the Great was a leader who led from the front,” he enthuses. “That courage and boldness is inspirational. Alexander was on his horse and going to battle while his generals were still talking.” His own supporting cast of generals, meanwhile, now includes more seasoned executives, including Jason Warnick, an Amazon veteran who became CFO in 2018, and Dan Gallagher, a former SEC commissioner who is now Robinhood’s top lawyer.
For now, the team has momentum on its side. The pandemic-driven surge in trading has produced a bigger pie for all brokers: TD Ameritrade and E*Trade recently posted record quarterly trading revenues (each had PFOF in part to thank). Even so, Robinhood’s progress stands out: Investors are downloading its app at a pace 10 times as great as those of rivals.
Still, impressive scale doesn’t guarantee Robinhood will evolve into a Fidelity or Charles Schwab. Those companies’ diverse, profitable revenue streams include asset management and banking services, as well as interest earned from customers’ cash balances. The incumbents are also beefing up their offerings by consolidating: Charles Schwab is in the final stages of acquiring TD Ameritrade, while E*Trade has just been absorbed into Morgan Stanley.
$11.7 billion Robinhood’s valuation on the private market
Building a comparable suite of services at Robinhood will take time and money—and it’s no sure thing that current customers will embrace them. Some market-watchers suspect that many investors use Robinhood for entertainment, wagering small amounts on its zippy platform while keeping the bulk of their wealth elsewhere. Robinhood’s small account sizes lend credibility to that theory. “A lot of people use it as a secondary brokerage—like a play account,” says Casey Primozic, who runs a site called Robintrack that compiles data about the most popular stocks on Robinhood. (Robinhood stopped sharing data with Robintrack in August, in part because the site’s users included hedge funds scanning for trading patterns they could profit from.)
Financial threats loom, meanwhile, for all brokers. Repetto, the brokerage analyst, predicts that trading volumes will decline as the pandemic eases. And payment for order flow, Robinhood’s main artery, may itself be at risk. Tabb, the Bloomberg Intelligence analyst, expects that pressure from consumer advocates will lead the SEC to require brokerages to display prices differently for the “odd lots” that include many retail trades. Those changes would narrow the bid-ask spread on such trades—hurting market makers’ margins and leaving less revenue for PFOF. Tabb says that such changes, along with fierce competition, may eventually even lead brokerages to reimpose commissions, undoing the era that Robinhood ushered in.
Warnick, Robinhood’s CFO, flatly rejects the idea that the company might charge commissions. But for now, Robinhood continues to keep its actual revenue-generating plans close to the vest, even as it grabs customers at a breakneck pace.
The likelihood of Robinhood turning those traders into profit-generating, long-term customers seems uncertain—especially given the incumbency and deep pockets of its competitors. But Joe Grundfest, a Stanford Law School professor and former SEC commissioner who knows Tenev and Bhatt, says such skepticism underestimates the power of a true innovator. “By that logic, Walmart should be kicking Amazon’s ass, CBS should be wiping the floor with Netflix, GM should be kicking the corn out of Tesla,” he says.
All Vlad Tenev has to do now is execute like Jeff Bezos, Reed Hastings, and Elon Musk.
CORRECTION: An earlier version of this story incorrectly said that the SEC had fined Robinhood. That fine is still pending.
A version of this article appears in the December 2020/January 2021 issue of Fortune with the headline, “Stealing (market share) from the rich: Robinhood’s next adventure.”


fortune--2020-12-03--The pandemic has pushed more than 32 million into extreme poverty, UN says

WhatsApp is on its way to becoming the world ’ s next super-app

The coronavirus pandemic has had a devastating impact on the world’s poorest countries, pushing millions into extreme poverty, according to United Nations report.
More than 32 million additional people in the poorest countries in the world now live on less than $1.90 a day — a direct result of the outbreak, the UN Conference on Trade and Development said Thursday.
The economic impact in the Least Developed Countries has been far more devastating than the health crisis, it said, with growth prospects cut from 5% to -0.4% this year.
That would be the worst economic performance of the 47 LDCs since the third-world debt crisis of the 1980s, the UN said. The abrupt halt in world trade and tourism, and the impact of lockdowns on international migration and remittances, dealt a “ruinous” blow. The combined merchandise trade deficit of the LDCs is forecast to exceed 2019’s record $91 billion.
Domestically, falling income levels, widespread unemployment and widening fiscal deficits have been exacerbated by the pandemic. According to UNCTAD, this makes the poverty and social outcomes of the 2030 Sustainable Development Goals a “distant prospect.”
The report comes just a week after the U.K. cut its foreign aid budget, a move that provoked a huge domestic backlash. And while Group of 20 governments suspended debt payments from the poorest countries earlier this year, the UN said they need to go “well beyond” that and look at cancellation.
According to the report, governments in LDCs have two main priorities: a short-term battle to cushion the impact of the recession, and a longer-term one to build resilience against future crises.
“The pandemic has brutally reminded us of the urgent need to develop productive capacities in LDCs to enable them to achieve structural transformation, reduce exposure to external shocks and build resilience,” UNCTAD Secretary-General Mukhisa Kituyi said.


fortune--2020-12-03--Joe Biden drops early clues about his Asia agenda

This is the web version of Eastworld, Fortune’s newsletter focused on business and technology in Asia. Subscribe here to get future editions in your inbox.
A Nov. 8 tweet from former Australian Prime Minister Malcolm Turnbull captured the sentiment of many Asian political leaders to news that Joe Biden had defeated Donald Trump in the U.S. presidential election:
“Congratulations Joe Biden and Kamala Harris! What a relief that you won!”
In a later appearance on Australian TV, Turnbill elaborated: “It’s a relief to have a return to normal transmission, to have an administration that is going to be consistent, that isn’t going to be making decisions by wild tweets in the early hours of the morning, that isn’t going to be walking out of global treaties and alliances, discombobulating friends and foes alike.”
Turnbill, of course, has some first-hand experience with getting discombobulated: his first official phone call with Trump in 2016 was a diplomatic disaster. But Turnbill’s successor, Scott Morrison, who has often boasted of his special rapport with Trump, seemed no less elated by Biden’s victory.
“Australia wishes you every success in office,” Morrison gushed in a tweet. In a subsequent statement, Morisson hailed Biden as a “great friend of Australia,” praised his “commitment to multilateral institutions,” and promised to invite the new president to Australia to celebrate the 70th anniversary of the military treaty between Australia, New Zealand, and the United States.
The leaders of Japan’s ruling Liberal Democratic Party, too, have touted their affinity for Trump; former Prime Minister Shinzo Abe was the first foreign leader Trump invited to the White House, and the two men bonded over golf.
And yet Abe’s successor, Yoshihide Suga, emerged all smiles from his congratulatory phone call with the president-elect. In their 15-minute exchange, Suga told the Japanese press, Biden had made a point of declaring that the U.S.-Japan security alliance applies to a disputed rock outcropping in the East China Sea, which Japan controls and calls the Senkaku Islands but China also claims as the Diaoyu Islands.
Biden’s calls with South Korean President Moon Jae-in and Indian Prime Minister Narendra Modi were no less cordial. Moon worked closely with Trump to arrange an unprecedented 2018 summit to discuss denuclearization. Those talks produced a publicity storm but not much else, and eventually collapsed. Biden told Moon that, unlike Trump, he won’t meet with Kim without preconditions, but assured him that South Korea is a “lynchpin of the security and prosperity of the Indo-Pacific region,” according to Moon’s spokesman.
Modi, who all-but campaigned for Trump during the election, extolled Biden’s victory as a “testament to the strength and resilience of democratic traditions in the United States,” according to an Indian foreign ministry readout of the call. The two leaders discussed “shared priorities” including climate change and “cooperation in the Indo-Pacific region.”
The nuances of those exchanges with America’s key Asian allies offer early clues to how Biden’s approach to managing relations in the region will differ from that of his predecessor—and how it won’t.
Biden and his advisors have stressed that what won’t change is the recognition that China has emerged as America’s primary strategic competitor, and that four decades of economic “engagement” have failed to transform China into a liberal democracy as many U.S. foreign policy experts had previously hoped.
Biden’s choices to lead his foreign policy team—including Anthony Blinken as secretary of state, Jake Sullivan as national security adviser, and other policy advisers such as Michele Flournoy, Ely Ratner, and Kurt Campbell—have staked out hardline policy positions on China.
In a new interview with New York Times columnist Thomas Friedman, Biden said he won’t move immediately to lift the 25% tariffs Trump imposed on $250 billion worth of Chinese goods and components used by U.S. manufacturers, nor would he scrap Trump’s “phase one” trade agreement requiring China to purchase about $200 billion in additional U.S. goods and services in 2020 and 2021.
“I’m not going to make any immediate moves, and the same applies to tariffs,” Biden told Friedman. “I’m not going to prejudice my options.”
Blinken has vowed that the Biden administration will “fully enforce” the Hong Kong Human Rights and Democracy Act, which places sanctions on officials, financial institutions, companies and individuals deemed to have undermined the territory’s autonomy. It seems equally unlikely that Biden will loosen the restrictions Trump has placed on the sale of U.S. chip-manufacturing technologies to Chinese companies including Huawei Technologies.
Biden said he intends to crack down on China’s “abusive practices” like “stealing intellectual property, dumping products, illegal subsidies to corporations” and forcing technology transfers from American companies to Chinese partners.
But he stressed the need for “good old American industrial policy” to bolster investment in research and development, infrastructure, and education at home, while strengthening ties with American allies abroad.
“The best China strategy, I think, is one which gets every one of our —or at least what used to be our—allies on the same page,” he said.
Whether Chinese President Xi Jinping shares Malcolm Turnbill’s sense of relief about the election’s outcome is anyone’s guess. Beijing offered its congratulations to Biden on Nov. 13, becoming one of the last major powers to do so. “We respect the American people’s choice,” said Chinese foreign ministry spokesman Wang Wenbin. “We congratulate Mr. Biden and Ms. Harris.”
In just a few minutes, please feel free to join us for “On the Road Again,” a virtual conversation to ponder “The Future of Post-Pandemic Travel.” Grady and I will talk with special guests Trip.com CEO Jane Sun, Singapore Tourism Board Chief Executive Keith Tan, Group President for Marriott International Craig S. Smith, and McKinsey & Co. Partner Steve Saxon. Our conversation will take place today at 9 P.M. Beijing time (8 A.M. New York). You can join the livestream here.
More Eastworld news below.
Clay Chandler
clay.chandler@fortune.com
This edition of Eastworld was curated and produced by Grady McGregor and Naomi Xu Elegant. Reach Grady at grady.mcgregor@fortune.com and Naomi at naomi.elegant@fortune.com.
Eastworld news
Asia tsar
President-elect Joe Biden is considering appointing the White House's first-ever Asia tsar to serve on the National Security Council, according to the Financial Times. The move signals Asia's increased importance to the U.S., and also that Biden is preparing to deal with a set of complex challenges related to China. A new Asia tsar may be tasked with helping guide the administration through issues like the U.S.-China trade war, pressuring China on human rights concerns, and rebuilding U.S. alliances in the region. Financial Times
The Wuhan files
Leaked internal documents from the Hubei Provincial Center for Disease Control and Prevention reveal discrepancies in case numbers and early missteps in the handling of the coronavirus outbreak by health authorities in Hubei, the Chinese province where the coronavirus was first detected. The documents span from October 2019 to April 2020. They reveal that Hubei officials underreported case numbers and deaths in February and March and that early efforts at detecting COVID-19 were hampered by unreliable test kits. CNN obtained the files from an anonymous whistleblower who worked in the Chinese healthcare system. CNN
Friends on Wall Street
U.S.-China relations are at their lowest point in decades, with the two countries embroiled in disputes around trade, technology, human rights, and the COVID-19 pandemic. But one American institution has retained a friendly—and growing—relationship with China: Wall Street. In 2018, Beijing reached out to high-level banking executives with ties to the Trump administration for help in trade negotiations with the U.S., in exchange for more access to China’s financial markets. Wall Street firms like BlackRock are eager to access China, the fastest-growing market for financial services in the world, especially at a time when the U.S. market is saturated. The trade pact that the U.S. and China signed in January included significant provisions to open up China’s financial markets. Wall Street Journal
Wine wars
The political and trade disputes between Australia and China intensified this week, with an international alliance of lawmakers urging their country’s citizens to buy Australian wine as a signal of support for Australia’s wine industry, which China has battered with tariffs of up to 212%. Wine is just one of several Australian exports that China has targeted with tariffs in recent weeks. Politicians and economists in Australia view the actions as retaliation for Canberra’s push for an investigation into China’s early handling of the coronavirus outbreak. Australia is planning to file a complaint to the World Trade Organization over China’s tariffs on Australian barley. Wall Street Journal
Activists in jail
On Wednesday, three prominent pro-democracy activists in Hong Kong received jail sentences for their participation in an unauthorized protest outside the city’s police headquarters in June 2019. Joshua Wong, the most famous of the three, received a 13.5-month sentence. Ivan Lam, who co-founded the now-defunct student activist group Scholarism with Wong, was sentenced to 10 months. Agnes Chow, who has built a stronghold of support in Japan for Hong Kong’s pro-democracy movement, received a seven-month jail term. On Thursday, Hong Kong authorities also charged pro-democracy activist and media mogul Jimmy Lai with fraud, in what he called "trumped-up" charges aimed at silencing his criticisms of Beijing's crackdowns in Hong Kong. The Atlantic
A farming revolt
New agricultural reform laws in India have sparked an ongoing protest in the capital of New Delhi, where over 300,000 farmers have blocked roads and highways into and around the city for days to demand the government repeals the three laws. India’s government says the laws, which deregulate large parts of India’s agricultural industry, including crop pricing, will modernize the industry and provide farmers with more autonomy and prosperity. Opponents argue that the legislation favors large corporations and will end the minimum pricing guarantees that benefit farmers. Vox
Coronavirus by Special Administrative Region
Hong Kong’s fourth wave of infections is now spinning out of control stemming from what has become known as the ‘dance cluster.’ Officials have traced the outbreak, which has grown to over 1,000 new COVID-19 cases in the past week, to dance clubs that cater to Hong Kong’s middle-aged, elite women, who learn salsa, ballroom, and other dance moves from younger male instructors. City residents had spent the previous months living relatively free of COVID-19, but the new wave of infections has prompted officials to tighten social distancing measures, urge people to work from home, close some bars and entertainment venues—dance clubs included—and postpone the city’s planned travel bubble with Singapore. Washington Post
Markets and movers
Gojek and Grab – Southeast Asia’s two most valuable ride-hailing start-ups are reportedly close to finalizing details on a potential merger, according to Bloomberg. Investors have been pushing the two firms to combine forces in order to reduce cash burn and create a powerful regional tech giant. Bloomberg
AutoX – The Alibaba-backed autonomous vehicle start-up said on Thursday that it has begun fully driverless testing in China with Fiat Chrysler’s Pacifica minivans. AutoX will have a fleet of 25 driverless vehicles in Shenzhen and other cities to test the technology. Reuters
JD Health – The healthcare arm of Chinese e-commerce giant JD.com is expected to raise $3.5 billion in its IPO on the Hong Kong stock exchange on Dec. 8. The debut will be Hong Kong’s largest IPO of the year. Reuters
Evergrande – Evergrande Property Services, a unit of China Evergrande Group, China’s second-largest—and most indebted—property developer, raised $1.8 billion in its debut on the Hong Kong stock exchange on Wednesday. Investors, however, had a lukewarm response to the subsidiary, which fell as much as 3% during the day, before closing down 0.2%. Shares in Hong Kong-listed parent China Evergrande fell 2.5% on the same day. CNBC
Paytm – Chinese fintech giant Alipay is considering selling off its stake in the Indian digital payments processor Paytm amid rising tensions between China and India, sources told Reuters. Alipay owns a 30% stake in Paytm, India’s largest unicorn valued at roughly $16 billion. Reuters
Final figure
$2.2 trillion
On Wednesday, the White House said it expects to sign a bill passed by Congress that could delist U.S.-traded Chinese companies from American exchanges or prevent them from listing in the U.S. in the first place. The bill threatens a significant chunk of the U.S. stock market, which includes listings from Chinese tech giants like Alibaba and JD.com. This year, Chinese companies have raised $12 billion in U.S. IPOs. In total, over 210 Chinese firms have a combined $2.2 trillion market capitalization on American exchanges. South China Morning Post


fortune--2020-12-03--Little Big Shorts: How tiny ‘activist’ firms became sheriffs in the stock market’s Wild West

This summer, investor Nathan Anderson got a juicy tip. The subject: Nikola Corp.
On June 4, the Phoenix-based electric-vehicle maker had gone public through a reverse merger. In a year of euphoric demand for growth stocks, particularly EV makers, this one stood out. Nikola bulls believed the company would do for hydrogen-powered, long-haul trucking what Tesla has done for electric cars. Within a week, investors had pushed its market cap above $34 billion, enough to overtake Ford and Fiat Chrysler even though the upstart had yet to sell a single vehicle.
The tipster wasn’t buying the hype. Neither was Anderson, a 36-year-old CFA turned whistleblower turned short-seller.
The source put Anderson, the founder of Hindenburg Research—a five-person investment research firm with no clients, no license to manage investors’ money, and no phone number or address on its website—in contact with two former business partners of Nikola. The informants turned over a cache of text messages, emails, and photographs that cast doubts on, among other things, various public statements made by Nikola and its founder Trevor Milton about the company’s progress in developing battery and hydrogen fuel cell technology.
These were tantalizing allegations. But one accusation struck Anderson as almost too flat-out crazy to take at face value. It had to do with a video Nikola posted to YouTube in January 2018 featuring the Nikola One semi, its original prototype rig. The video shows the truck cruising through the high desert outside Salt Lake City. It opens with a long shot of the Nikola One rolling toward the camera at high speed, barreling across a wide valley. The sun glistens off the windshield and the gleaming white roof as it zips across the frame.
Nikola titled the video “Nikola One Electric Semi Truck in Motion.” It generated hundreds of thousands of views online and got wide pickup from the automotive press. At a 2018 ceremony to celebrate Nikola’s new Arizona manufacturing facility, Gov. Doug Ducey watched the video and then gushed, “Nikola Motor Company is coming to Arizona. This is a huge announcement!”
The insiders claimed the whole thing had been staged. The truck wasn’t traveling under its own power, they told Anderson. Instead, it had been towed to the top of a hill. The person at the wheel then popped it into neutral and started it on its journey downhill—slowly at first, then accelerating.
The idea that Nikola was pulling a fast one wouldn’t count as outright fraud, Anderson knew, because the video didn’t explicitly claim the truck was self-propelled. But exposing the gimmick would demonstrate the kind of razzmatazz the company was engineering to sustain its hype. Anderson’s problem: How could he prove the video was a ruse?
A self-described “obsessive digger,” Anderson used a technique that’s common to the open-source investigations in the Internet’s most skeptical corners. He slowed the YouTube video down, frame by frame, and cross-referenced those stills with images he found on Google Street View. That helped him establish the precise location of the video shoot, down to the exact mile marker where the Nikola truck came to rest and the starting point of its journey. He called one of his contacts in Utah with an unusual request: Go to that very spot and re-create the truck roll, and film the entire thing. The contact did so, albeit in a 2017 Honda Pilot SUV. It rolled for 2.1 miles and reached a maximum speed of 56 miles per hour—entirely in neutral.
Bingo.
With that, Anderson could show how the company had pulled off the video—a proof point of Nikola going to great lengths to mislead the public. He wrote up his findings, replete with photos and maps. “You just want to be 100% on those things,” he notes.
Tip No. 1 for would-be shorts
If you’re going to take down a big stock, sweat the small stuff.
On Sept. 10, Hindenburg Research published a 67-page report on Nikola—a huge dump of damning allegations. “Today, we reveal why we believe Nikola is an intricate fraud built on dozens of lies over the course of its Founder and Executive Chairman Trevor Milton’s career,” the report began. The opening page set the tone: It included 24 bullet points that poured cold water on the company’s claims that it was developing proprietary battery technology, and that it had cracked the code on cheap hydrogen fuel production. The report took repeated swipes at Milton. And it laid bare how the company gave the Nikola One a push to get across the desert floor.
Nikola responded the following day, saying the report contained “false and misleading statements” and that it had hired counsel to “evaluate potential legal recourse.” For good measure, it added, “This was a hit job for short sale profit driven by greed.” But three days later, Nikola delivered a more detailed response—in which it copped that the Nikola One was not built to “drive on its own propulsion.”
The damage was swift. The stock cratered, and investor lawsuits began to mount. In a regulatory filing in November, the company revealed that the Justice Department had issued grand jury subpoenas against Nikola and Milton, and that the Securities and Exchange Commission was investigating whether Nikola had misinformed investors. “We have incurred significant expenses as a result of the regulatory and legal matters relating to the Hindenburg Report,” Nikola disclosed. (Nikola declined multiple requests to answer questions on the matter. Reached through a spokesperson, Milton, who called the report “false and deceptive” in September, would not comment further.)
Since the report dropped, Nikola’s stock has fallen 30%, and Milton has resigned. But one cohort has walked away the better from the truck wreck. As of mid-November, short-sellers—Anderson among them—had earned $263 million in mark-to-market profits from Nikola’s plunge, according to S3 Partners, a firm that tracks short activity. And they clearly expect to earn more: More than a third of all Nikola shares outstanding were held by shorts.
Bull markets, the saying goes, ignore bad news. And if you set aside the black-swan pandemic-driven crash of early 2020, U.S. stock indexes have been in bull mode since the financial crisis, almost 12 years ago. Still, there’s a small but influential force in activist investing that is not only paying attention to bad news but also promulgating and profiting from it.
Anderson’s firm is part of a cadre who identify themselves by many names—some flashy (“short activists”); some self-righteous (“whistleblowing short-sellers”); some deceptively banal (“activist researchers”). These investors research targets suspected of shady behavior, then expose them and short them.
They share gimlet-eyed DNA with financiers large and small who’ve done the same—from Jim Chanos, who shorted Enron while warning about its accounting skulduggery, to the low-profile contrarians who bet against the subprime bubble, to CNBC-darling hedge fund managers like Bill Ackman and Daniel Loeb.
The new breed—the little big shorts—stand out because, by and large, whistleblowing and shorting is all they do. Lately, they’ve delivered plenty of pelts from publicly traded Goliaths, powered by meticulously reported jeremiads whose details rocket across social media and the business press. And with few exceptions, they do it for themselves, not for clients: They place bets with their own dough, which means many regulations don’t affect them. Anderson built a personal short position in Nikola through the summer as he became convinced he could take the company down. “It’s a big win for us,” he says, though he declines to specify how big. Critics fume that the shorts’ actions represent a blatant conflict of interest. Precisely, they fire back—no conflict, no interest.
Courtesy of Muddy Waters
Carson Block says he didn’t see short-selling as a profession when he published his first short report in 2010. But in the years following the financial crisis, as investor appetite for growth stocks drove mammoth valuations, it raised mammoth red flags for Block. The former attorney went on to become founder and chief investment officer of Muddy Waters, an activist short firm with the motto: “Doing the work Wall Street won’t.” His firm’s success in exposing fraud—and profiting from it—attracted copycats, many of whom were already raising hell on investor message boards.
Since 2010, Muddy Waters has published short attacks on 38 companies. It came to fame by shorting Chinese firms listed in North America, then delivering devastating haymakers in the form of free oppo research published online. In 2011, Muddy Waters took on Sino-Forest, a Chinese timber firm listed in Toronto, accusing the company of inflating revenues and exaggerating its holdings. The report torpedoed the firm’s shares, and it went bankrupt a year later. Sino-Forest denied Block’s allegations, but Canadian regulators eventually found that its leaders had committed fraud, and the company settled an avalanche of investor lawsuits. Earlier this year, Block went after Luckin Coffee. The company later disclosed in an SEC filing that it had inflated its 2019 sales by $320 million and costs by $200 million. Its CEO and COO were fired, and the Nasdaq delisted the company for its misbehavior.
Though Chinese firms were Block’s first focus, he realized that the flaws he found in those companies could be found everywhere. “The conflicts of interest, the ineptitude, the laziness that enabled these empty boxes to raise money in the U.S. and trade at real valuations—I mean, those are global issues,” he explains.
One of the California-based firm’s best-known takedowns came closer to home. In early 2016, Abbott Laboratories announced a $25 billion bid to buy St. Jude Medical, combining the two top players in the $30 billion market for “heart failure devices.” But in August of that year, Muddy Waters entered the scene with guns blazing, announcing a short position in St. Jude and alleging that some of its pacemakers and defibrillators were vulnerable to hacking. The disclosure pushed St. Jude shares down 10% in a single day.
The Muddy Waters report relied heavily on evidence compiled by MedSec, a cybersecurity research firm. MedSec had approached Block’s team first with the juicy information, rather than alerting St. Jude per Food and Drug Administration guidelines. St. Jude sued Muddy Waters and MedSec for defamation. But a few months later, the FDA and Department of Homeland Security confirmed that the devices were indeed vulnerable, and they issued a recall. The shorts cashed in; the defamation suit was eventually dismissed.
From the jump, activist short campaigns are decidedly antagonistic—the tone is Accounting 101 meets WrestleMania. The shorts allege endemic fraud at the highest levels. “Money grab,” is a term that appears often in the reports. A Chinese sportswear company is not just cooking its books, it’s dropping “turds in the punch bowl,” blares one Muddy Waters report.
The attack-dog language is deliberate. (Ackman, the hedge-fund manager famed for his short bets, has honed it to a fine art.) Short-sellers get no points for prosecuting a good argument. Their research pays off only if the reader takes action, dumping her shares.
Tip No. 2
Expect a fight, and don’t play nice.
It seems every activist short has horror stories they could dine out on: the white whale that nearly ruined them, the lawsuits, the PIs and PRs, the hostile regulators, the death threats. Fraser Perring, founder of Viceroy Research, says one of his short targets sent heavies to his native England in a clumsy attempt to kidnap his daughter. (Fortune could not verify this claim.) “At one stage there were bugs in the kitchen, cameras in the hedge. It was something out of a novel,” he says.
“A lot of guys have come and gone in short activism” over the past decade, Block says. “People thought, ‘Oh, wow, this is really easy. It’s a great way to make money.’ And it’s not. Relative to being on the long side, it takes a lot more effort to make each dollar.”
Shorting stock is indeed not for the faint of heart. Believing a stock will fall, an investor opens “short” position by borrowing shares—say, 1,000 shares of Nikola. He sells them for cash. He’ll eventually have to buy 1,000 NKLA shares to return to the lender. That’s called “closing out the short.” The more the share price falls between opening and closing, the more money the bet makes.
Photograph by Sophie Green
It can all easily backfire. “You can only ever make 100% of your equity on a short,” Perring explains. If the share price falls from $20 to zero, the difference—$20 per share—is your take. But if the price doubles, your losses double. If the price triples, your losses triple. And so on. (This is one reason so many shorts have lost their shirts on Tesla, a stock that was up almost sixfold year to date as of Nov. 19.)
Viceroy, a three-person shop, has the manpower to research only a few firms per year. Wirecard was far and away its biggest score, Perring says. The share price of the now-insolvent German payments provider collapsed from €104 in mid-June to 60¢ this month following an accounting scandal that landed former CEO Markus Braun in jail. When whistleblowers, journalists, and short-sellers like Perring leveled allegations of malfeasance at Wirecard in 2019, Germany’s securities regulator, BaFin, investigated the tattlers instead. BaFin also temporarily outlawed short-selling of Wirecard shares: “Short attacks,” it said, “posed a risk to market integrity.” But further investigation vindicated the critics, igniting a national reckoning in Germany’s conservative investor culture.
“Wirecard was a war, a four-and-a-half-year fucking war,” Perring groans. At one point, he says, “I was negative millions. And that’s not bragging.”
“I think fraud is more pervasive than at any time I’ve been in the market.” Until regulators step up, “we’re going to see a proliferation of short actors.” Nathan Anderson, Hindenburg Research
The 47-year-old says his ship came in in 2020, thanks to Wirecard and his muckraking behind Grenke, a German leasing company that Viceroy came after in a report in September. Viceroy’s central charge is that Grenke used acquisitions to obscure how little cash it had on its books. Viceroy’s accusations are “completely unfounded,” Grenke said in a statement; still, the damage has been severe. Grenke shares are down one-third since the report came out, and its founder stepped aside from the board. BaFin, meanwhile, opened an investigation into Grenke days after Viceroy’s report hit; it was ongoing at press time.
Perring has taken plenty of arrows for his short attacks, as well as for his conduct outside the market. A former social worker, he was barred from such work in England eight years ago following allegations he forged documents. (He sued his former employer and won a settlement in that case.) A 2018 report commissioned by a South African business group accused Viceroy of “substantially” plagiarizing a hedge fund report in its efforts to take down Steinhoff, a South African holding company. Perring shrugs off his critics. “If you’re worried about your ego, don’t get into short-selling,” he says.
When pressed on Viceroy’s finances, Perring would only say he has one outside backer, whom he would not name. “We’ve never commented on our profit,” he adds, “because we’re only as good as our last report anyway.” That’s even truer in 2020, Block adds; for every Nikola, there “are probably five really frustrating results.”
Tip No. 3
Like Hollywood, short-selling is a hits-driven racket.
FOMO rallies. The retail-investor army. The $60 billion boom in blank-check IPOs. These bullish forces have pushed the Cassandras to the fringes of the market in 2020. Cumulative short positions held on NYSE-listed firms generally hover between 4% and 6% of shares outstanding; by early November, they had fallen to less than 1%.
The exuberance persists despite the reality that we’re enduring the worst recession and labor-market collapses in living memory; that companies are piling on debt; that earnings have collapsed. Analysts at banks and brokers—the go-to research source for many retail investors—aren’t exactly playing the skeptic. FactSet calculates that of the 10,322 analyst ratings affixed to the stocks in the S&P 500, only 6.2% are a “sell.” It seems as if we’ve all bought a dog to get us through the pandemic, and yet Wall Street can’t find any.
Even Nikola, for all its flaws, has been able to stay afloat on the rising tide: Shortly before the Hindenburg report was published, General Motors said it would buy a stake in the company and would agree to collaborate with Nikola on fuel-cell and pickup-truck development. Publicly, GM says the partnership remains a go, though on Nov. 30 the Detroit automaker scaled back its involvement and said it wouldn’t take an equity stake after all.
In this permissive era, the shorts see themselves as a necessary force for good. In the Wild West, they’re sheriffs—sheriffs who drive Audis, mind you. “I think fraud is more pervasive than at any time I’ve been in the market, certainly,” says Hindenburg’s Anderson. Until regulators and auditors step up their game, he adds, “we’re going to continue to see a proliferation of short actors.”
Tip No. 4
Don’t shoot the messenger, at least until after you’ve read the report.
Nikola isn’t Anderson’s first big scoop, but it stands out. Usually, his reports enrage long investors, and he hears from them. “We get more angry emails, or death threats to murder me and my entire family,” he says. But not this time. In fact, kudos have been coming in from a tough crowd: fellow shorts. “The Nikola report,” Perring says admiringly, is “bulletproof.”
A version of this story appears in the December 2020/January 2021 issue of Fortune with the headline, “Little big shorts: Sheriffs in a Wild West market.”


fortune--2020-12-03--Which companies will still be thriving decades from now?

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
Which companies will survive and thrive two decades from now? It’s a good question for both investors and job hunters to ask, especially considering that roughly half the companies on the Fortune 500 list in the year 2000 are no longer there today.
Four years ago, Fortune teamed up with BCG to try and answer that question. The result is Fortune’s Future 50 list—the fourth edition of which is out this morning. The ranking is based on two pillars: a “top-down” market-based assessment of a company’s potential to generate future profits, and a “bottom-up” analysis that BCG developed using machine learning to select and weigh various factors based on their contributions to long-term growth.
Before I give this year’s winners, a word on results: Last year’s Future 50 portfolio provided triple the return of the S&P 500 over the 13 months since it was published, and significantly outperformed the Nasdaq as well. Martin Reeves, chairman of the BCG Henderson Institute, told me the stellar results show that, for companies focused on the future, “it is not only possible to increase performance during a crisis, but that outperformance during a crisis can determine peacetime performance.”
Here are the top five:
1. ServiceNow
2. Veeva Systems
3. Atlassian
4. Workday
5. Splunk
You can find the full list here. By the way, Reeves also said his research on the list shows that companies with a strong sense of purpose are better poised for future growth. “It looks like one of the worst ways of making a lot of money is to try and make a lot of money,” he said. “The best way is to try and do something meaningful.”
News below. And on the day that his company is releasing more details of its plan to reach net-zero carbon emissions by 2050, Nestlé CEO Mark Schneider tells how he went from climate-agnostic to climate activist in this essay for Fortune. “This is a moment of truth for industry leaders,” he says.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Facebook suit
Facebook is about to become the lucky target of an antitrust lawsuit that will reportedly be lodged by over 40 U.S. states next week. New York is apparently leading the group. The Federal Trade Commission may also be preparing a complaint. With the Justice Department having sued Alphabet's Google in October, Big Tech is most definitely now on trial. Reuters
Delisting law
The House has approved legislation, already passed by the Senate in May, that could lead to the eventual delisting of Chinese companies that won't let U.S. regulators review their financial audits (think Alibaba, Baidu and so on.) The bill, which has bipartisan support, now goes to President Trump, for whom it will likely serve as a parting shot at Beijing. Fortune
L.A. lockdown
Los Angeles is now under severe coronavirus lockdown, after Mayor Eric Garcetti ordered residents to stay at home—no walking, driving, biking, or taking public transport unless it's really necessary. Supermarkets, grocery stores and health-care operations get to stay open. Adults travelling into the city have to sign an online form first, or face a $500 fine. S&P futures dipped on the news of Garcetti's order. Fortune
100,000 hospitalizations
The U.S. currently has over 100,000 COVID-19 patients in hospital, with many experts saying the health care system is being pushed to its limit. "It’s an astonishing, astonishing number and the shame of it is it’s a number that we could have impacted and we didn’t," said Janis Orlowski, chief health care officer at the Association of American Medical Colleges, saying no-one has previously seen so many Americans sickened by one disease at the same time. CNBC
AROUND THE WATER COOLER
Russian vaccine
Russia's health ministry says 100,000 high-risk people have already been vaccinated with the country's two-dose Sputnik V vaccine, and around 2 million doses have either already been manufactured or will roll off the production line in the coming days. President Vladimir Putin has now ordered the immediate large-scale vaccination of other priority groups such as doctors and teachers. Moscow Times
Ecommerce squeeze
As the pandemic forces people to shop from home, the volume of goods sold online became so high over the Thanksgiving shopping period that UPS had to tell its drivers to stop picking up packages from L.L. Bean, Gap, Nike, Macy's and a couple other big retailers. The capacity crunch came thanks to what the National Retail Federation estimated was a 44% jump in online shopping. Wall Street Journal
Black founders
The number of Black female founders who have raised at least $1 million for their ventures has nearly tripled since 2018, reaching 93 this year. Ninety Latinx women have also raised the same amount, according to ProjectDiane, a biennial report on the subject. Fortune
Spotify A.I.
Spotify, the music-streaming service, has filed a patent for a "Plagiarism Risk Detector and Interface" that allows it to judge how similar a song is to others in the system, based on elements such as chord sequences, melodic fragments and harmonies. This is based on scanning lead sheets (i.e. tablatures) rather than listening to already-recorded audio—the advantage being that songwriters could use the technology to make sure they aren’t accidentally ripping off other artists. Music Business Worldwide
This edition of CEO Daily was edited by David Meyer.


fortune--2020-12-03--Why Mastercard isn’t a credit card company, according to its outgoing CEO Ajay Banga

In the 10-plus years that Ajay Banga has been CEO of Mastercard, he has delivered to shareholders a cumulative total return of 1,581%—nearly five times that of the S&P 500—and made the company the 21st most valuable in the world, up from No. 256 when he took the helm. That’s just one reason so many shareholders don’t want this to be his exit interview. (Sorry.)¹
This edited Q&A has been condensed for space and clarity.
Guiding capitalism
Ajay, you’ve had a remarkable tenure—Mastercard’s revenue is up an annualized 12.7% over the past decade. Profit has climbed 18.7% a year, and return on capital has soared at a 40% annual clip.² These numbers blow away the comparable stats for Visa and American Express. But your CEO playbook seems to start with an unconventional play—at least as far as Wall Street is concerned: Invest in your employees first.
Banga: I’m actually an old-fashioned believer in capitalism. It’s lifted a lot of people out of poverty. But what we need to do today is to reposition it for stakeholder capitalism—which is just capitalism with guide rails. And the first of those guide rails is to take care of your employees. One way we do that at Mastercard is through stock plans. About 70% of our employees get some kind of stock incentive award. When I first joined 11 years ago, that number was minuscule. It was in the single-digit percentage of employees. A stock plan aligns the interests of two of your stakeholders—employees and investors. Or take a simple thing like retirement plans. Today, if you’re at Mastercard and you save 6% of your salary into your 401(k) or your defined contribution plan, wherever you are in the world, we’ll give you 10% [for a total of 16%]. And we don’t have any deductions if you leave early.
So our idea of stakeholder capitalism starts with our employees. We can then figure out what else we need to do in our community, including our efforts at financial inclusion—but doing all that in a way that is commercially sustainable as compared to checkbook philanthropy, which is limited to the size of your checkbook. And of course there’s always shareholders who need to be rewarded too. Because if you don’t do well, you can’t do any of this. You’ve got to do well and do good at the same time. It’s not an either/or.
You mentioned financial inclusion.³ Why is this so fundamental?
When I was at Citi in India, a colleague began teaching me about the power of microfinance. And I began to comprehend how you can actually get even the poorest women to become economically independent through microfinance. And if you do that, then she makes her family better off, and so you get a multiplier factor that is many times what you would get just for giving one person more money.
Which you saw as a business model too.
Yes, commercially sustainable solutions make a big difference because they create multiplier effects far beyond the check that you write. That was my second learning. But when I came to Mastercard, I found that my biggest competitor was not other forms of electronic payment—a Visa or American Express. No, our real competition was cash. Cash was 85% of all retail transactions at that time. So cash comes from governments. The largest single source of cash in an economy is the government. It’s veterans’ payments, Social Security, salary, pensions, benefit distribution, all that.
We decided we’re going to go after cash—but 2 billion people were excluded from the financial system, and many were getting these benefits from government. That led us into the financial inclusion space. And so we kind of backed into it from very strong commercial reasons. How do you go after the 85%? We found that our technology and our partnerships could make a difference. That made it commercially sustainable.
COVID-19 has greatly limited travel and cross-border commerce, which are key to your business. What are the near- and medium-term outlooks for Mastercard?
We said we would manage the company through four stages: containment, stabilization, normalization, and growth. Containment was the free fall of March/April, when everything was shutting down. The world was shutting down. Stabilization was the bottom end of that cycle. People had to buy toilet paper and medicines, but that was about it. Normalization is not really normal. Compared to stabilization, it feels normal. But, you know, there’s no mass sporting events. There’s no travel in the way we used to travel. We’ve all got to wear masks in public. We’re not going out with friends to a party. That’s not normal, but it’s a new normal.
Most countries seem to be at some stage of normalization right now, and real growth would be when you have a vaccine that’s equitably distributed to adequate numbers of people for consumer confidence to begin to come back—when we probably get back to a pre-COVID kind of life.⁴
Can a business based on spending thrive in this new normal?
Consumers are spending. Look at U.S. domestic spending: It’s actually plus over last year for the last few months, which is interesting. So that’s a good thing for our business. The second good thing for our business is that digital is here with double the power of anything. It has been on afterburners. Everybody has embraced contactless commerce.
The good thing for our business is that digital has been on afterburners. Everybody has embraced contactless commerce. Ajay Banga
So seven out of 10 people are now doing e-commerce in some way or another; eight out of 10 people are using contactless methods of paying because they think it’s safer. Digital sales, e-commerce sales in the U.S. are double what they used to be pre-COVID. So digital is a tailwind for us because that converts cash to electronic bits, just as consumer spending is a tailwind.⁵ And then we’ve got a headwind.
Which is no cross-border travel.
Yes, I don’t know whether that’s going to come back, but I believe it’ll probably come back as consumer confidence improves. You can see domestic travel beginning to come back.⁶ The TSA is turning a million passengers now a day. They were down below a hundred thousand in the peak of the crisis. So clearly there’s some recovery, but it’s not on international. When that begins to come back, then that will become closer to the normal growth phase.
Crises are often accelerants for disintermediation. One question that hangs over the credit card networking industry is whether some fintech upstart will come along and disrupt your business.
Actually, the clue is in your question, when you said “credit card networks.” The reality is that’s what we are not—and we’ve actually not been that. We’ve got that label attached to us for a long time. So here’s the reality.
When I became CEO 11 years ago, it is true that a large percentage of the transactions that we used to see came out of the use of credit cards. Debit cards were smaller; prepaid cards did not exist; and commercial cards were also small. Fast-forward 11 years, and today one-third of our revenue comes from something we didn’t really have—which was analytics, cybersecurity, data, A.I., that piece. Of the other two-thirds, some comes from commercial payments and from real-time payments, including bank account to bank account. That leaves you with a significant amount from all the other types of transactions. Within that, debit and prepaid are now very big.
So why am I saying all this? That actually we have embraced all the different forms of payments over a lot of years. And I think we’ve changed our company to be more capable of competing in this world without getting bothered about one or another rail of payment, which is where the disintermediation story comes from.
So my view is, this is not about me disintermediating credit. This is about providing the consumer a choice on how they want to pay. Or providing a small business the choice on how they want to pay their vendor or their partner. Do you want to get paid now, which is by debit? Or paid later, by credit? Or do you want to get paid in advance (prepaid)? There are only three ways to pay—whether it’s on a card, a phone, a fingerprint, or you and I looking at each other and touching our foreheads in the future.
Disintermediation of our own business is actually just providing consumers and businesses with choice. And the trick is to do that and then make money off of that. That’s what our business model is.
You’ve said that “inclusion” is a fancy word for human decency. How so?
I think decency is the bedrock of defining what makes us humans. Decency doesn’t mean being nice to everybody. It means being fair to everybody. When I was young, your IQ is what made you supposedly stand out. And then when I got to business school, people began talking about EQ. You know, you couldn’t choose your boss or colleagues, but how you conducted yourself with equanimity showed that you had the emotional quotient to be successful. And I say you need DQ—your decency quotient—when you come to work every day. Because you have to bring your heart and your mind to work. You have to care about the people who work with you, for you, above you, around you. That’s where inclusion comes in. If I can make it a part of my business, then I can bring the whole company to the party.
Between the lines
(1) From success to succession: On Jan. 1, 2021, Banga hands the CEO reins over to Mastercard president Michael Miebach. Banga will stay on as executive chairman.
(2) Annual profits: $1.85 billion in 2010; $8.12 billion in 2019
Source: S&P Global
(3) Bringing everyone into the game: In April, Mastercard pledged to bring 1 billion people and 50 million micro and small businesses into the digital economy by 2025. After the killing of George Floyd, the company also committed $500 million, and partnered with Black-owned fintech MoCaFi and others, to enhance financial security and help small businesses in Black communities in the U.S.
(4) Health equals wealth: Early in the pandemic, Mastercard committed $25 million to a program to speed up the development of medicines for COVID-19 in partnership with the Gates Foundation and Wellcome Trust. “You could ask, ‘What the heck is Mastercard doing in a therapeutic accelerator?’” says Banga. “Well, my view is, if I don’t get to normalization of growth, I can’t have a prosperous community around me. Without a prosperous community around me, this is not going to be a prosperous company.”
(5) From bits to bucks: Mastercard now connects some 3 billion cardholders to some 70-million-plus merchants through nearly 40,000 banks and financial institutions in about 210 countries and territories.
(6) Ramblin’ man: The son of a senior officer in the Indian Army, Banga had no shortage of domestic travel growing up. “I went to seven schools before I was out of high school,” he says.
A version of this article appears in the December 2020/January 2021 issue of Fortune with the headline, “The Conversation: Ajay Banga.”


fortune--2020-12-03--Elon Musk is on a tear. Can he keep it up?

Elon Musk is on a tear. Tesla shares have soared more than 500% in the past 12 months, and the electric vehicle firm—which Musk leads as chief executive—logged its fifth straight quarterly profit, produced a record 145,000 vehicles in the last quarter, and has averaged more than 50% sales growth over the past three years. Later this month, Tesla will join the S&P 500 index.
Then there are Musk’s other pursuits. SpaceX, the aerospace firm Musk founded, sent four astronauts to the International Space Station last month in NASA’s first operational mission with a commercial launch partner.
Musk also heads Neuralink, which is developing implantable brain-machine interfaces, and the Boring Co., which builds tunnels to alleviate traffic congestion (and occasionally sells flamethrowers).
Those achievements, among others, earned Musk the title of Fortune’s 2020 Businessperson of the Year. But one question looms over his winning streak: Can he keep on innovating at this pace?
The latest episode of Fortune Brainstorm, a podcast about how technology is changing our lives, tackles that issue, with hosts Brian O’Keefe and Michal Lev-Ram diving into the reporting behind Fortune’s December/January cover story on the charismatic and controversial entrepreneur.
No doubt Musk faces some potential headwinds. For one, there’s his loose-cannon presence on Twitter. The U.S. Securities and Exchange Commission sued Musk in 2018 for tweeting that he had “funding secured” to take Tesla private at $420 a share, which the SEC said violated securities laws. (Musk reached a deal with the SEC over the tweet in 2019.) He’s also come under fire for tweeting misinformation about the coronavirus in March and downplaying the seriousness of the pandemic.
Musk’s tweeting could present “a big risk for him in the long term,” says Lev-Ram. “There could be a reckoning there, that at some point, he puts his foot in his mouth so badly that it could cost him a CEO position at one of his companies or all of his companies.”
Burnout also seems to be a risk for Musk, who in the past has described sleeping in Tesla’s factory and enduring huge amounts of stress. The threat there, Lev-Ram says, isn’t necessarily that Musk burns out; it’s that the people around him do.
“You can’t sustain a company financially, let alone culturally, by just lurching from one thing to the next because you’re so busy running around with all your amazing projects,” says Fortune digital editor Andrew Nusca, who cowrote the December cover story on Musk with Lev-Ram.
At the same time, Nusca sees Musk’s eccentricity as a strength.
“Arguably, that’s Elon’s greatest asset, that he’s just a little bit abstracted from everybody else’s relatively realistic pedestrian thinking,” Nusca says. Another advantage is Musk’s “deep, deep conviction that what he’s doing [is] the right thing to do,” Nusca said, citing Musk’s embrace of electric vehicles and his ambition to colonize Mars.
Some critics are unconvinced by Musk’s high-flying persona and argue that Tesla’s stock, for one, is likely to come back down to earth.
Tesla stock fell as much as 7.4% early on Wednesday morning in New York after investor and short-seller Michael Burry, known for his portrayal in The Big Short, tweeted that he was shorting Tesla and called its current share price “ridiculous.”
“I do think that [Tesla’s share price is] going to see a lot of downward spiral,” Alyssa Altman, an automaker consultant and transportation lead at Publicis Sapient, told Fortune Brainstorm. “In the next six months there will definitely be a bottoming out of not only [Tesla] stock but some of the other overvalued [electric vehicle] stocks that are out there.”
Altman chalks up Tesla’s soaring stock price to investors’ perception of Tesla as a tech company—versus a carmaker—as well as an “excitement” among investors about Tesla’s disruptive effect on the auto market and Elon Musk’s image as “a different kind of leader.”
“At the end of the day,” Altman said, “[Tesla is] really a car company, and I think the market’s gonna find that out soon.”


fortune--2020-12-03--The corporate world needs to do better on diversity—and so does Fortune

Every year in Fortune’s annual Investor’s Guide, we make a point of letting readers know how our previous year’s picks performed. Such disclosures have made us look good of late—the more than two dozen stocks and ETFs our investment team recommended in last December’s guide earned a median return of 20.6% since we published the list, edging past the S&P 500 over the same time period. Meanwhile, last year’s Future 50 portfolio, which we put together with our partner BCG, has trounced that benchmark, returning nearly 71%. (For more, see our investment picks for 2021 as well as the latest edition of the Future 50.)
Illustration by Yo Az
But accountability should go beyond what we say, it must also apply to what we do. And so I want to take a moment to review an analysis that some of my colleagues and I did for Fortune this year. We talk a lot about diversity and inclusion in these pages, on our website, and on our conference stage—and I wanted to see how well our story assignments reflected that focus. The results were surprising, disappointing, and, frankly, embarrassing: Of the nearly 400 byline-attributable stories that we ran in the print magazine in 2020 (through this issue), 61% were written by men and 39% by women. In the case of longer feature assignments, we were even more unbalanced—assigning 63% to male writers and just 37% to women. A mere 13% of our stories were assigned to people of color.
Fifty-four of the 60 illustrators we hired were men—and only four were nonwhite. In the case of photography, our ranks were more even (a ratio of 23 men to 16 women), but still not balanced. Eight of our photographers identify as people of color.
Diversity ought to be reflected in the people we cover and quote. But in my own magazine stories this year, which include these monthly editor’s notes, my record was even worse: Fewer than one-third (32%) of the people I cited or mentioned were women, and a shockingly small number were nonwhite.
These are failures of complacency. It’s all too easy to preach about the importance of diversity, but as this accounting shows, it’s almost effortless to do nothing about it. Our eyes are designed to notice movement. And unfortunately, our everyday practices at work—who we assign, how we hire and promote, who gets mentored—often lurk in the realm of the invisible.
It is for that critically important reason that we have launched a partnership with the financial data firm Refinitiv, which has added a new component to its pioneering environmental, social, and corporate governance data—a tool to collect and report diversity and inclusion metrics. Our collaboration will help companies hold themselves accountable for their diversity efforts—something I wish I had done long ago as editor of Fortune. You can’t count on progress, after all, if you don’t count what goes into making it. I am committed to having next year’s byline disclosure look a lot more like the nation of storytellers around us.
A version of this article appears in the December 2020/January 2021 issue of Fortune with the headline, “A challenge to measure up.”


fortune--2020-12-03--Finding advantage in adversity: How the Future 50 positioned themselves for growth, even in 2020

In stable times, sticking with a proven formula makes sense. For successful companies, it’s a good bet that the products and models that are working well today will continue to work in the future. But in volatile and uncertain times—when the need for resilience rises to the forefront—adapting to new circumstances and reinventing businesses become central challenges.
The events of 2020 have reminded us how quickly the pattern of challenge can change. When the COVID-19 pandemic first swept across the world, companies focused primarily on the immediate problems of how to maintain operations and survive. But as time has passed, business leaders have shifted their attention back to longer timescales, such as what it will take to succeed in the postcrisis future and how to rebuild their businesses accordingly.
Even before the pandemic, however, change and uncertainty were on the rise. That’s why BCG and Fortune created the Future 50 index together more than three years ago. We wanted to identify companies with the greatest capacity to continually reinvent their businesses and sustain long-term growth—what we call corporate “vitality.” The past year has shown that vital companies don’t just survive adversity. They use it to create a competitive advantage.
A proven formula
This is the fourth annual edition of our Future 50 index, which assesses the long-term growth prospects of large public companies and identifies who comes out on top. It is intended as a forward-looking companion to traditional business metrics, which generally show only what has happened in the past.
The index is based on two pillars: a “top-down” market-based assessment of a company’s potential, and a “bottom-up” analysis of its capacity to deliver growth. For the bottom-up view, we have quantified and tested numerous theories about what drives long-term success across four dimensions (strategy, technology and investment, people, and structure), and we use machine learning to select and weight factors based on their empirical contribution to long-term growth.
Our analysis incorporates a wide range of financial and nonfinancial data sources. For example, we assess the growth and quality of each company’s patent portfolio as an indicator of technology advantage. And we define metrics for strategic orientation, such as long-term focus and tendency to serve a broader purpose beyond financial returns, based on natural language processing analysis of each company’s annual reports.
As we have done previously, we screen out companies that have sustained negative operating cash flow, indicating businesses that are highly vulnerable to unfavorable disruptions. We have also stratified our ranking to account for companies that have elevated uncertainties, such as reputational risk or a discontinuity in the direction of the business. (For more on the methodology, click here.)
Vitality operates over long time periods, so it will not always be reflected in immediate performance. In particular, one might have reasonably expected highly vital companies to struggle to deal with the COVID-19 crisis, given the short-term nature of the challenges involved. Yet our index has greatly outperformed the market amid the turbulence of 2020—the 50 companies we identified last year have produced a cumulative shareholder return of 71% since publication, compared with 18% for the MSCI World stock index. This demonstrates that vitality is a critical part of sustaining success in bad times as well as good times.
A window to the future
Aggregate patterns in our ranking reveal clues about where vital companies are most likely to be found—and where trends have shifted.
The technology sector is well represented—more than 50% of Future 50 companies are in the IT, communications, or e-commerce industries—but diverging patterns within the industry are visible. On one hand, the acceleration of trends such as digital transformation and online shopping are evident: Seven of our top 10 companies are now B2B software businesses (including No. 1 ServiceNow), and several e-commerce companies across different regions joined this year’s list. On the other hand, many companies that digitally facilitate congregation in the physical world (such as travel or live events platforms) fell out of the ranking.
There has also been a clear shift toward health care, which increased from 12% of last year’s list to 22% this year. Some of these are companies that may directly see demand increase as a result of COVID-19 in areas such as ICU equipment or drug development. Others were hurt in the short term by the postponement of nonessential procedures but still have strong long-term potential, especially in a world where consumers may be more health conscious.
Our ranking points to a bipolar global economy: More than 80% are based in North America or Greater China, in line with recent corporate growth patterns. Compared with last year’s ranking, North America has increased its share slightly (from 56% to 58%), while China’s share has fallen somewhat (from 32% to 24%). However, a deeper look shows that this divergence is likely driven by the dynamics of select companies and industries (such as real estate and premium liquor); when expanding our list to the top 200 companies, we find that the relative share of Chinese and U.S. companies is roughly unchanged from the prior year.
Our index once again demonstrates that diversity is a key ingredient for long-term success. Diversity data is difficult to find publicly, but one consistently reported aspect is gender diversity. While still far from achieving true gender equality, highly vital companies have more diverse executive teams than their peers—women represent at least one-quarter of leaders at 50% of Future 50 companies, compared with 24% of others—and our analysis also shows that gender diversity among the entire employee base is a predictor of growth.
Finally, even though some segments are better positioned than others, highly vital companies can be found in all sectors and geographies: Our list spans five continents and includes not just tech giants but education, restaurants, and construction-materials companies. In other words, vitality can be achieved everywhere—and even amid a crisis, opportunity awaits companies that are willing and able to look to the future.
Martin Reeves is a senior partner at management consulting firm BCG and chairman of the BCG Henderson Institute. Kevin Whitaker is head of strategic analytics at the BCG Henderson Institute.
A version of this article appears in the December 2020/January 2021 issue of Fortune with the headline, “Finding advantage in adversity.”


fortune--2020-12-03--Los Angeles’s new COVID lockdown bans most walking, driving and use of public transport

Los Angeles Mayor Eric Garcetti issued an order for residents to stay at home, warning that the city is approaching a “devastating tipping point” in its fight against COVID-19 that would overwhelm the hospital system.
“We must minimize contact with others as much as possible,” Garcetti wrote in the order dated Dec. 2. The steps were needed to avoid risking “needless suffering and death,” he said.
The order, which supersedes one from June, prohibits public and private gatherings of people from more than one household and states that all businesses in the city that require people to work on location must stop operations. Walking, driving, travel on public transport, bikes, motorcycles and scooters are prohibited, other than for those undertaking essential activities.
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There are several exemptions, including for faith-based outdoor services and the homeless. Others that can continue to operate include supermarkets, grocery stores and health-care operations, but that doesn’t cover gyms and similar facilities. Still, activities such as golf, tennis and pickleball are permitted, according to the order.
The city’s safety protocols on social distancing follow those developed by Los Angeles County, Garcetti said. S&P futures turned negative after the order.
Los Angeles County has the most infections of any county in the U.S., with 408,396 confirmed cases and 7,700 deaths. Nationwide, COVID-19 fatalities reached more than 2,700 Wednesday, the deadliest day so far, according to data compiled by Johns Hopkins University.
Anyone over the age of 16 traveling into L.A. must complete an online form upon arrival to acknowledge they’ve read and understood a California travel advisory. Failure to submit the form is punishable by a fine of up to $500.
The Rust Belt, New York and California are likely to drive up the pace of virus-related deaths in coming weeks as the U.S. approaches 300,000 fatalities, based on a forecast from the University of Massachusetts Amherst’s Reich Lab.


fortune--2020-12-03--Nestlé CEO: Climate change laggards put the planet—and their businesses—at risk

The issue of climate change presents one of the most difficult decision-making challenges a CEO might face—a case study in balancing uncertainty with costs to bring about changes that will require significant lead times. Businesses like ours that take climate change seriously are investing today because we’re thinking about tomorrow.
This is how automotive executives must have felt in the 1970s and ’80s, when they made the difficult choice to invest billions of dollars to make smaller and more fuel-efficient cars that were also going to be less profitable. This is how IBM’s CEO must have felt in the early ’80s, when the company decided to invest massively in smaller and less profitable PCs instead of just clinging to the immensely profitable mainframe computer business. This is how media executives must have felt as they poured money into digital assets over the past two decades even though their printing presses were not yet fully written off.
Personally, I was not exactly an early adopter when it comes to addressing climate change. In the early 2000s, when I had just become CEO of a global health care company, I was agnostic and wanted to see more proof that the massive investments required to address global warming were really needed. However, as more and more evidence has arrived, the need for action has become quite clear to me. Not all the facts are in today, but we know enough to act with a sense of urgency to address what is contributing to droughts and causing oceans to rise. Business leaders can no longer afford to be skeptical and interminably patient, waiting for every theory to be vetted or every climate model to be proven. The overall mechanism of action and direction of travel is clear. We should not expect comprehensive public policy and unanimity to do the job for us.
This is a moment of truth for industry leaders.
Those who choose hesitation over action will be endangering our planet and their business. Every person on earth is a shareholder in what must be a collective and international effort, and we are all served when measures to address climate change advance. Consumers care deeply about these issues as well, and if we don’t listen to them, they understandably won’t do business with us.
As the world’s largest food and beverage company, Nestlé has a unique opportunity to address climate change, as we operate in nearly every country in the world and have the size, scale, and reach to make a difference. A year ago, Nestlé laid out our ambition to achieve net-zero carbon emissions by 2050, which built on more than a decade of work in environmental sustainability. Today, we are accelerating this work, detailing our commitment to halve our greenhouse gas emissions by 2030. We have complex challenges because our vast supply chain includes agricultural suppliers around the world that account for about two-thirds of our greenhouse gas emissions. We must help them improve, too.
As part of Project RELeaf, Nestlé will plant 3 million trees in Malaysia by 2023. Photo courtesy of Nestlé
Nestlé is stepping up efforts to remove CO2 from the atmosphere by planting trees, and we’re partnering with our farmers to introduce regenerative agriculture. We are reformulating products to have smaller environmental footprints and expanding plant-based food offerings. We are moving toward 100% renewable electricity at all of our sites, enacting water conservation measures and tackling food waste. These initiatives will be exported across our vast global supply chain in the years ahead. As a good steward of the planet, Nestlé feels a moral obligation to make these changes and believes that the work we are doing is critical to the survival of supply chains and our business.
As a chief executive officer, I am held to account for our top- and bottom-line numbers, and I value real data and business returns over rosy projections. For Nestlé’s work combating climate change, I will expect and demand the same. We submitted our company’s targets to the Science-Based Targets initiative, a collaboration of nonprofit organizations that is considered the international gold standard on assessing net-zero commitments. They confirmed that our plan meets the toughest criteria of the Paris Agreement. Our many stakeholders also deserve a full accounting, and we will provide annual updates. In the coming years, we will build upon our reporting so the world can judge our progress.
As a company that will continue to provide the nutrition needs of a growing population, we understand that we will need to reduce our environmental footprint, even as our business grows. That’s why we support stable and consistent government policies that will guide all sectors toward the targets of the Paris Agreement. We would welcome clarity on carbon pricing and the requisite regulations so that our business can plan, with some degree of certainty, our path to progress.
A company like Nestlé has been able to thrive for more than 150 years by always looking around the corner and anticipating the world’s needs. This foresight is a key ingredient of our success. To my fellow CEOs and leaders across other industries, I would respectfully suggest that contemplation is not a viable strategy to address climate change or a sensible way to run a business. Let’s come together and commit to a shared future so that we will be able to look back at this moment in history not with regrets of how we failed, but with admiration for what we achieved.
Mark Schneider is the chief executive officer of Nestlé.