fortune--2020-09-08--Book recommendations from Fortune’s 40 under 40 in finance

An examination of the character traits and challenges faced by four U.S. Presidents from one of America’s most prominent historians; a Wall Street Journal bestseller about the mysteries of group behavior; and one of the most influential books about the power of motivation.
Here is a selection of book recommendations from this year’s 40 Under 40 in finance.
Serve to Win by Novak Djokovic
The discipline, drive, and sacrifices required to win—and to consistently stay at the top—resonated with me in Novak Djokovic’s Serve to Win. I was struck by how analogous dedication and drive in the athletic world is to the business world. I think that people who mightily succeed in business are “corporate athletes.” Persistence, mental strength, and the will to never give up are must-haves. —Akshay Naheta, senior vice president, investments, SoftBank Group
Leadership in Turbulent Times by Doris Kearns Goodwin
To me, great books hit you at the right time with inspiring and enriching content. Last January I read Leadership in Turbulent Times by Doris Kearns Goodwin about the lives and challenges of four U.S. Presidents. (I’m a history geek.) She shows the parallels between the challenges each encountered, and the similar character traits and values it took each President to overcome them. This perspective on the fundamental principles of great leadership—the commitment to doing what’s right, even when it’s hard, and the deep responsibility for people—came just as COVID hit the world and our organization. I’ve been reflecting back on that book a lot over the past six months. —Nir Bar Dea, cohead of the investment engine, Bridgewater Associates
The End of Diversity As We Know It: Why Diversity Efforts Fail and How Leveraging Difference Can Succeed by Martin N. Davidson
The best book that has helped my career is The End of Diversity As We Know It by Martin N. Davidson. This book taught me that promoting and pursuing diversity in the workplace shouldn’t be a priority only because every it’s the right thing to do, but it should also be a priority because increasing diversity and inclusiveness ultimately makes the firm more competitive and successful over the long-term. I am the executive sponsor of our firm’s multicultural diversity and inclusion network, and I encourage all of the leaders to read this important book to help elevate our mission. —Paul Shoukry, chief financial officer, Raymond James
The Checklist Manifesto: How to Get Things Right by Atul Gawande
During my first job, our manager gave it to all the new analysts to read. I found its techniques of breaking dreams into goals, goals into tasks, and tasks tracked to completion extremely simple yet effective. What appears to be a very low-tech solution—when adhered to consistently and habitually—allowed me to keep track of all the threads going on at work and in life and dramatically decreased the likelihood of me dropping the ball, missing the deadline, remaking the same mistakes, or losing sight of where I’m going. It showed me that seemingly complex maneuvers can be nothing more than a sequence of simple steps, and made me that much more effective as a person. The best part: The method doesn’t ask you to accomplish something impossible like increasing your IQ or changing your personality, which may or may not even matter anyway; the method is something anyone could employ if he sets his mind to it, and it directly translates to more accomplishments every day. —Bill Pang, portfolio manager, Millennium Management
The First 90 Days, Updated and Expanded: Proven Strategies for Getting Up to Speed Faster and Smarter by Michael D. Watkins
The First 90 Days by Michael D. Watkins has been an ongoing help in my career. It is a reminder of the importance of listening and learning when joining a new organization or taking on a new role. While solutions may seem obvious when you are new, I like to understand the organizational history and reasoning before identifying quick and longer-term wins. The First 90 Days provides a helpful framework for managing through a transition. I use it as a resource whenever I am making a transition, even within the same organization. I find it so helpful that I give a copy to everyone who becomes a manager in my organization. —Keia Cole, head of digital experience, MassMutual
Portfolios of the Poor: How the World’s Poor Live on $2 a Day by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven
Portfolios of the Poor—a financial study of hundreds of families living in Bangladesh, India, and South Africa—was a game-changing read for me early in my career. It explained the mental models of money that heads of households must develop to navigate the reality of scarce income and limited cash flows. It clearly laid out the premise that Tala’s ethos builds upon: People who are poor lead thriving, nuanced financial lives that simply aren’t captured by the current financial system. Equipped with flexible access to liquidity and the right set of financial tools, these individuals can transcend poverty and catalyze global economic growth at the community level. —Shivani Siroya, founder and CEO, Tala
Who: Solve Your #1 Problem by Geoff Smart and Randy Street
I learned early in my career that every organization—large or small—is the sum of its people. Hiring the right team members is paramount. After navigating some classic pitfalls in an unstructured hiring process earlier in my career, reading this book about interview best practices was a paradigm shift for me. Today, I am grateful to work alongside an extraordinary team that is aligned in its values and mission to invest in diverse entrepreneurs from all across the country who are reimagining the future and helping to make the seemingly impossible, possible. —Anna Mason, partner, Revolution’s Rise of the Rest Seed Fund
The Third Wave: An Entrepreneur’s Vision of the Future by Steve Case
This book covers how we are in the “third wave” of the Internet and why today’s technology entrepreneurs in particular are driving the transformation of how future generations will interact with technology. Additionally, he addresses the “rise of the rest” phenomenon, which is the idea that venture capital will gravitate toward cities that have not been the traditional tech hubs. Case actually visited Fattmerchant’s Orlando office during Revolution’s Rise of the Rest Road Trip.
During his visit, he shared some statistics that struck a chord and ignited a new goal for my career: 75% of all venture capital goes to California, New York, and Massachusetts, and only 1% of capital goes to companies with minority female founders. I experienced this challenge firsthand as a female founder of a payment technology company, but hearing this number shook me to the core. I was able to defy these odds with a mix of a winning strategy, a great team on my side, and a healthy dose of relentlessness. But so many women face this struggle as well. I’ve made it my mission to help other women grow successful businesses and change the fact that less than 2% of female founders ever hit $1 million in revenue. —Suneera Madhani, founder and CEO, Fattmerchant
Visual Explanations: Images and Quantities, Evidence and Narrative by Edward R. Tufte
I read this book for the first time at Princeton and have implemented its teachings ever since. A simple, concise visual representation of information always helps to communicate information better than a complicated one, whether a drawing of a military plan or a draft of a company’s investor presentation. —Kyle Corcoran, executive director, technology investment banking, Morgan Stanley
The Five Dysfunctions of a Team: A Leadership Fable by Patrick M. Lencioni
It addresses some hurdles that may reduce efficiency in teams, despite being made up of highly talented individuals, and has been a source of inspiration. I especially like it because it is not full of bullshit advice like “hire the best.” Everyone realizes that, but how do you hire the best? This book is really concrete and helpful. —Sebastian Siemiatkowski, cofounder and CEO, Klarna
The New New Thing: A Silicon Valley Story by Michael Lewis
I read The New New Thing by Michael Lewis before I started at NEA over a decade ago, and coincidentally, I reread it recently. Despite coming out to the Bay Area for college, I had very little idea of the history and lore of Silicon Valley. When I first read it, it felt like such hyperbole, but it gave such a fascinating view of the driving force behind the innovation economy, the founders and teams building disruptive startups. I didn’t know it at the time, but it was a great foundation for understanding that venture investing is all about the founders we support; they are the (complicated) heroes. It also helped that the book featured quite a few of my NEA partners that I have had the pleasure of working closely with! Now having been in the venture industry for over a dozen years and rereading the book, I realize that it wasn’t hyperbole at all. —Rick Yang, general partner, New Enterprise Associates
Mindset: The New Psychology of Success by Carol S. Dweck
This book changed how I think about potential and growth—both in business and in life. It demonstrated to me why it is important to recognize that there are two mindsets—fixed and growth—and how important it is to orient around a growth mindset.
I witnessed this firsthand when I was studying for the GMATs to enter business school. On my first attempt, I didn’t practice at all. And unsurprisingly, I bombed the test. Luckily, I had my husband to remind me that I had taken quite the fixed mindset and I needed to work for it. I wasn’t bad at math or test-taking—I simply hadn’t tried. Needless to say, the next round (after much hard work) went much better. Similarly, as a first-time CEO, I often have to flex muscles I’ve never used before. Applying that growth mindset allows me to understand that jumping into something new or uncomfortable is not a bad thing. It is an opportunity to learn and grow. —Cameron Peake, cofounder and CEO, Azlo
The book that has helped me most in my career is Mindset by Dr. Carol Dweck. This book emphasizes that nothing is fixed—not intelligence, not capacity, not skill set. Everything can grow and develop over time. Mindset reminded me that while certain things come easier, I can accomplish and learn anything with hard work and dedication. The book made me confident to take on new challenges and unforeseen opportunities, and has shaped the way I view my career. —Diana Avila, global head of banking and expansion, TransferWise
The Monk and the Riddle: The Art of Creating a Life While Making a Living by Randy Komisar
A book that had a big impact on me was The Monk and the Riddle, written by Randy Komisar, a professor of mine at Stanford. It’s about life and approaching the topic of purpose. The book centers on the idea that there is no single path. It’s about the journey itself. It encourages the reader to ask “why” to challenge their motivations for doing something. He brings up the idea of an extended life plan—the concept that somehow people think we’re going to do something now that might not be good but will enable us to do what we want in the future. But that mindset replicated over time means one never gets to living the life they want. I read the book at a time in my life where I was very goal-oriented, and it gave me perspective that took many years to settle in and become a part of how I live. —Josh Reeves, cofounder and CEO, Gusto
Start With Why: How Great Leaders Inspire Everyone to Take Action by Simon Sinek
Start With Why illustrates how great leaders think alike and go about their approach in ways that are high impact and inspirational. I have found this approach to management and leadership incredibly helpful. —Chris Grose, managing director and COO, technology investment banking, JPMorgan Chase
The book explores why some countries are rich and others are poor. During my time living and working in Ghana, South Africa, and India, early in my career, Professor Diamond’s historical perspective on this question influenced a lot of my thinking on how countries might be able to generate economic transformations where there had historically been constraints. —Sarah Cannon, partner, Index Ventures
A recent read that really resonated with me is Loonshots by Safi Bahcall. Particularly in my role pioneering new market structures, I find Bahcall’s insights—from comparing phase transitions in science, for example the process of a solid to liquid, to real-world business examples of firms transforming their markets—intriguingly relevant to innovation in the financial markets. Incumbent firms must exist in many phases concurrently, protecting their profitable business lines while also disrupting them to ensure their ability to thrive and grow in the future. —Amy Hong, managing director and head of market structure strategy for the global markets division, Goldman Sachs


fortune--2020-09-08--A blockbuster IPO briefly made a bottled water entrepreneur China’s richest man

COVID-19 infection lingers in the gut , even after it clears the respiratory system , researchers say

Nongfu Spring, a Chinese bottled water giant, saw its stock soar as much as 85% in its first day of trading on the Hong Kong stock exchange on Tuesday. Its debut is the fourth-best ever among firms raising at least $1 billion in Hong Kong, and it briefly crowned founder Zhong Shanshan as China’s richest man.
Nongfu’s stock opened at 38.4 HKD ($4.95), nearly twice its pre-trading price of 21.5 HKD ($2.76), which sent Zhong’s net worth skyrocketing to $59 billion. The spike briefly put Zhong’s wealth ahead of China’s two richest tech billionaires: Jack Ma, founder of e-commerce giant Alibaba, who is worth $57 billion, and Pony Ma, founder of tech giant Tencent, whose personal fortune totals some $52 billion.
The company’s stock closed at 33.1 HKD ($4.27). The IPO raised $1.1 billion. With a net worth of $51 billion, Zhong, who owns 84% of Nongfu’s stock, ended Tuesday as China’s third wealthiest man, according to Bloomberg. Before the IPO, Zhong’s net worth was an estimated $19 billion. In 2019, Forbes ranked him No. 186 on its list of billionaires in China.
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Zhong founded Nongfu Spring in 1996 in the eastern Chinese city of Hangzhou, bottling and selling water from a nearby reservoir. He has since built Nongfu into China’s leading bottled water distributor, tapping water and building factories around the country. In 2018, the company controlled 26.4% of China’s $30 billion bottled water sector, according to Daxue Consulting. Nongfu’s closest competitor, China Resources Beverage, controlled 20.9% of the market.
In building Nongfu into a giant, Zhong was able to capitalize on a booming bottled water market. In 1997, China consumed 2.8 billion liters of bottled water. By 2013, consumption rose to 39.5 billion liters, according to the International Bottled Water Association.
The growth stems, in large part, from China’s lack of access to clean tap water. In 2016, China’s Ministry of Water Resources declared that more than 80% of the country’s groundwater is unsafe for drinking, meaning citizens must boil water or purchase bottled water.
Zhong’s clever marketing is also a factor in Nongfu’s success. Its slogan, “Nongfu tastes a bit sweet,” is well known in China, and Nongfu has deftly expanded into energy drinks and vitamin waters.
The bottled water industry is also highly profitable, and Nongfu makes a roughly 60% profit on every bottle of water it sells.
“The key here is that there are good profits in water,” Andrew Sullivan, an independent analyst in Hong Kong, told the Wall Street Journal. “Once you have your source and bottling sorted, it is then a matter of where you pitch your brand, the distribution, and price point.”
Investors are confident the company can continue to build on its model.
In pre-trading, Nongfu became the most oversubscribed stock in the history of Hong Kong’s stock exchange. Retail investors placed a record 1,147 orders worth $87 billion, over 1,000 times the amount reserved for them in the filing.
Zhong isn’t the only one whose fortune has ballooned from Nongfu’s trading debut. Bloomberg recently found that 68 shareholders were likely to become millionaires after Nongfu’s Hong Kong listing, including several members of Zhong’s extended family.
Even as he ascends to the top of China’s billionaire class, Zhong remains an enigma.
He is often referred to as a “lone wolf” in Chinese media for his reluctance to speak to the media and the relative distance he keeps from China’s political and financial elite.
In 2016, Zhong sat down for a rare interview with the Chinese newspaper China Daily. He discussed Nongfu’s 2013 food safety scandal, in which Chinese regulators accused the company of using lower standards in its factories than those mandated by the government. Zhong denied the allegations and explained why he keeps a low public profile.
“I used to be a journalist,” Zhong said, referring to his experience working for a newspaper in Zhejiang, China, before founding Nongfu. “I know exactly what goes onto the front page.”


fortune--2020-09-08--Why last week’s great tech sell-off should make investors wary

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. A risk-off mood continues to hang over the markets as U.S. futures—particularly, tech futures—lose ground, following European stocks lower.
Let’s check in on the action.
Markets update
Asia
The major Asia indexes are clinging to gains in afternoon trading, with Japan’s Nikkei up 0.8% .
are clinging to gains in afternoon trading, with Japan’s up . Japanese shares are higher despite news that Japan’s Q2 GDP collapse was actually worse than first thought. It shrank 7.9% in a revised reading.
collapse was actually worse than first thought. It in a revised reading. President Trump vowed on Monday to cut more economic ties with China, suggesting in a speech yesterday that “Made in America” tax credits and tariffs on U.S. companies that move operations to China (or elsewhere overseas) would be part of his second-term agenda.
Europe
The European bourses emerged from the gates in positive territory, before falling. London’s FTSE was down 0.5% two hours into the trading session.
emerged from the gates in positive territory, before falling. was down two hours into the trading session. The latest round of Brexit talks get underway today in Brussels and the two sides are so far apart it appears Britain is prepared to simply walk away with no deal. Wary investors are dumping the pound on concerns of a no-deal outcome.
get underway today in Brussels and the two sides are so far apart it appears is prepared to simply walk away with no deal. Wary investors are dumping the on concerns of a no-deal outcome. Is notoriously thrifty Germany starting to fall under the spell of cheap, easy credit? Deputy finance minister Werner Gatzner suggested the country is in no hurry to return to a balanced budget, a constant of German life.
U.S.
U.S. futures are trading sideways, with tech dragging again. That’s after the S&P 500 fell more than 4% last week.
fell more than last week. Morgan Stanley thinks U.S. airlines—particularly those with big stakes in the domestic market—are a good investment bet. It jumped back into the sector with overweight ratings for Southwest Airlines, JetBlue and Delta Air Lines.
thinks U.S. airlines—particularly those with big stakes in the domestic market—are a good investment bet. It jumped back into the sector with overweight ratings for Southwest Airlines, JetBlue and Delta Air Lines. Here’s what investors should look for in the week ahead: important new measures to gauge inflation; Congress is back—will they strike a deal on stimulus spending?; and presidential election politics heat up.
Elsewhere
Gold is flat, trading in a tight range around $1,940/ounce .
is flat, trading in a tight range around . The dollar is up slightly.
is up slightly. Crude is trading down with Brent below $42/barrel.
***
Out of the woods?
I hope everyone had a nice weekend. Let’s do a quick refresher of last week’s trading action now that all the major indexes are open again.
As recently as mid-week, the S&P and Nasdaq were notching fresh all-time highs, and then the bottom fell out. The Thursday and Friday plunges sent the big 3 indexes into the red for the week.
It was the worst sell-off in tech since March. In absolute terms, it was worse than that, says Goldman Sachs.
We probably should have seen it coming. In fact, in this space on Thursday morning I wrote about how the so-called “greed sentiment” was beginning to shift. The concern? Valuations are heating up—too high, too quickly—and that has investors rethinking their portfolios.
By the end of last week, the pessimistic notes kept coming into my in-box. In an investor note on Friday, Goldman Sachs said it had been seeing a cumulative flow out of U.S. equities over the past four weeks. (However, flows into tech were holding up over that time.) The caveat: its flows tally ran through Sept. 2, not counting the big late-week markets swoon. It will be interesting to see the updated figure later this week, which, barring a major rally, will almost certainly show a further flow out of U.S. equities in the past week.
BofA, meanwhile, saw plenty of evidence that tech stocks were overheating. As of the close last Wednesday, FAAMG stocks—Facebook, Amazon, Apple, Microsoft, and Alphabet’s Google—were trading 41% above their 200-day moving average.
And we all know what happened after that: a huge sell-off over the Thursday and Friday sessions, bringing the five FAAMG stocks back closer towards planet Earth, and closer in line to recent pricing trends. And you know what? By this measure, they’re still overpriced.
Interestingly, BofA sees stocks, in general, as “overbought, not over-owned.” That’s another way of saying volatile.
BofA sees a few head- and tailwinds in the weeks ahead. The factors that could give stocks a boost include: a meaningful vaccine breakthrough, solid economic data and dollar weakness. What could take the wind out of the markets’ sails: virus spikes and Election Day uncertainty.
Happy trading!
***
Postscript
Herpetologists, I need your help.
Legit question here: How does a garden snake manage to slither up to a second-floor bathroom?
Yesterday, on our last day in Amandola, my wife opened the door of the upstairs bathroom to find a snake sidewinding back and forth along the window sill.
“Bernhard, vieni! Subito,” she called to me. (Come quick!) “Biscia! Hurry! Biscia!”
Distracted, I didn’t catch the urgency in her voice. Making matters worse, I completely botched the translation. When she said “biscia” (pronounced: bee-SHAH) I figured she was talking about some kind of bathroom mishap. (Italian speakers will no doubt recognize the word I thought she said, which rhymes with biscia.)
The kids, I grumbled. And so I trudged up the stairs in the direction of the commotion.
When I opened the door I got the surprise of my life. “That’s a snake!,” I shouted, to which my wife flashed me one of those you’re-always-a-step-behind looks. (Not the first of the day.)
“Who let a snake in the house?,” I blurted out accusingly.
“Get rid of it,” my wife commanded, this time in English.
The little yipper was coiling as I approached. But it seemed to confuse the curtain for the enemy. It took a few gummy bites of the curtain material, allowing me to open the window over its head.
I stepped back. It slithered up and over the window frame and out of the house, falling to the ground below.
Problem solved. Now the hard work: retracing its steps.
It either got into the house from the ground floor, climbed the steps, made a beeline to the bathroom, and somehow climbed up the sheer tile wall to get to the window sill where it could startle my wife. Not likely.
Or, it somehow made its way up the outside of the stone wall of the house and crawled into the open bathroom window (who left that blasted window open?!). That would be a heck of a climb. Is that even possible?
Or, it hitched a ride in something up to the second floor? [Checks pockets].
Or, my wife planted it there to test my crisis-management skills. Nah.
I have no idea. Which is why I figured I’d ask the snake (or marriage) experts here.
***
Have a nice day, everyone. I’ll see you here tomorrow.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
SoftBank's hard landing. SoftBank shares closed down more than 7% on Monday after a number of press reports surfaced that the tech-incubator-turned-investor was making huge bets on technology stocks using equity derivatives. As one analyst told Bloomberg, “SoftBank was riding the Nasdaq wave like a mutual fund. The market is falling now and investors have zero visibility, so they are selling SoftBank stocks.”
Biggest bubble in history? That's the question the Financial Times' Andrew Parlin poses as he runs the numbers on over 8,500 listed American companies. The metric to watch out for is stock-price-to-sales. If price exceeds sales by a factor of 10, that's considered a really expensive stock. (Tesla bulls, you should probably look away now). "Only at the very top of the dotcom bubble, in March of 2000, can we find a larger percentage of stocks (6.6 per cent) trading in excess of 10 times sales," Parlin notes.
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
Quote of the day
Rotation is the lifeblood of bull markets.
That was a saying popularized by veteran investor Ralph Acampora, and it holds particular weight these days in this crazy bull market. With that in mind, The Wall Street Journal's Simon Constable offers up three investment strategy tips to help you diversify, and to cushion a potential sell-off in tech shares.


fortune--2020-09-08--PayPal’s CEO on why moral leadership makes clear capitalism needs an upgrade

Dan Schulman, president and CEO of PayPal, has been thinking about moral leadership and the need to impact his communities positively for a long time. In fact, on the latest episode of Leadership Next, host Alan Murray says that Schulman was one of the first to speak on the issue, decades before the Business Roundtable issued its updated statement committing to stakeholder capitalism.
And since he was an early adopter, he’s been defending his position against nonbelievers for decades too.
“The people who argue that profit and purpose are two separate things, I think don’t really understand that they don’t work against each other,” he says. And PayPal certainly traffics in both. The company just had a record quarter across almost every metric in their business, owing to the increased digitization across industries because of the coronavirus pandemic.
As that digitization hits industries from education, with the proliferation of online schooling, to medicine, with telehealth on the rise, PayPal’s digital financial services are doing quite well. That raises the question, from cohosts Murray and Ellen McGirt: Are we witnessing the end of cash? Not exactly, Schulman says.
Cash will be around for a long time, he says, but the economy is digitizing at a breakneck pace. And the pandemic has laid bare many of the inequities that were less visible before COVID-19 wreaked havoc on global economies. Millions of Americans don’t have access to traditional financial services, and Schulman says he believes that smartphones and online platforms provide an opportunity to build a more inclusive economy that brings them into the fold.
“I’m a big fan of capitalism, but like everything else, it needs an upgrade,” he says. Counting on the market to make the changes necessary to include those who have been left out isn’t working, if you ask Schulman.
One of the ways PayPal is working to make the world more inclusive is a pledge of $530 million to support Black-owned businesses—hit disproportionately hard by the pandemic—bolster minority communities, and help tackle the racial wealth gap. At the 11-minute mark, Schulman explains the initiative and its aims.
In the rest of the episode, Schulman talks more about his approach to purpose-driven leadership, taking a stand on issues like gun control and transgender rights, and more. Listen below.


fortune--2020-09-08--Fortune has a full fall of virtual events coming up

This is the web version of CEO Daily. To get it delivered to your inbox, sign up here.
Good morning.
The pandemic shut down Fortune’s in-person conference business, but it seems to have intensified demand for it. The acceleration of digitization, the re-thinking of offices, the increasing involvement of stakeholders on issues like safety and diversity, have created a greater need and desire by executives to convene and share ideas and best practices.
That’s why Fortune has planned a full fall of virtual events. We’ve been building our virtual muscles since March, and have been pleased with the free exchange of ideas we’ve witnessed on our conference platforms. While there is certainly something to be said for rubbing shoulders on the banks of Lake Como, in the shadow of Aspen mountain, or on a cliff overlooking the Pacific, trading information via well-planned video conversations has proven surprisingly productive—and saved our attendees a ton of time, money and jet fuel!
First up later this month—September 29 to October 1—is the Most Powerful Women Summit, which has become the premier gathering of top female executives. This year’s attendees include CEOs Mary Barra of GM, Marillyn Hewson of Lockheed Martin, Corie Barry of Best Buy, Gail Boudreaux of Anthem, Michelle Gass of Kohl’s, Margo Georgiadis of Ancestry, Mindy Grossman of WW, Mellody Hobson of Ariel Investments, Mary Dillon of Ulta, as well as Home Depot’s Anne-Marie Campbell. We’ll also hold Most Powerful Women Next Gen two weeks later, October 13 and 14; details to come.
Then later in October—on the 26th and 27th—the Fortune CEO Initiative and the Fortune Global Forum will hold a joint meeting with a collection of CEOs that includes Brian Cornell of Target, Ajay Banga of MasterCard, Albert Bourla of Pfizer, Roberto Marques of Natura, Beth Ford of Land O’ Lakes, James Mwangi of Equity Group Holdings, Anthony Tan of Grab, Lawrence Culp of GE, Guo Guangchang of Fosun Group, Greg Hayes of Raytheon, Diane Hoskins of Gensler, Enrique Lores of HP, Deanna Mulligan of Guardian Life, Arne Sorenson lof Marriott, Dan Schulman of PayPal, Hamdi Ulukaya of Chobani, Ray Dalio of Bridgewater, and Yu Xuefeng of CanSino Biologics.
We will end the year December 1 and 2 with Brainstorm Tech. More on that program in the weeks ahead.
As always, these Fortune events are by invite only. But if you are interested in attending, you can find more information here—or shoot me a note directly. The future will be clearer for those who attend.
More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Boeing Dreamliner
Boeing just can't catch a break. Air-safety regulators are now probing quality-control lapses in the production of the 787 Dreamliner that may stretch back almost a decade, after Boeing notified them that some parts made at its South Carolina facilities—affecting the rear fuselage—failed to meet its own design and manufacturing standards. Wall Street Journal
EasyJet drop
The British low-cost airline EasyJet has cut its planned capacity for the fourth quarter due to U.K. curbs on international travel. The decision, and EasyJet's abandonment of its guidance for the current quarter, knocked the carrier's share price by as much as 8.2%. The British government has recently instated two-week quarantines for passengers arriving from hot-ticket destinations such as Crete and Santorini. Bloomberg
SoftBank drop
SoftBank's shares are falling again after yesterday's 7% plummet, which was down to concerns over the Japanese conglomerate's big, market-shifting bets on U.S. tech-related options. Last week the FT revealed SoftBank was the "Nasdaq whale" that had been stoking the now-uncertain tech rally. Saxo Bank strategist Peter Garnry: "Given SoftBank is back on the radar since its epic decline [during the coronavirus pandemic] in February and March, it is worth asking the question whether SoftBank Group is a black box and poses a systemic risk to the overall system." Financial Times
COVID guts
New research out of Hong Kong suggests that COVID-19 patients continue to have a prolonged viral infection in their guts after the respiratory infection has cleared, even if there are no gastrointestinal symptoms. Scientists at the Chinese University of Hong Kong said the finding "highlights the importance of long-term coronavirus and health surveillance and the threat of potential fecal-oral viral transmissions." Fortune
AROUND THE WATER COOLER
European Commission
The European Commission has seen a minor reshuffle following the resignation of Phil Hogan—hit along with other senior Irish politicians by a golfing-related breach of coronavirus rules—as Ireland's member of the team. Hogan's trade brief has now gone to the Latvian commissioner, Valdis Dombrovskis, and the new Irish commissioner is Mairead McGuinness, who was a member of the European Parliament. McGuinness gets the financial services, financial stability and capital markets union portfolio, which until now was one of Dombrovskis's many areas of responsibility—and which ensures an Irish commissioner stays connected to the ongoing Brexit saga. RTE
WTO leadership
There's a good chance that the next boss at the World Trade Organization will come from Africa (the outgoing director-general is Latin American, Europe has no candidate, and neither China nor the U.S. would abide the other getting the role.) Here's an interesting piece looking at the four African candidates, and asking whether the right person for the role would be a political big hitter or an expert insider. Politico
Ad fallout
Far-left activists have been trashing branches of the South African drugstore chain Clicks, after it published a hair-care ad that identified Black women's hair as "dry, damaged, frizzy and dull," and white women's hair as "color treated, fine, flat or normal." Attacks by the Economic Freedom Fighters (EFF) party led Clicks to shutter its entire 880-store franchise yesterday, despite an apology from management. Daily Maverick
5G promotion
Qualcomm president Cristiano Amon and Motorola president Sergio Buniac argue in a piece for Fortune that the pandemic has made 5G more important, because "this shift in how consumers are working, socializing, and consuming products and services is forcing manufacturers to rethink how to solve one of today’s biggest consumer pain points: staying connected." Fortune
This edition of CEO Daily was edited by David Meyer.


fortune--2020-09-08--California faces widespread power cuts after weeks of destructive wildfires

In a matter of weeks, California has been hit with two record-breaking heat waves, hundreds of blazes, freak lightning storms and dangerously poor air quality. Now unusually strong winds are threatening to knock down power lines and ignite more wildfires, prompting the state’s largest utility to plan power cuts for more than 500,000 people.
The shutoffs that PG&E Corp. began late Monday are the latest blow for the disaster-weary state, where climate change is making weather ever more extreme. Temperatures have soared to records from Napa to Los Angeles. Wildfires have torched 1.67 million acres—more than any other year aside from 2018 in data stretching back three decades. Hundreds of thousands of people may go dark for days while trapped indoors due to wildfire smoke and Covid-19 outbreaks.
Officials are responding with equally extreme measures. In August, California carried out its first rotating blackouts since the 2001 energy crisis, drawing the ire of millions who went powerless amid extreme temperatures. The Trump administration declared a power emergency, allowing power plants to run at full bore, regardless of environmental limits. The shutoffs that began late Monday are a fairly new and controversial practice, and their use last year triggered investigations while utilities defended them as necessary in the face of increasingly wild weather.
Now, as a second round of ferocious temperatures abates, so-called Diablo winds sweeping in have set the conditions for even more fires. PG&E, which filed for bankruptcy last year after its equipment sparked deadly wildfires, warned the precautionary shutoffs could impact portions of 22 counties from late Monday through Wednesday, including in the Sierra foothills and North Bay.
“Unfortunately, the continued hot and dry weather is going to continue to dry out vegetation across California — and make that vegetation even more susceptible to new admissions and large fires,” Scott Strenfel, a PG&E meteorologist, said during a public briefing late Monday.
PG&E, which emerged from Chapter 11 in July after agreeing to pay $25.5 billion to settle wildfire lawsuits, said preemptive shutoffs that started late Monday could leave about 172,000 homes and businesses in the dark. That could impact up to 516,000 people, based on the size of the average California household.
Shutoffs were expected to affect about 104,000 customers starting from 9 p.m. local time Monday, with the remainder going down in two phases Tuesday. All customers are expected to be restored by 7 p.m. Wednesday.
PG&E also plans to turn off about 100 transmission lines and 145 distribution lines, it said during the briefing.
The U.S. Forest Service said in a statement Monday that most of California “remains under the threat of unprecedented and dangerous fire conditions.” It has temporarily closed eight national forests, including Sierra National Forest.
“Existing fires are displaying extreme fire behavior, new fire starts are likely, weather conditions are worsening, and we simply do not have enough resources to fully fight and contain every fire,” Randy Moore, regional forester for the forest service’s Pacific Southwest Region, said in the statement.
California narrowly escaped rotating blackouts Saturday and Sunday, as temperatures soared past 100 degrees Fahrenheit (38 degrees Celsius) in much of the state, squeezing the power grid to its brink. The fires only made things worse, taking down power plants and transmission lines, cutting power to 70,000 homes and businesses.
While temperatures were lower Monday in some areas, officials said they were still concerned about getting through the afternoon, in part because of the fires. But in a tweet Monday night, the grid operator said it wouldn’t order power outages.
The heat is poised to ebb only slightly Tuesday. Sacramento is forecast to hit 97. Oakland will be 91. And Los Angeles will be 87.
Another day of record-breaking heat across the #BayArea, including 9 daily high temperature records, 3 records for the month of September, and one all-time record. #CAwx pic.twitter.com/QoDCgO8Dwx— NWS Bay Area (@NWSBayArea) September 8, 2020
The latest blazes are already wreaking havoc on the grid. The Creek Fire in the Sierra Nevada Mountains, which has scorched more than 78,000 acres, knocked out transmission from a hydro plant on Saturday.
September and October typically mark the peak of California’s fire season, when plants have been sapped of moisture by the state’s dry summer. Rains most often return in October or November.
Last year, when California’s utilities first began carrying out widespread blackouts like this, some homes and businesses were left in the dark for days. That drew outrage from state and local officials, triggered investigations and prompted PG&E to reassess the scope of future shutoffs. The company has taken steps to limit the size and duration of outages, including putting wires underground in some locations.


fortune--2020-09-08--This is the best wireless carrier by far, survey finds

Verizon had the best overall mobile network during the first half of 2020, placing first in six out of seven categories (including one tie), according to a new survey.
AT&T was second overall, followed by T-Mobile, mobile evaluator RootMetrics said on Tuesday.
Verizon came in first for reliability, accessibility, data connections, and calling. As in prior years, Verizon tied for first place with AT&T for texting quality.
But in the all-important test for speediest network, Verizon placed second behind AT&T, with T-Mobile lagging behind.
The rankings come just as the industry is making an expensive transition to 5G technology, which will eventually bring speeds 10 to 100 times as fast as current 4G LTE, and after T-Mobile finally completed its $26 billion merger with Sprint in April. In its latest round of testing, RootMetrics said it used 5G-capable phones and measured the speed and availability of 5G service as part of all of the rankings.
“Keep in mind that there are important availability differences based on spectrum types, and carriers face a sometimes difficult tradeoff between broad geographical coverage and fast speeds,” RootMetrics noted about 5G.
Verizon claims to offer a superfast type of 5G, but only in parts of about three dozen cities, while AT&T and T-Mobile offer a much slower type of 5G in many more cities. That’s similar to what Fortune found in our recent test of 5G networks.
RootMetrics didn’t offer specific statistics for 5G, but it noted that availability reached as high as 63% of tests on T-Mobile’s network in Jackson, Miss., and 50% of AT&T’s network in Columbus, compared with a low of 0.7% on Verizon’s network in Omaha.
As far as average 5G speeds, Verizon in Los Angeles hit 255 megabits per second, about seven times as fast as Verizon’s average combined 5G and 4G speed nationwide of 36 Mbps. At 255 Mbps, a phone user could instantly download an album of songs or grab an entire HD movie in a few minutes.
AT&T’s best 5G hit 116 Mbps in Phoenix, about three times as fast as its overall national average of 42 Mbps. T-Mobile’s top 5G speed, 83 Mbps in Hampton Roads, Va., was four times as fast as its overall average of 20 Mbps.
RootMetrics uses a different methodology than other mobile network testing firms, like Ookla and Opensignal, which rank based on speed tests performed by customers using free apps on their phones. AT&T topped Ookla’s most recent download speed ranking, followed by T-Mobile, with Verizon lagging.
RootMetrics, a unit of IHS Markit, conducts its tests with professionals driving around the country. But in the first half of 2020 it had to cut back the amount of testing owing to the COVID-19 outbreak. To compile the latest rankings, its surveyors conducted 2.7 million tests, drove almost 203,000 miles, and also checked more than 3,000 indoor locations. That was down from 3.9 million tests, driving 225,000 miles, and checking 8,000 indoor locations for its report covering the second half of 2019.
RootMetrics also ranked the carriers in seven categories in each of 55 major metropolitan areas, down from its usual 125 areas. Verizon placed first in the most local categories, at 329, followed by AT&T with 193, T-Mobile with 78, and Sprint with 70.


fortune--2020-09-08--COVID-19 infection lingers in the gut, even after it clears the respiratory system, researchers say

COVID-19 patients have active and prolonged gut viral infection, even in the absence of gastrointestinal symptoms, scientists in Hong Kong showed.
The coronavirus may continue to infect and replicate in the digestive tract after clearing in the airways, researchers at the Chinese University of Hong Kong said in a statement Monday. The findings, published in the medical journal GUT, have implications for identifying and treating cases, they said.
SARS-CoV-2 spreads mainly through respiratory droplets — spatters of virus-laden discharge from the mouth and nose, according to the World Health Organization. Since the first weeks of the pandemic, however, scientists in China have said infectious virus in the stool of patients may also play a role in transmission.
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A February study of 73 patients hospitalized with the coronavirus in China’s Guangdong province found more than half tested positive for the virus in their stool.
The Hong Kong scientists studied stool samples from 15 patients to better understand the virus’s activity in the gastrointestinal tract. They found active gut infection in seven patients, some of whom had no nausea, diarrhea or other digestive symptoms. Three patients continued to display active viral infection as long as six days after their respiratory samples tested negative for COVID-19.
The finding “highlights the importance of long-term coronavirus and health surveillance and the threat of potential fecal-oral viral transmissions,” Siew Chien Ng, associate director of the university’s Centre for Gut Microbiota Research, said in the statement.
Treatments that modulate the composition and functionality of the gut microbiome should be explored, according to Ng. The gut bacteria of patients who were particularly infectious showed a loss of protective microbes and a proliferation of disease-causing ones.
The Chinese University has offered free screening stool tests to travelers arriving at the airport since late March, and identified six infected children among more than 2,000 samples tested. From Monday, up to 2,000 Covid-19 tests will be done daily as part of targeted detection of asymptomatic people.
More than one patient tested positive even though their respiratory samples were negative, said Francis K.L. Chan, the university’s dean of medicine and director of the Centre for Gut Microbiota Research.
“Stool test is accurate and safe, making it suitable and more effective for COVID-19 screening for specific groups of people,” Chan said in the statement. Some regulators including the U.S. Food and Drug Administration have reached out about stool tests.


fortune--2020-09-08--TikTok’s appalling ‘Holocaust challenge’ signals Facebook-style problems ahead

In late August, an appalling trend spread on the viral video site TikTok: Users donned concentration camp garb, and pretended to be deceased victims of Nazi-era horrors. The trend even gave rise to a hashtag, #holocaustchallenge.
Tasteless or hateful memes rippling across social media are hardly new. But the TikTok incident is notable because of the platform’s incredible growth—it recently boasted of more than 100 million U.S. users—and its role at the center of a power struggle between the U.S. and China.
The controversy also raises the question of whether TikTok is fated to become the next Facebook—a massive social platform that profits from toxic content, and that cannot or will not do anything to stop it.
#holocaustchallenge leads to outrage, advertisers stay silent
The “Holocaust challenge” videos first began appearing in mid- to late August. It’s unclear if participants posted the videos as provocation or as a bid for attention or in a misguided attempt to educate followers about the horrors of Nazism.
The TikTok videos soon gained attention outside TikTok in late August as users on Twitter posted images like the one below to denounce them.
This is really disturbing. Not only does it trivialise History, but totally dishonours the memory of the Holocaust and lived experiences of real people. Trends like this serve to reduce knowledge of why and how Jews were persecuted. Honestly baffled … https://t.co/uaRa5up1JF — Laura (@LJayneParkinson) August 23, 2020
The trend gained the attention of media outlets, including the BBC, and also led to condemnation from Jewish groups.
“The digitization of anti-Semitism online and its corresponding reach on social media has contributed to rising levels of global anti-Semitism. The #holocaustchallenge is shameful,” said Holly Huffnagle of the American Jewish Committee in an email to Fortune. “Many of the insulting videos have been viewed thousands, if not hundreds of thousands, of times.”
TikTok responded to the outcry with a statement saying the company had blocked the hashtag and that it was redirecting those who searched for it to “Community Guidelines” so as to promote the “supportive, inclusive community we are working to foster.”
Unlike recent controversies over offensive material on Facebook, the #holocaustchallenge has not attracted any public backlash from TikTok advertisers, which include Kellogg’s and Procter & Gamble.
This may be because TikTok is still a blip in the digital advertising market with revenue of $177 million in 2019, according to one estimate, versus $70 billion for Facebook and $160 billion for Google.
Claire Atkin of Check My Ads, a site that helps big companies avoid placing ads next to offensive content, says clients have yet to raise TikTok as a concern and remain focused instead on other sites.
Kellogg’s declined to comment on the TikTok controversy, but a person familiar with the company said it had only purchased ads on the app in a pilot project that has since ended. A spokesperson for Procter & Gamble said the company constantly reviews media to ensure it does not advertise “near content that we determine is hateful, denigrating, or discriminatory.”
Meanwhile, the “Holocaust challenge” is just one face of what some call “trauma porn” on TikTok. Other examples include users role-playing 9/11 casualties or victims of domestic abuse.
Repeating Facebook’s mistakes?
While TikTok has yet to obtain the economic clout of Facebook or Google, it is rapidly acquiring an outsize influence on culture and politics. Research firm Statista reports that TikTok is used by more than six out of 10 teens, while the app is also being embraced by a growing number of celebrities and sports stars.
TikTok is also rapidly expanding its ad offerings. Last week, the company announced a series of partnerships with ad tech companies that will make it easier for brands to run marketing campaigns across thousands or millions of TikTok videos.
This growth suggests TikTok could soon rival Facebook—and give rise to the same torrent of hate, misinformation, and political mischief spawned by the earlier social network.
“While all of the social networks are investing a lot of resources to govern the content on their platforms…the reality is that such content will always find its way into the digital world in which we live,” says Yuval Ben-Itzhak, the CEO of Socialbakers, a firm that provides social media marketing for brands like McDonald’s and L’Oréal.
Critics of social media companies say Facebook and others fail to properly police their platforms for hate or misinformation because it is not in their interest to do so. They allege these companies turn a blind eye to false or incendiary material, since such content drives user engagement, which in turn produces ad revenue.
Those critics include Atkin of Check My Ads, which she founded with Nandini Jammi, who helped build Sleeping Giants, a group that pressures advertisers to stop supporting far-right media.
According to Atkin, TikTok has failed to build in safeguards to stop the viral spread of toxic content and is “just as dangerous as Facebook.”
She adds that TikTok may even pose a greater threat given that it’s a Chinese company and subject to censorship demands from Beijing. Atkin claims TikTok has scrubbed videos that call attention to China’s genocidal policies toward its Uighur population and has also programmed its algorithms to effectively ban people with disabilities.
If such allegations are true—reports from the Guardian and other media outlets suggest they are—then TikTok may have the ability to do more to suppress “trauma porn” videos in the same way it suppresses other content. (TikTok did not respond to a request for comment about the censorship allegations).
All of this raises the stakes in the current geopolitical fight over TikTok as the White House pressures its Chinese owner, ByteDance, to spin off its American operations to a U.S. company like Microsoft or Walmart. China has recently said it could intervene in any such deal.
Whatever the outcome of the TikTok negotiations, it appears for now that the company is unprepared or unwilling to prevent future unsavory trends like the “Holocaust challenge” from rippling across its platform.
More must-read finance coverage from Fortune:


fortune--2020-09-09--Trump’s TikTok ban isn’t ‘tough on China’—it’s actually quite the opposite

In the latest of a slew of China-directed policy moves, President Trump has compelled the sale of TikTok. Though this may seem like yet another effort to “get tough” on China, it does just the opposite.
Around the world, there is a battle underway for the future of the global technological order. By forcing the sale of the prominent social media app, Trump is putting the U.S. on the wrong side.
As China has become increasingly authoritarian, particularly under the leadership of Xi Jinping, it has become ever more reliant on digital tools to control its people and protect the rule of the Chinese Communist Party (CCP). In an effort to manage the information the Chinese people consume, the country’s Internet is closed, with many foreign websites banned. This allows the party to shape a favorable national narrative and suppress views critical of the state.
The Chinese government has erected a massive domestic surveillance apparatus, nowhere more chilling than in the western province of Xinjiang, where it uses cutting-edge tech platforms to oppress a Muslim minority population. Chinese companies export similar digital platforms that may help other illiberal states to replicate this Orwellian system and consolidate their own grip on power. On the global stage, the Chinese government advocates a concept called “cyber sovereignty,” which places the state in control of the flow of information. And if foreign tech companies want to operate in China, the CCP forces them to play by China’s rules.
For all practical purposes, China’s Internet and other information systems are closed, and there is every indication that the CCP intends to keep them that way. When Beijing spreads its practices by systematically exporting digital surveillance technologies to authoritarians and winning international support for its “cyber sovereignty” concept, it is sharing with illiberal states the power to close off their own data environments.
The U.S. once aspired to a free and open global Internet, but the refinement of China’s brand of digital authoritarianism has made America’s vision unattainable for broad swaths of the global population. Instead, the world is moving toward a “splinternet” in which democracies permit the free flow of information while autocracies subjugate it to state control, sequestering themselves from the outside world and surveilling their own people to keep their regimes in power.
The dangers of tech-enabled repression are not confined to authoritarian states, however, and the U.S. and other democracies are imperiled by the spread of China’s approach. American prosperity requires mutually beneficial commerce, market access, and the exchange of people that allow the country to retain its innovative edge; its national security requires cooperation with allies overseas, including in the digital realm; and all democratic political systems rely on the exchange of information and ideas.
Indeed, since the early days of the republic, the U.S. has sought to prevent a foreign power from dominating the globe in ways that would cut off America’s access and influence, therefore jeopardizing its security and prosperity. China is showing that domination no longer just comes in the form of territorial conquest, but can be enabled by new technologies and occur in cyberspace. Faced with the prospect of digital closure, then, the U.S. and its allies should protect themselves by seeking to keep the technological order open.
But with its recent tactics, the Trump administration is taking its own closed approach. By forcing the sale of TikTok, banning WeChat, and announcing a broad “Clean Network initiative,” it is trying to shut out nearly all Chinese technology platforms from American markets.
There are good reasons to be worried about some Chinese platforms, and those that pose clear threats to American security and prosperity may need to be restricted. But this surely does not apply to all Chinese platforms, and by banning them outright, Trump is replicating the CCP’s playbook. If other countries follow China’s lead and resort to widespread technology bans, they will increasingly create closed information environments of their own, when they should instead be banding together to protect their preferred, open approaches to information and data.
If democracies make shortsighted decisions and retreat to their own digital shores, they will leave China with more room to control information how it pleases and help other repressive states to do the same. By closing off the U.S. to China, Washington is actually making it easier for China to write the global rules governing 21st-century technologies.
Instead, the U.S. should lead the world toward technological openness, advocating for platforms and rules to manage them that will allow critical information systems to stay accessible. It should rally like-minded states to advance a common vision for cyberspace, the Internet, and emerging technologies—one that reflects democratic values and helps to prevent conflict.
But unlike in the past, when new rules and regimes would be made at the United Nations, Washington can’t expect these to be taken up by rusty international bodies. China is a member too and rallies other illiberal states, like Russia, to advocate for its own closed vision. The U.S. and its allies will therefore need to take bold steps to promote open technology approaches knowing that authoritarian powers may never sign on to them—but with the confidence that swift action can keep China’s closed views of information from becoming a global approach.
Walling America off—whether physically, economically, or digitally—is expedient, but it is the ultimate self-defeating move for a 21st-century power that relies on international interconnectedness. By retreating behind its own borders, the U.S. risks subverting the only international approach to technology that can keep it safe and prosperous: an open world.
Rebecca Lissner is an assistant professor at the U.S. Naval War College, nonresident scholar at Georgetown University’s Center for Security Studies, and coauthor of the forthcoming book An Open World: How America Can Win the Contest for Twenty-First Century Order. The views represented here are her own.


fortune--2020-09-08--Tesla’s stock has plunged 34% in one week

Tesla’s shares have plummeted more than 34% in the past week, marking a huge reversal in fortune for what has been one this year’s hottest stocks.
Telsa’s shares tumbled to $330.21 at the market’s close on Tuesday, down from a high of $502.49 during mid-day trading a week ago. On Tuesday alone, the electric carmaker’s stock sank more than 21%, its worst daily decline ever.
The drop is largely attributed to Tesla being snubbed from inclusion in the S&P 500 index on Friday, surprising investors who thought that the company was shoe-in for the list. Tesla also announced it had sold $5 billion of new shares, diluting the value of stock held by existing investors.
Meanwhile, shares soared Tuesday for Tesla competitor Nikola, an electric vehicle and fuel-cell startup, after partnering with General Motors on an electric pickup truck that is expected to start production in 2022. The truck will compete with Tesla’s Cybertruck, which Tesla expects to begin producing late next year.
Tesla’s stock decline also coincides with major reversal in the Dow Jones and Nasdaq indices, which had been on a tear this year despite the economic calamity caused by the coronavirus pandemic. Technology stocks have suffered the most, with big tech firms like Apple, Facebook, and Amazon all tumbling in recent days.
With its falling share prices, Tesla’s market value has declined to $307.7 billion, down from $468.2 billion last week. During its run up, Tesla market capitalization had surpassed that of Walmart, giving Tesla huge bragging rights in the process. But now Tesla’s value has tumbled well-below the giant retailer, which was worth $392 billion as of Tuesday.
Despite the decline over the past week, Tesla’s stock is still up nearly 284% since the start of the year.
Colin Rusch, analyst at investment bank Oppenheimer, said he expects more stock market volatility during the rest of the year. But as far as Tesla is concerned, he sounded a somewhat positive note, saying the company’s technology and cars have a “fundamental lead” over rivals.


fortune--2020-09-08--JPMorgan flags potentially ‘illegal’ actions of employees and PPP loan recipients

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Update: JPMorgan later said that the fraud found was related to the EIDL program.
The embattled Paycheck Protection Program, rolled out in April to help keep small businesses alive during shutdowns, has long been flagged for possible fraud. Now, the program’s biggest lender is investigating some of its own employees for aiding misuse of funds by customers.
In a memo sent from senior staff Tuesday, first reported by Bloomberg and also viewed by Fortune, the bank found “instances of customers misusing Paycheck Protection Program Loans, unemployment benefits and other government programs,” adding that some of JPMorgan’s own “employees have fallen short, too,” per the memo.
JPMorgan was the PPP’s biggest lender, dolling out some $29.4 billion in funds across over 280,000 loans before the program ended on Aug. 8. The firm said in the memo Tuesday it had found “conduct that does not live up to our business and ethical principles” that “may even be illegal.”
Trish Wexler, a spokesperson for JPMorgan, declined to comment further to Fortune.
The risk of illegal actions and misuse of the government funds has been top of mind for government watchdogs, government officials, and the media since the program’s rollout in early April. The Federal Bureau of Investigation and Department of Justice have already levied cases against possible fraudsters, and as of a June 9 report, nearly 100 cases had been initiated since the program’s rollout, some already leading to convictions. Shortly after the program began, there was also general outcry over large, publicly-traded companies receiving loans while smaller businesses struggled to access the funds.
Meanwhile, House Democrats released a preliminary report last week that found over $1 billion in funds went to companies with multiple loans, writing the program had a “high risk for fraud, waste, and abuse.” Additionally, the analysis found that roughly $3 billion was “flagged” by the federal government’s System for Award Management (SAM) database and PPP loan-level data, the Select Subcommittee on the Coronavirus Crisis wrote in the report—building on earlier claims that “there is a significant risk that some fraudulent or inflated applications were approved,” per a June report by the Government Accountability Office (GAO).
All told, loans from the government program went to over 5 million small businesses, but left over $130 billion in unused funds, per the latest Small Business Administration report.
Now, JPMorgan said Tuesday “we are doing all we can to identify those instances, and cooperate with law enforcement where appropriate,” per the firm’s memo, telling employees “We need everyone to be vigilant.”
After all, Maria Earley, a financial services regulatory and enforcement partner at international law firm Reed Smith, told Fortune back in April that “There will be fake companies, and there will be people doing fraudulent things, and no bank wants to be the one that approved that [application].”


fortune--2020-09-08--Apple countersues Epic over ‘unlawful’ Fortnite payment system

Apple further escalated its fight with Epic Games, filing a countersuit to stop the game maker from using its own payment system for Fortnite.
Apple is seeking monetary damages to compensate for its loss of fees, according to a filing Tuesday in federal court in Oakland, Calif.. Epic last month launched a payment system that circumvented the Apple App Store, so the iPhone maker didn’t get a cut of purchases inside of Fortnite. Apple stopped new users from downloading Fortnite on its platform in August, but existing copies of Fortnite can still use Epic’s system.
Epic sued Apple on Aug. 13, claiming the removal of the Fortnite app from the App Store is “retaliation” for the game maker’s decision to offer in-app purchases through its own marketplace. Epic was denied a court order that would have temporarily stopped Apple from delisting Fortnite. Epic didn’t immediately respond to a request for comment.
The case is shaping into a major antitrust battle over tolls of as much as 30% that Apple charges developers when users make in-app purchases. Epic has filed a separate suit with similar claims against Google.
Apple said in Tuesday’s filing that Epic’s actions have hurt its business and customer relationships. “Epic’s conduct actually interfered with Apple’s relationships with its consumers, in particular those who made purchases through Epic’s unauthorized external purchase mechanism, by depriving Apple of the economic benefit that it reasonably expected to receive from those relationships,” Apple said in its filing.
Contradicting Epic’s claim that the App Store is anti-competitive, Apple said the store provides a service and helps developers make money.
More than $116 billion of the App Store’s 2019 sales of almost $140 billion “went entirely into app developers’ back pockets,” Apple said.


fortune--2020-09-08--Fortnite users flee after getting caught in Apple dispute

Since Apple confrontation with Epic Games kicked into high gear, the game maker has seen its Apple-based users plunge, Epic said in a legal filing on Friday.
Daily active users of Epic’s blockbuster battle-royale game Fortnite on Apple’s iOS operating system have declined by more than 60% since the tech giant removed the game from the Apple App Store, Epic said in the filing. More than 60% of Fortnite users on iOS access Fortnite only on Apple devices, the video-game company said.
“The harm to these users is meaningful,” the filing said. Epic also warned that Apple’s actions could cause its business “irreparable harm.”
The trouble erupted on Aug. 13, when Epic began offering customers a way to buy items directly through its Fortnite app, eliminating fees that go to Apple. The same day, Apple removed Fortnite from its store for violating its store guidelines. Epic then sued Apple, alleging monopolistic behavior.
Since Aug. 27, when Epic issued an update to the game that wasn’t available for Apple devices, “all iOS Fortnite users became stranded, unable to play the game with their friends and family who updated the game on non-iOS platforms,” the company said.
More than 116 million registered users have accessed Fortnite through iOS — more than through any other platform, Epic said in the filing.
A judge has set a Sept. 28 hearing on Epic’s request for an injunction. In the Friday filing, Epic asked the judged to block Apple from removing Fortnite from the app store in what it called “retaliation” for offering in-app purchases through its own marketplace.


fortune--2020-09-08--Here’s one possible reason why Tesla wasn’t added to the S&P 500

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It’s not a great day to be a Tesla bull.
In a move that surprised the Street on Friday, Tesla was not added into the S&P 500 index—instead passed over for Etsy, Teradyne, and Catalent. And investors are clearly showing their dismay: Tesla’s stock was down over 17% in midday trading on Tuesday.
Morningstar’s David Whiston, for one, is “not surprised” by Tesla’s S&P snub and speculates that “Tesla has a quality of earnings issue around being profitable often with the help of emission credit sales. The index is market cap weighted, so Tesla qualifies easily in that regard. But perhaps the committee is concerned about the stability of Tesla’s earnings, and that caused them to want to wait a bit,” Whiston tells Fortune via email.
In fact, in Tesla’s most recent quarter, sales of regulatory emissions credits accounted for roughly 7% of the company’s $6.04 billion in sales.
JMP Securities’ Joseph Osha notes that while the second quarter was “widely reported as a beat,” the “reason for that beat was pretty much entirely the fact that those zero emissions credits came in higher than expected. It’s not as if it’s somehow bogus…But the perception last quarter wasn’t great that that was where the beat came from, and I guess it would be nice if [Tesla] could give us some better sense as to how those numbers should track,” he tells Fortune.
Even longtime Tesla bull Dan Ives at Wedbush Securities argues that while “there’s a range of areas where the decision committee ultimately decided not to include them this time,” the most likely is “GAAP profitability and sustainability of that metric given so many moving parts,” he tells Fortune. “It’s a ‘prove me’ situation in terms of S&P.”
But those like Ives and JMP Securities’ Osha believe Tesla will prove itself in coming quarters. Osha tells Fortune he believes “the concerns about profitability are going to evaporate, and the people who make these index decisions will do what they do.”
That said, with Tesla having having achieved one of the main requirements to be added—reporting profits for four consecutive quarters—the wait has surprised some. Morningstar’s Whiston says that “I’ve seen people saying that inclusion was certain, and I never thought it was certain. It’s likely inevitable, assuming Tesla does not collapse, but I’m glad the committee chose to wait.”
Indeed, simply meeting the parameters for inclusion doesn’t guarantee the S&P Dow Jones Indices will add the company to the S&P 500.
Meanwhile, Etsy, the mega online marketplace known for craft goods, did make the cut on Friday, despite a yawning gulf between market caps (Tesla’s roughly $320 billion dwarfs that of Etsy at around $13.4 billion, as of Friday’s close), leaving some analysts scratching their heads. Yet while Tesla may be more popular and powerful with traders, the company has only just reported the required four consecutive quarters of profits—while Etsy has reported 13 consecutive quarters of profits.
Ives notes the timing for inclusion is still up in the air, but “another quarter of profitability would help answer any lingering questions that S&P have,” he notes.
With the stock’s already having taken a beating earlier last week before Friday’s news, Whiston notes “the investor reaction at least with day traders will be poor because those people are trading it and hoping to flip the stock fast.”
Indeed, adds Ives, the S&P snub is “a gut punch to the bulls.”


fortune--2020-09-08--Disco, bell bottoms, big hair…and cutting-edge A.I.?

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What does a programming language invented in the 1970s have to do with today’s cutting-edge A.I.?
Quite a lot, as it turns out. But first a little background: Most of today’s breakthroughs in artificial intelligence have been the result of neural networks. Self-driving cars and software that can beat the world’s best players at games like Go and Starcraft, write uncannily humanlike prose, and detect breast cancer in mammograms better than an experienced radiologist—that’s all neural networks.
But neural networks have some drawbacks. It is difficult to endow them with existing knowledge: The laws of physics, for instance, or the grammar of a language. Neural networks can learn these rules from scratch, by trial and error, but that takes lots of time, computing power, and data—all of which can be expensive.
Another problem: Neural networks have a tendency towards what data scientists call “overfitting.” That’s when a machine learning model finds correlations in its training data that seem to have predictive power, but which turn out to be spurious in the context of the algorithm’s intended purpose. This problem comes about because neural networks can ingest so much data and encode relationships along so many dimensions, they can always find patterns—but they can’t easily figure out causation.
A famous example: University of Pittsburgh researchers used a neural network to try to predict which patients with pneumonia were most at risk of sudden deterioration. After being trained on historical data, the algorithm falsely classified patients with asthma as extremely low risk. It turned out that (human) doctors, knowing asthma patients were at high risk, were more vigilant with them and intervened earlier and more aggressively. So, yes, in the training data, it looked like asthma correlated with good patient outcomes. But that wasn’t a very helpful correlation for an algorithm that triages pneumonia patients.
Recently, a team of researchers from Johns Hopkins University and Bloomberg came up with a method with the potential to overcome some of these problems. (Full disclosure, I used to work at Bloomberg and know one of the people involved in the research.) Surprisingly at the heart of their solution is Datalog, a logical programming language developed in the late 1970s.
Datalog is a derivative of Prolog, a programming language invented in 1972 by A.I. researchers interested in getting computers to understand French. Five years later, Datalog was specifically designed to create rules for querying a database of facts. Logical programming languages like this were important in that era of A.I. research, when scientists thought the best way to imbue computers with intelligence was through a series of high-level rules or instructions for how the software should manipulate data. This kind of “symbolic A.I.” reached its apogee in the 1970s and early 1980s with so-called “expert systems”—software that tried to mimic the decision-making of human specialists in various fields from accounting to chemistry.
Computer science turned away from symbolic A.I. because, while it was good at logic, it wasn’t very good with perception (is that a cat in the photo? Can Alexa understand my spoken instructions?), struggled with exceptions and edge cases, and couldn’t cope well when data was missing or erroneous. It was also always limited by what experts already knew about the rules and correlations in a system—it couldn’t discover whole new approaches. Plus, the computer programs needed to run such systems were laborious to craft. “We had this hubris that we could write down everything and this sank expert systems in the 1980s,” says Jason Eisner, a computer scientist at Johns Hopkins who, along with his graduate student, Hongyuan Mei, worked on the new research with Bloomberg.
But Eisner says there was a lot about symbolic A.I. that was powerful. “There is a lot of old stuff and it is not bad just because it is old,” he says.
Eisner was particularly interested in trying to create A.I. that could help doctors draw insights from medical data. But there was a problem—different types of medical data are collected at vastly different time scales. A heart monitor takes a reading multiple times per second, while information from a routine medical examination might come only once or twice per year. Meanwhile, most neural network systems assume a consistent time interval.
At a conference, Eisner wound up talking to Gideon Mann, the head of data science in Bloomberg’s office of the chief technology officer, who had a similar problem: making sense of all the noisy data—economic forecasts, news stories, company filings, social media posts—that can affect a company’s stock performance. This information also arrives at very different time steps: Stocks trade at fractions of a second, news come out daily or weekly, social media posts many times a day, and company earning reports only quarterly.
Eisner had an intuition that if you could limit the kinds of correlations the neural network could make, it would both help solve the overfitting problem and allow a single A.I. system to deal more efficiently with data collected at disparate time scales. And Datalog seemed like a good tool for doing so.
Eisner’s student Mei received a three-year PhD. fellowship from Bloomberg that included a 12-week summer internship with the company. Mei spent part of it working on this problem. Along with Eisner and Guanghui Qin, another Johns Hopkins graduate student, and Minjie Xu, a machine learning researcher and software engineer at Bloomberg, Mei created a hybrid system—they call it Neural Datalog Through Time (or NDTT) — that marries Datalog with a neural network.
Datalog is used to delineate possible events that can occur in a time series based on events that have already occurred. But the probability of each event happening is worked out by a neural network. Eisner compares this to a coloring book, in which a human uses Datalog to sketch the outline of the image—the hard facts—but then a neural network colors in the picture based on probabilities—softer tendencies— it’s learned from training data. “The network can only color within the lines,” he says. “But within those boundaries, it can choose what is useful to color, and its choice of colors is beyond what a human could do by hand.”
For instance, imagine a digital assistant that wanted to predict whether Ruth might want to book travel to Chicago for next Thursday. You might limit such a system to take into account certain variables—such as the weather in Chicago and whether Ruth had a board meeting already booked in New York that day—and to discount other variables, such as the score of the Cubs game or the weather in Seattle. But the exact way in which the weather in Chicago influenced the likelihood of Ruth wanting to book the trip would be up to the neural network to figure out.
The researchers tested NDTT on several small test problems. One was based on data about which TV programs 1,000 people watched over an 11-month period. NDTT had to learn to predict what show any given user would want to watch when. Another test was records of a soccer game played with robots, called RoboCup, in which NDTT had to predict the next event in the game—a pass to a certain player, a kick at the goal, or an attempt to steal. In both tests, NDTT had significantly better error rates than pure neural network approaches, including so-called graph-based methods that try to take into account the structure of the data and how it evolves through time. It also outperformed a pure symbolic A.I. approach.
For a long time, critics of pure deep-learning approaches, such as Gary Marcus, have been calling for exactly the sort of hybrid approaches NDTT represents. And for a long time, deep-learning purists scoffed and kept plowing ahead with ever larger neural networks. But there is now a sense that the ground is shifting and hybrid approaches are gaining a tentative, but important, foothold. As Mei, the lead author on the NDTT research, says, if we want to apply A.I. to areas like physics or chemistry—where humans already have some well-proven knowledge of the rules of the system—hybrid approaches have real advantages. “In these fields, machine learning can, help but such fields have a lot of knowledge and sometimes it is risky or dangerous to do learning ignoring that knowledge,” he says. But, he cautions, “What matters is how much faith you have in that knowledge.”
And with that, here’s this week’s A.I. news.
Jeremy Kahn
@jeremyakahn
jeremy.kahn@fortune.com
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A.I. IN THE NEWS
Detroit sued over use of facial recognition in false arrest. A Detroit man who was wrongly arrested for assault after a facial recognition system misidentified him as the person seen in a video of the incident is suing the city as well as the police officer who made the decision to run the video through the facial recognition software, according to a report in Motherboard. The man, Michael Oliver, is the second Detroit resident known to have been wrongly arrested due in part to erroneous identifications by the technology.
More face recognition troubles—an Illinois casino fails in bid to have biometric privacy breach lawsuit thrown out. Par-A-Dice Hotel Casino in Peoria, Illinois, and its parent company are facing a lawsuit for violating the state's strict biometric privacy law by using security cameras on its property that also scan and record geometric data of people's faces. Last week, a U.S. District judge ruled against the casino company's attempt to have the suit thrown out and ruled that the plaintiffs did meet the law's pleading standards, Reuters reports.
Google forms a new research institute with the U.S. National Science Foundation to study human-A.I. interaction. The company announced that it is investing $5 million to set up The National Research Institute for Human-A.I. Interaction and Collaboration as well as donating cloud computing resources to the new center. The institute will delve into topics around using A.I. for social benefit and research inclusive design, safety and robustness, and privacy, Google said.
Fear of Chinese advances in A.I. is driving the U.S. and Europe closer together on regulation. That's what a story in Politico Europe claims. The publication reports that while the Trump Administration had, as recently as the start of this year, rejected attempts by other Western governments to form an international body to coordinate A.I. policy and regulation, saying that such an effort was "premature and would hamper innovation," it has since changed its tune due to fears over China's rapid development of A.I. The shift lead to the G7 announcing the creation of the Global Partnership on Artificial Intelligence in June. But while the move is a significant shift, the publication notes that the U.S. and the European Union remain far apart on exactly how they want to regulate A.I., with Washington still wary of prescriptive approaches that are more popular in Europe, and the Europeans skeptical of U.S. support from home-based tech companies.
Google uses a technique developed by DeepMind to improve traffic estimates. Researchers at DeepMind, the London-based artificial intelligence company, have helped their sister company, Google, improve the "estimated time of arrival" predictions in Google Maps, according a blog post from the A.I. company. The technique involves dividing each location in large "supersegments" of adjacent roads that share traffic volume and then using a graph neural network to improve the traffic forecasts across these segments. The new method improve the accuracy of Google Maps ETAs significantly for a number of cities: 54% in Taichung City, Taiwan, 31% in Singapore, 37% in Osaka, 43% in Sydney, and closer to Google's home turf, 22% in San Jose.
Baidu Apollo signs deal with the Chinese city of Guangzhou. Baidu Apollo, the Chinese Internet giant's autonomous vehicle company, has inked an approximately $67 million agreement with Guangzhou-based SCI Group and the Guangzhou Public Transport Group to develop smart transportation technologies for the city, the company announced in a Medium post. The technologies include V2X (vehicle-to-everything wireless communication), connected cars, 5G-powered robobuses and self-driving taxis.
U.K. startup wins government backing to test A.I.-powered breast cancer screening software. Kheiron Medical Technologies, a London-based A.I. startup, has won a British government award to roll out its automated mammography screening tool to 15 clinical testing sites across the U.K. over the next three years, the company and the government announced. In studies it conducted, Kheiron says its software surpasses the U.S. national performance benchmarks for digital mammography screening, equaling the performance of human radiologists. The company's software has also undergone clinical trials in the city of Leeds—although the results of that trial have not yet been published. The startup says the new award will help it benchmark "how to integrate new, cutting edge AI technologies into the [U.K. National Health Service] safely and effectively" and will position it to potentially roll out the software to most of the NHS. The amount of government financial support was not specified, but Kheiron and the other nine companies chosen as finalist in the first U.K. Artificial Intelligence in Health Care Awards receive a share of £50 million ($65.3 million) earmarked for the program. The U.K. and many other European countries are facing an acute shortage of radiologists, which has already lead to delays in mammography screening—a situation made worse by the postponement of routine screenings during the height of the pandemic in the spring.
EYE ON A.I. TALENT
Her Majesty's Revenue and Customs (HMRC), the U.K.'s tax collection authority, has appointed Daljit Rehal as chief digital and information officer, the agency announced. Rehal was previously global digital and data services director at British energy company Centrica.
Data science marketplace Pivigo has named Alex Willard its new chief executive officer, according to Information Age. Willard was previously executive entrepreneur-in-residence at U.K. chipmaker Imagination Technologies.
Data Lab, a Scottish government-funded innovation center for data and A.I., has appointed Mark Wilkinson as its new head of business development, the website of Scottish Business Insider reports. Wilkinson was previously an executive with database and analytics software company Teradata.
A.I.-enabled cybersecurity company Darktrace, based in Cambridge, England, has appointed Luk Janssens as its head of investor relations, according to Cambridge Network. Janssens was previously head of European technology research at investment bank Credit Suisse.
EYE ON A.I. RESEARCH
Dutch researchers show that 'patch camouflage' can be used to trick military image classification systems. Researchers from several Dutch universities, a government applied research lab and the Dutch Ministry of Defense have shown that applying relatively small patches printed with certain patterns to the tops of military aircraft and "other large military assets" can render them undetectable by an A.I. image classification system used to analyze aerial surveillance images, according to a paper recently published on the research repository arxiv.org. "Our results show that adversarial patch attacks form a realistic alternative to traditional camouflage activities, and should therefore be considered in the automated analysis of aerial surveillance imagery," the authors write.
But there are some caveats, the most important of which is: to develop effective patches, the defender needs to have access to the image classification system that is being used to analyze the images. While many commercially-available image classification systems have been built on the same handful of open-source algorithms—and it might theoretically be possible to develop camouflage patches that work against all of them at the same time—military-grade systems may have been built using proprietary algorithms and training data. That's probably why the authors of the paper seem more concerned with the implications for the automated analytics tools the military already uses—in other words, how the "offensive" side can perfect its reconnaissance systems—rather than the implications for the "defender," i.e. suggesting the Netherlands actually start putting specific camouflage patterns on its aircraft. In the case of testing your own system, you already have access to the algorithm and the training data.
It is only a matter of time though before such camouflage begins to appear in the real world.
FORTUNE ON A.I.
Why American Express is trying technology that makes deepfake videos look real—by Jonathan Vanian
Google bolsters its A.I.-enabled flood alerts for India and Bangladesh—by Jeremy Kahn
Europe’s privacy regulators form task force to tackle complaints about Google and Facebook code—by David Meyer
TikTok: Everything to know about tech’s biggest soap opera—by Danielle Abril
Pentagon reaffirms Microsoft’s $10 billion JEDI cloud contract amid Amazon’s challenge—by Naomi Nix
BRAIN FOOD
For a few summers during and right after high school, I worked in a bank. I worked in a few different departments during my time there, but one summer, I worked in mortgage lending and my role was "internal audit."
If this sounds vaguely interesting, you're mistaken. The job consisted entirely of looking through piles of paper mortgage applications and making sure the data from the applications had been entered correctly into a computer database. With some regularity, I had to correct clerical errors. Every once in a while, I'd discover some important piece of information—like the applicant's social security number or her credit report—was missing and I'd flag that up to a supervisor. Once—and only once—during the whole summer, did I discover something more interesting: a case of potential fraud. It wasn't even very interesting fraud. The applicant had the same name as his father, say Jack Smith and Jack Smith Jr., and Jack Smith Jr. had decided it might be a good idea to use his father's social security number and address for the credit check and then later swap back in his own address and other details.
I got to thinking about this story while reading my Fortune colleague Jonathan Vanian's intriguing story about how American Express is turning to generative adversarial networks (or GANS)–the same A.I. technology that's given us deepfake videos—to create synthetic financial data on which to test its own fraud detection algorithms.
It's a fascinating idea. And, in general, fraud detection seems like a perfect use case for A.I. After all, you don't want to have to depend on a bored high school kid on his summer break, with one eye on the clock, counting down to quitting time.
But there are still some issues with using GANS to generate a dataset of synthetic financial data, especially if you're hoping to create data similar to what's found in fraud cases. As Jonathan explains:
"Humans can easily look at A.I.-generated images to see if they resemble the real thing. But with financial data, the technology is so new that there are no 'commonly accepted techniques' that the researchers can use to grade the software...The American Express researchers ended up using statistical techniques to analyze the A.I.-generated data and found that the results were good but not great."
Of course, there's another big problem with using A.I. fraud detection: The best frauds are those that are never detected. So it is pretty difficult to create a training set. I wonder if Amex's system would have caught my Jack Smith Jr.?


fortune--2020-09-08--ADP, the biggest U.S. payroll service, won’t implement Trump’s ‘tax holiday’ for some clients

ADP, which processes the paychecks of millions of Americans, has decided it will not offer certain clients a means to implement a controversial White House dictate to stop collecting a 6.2% Social Security levy.
“ADP TotalSource has decided to not take part in the deferral, and it will not be an option for any client or employee,” said an ADP staffer in an email seen by Fortune.
An ADP spokesperson told Fortune that clients who use its TotalSource product will not have an option to take part in the deferral, but other clients will be able to suspend the Social Security collection at their discretion. The spokesperson added that 13,000 firms use TotalSource and that the arrangement puts responsibility for federal tax liability and penalties on ADP.
The decision comes amid widespread pushback against the White House plan by U.S. businesses, including the Chamber of Commerce, which recently described it as “unworkable.”
President Trump issued the executive order to suspend the collection of the 6.2% payroll tax in mid-August as part of a series of proposed measures to stimulate the economy. But critics quickly pointed out that the President doesn’t have the authority to raise or lower taxes—the Constitution reserves that power for Congress—which means that employees would have to repay the deferred taxes months later.
Trump’s order also presents an administrative headache for employers, which would have had to change their payroll operations and explain the significance of the changes to their workers.
ADP, which serves more than 800,000 businesses, published a guide for employers last week that suggests explaining to employees that Trump’s order is simply a tax deferral and not a tax cut.
Individual employers could unilaterally implement the payroll order by switching to another payroll provider, or carrying out the task themselves, but it is unlikely that many will do so, especially as the order has received little support in Congress or from organized labor.
Meanwhile, the U.S. government is slated to impose the payroll tax deferral for its employees in mid-September, a move that’s led critics to charge federal workers are being treated as a “guinea pig.” The head of an organization representing such workers blasted the decision as a “scam that leaves workers with a substantial tax bill right after the holiday season,” according to the Washington Post.
The plan to impose the order on federal workers also reportedly applies to 1.3 million active duty military members, with no ability to opt out.
While President Trump has suggested Congress could forgive the tax deferral by means of legislation, there is no indication that will happen for now.
The Treasury Department did not immediately respond to a request for comment about ADP’s decision not to implement the order. Intuit, one of ADP’s largest competitors, did not state whether the company plans to make a similar decision.
This story has been updated to clarify the nature of ADP TotalSource.
More must-read finance coverage from Fortune:


fortune--2020-09-08--Congress likely to ax second round of stimulus checks, according to Goldman Sachs forecast

Maybe you don’t need that second $1,200 stimulus check after all?
At least that’s what more economists and politicians are thinking after better than expected jobs numbers: On Friday we learned the jobless rate dropped from 10.2% in July to 8.4% in August, soundly beating the consensus estimate of 9.8%.
And that strong jobs report is already making it less likely Congress will be as generous with the next economic stimulus package. On Monday, Goldman Sachs forecast the next stimulus package will come in at $1.5 trillion, below its previous forecast of $2 trillion.
Goldman Sachs projects the next stimulus bill will include $400 per week in enhanced unemployment benefits, additional small-business aid, and “modest” state fiscal aid. However, Goldman Sachs researchers foresee no second round of $1,200 stimulus checks.
“There appears to be lukewarm support for another round of payments to individuals, and concerns regarding the overall size of the package could crowd out an additional round of checks,” wrote the Goldman Sachs researchers. “While there is not strong opposition to another round from any of the main parties to the negotiations, it is not the top priority of any group, either.”
Republican and Democratic leaders have struggled for months to come to terms for another broad stimulus package. Republicans are currently offering $1.3 trillion, while Democrats are offering $2.2 trillion.
House Speaker Nancy Pelosi said earlier this month that Democrats refuse to go below $2 trillion. For the Goldman Sachs forecast to become a reality, Democrats would have to walk back on that stance.
And while political support for stimulus checks might be waning, Democratic and Republican leaders have yet to publicly say they’re excluding it from their stimulus request. The second round of stimulus checks would cost around $290 billion—the price tag of the first round of stimulus checks.
For now it appears to be a waiting game: The consensus on Capitol Hill is nothing will get signed before the end of September—when U.S. lawmakers are required to approve more federal funding to stave off a government shutdown.