fortune--2020-01-17--Prohibition turns 100: How brands like Bacardi, Jim Beam, and Budweiser survived

A year ago, just over one-fifth of Americans participated in Dry January, a trendy refrain from booze for 31 days to kick off the year with a healthy start.
Americans didn’t have much of a choice when it comes to alcoholic beverages a century ago. That’s when the nation became really, really dry as Prohibition was federally mandated as of Jan. 17, 1920. A 13-year ban on the sale, production, or importation of alcoholic beverages ensued.
The timing couldn’t have been worse for Bacardi. At the turn of the 20th century, cocktail culture was just starting to emerge in the United States, and sales for Bacardi’s rum were picking up so strongly that the company opened a production facility in New York City in 1916. Like many distillers, Bacardi had to cease operations and retreated to Cuba.
Rafael “Pappy” Valiente serving a drink to American tourist Miss Alice Maxwell in the company of Mr. and Mrs. Car at Sloppy Joe’s Bar in Havana, 1930s. Courtesy of The Bacardi Archives
But a travel boom helped lift spirits. From 1916 to 1928, American tourism more than doubled to Cuba, to 90,000 visitors annually. Bacardi spent $7 million (in 2020 dollars) to expand its Santiago distillery to meet demand.
“They hit this roadblock that was their largest market where they were selling Bacardi and demand was high, so how do you reach these people?” asks Rachel Dorion, a sixth-generation family member, who runs communications for the Bacardi Archive.
Bacardi produced postcards that served as token ads to promote a romanticized view of Cuba. A downtown Havana bar owned by the company hosted “influencers” of the day including Bing Crosby, Errol Flynn, and Bob Hope. By the time drinking became legal again stateside, tourists were among those ordering rum when Prohibition lifted in 1933. Bacardi also issued official advertisements that connected the liquor to Cuba.
The marketing was so effective that Fortune in November 1933 would call Havana “the unofficial U.S. saloon” and also reported that U.S. citizens heard about Bacardi from their bootleggers.
A Bacardi advertisement showcasing the Cuba Libre, a popular highball drink with ties to the Spanish-American War of 1898. Courtesy of The Bacardi Archives
American distillers weren’t so lucky. Lem Motlow and Jess Motlow, who ran Jack Daniel’s distillery, returned to their farms, and Lem would breed horses, sell farm equipment, and auction mules. When Prohibition hit, Jim Beam was rumored to store a large barrel of whiskey in his attic for personal use. He did, in fact, put a padlock on the doors of his Kentucky distillery.
Many professionals within the industry had hoped Prohibition would be temporary insanity, not stretch out for over a decade.
Bootlegging flourished, but Beam didn’t think selling whiskey was worth going to jail. “He tried his hand at farming in Florida, which he did miserably at,” says Fred Noe, seventh-generation master distiller at Beam. His ancestor didn’t fare much better at coal mining in eastern Kentucky, nor when he tried to sell limestone rock.
Just down the road, the Samuels family (which now produces Maker’s Mark) got into the banking business, but their timing was terrible as they opened their doors just weeks before the Wall Street crash of 1929. Leslie Samuels also placed a bet on the auto industry but failed at that, too. The family got back into the business only when his son, William, returned from World War II and went back to working in a distillery because his restlessness was driving his wife crazy.
“She decided he needed a job,” says Maker’s Mark chairman emeritus Bill Samuels Jr., the grandson of Leslie. Samuels Jr.’s father created the Maker’s Mark liquid, while his mother, Margie, conceptualized the bottle’s melted wax top.
Marge and Bill Samuels Sr. of Maker’s Mark. Maker’s Mark
Only six distilleries in Kentucky were lucky enough to remain in business by securing medicinal licenses. Old Forester was among the lucky few, but for most of Prohibition, it sold depleting stock. It also acquired a peer, Early Times, to secure additional inventory. “We were the first legal distillery to open after repeal,” says Campbell Brown, president and managing director of Old Forester.
The American whiskey industry was devastated by the years of Prohibition. Whiskey requires years of aging in barrels, so most of the stuff sold after repeal was of poor quality. “All of a sudden, Prohibition ends,” Brown adds. “Demand in the United States is immediate, but there’s very little aged inventory.”
Whisky from Scotland and Canada advantageously poured into the market. Americans needed capital to build barrels and buy bottles, but they didn’t have adequate resources with the nation suffering from the Depression. It isn’t entirely a coincidence that the company that makes Old Forester, Brown-Forman, went public in 1933 to raise proceeds and rebuild. Brown-Forman, which also makes Jack Daniel’s, is the only major publicly traded American spirits maker in existence today.
Busch ginger ale AB InBev
World War II would interrupt production again, as the government restricted the use of corn for the war effort. The Motlow family business didn’t fully recover until the 1950s, when singer Frank Sinatra provided unpaid endorsements by lauding Jack Daniel’s as the best booze in the world.
And while half of the nation’s breweries failed to reopen after repeal, a few notable names managed to stay afloat. Anheuser-Busch sold soda, carbonated coffee- and tea-flavored drinks, and a nonalcoholic cereal beverage called Bevo. The operation made ice cream, refrigerator cabinets, and other goods that it could legally sell.
“We were trying anything we could to keep our employees employed, bottling up to date, and keep in business,” says Tracy Lauer, Anheuser-Busch’s archivist.
Bevo was a nonalcoholic malt beverage, or near beer, brewed in the United States by Anheuser-Busch, starting during the early 20th century. AB InBev
Anheuser figured Prohibition wouldn’t last forever, but the company didn’t anticipate that so many Americans would be willing to break the law to drink. In fact, studies have shown that consumption actually increased as Prohibition dragged on. Taste buds changed too. One of the brewer’s earliest comeback ads was called “The Budweiser Test,” asking drinkers to try the brand for five days straight before going back to the beverages they had during Prohibition, which were overly sweet.
Sales seesawed wildly in those years. One million barrels were produced in 1901. But by 1919, production was at essentially zero. A new packaging innovation—Budweiser started selling in cans for the first time in 1936—helped boost sales to 2 million barrels by 1938. To celebrate repeal, two of August A. Busch Sr.’s sons gave him a six-horse Clydesdale hitch. The Clydesdale, of course, remains a Budweiser marketing mainstay.
Meanwhile, Adolph Coors Sr. foresaw Prohibition, and before it arrived in Colorado in 1916, he took ownership of a porcelain company that made tea sets, cookware, and ashtrays. He also produced malted milk that was sold to Hershey, even for decades after repeal. A nonalcoholic replacement was marketed under the Mannah brand.
And by midnight, when repeal was finally official, Coors had beer ready to ship. “Beer was put in the front of the train, right behind the engine, to ensure they were delivered ASAP to California,” says Coors archivist Heidi Harris.
Coors malted milk Molson Coors
With repeal official as of Dec.5, 1933, Americans flocked to bars. Years of drinking in speakeasies led to fast changes in drinking habits that caught society off guard. “Old retainers in prominent hotels looked puzzled and scratched their heads as they accepted repeated orders for hard drinks,” wrote the New York Times in a piece that reported with alarm that “WOMEN DRINK LIKE MEN.” The concern? Unescorted women were ordering whiskey and soda.
The great irony is that 100 years after Prohibition started, nonalcoholic libations have become trendy. Brands that survived Prohibition are among those actively exploring nonalcoholic drinks. Anheuser-Busch InBev hopes that by 2025, 20% of sales will be nonalcoholic. Molson Coors has invested in nonalcoholic beverage creator and incubator L.A. Libations, while also marketing Miller64 as “dry-ish.” Guinness and Smirnoff maker Diageo has bought stakes in nonalcoholic spirits makers including Seedlip and Ritual Zero Proof.
Why? Well, it turns out Americans don’t need a government intervention to curb their drinking. Beverage alcohol consumption has dropped for three straight years, according to research firm IWSR, as more consumers are mindful about wellness. Meanwhile, nonalcoholic beverages including bottled water, coffee, and kombucha are worth $7 billion more at retail than just four years ago, Nielsen reports.
Still, things could be worse.
“To be honest with you, the last thing any of us want to do is remember Prohibition,” says Samuels Jr. “It was horrible.”
More must-read stories from Fortune:
—The most anticipated books of 2020, according to Goodreads
—Why this sustainable Icelandic salt is becoming a chef favorite
—The magic of the wedding industry’s most exclusive conference
—No-alcohol whiskey and gin alternatives
—The best travel destinations for every season of 2020
Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.


fortune--2020-01-17--Broadsheet readers talk about sharing their salary

Everything you need to know before the 2020 Census starts next week

Good morning, Broadsheet readers! Rep. Ayanna Pressley shares a powerful personal story, Planned Parenthood will spend $45 million on 2020 races, and you tell us what you think about sharing your salaries. Have a wonderful weekend. The Broadsheet will be off for Martin Luther King Jr. Day—we’ll see you here on Tuesday.
– Cold, hard cash convos. Happy Friday! Let’s wrap up the week with some reader feedback. Last week, I asked you whether you’ve shared or asked about salary details with friends or colleagues—and if so, how those conversations went.
Turns out this is indeed a hot topic! Here’s an edited sampling of what we heard from the “pro” camp:
“Last year, a group of my friends and acquaintances (all women) got together over a potluck to talk about salaries, ask each other our ‘dumb’ money questions in a safe space, share our approaches to investing, etc. It was such an incredible experience, we meet once a quarter now! I’ve never felt so secure and smart about my money in my life. I’ve saved more, invested more, and advocated for myself more.” – TZ
“I’m the CFO of an early stage venture capital firm based out of San Francisco, but I live in Seattle… With regard to salary, in the past 12 months I have noticed folks talking about salaries. In the venture world, the firms are small and the finance team even smaller, so there is no internal standard. I have a close group of CFOs at other firms and we have shared our compensation with each other (base, bonus, carry), on an individual level. There are three other colleagues (CFOs) who know my salary… I share my compensation because I am comfortable with what I make and my work arrangement. There is no amount of money that would entice me to take on more stress or hours, so I am fine sharing since I think I have a sweet deal…which is what happiness is all about, your own perception about your specific situation.” – LK
“Inspired by an episode of the HBR Women at Work podcast, I told my mentees with whom I have a trusting relationship that I was on a six-figure salary. (I think there was a bit of shock on the receiving end.)” – JM
However, your responses were far from unanimous. Some readers remain wary of the whole idea:
“Talking about salary outside of immediate family—like my husband and parents—is a foreign concept. I wouldn’t even tell my brother! It’s personal, like asking someone how much they weigh. It’s a number I’m not comfortable sharing… I lead a team of 30 people across the Midwest region and I tell them, ‘Nothing good comes from it, you’ll either be upset or they will, so just keep it to yourself.'” – anonymous
“I’m in my late 30s, and I do not talk salary with friends or colleagues. Why? Well, because it’s never really apples to apples, even among women. One of us might be better at our job, and I’d like to think our compensation reflects that. It could get very awkward, very fast. Plus, I’m just old fashioned. I don’t think it’s anyone’s business except my partner’s. However, with close friends, I’d definitely share advice and info if I trusted them and knew it could never get competitive.” – RR
I also heard from lots of people who are involved in providing resources designed to help women get paid what they’re worth—from DIY industry spreadsheets to consulting and coaching. So, if you’re interested in getting some outside help with this issue, it’s out there. But it’s clear some of you already feel emboldened to share.
Kristen Bellstrom
kristen.bellstrom@fortune.com
@kayelbee
Today’s Broadsheet was produced by Emma Hinchliffe.
ALSO IN THE HEADLINES
- OB/GYN abuse. Evelyn Yang, wife of presidential candidate Andrew Yang, sat down with CNN to tell her story of being sexually assaulted by her gynecologist while she was pregnant with her first child in 2012. The doctor, Robert Hadden, was accused of sexually abusing 19 patients and entered a plea deal with the Manhattan DA that allowed him to avoid prison time—as the New York Times covered as part of a pattern of plea deals in October, before Yang was identified as one of the victims. Yang is part of a group of women suing Hadden and Columbia University, which ran his medical facility, for allegedly enabling Hadden's abuse. Hadden denied Yang's allegations in legal filings, and Columbia is contesting the lawsuit. Yang says she decided to come forward now because she feels "an obligation but also a privilege and a gift" of the national platform of her husband's presidential bid. CNN
- Impeachment watch. Ukraine is investigating whether U.S. Ambassador to Ukraine Marie Yovanovitch was under surveillance before she was dismissed by the Trump Administration, following Rudy Giuliani associate Lev Parnas's testimony to the House Intelligence Committee. The disclosure also put a spotlight on Sen. Susan Collins, who had questioned why the House did not have the material earlier. Meanwhile, impeachment is off to the races in the Senate, with Sen. Martha McSally batting away a CNN reporter as a "liberal hack" and many of the presidential candidates back in D.C. for the proceedings.
- Anchor down. Gap Inc. canceled its planned spinoff of Old Navy, which would have put Old Navy CEO Sonia Syngal at the head of her own Fortune 500 company. Shares surged on news of the decision—and Gap Inc. is still looking for a new CEO. Fortune
- Recording Academy allegations. It's ten days until the Grammy Awards, and the CEO behind the ceremony has been put on leave due to an allegation of misconduct. Deborah Dugan, chief executive of the Recording Academy, became the first woman to lead the organization in August; her appointment was seen as a step forward in the music industry addressing gender bias. The academy says it's conducting a third-party investigation of the allegations. (Dugan couldn't be reached for comment, according to this LAT story.) L.A. Times
MOVERS AND SHAKERS: Nazmin Gupta joined BentallGreenOak as managing director, capital raising and investor relations.
IN CASE YOU MISSED IT
- Bald and brave. Rep. Ayanna Pressley spoke out in an emotional, powerful video about suffering from alopecia; she started to lose her hair last fall and became fully bald just before the House voted to impeach President Trump. "My twists have become such a synonymous and a conflated part of not only my personal identity and how I show up in the world, but my political brand," Pressley says in the video, in which she appears without her wig. "And that's why I think it's important that I'm transparent about this new normal." The Root
- Plan of action. Planned Parenthood will spend $45 million backing 2020 presidential, Congressional, and state candidates in favor of abortion rights. It's the largest electoral push in the organization's history and will focus on battleground and swing states: Arizona, Colorado, Florida, Michigan, Minnesota, New Hampshire, North Carolina, Pennsylvania, and Wisconsin. CNBC
- The secret to better sex scenes. Intimacy coordinators, more and more common in the years after #MeToo, are making sure sex scenes are comfortable and safe on movie and television sets. But—surprise!—they're also making sex scenes better. More specific instructions and attention to performers' needs together are transforming how sex is portrayed on camera. New York Times
- Call of Duty. Johanna Faries is the first—and only—female commissioner of an e-sports league; hers is the new Call of Duty League. The former NFL vice president of club business development faces the test of whether she can bring the burgeoning league to profitability, and she says the sport has as much potential NFL. Fortune
ON MY RADAR
Kat Von D has announced she's selling her makeup brand Cosmopolitan
Aly Raisman confirms she will not compete in 2020 Tokyo Olympics ABC News
When black women go from office pet to office threat Zora
Her sorority sisters suspected she was pregnant. What did Emile Weaver know? Elle
PARTING WORDS
"This isn’t high school. It’s my career."
-Michigan Advance reporter Allison Donahue, 22, in a piece she wrote after state Sen. Peter Lucido told her a group of high school boys "could have a lot of fun with you."


fortune--2020-01-17--U.S. brands think they understand China’s market, but a new report says they don’t

U.S. brands still don’t know enough about China, and they don’t seem to care.
The vast majority (88%) of American marketing leaders actively involved in marketing products and services to consumers in China were extremely confident in their marketing campaigns, according to a new report from Lewis Research. However, only half of the 351 senior American marketers professionals surveyed had designed local strategies specifically for the Chinese market, and almost one in five admitted to having little to no understanding of China’s marketing practices.
“One of the main issues that the report uncovered is senior U.S. marketers’ false belief that they fully understand marketing practices in China,” said Matt Robbins, vice president of insight and research at Lewis Research. “The motivators that spur consumer purchasing are entirely different than those of U.S. consumers, and knowing the cultural principles behind those motivations will be key to US marketers having success in China.”
Indeed, for U.S. brands breaking into the Chinese market, it is almost like entering an entirely different world.
Chinese shoppers are even more online than their U.S. counterparts, as China now accounts for over half of the world’s online retail sales. Yet Chinese consumers are communicating and purchasing goods through entirely different platforms and channels. Where there is Amazon, Facebook, and Google in the U.S., there is Alibaba, WeChat, and Baidu in China.
In total, China’s e-commerce industry is now worth almost $2 trillion per year, which makes it the largest e-commerce market in the world—and over three times the size of the next largest market in the U.S., according to study released last June.
This means that to be successful in China requires at least some fluency in Chinese e-commerce platforms (such as Alibaba or JD.com) and Chinese social media platforms like WeChat. However, Lewis’ study reports that up to a third of U.S. marketers in China know little to nothing about China’s e-commerce industry.
More broadly, the operating environment in China for U.S. brands has only gotten more difficult in the last few years.
While a preliminary trade deal has been agreed in recent days, years of economic blows traded between the two major powers have made it a difficult environment for Chinese and U.S. companies alike to work across the ocean.
Moreover, recent anti-government protests in Hong Kong, where demonstrators have engaged in over six months of protests in defiance of Beijing’s influence in the city, have created a uniquely tricky environment for U.S. companies, which need to somehow balance Beijing’s interests with international support for the uprising.
From the N.B.A.’s dust up with the Chinese government over Houston Rockets’ General Manager Daryl Morey’s tweet supporting the Hong Kong protests, to Starbucks getting caught (literally) in the crossfire on the streets of the Special Administrative Region, this issue has been inescapable for major U.S. brands (the list of those affected also includes Apple, Vans, and Tiffany’s).
In the midst of these controversies, China’s consumers have been increasingly turning towards domestic brands in lieu of their foreign counterparts. In October, Fortune documented how Chinese apparel brand Li Ning fortunes were on the rise after amid fallout from the NBA’s controversies in China. This is only one example of a widespread inward push towards supporting domestic over foreign brands.
Syaru Shirly Lin, a world politics professor at the University of Virginia, told Fortune this week, “Businesses walk this impossible tight rope, they are at the front line of this China dilemma.”
More must-read stories from Fortune:
—Why the U.K. is bailing out regional airline Flybe when it’s let others fail
—The Carlos Ghosn affair: A look inside the motivations of a fugitive CEO
—Experts doubt China can fulfill its targets in “Phase One” of the U.S. trade deal
—Laws meant to close down tax havens and shut loopholes could have opposite effect
—7 M&As that defined a decade of dealmaking and reshaped the economy
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-17--Letters from readers: The toughest job, health-care futures and BlackRock’s sustainability promises

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
It’s Friday, so some feedback.
On our suggestion that new Boeing CEO David Calhoun may have the toughest job in America, JR writes:
“The toughest job is one in which someone struggles through misery doing repetitive tasks for low wages, in rough environments… The Boeing CEO job is undeniably a challenge, but it can be a great experience, too.”
On Blackrock CEO Larry Fink’s commitment to make sustainability core to the firm’s investment products, DD was skeptical:
“So considering the so-called climate change reassessment in the financial community, none of the captains of financial management will be buying homes with views of bays, sounds, gulfs, seas or oceans? I doubt that.”
But CV thought Fink was understating the situation:
“I believe the economic landscape and rationale for investing in sustainable energy and businesses is somewhat understated by the BlackRock CEO… We are indeed at a tipping point when fiduciary duty is synonymous with de-risking investment portfolios by divesting from fossil fuel companies.”
And finally, LHS had this to say about our Big Idea of creating a futures market for health care:
“Your big Idea seems nuts. I know of no one anywhere who thinks that futures markets stabilized commodities… If we have learned anything in the last dozen years it’s that more derivatives that permit more speculation don’t mean more safety and stability.”
Well, we aim to provoke debate! LHS, by the way, is former Treasury Secretary Lawrence Summers, who has given CEO Daily permission to use his name, and never shies from giving his opinion.
Finally, this nice note from EM, about Fortune’s decision to impose a paywall:
“I’m sure it was a tough decision re paywall, but surely it’s the only way forward in this media/noise landscape.”
More news below. I’m on my way to the World Economic Forum in Davos, where I’ll be reporting all next week.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Microsoft pledge
Microsoft has promised to remove from the environment "all of the carbon" it has emitted during its 45-year history, by 2050. That's not just a carbon-neutral pledge—it's a carbon-negative pledge. Microsoft president Brad Smith: "When it comes to carbon, neutrality is not enough." Environmental campaigners are delighted. BBC
Trillion-dollar club
Alphabet has become the fourth U.S. firm to gain a valuation of $1 trillion, after Apple, Microsoft and (briefly) Amazon achieved the feat over the last year and a half. Alphabet's Thursday valuation came in the context of a rally for big tech stocks this month. Wall Street Journal
Digital tax
EU Trade Commissioner Phil Hogan said the coming days will be crucial in the race to reach an international agreement on the taxation of big-tech multinationals. If the efforts fail, the U.S. could move ahead with tariffs on France, over its implementation of a national tax on the local revenues of Google et al. As the EU sees trade as a collective issue, that would be a big deal for the whole bloc. Bloomberg
Equal pay
Citigroup has hiked the salaries of some of its female employees after recording a massive 27% disparity between the average pay of female workers and that of their male peers for 2019. The shortfall was 29% the previous year; Citigroup has also slightly improved the pay gap for minorities working for it in the U.S. CNBC
AROUND THE WATER COOLER
High-profile fugitives
In the context of the Carlos Ghosn saga, Fortune's Shawn Tully looks back at the tale of top commodities trader Marc Rich, who managed to dodge capture (over a massive alleged tax fraud) for the best part of two decades, before being controversially pardoned by President Bill Clinton. Is Ghosn the new Rich? Fortune
Chinese growth
China's GDP grew 6.1% in 2019, down from 6.6% the previous year and marking the slowest pace of growth in the country for 29 years. The causes range from slowing retail sales and exports, and weakening investment in infrastructure and factory construction. Nikkei Asian Review
Missile casualties
Although the U.S. initially stated that last week's Iranian missile attack on an airbase in Iraq caused no casualties, it turns out that several U.S. service members were injured. The attack was a reprisal for the American assassination of Iranian general Qasem Soleimani, and its limited nature helped both sides step back from further escalation, for now. The service members apparently sustained concussions, the symptoms of which only became apparent days after the incident. CNN
Facial recognition
A leaked European Commission document suggests the EU may impose a temporary ban on the use of automated facial recognition systems in public spaces by both public and private concerns. The move could bring the EU executive into conflict with members such as Germany and France, both of which are planning surveillance systems that use the technology. Euractiv
This edition of CEO Daily was edited by David Meyer.
THE FUTURE OF FORTUNE IS HERE
In 1930, Fortune published its first-ever issue, featuring the goddess Fortuna and her wheel on the cover. This year, on our 90th anniversary, we’re celebrating with a new Fortune. Here’s what’s in store for you:


fortune--2020-01-17--World leaders finally accept the economic risk of climate change, but business chiefs are a holdout

Ask a broad swathe of leaders in the public, private, and academic sectors what the most likely risks to the global economy are, and the top five will be variations on environmental destruction.
But ask a group only comprised of global business leaders the same question—and those same concerns won’t even crack the top 10.
That apparent gap is a major takeaway from the World Economic Forum’s Global Risk Report, released on Wednesday, which offers a yearly round-up of “what to worry about now”. Despite notable pro-sustainability rhetoric from business leaders like BlackRock CEO Larry Fink, the risks associated with climate change seem to have not yet filtered down to the average corner office.
Disaster menu
With disasters running the gamut from terrorist attacks to water shortages and political polarization, reading the WEF report, which is compiled using input from a broad group of experts across the public and private sectors, is akin to paging through a menu of the world’s worst anxieties—laid out in colorful infographics.
But this year, those disparate worst-case-scenarios appeared to coalesce into one, overarching message of urgency: the most likely risk by every estimate is the one posed by failing to address climate change before it takes out the global economy—and us.
Though environmental risks have repeatedly made appearances in past years, 2020 marks “the first time in the survey’s history that one category has occupied all five of the top spots,” noted Børge Brende, president of the WEF.
In terms of the risk most likely to cause the greatest impact, respondents chose “climate change failure” for the No. 1 spot—”weapons of mass destruction” was No. 2—followed by a list of further environmental meltdowns.
When it comes to climate change, “I think the world is waking up to the fact that the status quo as we know it will not remain,” said Peter Giger, the group chief risk officer at Zurich Insurance, which produced the report alongside consultancy Marsh & McLennan. “And we [are starting] to bear real costs of inactivity.”
Business leaders
That message of urgency was in marked contrast to the WEF’s report on Regional Risks to Doing Business Report, released in October 2019, where the fact that business leaders didn’t flag environmental dangers among the top risks suggested a “critical blind spot,” Wednesday’s report said.
In the business leaders survey, the global risks were dominated instead by concerns of a “fiscal crisis” or an “energy price shock”—worries that didn’t even crack the top 10 in the broader survey. (When the responses were broken down by region, however, environmental concerns appeared in the top 5 for leaders in East Asia and the Pacific, for example.)
Nonetheless, the WEF noted that those business leaders that are “exposed” to climate change discussions with their peers “become more aware of climate risks and thus more likely to act”—suggesting that part of the mismatch is due to a lack of business leaders willing to speak out about how climate change will affect their companies.
The deep divide is particularly notable because of the momentum that appears to be building behind businesses changing policies because of climate change—most notably, BlackRock CEO Larry Fink’s announcement earlier this week that the company would reshape its strategy, in part by dropping investments that have high sustainability-related risks.
“Climate change has become a defining factor in companies’ long-term prospects,” he wrote in a letter to executives. “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”
The announcement didn’t come out of nowhere—Fink has been steadily advising CEOs that the impact of climate change on global finance will be immense—and it may not be quite as dramatic as it appears, given BlackRock’s reliance on index funds which themselves may not exclude companies that aren’t dubbed sustainable.
But it’s still a declaration that “business as normal” is no longer working, and investors can no longer afford to ignore, or minimize, the risks.
Giger, who declined to comment on BlackRock’s specific plan, nonetheless made the case that the link between environmental risks and business dangers are pressing.
“If the global economy collapses based on climate change, it is bad for our business,” he said. “I mean, there is no other way to put it.”
More must-read stories from Fortune:
—U.S.-Iran standoff pushes Saudi Aramco shares into correction territory—and analysts expect it to drop further
—Greenpeace ranks China’s tech giants on renewable energy
—2020 Crystal Ball: Predictions for the economy, politics, technology, and more
—Climate change is hitting the insurance industry hard: How Swiss Re is adapting
—The Future 50 sustainability all stars
Subscribe to The Loop, a weekly look at the revolutions in energy, tech, and sustainability.


fortune--2020-01-17--The U.S. trade war slowed China’s 2019 economic growth to its weakest pace in nearly 30 years

China’s gross domestic product grew 6.1% in 2019, the country’s slowest rate of economic growth since 1990.
The GDP was in line with the official target range of 6% to 6.5% for 2019, a year where economic growth was marred by the effects of the U.S.-China trade war.
“China’s growth in 2019 was affected considerably by the trade war with the U.S., which brought down exports and, via weakened sentiment and confidence, weighed on investment in manufacturing,” said Louis Kujis, chief Asia economist at Oxford Economics.
China’s trade surplus with the U.S. shrank in 2019 after multiple rounds of U.S. tariffs on Chinese goods.
The 6% baseline
The 6.1% figure came in just below the International Monetary Fund’s forecast of 6.2% for 2019. The third and fourth quarters of 2019 had the lowest growth rates of the year at 6%. China’s GDP in 2018, by comparison, grew 6.6%.
Kujis says the impact of the ‘phase one’ partial trade agreement, signed on Wednesday in Washington, “is not a game changer,” but represents a positive development in U.S.-China relations, mitigates uncertainty, and helps investor sentiment in China and the wider region.
“[The trade deal] makes fruitful engagement more likely and reduces the risk of escalation and severe decoupling,” Kujis said.
Oxford Economics changed its 2020 GDP forecast for China from 5.7% to 6% as a result of the partial trade agreement.
Other analysts are less optimistic. The credit insurance company Euler Hermes forecasts 5.9% GDP growth in 2020 and 5.8% in 2021. The World Bank forecasts that the GDP growth rate will continue to decrease, predicting 5.9% for 2020, while the IMF projects 5.8%. All those estimates slip below 6%, which is widely described as a “psychologically important” baseline.
China’s State Grid, the country’s largest utility company, known for its bold economic forecasts, cautioned that in a “worst case scenario,” China’s GDP could fall to as little as 4% over the next five years. An official from the state-owned company told the Financial Times, “We used to be more bullish than the market consensus[.] Now we are doing the opposite.”
Few bright spots
Two economic bright spots in December 2019 were an 8% jump in retail sales and a growth of 6.9% in industrial production, one whole percentage point above analyst estimates.
But most of the economic news was less positive.
Besides the trade dispute, 2019 was a record year for Chinese companies defaulting on bond payments, a trend that S&P estimates will continue in 2020.
Trade uncertainties and a broader economic slowdown also resulted in a “hit on investment” in China and other Asian countries, according to a Jan. 9 economic outlook from the credit ratings agency Moody’s, which forecasts slower growth in the whole Asia Pacific region, partially due to a drop in exports to China, where economic downturn has dented consumer demand.
China’s Internet startups are struggling with cash too—venture capital investment in tech companies dropped 51.5% in the last quarter of 2019.
Finally, last year marked the lowest number of births in China since 1961. The low rate comes three years after the government halted the long running one-child policy in an as yet unsuccessful effort to raise the birth rate and avoid the development of an aging and contracting population. Rising living costs, more women joining the workforce, and changing social attitudes are all contributing to the decrease.
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fortune--2020-01-17--Could Fitbit be a flu warning tool?

Could Fitbit be a flu warning tool?

This is the web version of Brainstorm Health Daily, Fortune’s daily newsletter on the top health care news. To get it delivered daily to your in-box, sign up here.
Good afternoon, readers.
Many of you likely have a Fitbit around your wrists to track those steps and all the flights of stairs climbed. A new study published in the journal Lancet suggests that it could even help suss out the flu.
Using data from nearly 50,000 Fitbit users across five states, prominent digital health experts such as Eric Topol and Jennifer Radin found that collecting the heart rate and sleep data from the devices could alert users—and care providers—to possible influenza-like illness (ILI) symptoms.
“We found the Fitbit data significantly improved ILI predictions in all five states [examined],” wrote the study authors.
In fact, the researchers found, using the Fitbit data provided a major boost in state health authorities’ ability to predict the progress of flu epidemics.
This is likely linked to the number of Fitbit users out there—and, according to the report, the results were comparable to the Centers for Disease Control’s own methods of disease surveillance.
It’s still unclear if Fitbit devices will prove just as effective as more comprehensive surveillance methods for keeping track of disease outbreaks. But it’s certainly an intriguing early prospect.
Read on for the day’s news.
Sy Mukherjee
sayak.mukherjee@fortune.com
@the_sy_guy
DIGITAL HEALTH
Why health care needs a futures market. Former Biden Cancer Initiative chief Greg Simon and Wall Street vet Jeff Feldman are out with a piece on Fortune today on the need for a futures market in health care. "Capital market tools can do for health care what they did for interest rates and energy—provide stability and reduce prices—all of which is in the interest of patients. But so far, those tools don’t exist for health care," they write. You can read the whole piece here. (Fortune)
Pfizer, Insilico strike AI drug discovery deal. Drug giant Pfizer has reached a partnership with AI partner Insilico in order to discover new drugs. It's a bit unclear which specific drugs (or disease categories) the companies will pursue—but it underscores the general trend of big pharma companies linking up with AI startups to discover new treatments in the face of plummeting pharma ROIs. (Xconomy)
THE BIG PICTURE
Binge drinking is getting worse. The CDC is out with a new report finding that the rate of binge drinking has fallen slightly—but is also getting worse in some ways. To explain: The overall rate of binge drinking itself has fallen. However, those who do admit to binge drinking are actually drinking even more. (NBC News)
Philip Morris International's CEO on the need for vaping regulation. Philip Morris International CEO André Calantzopoulos writes that the vaping industry is, indeed, in need of regulation. You can read his piece on Fortune—but there's a specific strategic reason for this, as we've previously reported. PMI has read the writing on the wall amidst the various controversies around vaping and has centered its future strategy on heat-not-burn technology for tobacco (for more on that, revisit my feature on this issue from earlier this year). (Fortune)
REQUIRED READING
Fortune Poll: Wells Fargo Is the Big Bank That Investors Like Least, by Lance Lambert
Meet the Woman Building the Backbone of the Cannabis Industry, by Nicole Gull McElroy
Commentary: To Build a More Diverse Workforce, Companies Should Focus on Tackling Student Debt, by Kristal Cobb & John Fillmore
Sign up for other Fortune newsletters.


fortune--2020-01-17--We asked 6 experts to parse the China trade agreement. Here’s what the U.S. won (and lost)

Markets finally got this week the signed phase 1 U.S.-China trade deal they had waited for. “The market impact is largely the rally we’ve seen over the past three months,” wrote Greg McBride, chief financial analyst at Bankrate.com, in a note to Fortune. It’s a “cloud of uncertainty” cleared from the U.S. and global economy.
Experts in trade business and law who reviewed the agreement—which was only made available after the signing— tell Fortune the first phase is an important step. But much remains nebulous, particularly for enforceable tangible gains.
Upside
The document is “a very, very good start,” said Usha C. V. Haley, W. Frank Barton distinguished chair in international business, professor of management, and director of the Center for International Business Advancement at Wichita State University. “It reduces uncertainty and allows companies to breathe a sigh of relief.”
“The Chinese don’t get everything they want,” adds Juscelino Colares, Schott-van den Eynden professor of business law, School of Law associate dean for global legal studies, and professor in the department of political science at the College of Arts and Sciences, Case Western Reserve University. “We don’t get everything we want. But we get negotiations without the threat of continued escalation.”
The first focus in the agreement is on intellectual property disputes—patent infringement, forced technology transfers by U.S. companies entering joint ventures, and counterfeit goods. “I was surprised to see it was front-loaded with all these principles,” said Nicole Lamb-Hale, managing director of business intelligence and investigations at risk management firm Kroll and a former assistant commerce secretary in international trade administration during the Obama administration. “There are a lot of aspirational goals and statements.”
Chinese officials have acquiesced to similar joint understandings in the past. But the addition of “hard law language”—prescriptive and directive verbs like “shall”—and “a reasonably rigorous effort at a credible dispute mechanism” are new and notable, said Raj Bhala, distinguished professor, University of Kansas Law School and senior advisor, Dentons.
Bhala called the trade agreement the “broadest and deepest” between the two countries. Both sides also largely checked English and Chinese versions of the text for “exactly the same language” and meanings, called scrubbing. “During the legal scrubbing process is where disputes can often arise,” Bhala said, pointing to negotiations during the Spring of 2019 when China “deleted 30 pages.”
There is also $200 billion over 2017 export levels of planned sales of agricultural and industrial goods between 2020 and 2021. The table below, from the agreement, shows the numbers.
With high-level good news, though, comes less promising details.
Downside
A large concern may be the “erosion of a norm,” Lamb-Hale said. “The U.S. doesn’t ordinarily make agreements with market distortions [like mandated import levels].” Future negotiations with other countries may suffer as trade partners demand such fixed guarantees rather than trade driven by market needs.
“At some point President Trump will no longer be in office,” Lamb-Hale said. “At that point, what will we be left with as we erode these bedrock norms? We are losing our moral authority to say, ‘You should let the market do this.'”
U.S. 2017 exports to China totaled $129.8 billion, according to Census Bureau figures—a record. But the agreement calls for a 2020 target of $206.5 billion and a 2021 target of $253 billion, numbers some experts find unrealistic.
“That would be a tremendous increase over the 2017 baseline for China to absorb,” Bhala said. It’s unclear whether China really needs, or would be willing to, consume more. Other options include cutting imports from other countries, or, as most countries do, keeping reserves of products like food and oil.
Whatever the case, multiple experts were concerned that fixed purchase targets could raise multiple risks. One is trade-related lawsuits. If China reduces imports from other trading partners to match the goals, that could lead to legal action by other countries against China and the U.S. under World Trade Organization rules.
A second risk is excess market concentration for U.S. producers. For example, total agricultural export value to all other nations in 2017 was $138.2 billion, according to Department of Agriculture numbers. China took $19.6 billion, or 14.2%. Under the agreement, China is supposed to buy $32.1 billion this year and $39.1 billion next.
“Basically it would divert almost the entire soybean crop we export to everybody to China,” said John Scannapieco, chair of the global business team at law firm Baker Donelson. “We’re shrinking our markets. We should be helping farmers to diversify.”
As the trade was has shown, without sufficient diversification, producers risk of a sudden reduction of purchases, for whatever reason, which can be disastrous.
The agreement ignores some other long-standing complaints that U.S. businesses have had. “The huge elements missing from the negotiating rooms are subsidies and structural changes [like state-owned businesses],” Haley said. “The Chinese refuse to take them on.”
And while the agreement seems to address complaints that Chinese companies steal intellectual property from U.S. firms, often with the knowledge of the Chinese government, the experts we spoke to said it has big loopholes that might allow the practices to continue.
The agreement also doesn’t mention tariff levels. Although some of the more recent tariffs will be cut, “tariffs remain on the bulk of $360 billion of Chinese goods” imported annually, Haley said. And there are no included provisions for future negotiations.
Finally, if there is a dispute on any point in the agreement, the experts Fortune talked to didn’t see that there was much either nation could do to enforce the deal. Should one side bring a complaint, the mechanism to resolve the problem involves a back-and-forth series of negotiations that either result in a solution or, in the worst case, sees the complaining country drop out of the agreement.
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—What we can learn from the man who tried to sell the Eiffel Tower—twice
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—Retailers reuse and recycle the way to increased growth
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Subscribe to Fortune’s forthcoming Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-17--Amazon Prime’s numbers (and influence) continue to grow

Amazon Prime continues to grow, a recent survey shows. According to one industry watcher, the service is one of the reasons American shoppers are increasingly comfortable shopping online.
Amazon Prime ended 2019 with 112 million U.S. users, according to Consumer Intelligence Research Partners (CIRP). That’s up from just over 100 million at the end of 2018 and more than double the 50 million Americans who were using Prime at the end of 2015.
CIRP’s data, collected in a survey of American shoppers between September and December 2019, measures the total number of Prime users, not individual subscriptions, said CIRP co-founder Josh Lowitz. Some households have more than one person using the same Prime membership to order packages and CIRP’s figures include all of the people in a household who share an account.
Amazon has been loath to share too much detail on Prime and its subscriber numbers. CEO Jeff Bezos shared Prime numbers for the first (and only) time in 2018 when he announced that the company had 100 million Prime subscribers worldwide.
Wedbush analyst Michael Pachter told Fortune on Thursday that he estimates there are now 156 million Amazon Prime subscribers worldwide, each paying an average of $100 per year. He believes there are between 90 million and 95 million Prime subscribers in the U.S.
The CIRP study says the way people pay for Prime is changing. After Amazon launched a monthly subscription plan in 2016, 21% of Prime subscribers were paying monthly for the service, according to CIRP data. Now, 52% of subscribers opt for the $12.99 per month plan instead of Amazon’s annual Prime subscription rate of $119.
CIRP co-founder Michael Levin suggested the shift in monthly subscriptions has helped buoy Amazon Prime subscriptions.
“It was a barrier for some customers, like ones that can’t or don’t want to afford the upfront cost of an annual membership, or those that aren’t sure they will use all the Prime membership benefits,” Levin said of annual subscriptions. “So, removing that barrier opened up a significant portion of the U.S. consumer marketplace.”
But the jump in Prime subscriptions also says something about the American consumer, Levin said. Prime’s array of services, including free two-day shipping, access to the Amazon Prime Video streaming service, and free returns, are all things that today’s American shopper wants.
There’s “increasing comfort and trust in e-commerce” because of Prime, Levin said.
Though analysts believe the future looks bright for Amazon Prime, CIRP cautions that Prime user growth is starting to slow in the U.S.
“At some point Amazon will plateau, and will add consumers at approximately the rate at which the economy adds adults,” Levin says. “[We’re] not sure how far off that is, although the slowing in growth in the past couple of years indicates it might be sooner rather than later.”
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fortune--2020-01-16--NBC streamer with original series to start at $5 a month

NBCUniversal will make a free version of its upcoming Peacock streaming service available, but it will charge some viewers at least $5 a month for original videos, returning broadcast series and a sneak peak at late-night shows.
Networks typically offer free access to TV episodes the day after their broadcasts through their own apps and Hulu. Peacock will offer next-day access to first-year shows for free. For returning shows, it will be part of a premium offering that costs $5 with ads and $10 without. That’s in line with what many rivals cost.
Premium subscribers will also get late-night shows from Jimmy Fallon and Seth Meyers a few hours before they’re on TV.
The ad-supported version will be free for 24 million households that get TV subscriptions through Cox or either TV or internet through Comcast, NBCUniversal’s parent company. They can pay $5 a month to remove ads.
The service launches April 15 for Comcast’s Xfinity X1 and Flex customers and July 15 for everyone else.
There is an influx of new streaming services from the country’s biggest tech and entertainment companies as people increasingly turn away from watching live network TV and cut their cable subscriptions. These new offerings model themselves on Netflix: a catalog of movies and TV shows available whenever and wherever people want to watch, for a monthly fee. They’ll have to fight for consumers’ attention and money.
Hulu, in which Comcast is a silent minority owner, and Quibi, an upcoming short-video streaming service that’s backed by Hollywood studios, also have ad and ad-free options.
By contrast, Apple TV Plus, Disney Plus and the upcoming HBO Max from AT&T’s Warner Media don’t have ads at all, though AT&T has talked about having some in the future.
All the costs for streaming services add up, and surveys suggest people don’t want to subscribe to all of them, especially with many existing streaming options already, including Netflix, Amazon Prime and Hulu. Prices range from $5 a month (Apple TV Plus, Quibi with ads) to $15 (HBO Max). Netflix’s most popular plan costs $13.
Peacock will have 15,000 hours of programming, including original content and stuff from the NBC library like “The Office,” which leaves Netflix for Peacock in 2021. Not all of Peacock’s content will be exclusive. Original shows will include a series based on a true-crime podcast that stars Alec Baldwin and Christian Slater. Peacock also plans to remake sci-fi favorite “Battlestar Galactica.” And Michael Schur, the creator of “Parks and Recreation” and “The Good Place,” is producing a comedy called “Rutherford Falls.”
Media analyst Rich Greenfield said he considers Peacock a “digital version of a broadcast network,” with a better consumer experience than traditional TV.
CBS All Access, launched in 2014, functions in some ways as a digital version of CBS and remains a relatively small streamer.
Greenfield said crucial decisions for NBCUniversal will be where it puts its TV shows and movies. For example, should its best series start on TV and go to Peacock, or launch right on Peacock to lure subscribers?
Comcast has said that it will invest $2 billion in Peacock in its first two years of operation, and it predicts losing money for years. It says it’ll break even by the fifth year. It hopes to have 30 to 35 million accounts by 2024.
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fortune--2020-01-16--Groundbreaking malaria vaccine test underway in 3 African nations

A pinch in the leg, a squeal, and a trickle of tears. One baby after another in Malawi is getting the first and only vaccine against malaria, one of history’s deadliest and most stubborn of diseases.
The southern African nation is rolling out the shots in an unusual pilot program along with Kenya and Ghana. Unlike established vaccines that offer near-complete protection, this new one is only about 40% effective. But experts say it’s worth a try as progress against malaria stalls: Resistance to treatment is growing and the global drop in cases has leveled off.
With the vaccine, the hope is to help small children through the most dangerous period of their lives. Spread by mosquito bites, malaria kills more than 400,000 people every year, two-thirds of them under 5 and most in Africa.
Seven-month-old Charity Nangware received a shot on a rainy December day at a health clinic in the town of Migowi. She watched curiously as the needle slid into her thigh, then twisted up her face with a howl.
“I’m very excited about this,” said her mother, Esther Gonjani, who herself gets malaria’s aches, chills, and fever at least once a year and loses a week of field work when one of her children is ill. “They explained it wasn’t perfect, but I feel secure it will relieve the pain.”
There is little escaping malaria—“malungo” in the local Chichewa language—especially during the five-month rainy season. Stagnant puddles, where mosquitoes breed, surround the homes of brick and thatch and line the dirt roads through tea plantations or fields of maize and sugar cane.
In the village of Tomali, the nearest health clinic is a two-hour bike ride away. The longer it takes to get care, the more dangerous malaria can be. Teams from the clinic offer basic medical care during visits once or twice a month, bringing the malaria shot and other vaccines in portable coolers.
Treating malaria takes up a good portion of their time during the rainy season, according to Daisy Chikonde, a local health worker.
“If this vaccine works, it will reduce the burden,” she said.
Resident Doriga Ephrem proudly said her 5-month-old daughter, Grace, didn’t cry when she got the malaria shot.
When she heard about the vaccine, Ephrem said her first thought was “protection is here.” Health workers explained, however, that the vaccine is not meant to replace antimalarial drugs or the insecticide-treated bed net she unfolds every night as the sun sets and mosquitoes rise from the shadows.
“We even take our evening meals inside the net to avoid mosquitoes,” she said.
It took three decades of research to develop the new vaccine, which works against the most common and deadly of the five parasite species that cause malaria. The parasite’s complex life cycle is a huge challenge. It changes forms in different stages of infection and is far harder to target than germs.
“We don’t have any vaccines against parasites in routine use. This is uncharted territory,” said Ashley Birkett, who directs PATH’s Malaria Vaccine Initiative, a nonprofit that helped drugmaker GlaxoSmithKline develop the shot, brand-named Mosquirix.
The bite of an infected mosquito sends immature parasites called sporozoites into the bloodstream. If they reach the liver, they’ll mature and multiply before spewing back into the blood to cause malaria’s debilitating symptoms. At that point, treatment requires medicines that kill the parasites.
Mosquirix uses a piece of the parasite—a protein found only on sporozoites’ surface—in hopes of blocking the liver stage of infection. When a vaccinated child is bitten, the immune system should recognize the parasite and start making antibodies against it.
Scientists also are searching for next-generation alternatives. In the pipeline is an experimental vaccine made of whole malaria parasites dissected from mosquitoes’ salivary glands but weakened so they won’t make people sick. Sanaria Inc. has been testing its vaccine in adults, and is planning a large, late-stage study in Equatorial Guinea’s Bioko Island.
And the U.S. National Institutes of Health soon will start initial tests of whether injecting people periodically with lab-made antibodies, rather than depending on the immune system to make them, could offer temporary protection during malaria season. Think of them as “potentially short-term vaccines,” NIH’s Dr. Robert Seder told a recent meeting of the American Society of Tropical Medicine and Hygiene.
For now, only babies in parts of Malawi, Kenya, and Ghana are eligible for the Mosquirix vaccine. After the vaccine was approved in 2015, the World Health Organization said it first wanted a pilot roll-out to see how well it worked in a few countries—in real-world conditions—before recommending that the vaccine be given more widely across Africa.
“Everyone is looking forward to getting it,” said Temwa Mzengeza, who oversees Malawi’s vaccine programs. Those eager for the shots include her husband, whom she had to stop from trying to get them, she said.
Mzengeza used to come down with malaria several times a year until she started following her own advice to sleep under a net every night. Unlike many other kinds of infections, people can get malaria repeatedly, building up only a partial immunity.
In the pilot program that began last year, 360,000 children in the three countries are meant to be vaccinated annually. The first dose is given at about age 5 months and the final, fourth booster near the child’s second birthday.
Experts say it is too early to know how well the vaccine is working. They’re watching for malaria deaths, severe infections, and cases of meningitis, something reported during studies but not definitively linked to the vaccine.
“To do something completely new for malaria is exciting,” said researcher Don Mathanga, who is leading the evaluation in Malawi.
The rainy season has brought new challenges, making some rural roads impassable and complicating efforts to track down children due for a shot. So far in Malawi, the first dose reached about half of the children targeted, about 35,000. That dropped to 26,000 for the second dose and 20,000 for the third.
That’s not surprising for a new vaccine, Mzengeza said. “It will pick up with time.”
At the health clinic in Migowi in Malawi’s southern highlands, workers see signs of hope. Henry Kadzuwa explains the vaccine to mothers waiting at the clinic. He said there was a drop in malaria cases to 40 in the first five months of the program, compared to 78 in the same period in 2018.
Even though he wishes his 3-year-old daughter, Angel, could receive the vaccine, “it’s protecting my community. It also makes my work easier,” Kadzuwa said. The Migowi area has one of the country’s highest rates of malaria, and a worn paper register in the clinic’s laboratory lists scores of cases.
At the clinic, Agnes Ngubale said she had malaria several years ago and wants to protect her 6-month-old daughter, Lydia, from the disease.
“I want her to be healthy and free,” she said. “I want her to be a doctor.”
And she has memorized the time for Lydia’s second dose: “Next month, same date.”
More must-read stories from Fortune:
—25 ideas that will shape the 2020s
—Why it’s time for a futures market in health care
—What we can learn from the man who tried to sell the Eiffel Tower—twice
—Food-delivery services feeling pressure to finally turn a profit
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Subscribe to Fortune’s forthcoming Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-16--Gap sinks plan to spin off Old Navy

Gap sinks plan to spin off Old Navy

Gap Inc., the apparel retailer that’s searching for a new chief executive officer, said it will no longer seek to establish Old Navy as a standalone company. The shares surged in late trading.
The plan, announced under previous CEO Art Peck, was to spin off Old Navy on the premise that its fast growth wasn’t being reflected in Gap’s stock price. However, Old Navy’s performance has deteriorated in recent quarters and Peck was removed as CEO late last year.
“The work we’ve done to prepare for the spin shone a bright light on operational inefficiencies and areas for improvement,” said Robert Fisher, Gap’s interim CEO. “We have learned a lot and intend to operate Gap Inc. in a more rigorous and transformational manner that empowers our growth brands, Old Navy and Athleta, and appropriately focuses on profitability for Banana Republic and Gap brand.”
Gap shares jumped as much as 15% in late trading. The company said it expects full 2019 profit to be “moderately above” its previous projection of $1.70 to $1.75 a share because of “better than anticipated promotional levels over the holiday period.”
The company also announced that Neil Fiske, president and chief executive officer of Gap brand, will leave the company. Gap has struggled in recent years to find its identity, with several fashion misses and declining sales.
“Gap has lost it’s identity,” said Poonam Goyal, a retail analyst at Bloomberg Intelligence. “It needs to fix operational execution, brand messaging, and the entire organization needs an uplift. Who is Gap and who are they trying to attract?”
The decision is a significant shift for Gap. A day after Peck’s departure last November, the company said its board “continues to believe in the strategic rationale for the planned separation, and the preparation for separation continues as planned.”
However, Jefferies analyst Randal Konik had questioned the spinoff in a note this month, asking whether it “continues to make strategic sense” considering its “recently underwhelming results.”
The cost of the separation may have been an issue. In a September presentation about the spin off, Gap said the separation would create a one-time expense of $400 million to $450 million, and cost $300 million to $350 million in terms of capital.
Khaki juggernaut
Gap, founded in 1969 in San Francisco, rose to prominence as a denim emporium selling jeans from Levi Strauss & Co., another Bay Area institution. It helped pioneer the vertical integration of retail and started producing its own branded goods. By the 1990s, it had transformed into a fashion juggernaut as it jumped on the khaki-pants trend and built up robust secondary brands in Banana Republic and Old Navy.
But struggles started brewing in the middle of the next decade, from declining mall traffic to operational issues. One of the most famous missteps came in 2010 when the company unveiled a new Gap logo. Some shoppers complained, so it ditched it just a week later.
The company declined to comment beyond the statement.
Gap’s shares declined 31% in 2019, one of the worst performers on the S&P 500 Index.
Goyal said she was “surprised” at Fiske’s departure and the whole company “needs to show a new strategy across their biggest brands.”
Investors may have to wait until Feb. 27 for more details, when the company said it will release fourth-quarter earnings.
“Spin off or no spin off, Gap’s underlying health of the company is still a concern,” Goyal said.
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fortune--2020-01-16--To build a more diverse workforce, companies should focus on tackling student debt

American companies are increasingly realizing that they, too, can play a role in tackling the mounting student debt crisis. Companies like Aetna, PricewaterhouseCoopers, Penguin Random House, as well as our own organization Chegg, have begun offering student loan debt relief as part of their employee benefits and wellness packages.
In 2019, 8% of employers offered repayment assistance of some kind, up from 4% in 2018. With outstanding student loans at $1.5 trillion by the end of 2019, and 11% of that more than 90 days delinquent or in default, more mainstream adoption of such programs can’t come soon enough.
Employers would also do well to consider another benefit of such repayment programs: boosting diversity.
The psychological and financial impacts of debt are clear: Consider the anxiety it places on young Americans as they juggle other monthly payments. Or the way it forces many to defer investments, like buying a home, that will grow their future wealth.
This burden falls most heavily on African-American students and their families, who often must take on more debt for the same degree as their white peers. In 2016, for instance, 85% of black graduates held debt compared to 69% of their white peers, according to The Center for Responsible Lending.
And while the average white male student borrower pays off 44% of his balance within 12 years, according to a recent Demos report, 55% of black male borrowers and 45% of black female borrowers default on a loan within that same period. The report points to a similar disparity gap in default rates between Hispanic or Latino students (35% for both women and men) and their white peers (21% for men, 20% for women).
The long-term impact for black families is profound: While a white family with a bachelor’s degree holds $400,000 in net worth, a black degree-earning household holds about $68,000.
Businesses have experimented with a whole range of initiatives to make their workforces more diverse—from creating safer, more hospitable office cultures to broadening recruitment beyond employee referrals. But employers are missing what should be an obvious opportunity if they fail to offer more robust debt relief benefits.
In a recent op-ed for the Detroit Free Press, Kim Trent rightly acknowledges college as an “indispensable” engine for racial equality—the most effective means by which students of color, particularly those from low-income families, move into the middle and upper middle classes. But, as she notes, today that pursuit comes at a punishing cost. Black families are more likely to borrow for higher education, and more likely to borrow more than white families. And though they attend college at somewhat lower rates, 31% of black families have student loans versus 20% for white families.
The reasons behind this gap are complex—a combination of the persistent racial wealth gap and continued discrimination in hiring practices. But whatever the underlying cause, American businesses must heed the result: Black students, entering college with fewer resources, are more likely to enter college in greater need of loans and vulnerable to predatory practices while, at the same time, have trouble securing the kinds of jobs that will help them come out from under the resulting debt.
While most employer-sponsored debt relief programs are likely attractive to many new hires, for the reasons above, such programs could have a particularly strong impact on black graduates. And such benefits could better attract young black graduates, in turn, helping to build a more diverse workforce.
Contributions from their companies will both reduce their monthly bills and, ideally, help them avoid taking on additional debt by enrolling in professional degree programs—a move a disproportionate number of black Americans, according to a recent paper from the Roosevelt Institute, do to make themselves competitive as applicants.
Employers, too, stand to benefit. Maintaining a diverse workforce is essential to greater employee engagement, innovation, and performance. Moreover, it has become a critical part of attracting talent—as millennial job-seekers increasingly rank diversity as a factor in jobs they pursue. The short-term cost of helping pay down the loans of new hires, in other words, may be repaid many times over. A case study from The Hollywood Reporter suggested that student loan debt is a major factor preventing minority graduates from entering and advancing in the entertainment industry—and that companies like ICM Partners and Hulu have begun offering student loan assistance as a way of attracting more diverse candidates.
Employer assistance on loan repayment will not solve the student debt crisis on its own, nor will it be the magic bullet in bringing much-needed diversity in the workplace. But it is a concrete, eminently achievable step that, if well-advertised, may also help raise awareness of the severe impact of education debt on young Americans—and the particularly unfair burden it places on African-Americans.
Kristal Cobb is manager of diversity and inclusion at Chegg.
John Fillmore is chief business officer at Chegg.
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fortune--2020-01-16--Alphabet joins the $1 trillion club

Alphabet joins the $1 trillion club

Alphabet hit a milestone on Thursday, as a rally in the stock took it above a $1 trillion valuation for the first time, solidifying the dominance of technology and internet stocks as the biggest titans of Wall Street.
Shares rallied in the last half hour of trading to close at $1,450.16, up 0.8% on the day.
With the gain, Alphabet became the newest member of an elite club to trade with the historic 13-digit market capitalization. Only two other U.S. names are past the threshold: Apple, valued at about $1.38 trillion, and Microsoft, at $1.27 trillion. Globally, the list is topped by Saudi Aramco, Saudi Arabia’s national oil company, which went public last month and currently has a market cap of about $1.8 trillion.
Amazon.com flirted with the level last year, but the e-commerce company would have to rise more than 7% for its current valuation of $931.1 billion to return above $1 trillion.
These four companies are by far the largest on Wall Street, and their huge size gives them an outsized impact on overall market direction. Together, they represent more than 15% of the weight of the S&P 500.
The rest of the market is, at best, hundreds of billions of dollars away from trillion-dollar valuations. The fifth-largest U.S. stock by market cap, Facebook Inc., currently has a valuation of $632.9 billion. The biggest company outside the tech or internet sector is Berkshire Hathaway in sixth place, valued around $559 billion.
Alphabet’s move above the level is just the latest step higher for the Google parent company. Shares are up about 40% from a June low, with the rally largely fueled by optimism over its 2020 prospects, particularly with respect to ad revenue. Alphabet will report fourth-quarter results on Feb. 3.
Among recent commentary, Evercore ISI raised its price target on the stock to $1,600 from $1,350, writing that it expects the company will continue “to compound on its defensible dominance in Search and video advertising with YouTube.” Earlier this week, Deutsche Bank raised its own target to a Street-high view of $1,735, writing that the stock “trades too cheaply.” The firm cited more ad product launches, an expanded stock buyback program, and “improving competitiveness in the Cloud business.”
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Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-16--Pinterest exceeded all of its year’s goals for hiring minorities

This is the web version of raceAhead, Fortune’s daily newsletter on race, culture, and inclusive leadership. To get it delivered daily to your inbox, sign up here.
Pinterest published its sixth annual diversity report today and it’s encouraging on several fronts.
It hit a milestone this year: The company has exceeded all three of its stated goals for hiring women and underrepresented minority employees.
Pinterest achieved all three of its hiring goals. Courtesy of Pinterest
And here’s Pinterest by the numbers:
A breakdown of Pinterest’s workforce. Courtesy of Pinterest
“It’s hard to feel inspired when you don’t feel represented—online or in your workplace—and research shows that diverse teams make us more creative, diligent, and hard working,” says Jo Dennis, Pinterest’s human resources chief in a blog post introducing the report.
We asked Candice Morgan, the company’s head of inclusion and diversity (and raceAhead favorite) for a comment. She’s proud of their recruitment and hiring efforts. “The impact is tangible in more inclusive products and policies, whether it’s launching our skin tone ranges search feature, developing internal resources like the gender transition guide, or making policy decisions that reduce harmful, insensitive content,” she says.
Click through to see their three big learnings from this work. The third caught my eye: “We learned that if we want to create a working environment where people can do their best work, we need to invest further in understanding what drives retention. We’ve expanded accountability metrics for inclusion and diversity to include retention and engagement parity, alongside hiring. These are reviewed with the executive team, as well as each business unit, on a quarterly basis at a minimum.”
Ellen McGirt
@ellmcgirt
Ellen.McGirt@fortune.com
On Point
BBC finds that Twitter’s advertising platform allowed the micro-targeting of hate group members Want your ad to reach cat enthusiasts? No problem! Want your ad to reach neo-Nazis? Homophobes? No problem. And that’s a real problem, reports the BBC. "I can see this being used to promote engagement and deepen the conviction of individuals who have indicated some or partial agreement with intolerant causes or ideas,” says the social media researcher for Hope Not Hate, a non-profit that fights extremism. When confronted with the report, Twitter responded that they’d missed the mark. "[Our] preventative measures include banning certain sensitive or discriminatory terms, which we update on a continuous basis," the company said in a statement. “This was an error. We're very sorry this happened and as soon as we were made aware of the issue, we rectified it.” Click through for how the ad platform functions and what the BBC found.
BBC
Virginia declares state of emergency as armed militias threaten to storm the capital Virginia Gov. Ralph Northam says he was responding to “extremist rhetoric” and “credible threats” of violence similar to those reported ahead of the Unite the Right rally in Charlottesville in 2017. People are also temporarily banned from carrying firearms on Capitol grounds. At issue is a planned pro-Second Amendment rally on January 20, which coincides with the Martin Luther King holiday. “Lobby Day,” was organized by the Virginia Citizens Defense League, in response to recent gun legislation. I believe them when they say this is a peaceful event—that’s what democracy is,” said Northam. “Unfortunately, they have unleashed something much larger, something they may not be able to control.”
Vice
Jay-Z sues the head of the Mississippi Department of Corrections It’s a promise kept. The mogul, who has been working on criminal justice reform issues, filed the suit on behalf of 29 incarcerated people who claim the head of the Department of Corrections and the warden of the state penitentiary have done nothing to stem the violence that has taken the lives of five inmates in two weeks. “These deaths are a direct result of Mississippi’s utter disregard for the people it has incarcerated and their constitutional rights,” says the lawsuit, filed by Jay-Z’s lawyer Alex Spiro. Learn more about the horrific situation in Mississippi here and here.
NBC News
A popular Japanese politician is making waves for taking paternity leave Shinjiro Koizumi comes from a prominent political family and is on a short-list to be future prime minister. But he shocked the country yesterday when he broke from tradition by announcing publicly that he would be taking leave to care for his child expected later this month. The move drew widespread praise. “I hope my taking paternity leave will lead the way of working styles to one where everyone can easily take child-care leave without hesitation in the environment ministry,” he said. The public announcement is a good first step. Leave is theoretically available for men, but the status quo dictates that men focus on their roles as breadwinners, creating a culture of workaholics.
New York Times
On Background
A collective of 100 Black British women take on the media, racism, and Meghan Markle This open letter was published by a group called InfluencHers, described as a collective of 100 Black British women from media, law, health, education, and publishing. They begin with an easy target, Piers Morgan. Morgan had invited New York Times columnist and author Afua Hirsch to appear on his morning talk show to discuss her recent piece which asserted that racism contributed to the decision of Markle and her husband to step back from their duties in the royal family. The haranguing from Morgan that followed is typical, they write. “Having to engage, articulate, and explain racism again and again to predominantly white hosts, white men, and white guests is draining and exhausting.” It’s an affront to the journalism profession. “Journalism’s rules are replaced, when it comes to race, by too many of these white hosts, without expectation of challenge,” they say. “We will not stand by silently while such a crucial issue is sidestepped in such a cavalier, irresponsible manner,” they say, pointedly addressing advertisers.
InfluencHers
Once again for those in the back: Implicit bias training doesn’t work This opinion piece from Tomas Chamorro-Premuzic, the chief talent scientist at Manpower Group and a professor at University College London and Columbia University, echoes the concerns of many diversity professionals when such trainings were instituted across the corporate world as a universal “solution.” It’s just a little more complicated, he says. “Scientific evidence suggests that the relationship between attitudes and behaviors is much weaker than one might expect,” he says. You don’t have to genuinely believe something to behave well in the workplace. "'Faking good' is a key part of good organizational citizenship.” Instead, “Organizations should focus less on extinguishing their employees’ unconscious thoughts, and more on nurturing ethical, benevolent, and inclusive behaviors.”
Bloomberg
What we owe Puerto Rico Yarimar Bonilla, a professor at Hunter College-CUNY, and José Caraballo-Cueto, director of the Census Information Center at the University of Puerto Rico, have put together a list which describes the magnitude of the humanitarian crisis the island is facing. While there are specific things our fellow citizens need—release aid money promised from the previous disaster, help with the growing mental health crisis, serious debt relief—what we really owe Puerto Ricans is our respect. “Imagine that a predominantly white area in the United States that had been struck by a devastating hurricane later became the epicenter of repeated earthquakes,” they write. “Well, this is happening in Puerto Rico—also part of the United States—with none of the attention or response.”
New York Daily News
Quote
“There's a lot of things in the system that clearly don't make sense. It's keeping many young black men caught up in the system without even committing crimes. I grew up in in America in a ruthless neighborhood where we were not protected by police. We grew up with people selling drugs in our neighborhood on our front steps. We grew up in ruthless environments. We grew up around murder. If you grew up in my neighborhood, you see seven people die a week, I think you would probably carry a gun yourself?"
—Meek Mill, in an interview with CNN