fortune--2020-01-21--Fertility Inc.: Inside the big business of babymaking

Sperm and eggs have invaded the Pennsylvania Convention Center.
At one end of the hall, a giant sperm poised to fertilize an ovum the size of a small weather balloon rotates above a booth marketing egg banking services. Nearby, an enormous mobile composed of more sperm and eggs—this time wearing eerie human faces—grins down from the rafters. Another booth is handing out stress balls with unmissable squiggly tails, while attendees crowd around an arcade game for the chance to win T-shirts stashed inside—what else?—golden eggs.
Granted, there’s only so much iconography the fertility world has to draw on, but the sheer volume of genetic material floating around the convention center is a sign that the industry, once considered niche and boutique, is ready to go mass market.
It was mid-October, and the 8,000 doctors, nurses, bloggers, investors, and health care executives milling about the exhibit hall had descended on Philadelphia for the American Society for Reproductive Medicine’s annual confab—what one industry executive described as the “Super Bowl of fertility conferences.” They attended seminars on topics like the trauma of infertility and team building in the embryology lab. They chatted and exchanged business cards with exhibitors touting services ranging from at-home sperm testing to surrogacy agencies.
On the first afternoon, the crowd shuffled into the ballroom for one of the keynotes, which focused not on any major scientific development but rather on “IVF as a Business.” The talk was given by David Sable, who runs a health care–focused investment fund. “It’s not a bad time to think big,” Sable told the audience, laying out his vision for how the industry must embrace entrepreneurship to help in vitro fertilization—the medical process in which a woman’s eggs are harvested and fertilized, and a resulting embryo is implanted in her uterus—reach its full potential. He ended with a call to action: “We are, I think, at a pivot point in terms of IVF as a business. We’re not really thinking about these enormous new patient populations that are coming into our arena. We need to start planning for the future.”
Sable first attended the ASRM conference in 1988 as a resident about to embark on his training as a fertility doctor—just 10 years after the birth of the first IVF baby. In the decades since, the sector has gone from living outside the traditional health care system, viewed almost as a luxury good, to a serious industry garnering serious money. Piper Sandler research puts the U.S. fertility market at $15.4 billion by 2023, up from almost $7 billion in 2017. Millennials, now the primary demographic having babies, are aging into fertility treatment and are set to reshape the space in the same ways they’ve transformed so many other parts of our economy.
Former fertility practitioner David Sable launched an IVF-only investment fund in 2018. Photograph by Patrick James Miller for Fortune
Investors have taken notice, funneling $646 million into the sector in 2018, according to PitchBook. “Real dollars are starting to flow into this category,” says Stephanie Palmeri, a partner with VC firm Uncork Capital. The past few years have seen the launch of businesses encompassing everything from simple ovulation trackers to research plays attempting to discover links between genetics and reproductive disorders. Private equity firms, drawn to the industry’s high margins and increased success rates, are rolling up fragmented mom-and-pop fertility clinics. In October, fertility benefits provider Progyny became one of the first startups in the industry to go public; its stock is up more than 150% since the IPO.
Meanwhile, the high price tag for patients—the average IVF baby costs $40,000 to $60,000, which comes out of pocket for most people—has allowed founders and investors to frame their work as democratizing treatment and improving access, all while positioning themselves to make a lot of money doing it. “Some people really care about having genetic children, which both makes it a huge source of suffering—and a huge market,” says Hank Greely, a professor focusing on bioethics at Stanford Law School.
The driving force behind the sector’s growth is the increasing age at which women are having their first child—age being one of the few factors in the under-researched field that doctors are certain affects a couple’s ability to conceive. In the U.S., women in their early thirties are now more likely to give birth than women in their twenties, and the only cohorts that saw increased fertility rates in 2018 were women in their late thirties and early forties. “I used to go to investors and say sex is great but not for making babies in your thirties and forties, and I think people are realizing that,” says Martin Varsavsky, a serial tech entrepreneur who has founded two fertility startups. “We have to let women have their babies later.” With increasing life expectancy, “is it fair to say you can only have babies until you’re 35? The window is so narrow,” he adds. Society at large is starting to recognize that there’s nothing fringe about fretting over or treating infertility. According to Progyny, one in eight couples suffers from infertility, making it more common than asthma or diabetes. By some estimates, IVF babies will account for just over 1% of the global population by the turn of the century, up from about 0.1% today. Many of those children won’t be born to parents diagnosed with infertility, but rather to nontraditional families, such as the LGBTQ+ population and single parents, who rely on the same technology.
For all its momentum, the modern fertility industry remains a relative newborn. That freshness is part of its potential, but also its risk. There are medical insiders who say it’s still the Wild West of medicine, under-regulated and commercially driven, with certain players overpromising what treatment can do. While some cheer the sector’s focus on women’s health, others say it has reinforced stereotypes that equate women’s worth with their ability to reproduce. And it is women whom the industry targets: Despite the fact that men cause or contribute to infertility in about half of cases, companies have only recently turned their attention to male partners. There’s no denying that fertility is emotionally complicated in ways most other areas of the health care system are not. “There’s little we care about more than our children, which makes this a particularly fraught and charged area,” says Greely. “The stakes are just higher when you play for babies.”
A few weeks after the ASRM conference, I visit Sable at his office in Midtown Manhattan. The 26th-floor conference room offers sweeping views of New York City, the fertility capital of the U.S. The metropolis is a microcosm of some of the sector’s key drivers—high incomes, the rising age of first-time parents. More IVF is done here than anywhere else in the country.
Sable’s past as a reproductive endocrinologist (medical speak for fertility doctor) means he’s unfazed by the recorder sitting between us on the conference room table—a hazard of his old job. “Patients used to come in and record,” he explains. “No one is more knowledgeable or motivated as a patient than an IVF patient.” That drive is unusual in health care and makes the sector appealing to investors. “Most of the time, people are avoiding care,” explains Sara Deshpande, a partner at Maven Ventures, which has invested in the fertility space. “They don’t think actions will really improve lives.” No one is running off to get fitted for orthotics or have that mole removed with the same desperation that couples launch into treatment for infertility.
In 2004, Sable took a sabbatical from practicing. Soon after, he was recruited by Special Situations Funds, an investment firm, to launch a health care fund. He kept up with what was happening in the fertility world, but for a long time, there wasn’t much to see. Science and outcomes were improving, he says, but the sector was “not transforming.”
It was a decade before Sable saw his old field start to change. In 2012, ASRM declared egg-freezing no longer experimental. In the years that followed, private equity began to up its investment in the industry and an ever-tightening labor market prompted more employers to implement fertility benefits to retain talent. A third of U.S. states now mandate some form of infertility coverage—most recently New York, which as of Jan. 1 requires that fully insured employers with more than 100 employees cover three rounds of IVF. Sable, sensing a sea change, launched an IVF-only venture fund in 2018.
Right now, women in the U.S. undergo nearly 300,000 treatment cycles of IVF annually. But that figure could eventually grow to something closer to 1.1 million by Sable’s calculations. (A cycle refers to the process of egg extraction and fertilization, followed by embryo implantation; it takes the average woman 2.2 cycles to get pregnant.) His estimate takes into account the 7 million people struggling with infertility, many of whom don’t seek care because of the expense. It also includes LGBTQ+ people who rely on assisted-reproductive technology to build their families, cancer patients who want to preserve their fertility as they undergo treatment, and carriers of devastating genetic diseases who could use IVF to select for embryos without, say, cystic fibrosis.
About 2% of U.S. babies are born via IVF—one of the lowest rates in the Western world. Increasing cycles to 1.1 million would put the U.S. more on par with Denmark, where that figure is approaching 10%. The difference? In Denmark, treatment is paid for by the state, while care in the U.S. has typically been out of pocket. “It’s a messy consumer marketplace. If you can afford to write a check for $20,000 every few months, it’s great care,” Sable says. “What hasn’t improved is access.” There are just 450 fertility clinics in the U.S., and a handful of states have none at all. Sable says more efficiency and automation could bring down costs, but that’s never been a priority for such a small market.
A prime example is the antiquated technology used to store frozen embryos and eggs. Historically, many embryologists started out in animal husbandry, and they brought their storage system with them when they began working with human embryos: glorified farm tanks full of liquid nitrogen, sometimes labeled by hand.
One of Sable’s portfolio companies, TMRW, is attempting to bring that system into the 21st century with robotic cryostorage. Better freezing technology for eggs and embryos has resulted in a spike in usage, leaving the old infrastructure struggling to keep up. TMRW estimates that the number of U.S. patients storing eggs or embryos ballooned from 17,000 in 2005 to nearly 700,000 in 2017. By 2025, the company expects that number to hit 2.6 million.
Sable’s fertility-focused fund backed the startup as one of its first investments, leading its $12 million Series A round in May. TMRW’s automated system for storing and tracking is designed to prevent the kinds of tank failures that in 2018 resulted in the loss of 4,000 eggs and embryos at a Cleveland clinic, and eliminate mixups that have led doctors to implant the wrong embryos. “It’s a service business,” says founder and co-CEO Joshua Abram, “that’s moving from artisanal practices into a standardized regime.”
One of the more shocking aspects of fertility is how little most of us know about it—a holdover from a health system that traditionally focused on educating women about avoiding pregnancy. One founder in the space told me that she has to give what amounts to a basic biology lesson at the beginning of every pitch so investors can keep up. Attempts to bring potential customers up to speed have therefore become a requirement for most startups, but it can lead to an uncomfortable muddling of education and marketing.
One night last November, New York–based startup Kindbody was attempting to tread that line. Kindbody bills itself as a women’s health network, but it’s primarily known for egg freezing, a topic that’s clearly of interest to the 50 women and two men who have gathered at its Flatiron location for an event billed as Fertility 101. The space’s aesthetic—modern and spa-like—shares more in common with the Drybar salon around the corner than it does with a typical doctor’s office (“Health care doesn’t have to be ugly,” notes founder and CEO Gina Bartasi). Fahimeh Sasan, Kindbody’s founding physician, standing next to a wall mural instructing visitors to “own your future,” told attendees to grab a glass of Prosecco, get some cheese, and relax.
Sasan got down to business. “The first point before any conversations about IVF or talking about getting someone pregnant or preserving fertility is just understanding the basics,” she told the crowd. “Unfortunately, no one teaches us the basics. We go to Google, and Google freaks us out.” Sasan got some knowing laughs before diving into such a comprehensive overview of fertility and egg-freezing that it was jarring when she finally made her pitch: Attendees who signed up that night for a fertility assessment would get $100 off and a $500 reduction in their $6,500 bill for egg freezing—a figure that does not include medication or storage. So many women lined up for promo codes at the end of the evening that getting out the door was a struggle.
After the talk, attendees asked Sasan about everything from pregnancy loss to needle phobia. One woman’s question, though, hinted at a more fundamental worry about the industry: “Not to be negative, but what if you freeze your eggs with a company and that company goes bankrupt or out of business?”
Her concern was well-founded. Two weeks earlier, Trellis, a boutique egg-freezing-only studio a three-minute walk up Fifth Avenue, had sent out an email alerting customers that it was shutting down. Private equity–backed fertility-clinic network IntegraMed had launched Trellis based on the idea that women who freeze their eggs are vastly different from those seeking treatment for infertility and should receive specifically tailored care in their own separate space. “These are people coming in to be empowered,” Pam Schumann, who was the chief development officer at Trellis, had said when I visited the clinic last spring.
The studio had been open less than a year, and Schumann told me that no clients had yet come back to use their frozen eggs. “It’s a little bit of a dilemma in the space,” she said. Trellis’s parent company, IntegraMed, declined requests for an interview but in an email said that “enrollment numbers were not sufficient to keep pace with the rising cost of doing business in New York City as a stand-alone operation.” (Eggs frozen at Trellis are being stored at one of the fertility clinics in IntegraMed’s network.) The explanation tracks with national trends: Egg freezing is fast-growing—but off a very low base. In 2017, the most recent data available, women underwent nearly 11,000 egg-freezing cycles, up from 475 in 2009. Sector wide, 90% of frozen eggs have not been used, and industry experts say the field is too new to say anything conclusive about success rates. “There’s a lot of nuance to egg freezing, and what scares me right now is a lot of people think it’s as easy as 1-2-3,” says Brian Levine, founding partner and practice director of fertility clinic CCRM-New York. “Women are being oversold and don’t even know what the metric of success is.”
The debate over egg freezing hints at a more philosophical intra-industry fight. On one side are companies like Kindbody and now-defunct Trellis, with their language of empowerment and go-girl inspirational wall art. These founders want to rebrand fertility issues from a problem to be treated to an opportunity to be grasped. “A lot of startups are saying, We are not infertility clinics,” says Lucy van de Wiel, who works in the reproductive sociology research group at the University of Cambridge. “We are fertility clinics where you can come to manage your fertility.” On the other pole are those who argue that procedures related to fertility should be considered serious medical undertakings. Both sides have an economic interest in how egg freezing—and fertility more broadly—is ultimately framed. It wasn’t until 2009 that the World Health Organization designated infertility a disease and not until 2017 that the American Medical Association followed. Before that, treatment was considered a consumer good, says Tammy Sun, cofounder and CEO of Carrot Fertility, a fertility benefits provider for employers. The change in status helped legitimize the field and the increase in insurance coverage that followed.
But in their own way, companies like Carrot are also seeking to expand fertility treatment beyond women with an infertility diagnosis, which has traditionally been a prerequisite for insurance coverage. Their targets: the LGBTQ+ population and people choosing to have a baby on their own, groups that suffer from what’s termed “social infertility,” or the inability to have children for reasons that extend beyond biology. Now, inclusive companies are increasingly covering their treatment too. “The opportunity is much bigger than what we had previously assumed,” says Sun. “Fast-forward another five years, and this will be table stakes.”
The average person should be forgiven for not knowing much about fertility—science doesn’t know much either. The egg is the largest cell in the body, but it’s arguably the least researched. One reason: the culture wars. The government has no interest in funding research that could involve discarding human embryos. “I’ve been living in that ethical can of worms for 30 years,” says Sable. “When we started reproductive genetics, I started getting hate mail.” Research backed by the private sector is happening, but it can skew the types of studies that get tackled. To attract funding, projects must be based on a potential business application rather than on pure scientific curiosity or an interest in improving the life of womankind—a state of affairs some see as hampering innovation. “I don’t think we’ve seen the dollars flow into technology that improves birth rates or dramatically lowers costs,” says Jake Anderson-Bialis, cofounder of industry tracker FertilityIQ. A lot of startups are simply repackaging a test or redecorating a waiting room, he says. For example, menstrual-tracking apps, though buzzy, mimic what women have been doing on their paper calendars for decades. “The most potent weapon we have is IVF,” Anderson-Bialis says, “and it works 20% to 30% of the time.”
The lack of resources has relegated fertility to what Sable calls a “know-it-when-I-see-it level of thinking.” Consider the industry definition of infertility: the inability to have a child after six months of trying for women over the age of 35, or one year for those under 35. The cause cannot definitively be diagnosed by anything as straightforward as a blood test. Indeed, a third of the time, it’s simply chalked up to “unexplained infertility.”
Many of the startup founders in the field launched their companies after receiving similarly ambiguous answers about their own reproductive health. When Afton Vechery requested a baseline fertility assessment, her doctor told her to simply wait and see if she had issues once she was ready to have a baby. Vechery decided to pursue the testing herself. She ended up with a diagnosis of polycystic ovary syndrome, a hormonal disorder that can cause infertility, and a $1,500 bill—an experience that led her to cofound Modern Fertility. “I felt like the entire conversation about fertility today was very reactive as opposed to proactive,” she says. The San Francisco–based startup lets customers take the same hormone test at home that’s typically done in a fertility clinic, but for $159.
Modern Fertility cofounder and CEO Afton Vechery launched her testing startup after being diagnosed with a hormonal disorder that can cause infertility. Photograph by Cayce Clifford for Fortune
The test isn’t without controversy. One of the things it measures is anti-Müllerian hormone (AMH), which can be useful for women looking to evaluate how their ovarian reserve is changing, but doctors worry that taking the test only once—and without the counsel of a physician—fails to provide a clear picture of the taker’s fertility and can cause undue alarm. Modern Fertility says AMH, while not a perfect predictor of fertility, remains the best known marker of ovarian reserve, and it recommends users track the hormone over time. What’s more, Vechery says that the anonymized data the company is collecting from customers who opt in will be used in clinical research that could result in better predictors of future fertility.
Despite doctors’ misgivings, there’s a reason women are seeking out at-home tests and other nontraditional ways of addressing fertility. “Navigating the medical system as a female is fraught,” says NextGen Jane CEO and cofounder Ridhi Tariyal, pointing to studies showing that it takes longer for women’s pain to be acknowledged and treated in emergency room settings. “There’s some mistrust there.” Tariyal’s startup collects tampons from women who have endometriosis in order to analyze their menstrual blood and provide insight into the underpinnings of the painful disorder.
When Tariyal was trying to raise funding for NextGen Jane—challenging enough considering she was pitching period blood—she realized she got more interest from investors when she highlighted endometriosis’s impact on fertility rather than just the ways it was affecting the quality of women’s lives. “It sends the message that your greatest value is your ability to reproduce,” she says. She worries that the growing investor focus on pregnancy and fertility will draw away what little attention the rest of the women’s health field has struggled to garner—including issues such as the maternal mortality rates of black women, which are truly dire and mostly ignored.
It’s a reminder that the fertility industry has yet to disentangle itself from the very paradigms that advancements in reproductive health were supposed to dismantle: the conflation of womanhood and motherhood, the belief that biological ties are the best way to create a family, the implication that the burden of reproduction lies with women. It remains unclear that any amount of investment could ever shift those archetypes. But for the industry overall, that would truly be a major breakthrough.
The baby business grows up
For many, it takes a village to conceive a child. There’s more to the fertility sector than IVF.
At-home testing: Modern Fertility
The provider of hormone fertility tests was founded in 2017 and has raised a total of $22 million. Investors include Forerunner Ventures, which has backed hot consumer startups like Glossier.
Wearables: Ava
Known as the “Fitbit of fertility,” Ava’s bracelet tracks factors including skin temperature, pulse, and heart rate to help determine a woman’s fertile window. Founded in 2014, the company says its technology is responsible for 30,000 pregnancies.
Insurance: Progyny
A fertility benefits provider for employers, Progyny raised nearly $100 million in venture capital from the likes of Kleiner Perkins, TPG, and Merck Ventures before going public in October. The company is profitable and has a market cap approaching $3 billion.
Diagnostics: NextGen Jane
The maker of a smart tampon is researching reproductive disorders like endometriosis by analyzing cells that are shed during menstruation. Founded in 2014, the startup raised a $9 million Series A last year.
Egg freezing: Extend Fertility
The New York City–based clinic claims to be the largest egg-freezing practice in the nation. Last year it raised $15 million from private equity firm Regal Healthcare Capital Partners to expand into other services like IVF.
A version of this article appears in the February 2020 issue of Fortune with the headline “Fertility Inc.”
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fortune--2020-01-21--Understanding the 2020 election as brand marketing

What CEOs see as the top threats to their businesses

Why did virtually every top pollster and pundit get the 2016 election screamingly wrong? On election eve, the New York Times analytical unit and the PredictWise prediction market aggregator showed Hillary Clinton winning by wide margins. FiveThirtyEight gave her a 71% chance of winning. The Princeton Election Consortium’s Sam Wang put the probability at 93% and said he’d “eat a bug” if Donald Trump won; Wang later ate a cricket on CNN. Even Trump’s staff didn’t think he could capture the White House. A senior campaign staffer told CNN on election night, “It will take a miracle for us to win.”
Yet a radically different kind of analysis, entirely overlooked at the time, got it right. This assessment considered the candidates not as politicians or even as people but rather as brands to be marketed, like cars or toothpaste. It showed that Trump was a far stronger candidate than Clinton, especially in key swing states. This analysis promises to be a powerful tool again in this election, explaining what propelled Pete Buttigieg into the top tier of Democrats, why Joe Biden looks worryingly Clintonesque, and why Trump remains by far the dominant candidate.
The framework was developed almost 30 years ago at the Young & Rubicam ad agency (now VMLY&R and BAV Group within the advertising giant WPP) and is still used widely. It gauges brands on two dimensions: brand stature, determined by how well-known and well-liked a brand is, and brand strength, based on a brand’s differentiation and relevance. Brand marketing amateurs might reasonably assume that brand stature is most important. But it isn’t. It counts for little without brand strength, which must be achieved first and is far more elusive. Achieving it, says a VMLY&R document, is “the central challenge of every brand.”
Now think back to 2015, when 17 Republican candidates were standing on a stage. Who was the most differentiated? And who was the most relevant to the lives of consumers? It was Trump by a mile on both measures.
In the general election, VMLY&R polling showed that Trump and Clinton were about equal in brand stature (high) but that Trump’s brand strength was extremely high, while Clinton’s was low. She wasn’t clearly differentiated; “Clinton was very similar to all other politicians,” a VMLY&R analysis concluded. As for relevance: Everyone remembers Trump’s slogan, but can you remember Clinton’s? (It was the bland “Stronger Together.”) Michael Sussman, CEO of BAV Group, says high-stature, low-strength brands like hers are in a category called “commodity or eroded.” By contrast, Trump’s brand strength is practically off the chart, and his brand stature remains high. He’s in the “leadership” category, filled with outperforming brands such as Apple and Disney.
It’s true that in 2016 brand Hillary got more votes than brand Trump. But both campaigns knew the rules of the electoral system. Clinton’s brand stature seemingly gave her a lock on the big industrial states that Obama had won in 2008 and 2012: Pennsylvania, Ohio, Michigan, and Wisconsin. But Trump won all of them in 2016. Brand strength—the fact that he was perceived as differentiated and relevant—carried the day. Trump’s high brand stature may seem a mystery in light of his low approval ratings. But while they’re low by historical standards, says FiveThirtyEight, his favorable percentages are about the same as Barack Obama’s were at the same point in his first term, in the low to mid-40s. They’re also about the same as the current ratings of the dominant Democratic challenger, Joe Biden, according to the RealClearPolitics average of polls. In addition, since brand stature depends not just on esteem for the brand but also on knowledge of it, Trump’s TV-based fame is a powerful advantage over all other candidates. In mid-2015, barely a month after declaring his candidacy, his name recognition was 92%, a Gallup poll found, the same as Joe Biden’s is today, says the Morning Consult survey research firm. Now, with the added fame of being President, Trump’s overall brand stature is slightly greater than Biden’s.
BRAND WARS: A plot of the major presidential candidates on their brand strength (how differentiated and relevant they are) and stature (how well-known they are). The results may frighten Democrats. Photos: Getty Images; Source: BAV Group
In the brand-based analysis, Buttigieg is the big story of 2020 so far. Among the general population, Buttigieg notches the highest brand strength of all Democrats by wide margins—Biden is in Hillary territory—but is still well short of Trump. Buttigieg’s brand stature is lower than Sanders’s or Biden’s, but that’s okay at this stage. Brand strength is the platform on which brand stature is built, so he’s positioned to migrate further than others into Trump’s realm.
Anything can happen in politics, and surprises surely await. But prognosticators (and the rest of us) must remember: Candidates aren’t just people. They’re brands on display, and Americans are deciding which one they’ll reach for.
A version of this article appears in the February 2020 issue of Fortune with the headline “Understanding the Election as Brand Marketing.”
Clarification – February 6, 2020: In light of a recent merger, Y&R is now referred to as VMLY&R.
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fortune--2020-01-21--When it comes to the optimism divide between CEOs and investors, somebody’s wrong

Trouble is brewing when the owners of a business and the managers who run that business see the world in fundamentally different ways. That’s the uncomfortable situation right now at America’s publicly traded corporations. The owners—investors—see a brilliant future for U.S. companies, bidding their stocks up to record highs. But the managers—CEOs—see a far darker future, as revealed in surveys of CEO sentiment. The contrast is starker than it has been in years, perhaps decades. “Somebody’s wrong,” says investment strategist Rob Arnott of Research Affiliates, “and is going to have to change their plans.”
Investors’ ebullience is obvious in the stock market, where dollars do the talking. But the deep pessimism of CEOs is less visible and has gone largely unnoticed. They’re invariably upbeat when speaking to investors, but when CEOs respond anonymously to surveys, their mood shifts dramatically. The economic outlook of CEOs surveyed by the Business Roundtable recently worsened for the seventh consecutive quarter. Most of the bosses don’t expect a recession, but the possibility of one is now their No. 1 worry, up from No. 3 a year ago, says a survey by the Conference Board. The Roundtable CEOs say their plans for capital investment and for hiring have decreased significantly. When America’s biggest companies are cutting back on the two main factors of production—capital and labor—the outlook would not seem bright.
Yet stocks keep surging. What gives? Are CEOs and investors looking at the same world? The answer, which helps explain this bizarre conflict, is that in many ways they are not.
“CEOs have been in a desperate struggle to generate earnings growth,” says Savita Subramanian, chief of U.S. equity research at Bank of America. That has been hard because “sales growth has been relatively tepid” over the past 12 months, she says. “CEOs realize a lot of the levers they’ve used to generate growth in earnings per share—cost cutting, share buybacks—are running out of steam. You can’t do those things forever.” Add a slowing economy and rising labor costs to the picture, and CEO gloom makes sense.
Yet investors, looking outside companies rather than inside them, see a different world. The consumer is healthy and the Fed is friendly. What’s not to like? “The narrative of low rates is driving sentiment,” says Arnott. “People are starting to really rely on the ‘Fed put’ ”—the expectation that the Fed will rescue the economy from any impending recession. “That’s dangerous. The Fed isn’t as powerful as some people think.”
Investors don’t see the CEOs’ worries in large part because they aren’t looking for them. Remember that investors aren’t individuals, for the most part. They’re overwhelmingly institutions such as mutual funds and pension funds, which in the past decade have largely forsaken value investing, with its fuddy-duddy focus on a company’s ability to deliver long-term profits with little debt. Instead, they’ve pursued growth and yield, strategies that have worked well. But experience says they don’t work well indefinitely.
Separating investors even further from CEOs is the widespread use of so-called quant funds, largely driven by algorithms. “Most of them are momentum-based,” says Subramanian. You simply buy what’s going up. “So you’re super bullish right now.” To a momentum algo, all those CEO worries are irrelevant.
Wall Street analysts may be encouraging investors to ignore mounting risks even more than usual. Research shows that analysts are habitually overoptimistic in predicting profit growth for individual companies. The further out the forecast, the more extravagant it is; then, as the actual earnings report draws closer, analysts scale back their estimates toward reality. They’ve done it for decades, and are doing it now. For example, they predicted a year in advance that profits for the S&P 500 would grow 12.1% in last year’s third quarter, says data from Refinitiv. Actual profit growth: –0.3%.
You’d think investors would learn to discount analysts’ long-term estimates. But the too-bullish problem gets worse in a slowing economy like the one we’re in. “When economic growth slows, [the size of the forecast error] increases,” say McKinsey researchers. Analysts are still reassuring investors that they needn’t worry. The aggregate forecast for profit growth in 2020’s fourth quarter is a knockout 14.5%.
None of which is to say that the despondent CEOs are right and the Champagne-popping investors are wrong, at least not in the short run. “This market looks to us like a bubble,” says Arnott. “But bubbles can go on much further than most people realize. It will end, but we don’t know when.”
A version of this article appears in the February 2020 issue of Fortune with the headline “The Optimism Divide.”
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fortune--2020-01-21--‘Nothing has been done:’ Greta Thunberg slams Davos on climate change

When it comes to the optimism divide between CEOs and investors , somebody ’ s wrong

Greta Thunberg brought a stark message to the business elite gathering in Davos: Everybody is talking about climate change, but nobody is doing anything.
Her appearance at the opening of the World Economic Forum was a striking sign that the debate about how to stop the Earth warming has become mainstream in business circles. Yet only a handful of executives from the oil, gas and coal industries that are chiefly responsible for warming the planet were seen attending the panel at which Thunberg spoke on Tuesday.
“The climate and environment is a hot topic right now, thanks to young people pushing,” 17-year-old Thunberg said at the Swiss ski resort, where about 3,000 business and political leaders gather each year. “Pretty much nothing has been done, since the global emissions of CO2 have not reduced.”
The Swedish activist’s words came as the World Economic Forum sounds alarm bells on climate change. This year and for the first time on record, environmental risks occupy the group’s top five long-term concerns, while corporate executives say they’re increasingly concerned about environmental issues. But young activists at Davos said none of this is enough.
Thunberg is giving relevance to the Davos gathering, which for years has suffered from criticism that it was largely a billonaires’ playground where the rich debated among themselves without hearing outside voices. On Tuesday, there was a full room at this first 8:30 a.m. panel featuring young activists — something relatively unusual for a climate change event at Davos.
The debate on climate change is forcing businesses to respond to demands to stop carbon dioxide and other greenhouse gas emissions. While some have been slow in embracing the fight, executives at Davos highlighted that the overall views from within the business community have dramatically changed over the last decade or so, moving from denial and questioning science into complete acceptance.
“I have come to Davos for well over a decade and I see behind the scenes, among top executives, a huge change in perception of the risk of climate change,” said Marco Dunand, the head of Mercuria Energy Trading SA, one of the worlds’ largest oil traders. “It’s not just talk: it’s translating into billions of dollars in investments in the energy transition.”
Activists’ language has made its way to boardrooms across the world too. At another morning panel at Davos, Iberdrola SA Chief Executive Officer Ignacio Galan called on companies to close coal-powered plants in order to curb emissions.
“We are in a hurry, we have to move fast,” he said. “There is already money available, cheap money, cheap technology, competitive technology and political decision in many countries to do so. Let’s not continue delaying and postponing”
Trump Encounter
U.S. President Donald Trump landed at Davos on Tuesday morning and was welcomed by the words “Act on climate,” carved into the snow on a hill near the helicopter landing zone. Trump spoke at the forum later in the day, with Thunberg expected to attend his address.
The President and the activist’s first and only meeting to date became instantly viral as Thunberg was filmed furiously staring at Trump. While they’ve never spoken face to face, they both seem to follow each other closely on Twitter.
“Greta must work on her anger management problem, then go to a good old fashioned movie with a friend! Chill Greta, Chill!”, Trump tweeted in December shortly after the activist was named person of the year by Time magazine. Thunberg didn’t directly answer, but changed her Twitter biography to “A teenager working on her anger management problem.”
Three-day March
Hundreds of climate activists are due to arrive at Davos on foot on Tuesday following a three-day march across the Swiss Alps. Protesters will gather at the ski resort and stage a demonstration calling for the end of the World Economic Forum. Companies attending Davos for the past five decades bear a great responsibility for today’s climate crisis, activists say.
“We are tired of empty promises. But we have hopes,” said Puerto Rican activist Salvador Gomez-Colon. “We’re not waiting years to see the change that we want to see.”
Thunberg urged businesses, governments and the media to listen to scientists. She cited research by the Intergovernmental Panel on Climate Change from 2018 that concluded that the carbon budget– the amount that can be released while still keeping global warming limited to a specific level — stands at 340 gigatons of carbon dioxide and that, at current emission levels it will be gone in less than eight years.
“Since last summer I have been repeating these numbers over and over again in every speech,” she said. “I know you don’t want to talk about this. I assure you I will continue to repeat these numbers until you do.“
More must-read stories from Fortune:
—Why the U.K. is bailing out regional airline Flybe when it’s let others fail
—The Carlos Ghosn affair: A look inside the motivations of a fugitive CEO
—Experts doubt China can fulfill its targets in “Phase One” of the U.S. trade deal
—Laws meant to close down tax havens and shut loopholes could have opposite effect
—7 M&As that defined a decade of dealmaking and reshaped the economy
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-21--The Dow will hit a historic 30,000 sooner than you think

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.
Dear subscribers, welcome to the inaugural Bull Sheet newsletter.
We’ll be with you every day the major U.S. markets are trading, delivering to your inbox daily insights and observations about the issues moving the global markets, from Hong Kong to Wall Street and beyond.
I’m Bernhard Warner, Fortune’s global editor of finance and investing, and I’ll be your pilot most mornings.
On this trip, you’re encouraged to talk to the driver. So tell me what you’re thinking: what you like about this newsletter and what you’re just not buying. I want you to think of this as a community. Our community. So drop me a line whenever at bullsheet@fortune.com or by replying to this email.
When we were putting together this newsletter, we wanted to capture the spirit of these historic markets. There’s only one word for that. And voila, Bull Sheet was born. I guess that makes us all Bull Sheeters. I promise you though: Bull Sheet will be no BS. 🐂
What will you find in Bull Sheet?
I’m a data geek, and so I’ll look for the underlying numbers behind the ups and downs of the market. I’ll take the data and turn what catches my eye into charts. So, expect a nice visual in each newsletter—scroll below for today’s.
Let’s get right into it, shall we?
***
The bull market, by the numbers
Today, we have four companies—Amazon, Apple, Alphabet and Microsoft—with $1 trillion valuations. A fifth, Saudi Aramco, is flirting (again) with $2 trillion. (Speaking of Aramco, if any of you got in on that IPO, definitely drop me a line.)
According to PwC, the combined market cap of the world’s 100 largest companies topped $21 trillion last year. In the past decade, the biggest of the big saw their value nearly double.
And then there’s the Dow, which, after Friday’s close, is a mere 651.90 points away from the big 30,000. (I can’t be the only one who remembers all the fuss, back in 1999, of the countdown to Dow 10,000—can I? A reminder: General Electric, Walmart and American Express were among the names that led us into uncharted territory that day.)
I ran the numbers on the Dow the other day, looking all the way back to its inauguration in 1885. It took 87 years—or 21,652 trading days—to finally crack 1,000 in 1972. Meanwhile, the recent 9,000-point leap, from 20,000 to 29,000, was a breeze, taking slightly under three years.
Here’s a look at the major Dow milestones over its 135-year history.
So who here has a bet on when we’ll hit 30,000? Hit me up. I’ll do a nice little shout-out to whomever comes closest.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
Tuesday Reads
A (new) SARS is born? The pneumonia-like coronavirus is moving quickly through Asia, sinking the markets there (Europe is faring only slightly better) on Tuesday. Asian retail and tourism stocks were hit particularly hard. The outbreak brings back memories of the SARS contagion of 2003, which killed about 800.
Trust fall. The annual Edelman Global Trust Barometer came out on Monday and it does not make for a heartwarming read. "A majority of respondents in every developed market do not believe they will be better off in five years’ time," the report notes. Meanwhile, a gaudy 56% of respondents around the world say capitalism as it exists today does more harm than good. At this rate, Edelman will need to rebrand it the Distrust Barometer.
Peak youth. A decade-long bull market has set us—some of us, anyhow—up nicely for the next decade. But there are plenty of warning signs—from climate change to inequality—that could make the '20s anything but roaring. One that caught my eye: for the first time, there are more seniors than children under 5 in the world. And that trend isn't going to reverse itself. That's a lot of pensions to fund.
Davos, man. Remember that time at Davos when Bill Gates declared to the great and the good that spam (the messages, not the meat) would be eradicated by 2006? Or when Soc Gen copped to the rogue trade that cost it $7 billion? The New York Times does a neat "Davos by the Numbers" roundup for those of you who like World Economic Forum trivia—such as the cost of entry back in 1980 (Answer: $4,000).
The repo man cometh, and taketh. Banks around the world are pulling money out of and putting money into the repo markets at a record clip—which makes the recent instability of the market all the more concerning. The Financial Stability Board, a group of global regulators, has put a number on the inflows and outflows. Banks poured a combined $5.9 trillion into the world's repo markets in 2018. What the banks giveth, they also taketh away. During the same period, they also pulled out $6 trillion in the overnight funding from the repo markets.
Market Candy
It’s quiz time, Bull Sheeters. What’s the best-performing industry sector so far in 2020?
A. Internet services and social media
B. Investment services
C. Legal marijuana
D. Healthcare facilities
The answer is... C., legal marijuana, up 21.8% (as of Friday's close). Internet services and social media is a distant second at 7.36%. The markets have spoken.


fortune--2020-01-21--A deadly virus, a rating downgrade, and violence: Hong Kong markets plunge on string of bad news

A deadly virus in China. A rating downgrade from Moody’s Investors Service. Violent clashes over the weekend.
Welcome to Hong Kong, where reasons to sell stocks are mounting ahead of the Lunar New Year holiday. The Hang Seng China Enterprises Index fell 3.2%, the most since October 2018, while the MSCI Hong Kong Index dropped 2.7%, hitting its 200-day moving average. Life insurers, automakers and casino operators in nearby Macau were among Tuesday’s biggest decliners. Trading volume for stocks in the benchmark Hang Seng Index was 52% above the 30-day average.
Hong Kong stocks had been among the world’s best performers since early December, helped by mainland investors, gains in the local currency and an initial trade deal between the U.S. and China. But the Hang Seng stalled at the 29,000 point level last week, and there’s been a surge in stock sales this month, which has previously foreshadowed near-term market tops.
“Investors would want to cash out before the holiday because there is so much bad news,” said Jackson Wong, asset management director at Amber Hill Capital Ltd. “It is uncertain how the virus outbreak will develop in China during the holidays. We are holding more cash and we are avoiding travel-related stocks and some technology stocks that had already jumped a lot earlier.”
Stock indexes fell more than 1% in China, outpacing declines elsewhere in Asia, while Asian currencies were widely lower. The Chinese yuan weakened as much as 0.6% against the U.S. dollar, its biggest drop since August, after a run of big gains. China’s 10-year government-bond yield continued to fall, hitting a fresh four-month low Tuesday at 3.033%.
Big pork producer WH Group Ltd. and Wynn Macau Ltd. led declines for the MSCI Hong Kong gauge, falling just under 5%. In the HSCEI, drops of slightly more than 5% were posted by New China Life Insurance Co. and electric-vehicle maker BYD Co.
“Most people have only very limited information about this virus, and its too early to tell how serious it is, so it makes sense for people to be defensive at this moment,” said Chi Man Wong, Honyuang Kong-based analyst at China Galaxy International Financial Holdings Ltd. He added the Moody’s downgrade likely isn’t having an impact regionally as the move was signaled by September’s reduction to Hong Kong’s ratings outlook. Since then, the city’s economy has slid into recession.
Moody’s said Monday that “the absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody’s had previously assessed.”
Meanwhile, China’s new top official in Hong Kong urged the city to enact national security legislation, a proposal which prompted mass protests in 2003.
Also, Tuesday was the last day mainlanders could trade Hong Kong equities through trading links with the city before the week-long Lunar New Year holiday in China. Markets are closed for two days next week in Hong Kong, while stocks and bond trading in Taiwan has already stopped for the holiday. The inability to trade is prompting some investors to harvest some recent profit, analysts say.
Investors had been strongly bullish in much of the world since early December, helped by eased trade tensions and signs that global stimulus is likely to continue. Optimism in markets like China and Taiwan has been very strong of late, with heavy foreign inflows to both.
That could be shaken by new developments on the new virus originating in central China. Medical workers being infected signals it could be more easily transmitted than previously thought, raising concerns about a potential repeat of the 2003 outbreak of Severe Acute Respiratory Syndrome, or SARS, which killed almost 800 people.
Hong Kong is on “extremely high alert” and preparing for human-to-human transmission, said Chief Secretary Matthew Cheung.
“There is a risk of an exponential outbreak of a SARS-like virus, so investors are choosing to be risk-off” ahead of the Lunar New Year holiday, said Zhou Hao, a senior emerging markets economist at Commerzbank AG. Hundreds of millions of people travel in China during the period, sharply increasing the risk that the virus’ spread sharply accelerates.
More must-read stories from Fortune:
—Why the U.K. is bailing out regional airline Flybe when it’s let others fail
—The Carlos Ghosn affair: A look inside the motivations of a fugitive CEO
—Experts doubt China can fulfill its targets in “Phase One” of the U.S. trade deal
—Laws meant to close down tax havens and shut loopholes could have opposite effect
—7 M&As that defined a decade of dealmaking and reshaped the economy
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-21--‘The next frontier in tech policy:’ IBM pushes business to help government develop A.I. anti-bias ru

‘The next frontier in tech policy:’ IBM pushes business to help government develop A.I. anti-bias rules

IBM called for rules aimed at eliminating bias in artificial intelligence to ease concerns that the technology relies on data that bakes in past discriminatory practices and could harm women, minorities, the disabled, older Americans and others.
As it seeks to define a growing debate in the U.S. and Europe over how to regulate the burgeoning industry, IBM urged industry and governments to jointly develop standards to measure and combat potential discrimination.
The Armonk, New York-based company issued policy proposals Tuesday ahead of a Wednesday panel on AI to be led by Chief Executive Officer Ginni Rometty on the sidelines of the World Economic Forum in Davos. The initiative is designed to find a consensus on rules that may be stricter than what industry alone might produce, but that are less stringent than what governments might impose on their own.
“It seems pretty clear to us that government regulation of artificial intelligence is the next frontier in tech policy regulation,” said Chris Padilla, vice president of government and regulatory affairs at International Business Machines Corp.
The 108-year-old company, once a world technology leader, has lagged behind the sector for years. In its fight to remain relevant, IBM has pegged its future on newer technologies like artificial intelligence and cloud services. But it’s yet to show significant revenue growth from those areas.
The IBM recommendations call for companies to work with governments to develop standards on how to make sure, for instance, that African-Americans are guaranteed fair access to housing despite algorithms that rely on historical data such as zip codes or mortgage rates that may have been skewed by discrimination. In the U.S., that would likely occur through the National Institute of Standards and Technology within the U.S. Department of Commerce.
Rometty is hosting the panel, which includes a top White House aide, Chris Liddell, OECD Secretary-General Jose Angel Gurria and Siemens AG CEO Joe Kaeser.
IBM also suggests that companies appoint chief AI ethics officials, carry out assessments to determine how much harm an AI system may pose and maintain documentation about data when “making determinations or recommendations with potentially significant implications for individuals” so that the decisions can be explained.
Spearheading the AI regulatory debate gives IBM a chance to come back into the spotlight as a leader in cutting-edge technology, a position it hasn’t held for years.
The AI proposals are intended to stave off potential crises that could enrage customers, lawmakers and regulators worldwide — similar to what happened with Facebook Inc. in the Cambridge Analytica data scandal, when the personal data of millions of Americans was transferred to the political consulting firm without their knowledge.
“I don’t think we’re yet in the same place on AI,” he said. “So I don’t think it’s too late to try this approach.”
Concerns about AI and machine learning — software tools that use existing data to automate future analysis and decision-making — range from identifying faces in security-camera footage to making determinations about mortgage rates. AI is central to the future of many technology companies, including IBM’s, but has spurred worries that it could kill jobs and spread existing disparities in areas such as law enforcement, access to credit and hiring.
IBM has been working with the Trump administration since last summer on its approach to AI regulation. Earlier this month, the White House issued guidelines for use of the technology by federal agencies, which emphasized a desire not to impose burdensome controls. Last week, a bipartisan group of U.S. senators unveiled a bill designed to boost private and public funding for AI and other industries of the future.
The European Union is considering new, legally binding requirements for developers of artificial intelligence to ensure the technology is developed and used in an ethical way. IBM advised a European committee of academics, experts and executives that recommended avoiding unnecessarily prescriptive rules.
The EU’s executive arm is set to propose that the new rules apply to “high-risk sectors,” such as health care and transport. It also may suggest that the bloc update safety and liability laws, according to a draft of a so-called white paper on artificial intelligence obtained by Bloomberg. The European Commission is due to unveil the paper in mid-February and the final version is likely to change.
While Rometty has touted the growth potential for new offerings in cloud services, the company’s third-quarter earnings report in October missed Wall Street estimates. It was IBM’s fifth-consecutive quarter of shrinking sales despite its July acquisition of open-source software provider Red Hat, designed to bolster its hybrid cloud-services strategy. The company is set to report fourth-quarter results Tuesday at the market close.
Padilla said compliance with standards could become a selling-point for companies and perhaps help lower their legal liability.
“If we take a just-say-no approach, or we just wait, the chances are higher that governments will react to something that happens,” he said. “Then you will get more of a prescriptive, top-down regulation.”
More must-read stories from Fortune:
—Why the U.K. is bailing out regional airline Flybe when it’s let others fail
—The Carlos Ghosn affair: A look inside the motivations of a fugitive CEO
—Experts doubt China can fulfill its targets in “Phase One” of the U.S. trade deal
—Laws meant to close down tax havens and shut loopholes could have opposite effect
—7 M&As that defined a decade of dealmaking and reshaped the economy
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-21--Industry standouts: The companies most admired by the business world

The scoring system for Fortune’s Most Admired Companies survey favors companies whose peers recognize that they do many different things well. No company illustrates that point better than Apple, which topped our All-Stars list. We ask survey respondents to rate companies on nine performance criteria. This year, Apple earned scores in the top 10—across all industries—on eight of those criteria, and it got the highest scores of any company in any industry in the talent-attraction category.
Walt Disney also cracked the top 10 in eight categories. That stellar performance helped The Mouse win the No. 1 ranking in the entertainment industry for the 17th consecutive year. Disney earned the very highest score across all industries for “quality of products and services,” finishing just ahead of Toyota (No. 1, motor vehicles industry) and Apple (No. 1, computers).
Another company garnering respect on multiple fronts: Microsoft (No. 1 in the computer software industry). It earned the highest scores across all industries in four criteria, including global business effectiveness and management quality. On the latter front, Microsoft’s Satya Nadella was chosen once again by his peers as the business world’s most underrated CEO.
Newcomers earned the No. 1 ranking this year in several of the 52 industry groups that the Most Admired Companies survey tracks. Raytheon finished first in aerospace and defense, an outcome that reflects both the ongoing woes at Boeing (last year’s No. 1) and the anticipated benefits of Raytheon’s merger with United Technologies, which is expected to wrap up in the first half of 2020. South Korea’s Samsung Electronics, the world’s 15th-largest company by revenue, made its first appearance in the top spot in the electronics industry.
In 2019, several big-box retailers demonstrated that they could go toe-to-toe with Amazon. One of those, consumer-electronics emporium Best Buy, took the No. 1 slot in the specialty retailers industry for the first time, capping a year in which its share price rose nearly 70% even as the company handed the reins to a new CEO, Corie Barry. Elsewhere in the retail aisles, toolmaker Stanley Black & Decker was the top-ranked company for the first time in the home equipment and furnishings industry.
Hilton Worldwide Holdings, which celebrated its 100th anniversary in 2019, earned its first No. 1 ranking in the hotels, casinos, and resorts industry. And Compass Group, a British multinational specializing in food service, earned its first top honors in the diversified outsourcing services industry.
Change is a constant in the Most Admired Companies rankings—but it isn’t the only constant. In addition to Apple and Disney, companies with durable winning streaks include Nestlé (15 consecutive years at No. 1 in the consumer food products industry) and Berkshire Hathaway, Warren Buffett’s famed holding company (No. 1 in health and life insurance for 22 years running). Berkshire also joins Microsoft, Johnson & Johnson, [hotlink]Coca-Cola[/hotlink], and Toyota in sharing a noteworthy distinction: Those five companies have appeared on our Top 50 All-Stars list every year since 1998.
A version of this article appears in the February 2020 issue of Fortune with the headline “Industry Standouts: As Ranked by Their Peers.”
More must-read stories from Fortune:
—25 ideas that will shape the 2020s
—Why it’s time for a futures market in health care
—What we can learn from the man who tried to sell the Eiffel Tower—twice
—Food-delivery services feeling pressure to finally turn a profit
—Disney is ready to roll out new Star Wars sagas as one story ends
Subscribe to Fortune’s forthcoming Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-21--Underrated/overrated: Executives vote on the biggest CEOs in business

This story is part of Fortune‘s 2020 World’s Most Admired Companies coverage.
Which CEOs do other business leaders admire, and which do they doubt? Fortune asked executives and directors for their votes.
Most underrated CEOs, based on 4,825 responses
Satya Nadella, Microsoft
Illustration by Sam Kerr
375 votes
If your peers vote you “most underrated” year after year, are you still underrated? That’s the happy riddle facing Nadella, who has earned that title four years running in this survey. Microsoft’s success since Nadella took the helm in 2014 is certainly no secret: The company has profited enormously from a big bet on cloud computing while undergoing a cultural overhaul to become nimbler and more innovative. Microsoft’s share price, meanwhile, has more than quadrupled, with the company now valued at $1.2 trillion. If commentators overlook Nadella, it may be because he’s scrupulous about delegating authority and sharing credit. As he told Fortune when we named him Businessperson of the Year in November, “I’m wired to be fairly confident in myself and to let others shine.”
Doug McMillon, Walmart
Illustration by Sam Kerr; Source Photo: Rick T. Wilking—Getty Images
123 votes
McMillon is the first chief of a traditional retailer to crack the “most underrated” top three.
Mary Barra, General Motors
Illustration by Sam Kerr; Source Photo: Patrick T. Fallon—Bloomberg/Getty Images
113 votes
Few CEOs make decisions under a brighter or less forgiving political spotlight than Barra.
Jamie Dimon, JPMorgan Chase
Illustration by Sam Kerr; Source Photo: Giulia Marchi—Bloomberg/Getty Images
106 votes
Among the Fortune 500, only Apple made more profit than Dimon’s megabank.
Most overrated CEOs, based on 4,492 responses
Mark Zuckerberg, Facebook
Illustration by Sam Kerr; Source Photo: Josh Edelson—AFP/Getty Images
785 votes
It’s hard to quibble with Facebook’s financial results under Zuckerberg’s leadership. Neither the bungled handling of users’ personal data nor the social media platform’s role in spreading misinformation has scared users or (more important) advertisers away in meaningful numbers. Analysts expect Facebook to report about $70 billion in sales for 2019, up 26% from the previous year. But at a time when more executives say that addressing social problems is one of their core responsibilities, Zuckerberg’s reluctance to take a stronger stand against false and incendiary content has undoubtedly rankled his peers. Last year’s clumsy rollout of the Libra cryptocurrency project, meanwhile, put an operational black mark on the Facebook founder’s record. (For more on Libra, see our feature.)
Jeff Bezos, Amazon
Illustration by Sam Kerr; Source Photo: Elif Ozturk—Anadolu Agency/Getty Image
364 votes
Respondents still admire Amazon, but they may distrust its growing clout.
Jamie Dimon, JPMorgan Chase
Illustration by Sam Kerr; Source Photo: Giulia Marchi—Bloomberg/Getty Images
249 votes
To some, “Bank Rakes in Profits in a Hot Economy” is a “Dog Bites Man” headline.
Dennis Muilenburg, Boeing (until recently)
Illustration by Sam Kerr; Source Photo: Tom Williams—CQ-Roll Call/Getty Images
241 votes
Boeing’s board came to agree with our respondents, ousting Muilenburg on Dec. 23, 2019.
A version of this article appears in the February 2020 issue of Fortune with the headline “Underrated/Overrated.”
More must-read stories from Fortune:
—25 ideas that will shape the 2020s
—Why it’s time for a futures market in health care
—What we can learn from the man who tried to sell the Eiffel Tower—twice
—Food-delivery services feeling pressure to finally turn a profit
—Disney is ready to roll out new Star Wars sagas as one story ends
Subscribe to Fortune’s forthcoming Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-01-21--Grammys CEO says she was ousted after reporting sexual harassment and gender discrimination

Why PayPal and American Express may be the next hot targets for low-level hackers

The ousted Grammys CEO has fired back at the Recording Academy with a complaint claiming she was retaliated against after reporting she was subjected to sexual harassment and gender discrimination during her six-month tenure.
Lawyers for Deborah Dugan, who the academy placed on administrative leave last week, filed a discrimination complaint with the Equal Employment Opportunity Commission on Tuesday. In the filing, she claims she was subjected to sexual harassment from the academy’s general counsel, Joel Katz, which Dugan detailed in an email to an academy human resources executive on December 22, 2019.
The complaint also states Dugan was paid less than former academy CEO Neil Portnow, who left the post last year. Portnow had been criticized for saying women need to “step up” when he was asked backstage at the 2018 show why only two female acts won awards during the live telecast. Portnow called his comments a “poor choice of words” and later said he chose not to seek an extension on his contract.
A filing with the Internal Revenue Service shows that Portnow was paid $1.74 million in 2016. Dugan’s compensation was not revealed in Tuesday’s filing.
Last week the academy said that Dugan, the former CEO of Bono’s (RED) charity organization, was put on leave following an allegation of misconduct by a senior leader at the organization — just days before the Jan. 26 Grammy Awards.
In her Dec. 22 email, Dugan called the academy “a boy’s club.
“In my efforts to successfully resolve the many outstanding lawsuits facing the academy that I inherited, one of the claimants characterized her experience of our organization’s leadership as “…it’s a boy’s club and they put their financial interest above the mission….” At the time, I didn’t want to believe it, but now after 5 months of being exposed to the behavior and circumstances outlined here, I have come to suspect she is right,” she wrote.
Representatives for the academy didn’t immediately reply to emails seeking comment. An email sent to Katz said the attorney was out sick. Katz’s firm said it had not yet seen the complaint and could not comment on its allegations.
In the complaint, Dugan alleges that in May, 2019, when she had accepted the CEO position but had not begun her work, she had dinner with Katz, the academy’s general counsel, alone at his request in Laguna Niguel, California.
There, Katz acted “extremely inappropriately,” according to the complaint, calling Dugan “baby,” and making “an obvious and unwelcome attempt to ‘woo’ Ms. Dugan into a romantic relationship.”
The complaint states Dugan made it clear she wasn’t interested and was in a committed relationship, but he still attempted to kiss her at the end of the night, and Dugan “quickly turned away, repulsed.” Katz continued the harassment in subsequent interactions, the complaint alleges.
It also contends Katz and his firm were paid exorbitantly and inappropriately by the academy, and that his representing both the academy and artists who are up for Grammys was a conflict of interest.
More must-read stories from Fortune:
—Parasite director Bong Joon Ho dissects his tale of two families
—The History channel’s aliens and UFOs content continues to blossom as Project Blue Book returns
—What does Parasite’s best ensemble win at SAG mean for Oscar?
—Phoebe Waller-Bridge and Fleabag cast reflect on love, religion, and saying goodbye
—These Oscar Best Picture nominees are “problematic,” but will that matter?
Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.


fortune--2020-01-21--Starbucks has a long way to go to reach environmental goals for 2030

To cut your morning coffee’s carbon footprint, skip the Frappuccino and take a plain black espresso.
Adding whipped cream to millions of Starbucks drinks emits 50 times as much greenhouse gas as the company’s private jet. Overall, dairy products are the biggest source of carbon dioxide emissions across the coffee giant’s operations and supply chain.
Those are just two findings from Starbucks’s most sweeping environmental assessment, unveiled Tuesday as the company announced ambitious goals for reducing its impact. By 2030, the cafe chain is targeting 50% reductions in carbon emissions, water withdrawal, and waste sent to landfills.
The task is immense: Starbucks in 2018 was responsible for emitting 16 million metric tons of greenhouse gases, using 1 billion cubic meters of water and dumping 868 metric kilotons—more than twice the weight of the Empire State Building—of coffee cups and other waste. The audit was conducted with sustainability consultant Quantis and the World Wildlife Fund.
“We know this journey will be challenging, we know we can’t do this alone, and we know this will require others to join us,” Chief Executive Officer Kevin Johnson said in an interview.
Starbucks shares fell as much as 1.1% to $92.62 on Tuesday in New York trading. The stock has gained about 6% so far in 2020, double the advance of the S&P 500 Index.
The company, which has more than 31,000 outlets in more than 80 markets, joins a parade of companies announcing green initiatives as the World Economic Forum in Davos gets underway with a redoubled focus on climate change. This year’s gathering in the Swiss ski resort features Swedish activist Greta Thunberg, while Chief Executive Officer Larry Fink of BlackRock set the tone by warning that the asset manager will address the issue in its investments.
The coffee chain’s moves follow investor pressure, with a resolution calling on the company to step up the use of sustainable packaging receiving support from almost half of shareholders at its annual general meeting last year.
“While Starbucks has a long road ahead to achieve these goals, we’re encouraged that its priorities are rooted in transparent data and will be supplemented by first-of-its-kind market research,” said Allan Pearce, shareholder advocate at Trillium Asset Management.
Under founder and former CEO Howard Schultz, Starbucks focused on sustainability by purchasing renewable energy, investing in climate-resistant coffee trees, and giving discounts to customers who brought their own tumblers. Johnson, who took the helm in 2017, sold $1 billion of bonds to help fund the green and ethical sourcing initiatives. The company has named its first chief sustainability officer, Michael Kobori, who is joining from Levi Strauss & Co.
‘Resource Positive’
At an unspecified point beyond 2030, Johnson said, the company aims to become “resource positive” by storing more carbon than it emits, eliminating waste and providing more fresh water than it uses.
The moves come as governments around the world step up action on the environment with measures such as a pending European Union ban on some single-use plastics.
Other chains are acting too. McDonald’s has said it aims to cut restaurant and office emissions by 36% from 2015 levels through 2030. KFC and Taco Bell owner Yum Brands is seeking a 10% average reduction per store by the end of 2025.
The fast-food chains start from a higher base. Each outlet was responsible for more than four times the level of carbon dioxide emissions as Starbucks stores in 2017, according to Bloomberg Intelligence. Cooking and selling a broader range of menu items, including carbon-intensive meat, makes cutting emissions tougher.
Starbucks has switched to wind power in some of its cafes, but meeting its carbon-reduction goals will require bigger changes. Johnson said he’ll push consumers to choose milk made from almond, coconuts, soy, or oats, whose production is environmentally friendlier than dairy. In North America, 15% to 20% of Starbucks customers already choose such options.
Alternative Milk
“Alternative milks will be a big part of the solution,” Johnson said. “The consumer-demand curve is already shifting.”
The Seattle-based company is testing new drinks made with plant-based ingredients and seeking ways to make whipped cream without emitting nitrous oxide, a greenhouse gas. Starbucks also aims to lower the cost of dairy alternatives by helping suppliers boost output, he said.
Tackling another form of pollution—the food and drink containers that litter city streets, clog landfills, and often end up in the world’s oceans—has been equally challenging. Starbucks says it’s responsible for about 1% of the estimated 600 billion disposable cups used globally every year.
Around March of this year, the company plans to begin testing a paper cup it’s been developing with partners seeking a more widely recyclable and compostable hot-drink container. Existing ones generally contain a plastic layer that makes them difficult to process. Costa Coffee, a U.K.-based chain owned by Coca-Cola, two years ago announced plans to pay waste collectors a supplement to handle them, boosting its recycling efforts.
Starbucks previously reined back a goal set in 2008, which was to serve 25% of coffee in personal travel mugs. Only about 5% of U.K. customers use reusable containers even though the company offers a 25-pence (33¢) discount for them, while charging a 5-pence fee for paper cups.
Lost Sales
A smaller U.K. chain, Boston Tea Party Cafes, has eliminated single-use cups entirely, but that cost it 25% of takeaway coffee sales in the first year after the initiative went into effect.
Johnson said he’s counting on Generation Z to lead adoption of environmentally friendlier practices, saying this will make it financially rewarding for companies to respond. Starbucks will stick to its long-term target of double-digit growth in earnings per share despite the cost of its green goals, he said.
“It won’t be a linear journey,” Johnson said. “We’ll have positive steps and then we’ll try something else that works. There’s no silver bullet.”
More must-read stories from Fortune:
—Retailers reuse and recycle the way to increased growth
—L’Oréal’s new at-home device makes personalized beauty products
—How the 2010s changed retail forever—Consumers are turning away from real fur, but faux fur isn’t a perfect fix
—The World’s Most Admired Companies in 2020
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fortune--2020-01-21--Why PayPal and American Express may be the next hot targets for low-level hackers

Starbucks has a long way to go to reach environmental goals for 2030

Hackers are going after PayPal and American Express usernames and passwords using a phishing scheme that has previously targeted Amazon and Apple, according to research released Tuesday by security company ZeroFOX.
An operation on the dark web called 16Shop started selling phishing kits that target PayPal and American Express customers this month, ZeroFOX says. The digital tackle boxes, which cost less than $100, include everything a low level hacker would need to launch a phishing attack against customers of both companies.
“Phishing kits work very similarly to a marketing platform for sending and tracking email,” says Zack Allen, director of threat operations at ZeroFOX. The software marketers use—legally—helps to automate the process of sending email on behalf of the companies by tracking clicks, controling messaging, shaping content based on your geographic location or Internet browsers, and scheduling marketing campaigns.
The PayPal phishing kit, obtained by ZeroFOX, came with the option of buying additional features, such as customer support, customized templates and automated messages.
“You purchase the software to perform the attack, and some of these kits will reduce the complexity of deploying the attack by streamlining it for the operator,” Allen said.
The phishing kits are just the latest example of how cyber crime and other nefarious tools, such as deepfake video makers, are making complex technology more accessible to the masses.
As the economy moves towards more platform-base capitalism—like buying goods or services through Facebook, Instagram, or Uber, for instance— cyber criminals will follow suit, trying to infiltrate the transactions, says Allen. “We already see this with ransomware-as-a-service and botnets for hire,” he says. “Cyber criminals are now realizing the total addressable market for phishing-as-a-service.”
The news comes as cyber attacks that exploit human weaknesses continue to rise. A 2019 cybercrime study by Accenture said cyber criminals have adapted their attack methods by targeting the human layer—typically the weakest link in cyber defense—increasingly using ransomware, phishing, and social engineering attacks as an entry point. Last year, Kaspersky Labs released a report that detailing a rise in phishing attacks in 2018. The security company found that phishing attacks had more than doubled over the previous year.
Last month, the phishing rate across industries was 1 in 10,527 emails, according to Symantec’s monthly threat report, which shows just how prevalent phishing attacks are. However, that number fluctuates—it was 1 in 5,585 the previous month.
With phishing attacks expected to be on the rise this year, Allen said it’s important to remain vigilant when opening email or messages on social networks.
One way to do that is to check the email address link before clicking. Phishing scams often come from addresses that look legitimate, but might have a simple misspelling.
“Delivery mechanisms tend to be via email or social/digital platforms, and give an enticing message or a call-to-action to get you to click a link. The fake domains may contain the brand name to help convince victims the legitimacy of the website,” said Allen. “Just know that legitimate companies will never ask you for your personal information via these channels.”
More must-read stories from Fortune:
—A.I. in China: TikTok is just the beginning
—Inside big tech’s quest for human-level A.I.
—Medicine by machine: Is A.I. the cure for the world’s ailing drug industry?
—A.I. breakthroughs in natural-language processing are big for business
—A.I. is transforming the job interview—and everything after
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-21--New Airbnb hire highlights expansion into hotel and condo rentals

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Airbnb has created a new executive position to help lead its continued expansion beyond home and apartment rentals.
Jesse Stein, former senior vice president of real estate private equity firm KHP Capital Partners, will be Airbnb’s global head of real estate, the company said on Tuesday. His job is to partner with property managers including real estate companies, boutique hotels, and condominium developments.
The hire highlights Airbnb’s strategy of adding more hotel and hotel-like offerings on its service. In doing so, the company would increase its inventory of rentals that are professionally monitored following safety concerns like the killing of five people at a party at an Airbnb rental in Orinda, Calif. and fraud complaints about sketchy property owners.
Those concerns could have a major impact on any initial public offering by Airbnb this year. Investors have high expectations for an IPO by the company, which was valued at $31 billion in 2017.
Last year, Airbnb acquired last-minute hotel booking service HotelTonight and started working with it to provide a new type of accommodation that would give guests the comforts of a home with the services of a hotel. Airbnb has yet to debut that feature.
Airbnb also teamed up with RXR Realty, a real estate company in New York, to develop portions of commercial properties into Airbnb rentals. Those projects are still in the works.
Additionally, Airbnb also has invested in rental service startup Lyric, which leases entire floors of apartment buildings, remodels the units for travelers, and lists them on sites including Airbnb.
Meanwhile, competition from other more traditional hospitality companies like Marriott International is heating up. Last year, the hotel giant introduced a high-end home-rental service called Homes & Villas that includes an 18th century Irish Castle that sleeps 17 and a six-bedroom villa in Sorrento, Italy overlooking the Mediterranean Sea.
Two months later, Airbnb responded with its own luxury offering called Luxe, which aims to provide lavish rentals that come with concierge service. Some of the swanky rentals includes an entire island in French Polynesia and a Jamaican oceanfront villa.
More must-read stories from Fortune:
—A.I. in China: TikTok is just the beginning
—Inside big tech’s quest for human-level A.I.
—Medicine by machine: Is A.I. the cure for the world’s ailing drug industry?
—A.I. breakthroughs in natural-language processing are big for business
—A.I. is transforming the job interview—and everything after
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-21--Girls and women put themselves on the agenda at Davos

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The World Economic Forum conference in Davos, Switzerland, is underway, and it’s starting to feel like a reckoning between a handful of billionaires and billions of girls and women.
A new report from Oxfam released yesterday ahead of the confab tells the tale: The world now has 2,153 billionaires who collectively control more wealth than the poorest 4.6 billion people living on the planet with them. The 22 richest men have more wealth than all of the women in Africa combined, some 660 million souls. Girls and women perform 12.5 billion hours of unpaid care work every day, which data show adds $10.8 trillion to the global economy every year.
If the future is feminist, then it’s got charts and graphs to back them up.
It’s well past “Time to Care,” the report authors say, that this accumulation of wealth comes largely at the expense “of ordinary people and particularly poor women and girls.”
If you want to fix the world, start paying women:
“Governments around the world must act now to build a human economy that is feminist and values what truly matters to society, rather than fueling an endless pursuit of profit and wealth. Investing in national care systems to address the disproportionate responsibility for care work done by women and girls and introducing progressive taxation, including taxing wealth and legislating in favor of carers, are possible and crucial first steps.”
It makes the presence of Greta Thunberg, a single girl who has helped kickstart a global climate activism movement, and who has jousted on social media with one of the most powerful political leaders in the world, even more poignant.
Thunberg and President Trump continued to trade shade at Davos without naming the other, a local reckoning with global implications.
In remarks preceding a panel discussion, Thunberg pointedly called out the wealthy and powerful for their continued inaction, referenced the U.S. withdrawal from the 2015 Paris climate accord, then brushed aside President Trump’s announcement that the administration would join the One Trillion Trees initiative to offset carbon emissions.
“Planting trees is good, of course, but it’s nowhere near enough… It cannot replace mitigation,” she said. In his own remarks, Trump referred obliquely to the “alarmists” at the conference, and the “perennial prophets of doom and their predictions of the apocalypse.” Thunberg was in the audience, unrattled and unmoved.
If the future is feminist, it’s also fearless.
Ellen McGirt
@ellmcgirt
Ellen.McGirt@fortune.com
On Point
A new lawsuit sheds light on Jeffrey Epstein’s alleged crimes The news is brutal: Evidence appears to show that Epstein trafficked and sexually abused girls as young as 11 and as recently as 2018. The activity occurred at his estate in the Virgin Islands; the suit was filed by Denise N. George, the attorney general of the Virgin Islands. The details are shocking but one thing is clear, George does not seem like she’s here to play. From her bio: “During her tenure, she successfully prosecuted a full spectrum of violent crimes, including murder, manslaughter, rape, domestic violence, sexual assault, and child abuse. As a member of the Child Abuse Task Force, she co-authored the Virgin Islands' first criminal child abuse and neglect statute.” Remember her name. New York Times
Survey: Legalizing same-sex marriage reduces suicide in gay and lesbian populations The survey was conducted in Sweden and Denmark, two of the earliest adopters of same-sex marriage, and tracked some 28,000 people in same-sex unions over an average of 11 years. The survey looked at suicide rates in same-sex couples between the years 1989 and 2002, then between 2003 to 2016. The suicide rate dropped 46% between the two studies. Click through for some more good news. Queerty
Marvel announces a new Indigenous-themed comic book The latest Werewolf by Night, which originated in 1972, will be released this April. The series will be set in Arizona, and featuring a strong Native American theme, co-written by Taboo of The Black Eyed Peas and Benjamin Jackendoff. “We're going through a Native lens because of my Native American heritage,” Taboo told Comicbook.com. I've been really connected to the Indian country or to native communities to be able to be a service and help native youth, inspire them, especially when it comes to health and wellness, and arts and music. So we built our partnership knowing that when we create, we create through a native lens…” Comicbook.com
On Background
Working towards a gender-balanced workforce Aviva Wittenberg-Cox is the CEO of 20-first, a global gender-balance consultancy, and she’s put together some key observations after a decade in the delicate business of helping companies reach gender equity. Senior teams are increasingly ranking gender equity highly as a business priority, but they’re just not sure why. That’s a problem. “Equip leaders to explain why they believe balance matters, in a way that will be compelling to their dominant majority (usually men).” While the “I have daughters,” rationale may come up, it’s important to move past that and really dig in. Then, prepare for their ignorance, which is distinct from bias. “Rarely have senior executives had substantive discussions with their colleagues about gender issues, especially not with their male peers (any women on the team are often shocked at the low levels of awareness).” I can imagine this framework would be useful for racial diversity, too. Forbes
The study of how humans think has a diversity problem Much of the research on the way humans think has been based on the study of psychological subjects who were WEIRD—a handy acronym for western, educated, industrialized, rich, and democratic. Turns out, making the way WEIRDs think a universal standard is a real problem. If you reach out to other parts of the world, or even other parts of a country (rural versus urban, for example), you’ll encounter people who think very differently. Some of the most notable differences involve individualism vs. collectivism—or whether you consider yourself independent from or intertwined with others. Understanding how people think has powerful implications: A strong need for individual success brings with it consumerism and overconfidence, for example. A fascinating must-read. BBC
Mobilizing communities to end violence against women Dr. Shruti Kapoor is an economist and social entrepreneur, and one of 2019’s Gender Equality 100, a list which highlights influential people in global policy. She started her organization Sayfty, an organization that works to end gender-based violence, in reaction to a horrific gang rape in Delhi in 2012. In this interview, she shares three important learnings that speak to the global problem of violence against women. Click through for the specifics, but here’s something we can all do now: “Be a better bystander. We all need to reprogram ourselves and stop being silent,” she says. Medium
Quote
“You gotta think your whole life you’ve been playing football, for that moment to go ahead and play in the NFL… when you get there, all the executives, owners, they’re all white. I mean, you know, you get to a point where, in order to fit in, you have to learn how to—I guess it’s called code switch?—where you gotta not be yourself in order to fit in and stick around.”
—Marshawn Lynch, speaking at a panel for MLK Now.
The future of Fortune is here
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fortune--2020-01-21--How to (finally) ask for a raise at work this year

Let’s be honest: Asking your boss for a raise is hard.
Making a persuasive case that you’re worth more than you’re earning now “takes a lot of effort and preparation,” notes Marc Cenedella, founder and CEO of Ladders, a job board for people making $100,000 a year or more. Researching your market value online, and making a detailed list of your achievements over the past year, takes so much time and mental energy that, in the day-to-day rush, it’s an easy project to keep putting off.
Not only that, but even at relatively senior levels of management—let alone on lower rungs of the the org chart—talking about pay is often a psychological minefield. The discussion is “perceived as a danger rather than an opportunity, because people are afraid of what they’ll hear,” adds Cenedella. “So conflict avoidance takes over, and then you start rationalizing why it’s okay not to ask.”
Evidently so. Ladders recently surveyed 1,233 professionals on its site (their average annual pay: $148,000) and found that, while 82% of them believe they deserve a raise, only 25% have asked for one in the past twelve months.
That’s not to say these folks didn’t get a bump in pay in 2019. Almost two-thirds (65%) of them say they did. But of that group, 49% got a 3% raise—the average in most companies now—or even smaller, and another 23% had to quit their jobs to get a significant salary boost elsewhere.
Suppose you want to stay put and start earning what you’re worth. “It’s simple,” says Cenedella. “Just start 365 days ahead of time. If you ask your boss, ‘What do I have to do to get an X% raise a year from now?’, he or she will tell you. Then do it.” Be sure to check in now and then to make sure your leader agrees that you’re on the right track to reach those goals. It helps to “not only nail your own targets but also take on more of the job of the person above you,” he adds. “Outperform what you agreed to.”
In this job market, with critical talent so hard to find, Cenedella has noticed an uptick in the number of counteroffers employers are extending to people they’d rather not lose. No doubt about it, counteroffers are tempting. After all, if you can make substantially more without having to learn a whole new job, and acclimate to a whole different culture, why not?
In this as in so much else, timing is everything. As soon as another employer makes you a formal offer you could see yourself taking—but before you’ve accepted it— it’s okay to talk to your boss and see whether your current company is interested in matching (or, lucky you, exceeding) that deal. But, says Cenedella, if you’ve already taken the other offer, it’s too late.
At that point, he says, agreeing to a counteroffer “is always a mistake. It will mark you out as someone who’s not really on the team.” The consequences can last for years, and include “smaller raises and bonuses, dead-end assignments, and being the first one laid off in a downturn.” Gulp.
More must-read stories from Fortune:
—Why this 20-year-old Bosch apprentice chose to work first and get a degree later
—How freelancing can help your career
—No, humanities degrees don’t mean low salaries
—The 4 main reasons people change careers
—3 signs you won’t get promoted anytime soon
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