fortune--2020-11-15--The boutique aperitif brand finding favor with millennials making more cocktails at home

This is an installment of Startup Year One, a special series of interviews with startup founders about the major lessons they have learned in the immediate aftermath of their businesses’ first year of operation.
Haus launched in June 2019 with a line of aperitifs made with all-natural ingredients, marketed toward millennials looking for lower ABV drinks.
Most recently, the company just launched in October a new fall aperitif inspired by the nostalgic feeling of enjoying a Manhattan by the fire at a cozy hotel bar. Rich, fruit-forward, and spicy, with flavors of heirloom cherries, anise seed, fragrant tellicherry pepper, and cocoa nibs, the Spiced Cherry liqueur can be served on the rocks, with a splash of tonic, or with a bit of rye whiskey for a low-ABV Manhattan.
Based in Healdsburg, Calif., Haus was founded by Helena Price Hambrecht, 33, a Silicon Valley brand veteran, and Woody Hambrecht, 39, a third-generation winemaker.
Fortune recently spoke with the cofounders about how the first year has been and what the company plans to do next.
The following interview has been condensed and lightly edited for clarity.
Woody Hambrecht and Helena Price Hambrecht with their daughter, Sophie. Courtesy of Haus
Fortune: Could you tell me a bit about your backgrounds? What were you doing professionally prior to launching Haus?
Helena: We joke that it took a techie marrying a winemaker to start Haus. I’m the techie half; I started my career doing launch PR for tech startups in San Francisco. I was immersed in the tech world and quickly realized there was a huge gap in brand creative for tech companies. Long story short, I ended up building my own creative production studio that worked with everyone from early stage startups to Google and Facebook.
In the meantime, I met Woody, a third-generation winemaker. Through him I got a deep dive into the alcohol industry from the sidelines—the antiquated laws, the inefficiencies. Over the past decade I’d seen every other industry transformed by direct-to-consumer, millennial-focused brands, but there was nothing like this to be found in alcohol. Everything was still corporate, poorly made, and sold through traditional distribution. It seemed like an industry ripe for disruption.
Woody: I come from a winemaking family, and I’ve been making wine and aperitifs for about a decade. Helena and I live on a 200-acre ranch in Sonoma County, Calif., where my family has been farming grapes since the 1970s.
About 10 years ago, I took over the farming of 200 acres of grapes and started making wine of my own, as well as grape-based aperitifs. I did everything right by the traditional standards. I went through the three-tier system; I got picked up by the cool kid distributors; and my wines and aperitifs were on some of the best cocktail menus across the U.S., Scandinavia, and Japan.
But at the end of the day, I had no control over my product or my customer. My products were served at the best restaurants in the world, but they were just a splash in a boozy craft cocktail. I didn’t have a relationship with the drinker, because it had to pass through multiple middlemen first. It’s a hard industry for an indie brand to thrive in.
Courtesy of Haus
Haus launched in 2019 and was received as an aperitif, or cocktail, brand for millennials. What inspired the development of Haus? Who is the target demographic?
Helena: We designed Haus to solve a problem: We wanted a better way to drink.
We and most people we knew were consuming alcohol differently than generations before us. We weren’t drinking to get wasted—we were drinking to network, do business, or catch up with friends.
Unfortunately, most booze is not made with our generation in mind. It’s high in alcohol and full of artificial flavors, refined sugars, petroleum dyes, and other ingredients most people know little about. There’s no nutrition facts, ingredient lists, or ways to learn about how alcohol products are made and where they come from.
Market research told us this wasn’t just a phenomenon with us and our friends; it was an entire new generation looking for a better way to drink.
We knew things could be done better. We started thinking: what if we built an alcohol brand for today’s generation from the ground up? What if we rethought everything, from how it’s made to how it’s distributed, to be better aligned with today’s drinker?
Woody: We’re the first alcohol brand to grow like we have without the three-tier distribution system. Most spirits can’t do this; it’s a legal requirement for them. But because our aperitifs are low-ABV and grape-based, we have the option to sell online, like wine. This has allowed us to build a completely different kind of alcohol company.
We also made the decision to be a fully vertical company and own production end to end. We knew this level of control would enable us to create the best possible product: from the ingredients we use, to the final product, to the entire customer experience.
When we aren’t sourcing from our own farm, we source ingredients from farmers we trust and from purveyors who work with Michelin-starred restaurants. We put tremendous care and attention into every touchpoint, whether that’s packaging, our editorial that comes with each shipment, or an email exchange with our support team.
Most importantly, our model allows us to have a direct relationship with the people who are drinking our product. We know what flavors they want more of, what they like, and what they hope we’ll make in the future. Most liquor brands have to pay Nielsen millions of dollars to get that kind of data, but we can just send out an email. This allows us to create the products people really want.
Haus’s first drink was a white wine–based concoction called Citrus Flower, and the brand’s portfolio has since grown to more than half a dozen new drinks. The newest one, Spiced Cherry, is meant to evoke the same flavor profile and feeling as a classic Manhattan cocktail. What goes into the production process of creating Haus drinks?
Woody: When we’re creating a new aperitif, we typically draw inspiration from flavors and spirits that have been a part of drinking culture for ages. Sometimes, we reference flavor profiles you might find in traditional European aperitifs: Citrus Flower was inspired by bianco [white] vermouth, and Bitter Clove was inspired by amaro; other times, we look to American cocktail culture.
But we’re intentionally creating something a bit different. We dramatically tone down the sweetness and bitterness you might expect in a traditional aperitif. This lets the natural ingredients shine through, and makes for something more versatile and easy to drink.
To be honest, each flavor is pretty personal to us. For Spiced Cherry, specifically, we wanted to re-create not just the taste but the feeling of drinking a Manhattan by the fire at a cozy hotel bar. Once we have a vision for the aperitif, we work backwards and think about the recipe and which ingredients will get us to that particular flavor.
Helena: It actually doesn’t take us that long to make a new aperitif flavor, since we do everything ourselves, and Woody has engineered an incredibly efficient system for production. This makes it easy for us to iterate on recipes based on customer feedback and move quickly on huge initiatives like the Restaurant Project.
Courtesy of Haus
Forecasts for liquor sales over the next few years are mixed, given the current economic climate. But sales for alcohol delivery services have skyrocketed as many bars have closed, or reopened with limited capacity, and people are spending more time at home. How does Haus factor into this segment?
Helena: Our business has grown over 500% since the beginning of 2020, and we’ve been able to not only sustain that growth but accelerate it in a healthy way. We had no idea what to expect when the pandemic hit. But we’re extremely fortunate that our early decisions to own supply chain, production, and distribution are already paying off. It’s pretty clear that the pandemic is going to have a lasting impact on buying behavior, especially in food and beverage.
Woody: For us, it’s important that we’re always where our customers are. And while wholesale will be a part of our strategy someday too, it’s definitely a good time to be able to sell alcohol on the Internet.
That said, what has it been like to secure funding for Haus? Is it primarily self-funded, VC-backed, or some mixture of both?
Helena: It’s funny because in the early days pitching Haus, most people thought our idea was insane or just stupid. It wasn’t until we signed Gin Lane, who we worked with on our branding, that people started taking us more seriously.
We’ve looked to venture capital as our primary funding source, but we’ve raised in a fairly nontraditional way. We have over 100 investors on our cap table, and many of them don’t typically invest in food and beverage. Rather they’re simply deep believers in what we’re doing and wanted to be a part of it.
Woody: We’ve raised $9 million total to date, which includes a recent investment of $3 million from Coefficient Capital. They’re a partner that’s understood what we’re doing from the beginning and truly believe in our vision. Plus they have the industry knowledge of what it takes to scale a challenger food and beverage brand.
Post-pandemic and five years down the road, where do you see Haus in the market?
Woody: We believe that we can build the next great American alcohol company but with better values. A deep care for product, ingredients, authenticity, transparency. We’d love to prove to the corporate alcohol makers of the world that when you put the customer first, you’ll eventually win.
Helena: We look forward to changing drinking culture for the better.


fortune--2020-11-17--Airbnb’s IPO filing reveals huge COVID impact

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Airbnb revealed plans for an initial public offering on Monday and acknowledged that its home-sharing business has been hard hit by the coronavirus pandemic.
Revenue declined 72% amid the coronavirus outbreak, according to the filing, leading to 1,800 job cuts in May. Since then, the company has tried to adapt its business to changing traveler behavior.
“In the depths of this crisis, some people asked, ‘Is this the end of Airbnb?,” Airbnb executives and co-founders Brian Chesky, Joe Gebbia, and Nate Blecharczyk said in a letter to shareholders. “It was not the end of Airbnb.”
The company, which plans to trade on Nasdaq under the symbol ABNB, showed that it still has massive annual losses. But it has had some profitable quarters, including the third quarter of this year.
Airbnb had planned an IPO earlier this year, but it was delayed because of the pandemic. It finally filed confidentially to go public in August, but waiting until now to makes its paperwork public.
Here are three things to know about Airbnb’s IPO.
The COVID effect
The coronavirus has taken a massive toll on the travel industry, which in turn has created a major challenge for Airbnb.
During the fourth quarter of last year, Airbnb raked in $1.11 billion in revenue. But by the second quarter of this year, which covered the height of the pandemic, Airbnb’s revenue had dwindled to $334.78 million, down 72% year-over-year. The rising number of cancellations and slowing number of bookings ballooned Airbnb’s losses to $575.6 million in the second quarter, compared to a loss of $297.4 million during the same period one year prior.
But Airbnb began to get some reprieve beginning in May, when people started returning to the service mostly for local travel and remote work. From July to September, the number of stays and “experiences,” Airbnb lingo for tours and lessons, had stabilized—albeit down 28% year over year.
To counter the slowdown, Airbnb took several cost-cutting measures. In addition to cutting 25% of its workforce, Airbnb also reduced its marketing spending, cut bonuses for 2020, reduced executive salaries for six months, and suspended all new office construction.
As a result of the cost-cutting measures, Airbnb reported a $219.3 million third-quarter profit on $1.34 billion in revenue. That compares with a $297.4 million loss on $1.21 billion in sales during the year prior.
Massive losses
Airbnb still has a long way to go to becoming consistently profitable, and the coronavirus will likely play a big part in determining that timeline.
Last year, prior to suffering any effects from the pandemic, the company lost $674.33 million, far greater than its $16.9 million loss in 2018. Meanwhile, in the first nine months of 2020, the company has already lost $696.9 million, more than during all of 2019.
Airbnb warned to expect more losses in the fourth quarter, as infection rates continue to climb.
“While we have enacted measures to reduce our expenses, we expect to incur a significant net loss for 2020 as a result of the COVID-19 pandemic,” the company said in the filing.
Before the pandemic, Airbnb’s revenue was steadily growing, to $4.81 billion in 2019, up from $3.65 billion in 2018 and $2.56 billion in 2017. During the first nine months of 2020, Airbnb had $2.52 billion in sales, down 32% from the same time last year.
The path ahead
In its filing, Airbnb included a lengthy list of business risks—particularly whether hosts and guests remain on the service through the pandemic.
Airbnb said it had 54 million guests who booked 247 million stays on the service last year. In 2019, the number of booking increased 31%, following a 35% increase the year prior.
Airbnb said it plans to emphasize domestic travel, especially by customers who take trips that are near their homes and longer-term stays.


fortune--2020-11-17--What businesses slammed by the pandemic can learn from America’s champion car salesman

It shouldn’t be surprising that America’s champion car salesman saw the pandemic as an opportunity.
It didn’t look like one. With much of the nation in lockdown, millions suddenly jobless, car dealerships ordered shut, and sales plunging, the industry was not rife with optimism. But Ali Reda sees things differently. He sells Chevrolets and Cadillacs at the Les Stanford dealership in Dearborn, Mich., and in 2017, he sold more vehicles than anyone in America had ever sold in a year: 1,530 new ones and 52 used ones. He broke a record that had stood for 44 years. The way he did it, and the reason he saw opportunity in the pandemic, is rich with lessons for anyone in a business that got slammed by the coronavirus pandemic.
Reda, 47, has attained a status that virtually all salespeople aspire to. “I don’t really sell to anybody that doesn’t know of me,” he says. Everybody is a previous customer or has been referred by one.
Since everyone who calls already wants to buy a car from him, he isn’t exactly a salesman anymore. “If it’s a new customer, they tell me what [vehicle] they’re in. If it’s a repeat customer, I already know,” he says. He knows or finds out “who they are, where they are, where they’re coming from, and, more importantly, where they’re going in life. Are they getting married or having a child? Changing jobs? Are they driving more? Or less?”
When he has that information, customers tend to ask what he thinks they should do. He tells them, and they tend to do it. “I’ve really adopted an adviser-type role rather than the salesman role,” he says.
That’s a nirvana that most salespeople never reach, and Reda knows why. “It’s what you’re doing outside of the dealership more so than in the dealership,” he says, using the terminology of his business to make a point that applies broadly. “What I mean by that is earning that trust through your community. The reason why most salespeople fail at it is because they give up prematurely. It takes years and years to develop that type of relationship with the entire community.”
Courtesy of Ali Reda
Now we’re getting to why the pandemic looked like an opportunity to Reda. He has been involved for “years and years” with local nonprofits that promote health, education, employment, nutrition, and more in the Dearborn area. To him, COVID-19 was “a great entry point to enter into a community with the right cause,” he says. “And because everybody is involved in it, you actually get more recognition a lot faster than you normally would.”
When PPE was in critically short supply early in the pandemic, his connections enabled him to buy “a couple of thousand masks.” He put out the word through texts and social media, asking health care workers or their families to “please reach out to me personally,” he recalls. “You can imagine how that spread like wildfire. My assistant and I drove to people’s houses dropping off two, three masks, six masks.”
As requests multiplied, he set up a website called DearbornCares asking people to drop off PPE at the dealership, which would distribute it. The site also provided information on COVID-19 testing locations, local restaurants offering takeout and delivery, and other information. At the top of the landing page is a video message from Reda, and if you scroll all the way to the bottom, there, discreetly, is his phone number and email.
“That’s how you get to be known,” he says, “And people are going to be more inclined to do business with somebody they know, somebody who has given back.”
Nothing on Reda’s résumé would have suggested he’d become a record-setting salesman. “I was raised with a single mother in inner-city Detroit. I’m a product of the Detroit public school system,” he says. “I never let where I came from dictate where I was going.” In 2001 he’d been working at a warehouse for 10 years when he realized he needed to move on. A car dealership hired him, “and I just kind of went in, not knowing anything. I quickly learned that it wasn’t about the product they were selling. It was about the people.”
He adopted his community-centered approach when he faced the desperation of the financial crisis in 2008 and 2009. General Motors shut down the dealership where he was working. “It may have been the best thing that ever happened to me,” he says. “I was thinking, ‘What am I gonna do?’” He moved to the Les Stanford dealership, adopted his current approach, “and just grew with the community. I loved them—definitely love —and it was reciprocated.” It took years, but he went from selling 25 or 30 cars a month to averaging 130 a month. In December 2018, he set another record, selling 202 cars in a month.
Reda’s experience in the financial crisis gave him optimism when the pandemic arrived. Once again, auto retailing looked doomed, but he knew it wasn’t. His long list of relationships kept his phone ringing. He appears to be doing well. Like virtually all car salespeople, he doesn’t like to say how many cars he’s selling—that’s competitive information—but the dealership still employs two assistants just to handle his scheduling and paperwork.
Asked for his advice to businesspeople today, his response is short: “It’s just going to come down to patience.” He has demonstrated what works, and it doesn’t happen overnight. That isn’t necessarily bad news. After all, if becoming world-class great were quick and easy, everyone would do it. The encouraging message of Reda’s example is that if you’re willing to do what we already know is effective, you’ll be in a class by yourself.


fortune--2020-11-16--Dow sets a new all-time high, closing at 29,551

The Dow is setting new records—and closing in on 30,000.
The index soared to a new all-time high Monday, closing fewer than 500 points below 30,000, for a gain of 4.9% YDT. The S&P 500 also closed at new high of $3,627, up 12.7% YTD. The Nasdaq Composite closed at $11,924, up 32.9% YTD, but 1.1% below its all time high set on September 2.
The biggest driver behind today’s gains was news from biotech Moderna that its COVID vaccine has proved 94.5% effective in early trials. That follows last week’s news that Pfizer’s vaccine candidate was 90% effective.
According to Bloomberg, Moderna’s “vaccine also appeared to be effective in preventing the most serious Covid-19 infections. There were no severe cases among people who got the vaccine, compared with 11 in volunteers who received placebo shots, according to Moderna’s statement. ‘The thing that got me the most excited today was the severe disease,” Moderna Chief Executive Officer Stephane Bancel said in an interview. “That for me is a game-changer.'”
Moderna stock also closed at all-time high of $97.95, up 9.6% today. So far this year the stock is up a staggering 400.8%. Pfizer, which saw big gains last week, was down 3.34% today on the Moderna news. Another big winner was Tesla, which will be joining the S&P 500 as of December 21, according to an announcement Monday afternoon from the S&P 500 Index Committee. Speculation had swirled about the company’s inclusion since it had posted four quarters of profits, which is a must for possible inclusion, but does not guarantee a company will be added.
More broadly, Monday’s positive vaccine news led to a further rotation out of some of the names that have thrived during COVID. JP Morgan analysts recently released a list of 25 stocks they see as “short” candidates as a vaccine nears. “This is a list of stocks that are in the upper echelon of Momentum and have crowded positioning, that could see the second derivative of their profit growth decrease as consumer/corporate activity normalizes,” the analysts wrote of the list, which included names such as Zoom, Peloton, Costco, Clorox, Yeti and BigLots.
But the exuberance in the stock market while the pandemic rages across the country has led to a sense that something is out of whack. As Fortune‘s Lance Lambert reported, “While GDP is seeing something closer to a V-shaped recovery—bouncing back nearly as fast as it fell—that isn’t the case for U.S. employment. The U.S. added 638,000 jobs in October. If that pace were to continue, it would take over 16 months—into 2022—to recover all the jobs lost during the COVID-19 recession. And that’s not even the bad news. Most economists actually expect that pace of hiring to slow further, meaning a full employment recovery could take until 2023 or longer.”


fortune--2020-11-16--Levi’s is betting you’ll buy more of its jeans at Target than at a department store

A major sign of trouble for department stores that sell Levi’s came last year when the denim-clothing maker announced that Target would start selling Levi’s signature Red Tab jeans at 140 of its stores.
The discount retailer had long carried an ultracheap Levi Strauss & Co. brand called Denizen, but Levi’s executives had considered a mass retailer like Target as an afterthought for its flagship products, which sold briskly at mall stalwarts like Macy’s, J.C. Penney, Sears, and Belk.
But those retailers, and many of the malls they inhabit, have struggled in recent years—resulting in the closing of hundreds of stores—while Target has thrived. Levi’s is now doubling down on the Target partnership and last month said that it would expand to 500 stores.
Adding to the pressure on mall retailers: In October, Levi’s announced it would start selling at some Dick’s Sporting Goods stores, which like Target, are concentrated in strip centers. And Levi Strauss CEO Chip Bergh says he sees room for more of his merchandise at Kohl’s, a longtime customer and yet another fixture of strip centers.
While Levi Strauss is prioritizing efforts to build up its own stores and website, the company still depends on retail customers: Its wholesale business in North America accounted for 70% of 2019 sales.
The company’s shift away from its longtime mall-based department store customers to a new cohort of retailers comes at a time when Levi’s needs to stem sharp COVID-led declines in global sales (down 26% in the most recent quarter).
“Some of this was just reconsidering our own thinking about our customers, and being open-minded,” Bergh tells Fortune. The question Levi’s executives asked themselves was simple, he added: “Who’s winning with the consumers, and how do we win with the winners?”
Those winners, it turns out, have been the strip center retailers. Shoppers have gravitated away from department stores, turned off by often messy stores, incoherent merchandise mixes, and malls in disarray. In contrast, Target, Dick’s, and Kohl’s stores are well maintained and are often located closer to shoppers than malls are.
“There was always this perception that a customer going into a mass store was not our customer,” Bergh says of old attitudes toward Target in the Levi C-suite that persisted even after he took the reins in 2011.
“They’ve got people coming into their doors; they’re our kind of customers,” Bergh says of Target. Dick’s, too, is helping Levi’s win new customers with a partnership that is starting small but is likely to grow, and that showcases Levi’s more expensive jeans, typically priced at $70 compared with $40 at Target.
Even Kohl’s, struggling to avoid the same trends that have hurt Penney and Macy’s, offers Levi’s access to a clientele the jeans maker has made a big priority: moms. Women’s products generate more than a third of Levi’s revenue, much more than when Bergh became CEO, but less than what the company would like. And with Kohl’s dropping dozens of its store brands, Bergh sees an opening. “Levi’s is so strong right now, and our women’s business is underdeveloped,” he says.
Still, Bergh is quick to add that Macy’s and even Penney, a retailer with a third of the stores it had at its peak only a few years ago, are still essential given their reach.
More stores, but make them smaller
However much the mix of retailers in Levi’s wholesale business evolves, direct-to-consumer selling will remain a major focus for Levi’s growth, given the higher profits and greater control it offers.
Levi’s has some 3,100 stores around the world, of which only about 850 are owned and operated by the company, the rest being franchised primarily overseas. Whittle it down further by excluding outlet stores and Levi’s has only 35 regular U.S. stores.
Bergh sees opportunity to open many new such stores, pointing to markets like Boston where the closest Levi’s locations are outlet stores in the faraway exurbs. That next generation of U.S. stores will take a page from Levi’s European stores, which are typically about 3,000 square feet in size, far smaller than they are stateside. “We don’t stuff them with everything we own and we sell,” Bergh says.
So while Bergh sees room for 100 more U.S. stores over time, don’t expect them to be large, disorganized bazaars. And with the bulk of Levi’s North American sales still coming from wholesale—a situation likely to continue for the foreseeable future—expect Levi’s to keep looking to increase the share of business from its newer retail customers like Target and Dick’s. “We’re winning in the marketplace,” says Bergh. “Give us more.”


fortune--2020-11-16--Tesla will be added to the S&P 500, officially becoming a blue-chip stock

Tesla is officially a blue-chip stock. The electric vehicle company will join the S&P 500, the premiere U.S. stock market index, the company overseeing the benchmark announced Monday.
The change will take place in a little more than a month, on Monday, Dec. 21. When the market opens that morning, the S&P 500 will include Tesla stock, a milestone for the automaker. Tesla surged past Toyota to become the world’s most valuable car company this summer—with a current market cap close to $270 billion—but until recently, its lack of consistent profitability barred it from the S&P 500, which requires a year’s worth of positive earnings for a company to be eligible.
That changed in late July when Tesla reported an unexpected second-quarter profit, its fourth in a row—clearing the final hurdle needed to join the S&P 500. While the index initially passed over the company during its September rebalancing—which some investors viewed as a snub—Tesla went on to turn another profit in the third quarter, reinforcing its case for S&P 500 inclusion.
Still, Tesla’s soaring market value—some $387 billion—would make it one of the S&P 500’s largest constituents, a size that threatens to tip the index lopsided. For that reason, S&P Dow Jones Indices, which oversees the index, is considering splitting the addition of the stock into two batches, which would begin before Dec. 21.
“Due to the large size of the addition, S&P Dow Jones Indices is seeking feedback through a consultation to the investment community to determine if Tesla should be added all at once on the rebalance effective date or in two separate tranches ending on the rebalance effective date,” it said in the announcement.
The S&P 500 index includes 500 of the largest publicly traded American companies—from Apple to Berkshire Hathaway to Netflix—and is a popular choice for average investors, who buy exchange-traded funds (ETFs) that mirror the index, as well as a barometer for professional money managers, who measure their performance against the S&P 500.
That means the S&P 500’s addition of Tesla isn’t merely symbolic—it could have significant implications for investors, as ETFs and other portfolio managers purchase the stock to keep up with the index. Those purchases could help push Tesla’s stock price higher, as has happened historically when other companies have joined the S&P 500. Shares of Amazon rose 5% following the news that it would join the index in 2005; Bio-Rad Laboratories, one of the most recent companies added to the S&P 500, has risen 13% since its inclusion in June.
An S&P 500 stock bump is not a sure bet, though: Two other companies that joined the index in June, Teledyne Technologies and Tyler Technologies, have risen less than 3% each since then, less than the S&P 500 itself, which rose nearly 9% over the same period.
Still, Tesla stock jumped more than 10% in after-hours trading following the announcement Monday.
Tesla has been one of the best-performing stocks of 2020, leading some analysts to blame the S&P 500’s recent underperformance on the fact that it excludes the company: The Nasdaq Composite index, which includes Tesla, recovered its 2020 losses in early May and set a new high in June; it took the S&P 500 a month longer just to break even, and the index finally set a new high in August (which it has since exceeded). The same goes for investors who are more bearish on Tesla or queasy about its sky-high valuation: Once it’s in the S&P 500, they might want to buy the stock too, or risk falling behind.
In August, Tesla announced a stock split, so that current investors would receive five shares for every one they own, lowering the price of each individual share. The news sent the stock surging as investors believe that change, too, could spur more people to buy the stock, boosting the price further. If the bulls are right, many more investors will soon be Tesla shareholders.


fortune--2020-11-16--U.S. counties with worst pandemic job losses voted for Biden over Trump

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As the dust continues to settle from Joe Biden’s victory over Donald Trump in the 2020 presidential election, a more vivid picture of the electoral forces that carried Biden to the White House is coming into focus. Unsurprisingly, that picture is showing the major role that the coronavirus pandemic—and specifically, its devastating impact on the U.S. economy—played in driving Americans to vote for a change.
According to an analysis by the New York Times, the U.S. counties that saw the heaviest job losses at the height of the pandemic-induced economic lockdown this past spring tended to vote in Biden’s favor instead of Trump’s. What’s more, many of the hardest-hit “red” counties that voted for Trump experienced far swifter economic recoveries over the course of 2020—in the form of lower unemployment rates—than their “blue” counterparts who went Biden’s way.
The data indicate that while the U.S. economy has recovered relatively briskly from a downturn that saw the heaviest job losses since the Great Depression, that recovery has not occurred at equal rates across the U.S. The Times noted research indicating that Democratic-leaning areas, which tend to be more urban and have more service sector jobs, were especially impacted by the lockdown. And in heavily “red” states such as Alabama and Mississippi, the counties that went “blue” have higher concentrations of Black residents—a demographic also more prone to the pandemic’s economic consequences.
In more ways than one, the 2020 election has reflected the myriad divisions within American society, and economics have proved no exception. A recent study by the Brookings Institution found that the nearly 2,500 counties that voted in Trump’s favor represent less than 30% of the U.S.’s gross domestic product. By contrast, the roughly 500 far more densely populated counties won by Biden account for around 70% of the U.S. economy alone.


fortune--2020-11-16--The U.S. is too far behind the rest of the world when it comes to women in government

Women won key congressional races across the U.S. in 2020.
Kamala Harris will become the first woman, and person of color, to be Vice President. High-profile women of color won their election bids, including the four representatives—Alexandria Ocasio-Cortez, Ilhan Omar, Ayanna Pressley, and Rashida Tlaib—known as “The Squad.” New Mexico elected all women of color to its House delegation. Cori Bush will serve as the first Black congresswoman for Missouri. And the 117th Congress will boast a record number of Native American women.
Republican women are also in the spotlight, with some calling 2020 the “Year of the Woman” for Republicans.
The 2020 election has yielded important milestones, including record numbers of women candidates and an all-time high number of women elected to the House of Representatives. But these gains, while meaningful, are insufficient for meeting the goals of a representative democracy.
The Center for American Women and Politics at Rutgers University reports that women’s share of seats in the House of Representatives will increase from 23.2% to a mere 25.5%. In the Senate, women’s seat share will decrease following Martha McSally’s loss to Democratic challenger Mark Kelly in Arizona.
Women of color make up just 10% of the House and 4% of the Senate—and this would decrease to 3% if a woman of color isn’t selected for Harris’s vacated Senate seat. Only 24 Republican women were elected to the House—an all-time high—and just two of those are women of color. And that record-breaking number of Native American congresswomen? It’s only three.
These numbers aren’t very impressive.
Women make up 51% of the U.S. population but have never exceeded 25% of Congress. This sets the U.S. far behind not only Western Europe, but also much of the developing world in rankings of women’s legislative representation.
Women’s persistent underrepresentation is problematic for many reasons. First, research shows that congresswomen prioritize women’s policy interests and congresswomen of color play a large role in keeping women’s interests on the agenda. It’s hard to say that women’s interests and policy preferences are fully represented in the U.S. when so few women have a seat at the table.
Second, women’s leadership matters for the COVID-19 crisis. Women elected officials tend to champion the types of policies and services that will support everyone through the pandemic, like access to health care and social assistance. In addition to curbing the virus’s spread, women politicians also prioritize the pandemic’s social consequences, and women of color have shown that they are tuned in to the needs of their hard-hit communities.
Third, research identifies a link between women’s representation and trust in government institutions. Gender stereotypes of women as honest and less corruptible, combined with women’s historic exclusion from politics, make women appear to be a viable alternative to the discredited (male) establishment. Trust in the U.S. federal government has been on the decline for over a decade, so increasing women’s representation might help improve this.
Finally, even if women politicians behaved the same as men politicians, their presence in governing institutions matters for democratic legitimacy. After all, how representative is a democratic government if it fails to mirror the diversity of the people it is meant to represent?
Much of the world has acknowledged that women’s underrepresentation is problematic and has taken concrete steps to ameliorate this. Over 130 countries worldwide now use some form of gender quota law for their governments or voluntary political party quotas.
Globally, the political discourse is converging around gender parity. Mexico, for example, reached gender parity in the national legislature and most of its state legislatures in 2018. Rwanda’s and Bolivia’s legislatures currently exceed 50% women.
The U.S. has much to learn from these examples. Increasing women’s presence in Congress, as well as in state and local governments, matters not only for women’s rights and representation, but also for mitigating the COVID-19 pandemic, restoring trust in government, and fulfilling the ideals of a representative democracy.
Kendall D. Funk is an assistant professor of political science at Arizona State University. She researches women’s equality and political representation. Follow her on Twitter.


fortune--2020-11-16--Where does Biden stand on another $1,200 stimulus check?

Prior to the election, House Speaker Nancy Pelosi and President Donald Trump were both in agreement to send another $1,200 stimulus check to Americans. But that plan was held up as the two sides debated the other items and final price tag of the next stimulus package: House Democrats stood firm at $2.2 trillion, while the White House’s final offer was about $1.9 trillion.
But the Joe Biden win has changed the dynamics of the negotiations. Now, Senate Majority Leader Mitch McConnell has taken the reins for Republicans in stimulus negotiations. And unlike Trump, McConnell doesn’t believe the economy needs another multi-trillion aid package nor more stimulus checks. The Kentucky Senator reiterated that assessment last week after the unemployment rate dropped to 6.9% in October—down from its 14.7% peak in April.
Instead, McConnell would prefer a more measured approach like the $500 billion “skinny” stimulus package that Senate Republicans put forward twice this year, which he deems “more appropriate.” Both times Senate Democrats blocked the package, which didn’t include another round of $1,200 stimulus checks, and Speaker Pelosi is maintaining that kind of deal is a “nonstarter,” recently telling reporters a smaller version “doesn’t appeal” to her.
It’s widely expected on Capitol Hill that nothing will get passed until after the inauguration in January. That means where Biden stands on the direct checks—and if he’s willing to stand his ground against McConnell—will largely determine the fate of another round of stimulus checks.
During the campaign Biden advocated for another round of stimulus checks that would be included in a massive economic aid package, along with items like forgiving $10,000 per person in federal student loans and providing emergency paid sick leave. However, Biden didn’t specify the amount or the conditions for the stimulus checks.
And while on the campaign trail Biden accosted Republicans for not passing the $3 trillion HEROES Act, which passed in the Democratic-controlled House in May. The HEROES Act would have provided another $1,200 stimulus check to tax payers, and $500 for each dependent.
In all likelihood, Biden and Pelosi would press for similar economic aid proposals—something that could ultimately end up resembling the HEROES Act. But they’re likely to face a stiff negotiating partner in McConnell—someone who was just reelected for six years—and is worried that another multi-trillion stimulus package would further ballon U.S. debt.
The wild card in the stimulus debates are the pair of Republican Georgia Senate seats going into runoffs in early January. If Republicans hold one Georgia seat, they retain the chamber, and some economists expect a smaller deal, around or under $1 trillion, would be more realistic to pass under a divided Congress. If Democrats take both, they’d have power of the 50–50 spilt chamber through the tie-breaking vote the Constitution grants the Vice President (now Vice President–elect Kamala Harris).
If Democrats manage to secure both legislative bodies, Democrats could move to use budget reconciliation in the Senate to pass a massive stimulus package including another round of stimulus checks after Biden’s inauguration in January. But if Republicans win one of the Georgia runoffs and retain the Senate, Democrats would need McConnell on board in order to pass another economic aid package.


fortune--2020-11-16--The risk of ‘faux flexibility’ in the post-COVID workplace

Even before the pandemic, the way Americans worked wasn’t working.
“The corporate work environment is not sustainable for human beings and doesn’t comport with life,” says Atif Rafiq, president of commercial and growth for MGM Resorts.
Diane Hoskins, co-CEO of Gensler, whose company has been surveying workers for the past 15 years, says people spend about half their time at the office on “individual-focused activities”—something their shrinking workspaces do not foster.
“There’s been a real decline in how people perceive the effectiveness of the workplace to support the work they do every day,” says Hoskins. But as COVID-19 radically alters the way we work and live, this is a “reboot moment to think about what the workplace should be,” she says.
Rafiq and Hoskins spoke as part of a Fortune roundtable last week on how the pandemic is creating the biggest workforce experiment in modern history as employees have shifted from corporate offices to working from home.
“Not since the industrial revolution have managers and leaders had to think about work design,” says Nickle LaMoreaux, IBM chief human resources officer.
LaMoreaux says IBM, with its 350,000 employees spanning more than 150 countries, has tried to emphasize that there is no “one size fits all” model for returning to the office—even as some employees have wanted worldwide timelines. She says that the company believes there will be a hybrid model of working from home and the office going forward, but it expects employees will live within commuting distance to an IBM hub or office.
Jana Rich, founder and CEO of Rich Talent Group, an executive search firm for high-growth companies, says most of her clients are not saying employees can be remote forever. Companies want new hires to relocate as soon as it’s safe, she says, and that’s especially the case for senior leaders. But some candidates are hopeful employers will eventually change their minds. “I think it’s risky, to be honest,” Rich says. “We’re counseling really carefully not to make those assumptions.”
Rich also notes that 88% of the people she’s recruiting into these top roles are women and people of color. She’s concerned what impact it will have on marginalized and underrepresented groups if they are less able to be physically in the office when it’s safe to do so.
Rich’s concern was echoed by the rest of the group. “We need to create a lot more pathways for people to be rewarded and promoted,” Rafiq says. Unless that happens and there are real proof points, “the social behaviors will not really change.” He says taking advantage of flexibility shouldn’t influence your status at the company: “It should really be your potential and your performance.”
LaMoreaux says IBM has had to talk about centering its performance management and rewards and recognition systems on “outcomes, not activities.”
“We’ve been saying that a lot prior to the pandemic,” she says. “But this has been kind of the crisis that has made us bring that to the forefront.”
Brian Elliott, the former head of platform at Slack and VP of Future Forum, a new Slack-led consortium that aims to rethink the modern workplace, says he’s consistently heard concerns over what happens if a company allows flexibility but the C-suite shows up at the office every day. He says this “faux flexibility” can lead employees to feel like second-class citizens: “One of the key determinants of success is going to be how executives themselves behave.”
But it seems that millennials and members of Gen Z are also missing the office. Kirthiga Reddy, a partner with SoftBank Investment Advisers, says this group is feeling less connected and “does not want to be the Zoom” generation. Says Hoskins, “They’re not going to get the mentoring they’re looking for.”


fortune--2020-11-16--Can DoorDash maintain its pandemic boost?

This is the web version of Term Sheet, a daily newsletter on the biggest deals and dealmakers. Sign up to get it delivered free to your inbox.
Food delivery giant Doordash is going public at perhaps the best possible time for its business.
There’s a lot to be optimistic about in DoorDash’s filing: It is the largest food delivery player in the U.S. and has grown only larger in the pandemic. Revenue more than tripled in the first three quarters of 2020 to $1.92 billion compared to the same period last year—and it wasn’t merely through ramping up promotions or advertisements. Losses in the period after all narrowed from $533 million to $149 million.
While the pandemic delivery story is undoubtedly one of rising tides lifting all boats, DoorDash’s boat has managed to rise higher than its competitors, taking about 49% of the market share by September 2020 compared to around 34% a year earlier.
Last valued at $16 billion, DoorDash is also no longer burning through cash, generating $315 million in those months compared to the $308 million it razed in the same period a year earlier. And in yet another boon for the bulls: The company showed signs of profitability in the second quarter of 2020, gaining $23 million before swinging back to a loss of $43 million the following quarter.
But therein lies a key problem: DoorDash was only able to show profitability at the height of the lockdowns. Can it keep its pandemic boost?
Bulls will argue that stay-at-home orders have fundamentally shifted consumer behavior, forcing some who have resisted the app age to sign up UberEats or Instacart. No doubt that is true—but it seems highly unlikely that any food delivery service will be able to maintain the blistering pace of growth achieved this year as consumers eventually return to in-person dining. (DoorDash acknowledges as much in its filing: “We expect the growth rates in revenue, total orders…to decline in future periods”).
As pre-pandemic times have shown us, profitability in those days was elusive as businesses undercut each other in fees and with discounts. Now, competition is slated to become even more aggressive, if GrubHub’s $7.3 billion price tag for Europe’s Just Eat Takeaway.com or Uber’s near $2.7 billion bid for Postmates are anything to go by.
The tension between restaurants and food-delivery services, meanwhile, has only strengthened as small businesses hanging by a string feel the weight of merchant fees more than before. Restaurants, facing a huge decline in dining, have successfully asked cities to cap fees on third-party delivery providers.
It still seems likely investors will bite. But the question is if DoorDash can gain and maintain the lofty valuation it is seeking to achieve—$25 billion—even after the pandemic.
Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com
VENTURE DEALS
- MindTickle, an India-based sales readiness platform, raised $100 million in funding. SoftBank Vision Fund 2 led the round and was joined by investors including Norwest Venture Partners, Accel Partners, Canaan, NEA, NewView Capital, and Qualcomm Ventures.
- Inceptio Technology, a Shanghai-based autonomous truck company, raised $120 million in funding. Contemporary Amperex Technology led the round and was joined by investors including GLP, G7, and NIO Capital.
- PTM Biolabs, a Chinese firm developing proteomics technology to help diagnose and treat human diseases, raised 530 million yuan ($80 million) in Series B funding. IDG Capital led the round.
- Form Energy, a Somerville, Mass.-based startup seeking to make battery systems to better store wind and solar energy, said it has raised $70 million in Series C funding. Investors have not yet been disclosed. Read more.
- Grofers, an online grocery store, is reportedly in talks to raise $55 million to $60 million from the SoftBank Vision Fund and other existing investors. Read more.
- Harbr, a London-based data exchange company, raised $38.5 million in Series A funding. Dawn Capital and Tiger Global Management led the round and were joined by Mike Chalfen, Boldstart Ventures, Crane Venture Partners, Backed and Seedcamp.
- Zeotap, a Berlin-based platform for analyzing customer behaviors, raised $18.5 million in Series C funding. SignalFire led the round.
- KYKLO, a New York City-based e-commerce and sales management company, raised $8.5 million in seed funding. Felicis and IA Ventures led the round.
- Griffin, a London-based banking platform for launching new financial products and services, raised £6.5 million ($8.6 million). EQT Ventures led the round and was joined by investors including Seedcamp, Tribe Capital, Paul Forster (co-founder Indeed.com), Matt Robinson (co-founder Go-Cardless/Nested), and Carlos Gonzalez-Cadenas ( former COO GoCardless).
- Ride Vision, a maker of collision-aversion technology for motorcycles, raised $7 million in Series A funding. OurCrowd led the round.
- Silofit, a Canada-based provider of private fitness spaces, raised CAD$3.5 million in seed funding. Investors included Whitecap Venture Partners, Courtside Ventures, NFL player Ndamukong Suh, and Alate Partners.
- LILA Games, an India-based mobile game studio, raised $2.8 million in seed funding. BITKRAFT Ventures led the round and was joined by investors including Galaxy Interactive.
PRIVATE EQUITY
- Bain Capital Private Equity agreed to acquire a majority stake in US LBM, a Buffalo Grove, Ill.-base distributor of specialty building materials. Financial terms weren't disclosed.
- Main Capital Partners acquired a majority stake in Pointsharp, a Stockholm-based provider of identity management services. Financial terms weren't disclosed.
EXITS
- BC Partners agreed to acquire Keesing Media Group, a European maker of puzzle games, from Ergon Capital and Mediahuis. Financial terms weren't disclosed.
- Clearlake Capital Group agreed to acquire PriSo Holding Corporation, a distributor of specialty building materials serving residential, commercial, and industrial new-construction and remodeling markets, from Platinum Equity. Financial terms weren't disclosed.
Breakups and Hangups
- Simon Property Group (NYSE:SPG) cut its purchase price for an 80% stake of rival Taubman Centers (NYSE:TCO), a rival mall operator, by 18%. Simon will pay $2.65 billion for the stake. Read more.
OTHER
- Walmart (NYSE: WMT) sold most of its stake in Seiyu, a chain of Japanese supermarkets, to KKR and Rakuten valuing the firma at 172.5 billion yen ($1.65 billion).
- PNC Financial Services Group (NYSE:PNC) is in talks to acquire the U.S. arm of BBVA (MC:BBVA) for more than $10 billion. Read more.
- Hanjin Kal (KS:180640), owner of Korean Air Lines, may acquire Asiana Airlines, (KS:020560)m a South Korea-based airline, per Yonhap. Read more.
- Cisco agreed to acquire all of the assets of Banzai Cloud Zrt, a Budapest-based maker of cloud-native application development, deployment, runtime and security workflows. Financial terms weren't disclosed.
- MyMDPharmaceuticals (Nasdaq: MYMD), a drug developer targeting age-related therapeutics, and Akers Biosciences (Nasdaq: AKERS), a developer of health information technologies, agreed to merge. Financial terms weren't disclosed.
- Galaxy Digital (TSX: GLXY) acquired DrawBridge Lending and Blue Fire Capital, two cryptocurrency trading firms. Financial terms weren't disclosed.
IPO
- Bumble, an Austin-based dating app maker, is readying for an IPO next year. Blackstone backs the firm. Read more.
- Nordnet AB, a Swedish digital savings and investing platform, plans raise as much as 9.8 billion kronas ($1.1 billion) via an IPO on the Nasdaq Stockholm. The stake will be offered by investors including Nordic Capital and Öhman Intressenter. Read more.
- Nuix, an Australian security software firm, plans to raise A$975.3 million ($705.2 million) in an IPO in the country. Macquarie Capital backs the firm.
- Yatsen Holding, a Guangzhou, China-based maker of cosmetics, plans to raise $558 million (36% bought potentially by existing shareholders) in an offering of 58.8 million ADSs priced between $8.50 to $10.50. Investors including . Hillhouse Capital and Tiger Global back the firm. Read more.
- C3.ai, a Redwood City, Calif.-based company developing ways to deploy AI applications, filed for an $100 million IPO. TPG and Baker Hughes back the firm. Read more.
- BioAtla, a San Diego, Calif.-based biotech developing therapies for solid tumor cancers, filed for a $100 million IPO. Backers include Pfizer Ventures, Soleus Private Equity, and HBM Healthcare Investments. Read more.
- 17 Education & Technology Group, a Beijing-based provider of K-12 education services, filed to raise $100 million. Shunwei Ventures backs the firm. Read more.
- Kinnate Biopharma, a San Diego, Calif.-based oncology biotech, filed to raise $100 million. Its backers include Foresite Capital, OrbiMed, and RA Capital Management. Read more.
- Sigilon Therapeutics, a Cambridge, Mass.-based biotech developing therapeutics for chronic diseases, filed for an $100 million IPO. Flagship Pioneering and Eli Lilly back the firm.Read more.
- PubMatic, a Redwood City, Calif.-based cloud infrastructure platform, filed to raise $75 million. Read more.
SPAC
- CF Finance Acquisition III, a blank check company formed by Cantor Fitzgerald, raised $200 million.
F+FS
- Centerbridge Capital Partners is seeking to raise $6 billion for its fourth fund. Read more.
PEOPLE
- LongRange Capital, a private equity firm, named Amar Doshi as a senior principal.


fortune--2020-11-16--Apple’s user tracking prompts privacy complaint from Facebook nemesis Max Schrems

The Austrian lawyer and privacy campaigner Max Schrems—whose activism has destroyed two transatlantic data-sharing deals and driven Europe-U.S. data flows into legal purgatory—has generally not had a huge problem with Apple. Until now.
It’s not that Schrems and his NOYB (“None of your business”) organization have never targeted Apple before—they made a complaint in early 2019 about its failure, and that of many other Big Tech firms, to give people all the data about them that they can lawfully demand. But their main targets have generally been Google and the big social media firms, Facebook in particular.
That changed Monday, when NOYB made dual complaints, in Spain and Germany, about Apple’s user tracking.
According to the privacy group, Apple’s iOS mobile operating system breaks the EU’s so-called cookie law by creating a tracking code without users’ knowledge or consent. This identifier for advertisers (IDFA) allows Apple and app providers to monitor what users are doing and build profiles for targeted advertising.
‘Clear breach’
“EU law protects our devices from external tracking,” said NOYB lawyer Stefano Rosetti in a statement. “Tracking is only allowed if users explicitly consent to it. This very simple rule applies regardless of the tracking technology used. While Apple introduced functions in their browser to block cookies, it places similar codes in its phones, without any consent by the user. This is a clear breach of EU privacy laws.”
Apple devices have been flagging up their unique identities to app developers using IDFA for the better part of a decade now.
This year, Apple said it would stop third parties from accessing the codes without explicit user consent—a scenario that involves clearly informing people about how apps and websites aid their surveillance—but it delayed the change until next year following complaints from Facebook and the ad industry.
According to NOYB, even when this change materializes, it will not be enough to keep Apple on the right side of the law—because it won’t stop the company itself from tracking users without their explicit consent.
“We believe that Apple violated the law before, now, and after these changes. With our complaints we want to enforce a simple principle: Trackers are illegal, unless a user freely consents. The IDFA should not only be restricted but permanently deleted,” said Rosetti. “Smartphones are the most intimate device for most people, and they must be tracker-free by default.”
Apple strongly denies the claims.
“The claims made against Apple in this complaint are factually inaccurate, and we look forward to making that clear to privacy regulators should they examine the complaint,” it said in an emailed statement. “Apple does not access or use the IDFA on a user’s device for any purpose.”
In case Google thinks it might be escaping attention here, NOYB added that it is also reviewing the Google ad identifier, its equivalent to Apple’s IDFA.
Speed hopes
It should be noted that the law in question here—the nearly two-decades-old e-Privacy Directive—is completely separate from the EU’s much-feared General Data Protection Regulation (GDPR) of 2018.
NOYB believes complaining under the older law (whose modernization has been repeatedly delayed) will allow for a swifter resolution, even though the maximum fines are much lower under that law than they are under the GDPR.
NOYB has outstanding complaints against a host of companies, most notably Facebook, but none have reached a conclusion yet, despite the introduction of the GDPR two and a half years ago. (Schrems’s crew launched the first volley of complaints mere hours after that law came into effect.)
This article was updated to include Apple’s statement.


fortune--2020-11-16--Your employees are not okay: How to handle mental health at work during a pandemic

With cases of COVID-19 again surging across the country and around the globe, employers face the enormous challenge of maintaining a healthy workforce.
But for many, protecting workers from the highly contagious, sometimes fatal coronavirus is no longer the top worry: It’s the anxiety, depression, loneliness, burnout, and stress that have come to afflict employees throughout the pandemic.
“There’s been much more of a need to deal with mental health than the physical health side of COVID, to be honest,” said Dr. Richard Jenkins, vice president of medical services at Emirates, the Dubai-based airline, at a Fortune virtual Brainstorm Health event on Thursday. Feelings of loneliness and isolation were a significant problem among the Emirates’ workforce.
“We had a couple months where our crew were either flying on the aircraft or in isolation, so the only time they were with people was when they were in the aircraft at work…That loneliness and isolation really did impact their mental health. Constant change, uncertainty, these are all things that are destabilizing and can knock you back,” said Jenkins, who noted the airline made a concerted effort to make employees feel comfortable with having and sharing those feelings: “To be concerned or be uncertain at this time is normal. So don’t be afraid of it, identify your feelings and come forward.”
Emirates offers everything from group chats and guided meditation to personal counseling for employees who need it. Jenkins has also led an effort to make senior managers more comfortable in engaging on matters of employee mental health. “We’ve linked in with the leadership teams to support them in having the confidence to ask those questions—Are you concerned? Are you frightened?—and have permission to make that a part of their daily routine and part of their leadership inquiry,” explained Jenkins.
While employees may be understandably wary divulging personal mental health issues with their managers, Dr. Jay Wohlgemuth, chief medical officer at Quest Diagnostics, thinks we’ve reached a turning point of sorts.
“Absolutely the pandemic created an environment where we accelerated the destigmatization of mental health in the workplace, and now everyone’s talking about it, and it’s okay to talk about it,” said Wohlgemuth, who said he personally has struggled with depression. He has spoken openly about his experience at Quest and thinks that’s partly why 11,000 of the company’s employees have signed up for the company’s mental health services.
“You really need a senior level champion,” said Wohlgemuth, “That kind of punched through our environment. COVID helps, of course, too. People are much more willing to talk about it.” He added that Quest’s senior leaders have been enthusiastic for training that helps them manage their own mental health as well as engage on the matter with their teams.
Along with the feelings of uncertainty and isolation, Wohlgemuth said he’s made a point of telling teams it’s okay to have fun at work right now and that a period of great suffering doesn’t mean you can’t enjoy things.
Dr. Richard Kim, chief medical officer at American Express, which has had an employee mental health program for more than a decade, said he’s been focused on meeting employees where they are—the company does regular sentiment checks on how employees feel about returning to the office among other things—and improving access to mental health care. At a time when so many employees are working remotely, and possibly in isolation, the company has made community building a major focus. It has been helpful for the workforce to “rally around something good,” as they did recently around a charitable cause.
Tina Moen, senior deputy chief health officer and chief pharmacy officer for IBM Watson Health, says this moment is all about humanity—and remembering that when it comes to employee well-being and their needs.


fortune--2020-11-16--Fact check: Ransomware did not lead to a woman’s death in Germany

This is the web version of Data Sheet, Fortune’s daily newsletter on the top tech news. To get it delivered daily to your in-box, sign up here.
It’s often said journalism is the first draft of history. If so, it’s time for a revision.
Recall about two months ago when a variety of news outlets reported the first death due to ransomware cyberattack, this newsletter included.
The story: In Düsseldorf, Germany, a 78-year-old woman suffering an aortic aneurism was rushed by ambulance to the nearest hospital, only to be turned away because the facility had been crippled by hackers. During the drive to another hospital, she died. Prosecutors said they were investigating charging the hackers with negligent manslaughter.
News reports quickly attributed the death to the hacking attack, which froze the servers at Düsseldorf’s University Hospital and reduced the hospital’s capacity. “The first known death from a cyberattack,” the New York Times reported. The Verge was a bit more careful, saying the incident “may be the first death directly linked to a cyberattack on a hospital.” Robert was even more careful here, saying the death might not even be that.
But it was freelance journalist William Ralston who did the unsexy work of sticking with the story. In a piece for Wired UK, Ralston has a major correction to the narrative. After investigating the situation, Cologne chief public prosecutor Markus Hartmann concluded that the hackers were not responsible for the death. “The delay was of no relevance to the final outcome,” Hartmann explained to Ralston. “The medical condition was the sole cause of the death, and this is entirely independent from the cyberattack.”
Still, the word has not gotten out. Microsoft cited the Düsseldorf death in a blog post on Friday about the dangers of cyberattacks. Rewriting the first draft of history is easy. Getting everyone to read it? Less so.
Aaron Pressman
@ampressman
aaron.pressman@fortune.com
***
MOOCs, the Massively Open Online Courses, have long promised to democratize education. In the latest episode of Fortune’s Reinvent podcast, Coursera CEO Jeff Maggioncalda argues that MOOCs are an indispensable tool for retraining the workforce for the digital jobs of tomorrow. Listen here.
NEWSWORTHY
They marched in the astronauts two by two. Three months after successfully sending two astronauts to the International Space Station, Elon Musk's SpaceX doubled the feat. A SpaceX Falcon 9 rocket lifted off from Florida on Sunday with four astronauts aboard. They will rendezvous with the space station on Monday night. Musk meanwhile was busy muddying the waters about COVID testing. The SpaceX and Tesla CEO said he had taken four rapid tests and was found infected twice. “Something extremely bogus is going on,” Musk tweeted. Experts said the rapid tests may not have been administered properly but do have a higher false positive rate than polymerase chain reaction tests.
Mac phone home. A bit of weirdness cropped up in the rollout of Apple's new Big Sur operating system. Some users couldn't get apps to open on their computers after upgrading due to a glitch in Apple servers that check that apps are free of malware. That raised questions about why apps were checking in with Apple servers in the first place. And some owners of MacBook Pro laptops sold from 2013 to 2015 reported an even more serious problem: The update bricked their computers. In other news, Apple also faces new complaints about violating users' privacy in Europe. And in better news for Apple, early benchmark results for computers running the company's new M1 processor show the CPU is faster than any other chip used in Macs for single core performance.
This mission is too important for me to allow you to jeopardize it. Former Oracle executive Tom Siebel's artificial intelligence startup C3.ai filed to go public. Founded in 2009, the company helps customers like AstraZeneca and ConEdison harness A.I. applications in a corporate setting. Revenue totaled $157 million last year, up 71% from the prior year, while a net loss of $33 million was about half the prior year's loss. DoorDash also filed its registration statement, showing off revenue of $1.9 billion in the first three quarters of 2020, triple the prior year, and a loss of $149 million.
Flashing red. We've reported more than a little here on the rise of right-wing social network Parler as mainstream sites like Twitter and Facebook crack down on misinformation and hate groups. Now a report from the Anti-Defamation League warns that Parler is becoming a preferred platform for spreading Holocaust denial, antisemitism, and racism.
FOOD FOR THOUGHT
The outgoing Trump administration wants the Federal Communications Commission to cut back the legal protection for online sites that host user content. But in an essay in The Hill, Brandie Nonnecke, director of the CITRIS Policy Lab at the University of California, Berkeley, says the FCC lacks the authority to change the protections enacted by Congress.
Democrats and Republicans agree that social media platforms should be doing more to curb the spread of dangerous content and that clarifications to Section 230 immunities may be needed. But looking to the FCC to clarify Section 230 through rulemaking is inappropriate, illegitimate, and inconsistent with its actions to limit the agency’s regulation of information services.
IN CASE YOU MISSED IT
The rise of the MOOCs: How Coursera is retraining the American workforce for a post-COVID economy By Beth Kowitt
Meditation app Calm boosted after sponsoring CNN’s election night coverage By Danielle Abril
Not everyone is feeling the recovery: The economy as told by 8 charts By Lance Lambert
Hackers are trying to disrupt and steal COVID-19 vaccine research By Aaron Pressman
Why so many valuable startups seem like the dumbest idea at first By Lucinda Shen
What you should consider before working remotely from a vacation destination By Rachel King
(Some of these stories require a subscription to access. Thank you for supporting our journalism.)
BEFORE YOU GO
Electric cars, electric pickup trucks, electric whatever. BMW last week let daredevil Peter Salzmann try out its new electric-powered wingsuit. Dropped from a helicopter at 10,000 feet somewhere over Austria, Salzmann jetted over mountain tops at 186 miles per hour. Watch the insane feat in this video as you get ready to jet ahead this week.


fortune--2020-11-16--Kim Ng breaks a gender barrier in baseball

This is the web version of The Broadsheet, a daily newsletter for and about the world’s most powerful women. Sign up to get it delivered free to your inbox.
Good morning, Broadsheet readers! Gov. Gretchen Whitmer has some advice for how the Biden administration can work with state leaders, three Korean-American women are headed to Congress, and Kim Ng makes history in Major League Baseball. Have a powerful Monday.
– Home run ⚾. If you’re not a baseball fan, you may have missed a milestone piece of news on Friday: the Miami Marlins named Kim Ng their new general manager, making her the first female GM in the Major League Baseball.
By all accounts, it’s an appointment that has been a long time coming. Ng, who began her career in the sport as a Chicago White Sox intern 30 years ago, is the league’s longtime SVP of baseball operations and has three World Series titles and eight playoffs under her belt as an associate GM. She first interviewed for a GM job 15 years ago and has reportedly been a candidate a total of five in the years since. In the words of one ESPN headline, “Kim Ng finally—finally!—lands general manager job in Major League Baseball.”
Ng’s colleagues in the sport are all aware of the history-making nature of her appointment—and how it can change baseball for the better. MLB commissioner Rob Manfred acknowledged that the Marlins news “sets a significant example for the millions of women and girls who love baseball and softball.” Other women in baseball told MLB.com how Ng’s career could affect their own trajectories. “It changes the conversation from, ‘Oh it’s never been done,’ to, ‘Oh, well, Kim’s doing it so you can do it,'” said Rachel Balkovec, the Yankees Minor League hitting coach who was the first woman hired into that role last year.
But one common refrain among those who know Ng is how supremely qualified she is for this job—making her appointment both unprecedented and expected. “We’re not transplanting a kidney here,” said Yankees broadcaster Suzyn Waldman. “You knew that you were looking at a GM. … There’s nothing she doesn’t know about baseball.”
Notably, this isn’t a milestone just for baseball. Ng is the first female GM in any of the four major North American men’s athletic leagues. She’s also the second Asian GM in the MLB. And the Marlins CEO who chose her for the position, by the way, is Derek Jeter. (I’m a Red Sox fan myself, but I have to give credit where credit is due to the former Yankee on this one!)
“When I got into this business, it seemed unlikely a woman would lead a Major League team,” Ng said in her own statement, “but I am dogged in the pursuit of my goals.”
Emma Hinchliffe
emma.hinchliffe@fortune.com
@_emmahinchliffe
ALSO IN THE HEADLINES
- Country, city, and state. In a Fortune op-ed, Michigan Gov. Gretchen Whitmer and Phoenix Mayor Kate Gallego write about how the incoming Biden administration should work with cities and states. Fortune
- Pentagon pick. One likely pick for President-elect Biden's cabinet is Michelle Flournoy, who would be the first woman to head the Pentagon. Read about Flournoy and the groundbreaking nature of her potential appointment here: Fortune
- Journalist to subject. Two journalists who ruled election coverage get their own NYT profiles. CNN's Abby Phillip and NBC's Savannah Guthrie are the ones in the headlines now.
- Over in the OC. In Orange County, an outstanding Congressional race was decided in favor of GOP candidate Young Kim. Kim will be one of the first Korean-American women to serve in Congress, alongside 2020 victors Marilyn Strickland of Washington state and Michelle Steel, a fellow OC Republican. Associated Press
MOVERS AND SHAKERS: The International Women’s Forum named Helen Rule, vice chairman of the Imatech Group of Companies, as board president. Cedar hired Voximplant's Caryne Say as senior director of demand generation.
IN CASE YOU MISSED IT
- Georgia's vote. When Georgia's electors vote for the state's choice in the presidential election, there will be two notable faces among the group of 16. Stacey Abrams, who has received praise for her work turning out Black voters in the state, and incoming Rep. Nikema Williams, who was elected to the late John Lewis's seat, will cast their votes for President-elect Biden. Atlanta Journal-Constitution
- AI-VF. Can artificial intelligence improve IVF? Researchers are examining whether A.I. can "more precisely pick the most viable embryo to implant," which would improve success rates, reduce the risk of pregnancy loss, and lower costs. STAT News
- 'Daughters' rights.' Among the most privileged class in the U.K., a campaign is growing for "daughter's rights"—to receive titles, estates, and money that are still only passed down to sons. There's more at stake, though, than just family wealth; also affected by the rules are the 92 seats in Parliament reserved for hereditary peers, all currently held by men. The Atlantic
ON MY RADAR
America's 'daughters' grow up to be women it can't handle The Cut
'Women's work' can no longer be taken for granted New York Times
The company behind Kay and Zales wants to give jewelry shopping a pandemic-era makeover Fortune
Howard University receives $1 million to open women's center Washington Post
PARTING WORDS
"Ultimately that’s what she wanted for her kids—having a better life for them."
-Author and activist Ruby Bridges on her mother, Lucille Bridges, who enrolled her daughter in an all-white elementary school in 1960 and escorted her to her classes. Lucille Bridges died at 86 last week.


fortune--2020-11-16--Moderna says its COVID-19 vaccine is 94.5% effective

Moderna Inc. said its Covid-19 vaccine was 94.5% effective in a preliminary analysis of a large late-stage clinical trial, another sign that a fast-paced hunt by scientists and pharmaceutical companies is paying off with potent new tools that could help control a worsening pandemic.
The highly positive readout comes just a week after a similar shot developed by Pfizer Inc. and BioNTech SE was found to be more than 90% effective in an interim analysis. Both shots rely on a technology called messenger RNA that has never been used to build an approved vaccine. Soon, millions of people around the world could be spared from illness by the breakthroughs.
A preliminary analysis of data from more than 30,000 volunteers showed Moderna’s vaccine prevented virtually all symptomatic cases of Covid-19, the disease caused by the coronavirus, the company said in a statement on Monday.
Moderna shares rose more than 9% in pre-market U.S. trading, while in Europe, the Stoxx 600 Index was up 1.5%.
Only five participants who received two doses of the vaccine became sick, compared with 90 coronavirus cases in participants who received a placebo, according to a review by an independent data safety monitoring board appointed by the U.S. National Institutes of Health.
The vaccine also appeared to be effective in preventing the most serious Covid-19 infections. There were no severe cases among people who got the vaccine, compared with 11 in volunteers who received placebo shots, according to Moderna’s statement.
“The thing that got me the most excited today was the severe disease,” Moderna Chief Executive Officer Stephane Bancel said in an interview. “That for me is a game-changer.”
The results arrive at a moment when the pandemic’s grip is tightening. The U.S. surpassed 11 million coronavirus cases Sunday as Florida reported the most new infections since July and new cases in California hit a three-month high. Deaths and hospitalizations are also rising. Europe has also seen cases soar as much of the world braces for what is expected to be a dire winter.
While the results are preliminary, both Moderna and Pfizer are expected to seek emergency-use authorization from the U.S. Food and Drug Administration if further study shows their vaccines are safe. In its statement, Moderna said it could seek a go-ahead from regulators in the coming weeks.
The company said it would expect an emergency authorization to be based on a final analysis containing 151 cases, along with two months of safety follow-up data that U.S. regulators want to see. That final data is expected later this month.
Cambridge, Massachusetts-based Moderna received $955 million from the U.S. Operation Warp Speed program to develop its vaccine, and the U.S. has agreed to pay up to $1.53 billion to purchase supply of the shot. Pfizer has said it didn’t receive any federal funding to develop its vaccine, though it has struck a supply agreement with the U.S. worth nearly $2 billion.
Shot Stability
Once a vaccine is cleared, distribution is expected to be a significant challenge. Handling some of the shots that are being studied is complicated: For example, Pfizer’s must be stored at ultra-cold temperatures until a few days before it is used, a requirement that adds logistical hurdles for states that will be in charge of overseeing the inoculation effort.
Moderna said on Monday that new stability data showed its vaccine is stable at refrigerator temperatures for 30 days, much longer than a previously estimated seven days. For longer-term storage, it can be kept in freezers, though it doesn’t need the special facilities required for the Pfizer vaccine.
Both the Moderna vaccine and Pfizer’s are based on mRNA technology designed to transform the body’s own cells into vaccine making factories. Once injected, the vaccines instruct cells to make copies of the coronavirus’s spike protein, stimulating the creation of protective antibodies.
The analysis of Moderna’s data found no significant safety concerns, the company said. It said some participants had severe fatigue, muscle pain, joint pain and headaches after getting the vaccine, though the side effects were generally short-lived.
Bancel said the data safety monitoring board met at 10 a.m. on Sunday and he anxiously checked his email every five minutes until he heard in the early afternoon they had results, and got on a video call to hear them.
The result “is a big milestone” for messenger RNA technology, Bancel said. “It shows that mRNA can be a drug.”
Surging Cases
In vaccine trials, a certain number of volunteers — a percentage of whom get a placebo — have to get infected in order to determine if the vaccine works. That’s easier to accomplish with the pandemic in the U.S. surging. The U.S. has recorded more than 100,000 new infections every day since Nov. 5, according to Johns Hopkins University data compiled by Bloomberg.
The same explosion of Covid-19 cases that helped Pfizer get results for its vaccine trial on Nov. 9 helped speed along Moderna’s trial. Moderna on Nov. 11 said its study had accumulated more than 53 infections, allowing a preliminary analysis to begin.
Infections were accumulating so fast in the trial that Moderna’s analysis ended up being based on 95 cases, the company said.
Bancel said at the rate cases are piling up Moderna should get the final 151 cases by the end of the month, allowing it to complete a final analysis and file for emergency use authorization.
Moderna’s final-stage trial started on the same day as Pfizer’s in late July. The company was slightly behind Pfizer largely due to structural differences in the studies. The two doses of Moderna’s vaccine are given four weeks apart; Pfizer’s two doses are given over three weeks.


fortune--2020-11-16--Biden’s corporate tax plan depends on Georgia’s Senate results

The two runoff elections in January to choose Georgia’s senators could have a direct effect on the bank balances of companies nationwide. That’s because Georgia’s voters will determine which party controls the Senate, which in turn will heavily influence whether President-elect Joe Biden’s business tax proposals become law.
The stakes are high. Biden has advocated for several tax increases on companies, starting with a substantial increase in the corporate tax rate, currently 21%. “There is this dynamic that Presidents do come back to the topic of tax over and over again,” says John Gimigliano, a principal at KPMG who previously served as senior tax counsel for the House Ways and Means Committee. “What does this tell us? Taxes are the Swiss Army knife of policy implementation—a one-size-fits-all tool for doing indirectly what you might not be able to do directly.”
Even if the Democrats don’t achieve a Senate majority, they’ll have another shot at it in 2022. In that year—as in this one—more Republican-held seats than Democrat-held seats will be on ballots at 21 vs. 13.
The following conversation has been lightly edited.
Fortune: We could talk about the fine points of Joe Biden’s business tax proposals, but maybe they won’t matter. Does it all just depend on what happens in those two Georgia runoff elections?
Gimigliano: I always like to say the world isn’t as simple as it seems, but sometimes it is. If the Republicans are in control of the Senate, they’re just not going to agree with virtually anything in the Biden tax plan. There may be some areas they can work on, but overall, the majority of the Biden plan is off the table in that scenario, and we’re waiting to see what happens in 2022.
The best the Democrats can do this year is a 50–50 split, with the vice president breaking tie votes. Would that slim margin restrict them because they’d always have to please the most moderate Democratic senator?
I would argue it’s even more than just the most moderate senator. It’s really all 50. All 50 senators in that scenario understand the leverage they have, and it’s a dramatic amount of leverage. Each one can hold out at any time to get more or less what they want. That’s really a complicating factor because the bills tend to grow. You need this, you need that, you need this—the bills get bigger. And not only that, but as you give this thing to Senator A, Senator B says, “You just got Senator A’s vote, but you just lost mine because I can’t stand that thing that Senator A got.” So it’s like Rubik’s Cube—it’s not impossible, but it’s complicated.
It’s at least conceivable that Congress could enact some of Biden’s business tax changes. What if they increased the corporate tax rate from 21% to 28%, as he has proposed?
The corporate rate makes everything go, and changing it seems simple: You just strike one rate and insert a new one. But the corporate rate has tendrils that extend to everything else and make it easier or harder. Yes, they could raise the corporate rate. It won’t be easy, especially in an economic recovery, which we will almost certainly be in next year. At 28% it makes the U.S. look like a little bit of an outlier again in the global community, especially when you add on the state taxes we have. And it puts pressure on U.S. companies in terms of where and how they invest. That’s something people had to rethink after the rate was lowered in the Tax Cuts and Jobs Act of 2017, and I think they’d be rethinking it all over again.
Biden has also proposed a sort of Alternative Minimum Tax on companies. Would that have a better chance of enactment?
By the very nature of it, you could say it’s easier to do in an economic recovery because it would only tax companies with profits of $100 million or more. The message is: You should just pay your fair share. That’s exactly how Biden talks about it. If the Democrats get the Senate majority, he could rally them, saying, “Look, we’re going to hold off on a corporate tax rate increase until the economy’s on firmer ground, but at a minimum, we should get these companies that are otherwise profitable to pay their fair share.”
Many business people say divided government is nirvana because it removes the possibility of radical changes. Is that valid?
The IRS has issued something like 7,000 pages of guidance on the TCJA. To put all that in a bonfire and start over is not something the corporate community is ready to do just yet. They’re still trying to figure out how that law affects them. For most businesspeople, stability in a system is viewed as the best possible outcome, and divided government historically provides greater stability.


fortune--2020-11-16--Why investing in supply chain resilience pays off

In normal times, the prospect of having to announce even a small drop in earnings is enough to make an executive team sweat. But that kind of setback pales in comparison to the losses that supply chain disruptions routinely inflict—and that’s without taking into account huge outlier events like the COVID pandemic.
Much has been written about how to make supply chains more resilient. But for years, many companies, wary of eroding efficiency in the immediate term, put off the preventive measures that could minimize the impact of disruptions in the future. The pandemic has once again driven home the necessity of managing operational and supply chain risk—and it has catapulted these issues to the top of CEO agendas. Now the unexpected has to be considered probable, and at least a baseline level of expected losses from disruption should be embedded into financial planning. This information can help companies make better decisions about how to invest in supply chain stability. Our analysis indicates that an average large company could spend up to 45% of one year’s profits in resilience measures and still come out ahead over a decade. That investment can leave “just in time” systems better prepared for “just in case” eventualities.
Disruptions are growing more frequent and severe
It’s not just a figment of our collective anxiety: The world really has become riskier. Changes in the environment and in the global economy are increasing the frequency and magnitude of supply chain shocks.
Dozens of weather disasters each year cause damages exceeding a billion dollars each—and the economic toll caused by the most extreme events has been escalating, as Hurricane Laura and the California wildfires are proving yet again. A multipolar world with clashing economic systems is producing more trade disputes, tariffs, and uncertainty. The share of global trade conducted with countries ranked in the bottom half of the world for political stability, as assessed by the World Bank, has risen from 16% in 2000 to 29% in 2018, and 80% of trade now flows through countries with declining political stability scores. As companies become more reliant on digital systems, they are also more exposed to cyberattacks. Interconnected supply chains and global flows of data, finance, and people offer more “surface area” for risk to penetrate, and ripple effects can travel across these network structures rapidly.
We surveyed dozens of supply chain experts in the automotive, aerospace, consumer electronics, and pharmaceutical industries to gauge just how frequently things go wrong. Their responses were surprising: Every two years brings a shock that halts supply and production for one to two weeks. More prolonged events also come around more frequently than might be expected. Manufacturers can expect disruptions lasting one to two months to occur every 3.7 years on average, and those dragging on for two months or longer every five years or so. Lengthy global supply chains deliver real margin improvements, but events of this frequency have to be fully accounted for as a real cost of doing business with this kind of structure.
Companies are already attuned to some types of risk simply because they encounter them more often. Data breaches, theft, and industrial accidents happen, and manufacturers have systems and functions in place to try to prevent them. Trade disputes, too, have dominated the headlines in recent years, leading some multinationals to alter their geographic footprint.
Other types of shocks may be rare occurrences, but they can inflict much bigger losses and need to be on the radar screen as well. They include extreme weather, earthquakes, financial crises, major terrorist attacks, and, yes, pandemics. Even some calamities that the world has avoided to date, such as a cyberattack on foundational global systems, should be part of scenario planning. If 2020 has taught us anything, it’s the folly of assuming that extreme scenarios will never come to pass.
McKinsey
Not every company or industry is exposed to these potential shocks to the same degree. We analyzed 23 value chains, looking at their footprint, factors of production, and other variables. In some industries, suppliers are heavily concentrated in a single geography owing to specialization and economies of scale—but a natural disaster or localized conflict in that part of the world can cause critical shortages that snarl the entire network. Industries such as mobile phones and communication equipment have become more concentrated in recent years, while others, including medical devices and aerospace, have become less so. Overall, we find that value chains with the highest trade intensity and export concentration are more exposed to shocks than others. They include some high-value and sought-after industries, such as communication equipment, computers and electronics, and semiconductors and components. However, labor-intensive value chains such as apparel are vulnerable to pandemics, heat stress, and flood risk. All of these value chains are ripe for shifts to different countries as companies focus on resilience and policy makers rethink what is essential to national economic security.
Over the course of a decade, companies can expect disruptions to erase half a year’s worth of profits at a minimum
We built representative income statements and balance sheets for hypothetical companies in 13 different industries, using actual data from the 25 largest public companies in each. We then put them through a stress test to see what kind of financial losses a 100-day shutdown would produce. Modeling an event of this severity may seem extreme, but one study found that in 2018 alone, the five most disruptive supply chain events affected more than 2,000 sites worldwide and took factories 22 to 29 weeks to recover.
Our scenarios show that a single prolonged production-only shock would wipe out between 30% and 50% of one year’s Ebitda for companies in most industries.[1] An event that also disrupts distribution channels would push the losses sharply higher in some industries.
This information makes it possible to estimate a minimum bottom-line impact companies can expect over the course of a decade, based on the probabilities and frequency of occurrence. The results vary across industries, but on average, companies can expect to lose almost 45% of one year’s profits over the course of a decade. The potential for financial losses is largest for companies in the aerospace, automotive, and mining industries. These figures do not include the additional cost of rebuilding damaged physical assets or the destruction of shareholder value, which may persist for some time after the shock.
These are the hidden and recurring costs of doing business with complex supply chains in a riskier world—and they are only the baseline. Catastrophic events such as the COVID pandemic can inflict far greater damage to the bottom line, creating losses that some manufacturers may not be able to withstand.
There is a flip side, however. Individual companies may be able to turn external shocks into lemonade. Events that strike one company’s operations and suppliers but not a competitor’s can boost the latter’s market share, at least temporarily but perhaps permanently. Others may seize on a crisis, innovating quickly and successfully under pressure in ways that propel growth over the long term.
A newfound appreciation for risk is prompting companies to act
Practical strategies for making supply chains more transparent and resilient have been widely discussed for years. But they do require making long-term investments or accepting a slightly higher cost of goods. For that reason, only a small group of leading companies had taken decisive action before the pandemic hit.
But now change is brewing. McKinsey surveyed 60 global supply chain executives in May 2020. An overwhelming 93% reported that they plan to take steps to make their supply chains more resilient—and half of them were willing to prioritize resilience over short-term profitability. Overall, 53% of respondents plan to diversify their supplier network by qualifying more vendors and building in redundancies; 47% plan to hold more inventory of critical inputs; 40% plan to near-shore their supply base, and 38% plan to regionalize it.
Stability may be emerging as a key metric for measuring corporate performance. Resilience may be a new element considered alongside environmental impact and social purpose as investors and customers assess companies.
In total, we estimate that 15% to 25% of global goods trade, worth between $2.9 trillion and $4.6 trillion in 2018, may shift to different countries over the next five years owing to a combination of companies restructuring their supply chains and governments taking action to boost domestic production.
But there are many other ways to address risk that go beyond changing the physical location of production and switching to new suppliers. The pandemic has occurred at a moment when technology is leapfrogging forward into the era of Industry 4.0—and creating supply chain transparency through digitization can boost productivity and resilience simultaneously.
Digitization enables visibility into who supplies your suppliers and spots vulnerabilities hidden deep in the lower tiers of the network. One aerospace company that undertook this effort found that it was sole-sourcing 20 different components from sub-tier suppliers; identifying this issue enabled the company to bargain for better prices with competitors and to remove this potential bottleneck. When the COVID pandemic broke out, Nike’s digitized supply chain enabled the company to quickly shift products headed for brick-and-mortar stores to e-commerce fulfillment centers in China. As a result, it minimized the hit to revenue at a time when its competitors sustained much larger hits.
Some companies have made it a point to model prioritized risks, but they have often done so by looking at these shocks as discrete events. Now analytics tools enable a more sophisticated approach that quantifies risks in the context of broader and more integrated scenarios. This makes it possible to combine extreme one-off events with knock-on effects and the ongoing business cycle, taking correlations into account. Scenarios can also integrate a range of risk-mitigation strategies to test which would be most effective. The results can then inform strategic planning and capital allocation decisions.
Preparing for future hypotheticals sometimes has a present-day cost. But if those investments focus on digitally connecting the entire value chain from end to end, they can pay off over time—not only minimizing future losses but boosting productivity and strengthening entire industry ecosystems today.
[1] Losses measured in net present value. If losses are not discounted, they would range significantly higher, wiping out the majority of a year’s profits.
Susan Lund is a partner of McKinsey & Company and a leader of the McKinsey Global Institute. Katy George is a senior partner of McKinsey & Company and leader of the Operations Practice in North America.