fortune--2020-06-15--Shutting down Rhode Island’s economy was a ‘nightmare’ for Gov. Gina Raimondo

Good morning, Broadsheet readers! Mayors continue to respond to protests and to police brutality, Australia backtracks on subsidizing childcare, and Rhode Island Gov. Gina Raimondo leads the country on coronavirus testing. Have a productive Monday.
– Raimondo’s Rhode Island. For any governor, shutting down their state’s economy is a “nightmare.” For Rhode Island Gov. Gina Raimondo, it’s one she’s determined never to live through again.
The governor of the country’s smallest state joined Fortune‘s Most Powerful Women community via video chat last week. In a conversation with Fortune senior writer Michal Lev-Ram, Raimondo outlined exactly how she got transmission of the coronavirus under control—and her plan to make sure it stays that way.
It was 11 p.m. on a Friday night in March when Raimondo, desperate to slow the spread of the virus among her state’s population, called contacts she had at Salesforce. Now the company’s software is used in Rhode Island state labs to allow people working as contact tracers, tracking potential spread of the virus, to work more efficiently. Rhode Island leads the country in testing; 17% of the state’s residents have been screened for COVID-19, compared to 7% nationally.
Raimondo took her cue to focus on testing from what she saw happening in Singapore and South Korea, where leaders had relied on testing to get the coronavirus under control early.
“I never again want to shut down our economy. It’s way too devastating,” Raimondo said on Thursday. “Testing will allow us to pinpoint the problems and then pinpoint our lockdown to a school, to a company, to a community.”
The governor is in her sixth year leading the state, but she says these past few months have been like nothing she’s ever experienced before. “I’m very comfortable making decisions, and making tough decisions, but this has been like nothing else,” she said. “There are no good options. Option A is bad. Option B is really bad, and Option C is pretty bad. Necessarily, you have a lot of critics.”
Read more—and watch Raimondo’s interview—here.
Emma Hinchliffe
emma.hinchliffe@fortune.com
@_emmahinchliffe
ALSO IN THE HEADLINES
- Protests and police brutality. Cities and leaders continue to respond to nationwide protests over police brutality. In Atlanta, another unarmed black man—27-year-old Rayshard Brooks, a father of four—was killed by law enforcement. Atlanta Mayor Keisha Lance Bottoms called for the firing of the officer who shot Brooks; police chief Erika Smith resigned. In San Francisco, Mayor London Breed introduced a plan to reform policing. And in Louisville, the city's metro council passed "Breonna's Law," banning no-knock warrants like the one used by police in the raid where officers killed Breonna Taylor.
- Trump transgender rule. The Trump administration finalized a new rule that eliminates protections for transgender people who are discriminated against by their doctors, hospitals, or health insurance plans. Advocates for transgender rights plan to sue over the move. New York Times
- Short-lived subsidy. At the beginning of the coronavirus pandemic, Australia began subsidizing childcare. But as the country begins to resume more normal life, childcare workers are among the first to see the subsidy for their wages cut. And as free childcare ends, extra stimulus is going toward the construction industry. New York Times
- The art of her deal. When Melania Trump postponed her move from New York to the White House in 2017, she used the delay as leverage to renegotiate her prenup with President Trump, according to a new book from the Washington Post's Mary Jordan. Jordan's book argues that the first lady is "much more like [her husband] than it appears." Washington Post
MOVERS AND SHAKERS: Lime added Blue Cross SVP, chief legal officer, and corporate secretary Danielle Gray and Bain Capital Ventures partner Sarah Smith to its board of directors. NASA named Kathy Leueders, commercial crew program manager, to be the next leader of NASA's human spaceflight office. Crisis Text Line fired CEO Nancy Lublin after she was accused of "inappropriate conduct" and fostering a "toxic workplace" (Lublin has not responded to requests for comment); the organization's interim CEO will be board member Dena Trujillo.
IN CASE YOU MISSED IT
- The wrong woman for the job? An investigation into ABC News found that Barbara Fedida, SVP of talent and business, allegedly has a long history of making racist comments and fostering a "toxic" work environment. In response to the details in this story, ABC said it would place Fedida—whose role included overseeing the network's diversity and inclusion efforts—on administrative leave while it conducts an investigation. Fedida calls the claims "incredibly misleading." HuffPost
- Film moves forward. Starting in 2022, the Oscars will impose a diversity and inclusion requirement for films' eligibility for the awards. The Academy of Motion Picture Arts and Sciences hasn't yet announced exactly what that standard will be. Fortune
- The Musk of romance. Tosca Musk is at the top of an industry: romance movies, or adaptations of romance novels. The sister of Elon Musk says that, "No one ever said that my potential was less than my brothers’ potential just because I’m a woman." Wired
- Online shopping. On Singles Day last year, Huang Wei did 3 billion yuan in sales. Known online as Viya, the livestream shopping personality earned 30 million yuan in 2018 through her audience of 37 million. To explain her popularity, Viya says she "helps the customer make a decision." Bloomberg
ON MY RADAR
Glossier announces its grant initiative for black-owned beauty businesses Allure
Despite unrest, Treasury Department has no plans to speed Harriet Tubman to the $20 note New York Times
12 movies by black female directors that are essential viewing Marie Claire
Where J.K. Rowling's transphobia comes from Vanity Fair
PARTING WORDS
"In one heartbeat, I saw history, I saw our current situation, and I saw our future."
-Kerry-Anne Gordon, an OB-GYN and the bride photographed in her wedding dress at a Black Lives Matter protest in Philadelphia


fortune--2020-06-15--23 minutes with Peloton’s Robin Arzón

23 minutes with Peloton’s Robin Arzón

Missing and murdered Native Americans : How to combat the worsening crisis in the U.S .

Robin Arzón was a lawyer with a top-notch New York City law firm when she realized she’d rather be running. The challenge was turning her passion for fitness into a career. Today, she is the vice president of fitness programming and head instructor for Peloton, the remote-training upstart whose fortunes have surged while its customers shelter in place.
Equally committed to the motivational art as the physiological science of fitness, Arzón affectionately cheers on the “hustlers” in her classes who make up her remotely sweating “family.” In a sprint of an interview last week, she talks about Peloton’s unplanned pivot to leading classes from the homes of its instructors, including Arzón; her methodical approach to transitioning her career; and importance of social media in building a corporate and personal brand.
“The most pivotal question I asked myself, and still ask myself, was, ‘Why not me?’ I started to do an honest assessment of my skill set. I said: ‘I know how to read, I know how to write. I have a nascent social media platform. Okay, what do I do with this?’” says Arzón. Janette Pellegrini—Getty Images
Fortune: I’ve taken your classes recently, and I feel like you’ve been in my home, and I’ve also been in yours. What has this unexpected working-from-home experience been like for you?
Arzón: I never imagined I would have a production studio in my New York City apartment, but here we are. I have needed to teach the classes and take the classes with my teammates just as much as everyone on the other side of the screen. It has been a source of positivity and purpose for me.
What has been the biggest challenge?
I have so much admiration for the folks on our production team. I never understood how much work it was, from the lighting to the camera angles to the Wi-Fi. At first I said: “I’m not sure I was cut out for this.” But they have been amazing.
Especially for Fortune’s business audience, I’m intrigued by your transition from corporate litigator at Paul Hastings to your position at Peloton. How did you pull that off?
I was a rising eighth-year litigator, and I thought I was going to be a career attorney. But then I fell in love with running. I was counting down the hours in my day until I could go for my run. I thought, “There has to be a way to monetize this passion.” So I began a two-year process of figuring it out, doing informational interviews and thinking about it. We tend to think of the Jerry Maguire moment where you throw the books on the floor and everything changes. But our journeys don’t work like that. The most pivotal question I asked myself, and still ask myself, was, “Why not me?” I started to do an honest assessment of my skill set. I said: “I know how to read, I know how to write. I have a nascent social media platform. Okay, what do I do with this?”
I was just trying to figure out how to pay my rent while running. I set a recurring calendar appointment for 10 minutes a day where I did something, anything, to move the needle, including just googling “how to be a sportswriter.” I was really living the story in my runs. Eventually, I ended up leaving my law firm two weeks before the London Olympic Games. I went to the London Games as a spectator and blogger. That’s how I started laying the foundation for what I’m doing now.
About six months after I left my firm, I read an article in Fast Company about Peloton. I had done a vision board that included companies like Apple. When I read about Peloton, I realized this was the marriage of movement and modernity. I wrote an email to John Foley, the founder and CEO of Peloton, and said, “I need to be working with you.” I had a job two days later.
I understand that while you’re an avid runner and an ultramarathoner, in fact, you weren’t among the best in the sport.
There was nothing remarkable about my running. That’s why I wrote my book Shut Up and Run. I wanted to demystify what seems complicated or unattainable, especially in a world with Pinterest and Facebook, where it seems like everybody has it together and is running a five-minute mile. What can feel really overwhelming is when someone is starting a journey or restarting a journey.
What makes a Peloton workout unique?
We’re not re-creating the wheel. We didn’t invent the squat. We didn’t invent the bicycle. What we have done is married something that’s entertaining with something that is scientifically sound. That’s not lost on us. We work our asses off. We do the training ourselves. We’re there working right alongside you. In terms of designing the classes, we’ve also done the work. We’ve put in Malcolm Gladwell’s 10,000 hours. We also know it’s so important that people have enough fun that they come back and do it again.
Would you comment on the performance aspect of Peloton? I’m thinking in particular about what a corporate audience can learn from you about presentations and production value.
There absolutely is a performative aspect. But it’s real. We host television shows while sprinting. It’s unscripted and without anyone in our ears. We collaborate with producers, of course, but I’m emoting while sweating with people. That’s why we are the best at what we do, and that’s the secret sauce: passion plus production.
What are Peloton’s plans regarding nutrition instruction?
There’s nothing I can announce right now. We’re aware of the interest. The instructors share their own anecdotal viewpoint on social media, but there’s nothing to announce.
Speaking of social media, how important is it to Peloton’s success and to yours?
What we’re doing requires the conversation to continue, and sometimes start, on social media. The conversations we’re having bubble over into comments and posts and in our brand channel. It’s always been more than a bike. We’re being citizens of the world. We can’t do that in a vacuum.
I see what members are gravitating toward on social media. On our brand channel, I love seeing members celebrate each other, whether it’s #PelotonDads [which really exists] or #BrooklynDogOwners [which doesn’t]. If you like puzzles, I guarantee you’ll find people on Peloton who like puzzles.
Peloton has jumped into the national conversation on social justice and in support of Black Lives Matter. What’s your advice for other companies?
I am incredibly proud that Peloton is committed to becoming an anti-racist organization. I posted this week about the long game. I look at this like I look at training. I wouldn’t recommend that a first-time runner go out and run 50 miles. For me, having this conversation on social media and, at times, in my classes will be a matter of little by little amounting to a lot. I’m not a social justice expert. But in the ways we’re lifting each other up by sweat, we need to lift each other to the point where “together we go far” [a favorite Peloton instructor exhortation] has a lot of meaning now.


fortune--2020-06-16--“You are never stuck”: How to find job satisfaction in an age of upheaval

Zoom ’ s stock is now up nearly 250 % this year .
It has Goldman Sachs in its sights @

This is the web version of Business x Design, a newsletter on the power of design. Sign up here to get it in your inbox.
I’ve often noted in this space that the words “design” and “design thinking” can mean different things to different people. In a business context, the terms often imply a problem-solving process focused on customers—one that involves gaining deeper insight into customer needs or desires in order to develop or improve a particular product or service.
But what if you were to turn the focus of that process inwards and use the techniques of designers and design thinkers to figure out your own life?
Two California professors asked that question over lunch some years back and the result was “Designing Your Life,” a course that went on to become the most popular elective at Stanford University and, in 2016, a best-selling book: Designing Your Life: How to Build a Well-Lived, Joyful Life.
Designing Your Life began as a way of helping students of Stanford’s multidisciplinary design program map out their careers. It morphed into a project with grander aspirations. The professors, Silicon Valley design veterans Bill Burnett and Dave Evans, argued that design can help students figure out not just what, but who they want to be when they grow up.
Burnett and Evans were both trained as engineers. But they argued that life is a problem better suited to the methods of designers than engineers because it is one for which there is no precedent, no predetermined outcome, and no one right answer.
“Design doesn’t just work for creating cool stuff like computers and Ferraris; it works in creating a cool life,” they promised. “You can use design thinking to create a life that is meaningful, joyful, and fulfilling. It doesn’t matter who you are or were, what you do or did for a living, how young or old you are—you can use the same thinking that created the most amazing technology, products, and spaces to design your career and your life. A well-designed life is a life that is generative—it is constantly creative, productive, changing, evolving, and there is always the possibility of surprise.”
In February, as the coronavirus reached the U.S., Burnett and Evans published a follow-up, Designing Your Work Life: How to Thrive and Change and Find Happiness at Work. The new book strikes a far less ebullient tone than the first—and feels in places like a grim survival guide for readers clinging to bad jobs in an increasingly precarious economy.
Not all of us can “run off and become a scuba instructor in Bimini,” the authors acknowledge.
Burnett and Evans also concede the turbulence of our globalized, digitized age. “The workplace isn’t just changing—it’s restructuring. The Gig Economy, artificial intelligence, and The Robots aren’t coming, they’re already here and they’re poised to reshape everything we think we know about work.” And that was before the U.S. economy was ravaged by a pandemic, the biggest collapse in employment since the Great Depression, and weeks of protests against racism.
The authors end on a hopeful note. “Our core message is the same,” they write. “You are the creative designer of your life…. You are never stuck. Perhaps paused on occasion, but never stuck… The truth is Life Design is always a work in progress.”
That’s a very California state of mind. But perhaps it’s one that resonates in this moment of economic and political upheaval.
More design news below.
Clay Chandler
– clay.chandler@fortune.com
NEWS BY DESIGN
Ralph Caplan
Design critic Ralph Caplan, who began his career in design with a quick rise to editor of Industrial Design in 1959, died June 5 at the age of 95. The New York Times describes him as “big on sit-ins,” saying Caplan viewed the act of civil disobedience as the “most emblematic and successful design of the 20th century.”
Good game
In a world first, the FDA authorized the first prescription video game for children with ADHD. The game, Endeavor RX, underwent seven years of clinical trials to determine whether it was any use as a prescriptive measure. The FDA will allow doctors to prescribe the mobile game to children between the ages of 8 and 12.
Pay me
The world is going cashless but not everyone is on board. Designing the systems to ease the transition can be difficult. For a case study, here’s how HSBC used design thinking to develop its Venmo-like app, PayMe, in Hong Kong. As a resident, I can say Hong Kong lags far behind the rest of the world on digital payments. Cash reigns supreme.
Unmasked
The world’s first fully transparent surgical mask, designed by the Swiss Federal Institute of Technology Lausanne and Swiss Materials Lab EMPA, is entering mass production. Traditional, opaque masks hide a lot of facial features; that presents a communication issue for the deaf community and can sometimes make patients feel uncomfortable.
EVENTS BY DESIGN
June: The month-long London Festival of Architecture is running a stripped back event online this year, with the core public program moved to (hopefully) later this year. The San Francisco Design Week, which started June 15, has gone digital too.
July: Christie’s is planning a semi-virtual auction for July 10. The “first of its kind” event will livestream auctions from four cities—Hong Kong, New York, Paris and London; D&AD’s New Blood Festival—a celebration of upcoming talent in design—will be running online this year, July 6-10. The digital festival marks New Blood’s 40th anniversary.
September: Art Basel in Switzerland—initially rescheduled from June to September—has been cancelled, set to return in June 2021.
Ongoing: Dezeen’s Virtual Design Festival has been extended to July 10
LONG READ
A friend of mine recently stayed at the beautifully designed and wonderfully repurposed TWA Hotel at JFK Airport, New York. The hotel was once an airport terminal, designed by Eero Saarinen in the 1960s, but was decommissioned in 2001.
The iconic building was retired because planes simply grew too large for the chic terminal to handle. In a great article outlining the multiple challenges and shortfalls in airport design, Anthony Paletta writes in Citylab that many airports “were myopically focused on practices of a given moment, frequently favoring whatever airline was dominant at a facility precisely then.”
The often short-term focus of airport design has left them vulnerable to a range of societal changes: the collapse of individual airlines; sweeping security measures implemented after 9/11; the proliferation of Uber; and, of course, COVID-19.
As travel very tentatively begins to resume across the world, the way people use airports is going to change. Not all airports have the structural design to neatly accommodate that change, creating a unique challenge for managers to repurpose interior space. Some airports might become obsolete; future designs will need to be more adaptable.
QUOTED BY DESIGN
“I believe that if you care about addressing the barriers that have kept America’s Black and Brown communities from closing the wealth and income gaps, the much more important and impactful position is the secretary of the Treasury.”
Kneeland Youngblood, founding partner and chairman of Pharos Capital Group, makes a compelling argument for how appointing a person of color to the role of Treasury Secretary could have a major impact in redress the structural economic issues facing non-white Americans. Youngblood’s argument is a semi-counter to a campaign for Biden to nominate a black vice presidential running mate.
This week’s edition of BxD was curated by Eamon Barrett. Email him at eamon.barrett@fortune.com


fortune--2020-06-16--Zoom’s stock is now up nearly 250% this year. It has Goldman Sachs in its sights next

“ You are never stuck ” : How to find job satisfaction in an age of upheaval

Society’s coronavirus pain has been Zoom Video Communications’ gain.
Zoom’s stock (ticker: ZM) was among the top gainers on the Nasdaq on Monday, as the market shrugged aside broader economic concerns to rebound resiliently from last week’s mini-slump. The teleconferencing platform spiked 9% on the day, well ahead of other top Nasdaq gainers like Tesla (+6%) and Electronic Arts (+3.7%). It was up a further 1.7% in premarket trading on Tuesday.
With huge swaths of the American workforce now in their fourth straight month of working from home amid the coronavirus pandemic, Zoom’s software has experienced an unprecedented surge in use. That has boded particularly well for the company financially; in its most recent quarterly earnings report earlier this month, Zoom reported a nearly 170% increase in revenues year over year amid an influx of new customers.
In turn, the company’s stock has been among Wall Street’s biggest success stories this year. Having started 2020 trading at less than $69 per share, Zoom closed at just over $239 per share on Monday—a 248% jump from the beginning of the year. Its market capitalization now stands at more than $67 billion; as Michael Batnick, cohost of the Animal Spirits podcast, noted on Twitter, Zoom’s stock is remarkably close to surpassing none other than that of Goldman Sachs in value.
Zoom is among a slew of technology companies to have outperformed on the market this year, thanks to abrupt changes in consumer habits caused by the coronavirus pandemic. Whether it’s home entertainment providers like Netflix (+29% in 2020), digital payments platforms like PayPal (+42%), or other teleworking software solutions like Citrix (+26%), some firms have managed to make the most of these unprecedented circumstances.
But that outperformance does come with a tradeoff. It’s likely no coincidence that Zoom’s rally Monday came amid more news of a spike in COVID-19 cases in parts of the U.S., as well as a new outbreak in China that has forced Beijing to impose fresh lockdown measures.
With the end of the pandemic not yet in sight, it appears the market is bracing for a prolonged “new normal” that some companies are better equipped to meet than others. That may not be good news for most of us, but for firms like Zoom, it’s proving an opportunity.


fortune--2020-06-16--Trump mulls $1 trillion infrastructure investment spree to upgrade roads, develop 5G networks

The Trump administration is preparing a nearly $1 trillion infrastructure proposal as part of its push to spur the world’s largest economy back to life, according to people familiar with the plan.
A preliminary version being prepared by the Department of Transportation would reserve most of the money for traditional infrastructure work, like roads and bridges, but would also set aside funds for 5G wireless infrastructure and rural broadband, the people said.
President Donald Trump is scheduled to discuss rural broadband access at a White House event on Thursday.
An existing U.S. infrastructure funding law is up for renewal by Sept. 30, and the administration sees that as a possible vehicle to push through a broader package, the people said. They asked not to be identified because the Trump proposal isn’t final and hasn’t been announced.
The draft plan is emerging as lawmakers from both parties and Trump debate the timing and scope of more stimulus for a U.S. economy plunged into recession by nationwide lock-downs needed to halt the spread of coronavirus. It’s the latest sign of momentum in Washington for some kind of infrastructure spending blitz ahead of the election.
House Democrats have offered their own $500 billion proposal to renew infrastructure funding over five years. It’s unclear how long the administration’s draft would authorize spending or how it would pay for the programs.
Trailing in the polls
Trump is pushing to rev up the U.S. economy—which four months ago was the centerpiece of his argument for a second term—as he trails Democrat Joe Biden in most national polls. The White House has explored ways to shift the next round of federal virus aid from personal financial support to growth-fostering initiatives, such as infrastructure spending.
The White House declined to comment specifically on the administration’s plans.
“Since he took office, President Trump has been serious about a bipartisan infrastructure package that rebuilds our crumbling roads and bridges, invests in future industries, and promotes permitting efficiency,” White House spokesman Judd Deere said in a statement.
Democrats are blocking a 251 Billion Dollar funding boost for Small Businesses which will help them keep their employees. It should be for only that reason, with no additions. We should have a big Infrastructure Phase Four with Payroll Tax Cuts & more. Big Economic Bounceback! — Donald J. Trump (@realDonaldTrump) April 10, 2020
Trump has periodically called for more spending on infrastructure, including during his 2016 presidential campaign. In March, as the pandemic tightened its grip on the U.S., he urged as much as $2 trillion in new investment in U.S. roads, bridges and tunnels.
That echoed his push two years ago for Congress to dedicate $1.5 trillion toward new infrastructure investment. But hopes for federal legislation ended in May 2019 after Democrats said Trump walked out of a meeting on a $2 trillion plan and vowed not to work with them unless they stopped investigating him and his administration.
Pandemic relief
Lawmakers who attended a closed-door meeting with the president in February 2018 said he told them he’d support a 25-cent per-gallon increase in gas taxes, but Trump never publicly endorsed it. The idea drew opposition from Republicans who don’t want to raise taxes and Democrats worried about the impact on low-income populations.
It’s possible that the infrastructure measures currently being drafted could be rolled into the next round of pandemic relief. The House passed $3 trillion in additional stimulus in May, but the Republican-led Senate spurned that bill and will instead weigh its options next month.
The Democratic bill to reauthorize the current infrastructure program was unveiled this month. It includes investments in roads and bridges, funding to make certain projects more resilient to climate change, and funding for public transit and Amtrak, among other priorities. The House Transportation committee is set to take up the measure on Wednesday.
The existing surface transportation authorization law, known as the FAST Act, authorizes $305 billion over five years and expires on Sept. 30. Lawmakers will either extend it or come up with a long-term replacement. It’s not yet clear how closely the administration’s plan will align with the Democrats’ proposal — or with what Senate Majority Leader Mitch McConnell might do.
Infrastructure spending has long held appeal for lawmakers as a way to spur growth, and the pandemic is renewing calls to fast-track roads and other projects. Mary C. Daly, president of the Federal Reserve Bank of San Francisco, called for public-works spending on infrastructure, including projects that could help low-income people.
“We need to focus on investments that leverage the talent of everyone and contribute to the economy’s long-term growth prospects,” Daly said in a speech Monday. She cited health, education and digital infrastructure, such as internet access.
One major question facing lawmakers will be how to pay for the measures, a hurdle that has stopped previous moves on infrastructure. Increasing the federal gas tax to support a massive round of new spending is unlikely though, as Trump cheers low gas prices and calls for other measures, including a payroll tax cut, to put cash in Americans’ pockets as the country copes with fallout from the virus.
Congress has shown little concern about the more than $2 trillion allocated to curb the pandemic’s economic damage, though some conservatives have begun to urge Trump to turn off the taps. But interest rates are near zero, making additional government spending more palatable, Daly said.
“Now is an especially good time to take on this type of debt,” Daly said. “Even before the crisis, we were in an environment of low interest rates – and that is expected to continue for the foreseeable future. This makes public spending relatively cheap and easy to finance.”


fortune--2020-06-16--Why famed VC Bill Gurley thinks IPOs are such a rip-off

Bill Gurley is the picture of the folksy, laid-back Silicon Valley vet who’s a natural at mentoring the whiz kids of tech as he lounges in his Bay Area backyard. We’re speaking via Zoom late on a Tuesday afternoon, and Gurley, attired in a maroon Nike T-shirt and baseball cap, is recalling the moment that set him on a mission to fix the broken system for taking young companies public. “It was when we were planning the offering for [software provider] Elastic,” recalls the venture capitalist at Benchmark who backed Uber, Zillow, and Stitch Fix. “We suddenly realized that the investment banks were way underpricing the shares, and that the market cap would jump by $70 [million] to $80 million the first day.”
Gurley was appalled that the banks were going to deliver their prized customers gigantic instant gains at the expense of owners, including Benchmark’s investors. The partners held an emergency meeting and settled on a way to avoid surrendering all that “free money” to Wall Street: They requested that the investment bankers allow Benchmark itself to purchase a chunk of the new shares at the bargain price. That way, if the price bounced as they expected the first day, those original Benchmark investors who’d been funding Elastic for years would pocket the gains.
“That’s how far off the price was,” says Gurley. “But would you believe it, the bankers turned us down. They refused to give us a position so they could reserve more for the mutual and hedge funds that pay them big commissions. It was then that I realized we were the patsies.” As it turned out, the stock rocketed 94% on opening day, so that gains of over $200 million went to the underwriters’ clients, not to original investors like Benchmark, or into the company’s coffers.
It was also the turning point that transformed the lanky legend into the venture capital world’s leading crusader for a new platform for public offerings. “I already knew the system was bad and was a big fan of auctions that prevented investment banks from underpricing shares,” he says. “But the Elastic experience convinced me to fight for change.” Gurley asserts that any fair process for selling shares in IPOs, or all stocks, bonds, or commodities for that matter, most provide two essentials: prices established by the market, and access to all investors seeking to partake in the sale.
The system that has reigned for many decades fails on both counts. First, prices are set not by buyers and sellers bidding freely, but by the investment banks leading the offerings. “The banks want every deal to be oversubscribed 30 to 1 when they presell the offering, meaning that just 3% of the investors who want to own shares get to buy them,” says Gurley. The banks create all that extra demand by setting the price well below where they, and the institutions they’re selling to, think it will open the first day. All the funds denied allocations in the underwriting phase, along with hordes of retail investors, pile in at the opening, sparking those famous “pops.”
“I hate pops,” says Gurley. “You keep hearing from the investment banks that pops are a good thing, that they’re a marketing event, and the business press keeps praising the big run-ups. That’s ridiculous. The pops are just a sign that the shares were way underpriced.” He notes that Wall Street is great at selling the IPO as image-building spectacle where CEOs get to ring the bell at the NYSE or cheer framed by their company banner on opening day.
As for marketing and brand-building, he notes that every $20 million left on the table could buy four Super Bowl ads. The old incentive of trading a low price for a pledge of favorable coverage by the banks’ all-star analysts is long gone, says Gurley. The so-called “Sptizer Rule” established in 2003 by then New York State Attorney General Eliot Spitzer establishes a wall between the two camps. “An investment banker needs a lawyer on the line even to talk to an analyst,” says Gurley. Newly-public companies now pursue their own relationships with the analysts, he says, that are completely outside the their ties to the investment banks.
Gurley also notes that pops are biggest when the most prestigious investment banks are leading the deals. In a presentation at a conference on reforming IPOs he sponsored in October, Gurley cited that over the past 10 years, when Goldman Sachs is head underwriter, prices spiked 33.5% on average during open day trading, and Morgan Stanley ranked second, scoring jumps of 29.2%.
Wall Streeters frequently argue that the top investment banks secure the biggest pops because they get to take the best companies public. The idea is that the higher the quality of the company going public—and the Goldmans and Morgan Stanleys get the cream—the bigger the run-up. To Gurley, that explanation rates as surreal. “The pop is a cost of going public,” he says. “Where else do you find that the highest-quality customers pay the biggest fees? Do real estate agents charge the highest commissions on the most expensive houses? Or the highest-rated bonds pay the highest yields?” He also rejects the notion that having a top name lead the offering conveys a lasting emblem of prestige. That Deutsche Morgan Grenfell, not Goldman or Morgan Stanley, led Amazon’s 1997 IPO did nothing to harm its prospects. “After the offering, nobody even remembers what investment bank led the IPO,” says Gurley.
Second, investment banks deny access to all but a tiny sliver of investors seeking to purchase shares in a given IPO. “The underwriters seek to get 90% of their top clients to subscribe,” says Gurley. “They reserve 65% to 70% of the shares for their 10 to 15 biggest accounts.” The rest goes to 50 smaller money manager clients. Once again, even those chosen few get only 3% of the shares they want. And neither America’s other 9,000 funds, nor retail investors, typically get anything. “The banks intentionally ignore the vast majority of the demand,” says Gurley. It’s those 10 to 15 top most prized accounts, he says, that drive the pricing. During the underwriting process, those big funds are the lowest bidders, and to please them, the investment banks set the offering price near what they want to pay. That number is often far below where the price would settle in an open auction.
What determines which customers get the best treatment (or “which fat cats get the rich milk,” as a founder of a startup that became one of 1999’s biggest IPOs once told me?). The most generous allocations go to mutual and hedge funds that do their stock, bond, and commodity trading at the investment banks and pay the largest commissions. “The funds repay the banks for putting them into underpriced IPOs by paying commissions, or ‘soft dollars,’ far in excess of the costs of executing the stock or bond trades,” says Jay Ritter, a finance professor at the University of Florida who’s the leading academic expert on the workings of public offerings.
For Gurley, the quest for reform is especially urgent right now because of a fresh flare-up in underpricing. Highlighting the trend are four deals in the first two weeks of June that left the staggering total of $1.7 billion “on the table.” The extent of lowballing, and the billions investors and managers sacrificed, recalls Wall Street’s feast during the tech bubble. “The stock market has been hot, which led to more IPOs,” he says. “But a hot market also leads to bigger pops, which made the IPO market great again for the investment banks.”
It’s important to put the costs heaped on these new offerings in perspective. The peak of IPO abuse came in 1999 and 2000, when Wall Street bestowed $30 billion and $37 billion respectively in quick profits, chiefly by underpricing tech crowd-pleasers. Based on dollar value of all the deals in those two years, the IPOs delivered average gains of 50% on their first days of trading. The volume of new offerings, and the depth of the discounts the bankers provided, shrank substantially after the frenzy ended. In 2016, for example, the U.S. saw only 75 IPOs, and total first-day jumps of merely $1.8 billion.
Starting in 2018, the raging bull market recharged new offerings, and last year 112 recruits debuted, raising $54 billion, the biggest haul in two decades. The amount they sacrificed in debut spikes totaled $7 billion. That means Wall Street sold their shares at what amounted to a 17% markdown—costly to be sure, but way below Wall Street’s 50% take during the tech bubble.
This year, huge pops returned in force. From June 2 to June 8, Wall Street hosted four big IPOs, and all of them took scored double- or triple-digit sendoffs. ZoomInfo jumped 61%, Warner Music 31%, Shift4 Payments 46%, and Vroom 118%. All told, the big four raised $2.94 billion, and yet the shares they sold were worth $4.63 billion at the end of close of their first day as public companies. Hence, it “cost” $1.7 billion, or 63 cents for every dollar raised in forgone funds that could have gone to paying down debt or growing the business.
Prior to that quartet of back-to-back offerings, 41 IPOs launched in 2020, and of those, another 19 popped in a big way. Those earlier offerings got an even worse deal, raising $3.324 billion, and leaving $3.1 billion on the table, for a bite of 93 cents for every dollar collected. All together, through mid-June, U.S. companies have harvested $6.3 billion and effectively handed $4.8 billion in instant profits, equivalent to 76% of the dollars raised, to funds favored by the underwriters. “The U.S. is on pace for the largest amounts left on the table since the craze of 2000,” says Ritter.
The 76% hit from underpricing isn’t the sole cost to new issuers. The investment banks typically charge around 5% of the amount raised in underwriting fees. That raises Wall Street’s total toll by around $300 million, to $5.1 billion. This year, the 19 companies experiencing underpricing, accounting for most of the big IPOs, are effectively paying 80 cents for every dollar raised.
A better way to go public?
For Ritter, the jump in the number of underpriced IPOs, and the return of gigantic pops, probably doesn’t signal the Wall Street has suddenly regained the kind of power it exercised in the tech bubble. Rather, he cites a two special factors at work this year. The first is the high proportion of biopharma offerings. Through mid-June, fifteen of the nineteen deals showing the biggest one-day gains are developing advanced therapeutics or providing software for drug discovery, among them oncology specialists Black Diamond, ADC and Revolution Medicines.
“Biotech deals are extremely hard to price because in many cases the therapies could either fail in trials or become blockbusters,” says Ritter. “So given their riskiness, it’s easier for the bankers to push for lower prices in the underwriting.” Second, for the offerings that took off on opening day during the first two weeks in June, the bankers began negotiations when the market were reeling months earlier. “The bankers are good at managing expectations,” says Ritter. “By talking about a low price in a down market, they can anchor the client’s view of a fair price for going public.” When stocks rebound, as they did in May and early June, the bankers can bump the price a bit, argue their raising more money for the clients, and still get the benefit of a super-pop courtesy of the new surge in optimism.
Gurley is campaigning to replace traditional IPOs with a system that eliminates their two shortcomings. His solution would both guarantee market prices, sans pops, and grant access to any investors, big or small, that seek to purchase the shares. The solution is called “direct listing.” It’s similar to the “Dutch auction” platform launched by William Hambrecht, cofounder of Hambrecht & Quist. Dutch auctions, in fact, were the first free-market departure from old-fashioned IPOs. Larry Page and Sergey Brin, major proponents of reform alongside Gurley, used a Dutch auction in their public offering for Google in 2004.
In a Dutch auction, the firm hosting the IPO uses its own proprietary software that all potential investors must access, so it can be a chore for all the funds and individuals to link to the offering site. Direct listing are also auctions. But they operate exactly like the universal process that the exchanges deploy to set opening prices every day, for every stock. For example, market makers on the NYSE such as Citadel Securities collect all the bids and ask orders prior to the start of trading and find the price “that clears the market,” the price at which every share gets sold. The bidders above that price get no shares, and those below get their orders fully filled. The shares open at that market level, and don’t jump because of a flood of excess orders waiting in the wings.
“The advantage to direct listings is that every fund, and anyone with a brokerage account, can bid on an IPO just as they put in orders every day for Apple or Home Depot,” says Gurley. The marquee maiden offering was Spotify’s successful IPO in May 2018 and gained credibility with Slack’s offering a year later. “It’s so simple,” says Ritter. “The marketmakers for Spotify and Slack didn’t do anything different to set their price in the IPO than they do for any other stock, every day, before the opening.”
To date, direct listings haven’t sold newly issued shares to raise capital. They allow employees and VC backers to sell stock and hence establish a market price. Then the issuers can go back into the market and get full value for any newly issued stock sold in a follow-on offering, raising raise cash to fund growth and repay debt. The companies get to sell shares at full value established by the trading following the direct listing, rather than raising new cash via IPOs underpriced by the investment banks.
Still, the question remains: Why do so many companies still go public the inefficient, expensive, old-fashioned way? Gurley compares an IPO to a wedding, especially a high-gloss Southern nuptial. “The owners do it once or twice in their lifetimes,” he says. “This is something they’ve never been through before, and they don’t want to suffer the anxiety that something might go wrong. So the easy way is not to ruffle any feathers and do what’s traditional.”
Joining Gurley in supporting direct listings are such Silicon Valley stalwarts as famed investment banker Frank Quattrone and eBay chairman Pierre Omidyar. Gurley is right to push for democratizing one of the last elitist refuges in the capital markets. On one side is tradition, on the other huge savings for owners and employees, and the basic appeal of letting the market do its thing. When the founders sound the opening bell on Wall Street as their stocks debut, a lot more will be sounding the bell for freedom that’s long overdue.


fortune--2020-06-16--General Motors CEO Mary Barra is choosing actions over words in the fight for a more inclusive busin

General Motors CEO Mary Barra is choosing actions over words in the fight for a more inclusive business

Mary Barra, General Motors CEO and longtime member of Fortune’s Most Powerful Women community, joins Fortune CEO Alan Murray and senior editor Ellen McGirt on this week’s episode of Leadership Next.
The GM chief made the news for her strongly worded letter to employees mourning the racist killings of George Floyd, Breonna Taylor, and Ahmaud Arbery, among others. In it, she wrote: “Let’s stop asking ‘why’ and start asking ‘what.’ What are we going to do? In this moment, we each must decide what we can do—individually and collectively—to drive change…meaningful, deliberate change.”
She tells Murray and McGirt that she is an action-oriented engineer, and that as she reflected on these wrongful deaths, she was inspired to ask how her company could drive real change while many other CEOs simply release unactionable statements of solidarity. From that idea sprang the Inclusion Advisory Board, which she said should be completely assembled by the end of June, with the aim of making GM “the most inclusive company in the world.”
She also said that she is focused on driving that supportive inclusivity not only within GM, but in the communities in which GM operates, within its supply base and in the business world at large through her membership with the Business Roundtable. That organization, a collection of CEOs that advocates for business-friendly policies, has a plan focusing on health care, access to capital, criminal justice, and education (the committee on which Barra sits) to address inequality.
Around the 12-minute mark, Geoff Colvin, a longtime business journalist and Fortune writer who has reported on Mary Barra closely for years, joins McGirt to talk about Barra’s leadership. He explains how she has transformed the stubborn company culture through behavior, how she revolutionized training, and how she used starting her tenure as CEO during a disastrous and fatal ignition-switch scandal as an opportunity to drive action for good.
Colvin said that the hardest assignments in business are those that ask leaders to change company culture, and altering the deep-seated culture at GM was likely one of the hardest. But Barra did it. And for that reason he believes that Barra will be successful in her diversity and inclusion efforts.
To effect change, especially as the global workforce returns to work after the coronavirus lockdowns, Barra said fostering trust is key.
“I think trust is at the center of everything,” she said. “A lot of it starts with communication. It’s hard for someone to trust you when they don’t know what you’re doing or why you’re doing it.”
To hear how GM is handling business during the coronavirus pandemic, information on its electric vehicle offerings, as well as Barra’s thoughts on the President’s tweets attacking her leadership of the company, listen below.


fortune--2020-06-16--GM’s Mary Barra represents a new style of leading

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
Running a car company isn’t easy, even in the best of times. And Mary Barra’s reign as General Motors’ CEO has been anything but the best of times. She became the first female CEO of an automobile company in 2014, taking the job amidst a massive controversy over faulty ignition switches. In her first year, she had to issue 84 recall notices and testify before the U.S. Senate. Last year, she was faced with the worst auto workers strike in a half century. And then came COVID-19, followed by the upheaval over the George Floyd killing. Oh yes, and then there are the repeated Twitter attacks from the President of the United States.
Throughout it all, Barra has remained unflappable, eschewing the industry’s traditional defensiveness, and always asking: “What can we learn from this?” That’s why Fortune’s Ellen McGirt and I were happy to welcome her as a guest on this week’s edition of our podcast, Leadership Next. She represents a new style of leading.
Ellen started by asking Barra about her strong public statement over the George Floyd killing, in which she said she was “impatient” and “disgusted”–words that emanated from the heart, not the marketing department. “I personally felt very sad,” Barra told us. “I am an action-oriented person. I’m an engineer. And I asked, ‘Why is this happening over and over?’” She felt a need for action. “I knew we can do more, and we needed to do more, with a sense of urgency.”
In response, Barra has not only created an “inclusion advisory board” to guide GM’s actions, but also signed up for the Business Roundtable’s Special Committee for Racial Equality and Justice. Barra was one of the CEOs who pushed the Business Roundtable last year to adopt a new statement of corporate purpose, focusing on multiple stakeholders and not just shareholders. “The statement was catching up with reality,” she says.
Incidentally, Barra believes the COVID-19 lockdown has strengthened the case for electric vehicles. People are skeptical of mass transit and want their own cars. And improvements in the environment over recent months have reinforced the need for those vehicles to be clean. ”We believe in an all-electric future,” she said, and have “accelerated our work from an EV perspective.”
More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
U.S. competitiveness
The U.S. has for the first time in over three decades dropped out of the top five of the world's most competitive economies, according to rankings compiled by the IMD business school in Switzerland. Two years ago it was at #1; now it's at #10. Why? The drop is largely due to President Trump's trade policies, which have made the U.S. economy less open while also massively increasing public expenditure, thanks to things like the agriculture bailout necessitated by the trade war with China. Fortune
LGBTQ rights
The U.S. Supreme Court yesterday ruled that American employers can't fire people just because they are gay or transgender. As Fortune's Sy Mukherjee explains, this comes just days after the Trump administration moved to allow health insurers to discriminate against people on the basis of gender identity—and the ruling could stymie that move, because it makes clear that discriminating against someone because they are gay or trans necessarily means discriminating against that person on the basis of sex, which is illegal. Fortune
Fed protection
Equities rose in the U.S. yesterday after the Federal Reserve said it would buy individual corporate bonds, and on the back of a report saying the Trump administration is preparing a $1 trillion infrastructure move. Asian markets then picked up the baton, with the Nikkei 225 rising 4.9% and the Hang Seng 2.4%. Europe also saw a positive start to the day, with the Stoxx 600 up 2.5% on opening. U.S. futures look solid. Fortune
Midea founder
He Xiangjian, the 77-year-old founder of Chinese home appliance giant Midea, was reportedly held hostage with his family for hours on Sunday in the city of Foshan. The police were alerted by He's son, who swam across a river to get help. Five people were arrested and no-one was hurt, police said. CNN
AROUND THE WATER COOLER
Beijing outbreak
The latest coronavirus outbreak in Beijing is looking increasingly serious, with parts of the city being fenced off and close contacts of infected people being prevented from leaving. Sports and entertainment venues have also been closed. Scientists fear that this is a more contagious strain of the virus than the one that appeared in Wuhan at the start of the pandemic. Guardian
Hydroxy rejection
The Food and Drug Administration has withdrawn its emergency-use authorization for chloroquine and hydroxychloroquine, the anti-malaria drugs that President Trump and others have been claiming are useful in the treatment of COVID-19—with Trump going so far as to take hydroxychloroquine himself. The FDA now says it is "no longer reasonable to believe that... the known and
potential benefits of these products outweigh their known and potential risks." Washington Post
CureVac stake
Remember CureVac, the German biotech firm to whose candidate COVID-19 vaccine the Trump administration reportedly wanted exclusive access? The company has now sold a 23% stake to the German government, in exchange for $340 million that will be used to further develop its pipeline and technology. Human clinical trials of the prospective vaccine will begin this month. Politico
Contact tracing
The German government has released its contact-tracing app, which was developed by Deutsche Telekom and SAP. Privacy and technology experts seem to like its decentralized, privacy-preserving nature—the Chaos Computer Club, the world's oldest benevolent-hacker group, has declined to criticize it, which is as good as it gets with the CCC. Here's an explainer about how it works. TheLocal.de
This edition of CEO Daily was edited by David Meyer.


fortune--2020-06-16--Global markets soar as investors figure the Fed’s got their backs

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Good morning, Bull Sheeters. Stocks and equities futures are jumping this morning as investors cheer the Fed’s latest move to shore up the financial markets.
From Hong Kong to Frankfurt to downtown Manhattan, Jerome Powell is quickly becoming the most beloved central banker of all time. Have you at least sent him a thank you card?
Ok, let’s see where investors are putting their spare cash.
Markets update
Asia
Asia is in the green in afternoon trade, led higher by Japan’s Nikkei ( +4.9% ) and Hong Kong’s Hang Seng ( +2.9% ).
( ) and Hong Kong’s ( ). “Extremely severe.” That’s how Beijing is describing the new COVID-19 outbreak there, forcing officials to close off parts of the city.
is describing the new outbreak there, forcing officials to close off parts of the city. SoftBank is determined to sell off assets, even high-performing ones. The Japanese conglomerate is looking to unload its 25% stake in T-Mobile U.S. to Deutsche Telekom, making the latter the majority shareholder.
Europe
The European bourses surged out of the gates. Germany’s Dax was up more than 2% an hour into the trading session .
out of the gates. Germany’s Dax was up more than an hour into the trading session “Very good.” That’s how one EU official is describing the chance of a breakthrough in post-Brexit trade talks between the EU and U.K. after a video conference call yesterday involving Boris Johnson .
between the EU and U.K. after a video conference call yesterday involving . The Trump-Merkel relationship seems to worsen by the day. Yesterday, the president vowed to remove 25,000 U.S. troops from Germany because, he said, the Germans are “delinquent”—on NATO payments, that is.
U.S.
The Dow , S&P 500 and Nasdaq futures point to another positive open, adding to yesterday’s gains. From trough to peak, the Dow climbed more than 1,000 points yesterday after the Fed’s surprise bond-buying announcement.
, and futures point to another positive open, adding to yesterday’s gains. From trough to peak, the Dow climbed more than yesterday after the Fed’s surprise bond-buying announcement. The Fed’s move to buy corporate bonds is a game-changer. Again. Goldman Sachs points out it means “the Fed’s posture has shifted from a ‘lender of last resort’ towards more of a regular market participant.” In other words: you’re now investing with House money.
Who’s having a better pandemic? The pros or the retail traders? According to Goldman Sachs, one of the biggest pros of them all, it’s the little guy and gal—the retail trader. And it’s not even close.
Elsewhere
Gold is up.
is up. The dollar is down.
is down. Crude is up, too. Brent climbed more than 1%, hovering around $40/barrel.
The view from the C-Suite
I’m going back to the well this morning to look at C-Suite sentiment. We know investors are bullish (as long as central bankers have our back). The outlook among consumers and corporates though is far less certain. We see this regularly in consumer confidence polls and in corporate outlooks—well, for those who haven’t scrapped theirs.
A month ago in this space I looked at PwC’s COVID-19 CFO survey. It was encouraging then to see that Corporate America largely felt the worst was behind us. And what about today, when fears of a second wave and doubts about stimulus measures linger?
There’s slightly more optimism than there was a month ago, I can happily report. Compared to the May outlook, the future is even less likely to feature the scrapping of financial plans, deferred investments, and the dialing back of guidance. That’s the consensus among the 330 finance chiefs PwC polled, as the following chart shows:
Let’s take the ‘good’ in the above chart first. M&A appears back on the table for more than three-quarter of respondents, and more than 60% will leave their corporate financing plans intact. Now for the less good—cost-containment is still the measure du jour to keep the balance sheet healthy. But there is modest improvement there, too.
Now let’s look to see what’s top of mind, and how that’s shifted over the past two months. Finance chiefs are now most concerned with a second wave of COVID-19 and the impact of the global economic downturn wrought by the pandemic. Two months ago, they were looking inwards at the impact on their business and employees. Today, they’re looking outward, at the impact on their customers and the wider market.
There are still storm clouds on the horizon. “Supply chain disruption” doesn’t make the list, but “cybersecurity risks” does.
I’ll come back to this topic periodically as I believe it gives us an important insight into overall business sentiment and the eventual shape of the recovery.
***
Have a nice day, everyone. I’ll see you here tomorrow.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
A note from my Fortune colleagues on a timely new initiative:
Many companies are speaking out against racial injustices right now. But how do they fare in their own workplaces? Black employees in the corporate world, we want to hear from you: Please submit your anonymous thoughts and anecdotes here. https://bit.ly/WorkingWhileBlack
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
Ahead in the clouds. How's this for a knockout performance: Of 54 traded cloud companies, all but three beat analysts' expectations last quarter. For cloud bulls, that probably won't come as a surprise. But what may surprise you is how these elite eight cloud providers are positioned for monster growth in the year ahead.
The Germans got bank. Congratulations to Deutsche Bank. The troubled German lender now holds the crown as the world's top performing bank stock for 2020. As of yesterday afternoon, it was up 19% for the year, outperforming the Stoxx Europe 600 Banks index (-35%). Fortune noted DB was doing well just before the pandemic hit, but has since really pulled away from the pack.
Some of these stories require a subscription to access. There is a discount offer for our loyal readers if you use this link to sign up. Thank you for supporting our journalism.
Market candy
$13 billion
That's how much gamblers wagered on legal sports betting last year. With almost no sporting events to bet on right now (and no we don't count marble racing as a sport), gamblers are turning to the stock market, a number of investing pros told The New York Times. One of them is a Colorado attorney Jonny Tran who made a killing on a Broadcom "put" option, only to lose his nerve after last Thursday's meltdown. College football can't come soon enough.


fortune--2020-06-16--The U.S. economy has become less competitive in the past couple of years. Here’s why

For the past three decades, the U.S. has been listed as one of the world’s top five most competitive economies, in rankings produced by the International Institute for Management Development (IMD) in Switzerland. Just two years ago, the U.S. topped the list.
Those days are over, at least for now.
In the 31st edition of the ranking, released Tuesday, the U.S. had fallen to 10th place, just behind the United Arab Emirates. As it was last year, the list is led by Singapore, now directly followed by Denmark and Switzerland.
IMD’s closely watched ranking is based on a mix of hard data, from sources such as the World Bank and International Monetary Fund, and qualitative data gleaned from a survey of over 6,300 mid- and upper-level executives across 100 countries. The results take into account everything from trade and investment to countries’ educational systems and technological infrastructure.
So why has the U.S. dropped so noticeably? It’s largely owing to the Trump administration’s trade policies, according to Christos Cabolis, the chief economist at IMD’s World Competitiveness Center and one of the authors of this year’s report.
“One of the pillars of competitiveness is how open an economy is, and we measure that in different ways, from the perceptions of executives, to trade [statistics],” Cabolis told Fortune. President Donald Trump’s ignition of a trade war with China over the past of couple years “brings some of the results we see in how the numbers of the U.S. went down,” he said.
In terms of IMD’s methodology, Trump’s Chinese-tariff broadside actually provided a double whammy. Not only did the measures reduce the U.S.’s openness to international trade, but they also had a negative impact on U.S. public expenditure—think of all those billions that went to bail out American farmers who had been hit by China’s retaliatory tariffs, shortly after the administration had also cut corporate taxes.
“We see the countries that performed better this year are also the ones that have much better structure and discipline with relation to public finance,” said Cabolis, who also noted that successful countries were those with a strong societal framework and effective governments. Social cohesion was not an area where the U.S. was doing well recently, he warned.
According to Cabolis, Singapore topped the rankings because of its ability to acquire international talent and the quality of its educational system. In Denmark, infrastructure and business efficiency were factors in the country’s strong performance.
Respondents to IMD’s Executive Opinion Survey were most likely to cite the U.S.’s economic dynamism and easy access to financing as the country’s “key attractiveness factors.” Competent government and effective labor relations were the least-cited factors.
One quirk of IMD’s rankings is that the quantitative data, which enjoys much heftier weighting in the list’s compilation, comes from the preceding year, while the survey data is gathered in the year of publication. So in this case, the hard data comes from 2019, before the novel coronavirus became a pandemic, but the questionnaire responses came from February to April of 2020—a period in which the urgency of the situation became apparent and countries started locking down their economies.
That means next year’s rankings will be heavily affected by this year’s pandemic: GDP levels and growth will likely be down in most places, as will consumption, while unemployment will rise. “How well a particular government will deal with these tremendous issues will actually affect the position of next year’s ranking,” Cabolis said.
However, he suggested, the qualities described in this year’s report could provide a good indicator of what is to come.
“Some of the elements that we capture are related to the adaptability of governments to business cycles—how resilient a particular government is with everything that has happened,” Cabolis said. This year’s high-ranked countries “are the economies where both individuals and governments adapt and are flexible, and businesspeople are able to navigate the economy.”
Nonetheless, he added, the effectiveness of countries’ health care systems will likely play an important role in the 2021 rankings—as will the issue of inequality.
“Even though in exposure to the virus all of us are in the same position, in terms of the effects of the virus it is undoubtedly a fact that we are not,” Cabolis said. “If exacerbating inequalities exist, this may have a negative effect next year.”


fortune--2020-06-16--Huawei CFO attacks HSBC in new bid to dismiss U.S. extradition order

Lawyers for Huawei Technologies chief financial officer Meng Wanzhou on Monday accused U.S. prosecutors of providing “grossly inaccurate” evidence in their request for the CFO’s extradition and claim that HSBC—which Meng is accused of defrauding—knew the risk it was taking all along.
The U.S. accuses Meng of defrauding HSBC into violating U.S. sanctions on Iran by failing to disclose the relationship between Huawei and Skycom—a company that operates in Iran and which the U.S. claims is an unofficial Huawei subsidiary. A key exhibit in the case is a PowerPoint presentation Meng gave to an HSBC employee in 2013.
The U.S. says Meng should have disclosed the Chinese telecom manufacturer’s connection with Skycom in that presentation but didn’t. Huawei maintains Skycom was a “business partner,” and Meng’s lawyers now argue HSBC was made aware in the PowerPoint presentation of any relevant connection.
“It will be submitted that the summary of the [PowerPoint presentation] is grossly misleading because it omitted to include reference to critical disclosures that Ms. Meng made in the PPT regarding Huawei’s ongoing business operations in Iran,” the lawyers wrote, adding that the disclosures “provided HSBC with the material facts it needed to know in order to assess whether there was any risk” in continuing to work with Huawei and Skycom.
Last month Meng, who’s under house arrest in Vancouver, lost a pivotal point in the extradition process when a judge ruled that Meng’s alleged offense constitutes a crime in both Canada and the U.S.—a key factor in executing an extradition request.
In their letter on Monday, Meng’s lawyers said HSBC’s alleged knowledge of the Huawei-Skycom connection provided a new avenue for the court to throw out the U.S. extradition request. An HSBC spokesperson told Reuters it does not comment on evidence in cases it’s not party to.
It’s not the first time Huawei has accused HSBC of misrepresenting facts regarding Skycom. In February, Huawei’s lawyers wrote to the U.S. District Court in Brooklyn—where Huawei faces separate accusations of conspiring to steal trade secrets—alleging that prosecutors had agreed to overlook HSBC’s violation of U.S. sanctions against Iran in exchange for the bank helping frame Huawei. HSBC has denied the allegations.
“HSBC agreed to cooperate with the government’s efforts to depict Huawei as the mastermind of HSBC’s sanctions violations and supply witnesses to the government’s stalled investigation of Huawei,” lawyers wrote.
HSBC’s involvement in the Meng case might expose the bank to retaliation from Beijing. Earlier this month, HSBC chairman Mark Tucker reportedly warned the U.K. government that the bank could face reprisals in China if the U.K. moved to block Huawei from the nation’s 5G telecom network.
The U.K. bank found itself further entangled in political wrangling between the U.S. and Beijing after HSBC Asia-Pacific head Peter Wong pledged support for a controversial national security law Beijing is implementing in Hong Kong. Secretary of State Mike Pompeo later said the bank had been “browbeaten” by Beijing.


fortune--2020-06-16--U.S. and China ease coronavirus flight restrictions again after an earlier standoff

Chinese airlines will now be able to fly to the U.S. up to four times a week, the U.S. Department of Transportation (DOT) said Monday, doubling the current number of permitted flights for those carriers.
The DOT said the expansion was a response to China allowing U.S. airlines the same flight frequency—four per week—to China. Delta said it will start to resume service next week, and United said it will resume service to China in the coming weeks.
The further relaxation of flight restrictions suggests that both countries are backing off from an earlier impasse about passenger flight service between the U.S. and China.
The standoff began when two U.S. carriers, Delta Air Lines and United Airlines, asked to resume service to China in June—a third, American Airlines, wanted to restart flights in the fall—and the Civil Aviation Administration of China (CAAC) didn’t immediately respond to their requests.
The DOT retaliated on June 3, saying it would ban all passenger flights of Chinese airlines to and from the U.S. from mid-June. The agency invoked the U.S. and China’s 1980 Civil Air Transport Agreement, which states that for every flight to the U.S. by a Chinese carrier, an American carrier is entitled to a flight to China.
The ban would have covered seven Chinese airlines—Air China, Beijing Capital Airlines, China Eastern Airlines, China Southern Airlines, Hainan Airlines, Sichuan Airlines, and Xiamen Airlines.
Four of those airlines—Air China, Xiamen Airlines, China Southern, and China Eastern—are currently flying between the U.S. and China, the DOT said.
A day after the DOT announced the ban, which would have gone into effect on June 16, China said it would allow U.S. airlines to resume limited service to China, allaying concerns that U.S.-China air travel might become another flashpoint in the two countries’ tensions over trade, human rights, and the coronavirus pandemic.
Before the pandemic grounded planes worldwide, American and Chinese airlines made around 300 roundtrip flights per week between the two countries. In mid-February, four Chinese carriers were making 20 flights a week. The DOT said on Monday it aimed to further increase U.S. flight frequency to China under the 1980 agreement.


fortune--2020-06-16--China warms to the idea of a second Trump term

Donald Trump has argued frequently of late that China is rooting for Joe Biden come November’s U.S. presidential election. In Beijing, however, officials have come around to support four more years of Trump.
Interviews with nine current and former Chinese officials point to a shift in sentiment in favor of the sitting president, even though he has spent much of the past four years blaming Beijing for everything from U.S. trade imbalances to Covid-19. The chief reason? A belief that the benefit of the erosion of America’s postwar alliance network would outweigh any damage to China from continued trade disputes and geopolitical instability.
While the officials shared concerns that U.S.-China tensions would rise regardless of who was in the White House, they broke largely into camps of those who emphasized geopolitical gains and those who were concerned about trade ties. Biden, the former vice president, was viewed as a traditional Democrat who would seek to shore up the U.S.’s tattered multilateral relationships and tamp down trade frictions.
“If Biden is elected, I think this could be more dangerous for China, because he will work with allies to target China, whereas Trump is destroying U.S. alliances,” said Zhou Xiaoming, a former Chinese trade negotiator and former deputy representative in Geneva. Four current officials echoed that sentiment, saying many in the Chinese government believed a Trump victory could help Beijing by weakening what they saw as Washington’s greatest asset for checking China’s widening influence.
The general assumption underlying their views was that little could be done to halt the slide in relations between the world’s two biggest economies. Thus, China needed to accelerate efforts to develop high-end indigenous industries, expand into developing markets and look for opportunities to work with nations in Europe and Asia to counter any U.S. isolation efforts.
Over the course of Trump’s term, the realization has taken hold in Beijing that opposition to China enjoys deep bipartisan support in an otherwise-polarized Washington. The coronavirus outbreak, which was first discovered in the country’s central city of Wuhan, has only hardened American views toward Beijing.
‘Getting Worse’
“I don’t think the election will change the relationship in a fundamental way. The deep feeling in the U.S. is that the U.S. should contain China,” Zhou said. “Whether Trump wins, or Joe goes to Washington, things will get worse.”
Chinese officials, eager to avoid a repeat of their surprise when Trump upset former Secretary of State Hillary Clinton in 2016, have been pressing American contacts for insights about who will win. Senior members of the American business community in Beijing say recent weeks have seen a sudden up tick in outreach from well-connected Chinese friends who in some cases haven’t contacted them for years.
Although Republicans traditionally emphasized economic ties with China, Trump has moved the party in a more confrontational direction, challenging the country in virtually every area of the relationship from China’s territorial claims in the South China Sea to trade, public health, human rights and technology. The Democrats have largely supported those efforts, helping to pass legislation to support Hong Kong protesters and give more military aid to Taiwan.
Even Biden, who had long backed an “engagement” strategy with China, adopted a harsher tone as the Democratic presidential primaries heated up. In recent months, Biden has described President Xi Jinping as a “thug,” lauded the “extraordinary bravery” of democracy demonstrators in Hong Kong and accused China of “predatory” trade practices. He labeled the mass detention of Uighur Muslims in the far Western region of Xinjiang “unconscionable.”
Although Chinese officials continue to steer clear of criticizing Trump directly, Internet censors have allowed more nationalistic-tinged criticism of the U.S. to circulate online. One foreign diplomat said China’s foreign ministry was “combative” and “angry” toward U.S. officials.
“Trump has destroyed a lot of goodwill,” said Wang Huiyao, an adviser to China’s cabinet and founder of the Center for China and Globalization. “At the start of the trade war, there were a lot of people who were pro-U.S., but they are now sympathetic to the hard-liners.”
Trump has sought to capitalize on his reputation for confronting China in the election, despite his early praise for Xi’s handling of the coronavirus outbreak. In April, he told Reuters that “China will do anything they can to have me lose this race,” asserting without evidence that Beijing’s response to the virus was focused on a desire to see him lose in November.
China’s foreign ministry reiterated its longstanding position that it never seeks to interfere in the internal affairs of other nations. In a possible sign that the two sides are seeking to manage the election year disputes, U.S. Secretary of State Michael Pompeo was expected to meet top Chinese diplomat Yang Jiechi in Hawaii later Tuesday, according to two people familiar with the plans.
U.S. Stability
One Chinese official said the election result didn’t matter since relations won’t improve either way. China’s best hope, they said, was that things didn’t deteriorate further.
Some in Beijing are wondering aloud about Trump’s long-term impact on U.S. stability, pointing to surging coronavirus cases, protests against police discrimination and speculation about whether the pandemic election might end in chaos. “The U.S. as we know it may no longer exist,” said Gao Zhikai, a former Chinese diplomat and interpreter for Deng Xiaoping.
Trump’s “America First” policies have created similar frictions in capitals that have traditionally been friendlier to the U.S., as he levies tariffs on key trading partners, presses allies for greater spending on collective defense, withdraws from multilateral agreements and supports the U.K.’s break from the Europe Union. Chinese officials privately acknowledge that a Democratic administration might prove more formidable if it worked with allies to present a united front.
Even if a Biden presidency proved more difficult for Beijing, two current Chinese officials said he might open up more areas for cooperation such as restoring U.S. participation in the Paris climate deal — negotiated while he was vice president under then-President Barack Obama.
“He supports working on topics like climate change, WTO reform and TPP,” said Wang. “There are areas where we can cooperate.”
On a more personal level, some Chinese officials involved in trade negotiations with the Trump administration support a Biden victory simply so they can spend more time with their families, according to one person familiar with their thinking. China’s trade team shows up to work looking exhausted, the person said.
Both sides may find it difficult to escape the pattern of confrontation no matter who wins. Huawei Technologies Co. executive Meng Wanzhou is still detained in Canada awaiting a decision on a U.S. extradition request, while Beijing’s plan to impose a security law on Hong Kong has caused outrage in Congress and brought the countries’ “phase one” trade deal into question.
“Nowadays in China people are becoming more and more clear about the U.S.’s objectives,” said Zhou, the former Chinese representative in Geneva. “We have not yet reached the darkest hour in the relationship.”


fortune--2020-06-16--How Juneteenth became a corporate movement

The coronavirus death toll in the U.S. has officially surpassed that of WWI

Hi, everyone. This is Aric Jenkins, staff writer at Fortune. As Ellen mentioned in the June 5 edition of the newsletter, I’m joining the raceAhead team as a partner and collaborator. That mostly means I’ll be in the background as Ellen’s editor and curator, because Ellen’s writing is terrific and essential and I don’t want to get in her way even though she swears she doesn’t see it that way.
Sometimes, like today, I will jump in, because Ellen is not just tolerant of the idea of me writing; she’s actively encouraging me to do it. I’m grateful for her support and honored to have a voice here. I’m really looking forward to engaging with the raceAhead community. Feel free to write to me at aric.jenkins@fortune.com and follow me on Twitter.
***
With that introduction out of the way, let me get into this week’s subject at hand: Juneteenth. The annual holiday that commemorates the end of slavery in the United States has long been a regional observance, particularly among Black Americans in Texas, where the celebration first originated. Many people in the U.S. were unaware of its existence, or what exactly Juneteenth celebrated, judging from Google Trends search data and the amount of explainers published over the past week.
Yet this morning, my colleagues and I found out that this year’s Juneteenth, which falls this Friday, will be a paid day off “to underscore the importance of making progress in correcting a history of injustice,” per our CEO Alan Murray. Fortune’s recognition of Juneteenth puts us alongside media peers BuzzFeed, Vox, The Atlantic, and the New York Times. Beyond our industry: Twitter, Square, Nike, Postmates, the National Football League, TikTok, Target, Adobe, Glossier, Lyft, Mastercard, Spotify, Quicken Loans, JCPenney, and many more.
Altogether, around 200 companies so far have pledged to make this June 19th a paid holiday, said Miles Dotson, co-founder of the Bay Area-based, majority-Black collective HellaCreative. The group can lay claim as the catalyst to this national movement, having created the HellaJuneteenth website to inform and advocate for an official national holiday to “reclaim our time” from the legacy of slavery in the wake of the police killing of George Floyd.
Hearing the news of Floyd’s death was grim, infuriating. “Day by day we were thinking of what to do,” Dotson told me. “We had our weekly Zoom happy hour and thought about what’s coming up. Juneteenth’s coming up. Can we do something around it? It’s not a national holiday, let’s see what we can do.”
Dotson and his peers set up a website with a clean template and powerful black and white imagery. It launched the first week of June before “spreading like wildfire” over the weekend. That included Slack. Internal messaging boards. Direct messages. Social media. By Tuesday, June 9, Twitter and Square CEO Jack Dorsey tweeted that Juneteeth would become a permanent annual holiday for the companies. Said Dotson: “A member of our community is a legacy Square employee and said, ‘Hey, this is amazing, can you be one of the first companies to sign our commitment?’ And then from [Dorsey’s] posting, it really took off.”
The number and range of large corporations committing to Juneteenth as a paid holiday is impressive and encouraging. I asked Channing Godfrey Peoples, director of the upcoming film Miss Juneteenth and a native of Fort Worth, Texas—where Juneteenth has been celebrated for generations—what she thought about it. “The legacy of slavery is woven into the fabric of our country’s history and how ALL Americans navigate our present,” she wrote in an email. “I think a day of observance of this history and future we want to create is appropriate.”
She added: “It would be disappointing to me if this was just a one year acknowledgement.”
Make note of the companies that are doing this as a one-time show of solidarity because of the pressures of the current unrest. They will likely be vague in their Juneteenth announcements and describe the holiday as occurring “this year.” These companies still deserve credit for giving employees a day off following a difficult and exhausting few weeks for Black Americans, but this is an important distinction—particularly if we want to see Juneteenth become a national holiday. Having that happen is about so much more than having a day off to barbecue (in post-pandemic times).
“If you look in the continuum of American history, we might have Black History Month but the embellishment is about individualism—we don’t have a holiday to signify the transition from one identity that America had to another,” Dotson told me. “I don’t think we fully emancipated Black Americans. 1865 was the launchpad to the next period, and that should be acknowledged and celebrated widely by all those that benefit from that clarity.”
Well said. And with that said, I hope those of you who have this Friday off are able to enjoy a safe and socially distant Juneteenth with family and friends. Here’s to hoping that next year we can gather in larger numbers, and that companies still give us the time and space to do so.
Aric Jenkins
@aricwithan_a
Aric.Jenkins@fortune.com
On point
A much-needed victory for LGBTQ workers The Supreme Court affirmed yesterday that long-held civil rights legislation does, in fact, protect gay and transgender workers from discrimination. “An employer who fires an individual merely for being gay or transgender defies the law,” said Justice Neil M. Gorsuch, writing or the majority. Until the decision, it was still legal in more than half of the states to fire people for being gay, bisexual, or transgender; the decision sent ripples of joy through LGBTQ advocates and allies. Click through for more on the 6-to-3 ruling.
New York Times
This is what working while Black is like in 2020 All the praise to Fortune newsletters editor Karen Yuan, and an all-star-team including Rachel Schallom, John Buysse, Andrew Nusca, Josue Evilla and Peter Herbert for bringing this important project to life and to your attention. Now for the difficult news: If you want to understand what life is like for Black employees in a variety of industries, prepare for a master class in microaggressions, frustration, and dreams deferred and despaired. “For many years, I've worked in corporate America. As I slowly moved up the corporate ladder, I began to notice there were fewer black employees until I was the only one,” shared Bryan, 51, who lives in a diverse and talent-rich city. “Eventually, I myself resigned because I learned I was being paid less than half of what my white colleagues earned. When I confronted HR and my manager about it, they blatantly lied to me.” We’re still collecting stories; please read and share widely.
Fortune
Understanding the ‘Third Reconstruction’ movement This is the moment we’re in, explained Pastor Eddie Anderson, who has been gathering with other faith and community leaders in South L.A. to talk through the aftermath of days of protests and call for reform. The discussion on tactics seems split across generational lines; elders historically want a “seat at the table,” while younger activists now want a new world. “People are telling you what they want. They want to defund police. They want to prosecute killer cops,” said Anderson. “This is a Third Reconstruction moment… “So let’s lean into the moment and not be so stuck to tradition that we stagnate the movement.”
Los Angeles Times
If it seems police reforms are happening quickly, they aren’t Activists have been fighting to defund the police for a long time. Now, in Los Angeles, their budget proposals are being heard. In Minneapolis, new details are emerging on their plan to disband/reform their police. One idea appears to be using predictive analytics to help identify problematic policing patterns. And finally, the NYPD plans to shut down its plainclothes policing unit, an aggressive anti-crime unit that had been responsible for a number of police shootings. The officers will be reassigned. “Make no mistake, this is a seismic shift in the culture of how the NYPD polices this great city,” Commissioner Dermot Shea said on Monday.
Reuters
Are you ready to change the advertising industry? Ad/creative exec Bennett D. Bennett, along with colleague Nathan Young, started a necessary movement with their Call for Change open letter, asking Black professionals in advertising to ask agency leadership to take direct action to address systemic racism in the industry. Their demands are a blueprint for any institution looking for change, by the way. The splash has been big enough that Bennett, along with Nate Nichols, Leslie Collin and others are now hosting the Allyship and Action Summit, to delve more deeply into how the advertising industry can reckon with its past and embrace anti-racist reforms. It’s June 18, follow #allyshipandaction for more.
Call for Change
On background
Whiteness is not our savior Put your out-of-office notifications on, pour yourself a cuppa something good, and savor this take from Taylor Harris, a slow-moving exploration of roots, faith, family, and racism. It is, she declares upfront, her testimony, which starts with the occasional white face in her home church as a child, where the Jesus on the altar didn’t bleed, but “wore a cloak, a triumphant robe that offered shelter within its folds.” In her future husband’s home church where Holy Spirit felled members of the all-Black congregation on the regular, whiteness was a faraway existence. Now, raising three Black children on the brink of adolescence, discussions of whiteness are searing and close. “Mommy, why are some white people bad?” her three-year-old asks. “Did she get alive?” her eight-year-old asks of Breonna Taylor. “I don’t know if he was asking if the pain struck her awake before she died,” says Harris, “or if she became alive again when she saw Jesus in the air.”
Catapult
Ijeoma Oluo talks about race in tech Oluo is the author of So You Want to Talk About Race, an essential tome when it was published in early 2018; now perched at the top of the New York Times paperback nonfiction best sellers list, in the midst of this long, national reckoning on racism. This piece from Techcrunch’s ethicist-in-residence Daniel Epstein, was based on a series of conversations that occurred before George Floyd’s death. But their themes are even more resonant now. Epstein is an interesting guy (he works as the Humanist Chaplain at Harvard and MIT) so he began their conversation by positing that that technology has become a form of secular religion. “One thing tech fundamentally has in common with many religions, at least in America is that it is a white man’s version of Utopia,” Oluo responded. “And tech especially has this cult-like adherence to a white man’s vision of a Utopia that fundamentally disempowers and endangers women and people of color.”
TechCrunch
The Black wealth gap starts at home. A three-year, undercover investigation reveals shocking racial disparities in real estate sales on Long Island, and the findings are not subtle. Over a period of three years, Newsday trained 25 undercover house hunters and gave them identical credentials, analyzed nearly 6,000 real estate listings, and secretly recorded 240 hours of meetings taken with 93 Long Island-based real estate agents. The findings showed a widespread pattern of discrimination: Black house-hunters experienced “disparate treatment” 49% of the time – compared with 39%for Hispanic and 19% for Asian buyers. In some cases, real estate agents accommodated white buyers while refusing to show homes to people of color unless they provided additional financial assets. “This is something that didn’t happen in the deep South,” said Greg Squires, professor of public policy at George Washington University, and an advisor to the program. “It happened in one of the most educated, most liberal regions of the country. These are significant numbers.”
Newsday
Today's mood board
Let us know.


fortune--2020-06-16--Florida leads U.S. in new coronavirus cases

For the latest data on coronavirus cases by state, please check out our updated map here.
Florida has broken its state’s record for daily new cases of COVID-19 multiple times in the past week. That trajectory puts Florida, which has reported more than 80,000 cases in total, atop a list of nine states where coronavirus cases are rising significantly. According to a Fortune analysis of New York Times data, Florida averaged 726 new cases per day in the seven-day period ending June 1; that compares to an average of 1,775 new cases per day in the seven-day period ending yesterday, June 15. (While concerning, those figures are well off New York’s April 4 peak in new cases, when the state reported 12,312 new cases in one day.)
While some officials In Florida have linked the increase to higher rates of coronavirus testing, data shows that the rate of positive COVID-19 tests in Florida is increasing. The state’s data reporting and decision-making around reopening has been a subject of some controversy.
Arizona and Texas were also among states to see a significant increase in new cases over the past seven days as compared to two weeks prior. On average, Arizona has 811 more new cases per day in the past seven days than in the seven-day period ending June 1.
The states that were hit hard in the early stages of the pandemic and thus are still in the beginning stages of reopening continued to see decreases in new cases. New cases reported per day in Massachusetts are down by an average of 781 cases compared to two weeks ago. Seven other states, including Illinois and Virginia, saw significant drops in new cases between the two periods.
Overall, slightly more states saw the trajectory of new cases declining than rising, but the total number of new cases per day across the country, on average, was slightly higher for the week ending June 15 (21,821) compared to two weeks ago (21,510).
State-by-state breakdown of daily new cases
New cases based on a seven-day average


fortune--2020-06-16--Meet Apple’s antitrust foil

Meet Apple’s antitrust foil

Apple faces a set of probes from Margrethe Vestager that show the European Union’s powerful antitrust chief is trying to rewrite big tech’s rulebooks.
Apple’s “gatekeeper” position for apps and payments makes it the latest target for the Dane, who is also planning to escalate a probe into Amazon.com Inc.’s role in online retail. Regulators “need to ensure that Apple’s rules do not distort competition” where it competes with rival apps for music streaming or books.
When the 52-year-old Vestager received an unprecedented second-term as the EU’s antitrust enforcer last year, she was determined to avoid lengthy probes that levied fines but failed to crack the power of online giants. Google has largely shrugged off some $9 billion in fines and antitrust orders that tried to stoke more competition for search services.
Aitor Ortiz, an analyst at Bloomberg Intelligence, said that the massive penalties in the Google case weren’t successful.
“This is not about the fines,” Ortiz said. “We saw it with Google, the fines don’t really have a deterrent effect.”
The EU will review whether Apple’s app store violates competition law by forcing software makers to use its own in-app payment system that typically takes a 30% cut of subscription fees. It will check if Apple unfairly curbs developers from telling users about other, cheaper payment methods. And it will also investigate whether Apple unfairly blocks other providers from using tap-and-go functionality on iPhones.
Just four years after hitting Apple with a record 13 billion-euro ($14.7 billion) tax bill, Vestager is pivoting to the company’s business behavior. It’s the latest in a growing list of EU probes into Silicon Valley, which have led to criticism from U.S. President Donald Trump and complaints about how tighter EU regulation is trying to tie down American companies.
The case is likely to be “big, complex and sophisticated” as the EU seeks to test new ideas on how some firms play a gatekeeper role for entire industries, said Nicolas Petit, a law professor at the University of Liege.
Apple said that the EU is responding to complaints from rivals that “simply want a free ride, and don’t want to play by the same rules as everyone else.”
“It’s disappointing the European Commission is advancing baseless complaints from a handful of companies,” Apple said in a statement. “At the end of the day, our goal is simple: for our customers to have access to the best app or service of their choice, in a safe and secure environment.”
Shares of Cupertino, Calif.-based Apple rose 1.6% to $348.59 in New York trading Tuesday morning. CEO Tim Cook has previously called Vestager’s decision in the tax case “political crap” in a longer battle over how digital giants should be taxed in Europe.
Spotify Technology SA last year complained that Apple unfairly squeezes its music streaming service with ever-changing rules and a large cut of sales on the app store. Spotify said the EU investigations made it “a good day for consumers.”
The latest EU probes target a strategic area for company, which has gradually shifted focus from hardware to subscription-based services like Apple TV and Apple Music in search for other revenue streams. For the 2019 fiscal year ending September 28, 2019, revenues for Apple’s services grew 16% to $46.3 billion but they but they were still a fraction of its overall sales of $260.2 billion.
EU scrutiny of Apple’s businesses could widen. Regulators continue to look at parental control apps as well as gaming apps.
Ultimately, the EU may seek to give breathing space to companies facing pressure from tech giants as they expand into new areas, he said.
“The long game of European competition enforcers is to leave enough economic value on the table for smaller players” such as online merchants, app makers and news publishers, Petit said.


fortune--2020-06-16--The coronavirus death toll in the U.S. has officially surpassed that of WWI

She was Morgan Stanley ’ s first global head of diversity .
Now she ’ s suing the bank for @ @

Our mission to help you navigate the new normal is fueled by subscribers. To enjoy unlimited access to our journalism, subscribe today.
The coronavirus has infected nearly 2.1 million Americans and claimed 116,567 lives, according to data collected by Johns Hopkins University.
The number of Americans killed by COVID-19 as of Tuesday is higher than the 116,516 killed during World War I—a war waged from 1914 to 1918 that reshaped the globe.
Deaths from COVID-19 in the U.S. had already topped all U.S. deaths from every war since the 1950 start of the Korean War. And deaths from COVID-19 already surpassed those from the 1968 pandemic, which claimed 100,000 lives. However the number killed by COVID-19 is still far below the 675,000 deaths from the 1918 Spanish flu.
The deaths resulting from this pandemic and soldiers killed in war are two very different types of loss. But a consideration of both does help convey the sheer magnitude of the virus and its devastating effect on U.S. lives.
Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today