Professional Documents
Culture Documents
The LS 500 redefines what a luxury sedan can be. With intense styling like the F SPORT
bolstered 28-way power front seats featuring leather trim with an exclusive perforated
FORM L-motif design. The LS 500 is also powered by exhilarating twin turbochargers, delivering
416 horsepower1 with a thrilling 4.6-second 0–60 time.1,2 And the Lexus Multistage Hybrid
system in the LS 500h delivers seamless acceleration and torque, without requiring a charge.
This level of craftsmanship isn’t just rare. It’s simply beyond measure. lexus.com/LS | #LexusLS
LS 500 F SPORT shown with options. 1. Ratings achieved using the required premium unleaded gasoline with an octane rating of 91 or higher. If premium fuel is not used, performance will decrease.
2. Performance figures are for comparison only and were obtained with prototype vehicles by professional drivers using special safety equipment and procedures. Do not attempt. ©2018 Lexus
○ Toyota’s driverless-ish future 62 ○ Al Gore shares his solutions 46 ○ Belt and Road’s master builder 14
Protect T h i s H o u s e
THE 8
1
PHOTOGRAPH BY THOMAS PRIOR FOR BLOOMBERG BUSINESSWEEK
IN BRIEF 5 New shots in the U.S.-China trade war; Audi’s Tesla killer How to Contact
Bloomberg
AGENDA 6 The UN General Assembly meets; more Fear is coming Businessweek
VIEW 6 The EU’s plan to stop dirty money misses the mark
Editorial
212 617-8120
REMARKS 10 The corporate push for diversity ends at the C-suite Ad Sales
212 617-2900
731 Lexington Ave.,
BUSINESS 14 The cloud around Belt and Road’s biggest builder New York, NY 10022
1 18 VC pioneer Kleiner Perkins ponders life after Meeker
Email
bwreader
@bloomberg.net
Fax
TECHNOLOGY 23 Old and in the way at IBM?
2 25 The inequitable gap in equity for Silicon Valley women
212 617-9065
Subscription Customer
Service URL
26 Helping driverless cars navigate all kinds of weather businessweekmag
.com/service
Reprints/Permissions
FINANCE 28 A tribal-owned mortgage provider raises eyebrows
3 31 Can CEO Christian Sewing patch up Deutsche Bank?
800 290-5460 x100
or email
businessweekreprints
@theygsgroup.com
ECONOMICS 35 Macron’s EU agenda fades as his star falls at home
Letters to the Editor
37 The China hawk behind Trump’s trade strategy can be sent by email,
fax, or regular mail.
They should include
POLITICS 41 Jay Powell’s success may rest on his political skills the sender’s address,
phone number(s),
and email address if
available. Connections
with the subject of
the letter should be
disclosed. We reserve
the right to edit for
sense, style, and space.
2
Follow us on
social media
Facebook
facebook.com/
bloomberg
businessweek/
Twitter
@BW
Instagram
@bloomberg
businessweek
PRIVATE ESCAPE
EMIRATES FIRST
Because a lile “me” time goes a long way, escape to your very own First Class Private Suite to
indulge in gourmet dining and a premium selection of wines, champagne, and spirits. It’s everything
you need to arrive refreshed and ready to impress. Find out more at emirates.com/us
The Ultimate Escape
You could scour the
Internet for valuable
trade research.
But you know better.
schwab.com/trading
Enroll in the offer and make a qualifying net deposit of $100,000 to earn 500 commission-free online trades. Limited to one account per client.
Trades are good for two years and include only base equity, ETF, and options commissions and option per contract fees up to 20 contracts. Restrictions apply.
See schwab.com/trading or call us for terms and conditions. Offer may be changed or terminated at any time without notice.
©2018 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (1017-70FG)
IN BRIEF
Bloomberg Businessweek September 24, 2018
By Kyle Stock
○ European regulators
○ “I live opened an informal probe
into how Amazon.com
with a treats small sellers in its
marketplace, intending
○ Tesla confirmed on
○ Coca-Cola said
ago I was agreed to pay as much as Sept. 18 that it handed
FROM TOP: FREYA INGRID MORALES/BLOOMBERG. CHARLES PLATIAU/REUTERS. DATA: BLOOMBERG TANKER TRACKING DATA
going to $6.2b
to settle a long-running
making new drinks
with CBD, the
Department of Justice,
which is investigating the
company over founder
buy Time.” price-fixing case over fees
they charge stores for
nonpsychoactive
ingredient in
Elon Musk’s Aug. 7 tweet
that he intended to take
each credit card swipe. marijuana. the company private and
U.S. merchants spend had “funding secured.”
Salesforce CEO Marc Beniof
about $90 billion a year
referred to Zen wisdom in an on such fees.
interview with the New York Times
about his decision to buy the storied
news magazine. Zen master Shunryu
Suzuki spoke about the virtues of
approaching life as a “beginner”
who can see “many possibilities.”
○ On Sept. 19 shares of cannabis-extract maker Tilray shot up 94 percent and down 49 percent before ending up 40 percent.
○ The U.S. said it will admit no more than 30,000 foreign refugees in 2019, down from 110,000 in Trump’s first year in oice.
○ Tyson CEO Tom Hayes will step down for personal reasons, he says; he’ll be replaced by Tyson veteran Noel White.
○ RV giant Thor Industries agreed to buy German rival Erwin Hymer Group in a deal valuing the company at $2.5 billion.
AGENDA
Bloomberg Businessweek September 24, 2018
banking supervision, but going after money laundering has the rules, create one agency, and give it lead responsibility for
remained a national responsibility. It was the U.S. Department investigating ofenders. The EU has missed an opportunity to
of the Treasury that found out that ABLV Bank AS, a Latvian move to a better system and improve its reputation for sound
lender, was involved in “institutionalized money laundering,” inancial supervision.
prompting EU authorities to withdraw its banking license. And
a report by the European Banking Authority (EBA) concluded For more commentary, go to bloomberg.com/opinion
Going Places
SM
®
Mastercard Black Card TM
10
When Ursula Burns, Indra Nooyi, and Ken Chenault took biggest banks—Goldman Sachs, Bank of America, Wells Fargo,
over as the chief executive oicers of Xerox, PepsiCo, and Morgan Stanley—increasingly boast about the diversity in
American Express, respectively, they also set new expecta- their summer intern classes. It’s not unusual to see people
tions for what women and people of color could achieve in of color make up a little more than half of those groups and
21st century corporate America. Their departures show how women more than 40 percent.
ickle progress can be. And still, executive ranks and upper management remain
The occupants of corner oices are a stunningly homoge- persistently, stubbornly white and male—even more so than
neous bunch. There are now just three black CEOs running they were a few years ago. What gives?
Fortune 500 companies, down from a height of eight three “Lots of companies are making genuine, serious eforts to
years ago. The number of women serving as CEOs was down increase diversity,” says Kabrina Chang, an associate profes-
to 24 as of May, a 25 percent drop since June 2017. sor at the Questrom School of Business at Boston University.
It’s not for a lack of promises from the corporations them- “But I wonder how many of them understand it’s an ongoing
selves. Nearly every large U.S. company has publicly stated its thing. It’s not just, ‘we hired two women,’ or ‘we have a black
commitment to diversity. Hundreds have signed pledges to president, so we’re done.’ ”
achieve gender parity, close the gender pay gap, and make a If companies are getting better at hiring underrepresented
larger efort to hire black and Latino workers. Big tech com- groups, they haven’t made commensurate strides in keep-
panies have touted their on-campus recruiting programs ing them. In fact, the opposite is true: Women and black and
at historically black colleges and universities. Wall Street’s Latino people are more likely to quit their jobs than white men.
REMARKS Bloomberg Businessweek September 24, 2018
11
In addition, the longer you’ve worked at a job, the less likely slower career progress than did white male executives during
you are to quit. Taken together, that doesn’t bode well for com- their early years in a corporation, such that two groups tend
panies pinning their diversity eforts on interns and new hires. to follow diferent career trajectories.”
People leave jobs for an array of reasons. But researchers It’s a vicious cycle: Companies may succeed in hiring
ind some broad trends. One Cornell University study of 25,000 women and people of color, but once those employees get
PHOTO ILLUSTRATION BY 731: BURNS: DENIS BALIBOUSE/REUTERS; NOOYI:
workers in the hospitality industry found that hourly workers to work, they don’t see a path to advancement. So they look
and poor performers were likely to quit for better pay and ben- elsewhere for those opportunities, and the company that
MARK PETERSON/REDUX; CHENAULT: MARY ALTAFFER/AP PHOTO
eits. Professional employees and high performers were likely hired them in the irst place becomes more homogeneous.
to quit for what academics call “relational reasons”—they didn’t “Middle management is where diversity goes to die,”
feel fairly treated or see opportunities to advance. Sallie Krawcheck said on a recent episode of Bloomberg’s
Layer race and gender on top of that, and it’s easy to imag- The Pay Check podcast. Krawcheck was once one of Wall
ine why women and black and Latino people quit at higher Street’s highest-ranking female executives. Now she runs
rates. Treated fairly? Not really. The persistent gender and Ellevest, which focuses on inancial services for women, and
racial pay gaps relect some outright discrimination—yes, it’s she’s been outspoken about the importance of diversity in
illegal, but yes, it still happens—as well as a lack of advance- her own shop. “We’re all about women, and we’re all about
ment into better-paying roles. In a wide-ranging study from diversity, and I still ind that members of the team come
Arizona State and Columbia on who quits and why, researchers back and say, ‘I’m going to hire this person like myself,’ ”
report that “successful minority male executives experienced she says. “And I say, ‘No, you’re not.’ … I will not let us
REMARKS Bloomberg Businessweek September 24, 2018
talk ourselves into becoming a homogeneous company.” researchers had given the speakers the exact same script.
Bigger companies than Krawcheck’s also seem increas- “Women don’t get the same beneit for speaking up with ideas
ingly willing to take those kinds of explicit measures. After for change,” says Elizabeth McClean, one of the researchers
seeing black diversity backslide for eight straight years, who ran the experiment. “People have diferent expectations
Citigroup Inc. in August sent an internal memo describing for men and women in the workplace. Speaking up is more
new targets designed to reverse the trend. Over the next in line with what you expect of men.”
three years, the bank says, it will increase the presence of One of the best ways to undo the biases baked into those
black people in management to 8 percent from 6 percent. expectations, McClean says, is to expose employees to a wider
Over the same period, the percentage of women in manage- range of people in positions of authority, reinforcing a reality
ment will grow to 40 percent from 37 percent. Those small that leadership can be manifest in myriad styles and people.
percentage-point increases mask big changes in a workforce But that doesn’t solve the immediate problem of getting difer-
that includes 209,000 people around the world. If Citigroup ent kinds of folks into those positions in the irst place.
hits its goals, it will propel thousands of women around the “Part of it is, just frigging do it,” Krawcheck says. “Quit
world and African Americans in the U.S. into management. with all these ways to glance of the problem. Just say, it is
Progress on reaching those numbers will be part of the per- important enough for us to have a diverse company, we’re
formance scorecards of the bank’s senior leaders. just going to do it. Now.”
Another company with a stated public commitment to The “business case” for diversity isn’t a new idea. Nor is
diversity and a massive global workforce, Ernst & Young, is Krawcheck’s position that elevating women and underrepre-
also tackling racial attrition head-on. Every year since 2011, sented minorities into leadership takes willful efort. We’re
the company has convened its new black and Latino employ- more than 75 years into an evolving national commitment to
ees for a two-day, of-site retreat with networking and coach- what John F. Kennedy called “airmative action,” the idea
ing led by the company’s more senior people of color. The that deeply ingrained prejudices, stereotypes, and discrimi-
advice isn’t groundbreaking—“everyone struggles,” “go to nation don’t go away by themselves.
the Christmas party,” “get a mentor”—but it’s designed to For most of our history, this efort has had bipartisan sup-
improve those “relational” factors that encourage high port. The Nixon administration created the requirement for
12 performers to stick around. federal contractors to have an airmative-action plan—a time-
The program was so well received that EY quickly followed table for making sure the demographics of the workforce
up with a separate version designed for its Asian American mirrored the surrounding area. Eventually, the private sec-
new hires. Asian Americans confound the typical corpo- tor also came around. In 2003, 65 companies, from 3M and
rate storyline on diversity. There’s no “pipeline problem.” Abbott Laboratories to Whirlpool and Xerox, encouraged the
A broad demographic group that includes people whose U.S. Supreme Court to uphold the airmative-action policy at
origins stretch from Pakistan to the Paciic Islands, they’re the University of Michigan Law School. (It did.)
the best-educated racial group in the U.S. They’re over- “The skills and training needed to succeed in business today
represented, relative to the population, in entry-level and demand exposure to widely diverse people, cultures, ideas and
middle-management jobs. They’re less likely to quit and more viewpoints,” the companies wrote in an amicus—friend-of-the-
likely, according to the Pew Research Center, to say they’re court—brief. “For each of the amici, diversity is an increasingly
doing well inancially. critical component of their business, culture and planning.”
With that proile, it would seem that Asian Americans That was 15 years ago. And here we still are. “The most
should have been able to change the demographics of the diplomatic description of the obstacle could be described as
C-suite by now. Yet fewer than a dozen Asian CEOs are in inertia,” says Cameron Snaith, whose company, Bleeker, helps
the Fortune 500, which suggests that retention, like hiring, employers link promising executives from underrepresented
accounts for only part of the whiteness and maleness of groups with outside mentors. In some cases, he adds, there’s
America’s corporate leadership. also a relexive protection of the way things are.
What’s left? Stereotypes and conirmation bias, mostly. Companies so often want it both ways. They want a newly
You’ve heard the riddle about the man and his son who are diverse workforce to appear as if by magic, bringing with it
rushed to the emergency room after a car crash, and the sur- the documented business beneits, but in action, they’re less
geon on duty says, “I can’t operate on this boy: He’s my son.” courageous than Kennedy or Nixon. So we see baby steps, a
When we hear “surgeon,” we assume he’s a man, just as when tinkering around the edges. The number of “diversity and
we picture an executive (typically a white one). inclusion” postings on Indeed, a job search site, rose 35 per-
In one experiment, researchers from the University of cent from February 2016 to February 2018. Training designed
Arizona asked audiences to evaluate recorded speeches from to raise awareness of the stereotypes we use to reinforce the
both men and women who had suggestions about the com- status quo—what’s called implicit bias—has become all the
pany’s future. Male speakers were more highly respected, rage. Academics are mixed on whether those programs work,
and their ideas were considered better (and more likely to and it’s probably too soon to tell anyway.
get them promoted) than the women’s—even though the We’ll just have to check back with those interns.
When you need someone
to talk to about your retirement
plan, it’s good to actually have
a person.
Add more value to your retirement plan with personalized services and support. Call us at 1-866-954-4321.
Mutual of America® and Mutual of America Your Retirement Company® are registered service marks of Mutual of America Life Insurance Company,
a registered Broker/Dealer. 320 Park Avenue, New York, NY 10022-6839.
Bloomberg Businessweek September 24, 2018
B
U
S
I
N
14
E
S The Chinese Company
Edited by
Cristina Lindblad and
Dimitra Kessenides
BUSINESS Bloomberg Businessweek September 24, 2018
15
$3.3b
Port
construction $4.8b
in Algeria Highway
construction
in Australia
$300k
School $3.8b
building in Railway between
Angola Mombasa and
Nairobi, Kenya
$300m
Satellite
tracking station
16 in Argentina
DATA COMPILED BY RWR ADVISORY GROUP, A WASHINGTON-BASED RESEARCH FIRM THAT TRACKS CHINESE INVESTMENTS ABROAD BASED ON MEDIA REPORTS, CORPORATE DISCLOSURES, REGULATORY FILINGS, AND IN-COUNTRY
SOURCES. CCCC PROJECTS, REPRESENTED BY CIRCLES ON THIS MAP, ARE SIZED BY DOLLAR VALUE. THEY INCLUDE ONLY PROJECTS THAT HAVE BEEN COMPLETED OR INITIATED OUTSIDE CHINA SINCE 2012 FOR WHICH A PROJECT
VALUE COULD BE ASCERTAINED. IN CERTAIN CASES, THESE VALUES MAY REFLECT AWARDS TO GROUPS OF COMPANIES OR JOINT VENTURES IN WHICH CCCC WAS A PART. CANCELED OR PENDING TRANSACTIONS AREN’T INCLUDED.
AS RWR RESEARCH REFLECTS ONLY WHAT HAS BEEN PUBLICLY REPORTED, ERRORS AND OMISSIONS ARE POSSIBLE.
is part of China’s “Belt and Road” initiative to CCCC over its alleged role in building Chinese mil-
build an estimated $1 trillion of infrastructure to itary bases in the disputed South China Sea—an
support increased trade and economic ties that issue that scuttled the company’s plans in 2015 to
further China’s interests around the globe. raise $1 billion by spinning of its dredging unit in a
State-owned CCCC—one of the world’s larg- public ofering in Hong Kong.
est companies, with revenue exceeding that The Colombo project has drawn protests over
of Procter & Gamble Co.—says its portfolio of environmental issues. It’s also dogged by concerns
700 projects in more than 100 countries has a about its governance under a legal structure sepa-
value of more than $100 billion. That makes it the rate from the rest of the country and the types of
largest Belt and Road contractor, according to business it will attract.
RWR Advisory Group in Washington, which tracks There’s no shortage of companies, including
Chinese investment abroad. American ones, that have been accused of brib-
It’s also one of the most vexed. CCCC and two ery and environmental damage when operating
of its subsidiaries, China Harbour Engineering Co. abroad. Yet the number and scope of the allega-
and China Road and Bridge Corp., have left a trail tions against CCCC set it apart. “CCCC seems to
of controversy around the world. The company be constantly pressing the envelope of how coun-
was blacklisted by the World Bank for eight years tries feel about having a foreign state-owned entity
for alleged fraudulent practices in the Philippines, involved in their most strategic assets and critical
charges CCCC denied. Malaysia halted two rail proj- infrastructure projects,” says Andrew Davenport,
ects this year amid corruption investigations. There RWR Advisory’s chief operating oicer.
are allegations of mistreatment of railway workers In a Bloomberg TV interview in August, CCCC
in Kenya and bribery in Bangladesh. In Canada, Chairman Liu Qitao said his company complies with
CCCC was blocked from acquiring a construction all local laws and environmental regulations and fol-
company on national security grounds. And there lows internal guidelines. “We do not allow, nor is
have been calls in the U.S. Congress to sanction there any, corrupt behavior related to any oicial,
BUSINESS Bloomberg Businessweek September 24, 2018
because we know that this kind of corrupt behav- Sri Lanka into a haven where hidden assets such as
ior is not going to help with the company’s sustain- India’s “black money” can be stashed to avoid taxes.
able development,” the 61-year-old Liu said. “If there They fear casinos will move in and create the only
is corrupt behavior, then the company is inished.” gambling hub in South Asia. They’re worried about
In Sri Lanka, authorities are investigating rising pollution and how Port City will get enough
$8.1 million in fund transfers, including payments water and power. And they question whether the
from CCCC, to then-President Mahinda Rajapaksa’s project, which has no committed investors, is a pie-
staf during his 2015 reelection campaign. While for- in-the-sky vision that won’t materialize.
eign contributions aren’t prohibited and Rajapaksa “The whole deal is rotten to the core,” says Feizal
has denied wrongdoing, CCCC dismissed charges Mansoor, a member of the People’s Movement
that it helped fund his campaign as “speculation.” Against the Port City, a group of environmentalists,
The Chinese company was awarded a con- ishermen, clergy, and other opponents. The sand
tract in 2010 to build a port in Rajapaksa’s home and quarried rock used for the landill is 100 years’
district of Hambantota, and a few years later his worth of construction resources being used up at
government enlisted it for the Colombo project. once, he says, and the Chinese should be paying for
When a new government assumed power in 2015, it it. “They’re going to make a 100 percent proit on
halted both projects for less than a year before tap- their capital investment, and we’re going to make
ping China Merchants Port Holdings to inish the a 1,000 percent loss,” he says.
work at Hambantota and renegotiating the terms The biggest cost so far is the environmental dam-
for Port City. As compensation, CCCC got a tenta- age along the coast and its impact on 80,000 house-
tive commitment to develop 15,000 acres around holds that make a living from the sea. Sri Lanka’s
the Hambantota port as an industrial zone. The Environmental Foundation warned that building
new Port City terms gave CCCC a 99-year lease Port City would have a “severe and highly detrimen-
instead of ownership and increased the land area tal” impact, causing erosion and afecting marine
by 15 percent. biodiversity, ishery stocks, and breeding sites.
Port City aims to stop the brain drain caused Government oicials issued an environmental 17
by the failure of Sri Lanka’s $90 billion econ- impact assessment before the project was restarted
omy to generate enough employment. Marketing in 2016, stating that studies “clearly establish”
plans tout 80,000 new jobs as well as top-quality that it won’t cause erosion. The report conceded
schools and health care. Luxury beachfront villas that dredging would temporarily disrupt ishing
are intended to lure the wealthy of Delhi, Dhaka, grounds and directed CCCC to pay $3.2 million for
Karachi, and Mumbai—and rich Chinese, too. community projects.
“We lost our opportunity to Dubai and A hunger strike by ishermen in 2016 resulted
Singapore, and now we are trying to catch up,” in an agreement forcing the dredgers farther of-
says Champika Ranawaka, who heads Sri Lanka’s shore. But that’s barely helped, according to ish-
Ministry of Megapolis and Western Development, ermen, who say there’s been a 20 percent decline
one of two government bodies that approved the in catch. “This is destroying the coast and the coral ○ Where CCCC is
project. He says CCCC is putting up all $1.4 billion reefs, and the sea erosion is very serious,” says changing Sri Lanka
for the initial phase of construction, which the Herman Kumara, head of the National Fisheries
company says is 70 percent funded by loans from Solidarity Movement in Negombo, the center of
Chinese banks. That, plus the $800 million the the ishing industry.
Chinese company is spending to build connecting On Christopher Fernando’s stretch of beach,
roads, gives it the right to develop most of the land his neighbor, W. Mary Johanna, laments the
to recoup its investment, Ranawaka says. “They’re loss of two coconut trees and 700 square feet of
Negombo
taking a risk, so they have to somehow earn their her property that washed out to sea. Since she Colombo
money,” he says. “Their success creates a lot of was born here 52 years ago, she says, she never
other opportunities for Sri Lanka.” had a problem with erosion—until the dredgers
Hambantota
The government intends to ring-fence Port City showed up. “It’s diicult to push against the gov-
from Sri Lanka’s legal system to facilitate currency ernment; they won’t admit they’re causing this,”
movements and create tax and investment incen- she says. “What else can we do, apart from die?”
tives. “This must be a top-10 city for doing busi- —Sheridan Prasso, with Anusha Ondaatjie, Dong
ness in the world, otherwise what’s the point?” says Lyu, John Liu, and Cathy Chan
Harsha de Silva, a state minister helping to draft the
THE BOTTOM LINE Port City Colombo, a massive Sri Lanka
separate legal structure. project spearheaded by China’s CCCC, promises 80,000 new jobs,
Port City’s opponents say the project could turn but local fishermen say it’s costing them their livelihood.
BUSINESS Bloomberg Businessweek September 24, 2018
ronmental technology, and perhaps most alarming, Ted Schlein, a general partner at Kleiner for more
dwindling relevance, the irm has been attempting than two decades who helped recruit Meeker and
to reinvent itself as it confronts the most severe crisis launch the growth strategy. “The venture land-
in its 46-year history. scape has changed.” Meeker declined to comment. 50
18 That challenge became more urgent in mid- Venture capital has evolved since the inancial
September when Kleiner lost high-wattage part- crisis. New rules governing public companies have
ner Mary Meeker—aka the Queen of the Internet made IPOs less appealing to startups, and the pool
for her early calls on transformative web trends of potential investors has grown, making it easier 0
such as search and e-commerce. She and her team for private companies to fund themselves with- 2012 2017
announced they were leaving to raise their own out going public. The venture industry doled out
fund and bankroll late-stage tech companies in $164 billion worldwide last year, a level not seen
○ Financing deals made
China and other global hot spots. The split leaves since the go-go days of the late-1990s, according to with venture capital-
Kleiner and its heir apparent, Mamoon Hamid, to industry research group CB Insights. That increase backed companies
focus on the early-stage bets that made it famous has been driven by nontraditional venture inves- U.S. companies
but without the division that was responsible for tors, including sovereign wealth funds such as Non-U.S. companies
most of its more recent hits, including Uber, Snap, Saudi Arabia’s Public Investment Fund. The Saudi
Spotify, Instacart, and DocuSign. fund also backs SoftBank Group Corp.’s hulking 6k
“This puts them in a tough spot,” says one person $100 billion Vision Fund, the industry’s largest. And
who invests across more than a dozen venture funds, corporate investors have returned to the market at
not including Kleiner, and requested anonymity to levels of the dot-com heyday.
protect sensitive relationships. “Who knows? Maybe At the same time, very-early-stage startups, with 4
being a smaller irm will help them focus.” the help of cheap web hosting from Amazon.com
It’s not just Kleiner that’s bent on reinvention. Inc., and developer resources like GitHub Inc. are
Even as Silicon Valley continues churning out hits, able to build companies more quickly and cheaply
traditional VCs ind that their place in the industry than their predecessors. They build, test, and 2
DATA: PRICEWATERHOUSECOOPERS, CB INSIGHTS
they created is no longer guaranteed. Competition launch—and acquire users—faster than ever before. 2012 2017
to bankroll companies is steeper, startups are rais- Early venture investors writing smaller checks are
ing more money and delaying initial public oferings, being pushed to develop deep knowledge of niche
and the rise of #MeToo has led to a shift in oice cul- businesses while also investing globally, since the
ture the VC world has been slow to embrace. next hot company can emerge from anywhere.
By most accounts, Meeker’s split from Kleiner Unlike during the dot-com boom, which was
was amicable. Sources close to the irm say her concentrated in the U.S., roughly half the startup
growth investing strategy—which handed $30 mil- deals completed in 2017 were done outside the
lion to $100 million checks to mature companies U.S., with Asia-based companies attracting nearly
So powerful, it’s a phone
and a PC in one
Bloomberg Businessweek September 24, 2018
ADVERTISEMENT
$391B
Amount of corporate pension
A slimmer Kleiner is returning to the riskier—but
potentially more lucrative—style of VC investing that
led to its reputation-making stakes in Genentech,
underfunding for companies in
Netscape, Amazon, and Google while they were in
the S&P 500
their infancies. “The new Kleiner is the old Kleiner
in a way,” says Schlein, who is now mentoring
81%
Percent of every dollar owed to
Hamid, 40, to take the irm’s managing reins from
legendary tech VC and Kleiner Chairman John Doerr.
In many ways, Hamid represents the new face
those pensioners that is actually
Kleiner would like to put forward. Born in Pakistan,
funded
raised in Frankfurt, and educated at Stanford and
Harvard, Hamid was an early investor in breakout
2007
The last year in which corporate
successes including Box Inc. and Slack Technologies
Inc. Since he joined Kleiner last year, Hamid has
been coaching existing companies and recruiting
pensions were fully funded partners to join the team. He said one or two women
investors could join in the next few months. The
partner roster at Kleiner, like those at three-quarters
of all U.S. venture irms, is now all male.
However, forward-looking So far this year, the irm has made more than
companies have the option two dozen new venture investments. Most are
to de-risk with Athene, which early- and mid-stage bets mainly on U.S.-based
generated nearly $2.5 billion startups, though several have engineering teams
covering 45,000 participants in Israel and elsewhere. It may take as long as a
in PRT transactions in 2017. decade to determine the success of those bets.
Athene can be a strong partner Endowments, pension funds, and others that
to your company, allowing you invest in venture funds use multiyear track records
to cut through—or just ignore— when deciding whether to reinvest. Kleiner’s 14th
the red tape so that you can do and 15th funds still rank in the top 25 percent of all
what you do best: focus on venture funds of the same year; its next two funds,
improving business. raised more recently, are too young to show results.
Still, when it begins raising its 18th fund next year,
MICHAEL KOVAC/GETTY IMAGES
This material is provided by Athene Annuity and Life Company (61689) headquartered in West Des Moines, Iowa, which issues annuities in 49 states (including MA) and D.C., and Athene
Annuity & Life Assurance Company of New York (68039) headquartered in Pearl River, New York, which issues annuities only in New York.
21641 (8/18) 2218823-0723318 Athene ©2018
Trade options like you went to school for it.
Options trading doesn’t have to be intimidating. TD Ameritrade provides educational courses,
expert trading support, and online coaching to help you learn to trade with confidence.
Options trading is subject to significant risks and is not suitable for all investors. Options trading privileges subject to TD Ameritrade review
and approval. Before trading options, carefully read Characteristics and Risks of Standardized Options. Contact TD Ameritrade at 800-669-3900 for
a copy.
See tdameritrade.com/600offer for offer details and restrictions. This is not an offer or solicitation in any jurisdiction where we are not authorized to do
business. TD Ameritrade, Inc., member FINRA/SIPC. © 2017 TD Ameritrade.
Bloomberg Businessweek September 24, 2018
T
E
C
H
N
O 23
IBM’s L
Retirement Plan O
○ In a new lawsuit, former
workers say Big Blue targeted
up his right to contest his iring in court in exchange
for one month’s severance pay, or get no severance
G
Y
at all. “I was pretty bitterly shocked,” says Rusis.
their gray hair He concluded that the company’s real problem was
that he was 59.
On Sept. 17, Rusis and two similarly fired
Edvin Rusis spent more than 15 years at IBM before colleagues sued International Business Machines
the head-choppers found him. During that time, the Corp. for age discrimination in federal court in
technical specialist had seen lots of co-workers dis- Manhattan. “Over the last several years, IBM has
appear in one restructuring or another, but his work been in the process of systematically laying of
training sales reps for ield duty always seemed to older employees in order to build a younger work-
be in high demand. So when Rusis was told in March force,” the suit claims. Their attorney, Shannon Liss-
that, despite years of solid performance reviews, Riordan, is seeking class-action status.
he had three months left at the company, he was IBM says its managers are emphasizing
expecting at least a spiel about some changes in pri- diferent needs to make the company more com-
orities or shifting personnel overseas. Instead, his petitive and that its U.S. workforce isn’t getting
GETTY IMAGES
managers, at best, alluded vaguely to his skills being any younger. “Changes in our workforce are about
out of date, even though he’d kept up to date on his skills, not age,” spokesman Ed Barbini said in an Edited by
training. Oh, and by the way, he could either give emailed statement. The company’s priorities Jef Muskus
TECHNOLOGY Bloomberg Businessweek September 24, 2018
her manager and a week after her father died, IBM their options grants, and all of the dozen or so men ○ Proportion of women
in the workplace, by
told Kromer her skills were no longer relevant. she surveyed had double her equity, too. When she company size
Still supporting her son, she’d planned to work asked her manager for an increase, she quickly got it.
until age 70 and is struggling to ind a new job. “I felt really undervalued,” says the woman, 11-20 people
29%
In August she applied for a sales job at her local who spoke on condition of anonymity for fear
Lowe’s home improvement store, she says. “They of reprisal. “I felt this sense of injustice and frus- 101-200
35
told me I was overqualiied.” —Gerrit De Vynck tration. Although I didn’t have the information I
needed to get this number changed, someone else 301-400
THE BOTTOM LINE If Liss-Riordan’s suit receives class-action 36
certification, IBM could be facing hundreds of millions of dollars in
did, and someone should have raised a red lag.”
damages on claims it unfairly dismissed older workers. Spokesman Adrian Durbin said in a statement that 500+
44
Lyft is committed to equal pay and urges employ-
ees to voice concerns.
In Silicon Valley, the salaries are high, and equity
in a risky startup most often ends up worth zero.
Half as
But when a startup goes public or gets bought, that
equity can end up being worth way more than all
the biweekly paychecks. The big successes mint a
new class of angel investors and startup founders,
Many
along with the occasional billionaire. And accord-
ing to a study released on Sept. 18, the employee
and founder stock that can make tech workers silly
rich is disproportionately concentrated among
Options
men. Equity management platform Carta crunched
data from almost 180,000 employees at more than
6,000 companies. The indings: Women hold only
47¢ for every dollar of equity men do. 25
It’s not simply that there are more men than
○ For women in Silicon Valley, the pay gap is women working at and founding these com-
bad, but the equity gap looks worse panies. Women make up 35 percent of equity-
holding employees but hold only 20 percent of the
employee equity, the Carta survey found. Women
are 13 percent of founders but hold 6 percent of
founder equity. (The 47¢ igure, however, does not
control for employees’ positions.)
That American women are underrepresented
and underpaid is a well-established phenomenon
across the highest-paying industries, including
technology. But the gender pay gap—the fact that
women make, on average, 80¢ for every dollar that
men do—is dwarfed by the potential wealth gap that
can be created by stock options. “When you factor
in stock, your compensation can double or triple,”
says Jackie Luo, a 23-year-old software engineer at
Square who encourages tech workers to send her
The young woman was excited to get an ofer at Lyft their compensation details and posts them anon-
Inc., one of Silicon Valley’s biggest venture-backed ymously on Twitter. “It makes a huge diference.
private companies—until she compared notes with Most of the people I know who have purchased
one of her friends. He’d received about the same homes have done it by selling their stock.”
salary for the same software engineering job she’d The disparity results from a host of intercon-
been ofered at the same experience level, but he nected factors. Startups’ irst employees often get
got twice as many company stock options. When much more equity than those who join later, and
the young woman asked for additional equity, younger companies tend to have a smaller pro-
her recruiter said the ofer was standard and non- portion of women. The Carta study found that, on
DATA: CARTA
negotiable, so she took the job. A few months in, she average, women make up 44 percent of employ-
asked some colleagues hired at the same level about ees at companies with more than 500 people but
TECHNOLOGY Bloomberg Businessweek September 24, 2018
only 29 percent of employees at companies with women ask for raises as often as men do—they’re
10 people or fewer. Most startup founders are male; just much less likely to get them.
female founders, who tend to hire more women, are The challenges of nailing down hazy compen-
less likely to get funding. Only 2.2 percent of venture sation standards are familiar to Luo, the engineer
funding in 2017 went to women. So female founders who posts salaries on Twitter. At a previous job, she
may need to sell higher amounts of equity to raise was ofered stock as part of her pay, but she had to
money, which further dilutes their ownership. press for information as to how much it was worth
The study was prompted by a blog post in and what percentage of the company she would
March from the #Angels, a group of six women own. “It felt taboo,” she says. “It was deinitely an
who took on angel investing as a sideline after eye-opening experience, to realize this is not infor-
meeting at Twitter Inc. (Only one is still at mation people talk about freely. You have this expec-
Twitter.) As they invested in companies, they got tation in this [tech] culture that industrywide,
the sense that the real power—the kinds of pay- transparency is superimportant, open conversations
days that enable recipients to start companies, are better than secret ones, knowledge should be
invest in others, or take a more active interest in free. But it really hits a wall when it comes to talking
politics—were disproportionately going to men. about equity. You don’t know if you’re getting short-
Now, they have the data to prove it. “This isn’t changed.” —Rebecca Greenield and Ellen Huet
just about wealth creation,” says Chloe Sladden,
THE BOTTOM LINE Women appear to hold 47¢ for every dollar of
the #Angel who used to oversee Twitter’s media equity men have, and a web of challenges suggest it’ll take a while
partnerships. “This is about the ability to inlu- to meaningfully improve that number.
ence Silicon Valley, the products, and the people
who, more and more, are shaping the world.”
Sladden, one of Twitter’s irst 40 employees,
knows irsthand the power of a good equity pack-
26
age. She negotiated a strong one, she says, using
knowledge from business school, her experience
as a management consultant, and the guidance of
Helping Driverless
mentors, who helped her ask the right questions.
“That has now changed my life and allowed me to
think about what companies I want to fund and
what Silicon Valley I want to live in,” she says.
Freada Kapor Klein, a venture investor and diver-
sity advocate at Kapor Capital, says she’s intrigued
Fog
by the study but eager for a look at how equity is
skewed across race and other categories, not just ○ Startup WaveSense says its radar system can solve one of
gender. “If we’re talking about equity, we have to the more serious—and mundane—self-driving problems
ask, ‘Who can aford to forgo salary and maximize
equity?’ ” she says. Henry Ward, Carta’s chief exec-
utive oicer, says the plan is to keep gathering data As things stand today, the driverless car of the “Figuring out
to do further analysis. future, a robot that’s supposed to navigate complex that it was
Equity adds another layer of opacity to the sal- traic scenarios, can’t handle more than a light dust- possible wasn’t
ary negotiation process. “It’s information asymme- ing of snow. In Boston, where autonomous test vehi- unique. But it
try squared,” says Mary Russell, a lawyer in Palo Alto cles have been on the road since last year, snow has was something
who helps workers negotiate compensation. “You emerged as one of the biggest obstacles, rivaled only that no one had
have to have the conidence to put the responsibil- by the swarms of local seagulls. To get the birds to ever been able
ity on the company to give you enough informa- make way, engineers programmed a little forward to do”
tion.” Equity varies much more widely than salaries, move that seems to startle them. Snow days have
including when grants of stock are used as bonuses. proven tougher to deal with. “Snow not only alters
And companies often try to get away with ofering a the vehicle’s traction but also changes how the
prospective hire the kind of equity package meant vehicle’s cameras and sensors perceive the street,”
for a person in a much lower position, Russell says. concluded a recent report by the World Economic
A system that puts the onus on the individ- Forum and the Boston Consulting Group (BCG).
ual to ask can disproportionately hurt women. A Even the best self-driving machines still struggle
study published in the Harvard Business Review in with inclement weather, be it sleet, rain, even fog.
June found, counter to conventional wisdom, that WaveSense Inc., a Boston startup that began at
TECHNOLOGY Bloomberg Businessweek September 24, 2018
the Massachusetts Institute of Technology, says it ground-penetrating radar to detect land mines.
has a solution: a radar system to scan what’s under Around 2009, WaveSense Chief Technology Oicer
the road. The cluster of sensors, bolted underneath Byron Stanley, then an MIT researcher, igured that
a chassis like a skid plate, can scan 10 feet beneath such a system might be useful in the self-driving rig
the surface, mapping soil, water, roots, and rocks— he was developing for armored trucks. His team
objects that are part of the road but aren’t obscured showed the military a working prototype in 2012;
by atmospheric disturbances. WaveSense’s soft- a year later it was in Afghanistan, jutting from the
ware uses these maps to locate the car to within bumpers of 9-ton trucks as they barreled through
a couple of inches and make sure it stays on a remote areas where the roads looked remarkably
weather-obscured road that other cars might have like not-roads. The Registan Desert, it turns out,
trouble “seeing.” (Other sensors watch for pedes- has a lot in common with Detroit’s Eight Mile in
trians, traic, and stoplights.) Although archaeol- December. “Figuring out that it was possible wasn’t
ogists and land surveyors use ground-penetrating unique,” Stanley says. “But it was something that
radar all the time, WaveSense says nobody else is no one had ever been able to do.”
using it to steer a car at 65 mph. On Aug. 23, the four-employee company, which
“The sector to date has been really focused on spun out of MIT nine months earlier, raised $3 mil-
replicating how humans drive,” says WaveSense lion in a round of seed funding led by Rhapsody
Chief Executive Oicer Tarik Bolat. “You actually Venture Partners. “I don’t know if FOMO is the
should start from a clean piece of paper.” right word, but there’s this incredible anxiety in the
Driverless cars struggle with weather because it space right now,” says Rhapsody managing part- ○ Bolat
sidelines cameras and lidar, two of their four kinds ner Carsten Boers. “This could be a winner-take-all
of sensors: Cameras are useless in heavy snow and market.” WaveSense says it’s signed on two custom-
fog, and the lasers that emanate from lidar careen ers to test the sensor on self-driving vehicles but
wildly of snowlakes and raindrops. The other wouldn’t name them.
two, GPS and radar, are ill-equipped to distinguish WaveSense projects that it will be on the market
obstacles, let alone with urgency. Is that a panel for only about $100 once the system gains traction 27
truck or a billboard? and attracts a few big orders from major automakers
“What’s evolving for everybody is basically the and technology partners. Xavier Mosquet, senior
algorithms that understand what is being looked at,” partner at BCG, says it will be at least two more
says Mike Ramsey, an analyst at researcher Gartner years before even an elite player like Waymo is able
Inc. “This is a big part of the intellectual property to code a car brain that can consistently handle the
of these companies right now.” Google’s Waymo, meteorological challenges of Boston or New York.
the early self-driving leader, says it’s made progress For now, some companies say, they have higher
teaching its software to better ilter out “noise” from priorities. Nuro Inc., a maker of self-driving deliv-
precipitation, while testing its technology in 25 cit- ery vehicles, had to halt its testing in Phoenix in
ies, including snowy Detroit and rainy Seattle. Still, July during a desert dust storm, highlighting how
the company’s robotic taxis are taking passengers weather can paralyze the autonomous world even in
only in the suburbs of sunny Phoenix. warmer climes. Co-founder Dave Ferguson says he’s
WaveSense is trying to position itself at the end most interested in programming Nuro’s sensors to
of a widening money pipeline. Last year inves- accommodate the vertical hills of San Francisco and
tors poured some $350 million into lidar develop- making sure that, if things go wrong, his vehicles’
ment alone. While Waymo tests 600 vehicles, it front end will crumple correctly on impact.
has deals to buy an additional 82,000 from Fiat- As for weather? “We have a lot of conidence that
Chrysler Automobiles NV and Jaguar Land Rover with our sensor suite we can solve these problems,
Automotive Plc and kit them out with its own sen- but no one has really done it yet,” Ferguson says.
sors. Ford Motor Co. has promised to spend $4 bil- “And until it’s done, it’s not done.”
lion on autonomous vehicles over the next ive WaveSense, meanwhile, is busy driving its
years. WaveSense says its advantage is relative ground-piercing gadget near its Boston headquar-
portability. Its box of sensors and other electron- ters. It’s hoping for a winter full of snow and perhaps
ics currently measures 5 feet long, 2 feet wide, and the occasional seagull. “Eventually,” Bolat says, “we
3 inches high, but WaveSense says those dimen- expect this to be something that’s on every vehicle
COURTESY WAVESENSE
sions will be radically smaller within months. that drives autonomously.” —Kyle Stock
The company was hatched from MIT’s Lincoln
THE BOTTOM LINE WaveSense seems to have figured out how
Laboratory, a federally funded center that conducts to keep driverless cars rolling through snowstorms, but a more
research for the Pentagon, including on the use of complete weather-handling system may be much further of.
Bloomberg Businessweek September 24, 2018
3
How an American Indian
F Tribe Got Into Mortgages
I The Cedar Band of Paiutes is making
no-money-down loans across the U.S.
A
mortgage man will make families’ down payments his organization, one of the biggest down pay-
for them. That way they can qualify for loans ment assistance programs in the U.S., is the only
backed by the Federal Housing Administration. American Indian-owned provider ofering loans to
And they are—in droves, borrowing as much as nontribal borrowers.
N
$100 million a month. After the 2008 housing crash, Congress pro-
Ferguson runs the Chenoa Fund, which is hibited down payment assistance from any party
owned by American Indians, Utah’s Cedar Band with a inancial interest in a transaction. But the
of Paiutes. “Chenoa” is thought to be a native FHA’s ban didn’t apply to federal, state, and local
C
American word for peace, but operations like government programs, which now make up the
Ferguson’s are raising concerns in the industry and majority of the 2,500 U.S. down payment assis-
in Washington. That’s because he’s running a com- tance outits. “The rationale is that state and local
28 pany with a dual role, not only providing the down housing inance agencies have a commitment to
E
payments for borrowers across the country but also their own citizens, so they wouldn’t want to over-
proiting from making the loans by charging above- charge them,” says Meg Burns, former director of
market rates and fees. Some members of the tribe single-family program development at the FHA and
say they’ve seen little or no beneit from the busi- now a senior vice president at the Housing Policy
ness and question where the money is going. Council, a mortgage-industry trade group. Burns
In the 2000s, Ferguson ran a similar program, says the Chenoa Fund might run afoul of the FHA.
which allowed home sellers to in essence fund buy-
ers’ down payments. Congress later banned such
operations, which ended up costing the FHA’s Buyers Look for Help
insurance fund $17 billion when borrowers got
① More homebuyers are ② Buyers participating in
in trouble. “When things went south in the last participating in government such programs are more likely
downturn, those folks were riskier—they defaulted programs to help them with to be seriously delinquent in
their down payments. their payments.
at much higher rates,” says Joe Gyourko, a real
estate and inance professor at the University of Share of FHA mortgage Share of mortgages
originations using government originated in 1Q ’11 that are
Pennsylvania’s Wharton School. “Ultimately, we down payment assistance more than 90 days past due
forget and go back and make the same errors.”
Ferguson’s resurgence is part of a broader prolif-
PHOTOGRAPH BY LINDSAY D’ADDATO FOR BLOOMBERG BUSINESSWEEK
Ferguson says he complies with all FHA rules. the place of a down payment. Customers have the
He points to one from 2007 that exempted tribes option of paying a market rate on the irst mort-
from the ban along with other government enti- gage and a higher one on the second. Only one-
ties. Those regulations were set aside by a court. third choose to do so, Ferguson says.
Newer ones don’t speciically mention tribes, but To lower the risk of such loans, Chenoa ofers
Ferguson says the 2007 language shows tribes are a year of counseling and monitoring, he says. In
meant to be exempt. addition, the loans meet stringent government
Ferguson operates the program from an oice guidelines, and two independent parties review
building with a stone facade in South Jordan, a them. A second-loan forgiveness plan rewards
town about a 20-minute drive south of Salt Lake some customers who make three years of on-time
City that’s framed by the violet-hued Wasatch payments, he says.
Mountains. He grew up in Utah and earned an eco- Nancy LeMessurier, a loan adviser with American
nomics degree from Brigham Young University. Paciic Mortgage Corp. in Gig Harbor, Wash., says
On a recent weekday morning, he pulled up to she was surprised when she looked into Chenoa
Chenoa Fund’s headquarters in a purple Lincoln for a buyer in March. The Chenoa rate at the time
sedan. A backpack slung over his shoulder, he was was more than 6 percent, so she found her client a
Cedar Band member
dressed casually in a red polo shirt and jeans. cheaper option. “The price to obtain the loan out- Elvis Wall is skeptical of
Ferguson says he’s offering families access weighs the amount of the down payment,” she the mortgage business
to homeownership as rising home prices put
the American dream out of reach for all but the
wealthy. Many can’t aford even the modest FHA
down payment, 3.5 percent of a home’s price—or
if they can, it would wipe out their savings for a
rainy day. African Americans make up 20 percent
of Chenoa Fund borrowers, and Latinos 28 per-
cent, he says. “We need to get qualiied people into 29
homes sooner so they can enjoy that appreciation,”
he says. Some of the fastest-growing U.S. mortgage
lenders, including California-based LoanDepot
Inc., have worked with the Chenoa Fund, solicit-
ing customers and putting together deals.
More than ive years ago, Ferguson and his
team met with Thomas Sawyer, who then over-
saw the Cedar Band’s business operations, and
suggested a new down payment assistance pro-
gram. The band’s other ventures, operating
through a company called Cedar Band Corp.,
include an information technology company and
a wine company.
Ferguson and his management team collect
a cut of the gross proceeds of the Cedar Band’s
mortgage business, says Sawyer, a former Indian
afairs adviser to four U.S. presidents. Ferguson
has been making a hard sell. He just celebrated
completing 10,000 loans in three years. “You no
longer have to wait for a down payment to buy
your home,” reads a Chenoa lyer made to look
like a $10,000 bill. “Start building wealth today—
home prices are increasing monthly.”
As is typical of many government down payment
programs, borrowers pay higher interest rates and
fees than standard market fare. That allows the
organization to resell the loan to investors at a pre-
mium and generate revenue for its operations. The
Chenoa Fund holds a second mortgage that takes
FINANCE Bloomberg Businessweek September 24, 2018
says. Some Chenoa programs give customers a some ostensible down payment charities “scams,”
better rate than the one LeMessurier is referring to. saying they were “self-serving, circular-inancing
Borrower Miguel Benitez says Chenoa met his arrangements” designed to circumvent the prohi-
needs. A maintenance worker married to a hos- bition against seller funding. It later revoked the
pital housekeeper, he has no savings, $50,000 in Buyer’s Fund’s tax-exempt status. Ferguson dis-
family income, and a poor credit score after a bank- putes the IRS characterization of such programs,
ruptcy. The Chenoa Fund helped him buy a home saying the agency had initially blessed them.
for $130,000 in April. “We live check to check,” he In a 2005 lawsuit, a former president of the
says. “I didn’t care how high or low the rate was. charity accused Ferguson and other partners of
The point was we needed a house, and we got the diverting millions of dollars for their own beneit.
house we wanted.” The money included church tithes. They denied
30
Ferguson is using the playbook he pioneered at the allegation. Ferguson says he and a partner Critics such as
PHOTOGRAPH BY LINDSAY D’ADDATO FOR BLOOMBERG BUSINESSWEEK
grams in the country, bringing in $167 million in rev- by an independent board found that the money
enue with 31,000 loans in 2004. The fund gave down his company received represented fair compen-
payment money to buyers that was funded by fees sation, though another said the cost was too high.
from sellers. (At Chenoa, sellers don’t fund down Ferguson reached a private settlement after a
payments.) Neighborhood Gold, a for-proit com- district court judge dismissed most of the claims,
pany of which Ferguson was a minority owner, was saying the plaintif lacked standing in the case
paid as much as $12 million a year to market the pro- because he wasn’t a director of the Buyer’s Fund at
gram. Ferguson left the Buyer’s Fund in 2002 and the time of the suit. “I have always sought to gov-
sold his stake in Neighborhood Gold in 2004. ern my life with honesty and integrity,” Ferguson
In 2006 the Internal Revenue Service called says. “As the resolution of this matter ultimately
FINANCE Bloomberg Businessweek September 24, 2018
showed, any errors made were due not to lapses Tensions have split her family apart. She says
in judgment, but rather from a young man’s lack she often ights with siblings, nieces, and neph-
of understanding of the complex nature of the ews who serve on the band’s governing council.
business world.” “We’re not seeing any of the money,” she says. “I’d
On his LinkedIn page, Paul Terry, Cedar Band rather have these businesses shut down so at least
Corp.’s chief executive oicer, said revenue for all there’s no arguments among us.”
the Cedar Band company’s businesses jumped to Tom drives 15 minutes to her one-story brick
$52 million last year, from $3.4 million in 2014, house, one of about seven government-built
the year after the Chenoa Fund was founded. homes on reservation land on the outskirts of
Terry cited a $14.3 million proit, up from a loss of Cedar City (population 32,000). On the way, she
$1 million three years earlier. Ferguson says the passes billboards for gas stations and hotels,
Cedar Band has received millions of dollars from which for years were the main revenue source for
Chenoa. Along with small per capita payouts on the band. The Cedar Band smoke shop sells tax-
holidays, he says, the money will fund expenses free cigarettes and chewing tobacco, ireworks,
such as health care, education, and job training. and groceries. The band owns 2,200 acres, most
Ferguson won’t disclose his pay or details of his of it hilly and unsuitable for development.
company’s inances, but says he isn’t getting rich. Another member, Elvis Wall, lives in a 50-year-
But some of the roughly 287 members of the old single-wide trailer that he’s repairing. A
band say they’re in the dark about the success of U.S. Navy veteran, the retired Bureau of Land
its businesses. On a recent afternoon, the Paiute Management worker is the son of farm labor-
reservation, which stretches beneath red clifs ers. He’s skeptical about how the money is being
on land scattered with sagebrush, was hardly used. “They’re using our last resource for their
abounding in fresh riches. Near Cedar Band economic ambitions—our sovereign rights,” Wall
Corp.’s headquarters, Delice Tom, a tribe member says. Members do get dividends in the form of
who’s married to a retired railroad worker, points Christmas bonuses from the mortgage company
to a series of mobile homes in various degrees of and other businesses. The most recent sum: $100. 31
disrepair. Tom and other critics say they’ve been —Prashant Gopal
stonewalled by the corporation they own for more
THE BOTTOM LINE Down payment assistance programs can
than ive years as they seek information about make it easier for people to access home loans. But conflicts can
its inances. arise when the company ofering help also makes the loan.
A Plan to Mend
Deutsche Bank
○ CEO Sewing knows how to cut costs, but some say he lacks a grand plan for the troubled company
As chief of Deutsche Bank AG’s retail division, than $10 billion in losses over the last three years. ○ Over the last three
years, the bank’s losses
Christian Sewing earned a reputation as an Since April, when he was appointed CEO of the have exceeded
unapologetic cost-cutter who closed hundreds battered bank, Sewing has cut an additional 1,700
of branches, reduced staf by 7 percent—3,100
positions—over two years, and sold operations
jobs, told bankers they can no longer buy irst-class
train tickets, eliminated daily oice fruit bowls, and
$10b
in Poland and Portugal. Today, as the company’s is planning to shrink the New York oice 30 per-
chief executive officer, he’s following a simi- cent and move away from Wall Street. It’s part of a
lar playbook. But there’s far more at stake as he pledge Sewing made to trim overhead at least 8 per-
faces restive shareholders dismayed by more cent by 2019. “We’ll have to make progress on
FINANCE Bloomberg Businessweek September 24, 2018
costs,” he said at an August banking conference beginning, represents the classic bank business in
in Frankfurt. “It’s about what we can control our- the European tradition,” says Michael Seufert, an
selves: making the business proitable.” analyst with NordLB.
Sewing’s hardest task will be convincing inves- Beitting the irst German to run the bank as
tors and employees that he can break out of the sole CEO in more than a decade, Sewing aims to
bank’s cycle of serial disappointments. Revenue shift away from Asia and the U.S., instead empha-
has fallen 21 percent in the last two years and is sizing Europe and especially Germany. The ques-
on track to drop again in 2018, to its lowest level tion is whether he has the charisma and vision
in a decade. The investment bank is losing mar- to lead a sprawling operation with 100,000
ket share, the asset management division has been employees spread across ive continents. While
unable to stem outlows, and the stock has plunged his track record suggests that Sewing is good at
to near-record lows since Sewing took over. The increasing eiciency, his plan consists mainly of
CEO has acknowledged that he has little more than cutting expenses.
a year to mend the bank’s shattered credibility. “If Deutsche Bank has gone through three other ○ Sewing
Sewing next year says they’ll continue to miss tar- turnaround plans since 2015, and insiders fret that
gets, that would be a big problem,” says Daniel Sewing’s retrenchment will end up eliminating
Regli, an analyst with brokerage MainFirst. many global outposts. An investor who recently
There are persistent rumors that Deutsche Bank talked to Sewing said the CEO failed to adequately
is considering a merger as a way out, most likely a answer any questions that extended beyond his
tieup with crosstown rival Commerzbank AG. But 2019 targets. And one top manager says Sewing
at a strategy conclave in Hamburg on Sept. 14-15, rejected an argument that job cuts posed a risk
the supervisory board and top managers exam- to the unit’s efectiveness. “I don’t see Sewing as
ined potential combinations with partners in a visionary,” says Michael Hünseler, a fund man-
Germany and abroad and decided the time isn’t ager at Assenagon Asset Management. “He’s a
right for such a deal. Sewing has told people rational, adaptable CEO, but he doesn’t seem to
32 around him that the company must irst better like to make big bets.” ○ Deutsche Bank net
integrate Postbank, the inancial arm of the coun- In April he ordered a review of the investment revenue, year-over-year
change
try’s postal service that Deutsche Bank bought in bank—meaning job cuts—which unsettled interna-
2010 but never managed to bring under one roof tional clients and employees alike. Indeed, most of 15%
with its own operations. the positions eliminated in the second quarter were
The new CEO contrasts sharply with his pred- at the investment bank, and he’s dismantled teams
ecessors John Cryan and Anshu Jain, Brits who doing equity research or strategic advisory work
joined Deutsche Bank after rising to execu- in Brazil, Dubai, and Japan. With many top stafers 0
tive roles at rival investment banks. Sewing is a jumping ship, Sewing has sought to quash uncer-
German who’s spent almost his entire career at tainty by traveling the world—since becoming CEO
the company, starting as a trainee at a branch in he’s made ive trips to the U.S. and three to Asia—
his hometown of Bielefeld and climbing the lad- to underscore the bank’s commitment to a global -15
der in Frankfurt and abroad. He earned recogni- footprint. And he’s instituted get-togethers the 2010 2017
tion from regulators for his work leading Deutsche company calls the “Hour of Truth,” where workers
Bank’s investigation into its role in allowing suspi- from all levels are encouraged to ask him questions.
cious money transfers out of Russia—for which the His aim is to restore credibility and a sense
bank was ined almost $700 million last year. In of pride to an institution that’s become a sym-
2010 he joined senior management as chief credit bol of failed expectations. Having witnessed the
oicer, and he’s since served as deputy chief risk brutal defenestration of Cryan—whose tenure
oicer and audit boss. was marked by conlict with Supervisory Board
Sewing commutes home most weekends to Chairman Paul Achleitner and, ultimately, a fail-
ALEX KRAUS/BLOOMBERG; DATA: DEUTSCHE BANK
see his wife and four children near Bielefeld, a ure to cut expenses—Sewing is trying to avoid
four-hour drive north of Frankfurt headquar- what he’s called the bank’s “pattern of negative
ters, and his deep roots in Germany have helped surprises” in fourth-quarter costs. “We’ve gone
him cultivate strong ties with the country’s eco- through a diicult phase,” Sewing said at the
nomic and political elite. He can be seen quaf- Frankfurt conference. “We need to reawaken our
ing beers with bigwigs from Germany’s blue pride.” —Steven Arons, with Nicholas Comfort
chip companies and has shared the stage with
THE BOTTOM LINE With revenue down 21 percent since 2016
Finance Minister Olaf Scholz at industry confer- and shares near all-time lows, Deutsche Bank’s new CEO is aiming
ences. “Sewing, a homegrown talent from the very to trim expenses and focus on Europe to fix the battered company.
PURE BENCHMARK
PlanetM is home to Mcity and the American Center for Mobility, North America’s only real-world testing
facilities that allow autonomous and connected vehicles to be researched, validated and certiied under all
road and weather conditions. It’s where you’ll also ind the largest deployment of Vehicle to Infrastructure
(V2I) technology in the country. Which means if you’re looking to make advances in mobility, turn to a state
that invests in its future. Turn to Michigan. To learn more, go to planetm.com
Bloomberg Businessweek September 24, 2018
Macron’s
Monumental
Challenge
35
Edited by
Cristina Lindblad
ECONOMICS Bloomberg Businessweek September 24, 2018
Jupiter is inding out how hard it is to make light- will elect their representatives to the European ○ Emmanuel Macron’s
approval rating since
ning strike twice. Emmanuel Macron’s victory in Parliament. Macron has spent the last year criss- his election*
last year’s French presidential race reverberated crossing the Continent warning against the corro-
around the world, as he deied the rising tide of sive efects of the “illiberal” brand of democracy 70%
nationalism to strike a blow for Europe. In the espoused by Hungarian Prime Minister Viktor First set of
reforms passes
afterglow of success, the political prodigy likened Orban and the anti-immigrant stance adopted
himself to the Roman king of the gods—shooting by Matteo Salvini, Italy’s deputy prime minister.
lightning down from the Elysée Palace to impress “He has made it his cause,” says Jérôme Fourquet, 50
mortals with his majesty. But lately his powers are head of public opinion at pollster Ifop SA. “He has
faltering. With jockeying for next year’s European invested everything in it.”
elections under way, he aims to show the magic Fail again, and critics will say voters have no
hasn’t gone for good. appetite for Macron’s grand European ambitions 30
The 40-year-old president promised voters he to bind the economies of the euro area under a sin- 5/2017 9/2018
would transform their economic fortunes by cut- gle inance minister, harmonize tax systems, and
ting taxes, tackling problems at money-losing state- make the EU a more prominent actor in foreign pol-
owned giants, and giving companies a freer hand icy with its own military force.
in negotiations with unions. While he’s managed to A recent Odoxa poll on voter intentions for the
steamroll opposition to push much of that agenda May elections showed the National Rally party of
through, the last few months have seen a string of Marine Le Pen, who campaigned for the French
setbacks, defeats, and gafes. presidency on an anti-EU platform, at 21 percent,
Economic growth has slowed, unemployment just half a percentage point behind Macron’s La
has barely budged, and France’s nationalist forces République En Marche! party. That’s a reminder that
have revived. The public opposes reforms at home, substantial numbers of French voters are still push-
while Macron’s plans to bring the 19 European ing to take the country down a very diferent path.
countries that share the euro currency closer Outside France, the sweeping vision of integra-
36 together have loundered. And for all his bonhomie tion Macron outlined a year ago in Paris has largely
with Donald Trump, he failed to persuade the U.S. been consigned to a drawer, with his European
president to stick with the Iran nuclear agreement allies either weakened, wiped out, or yet to be con-
or to spare Europe from steel and aluminum tarifs. vinced. Euroskeptics are in power in Italy, while
Perhaps worst of all, a breach has opened nationalists grabbed the third-largest number of
between Macron and voters: In the second year votes in Sweden’s Sept. 9 elections. Even Merkel,
of his presidency, he’s more unpopular than his who sought to forge a partnership with Macron
hapless predecessor, François Hollande. “His irst at the center of the EU, appears ambivalent, her
15 months were beyond a honeymoon, he didn’t caution prevailing as she doubts the practicality of
have any opposition to speak of,” says Enrico Letta, some of his proposals. Manfred Weber, her party’s
the former prime minister of Italy, who advises candidate to head the European Commission, the
Macron on his reform plans. “What we’re seeing EU’s top post, is lukewarm on integration. “Weber
now is a return to reality.” is not Macron-compatible,” says Letta.
Macron is fading while the Continent’s estab- Macron began his preparations for the European
lished leader flexes her muscle once again. election campaign convinced that like-minded par-
German Chancellor Angela Merkel’s fourth ties would ditch their existing cross-border alle-
term got of to a rough start after elections last giances to rally around his banner, according to
*POLLING NOT CONDUCTED IN AUGUST 2017 AND AUGUST 2018; DATA: IFOP
September failed to deliver a decisive mandate. one person with knowledge of the negotiations. Not
But after months of coalition-building at home, for the irst time, he underestimated the power of
she’s back on the world stage, discussing Syria and European party structures and political tribalism.
Ukraine with Russia’s Vladimir Putin in August As it turns out, neither the European People’s
and preparing for talks this month with Turkish Party, the center-right alliance that commands
President Recep Tayyip Erdogan. the biggest group in the current legislature, nor
Domestically, Macron is safe, with no presi- the Party of European Socialists, the No. 2 bloc, is
dential or parliamentary elections until 2022. But as ripe for disruption as Macron assumed. That’s
the next nine months may determine whether he why he has set his sights on a more modest goal:
can write himself into a new chapter of European bolting his two-year-old party onto the existing
history—or become just a footnote. Alliance of Liberals and Democrats for Europe,
The French president has staked his credibil- which is the fourth-biggest grouping. The per-
ity on May’s elections, when all member states son said he expects a deal to be done, but time is
ECONOMICS Bloomberg Businessweek September 24, 2018
running short before the potential allies meet in Seventy-one percent of the French see
November in Madrid. Macron’s policies as “unjust,” and 74 percent
Macron argues that at least part of the reason his see him as favoring the rich, according to a July
support has fallen is that he moved quickly to intro- poll by Odoxa. The president knows there’s a
duce some of his toughest reforms. He’s already problem, judging from a shift in his language in
eased labor market restrictions, overhauled the recent weeks. On a trip to Luxembourg in early
national rail company, and cut taxes for business. September, he repeated more than a dozen times
He’s betting that the beneits of those moves will in a three-minute answer to a reporter that he
become clear as the end of his term approaches was “listening to fellow citizens.” On Sept. 13 he
and the threat to reelection chances will abate. unveiled a plan to ight poverty, telling an audi-
“These sort of reforms imply some initial unpop- ence of struggling families he’d grasped how the
ularity, so what we’re seeing now is normal,” says system works against them. “Too often we hide
Nouriel Roubini, chairman of Roubini Global behind the igures, the reports,” he said, “but to
Economics LLC in New York. “I’m conident we’ll listen, to see you work, all these months, spending
start to see his reforms pay of.” time with various diferent people, I have heard
Macron’s fundamental problem is that a signif- and I have understood.”
icant portion of the French electorate thinks he The speech could almost be read as a rebuke
doesn’t understand or care about their problems. to the clique of smart young graduates from elite
In Athens last year, Macron, a former investment Paris schools that Macron plucked from plum
banker, said he wouldn’t let the “lazy” French private-sector jobs to surround him in the Elysée
stop his reforms. In June he complained about Palace. A reshule among his team adds to the
the “crazy amount of dough” spent on social wel- sense of urgency. But public perceptions are hard
fare and scolded a teenager for addressing him to shift, and many French people have made up
casually. In July it emerged he’d declined to ire their minds. “The Macron magic has gone,” says
an aide ilmed beating demonstrators at an anti- Fourquet, the pollster. “He’s seen as normal now,
government protest. This month he told an unem- just another president, and it will be a hard road 37
ployed gardener he could ind a job at once if he back.” —Helene Fouquet and Gregory Viscusi
really wanted one, since bars and restaurants con-
THE BOTTOM LINE Macron’s eroding popularity at home is
stantly need staf. “I could cross the road and ind impeding his eforts to build a unified European coalition as a
you one,” Macron said. bulwark against the spread of nationalism.
The diorama in the corner of Robert Lighthizer’s “We’ve probably got some horse thieves in
oice looks like any other Revolutionary War scene there,” Jim Lighthizer, the U.S. trade representa-
until you learn the story behind it. Portrayed tive’s older brother, says of the family lineage. “But
crossing the Delaware ahead of the 1776 Battle of there’s no traitors.”
Trenton is George Lighthizer, the Bavarian-born Wilbur Ross, the investor and turnaround
ancestor of Donald Trump’s trade czar and a vol- king who is secretary of Commerce, and Steven
unteer in George Washington’s Continental Army. Mnuchin, the ex-investment banker who heads
The message to visitors is clear: Patriotism goes the U.S. Department of the Treasury, have been the
way back in the Lighthizer clan. TV-friendly generals on the front line of Trump’s
ECONOMICS Bloomberg Businessweek September 24, 2018
escalating trade war with China. But the oicial of a 25 percent tarif already imposed on about “He believes
increasingly in charge of translating the president’s $50 billion in Chinese goods. that it is going
often vague and impulsive protectionism into a If Lighthizer is seen to be driving policy on China, to be a long,
battle plan is his trade representative. it’s because both Ross and Mnuchin have failed to long haul
Little known outside Washington trade circles, bring Trump a Beijing deal he can live with—and with China”
the 70-year-old Lighthizer, who declined requests for that they’ve been publicly rebuked. Asked what
for an interview, is an ascending figure in the he had learned about negotiating with the Trump
Trump administration. He’s also a longtime China administration after the U.S. and Mexico announced
hawk who has spent years preparing for an eco- an agreement in principle on Nafta in late August,
nomic war with Beijing. Mexico’s economy minister, Ildefonso Guajardo,
Lighthizer has been working with his peers says: “Any deal where Lighthizer is not responsible
in Mexico and Canada on a revised Nafta that’s for the architecture doesn’t see the light of the day.”
getting closer to fruition. He’s also Trump’s top Lighthizer’s standing is built in part on his exten-
negotiator in talks with the European Union and sive experience as a high-stakes negotiator. In the
Japan. Most crucially, he is the architect of Trump’s Reagan administration he served as deputy U.S.
tarif-driven assault on China, and that’s how he trade representative and led talks with Tokyo geared
wants to be remembered. “We clearly have a at reducing the then large trade deicit with Japan.
chronic problem with China,” he told a Senate After an acrimonious round of Nafta negotiations
hearing in July. in Montreal earlier this year, he recounted how he
“He believes strongly that the end game is had once smoked an entire box of Cuban cigars in a
China,” says Jim Lighthizer, adding that his brother windowless room to disarm his Soviet interlocutors
isn’t counting on a quick victory. “He believes that during 1980s talks on lifting a grain embargo.
it is going to be a long, long haul with China.” After leaving the Reagan administration,
On Sept. 17, Trump ordered his administration Lighthizer made a fortune as a swaggering, Porsche-
to levy 10 percent tarifs on about $200 billion in driving lobbyist-cum-lawyer for the steel industry at
38 Chinese goods and to increase the rate to 25 per- Skadden Arps, Slate, Meagher & Flom LLP. Visitors
cent in January if Beijing refuses to ofer trade con- to his home in one of Washington’s toniest neighbor-
cessions. The latest round of duties comes on top hoods are greeted by an almost life-size portrait of Robert Lighthizer
him. “It’s not a miniature,” Jim Lighthizer says. “You but also the policies of more recent conservatives
couldn’t it it in a locket, I’ll tell you that.” such as Richard Nixon and Reagan. “Mr. Trump’s
While the portrait sounds Trumpian, one of the GOP opponents accuse him of wanting to get tough
keys to Robert Lighthizer’s success in the adminis- on China and of being a protectionist,” Lighthizer
tration has been his careful avoidance of the spot- wrote in the Washington Times at the time. “Since
light. In a White House where the internal combat when does that mean one is not a conservative?”
between protectionists like White House trade In an essay published this summer in Foreign
adviser Peter Navarro, the economist and author Policy, Quinn Slobodian, a history professor at
of such books as Death by China, and more pro- Wellesley College, identiied the emerging doctrine
business members has produced such high-proile of “Lighthizerism,” calling it “the economic philoso-
casualties as Gary Cohn, the irst head of Trump’s phy most responsible for guiding the Trump admin-
National Economic Council, the U.S. trade repre- istration” and predicting that it would last for years.
sentative seems to loat above the messy battleield. The basis of Lighthizer’s philosophy is a view that
○ Value of Chinese
In part, that’s because Lighthizer is a veteran U.S. trade policy since the 1980s is best described as imports covered
practitioner of Washington politics. He was chief a series of mistakes. He and those close to him argue by tarifs
of staf of the U.S. Senate Committee on Finance in the U.S. misplayed the Uruguay Round of negoti- Tarifs of 25%
the late 1970s under future GOP presidential nom- ations that led to the 1994 creation of the World Tarifs of 10%
inee Bob Dole, who remained a mentor and intro- Trade Organization and the birth of a binding dis- From July 6
duced him at his 2017 conirmation hearing. pute settlement system that can overrule U.S. trade
$50b
Throughout his career, Lighthizer has demon- moves. Likewise, in a report earlier this year, his
strated an ability to overcome Washington’s par- team argued that the U.S. had made a fundamen-
From Sept. 24
tisan divides and drawn kind words even from tal error in allowing China to join the WTO in 2001.
$250b
critics. Bill Brock, Reagan’s U.S. trade representa- Lighthizer also shares Trump’s belief that the
tive and a vocal critic of Trump’s trade policies, U.S. trade deicit in manufactured goods, which
calls his former deputy “enormously talented.” He has grown steadily since 1975, is a symptom of
worries, though, that the administration is spread- things having gone very wrong. Yet while Trump 39
ing him thin. “Bob Lighthizer is an enormously has ingered a number of countries as culprits, From Jan. 1, 2019
strong and intelligent person,” Brock says. “But you Lighthizer heaps the blame predominantly on $250b
can’t be in multiple places simultaneously.” China, which he accuses of gaming a global trad-
Almost uniquely in the administration, ing system that failed to cope with the nation’s rise.
Lighthizer has managed to forge alliances with In congressional testimony in 2010, he laid out
Democrats. Sherrod Brown, the Ohio senator and the case for a tougher U.S. approach toward both Threatened tarifs
a longtime critic of U.S. trade policy, Nafta, and China and the WTO. He argued that allowing China $517b
Trump, calls him “a great person to lead our trade to join had delivered none of the promised bene-
policy as we work to crack down on countries like its, such as creating a vast new export market for
China that cheat the rules.” It helps that Brown’s American companies and workers and binding
wife, like Lighthizer, grew up in Ashtabula, Ohio, a China to global trade rules. Instead, the U.S. trade
blue-collar town near Cleveland, and that the U.S. deicit with the nation soared, “and millions of U.S.
trade representative knows enough to quote Bob manufacturing jobs have been lost.” China’s political
Dylan when he and Brown sit down to talk trade. system is “fundamentally at odds with the American
(Dylan rhymed “Ashtabula” with “Honolula” in conception of the ‘rule of law,’ ” he wrote. Moreover,
You’re Gonna Make Me Lonesome When You Go.) “Bob China has scale. “For much of history, China had the
hasn’t forgotten where he comes from,” Brown says. biggest economy in the world—and it is fully capa-
Lighthizer is less sentimental. “It never seemed like ble of regaining that title,” he warned.
a good idea to go back to Ashtabula to live,” he told As a member of Trump’s cabinet, Lighthizer con-
a Washington audience earlier this year. tinues to frame the issue in those epochal terms.
If Trump’s attitude toward trade is instinctual, “I’m in it for one reason,” he told the U.S. Chamber
Lighthizer’s is the result of a forensic reading of of Commerce in May, pointing to the trade deicit
history and years of going against the Republican as a relection of a “paradigm” in need of whole-
grain on the issue. When Trump lirted with a run sale change. “A big part of that,” he added, “is get-
for president in 2011, Lighthizer endorsed what ting the relationship between the United States and
were then seen as the reality TV star’s unortho- China right.” —Shawn Donnan
dox views on protectionism. He defended them
THE BOTTOM LINE Though less visible than other strategists,
as having roots not only in Alexander Hamilton’s Lighthizer is Trump’s leading architect on trade policy. His tough
approach to protecting American manufacturing stance on China has won him friends on both sides of the aisle.
October 11, 2018 | Bali
How do you build a vibrant market environment that global Host Country Partner
Register at bloomberglive.com/modern-markets
Bloomberg Businessweek September 24, 2018
5
The P
O
Fed’s L
Man I
T
About I 41
C
S
On July 19, Donald Trump broke with decades of Powell was fulilling a promise he’d made in an
presidential precedent when, in a television inter- interview just a few days before on the radio show
view with CNBC at the White House, he openly crit- Marketplace that he was “going to wear the carpets
icized the Federal Reserve for raising interest rates, of Capitol Hill out by walking those halls and meet-
BLOOMBERG (11); GETTY IMAGES (5)
saying he was “not thrilled” by the policies of his ing with members.”
newly appointed Fed chairman, Jerome Powell. So when Trump ired a warning shot across his
That same day, Powell was making the rounds on bow, the Hill was a itting place to be. Cultivating
Capitol Hill, visiting the oices of two Democratic Congress, paradoxically, is a cornerstone of Powell’s
lawmakers, Senator Ron Wyden of Oregon and strategy to protect the Fed’s freedom to conduct Edited by
Representative Michael Capuano of Massachusetts. monetary policy without political interference. Matthew Philips
POLITICS Bloomberg Businessweek September 24, 2018
Economists say that independence, granted to the the ive years that followed. As an expert in labor
bank by lawmakers, is key to any modern economy’s markets, Yellen had the smarts (and patience) to
success. It wouldn’t be the last Trump thump: A nurture a lengthy and still ongoing jobs recovery
month later the president complained to donors in during her four years as Fed chair.
the Hamptons that Powell was not the cheap-money While Powell may not be a Ph.D. economist like
central banker he would have liked. Bernanke and Yellen—he’s a lawyer by training—
This is a crucial juncture for the 104-year-old cen- he is more familiar with the ways of Washington.
tral bank and its new chair. Not only is Powell hav- He grew up and earned his law degree there and
ing to manage the end of a decade of easy money made a fortune while working at D.C.-based pri-
through a series of rate hikes—a delicate maneuver vate equity powerhouse Carlyle Group. He has
that, if done poorly, could tip the country into reces- deep connections to Washington’s Republican
sion or risk unleashing rampant inlation—but he’s establishment. He served in the U.S. Department
also dealing with a mercurial president who is rid- of the Treasury under President George H.W. Bush
ing a hot economy and has repeatedly gone pub- in the early 1990s and is a member of the city’s
lic with his distaste for high rates. The next scule elite Metropolitan Club, located just blocks from
could come on Sept. 26, when the Fed is expected to the White House. He also has one trait that may
raise rates again, the sixth hike since Trump became serve him best of all: an ability to explain diicult
president but the irst hike since he started grousing. concepts in a way that people who aren’t pointy-
Trump can’t ire Powell under the law, but he headed economists (i.e., members of Congress)
could try to remove him for cause—a very high bar can understand.
that scholars say would have to go way beyond a Lawmakers who’ve met with Powell say he’s in a
mere policy disagreement. A bigger risk is that listening mode. He’s meeting with members of the
Trump’s relentless attacks could erode the Fed’s sup- two committees that have direct jurisdiction over
port in Congress and spur legislative eforts to hem the Fed and branching out to other inluential law-
it in by hardcore conservatives and populist liber- makers, including a half-hour meeting with House ○ Federal funds rate
42 als already suspicious of its power. It all amounts to Majority Whip Steve Scalise in March. That’s a good
a stress test for Powell, not only as a central banker strategy, says French Hill, who served at Treasury
but as a politician. “The Fed is in a critical point in with Powell and is now a Republican congressman 6%
its political history,” says Peter Conti-Brown, a inan- from Arkansas. Should a crisis hit, “you don’t want
cial historian at the University of Pennsylvania’s to be meeting people for the irst time,” he says.
Wharton School. “Vital to the Fed’s legitimacy is its Congressional stafers say Powell has some work
mastery of lowercase ‘p’ politics—that is, managing to do in repairing relations. Once revered as the 3
relationships and staying close to the electoral pro- go-to source for economic analysis under Alan
cess through the people’s representatives.” Greenspan, the Fed saw its reputation sufer during
That’s exactly what Powell is doing. In his irst the inancial crisis and slow-motion recovery that
six months in oice, he’s met or called lawmakers followed. Both Bernanke and Yellen worked to cul- 0
48 times. Twenty-one of those contacts were with tivate lawmakers, but relationships deteriorated 9/1998 8/2018
Democrats and 27 with Republicans. By contrast, during both their tenures. Bernanke was criticized
his Democratic predecessor, Janet Yellen, had for veering onto Congress’s turf by propping up the
just 17 contacts with lawmakers, 13 of them with housing market and rescuing individual inancial
Democrats, in her irst six months in the job. Powell irms. Yellen was seen—by House Republicans—as
has ordered his eight-person congressional-liaison a liberal technocrat with too much discretion over
staf to redouble its eforts to reach out to both the monetary dials.
sides of the aisle. And his fellow Fed board mem- On a personal level, Bernanke and Yellen were
bers—Randal Quarles and Lael Brainard—have joined more comfortable at economics seminars than in
in the charm ofensive. A Democrat who donated the rough-and-tumble world of Washington poli-
to Hillary Clinton’s campaign, Brainard recently tics. By contrast, Powell is more at ease in the halls
met Republicans on the House Financial Services of power and revels in pressing the lesh. In a way,
Committee, which oversees the Fed. he’s approaching the relationship with Congress as
DATA: COMPILED BY BLOOMBERG
Like his two immediate predecessors, Powell a private equity investor might approach a valuable
seems to have a skill set perfectly suited for the but beaten-down asset. With new management and
moment. Ben Bernanke spent his academic career some fresh investment, returns could be stellar.
studying the causes and aftermath of the Great Powell has also shown an ability to learn on
Depression, an expertise that came in handy when the job. In his irst monetary policy testimony, in
he led the Fed during the inancial crisis in 2008 and February, black members of the House Financial
POLITICS Bloomberg Businessweek September 24, 2018
Services Committee probed him on his concern Powell is also building relationships with “The Fed is in
about racial inequities. It’s a common test for every members of the Trump administration. As has been a critical point
chair, and Powell gave mostly by-the-book answers. the custom of past Fed chairs, he regularly meets in its political
Representative Al Green, a Texas Democrat, asked with Treasury Secretary Steven Mnuchin to dis- history”
him when black unemployment was last around cuss all things economic. Those sessions look to be
3.5 percent to 4 percent. “I don’t think it ever has paying of. Mnuchin, who played a key role in per-
been,” Powell said. “It hasn’t been since slavery,” suading Trump to nominate Powell, told CNBC on
Green shot back. “That’s the last time there was full Aug. 28 that the Fed chairman was “phenomenal.”
employment for black people.” Perhaps owing to Mnuchin’s inluence, Trump
After the hearing, Powell reached out to many of said two days later that he didn’t regret appoint-
those same members, including California’s Maxine ing Powell to the top job at the Fed. “I put a man
Waters, the committee’s most senior Democrat. in there who I like and respect,” Trump said in an
Five of his irst 10 meetings with Democrats were interview with Bloomberg News.
with black House committee members. “I appre- Still, Powell can’t aford to take anything for
ciate him for extending the hand of friendship,” granted—or expect more shielding from Mnuchin.
Green says. “I think that gets us of to a better start.” Trump’s barbs came as the economy continued to
Powell is determined to demystify the Fed. Case barrel ahead, on course to rack up its fastest growth
in point: He opened his second press conference since 2005. What most likely bugged the president
in June by noting that monetary policy decisions was the impact of the Fed’s rate increases in the
afect every American. He then delivered what currency markets, pushing up the value of the dol-
he called a “plain English” summation of how the lar and making U.S. exports less competitive at
economy was doing and what the Fed was up to. a time when Trump is waging trade battles. The
And he’s doubling his number of scheduled press danger down the line is that Trump’s fusillade will
conferences next year to eight. intensify if growth tails of—something many econ-
Powell has kept his cool in the face of the heat omists predict will happen in the 2020 presidential
from Trump. Those who know him say he’s not eas- election year as the beneits of the tax cuts fade and 43
ily lustered. The chairman knows there’s a limit to the bite from Powell’s rate hikes deepens.
what the president can do. Trump could try to pack Given that future threat, Trump’s comments
the Fed board with policymakers sympathetic to his have already planted seeds that may grow to
concerns, as Ronald Reagan did in an unsuccessful undermine the Fed’s stature and its ability to
challenge to then-Chairman Paul Volcker’s author- execute aggressive policies in the next reces-
ity. But so far, Trump’s Fed nominees have been sion. “Any victory that Powell and the staf will
mainstream, including recently conirmed vice achieve against an angry, tweeting president will
chairman and monetary expert Richard Clarida, be Pyrrhic,” says Conti-Brown of Wharton. “The
who will cast his irst vote on rates in September. question isn’t how do you win that battle. It’s how
Powell undoubtedly knows that the tradition of you minimize losses.”
presidents not commenting publicly on Fed pol- The Fed’s authority to carry out interest rate
icy is of recent vintage, instituted at the behest of policy free from political interference is a fragile
Robert Rubin when he was Treasury secretary under thing. Its independence is not enshrined in stat-
Bill Clinton. Powell was a member of the preceding ute, as it is at many other central banks. (The Fed
administration—serving the senior Bush—which had and its 12 regional branches owe their existence
overtly and covertly sought to pressure Greenspan to to Congress, which created the system in 1913.)
keep interest rates low in the runup to the 1992 elec- There’s always a risk that lawmakers will chip
tion. (There’s no evidence that the future chairman away at the bank’s independence, especially if
was himself involved in the efort.) Six years later, they’re looking for someone to blame for a weak
Bush told interviewer David Frost that he blamed economy—something likely not lost on Powell.
Greenspan for his loss to Clinton. “I reappointed In the end, faced with an erratic Tweeter-in-
him, and he disappointed me,” Bush said. Chief who’s quick to disparage anyone he dis-
For all that, there’s no doubting the power of agrees with, Powell knows he has no choice but to
the presidential pulpit. In what could be seen as follow the advice of a former mentor to “control the
an efort to steer clear of providing Trump with controllable.” —Rich Miller and Craig Torres, with
another target, Powell has tried to avoid comment- Elizabeth Dexheimer, Erik Wasson, and Sarah Foster
ing on the president’s controversial trade and eco-
THE BOTTOM LINE Ahead of an expected Sept. 26 rate hike,
nomic policies, repeatedly saying the country’s Fed Chairman Jay Powell is strengthening his relationships with
central bankers should “stay in our lane.” Congress, insulating the bank against threats from the president.
POLITICS Bloomberg Businessweek September 24, 2018
44
When the remnants of Hurricane Florence settled because we didn’t know how much higher the The site of one of the
400 flood-prone homes
over Charlotte during the weekend of Sept. 15, water was going to get,” Parmenter says of one Charlotte has torn down
drenching the lood-prone city with a near-record morning in 2010 when he had to rush out of
PHOTOGRAPHS BY JEREMY M. LANGE FOR BLOOMBERG BUSINESSWEEK
amount of rain, Justin Parmenter felt one thing the house. But he and his family were stuck: As
above all else: relief. A seventh-grade English the years went by and the looding got worse,
teacher with two young children, Parmenter used nobody would buy their home, at least not for the
to be one of the thousands of people living along $80,000 Parmenter still owed on his mortgage.
Charlotte’s many creeks, which regularly top their Then, something happened that would be
banks. His house, six miles and a world away from impossible in most U.S. cities: Local oicials agreed
the gleaming, hill-top towers downtown, stood on a to buy the house, no questions asked, for a fair mar-
low patch of land next to Briar Creek, whose waters ket value of about $100,000—then tear it down and ○ Since 1999 the county
has bought and torn
constantly reached his property, ruining his appli- prohibit anyone from building there again. Now he down 400 vulnerable
ances and eventually wrecking two of his cars. and his family live in a two-story on a hill; their big- homes at a cost of
“I can recall walking through knee-deep lood- gest worry during Florence was that a branch might
water, carrying my infant daughter in my arms, fall in their yard. “I’ve always been so grateful to $68m
POLITICS Bloomberg Businessweek September 24, 2018
them,” Parmenter says, sitting in his new home. “I that do nothing are more apt to get federal dollars,”
was desperate to get out of that house.” Larson says. “That’s a perverse incentive.”
As Florence pummeled this city of 850,000, To short-circuit the build-lood-repeat cycle, the
Charlotte had one thing in its favor: It sits in Charlotte-Mecklenburg Storm Water Services utility
Mecklenburg County, one of the few places in the adds a $1.25 fee to each customer’s monthly water
U.S. that’s begun emptying out its lood plain, pull- bill. That generates enough for the city to spend
ing people and homes from the most vulnerable about $3 million a year to buy and demolish as many
neighborhoods. Storm-prone cities from New York as two dozen homes. It also funds a “quick-buy” pro-
to Houston are rushing to build along the water gram, ofering money for a home right after a lood.
despite the growing risk of looding, but Charlotte The local buyout program has become a point
is headed in the other direction. Climate experts of civic pride. Hugh McColl, former chairman and
call it a blueprint for the country. chief executive oicer of Charlotte-based Bank of
“As lood risks continue to worsen throughout America, cites the program as evidence that the
the U.S. because of climate change, you’re going to city has done a good job preparing for events like
see a real need for really novel approaches,” says Florence. “We’ve done quite a bit of work in buy-
Joel Scata, a lawyer with the Natural Resources ing up properties,” he says.
Defense Council who focuses on the threats associ- Timothy Trautman, who oversees the buyouts
ated with water and climate change. “The Charlotte- as manager for the engineering and mitigation
Mecklenburg approach is a great example of that.” program at Charlotte-Mecklenburg Storm Water
What Charlotte is doing, a strategy known Services, says the program reduces demands on
as managed retreat, is among the most effec- emergency responders rescuing people during
tive responses to climate change. Unlike building loods and saves money on sheltering victims.
levees or seawalls, which can either fail outright Since 1999, Charlotte has spent $68 million to Addresses that no
longer have houses
or prove inadequate, tearing down homes is fool- buy and demolish 400 buildings, Trautman says. in Parmenter’s old
proof: A house that no longer exists is a house that He says there are an additional 500 to 1,000 in the neighborhood
can never lood again. lood plain that the county would eventually like to 45
Even so, the practice is controversial. Local oi- buy. The county doesn’t require that a home loods
cials often fear that emptying out threatened areas a certain number of times before it’s eligible to be
will cost too much or shrink their tax base. Only a torn down. “We bought some properties where
handful of cities have buyout programs; most rely on we’re not sure if they’ve ever looded,” Trautman
federal money after disasters, which can sometimes says. “But the lood plain maps, the data, tell us
be used to purchase homes that have been damaged. that there’s a signiicant risk there. We trust that
Those programs struggle with inadequate or unpre- information.” Indeed, no homes in the loodplain
dictable funding and may take years to complete, by have been lost to Florence, which Trautman attri-
which time many people who might qualify have butes to the program’s success.
already repaired their home and moved back in. On Florence’s second day in Charlotte,
Charlotte’s approach is better, Scata says, Parmenter tours the land his home used to stand
because it recognizes that having homes continu- on. The lawn is beneath a growing sheet of water.
ally lood guarantees residents will sufer—and the Parmenter’s former neighbor, Leslie Connell, calls
best way to help people leave those areas is to ofer out to him: Doesn’t he know not to park so close to
them money right after a lood or, better still, before the creek? “That’s going to lood,” she warns him.
it happens. “For certain areas that repeatedly lood, Connell and her husband Tom live in one of
that tax base is just going to continue to go down the few homes left in the area. When the county
over time, because those properties will be worth ofered to buy them out, they threw the forms
less and less,” Scata says. His research shows that away. Moving and inding something else they can
the average time it takes the federal government to aford would be hard. Asked if she worries about
buy a lood-damaged house is ive years. flooding, Leslie pauses. “It’s a fear,” she says.
Yet federal disaster policy discourages cities “Starting over is a bigger fear.” One other reason for
and states from following Charlotte’s lead, accord- staying: Where else could they ind all this empty
ing to Larry Larson, senior policy adviser at the space? “I like it down here with nobody around,”
Association of State Floodplain Managers. Allowing Tom says. Beyond the edge of his yard, the creek
development by the water doesn’t just mean more keeps on rising. —Christopher Flavelle
tax revenue in the short term; it also increases the
THE BOTTOM LINE Since 1999, Charlotte has spent $68 million
inancial toll of natural disasters, which in turn buying and tearing down 400 homes in flood-prone areas,
increases the odds of federal assistance. “Those reducing the damage from storms like Hurricane Florence.
DEBRIEF
September 24, 2018
What are the most ambitious goals you’d like us to see accom- rose to the moral challenge and found a way to do it.
plish within your lifetime? This is a really critical choice that we have to make. We
I’d like to see us solve the climate crisis and build a must change. The second question: Can we change? We
46 healthier, more prosperous, fairer, more just society and have the ability and the technologies to do it.
economy in the process. There are only three questions The most important is the third question: Will we change?
remaining about the climate process: Must we change? Can What we’re seeing these days is great evidence that we will.
we change? Will we change? The Paris Agreement is equally significant evidence that we
We’re still treating the atmosphere as an open sewer. will change. I was worried when President Trump made his
We’re putting 110 million tons every day of man-made, announcement that the U.S. was going to pull out of the
heat-trapping pollution into the sky. And it lingers there agreement. But no other country in the world followed his
for a long time. The cumulative amount now traps as much lead. Some doubt that we have the political will, but it’s worth
extra heat as would be released by 400,000 Hiroshima- remembering that political will is itself a renewable resource.
class bombs exploding every day. Speaking of the Paris Agreement, what’s the Plan B for the
It’s a big planet, but that’s a lot of energy, and that’s why worst-case scenario?
it gets hotter every year. That’s why the oceans are getting There’s no Planet B, so there’s no Plan B. But we are still
so hot. That’s why Hurricane Florence intensified so rapidly. a nation under law and will remain so. Under the law, the
That’s why this supertyphoon that’s even larger was headed first day the U.S. could actually withdraw from the Paris
toward southeast China. That’s why the worst fire in the his- Agreement happens to be Day One after the next presidential
tory of California was one month ago in Mendocino and why election. If there’s a new president—excuse me for a moment
the fire season here in the West is 105 days per year longer (he prays)—then a new president could simply give 30 days’
than it used to be. That’s why the drought in the Southwest notice, and the U.S. would be right back in the agreement.
is as intense as it is. That’s why there are fish from the ocean But it’s easy to feel disheartened and overwhelmed and even
swimming in the streets of Miami at high tide—because of apathetic. What’s the optimist part of this that we have to keep
the melting ice and sea level rise. in mind?
The scientists were spot on in warning us about all of Some people go straight from denial to despair without
those consequences. Now the evening news every night pausing on the intermediate step of actually addressing
is like a nature hike through the Book of Revelations. We and solving the problem. The sustainability revolution is the
should pay more attention to what the scientific community largest investing and the largest set of business opportuni-
is telling us will happen in the future if we continue using the ties in all of history. Many companies are becoming aware of
sky as an open sewer. the risks of continuing with the fossil fuel economy, with the
I don’t want to have to explain to my grandchildren why exploitative business models that ignore waste, ignore pollu-
my generation sat around and failed to deal with this. I tion, ignore the exploitation of communities and workforces.
would much rather tell them how our generation actually When companies get with the program and adopt
DEBRIEF Bloomberg Businessweek September 24, 2018
sustainability goals, all kinds of benefits come to them, on a single charge. They’re winning most every contract
including recruitment and retention. The brightest and best they compete for. They haven’t been able to build them fast
young men and women want to work for companies that enough. Now they have a factory in South Carolina, one in
give them a good income but also give them an opportunity California. They’re gearing up to build more.
to say to their family and friends that they’re part of some- I’m inspired by a lot of these entrepreneurs. Another one
thing larger than just making money, that they’re helping to is Horace Luke, CEO of Gogoro, a company we invested in
make the world a better place. that makes electric scooters in Taipei. There are many more
You’ve become a inancial success story because of Generation people who travel on two wheels than four. In Asia, with its
Investment Management, which you co-founded in 2004 with air pollution and climate emissions, scooters and motor-
David Blood. You now manage $18 billion? bikes are a nontrivial factor. Luke’s company has a system
A little bit more—$20 billion, $21 billion. But what’s $3 bil- where you can swap batteries out of a network of Gogoro
lion among friends? battery charging stations. All it takes is six seconds, and you
Using this sustainable inance lens, what do you—as an investor— get another day or day-and-a-half of use out of the scooter.
look for in business strategies? Luke used to run Xbox for Microsoft years ago. He came
We look for companies that don’t borrow from the future, to this scooter idea because he wanted to be part of solv-
that help to create a more sustainable and healthier pres- ing the climate crisis. He was ofered CEO positions in high-
ent without doing so at the expense of the opportunities tech digital companies, but he wanted to take this on. He’s
that should be available down the road. We find that com- another example of an up-and-coming star.
panies that really focus on that model are far more likely to How much more opportunity do you still see for businesses both
be successful than their competitors in almost every sec- to make a diference and to make a proit?
tor of the marketplace. There’s now voluminous academic It’s limitless. Our No. 1 goal is to get the highest return
research tending to prove this. for our clients, but to do so in a way that invests according
In the investor marketplace, there used to be this out- to this sustainability model. And so there’s M-Kopa, an East
dated view that fiduciary responsibility somehow prevented African company that installs solar cells on huts and homes
asset managers from taking the environment and social and located in areas that mostly have no electricity grids. The
48 governance factors into account. Now that’s been turned payments are made by a telephone-based payment system
on its head. called M-Pesa. Now, they’ve been selling tens of thousands
Best practice now tells us that asset managers who do of direct-current, solar-powered television sets. It’s a great
not take these factors fully into account are themselves model for zero-carbon electrification.
violating their fiduciary responsibility. That’s kind of an earth- I’ll give you another example. We’ve invested in a com-
quake in the investing marketplace. pany called Toast that takes on food waste. There’s an enor-
But if there’s so much money to be made in sustainable inance, mity of food waste in the global economy. I can’t remember
why haven’t we seen more investors really lock to it? the statistics, but waste would be the equivalent of the third-
Anytime there is a significant change, inertia is an or fourth-largest consumer of food in the world. Toast has
obstacle. It’s just human nature. You know, the QWERTY created an incredibly eicient, easy-to-use, highly produc-
keyboard makes no sense anymore. But the transition to a tive digital system to manage restaurants, to connect the
new design has frustrated all of the keyboard and software kitchen to the server, and to eliminate all of the food waste.
companies. Its the same thing when you ask people or busi- You’re no longer an elected oicial. What do you know now that
nesses to make a systemic change to an approach that has you wish you would’ve known then?
been used for a long time and that people are comfortable We all learn as we age and as we have more experience.
with. Change can be diicult. But once change is embraced, I have really enjoyed the business world and Generation
you feel the wind at your back and you begin to think, “Well, Investment Management. It’s been an absolutely thrilling
why haven’t we done this before?” experience. The relationship we have with our clients and
Talk a little bit more about the results of some of your with the executive teams and the CEOs that we invest with …
investments. Do you have a case study in your portfolio that I absolutely love it. And I’ve learned a lot about the business
you point to as an example that can make a believer out of a world. I’ve still got a lot to learn, but it’s been really fascinat-
climate skeptic? ing and really fun.
We invested in a terrific company called Proterra run by What are you most excited about?
Ryan Popple. He was an infantry captain in Iraq and then in I’m excited that we are beginning to achieve the moment
the financial operations of Tesla before ending up as CEO we need in this world to solve the climate crisis. It’s almost
of Proterra. The company makes the best electric bus in the unimaginably diicult to make the transition that’s now under
entire world. I’m a little biased, but you’ll understand that. way, because we still rely on fossil fuel for 80 percent of the
But it really is. Zero emissions. No diesel fumes inside the world’s energy use. But I’m excited because I see people tak-
bus. Wi-Fi. Bespoke design from the get-go. And the com- ing it on every day and succeeding. We are going to win this.
pany just completed a test run of their bus—1,000 miles The remaining question is whether we win it in time to
DEBRIEF Bloomberg Businessweek September 24, 2018
avoid crossing some dangerous threshold that would throw What other states have learned is that California’s econ-
the climate balance out of kilter. We’ve melted so much ice in omy has grown faster than the national economy even as
the Arctic that the temperature’s going up much faster there, its emissions reductions have been much larger at the same
changing the diferential of temperature at the North Pole time. There is a jobs intensity to the sustainability revolution.
to the equator. And that’s one of the things that defines the The Bureau of Labor Statistics recently reported that
pattern of wind currents and ocean currents to redistribute the single fastest-growing job in the United States is
that heat. So you get these storms that are just locked in solar photovoltaic installer. Those jobs are growing nine
place for days at a time. That’s one example of dangerous times faster than the average job growth in the economy.
thresholds we should not risk crossing. The No. 2 fastest-growing job is wind turbine technician.
The oceans are another. Acidifying the oceans, making We can also create tens of millions of new jobs retrofit-
them boil and the temperatures go up so much, puts at risk ting buildings with better insulation, better windows, LED
the food chain. I could give you other examples: Coral reefs lights, reducing the utility bills of the buildings’ occupiers
are now in really grave danger. So it matters how quickly we and owners, cleaning up the environment.
win this. But I’m excited that we’re gaining enough momen- The jobs can’t be outsourced, because they’re needed
tum. That the hope is legitimate and real. in every community. This is the greatest opportunity for
A few things haven’t gone according to plan. The Trump increasing secular demand for renewable energy by cre-
administration has chipped away ceaselessly at environmen- ating more jobs, and this challenge is one that California
tal protection. He seems to love coal. And Scott Pruitt took the undertook before the rest of the country. The results that
Environmental Protection Agency in a diferent direction. He’s California has achieved—and is achieving—present an object
gone, but the acting administrator has continued that agenda. lesson for all the states.
Since President Trump took oice, the cancellation and So what should everyone at this Global Climate Action Summit
retirement of coal-generating plants has actually acceler- do when they leave the room today?
ated. As for the EPA, somebody said they’ve made it into If you have a pension or savings and you’re investing it,
the CPA—the Coal Production Agency. The new guy was a I would urge you to divest from coal and begin to divest
coal lobbyist and accompanied coal CEOs in to lobby the from all fossil fuel stocks. We have a $22 trillion subprime
new administration. As administrator, he’s enacted measures carbon asset bubble that poses a great financial risk to 49
he was lobbying to get adopted. This is deeply unfortunate. savings and to pension funds. I would urge you to be a
But we have to keep on moving. Many state governments climate-conscious, environmentally aware consumer. And
are now filling the role that the federal government used to when you pick more responsible products, that sends a
play. Furthermore, this process of transformation is being signal through the marketplace. It helps you be a part of
driven by business, by technology, by investors. We could the solution.
make the process faster if we had a federal government in You say I’m no longer an elected politician. I’m a recover-
the U.S. that was actually helping to lead this. But California ing politician now. But if you’re not registered to vote, don’t
is doing a lot—and the other states, too. even talk to me about our future. If you’re not, go register to
Governor Jerry Brown of California has made this incredible vote. At one level, this comes down to a question of political
pledge, signing into law a bill that by 2045 would make his power. Our democracy was hacked by lobbyists long before
state use 100 percent zero-carbon electricity. What can we learn the Russians hacked it. But the remedy is for more people
from California? to get more actively involved. And this election on Nov. 6 is
the most consequential of-year vote I’ve ever seen in my
lifetime. We all have a tendency to say every election is the
remembering time to have some checks and balances. And everybody can
help to make that diference. I’m serious. In order to solve the
climate crisis, we’ve got to deal with the democracy crisis.
that political will Dealing with it means participating, not just voting. Speak
up. Don’t be intimidated by some climate denier who threat-
ens to go into tantrums if you mention climate. It’s a little like
50
51
AT A DESK IN A
safety pins, and he was lattered. “He’s
a hero of mine,” Halsey says.
The students in this class at
California’s Camp Pendleton, chosen
from various units within the 1st Marine
TRAILER ALONG
Logistics Group, are technically minded.
These are truck mechanics, radio repair-
men, and ground electronics techs. You
can imagine why the ability to rapidly
a fence behind a garage, America’s design and print a mortar-tube bolt or
future war ighters are squinting at wid- a Humvee door handle would be useful
gets. If not for the camoulage uniforms, to them when the alternative is waiting
they could be watchmakers, these eight for a replacement part from the supply
Marines, age 20 to 25, all grasping dig- chain. But previous groups have come
ital calipers and taking precise mea- from infantry, combat camera, and
surements of tiny things to put those even the vaunted Marine Raiders spe-
measurements into a computer-assisted cial operations unit. That was always Halsey, founder of
design program and build a 3D model the idea, Halsey says. The “door kick- Building Momentum
that will be printed in plastic. When ers,” the front-line ighters, need the quickly to new problems. “I was a think-
the day began, only a few of these men skills every bit as much as the guys who tank geek, frustrated with Death Stars
had ever worked in CAD or touched a ix their gear. “Innovation takes place at and lightsabers that couldn’t afect the
3D printer, and now they have only one the intersection of urgency and neces- battleield,” he says. “I decided to go to
hour to make a functional multitool. sity,” Halsey says. “Marines basically live the war zone and make solutions as a
“The best tool will go on the Wall of at that intersection.” nerd.”
Fame,” says Brad Halsey, a tall, excep- And so do the bad guys in today’s Speciically, Halsey served under con-
52 tionally cheerful man in khakis and asymmetric wars. “The enemy is using tract for a tech consulting irm called
sneakers. “The worst tool will also go Amazon Prime to beat us,” he says. Exponent as what he calls an “embed-
on the Wall of … Shame? No, failure isn’t “They’re getting parts literally from ded geek” for the U.S. Army’s Rapid
shame. It’s just another tool. We’ll call it RadioShack. We need to be ighting them Equipping Force. He spent almost a
the Island of Misit Toys.” in a more agile way.” year on the ground in Iraq making tools
Halsey is the lead instructor of this out of military gear combined with
program, Innovation Boot Camp, as things sourced from junkyards. He once
well as co-founder and chief executive
oicer of Building Momentum LLC, a
startup in Alexandria, Va., that trains
people to leverage certain democ-
BUILDING ordered a bunch of mylar advertising
balloons (the kind that ly over car deal-
erships ofering great deals on Hyundai
Sonatas), kitted them out with fake sen-
MOMENTUM
ratized technology—such things as sors, and launched them into the air to
CAD, 3D printing, laser cutting, and confuse militants who were targeting
microcontrollers—to solve problems. actual surveillance balloons.
That could be academics who’d like to When he got home, Exponent put
be more practical, engineers who make began in 2015 in Halsey’s base- him in charge of hiring and preparing
elaborate designs but rely on techs to ment and now uses every bit of a more scientists for the Rapid Equipping
actually prototype them, or 20-year-old 20,000-square-foot warehouse. The Force. This was an eye-opener. “I found
Marines who could use these things to inspiration goes back further, however, that most Ph.D.s at Stanford and MIT
be more efective on base and in combat. to the days after Halsey left the U.S. Navy don’t like to operate outside their com-
Innovation Boot Camp is just one (he received a medical discharge in 2001) fort zones,” he says. They’re very good
program, the Monday-through-Friday and was working on defense and secu- at their particular specialties but not so
starter kit, under a larger project known rity projects for SRI International. He good at execution—at translating ideas
as Marine Maker, which aims to infuse oversaw $30 million in mostly classiied into things. Halsey created a Hell Week
the basic skills and ethos of rapid proto- contracts, and the work was interesting to weed out the scientists and engineers
typing throughout the Corps. Halsey says but not entirely satisfying. Modern war- who couldn’t actually contribute in the-
some of his earliest Marines nicknamed fare is less about big weapons systems; ater and eventually realized there was
the program “MacGyver Camp,” after the today’s enemy ights on a much scrap- a business in this. Thus began Building
inventive 1980s TV character who could pier level. Halsey felt strongly that sci- Momentum.
fashion a bomb out of chewing gum and entists like him could help soldiers react The Marines, he says, “stumbled on
Bloomberg Businessweek September 24, 2018
us” when he met a brigadier general at just ask the maintenance techs to whip The one who speaks the most is a tow-
a technology incubator that Building something together. ering chief warrant oicer from EOD—
Momentum has since swallowed. That When Halsey worked for the Army, he the bomb squad—who had to duck to get
general told his superior about Halsey, helped design a mobile lab built in a ship- through the door. He asks basic ques-
and soon after, Lieutenant General ping container. The next step, he says, is tions about the program and then some
Michael Dana, deputy commandant for to build smaller, even more portable labs more speciic ones about sensors and
installations and logistics, showed up in that can be taken to forward operating microcontrollers and the like.
full dress blues for a tour. The general bases deep in the ield. Mission-speciic “These tools are available; they’re
liked what he saw and told Halsey that kits with motors and microcontrollers cheap,” Halsey says. Today’s adversar-
he wanted Building Momentum to bring and soldering sets could be carried in ies are often broke and poorly equipped,
this sort of teaching to the Corps. backpacks. There are so many potential but they make up for that by being cre-
“It aligned really well with the cul- uses, he says, starting with “little parts ative. No one is more aware of that than
ture that we empower our Marines with, that break” on guns, sights, tools, and the bomb squad. “Their iteration cycle
which is to basically hack and modify vehicles. Or maybe you want to put a is fast,” Halsey says and laughs when
and make the mission achievable in any sensor by a house, but you need to hide someone points out that part of that pro-
way possible,” says Captain Chris Wood, it, so you 3D-print a rock that looks like cess is a willingness to blow themselves
who works under Dana in an oice called the local terrain. Dana’s directive, Halsey up. “How do we approximate that?”—
Next Generation Logistics, or NexLog, says, is clear—“to put these tools into the the iteration cycle, he means, not the
which was set up to study and apply new hands of the forward war ighter.” self-immolation. “That’s the idea here.”
tech to improve Marine logistics. Wood The oicer nods. Marine EOD guys
is of the opinion that a latent MacGyver have great robots, but there’s always
lurks inside many Marines. “Now we can
start to unearth and empower that, using
these new technologies and the training
to create much more well-rounded and
ON AWEDNESDAY room for improvement. He can imagine
quick fabrication of replacement parts.
“It sounds like we could make control-
lers for the robots to go and hit some-
OF INNOVATION
capable individuals,” he says. thing with a stick,” he adds. 53
Marine Maker was officially born An EOD-specific camp would be
in 2016, under NexLog. The initial $4 mil- great, the Marine says, but making that
lion contract was supposed to last three happen is certain to be a process. In the
years, but demand has been so high Boot Camp, two men pop by the class. meantime, he says, “I’d have immediate
that the money is likely to be gone by Even tucked away in a remote corner interest in sending a few of our geniuses
the end of Year 2. Halsey is talking with of the base, the trailer is a curiosity. to this program.”
the Corps about other possible courses, Throughout the week, guests appear Later that day, after the EOD guys
including programs tailored to particu- unannounced to snif around, and that’s have gone back to their robots, Halsey
lar problems—explosive ordnance dis- the case with these two. turns his thoughts to drones. A few
posal (EOD), for instance, or antidrone
warfare.
Since the first MacGyver Camp at
Pendleton in January 2017, almost 200
Marines have gone through the pro-
gram in California, North Carolina,
Virginia, and Washington, D.C. In
December, Halsey took a container of
gear to Kuwait and did his irst camp for
deployed Marines. The students from a
crisis response unit built and installed
a solar-powered surveillance system
for ammunition supply points in one
day and a GPS tracking system for cars
in two. Typically, a unit would need to
go through the bureaucratic channels
for special gear, and when that special
gear is spooky (in the CIA sense) there’s
an even greater tangle of red tape to
trip over. Now, in Kuwait, they can A pair of Marines constructs a solar-powered surveillance system
Bloomberg Businessweek September 24, 2018
BOOT CAMP
BOOTCAMP
Logistics Regiment 13, which includes selves along. It’s slow going even for the
the Ordnance Maintenance Company, winning team.) Later, they’re given an
as well as all the other units that fed afternoon and then the next morning to
Marines into the week’s camp; his mis- build a ighting robot out of wood, moth-
sion is to ensure that deployed Marines has a frenetic pace, by design. Halsey erboards, and sensors.
get the parts and supplies they need as wants to show Marines that they can Having done this program with both
quickly as possible. He asks Halsey to achieve basic working knowledge of a engineers and Marines, Halsey says he’d
describe exactly what he’s doing here, variety of technologies rapidly and use take the latter every time. “Engineers
then stands upright, as stif as a lagpole, them in combination with a few core tend to overthink and execute poorly,”
while digesting the information. prototyping skills—for instance, welding he says, citing a bridge-building chal-
“This is powerful stuf,” Collazo says. and plasma cutting. They CAD and print lenge as evidence. At the end of Day 1,
Several of his units have already begun to a multitool; laser-cut pieces that assem- teams of two must quickly CAD and
use 3D printers for replacement parts on ble into a box without glue; cut and weld then print a bridge to span the chasm
trucks. In one case, technicians printed a strip of metal into a chalice that must between two workbenches; the design
a metal rotor for an M1 Abrams tank hold water; and build a circuit to connect can’t be too complicated or it won’t print
motor that held up over hours of tests. a battery to an LED light. Once they’ve in time. The team whose bridge holds
“This thing, it is the future,” the colonel covered a few skills and are no longer the most weight is the winner. During
says. “It is how you really revolution- intimidated, if not yet proicient, they one camp, Halsey stopped a team of
ize and give us options that would not have to use them all in combination. engineers after they’d smugly sent their
be present in the current evolutionary The Camp Pendleton Marines are design to the printer and were prepar-
environment—or that aren’t available in given two hours to turn a pile of metal— ing to leave for the night. He pointed
the supply chain.” mostly rounded and squared bars, plus at the estimated print time: 160 hours.
“What items?” Halsey asks. casters and wheels—into a crude vehi- “Marines do just enough and execute the
“All the items,” Collazo replies. cle Halsey calls an “urban canoe.” It has hell out of it,” he says.
Bloomberg Businessweek September 24, 2018
There
56
She Is
Or should have been.
Inside Miss America’s struggle
to reinvent itself for the
#MeToo era. By Claire Suddath
Photographs
by Caroline Tompkins
57
Bloomberg Businessweek September 24, 2018
On
the first night of this year’s Miss America, North Dakota’s Cara Mund, called me from her hotel
America competition in Atlantic City, room at Caesars Atlantic City. Over the past year, she told me,
Nina Davuluri, who held the title in Carlson and Regina Hopper, Miss America’s new chief execu-
2014 and now owns a skin care com- tive officer, had frozen her out of promotional opportunities,
pany, took the stage to introduce a dictated what she could say and how she could dress, publicly
and-new event. Gone was the old-fashioned evening gown belittled her, and retaliated when she tried to speak out. “I’m
gment, in which the Miss State winners would parade down the main product, I’m what the Miss America Organization
atwalk in floor-length gowns. Instead, this year’s finalists has to offer,” Mund said. “I do not feel empowered right now,
uld swish down a red carpet and give an eight-second by any means.” A few minutes later, a security guard came to
tch for a charity or cause—in floor-length gowns. That way, check on her, and she abruptly hung up.
vuluri explained, beauty and brains would be on display.
re you ready?” she asked the audience, who cheered and The pageant community is sometimes depicted by its
waved homemade signs in reply. “All right,” she said. “Let’s critics as a bunch of spray-tanned traditionalists who think
get glamorous and socially conscious!” women with washboard abs should be admired and not
For the past year, the 97-year-old Miss America heard. That’s not what I found while speaking with the
Organization had been attempting to align itself with dozens of state executive directors, former board members,
contemporary feminism—and recover from its own sex- contestants, and former titleholders I interviewed for this
discrimination scandal. In December, emails leaked show- article. They want nothing more than for MAO to become
ing top MAO executives referring to past Miss Americas the kind of woman-led, woman-centric brand they believe
as “c--ts,” criticizing their weight, and even wishing one it could be.
woman dead. The controversy prompted several resigna- Former board directors say they were lied to by Miss
tions and the appointment of Gretchen Carlson as chair- America’s new leadership. State and local officials report
woman. Carlson, Miss America 1989, is better known as the that education scholarships—the pageants’ ultimate prizes—
former Fox News host who in 2016 won a $20 million sexual- have been handled improperly. (MAO either ignored or
harassment settlement from Roger Ailes. “I had no intention declined multiple requests to make any of its representa-
58 of ever having this position,” Carlson proclaimed on Good tives available for this article.) “It’s not about getting rid of
Morning America in January. “I plan to make this organiza- swimsuit—most of us agreed that was archaic,” says Jennifer
tion 100 percent about empowering women.” Vaden Barth, a former Miss North Carolina who works at
Viewership for the telecast on ABC had been falling precip- Google and until June sat on MAO’s board of trustees. “It’s
itously, to 5.7 million last year from 8.6 million in 2013, and about Miss America failing to do the one thing it’s supposed
the #MeToo movement—which Carlson’s lawsuit portended— to do: help young women.”
offered the pageant an opportunity to participate in a global That wasn’t always the aim. Miss America began in 1921
conversation about society’s treatment of women. In June, when a group of Atlantic City businessmen, hoping to extend
Carlson revealed the key to her vision for a feminist-friendly the summer tourist season, decided to stage a post-Labor
Miss America: The once-iconic swimsuit competition would Day “bathing beauty” contest along the beachfront board-
be no more. But while many outside the pageant world walk. Winners earned Broadway auditions and Hollywood
cheered, reaction within the Miss America community was screen tests until 1945, when the pageant’s first female direc-
decidedly more mixed. By the time of the Sept. 9 finals, tor, Lenora Slaughter, decided that educational scholarships
46 state pageant leaders had called for Carlson’s resigna- were more respectable. Her decision gave Miss America two
tion. (Through a representative, Carlson declined to be inter- seemingly incongruous identities—beauty pageant and edu-
viewed for this article.) cational charity—that have persisted in the decades since.
The new evening wear competition was part of Miss Donations to beauty pageants aren’t tax-deductible, so
America 2.0, as this year’s event was officially known. Miss the entity known as Miss America is actually two separate
Oklahoma walked the red carpet in a black- and gold-beaded nonprofits—MAO, which puts on the pageant, and the Miss
mermaid dress, then turned, smiled, and spent her 8 sec- America Foundation (MAF), which pays the scholarships.
onds decrying human trafficking. Miss Tennessee, in white, Feeding into them are the 51 state pageants and hundreds of
said she’d lost four family members to Alzheimer’s and local ones, each a separate nonprofit licensed under the Miss
wanted to find a cure. Miss Connecticut, in red, declared America brand and run entirely by volunteers. Competitions
that “women are powerful sources of creativity,” though her involve a talent performance, evening wear, and a brief Q&A.
time ran out before she could clarify what that meant. Over While the idea of crowning a woman “Miss America” may
the course of three preliminary nights before the televised seem quaint, the organization is one of a very few American
finals, each of the 51 competitors—one for each state, plus institutions focused on and largely run by women. Its educa-
the District of Columbia—took her turn. The word “empow- tional scholarships draw a type of driven, career-minded young
erment” was used almost as often as the word “beautiful.” woman not usually associated with beauty pageants—this
On the third morning of the competition, the reigning Miss year’s competition, for example, featured undergraduates
Bloomberg Businessweek September 24, 2018
in computer science, journalism, and social work; several making sure elderly patients understand their Medicare
law and MBA students; a Microsoft Inc. software developer; and Medicaid options. “I tell her all this, and Regina looks
an aspiring commercial airline pilot; and a Harvard graduate at me and says, ‘Wow, you’re a lot smarter than I thought.’ ”
turned neuroscience Ph.D. candidate. At the state level, titles Hopper promised to help her get going in Washington,
are increasingly being awarded to women of color. Mund says. Instead, she was shuttled to parades and fairs and
Meanwhile, the national organization has been in a baseball games, as if it were still the 1950s. Hopper, through
financial spiral. In 2009, Miss America reported a modest Mund’s tour manager, approved all her outfits. She was told
$874,000 in net assets; today it’s almost $3 million in the red. never to wear pink—“apparently Regina hates pink,” Mund
The email scandal didn’t help. MAO lost a number of spon- says. The rules got more bizarre: “I was told I’m not allowed to
sors and partnerships, including Dick Clark Productions wear the Miss America sash in public at all. If I’m in a parade, I
Inc., which promoted its televised pageant. Its three- can wear the sash but only in the car. I can’t get out of the car
year contract with Atlantic City’s Casino Re-Development without the sash first being taken off.” It sounds like a small
Association, which had given MAO about $12 million to thing, except the sash was how people identified her. When
pays scholarships on their behalf. Jennifer Bailey, who runs The show felt like a well-executed, appropriately inclusive
the Miss Virginia Organization’s scholarship fund, says she’s commercial, though it wasn’t clear what it was selling.
twice received frantic calls because students’ tuition wasn’t One contestant cut early was 24-year-old Emily Sioma,
paid. The first came from the parents of Casey Shepard, a stu- whose only on-camera moment came when the women
dent enrolled at the Richmond School of Ballet who’d won a introduced themselves during the pageant’s opening num-
$1,000 scholarship. Bailey’s predecessor had submitted a pay- ber. Sioma’s official platform was sexual-violence awareness.
ment request to MAO in January. When Bailey inquired on the But she lives in Michigan, where the town of Flint has lead-
Shepherds’ behalf in April, she says MAO told her that with poisoned water and Detroit public schools have declared
all the leadership changes, no one had check-signing author- their drinking fountains unsafe. When the camera panned
ity. Miss America finally paid the scholarship in May, though to her, with her hands on her hips, she said, “From the state
by then the Shepards had already covered the tuition to avoid with 84 percent of the U.S. fresh water but none for its res-
late fees. In the second instance, Bailey learned that a $7,000 idents to drink, I am Miss Michigan.” What she said had no
scholarship was accidentally paid twice, then canceled twice, effect on her fate in the competition. But these were the
jeopardizing a student’s ability to graduate. few seconds afforded her, and Sioma took her opportunity.
The moment exposed how superficial the changes to Miss
Mund says Hopper told her about the swimsuit change America really were. If you want to empower women, you
the day before Carlson announced it on Good Morning America have to let them think and act and speak for themselves in
in June. For the most part, Mund played her role dutifully. a way that’s meaningful. Even if you don’t like how they’re
“Instead of the outer beauty, we’re focusing on the inner!” she standing or what they have to say.
told TMZ right after the announcement. But she balked at read- Only 4.3 million people tuned in to watch Miss America
ing a statement she says Carlson and Hopper provided, which this year, fewer than the number who watch Big Bang Theory
included the sentence, “#MeToo started with a Miss America, reruns. At the end of the night, Mund gave up her crown to
Gretchen Carlson, who has now donated her time to empower New York’s Nia Franklin. But before that, she managed to
women.” Mund says she told Hopper she didn’t want to say sneak in another act of defiance.
Carlson started #MeToo, because it wasn’t strictly true. (The One of Miss America’s kitschier traditions is the Show
hashtag was started by activist Tarana Burke and popularized Us Your Shoes Parade the day before the final, when 61
by actress Alyssa Milano.) After that, she says, MAO didn’t send contestants dress up in state-themed costumes—this year’s
her on many interviews. Miss Alabama was a NASA astronaut, Miss Georgia a Coca-
In August, Mund sent a 3,200-word letter to a group of for- Cola bottle, etc.—and ride on the back of convertibles, kick-
mer Miss Americas detailing the way she’d been treated by ing bedazzled stilettos (or, in the case of Miss Montana,
Hopper and Carlson; the letter was quickly leaked. Two days hiking boots with plastic bison glued to them) in the air as
later, Carlson released a public statement on Twitter deny- high school marching bands follow behind.
ing the bullying allegations and claiming that Mund’s airing of The reigning Miss America always rides on the first float,
grievances had cost the organization $75,000 in sponsorships. wearing a long, flowing ball gown. Mund was having none of
Carlson also said she’d tried to talk to Mund, but she refused to that. “I wanted to be Wonder Woman,” she says. Earlier in
discuss anything in person or over the phone. Mund disputes the summer, MAO approved the idea and let her work with a
this and says Carlson called her once, late at night, when she costumer to design the ensemble, she says. After she spoke
was asleep. “I’ve learned at this point that everything needs out, she was informed that Sherri Hill, a popular pageant
to be in written form,” Mund says. dress designer who’d agreed to sponsor Miss America, was
MAO hired an outside firm, Employment Practice Solutions demanding she wear one of her creations. Mund talked to
Inc., to investigate Mund’s allegations. Over two weeks, EPS Hill, who didn’t remember making any such demand; in fact,
interviewed 14 people associated with Miss America. Mund, she loved the Wonder Woman idea. Mund, adhering to her
who by then had hired an attorney, told EPS that she would rule about getting things in writing, asked Hill to confirm
be in Atlantic City for a good portion of that time fulfilling her her approval in an email. “Go rock it!” Hill wrote.
Miss America duties and said she would answer all questions Minutes before the parade was to start, with the floats lined
after the pageant concluded. On Sept. 10, the day after the up and spectators gathered along the boardwalk, Mund’s tour
Miss America telecast, EPS released a formal report of its find- manager pulled her aside and asked her to change. “She said
ings, a copy of which was obtained by Bloomberg Businessweek. they had a contract with Sherri and she wanted me in a dress,”
It absolved MAO and Carlson of any wrongdoing. Mund was says Mund. “I said, ‘Oh, don’t worry. I have verbal and written
never interviewed. communication from Sherri that I can wear this.’ ” Her tour
manager stepped away for a few minutes. When she returned,
The final night of Miss America 2.0 opened with a Beyoncé Wonder Woman was miraculously approved.
song. Based on their preliminary scores, the 51 contestants “She told me she was just doing her job,” Mund recalls.
were whittled down first to 15 and then to 10 finalists, “I said, ‘And so am I.’ ” Then she picked up her superhero
who danced, sang, and reiterated their charity pitches. shield and boarded the float.
TOYOTA’S
DRIVERLESS
FUTURE
62
(
Leonard says, “would you think the future of Toyota is being driver in any Boston weather or traic condition—that might
designed here?” not be in my lifetime,” he says. On its website, the research
Inside squats a silver Lexus LS 600hL sedan. It’s not just any institute describes its goal as to “someday develop a vehicle
Lexus—this one is vital to Toyota’s efort to develop driverless that is incapable of causing a crash.” It doesn’t specify whether
vehicles. Leonard, vice president for automated driving this uncrashable car would be driverless.
research at the almost three-year-old Toyota Research Institute, Toyota’s self-driving vision isn’t really about getting rid of
explains how the Lexus is jury-rigged with radars, video cam- drivers. Rather, it’s about using autonomous and related tech-
eras, and lasers that can detect, identify, and react to objects nologies to make cars safer and more user-friendly, chocka-
up to 200 meters (656 feet) away—twice as far as a year ago. His block with features that help people stay productive while they
charges steer the Toyota-built car around Cambridge, Mass., to remain, for the most part, behind the wheel. Toyoda, who com-
capture data that can be used to create digital maps and try to petes regularly in road races and signs of on future vehicle
extrapolate how a vehicle might behave without a human at the designs only after personally testing them on a track, is betting
wheel. “It’s sort of like a science project,” Leonard says. “Stay that consumers’ love afair with the automobile is far from over.
on the road, don’t hit things, don’t get hit.” The company certainly has the money to pursue whatever
If only it were that simple. Toyota Motor Corp., the world’s future it believes in—$50 billion in cash as of June 30, more
most valuable automaker, with a market capitalization of than twice as much as GM. But autonomous driving technol-
$200 billion, is behind in the race to create the vehicles of a ogy is a distinctly American invention, and Toyota has long
maybe-not-so-distant future. Just four years ago, Akio Toyoda, been known less as an innovator than as a superb manufac-
the company’s president, was saying his company would pur- turer that igures out rivals’ inventions and does them better.
sue self-driving vehicles only after one beat a human driver— That approach might not be tenable in the face of a cultural
for instance, him—in a marathon road race. He’s not saying shift that Toyota executives say could be as dramatic as the one
that anymore, because Toyota has too much to lose. it faced in the 1930s, when it went from making weaving looms 63
If the company fails to pick up the pace, Toyota could, in one to building cars. “There’s a business need for us to become
version of the future, face the humiliation of becoming a mere more like IT companies before the IT companies become more
steel-box supplier to upstarts such as Waymo and Baidu. Toyoda like us,” says Pratt. “The company is very strong now, so now
himself has singled out tech companies as “our new rivals, with is the time for us to make sure we are the ones who actually
speed many times greater than our own.” He added: “A life-or- igure out all the cool stuf.”
death battle has begun in a world of unknowns.”
Alphabet Inc.’s Waymo plans to start a ride-hailing service
with driverless taxis in Phoenix as early as this year. General
Motors Co. recently drew a $2.25 billion investment from
S trobe lights pulsed and music blared as a beaming Toyoda
took the stage at CES in Las Vegas earlier this year. “It’s
a great honor for a car guy like me to be here,” said Toyoda,
SoftBank Group Corp. for a robo-taxi rollout next year. Zoox whose grandfather led the company’s conversion to carmaker
Inc. says it will have self-driving cars ready for passengers as eight decades ago. Soon he was joined onstage by executives
soon as 2020. The frenzy is reminiscent of the early 20th cen- from Amazon.com, Uber, Pizza Hut, Mazda, and the Chinese
tury, when hundreds of ledgling carmakers competed until ride-hailing company Didi Chuxing.
almost all of them had failed or been consolidated. The six companies are unlikely partners in a product
As for Toyota, it invested almost $4 billion to start its research Toyoda said will be ready for the 2020 Tokyo Olympics and
institute, headquartered in Los Altos, Calif., and established Paralympics: a bubble-shaped electric delivery van that, not-
formal research links with MIT, the University of Michigan, withstanding Toyota’s ambivalence about full autonomy, will
and Stanford University. To advance its knowledge in artiicial be driverless. A leet of “e-Palette business system” vans will
intelligence, robotics, and materials science, it has recruited be designed to shuttle people, deliver pizzas and packages,
self-driving stars such as Leonard, whose core expertise is in process credit cards, and convert on a dime into mobile shoe
vehicles that steer themselves underwater, and Gill Pratt, who stores, hotel rooms, or emergency command centers. “Today,
oversees research at the institute and around the world after you have to travel to the store,” Toyoda said. “In the future,
years of running Darpa robot and autonomous vehicle chal- with e-Palette, the store will come to you.”
lenges for the Department of Defense. In June, Toyota invested It was the splashiest public manifestation of a shift in
$1 billion in Grab Holdings Inc., the Southeast Asian ride-sharing thinking he’d had in 2014. By then, pre-Alphabet, pre-Waymo
giant; in August it agreed to invest $500 million in a deal with Google had hybrids itted with self-driving gear zipping along
Uber Technologies Inc. to jointly create driverless vehicles. It’s California highways without anyone’s hands on the wheel—
even teaming up with nonautomotive partners to develop leets including some Prius and Lexus cars that Google had deployed
of multipurpose driverless vehicles. without Toyota’s involvement.
Bloomberg Businessweek September 24, 2018
Then Toyota joined early planning for the 2020 Olympics The vehicle’s software is working to comprehend unpre-
in Tokyo. Toyoda told Automotive News that he was surprised dictable human behavior based, for instance, on posture and
to learn that Paralympic athletes wanted to drive “cool cars, where people may be looking. McGill will upload data about
not just cars designed for handicapped people.” Autonomous the car’s interactions with the environment, then ine-tune
and semiautonomous vehicles, he realized, could make get- the software so it can propel vehicles more safely through
ting around easier and more fun for the disabled, the elderly, pedestrians and across streets. In the future, this data will
and others for whom driving poses challenges. be used by bigger cars such as that experimental Lexus in
He turned to Shigeki Tomoyama, a high-ranking company the Cambridge garage.
executive in Tokyo and longtime conidant whom Toyoda calls Today, the minicar winds up in the classroom of McGill’s
his “shogun.” Tomoyama is a devotee of kaizen, the core Toyota boss, Leonard, who’s teach-
philosophy of making small, continual improvements to the ing business management
manufacturing process in search of better quality and lower majors about electronics. A
costs. He’s embraced tech enough that Jef Liker, a University of Mike Myers lookalike who
Michigan professor and author of several books about Toyota, spends 20 percent of his time
calls Tomoyama “Frankenstein”—half-Toyota, half-Silicon Valley. working for MIT and the rest
That probably overstates it. But Tomoyama set up Toyota’s irst for the research institute,
project for connecting cars to the internet almost two decades Leonard ofers a short tuto-
ago and says he’s lattered by the Frankenstein comparison rial on how the small car
because the monster was “an artiicial construction but has a works, then polls the stu-
heart somewhere.” Virtually alone among Toyota executives, dents about the future of
he posts almost daily on social media—pictures of meals he’s fully autonomous vehicles.
eaten, factories he’s visited, and ish he’s caught. His portfolio Three-quarters expect to
at the company ranges from big data to motor sports to devel- be using them regularly by
oping a Lexus yacht. 2030. Leonard thinks they
Within months of being dispatched to ramp up Toyota’s might be disappointed.
64 driverless and driver-assistance endeavors, Tomoyama had Leonard It’s one thing to set driver-
LEONARD: PHOTOGRAPH BY M. SCOTT BRAUER FOR BLOOMBERG BUSINESSWEEK; TOMOYAMA: PHOTOGRAPH BY ALBERT BONSFILLS FOR BLOOMBERG BUSINESSWEEK
lured Pratt from the U.S. Defense Department and launched less vehicles loose on closed-
the Toyota Research Institute. A year after founding TRI, he loop tracks, another to have them navigate cities, as Uber
started Toyota Connected, a U.S. subsidiary that tries to turn learned in Arizona in March, when one of its autonomous
the lood of data from Toyota’s web-connected cars into salable cars struck and killed a pedestrian. Busy metropolises pres-
goods and services. Around the same time, Tomoyama started ent obstacles at once mundane and vexing. Clouds of tailpipe
talking with Uber about the collaboration that became e-Palette. exhaust can appear as solid as an oncoming car during Boston
The company hasn’t said where or when it will sell winters. A FedEx van blocking half of a two-lane side street
e-Palette vans beyond their Olympic debut. Perhaps that’s no in Chicago could bale a vehicle trained not to cross a center
surprise given Toyota’s ambivalence about the central tech- line. “This is really, really hard,” Leonard says.
nology. “Ninety percent of the consumers still do not expect Toyota is seeking a middle ground with a system it calls
autonomous driving,” says Masahiro Nakashima, chief oper- Guardian, which would harness the machine-intelligence and
ating oicer at Toyota Connected. A Gartner Inc. study last sensor capabilities that make full self-driving theoretically
year found that 55 percent of consumers surveyed wouldn’t possible and bundle them in vehicles designed for human
ride in a fully autonomous car, but more than 70 percent drivers. These cars and trucks would be able to see much far-
would ride in one that was partially autonomous—some of ther ahead and behind, across multiple lanes of traic, than
the very customers Toyota is targeting. any human would, and would be more adept at anticipat-
ing the behavior of other cars and pedestrians. Actual peo-
Auto suppliers Denso Aisin Seiki Magna Intl. Bosch Continental Volkswagen
351 209 201 144 75 56
DATA: BNEF
in fatalities should be technically possible,” he says. Instead of In Honolulu, Connected has teamed with Servco Paciic
40,000 traic deaths a year, the U.S. could have 4,000. “Imagine Inc., the owner of Toyota, Lexus, and Subaru dealerships
if you had the most vigilant and capably trained driver in the throughout the Hawaiian Islands, to test a car-sharing busi-
world that could take over in a situation where a teenager took ness called Hui (Hawaiian for “group”). Servco supplies vehi-
a curve too fast. Ten years from now, I dream Toyota gets let- cles, while Connected provides apps that let customers unlock
ters from car owners saying, ‘My teenager was driving and did cars with their mobile phones. User data, of course, gets sent to
something stupid, and Guardian intervened. Thank you.’ ” Connected. Starting at $9.95 an hour or $79.60 a day, customers
can grab a car at one of 25 parking stations with a credit card
or Here 72
The coolifying of a ’60s
Czech scooter
73
The spicy Spanish
sausage hitting
U.S. shores
74
How does the man
in the White House
sleep at night?
75
or Here
It’s a skateboard.
It’s also art
people and merely well-to-do election by six votes—on a of Kyoto, Japan wealthy banker and a
people,” Papadouris recalls. campaign promise to bring Best room: Nokon 801 onetime geisha house.
looks straight onto Walking amid Sasayama’s
Sasayama Castle ceramic-tiled roofs, mossy
The vibe: Minimalist chic gardens, and traditional
pottery workshops is a
Most village hotels are one- time warp.
ofs—but not Sasayama In March, Nipponia opened
Castle Town Hotel, which its second location, Sawara
opened in 2015 and was Merchant Town Hotel, with
expanded this August. It’s rooms occupying 100-year-
the flagship old wooden structures in a
of a new sake- and soy-brewing town
hotel brand, some 50 miles east of Tokyo.
Nipponia, Guests use it as a base for
which is an taking boat rides down
initiative from Sawara’s willow-lined canals
a Japanese and enjoying indulgent,
historical kaiseki-style meals with
preservation many, many courses, often
developer. featuring local shellfish.
Set in an From $234; sasayamastay.jp
TRAVEL Bloomberg Pursuits September 24, 2018
70
CORTE
DELLA Time hasn’t been especially crazy—I’m not that type.”
MAESTA kind to Civita: Earthquakes But the original frescoes in
and erosion knocked out the private chapel, now his
the bridges that once living room, inspired him
At Corte della Maestà,
connected it to neighboring to undertake an ambitious
dinner service (above) and
Location: Lazio, a 90-minute communities, leaving its restoration. “The whole thing
the “Wolf’s Lair” (bottom
drive north of Rome chestnut-lined, cobblestoned took 20 years, and it was just
right), where guests can
Best room: The Writer, streets and pastel buildings the beginning,” Crepet says
curl up with a book. Dining
which features a dark, floral accessible only by a narrow, with a laugh.
at Chateau Castigno’s Thai
wallpaper reproduced from 300-meter-long catwalk. Eventually an elderly
restaurant and La Petite
Virginia Woolf’s London home Among Civita’s 10 full- neighbor decided to move
Table (top right).
The vibe: Magical realism, time residents are poet and closer to the conveniences
Italian-style psychiatrist Paolo Crepet only a city could ofer. So the
and his wife, Cristiana Melis, couple bought her home, too, historic stone fireplace
One of the smallest and who moved here to raise with the idea of turning it and wood floors have been
most picturesque alberghi their daughter “surrounded into a guesthouse. “Cristiana refinished, and the bedroom
difusi sits on a hilltop not by richness but by and I had space enough, upstairs is lined with rare
that juts out of the earth beauty.” He says that when but we decided, why don’t French wallpaper.
like a divine throne. Corte a real estate agent ofered we think about it as a place The narrative played out
della Maestà makes up the him the grandest building in to welcome somebody?” a few more times, and Corte
majority of a town called town, a towering structure he says. Inside the Maestà della Maestà now has five
Civita di Bagnoregio, founded from the 15th century that Suite, the kitchen walls are suites around town, most of
2,500 years ago by the was once the archbishop’s festooned with copper pots them clustered around the
Etruscans as a trading post. residence, “I thought she was and pans, the living room’s archbishop’s former garden.
TRAVEL Bloomberg Pursuits September 24, 2018
CHATEAU CASTIGNO
Scooter That
11kW/15hp
was called the Vespa, or “wasp,” and it
was a hit in Europe well before Roman Top Speed
Holiday made it a Hollywood icon. 75 mph
and size put it into a higher class. One rival will be BMW’s
C Evolution, which costs about $2,000 to $3,000 more but
comes backed by BMW’s reputation and global resources.
Still, Smith thinks his scooter belongs in a class of its own.
“It’s cool, it’s Czech, it’s rare,” he says. “We have an inter-
esting history to sell.” We’ll ind out how interesting soon
enough: Vespa will release its own e-scooter in October.
Se tem er 24, 2018
A Level Head itics, which is unfortunate. It’s impossible to read these sto-
ries of former presidents without making inferences about
our current one. (Goodwin has said that she started the book
before Trump won the election.) For example, she spends
A book about how previous a lot of time focusing on the ability of each of her subjects
presidents handled turbulent to control his temper during a crisis. Lincoln was known to
draft “hot letters” when he was angry, then toss the notes
times is strangely comforting in the trash instead of in the mail. FDR would write several
By Kevin Cirilli iterations of his “Fireside Chats,” until he eventually edited
out the criticisms of his political foes. During the Coal Strike,
Teddy Roosevelt’s ability to remain calm in tense meetings
How does the occupant of the White House sleep at night? between coal bosses, miners, and J.P. Morgan was vital to
That was the question at a recent talk among chief exec- resolving the conlict.
utive oicers and Pulitzer Prize-winning historian Doris Reading that, I couldn’t help but think of President
Kearns Goodwin. Abraham Lincoln, prone to depression, Trump’s brash negotiating style and his Twitter attacks
read Shakespeare’s comedies. The ever-anxious Theodore against CEOs and foreign leaders, which send ripples through
Roosevelt drafted letters to friends telling them not to worry the markets and disrupt trade deals. This will surely be the
about him if he lost reelection. Franklin D. Roosevelt, during foundation for how Trump’s communicative style is remem-
the height of Germany’s occupation of Europe, pictured him- bered in books like this; a lack of restraint that, depending
self as a child, in Hyde Park, sledding. on your political leanings, is either
74 Goodwin’s new book, Leadership: refreshing or repugnant.
In Turbulent Times, is a bit of a head Johnson, likewise, wasn’t afraid
fake: Its title is seemingly tailor-made to berate staff in front of others. It
for 2018, but her subjects are four was efective, Goodwin says, mostly
American presidents of bygone times. because “he worked harder than any-
The 368-page opus interweaves sto- body else.” This assessment reminds
ries from the lives of Lincoln, both me of conversations I had with some
Roosevelts, and Lyndon Johnson. of Trump’s earliest political stafers,
Although Donald Trump is never including original campaign manager
mentioned, her examples serve as an Corey Lewandowski, who described
indirect critique of today’s hysterical him as a relentless boss who worked
political climate. all the time and demanded the same
I like to read before bed. But as the from his staf. It’s a side of him most
chief Washington correspondent for Americans don’t see—one that histori-
Bloomberg News, it’s impossible for ans will have to work to highlight amid
me to stay up reading a book about the other noise. And does he have
former presidents, because the cur- methods of relaxing other than play-
rent one is usually tweeting late into ing golf? We don’t really know.
the night across town. And yet the The subtext that runs through the
value of unplugging comes up often: Lincoln frequented book is that our current president is abnormal, that his lead-
the theater (oof ), Teddy Roosevelt exercised for two hours ership is unlike any other president before. But after reading
every day, and FDR hosted cocktail parties where guests about the mental health of her subjects—Lincoln was so suicidal
were told to discuss books, movies, gossip—anything but the at one point in his early 30s that aides removed scissors from
war. Johnson reminds me a little of Trump: LBJ was famously his bedroom—the idea that there is one kind of temperament
ILLUSTRATION BY BRANDON CELI
plugged in, so much so, he kept telephone switchboards on or psychological state that is “presidential” simply isn’t true.
a loat in a swimming pool at his Texas ranch. In a weird way, I found it comforting to know that previous
At her best, Goodwin makes these American luminaries occupants of the White House struggled with their own sleep
accessible and admirable. She zeroes in on one speciic crisis and assorted emotional issues. Whether Trump will use any
each faced: Lincoln’s Emancipation Proclamation, Teddy’s of the tools in this book to keep himself calm in the face of a
management of the 1902 Coal Strike, FDR’s irst 100 days real crisis—well, it’s enough to keep a reader up at night.
THE ONE Bloomberg Pursuits September 24, 2018
THE FIELD
• Released in 2017, a
Supreme deck adorned
with Cindy Sherman’s
Untitled #175 (1987) is
available through StockX
for $495.
• A limited-edition deck
from 2012 featuring a
bright-pink-and-green
work by Keith Haring is
listed as new at Chairish
for $340.
Avant-garde artist • The Magritte Foundation
and the Skateroom ofer
Yayoi Kusama lends a $350 deck, limited to
her signature dots 250 pieces, adorned with
surrealist painter René
to the $150 million Magritte’s Son of Man.
global skateboard
THE CASE
market. Photograph These decks are certainly
by Will Anderson grindable on the street,
but they’re better suited
for your walls. Look at the
artist partnerships from
Just as skateboarding Supreme, a cult skate
has long been adjacent brand in its own right that
to mainstream sporting released limited-edition 75
but not quite a part of it, decks with Jef Koons,
Yayoi Kusama, with her Takashi Murakami, Richard
dazzling Infinity Mirror Prince, and Damien Hirst
Rooms and landscapes of for more than a decade.
polka-dotted pumpkins, All the decks quickly
was an art world outsider sold out; in the case of
for many of her early the Hirst skateboards, a
years. Now a collaboration triptych, resale prices have
with the MoMA Design topped $10,000. Kusama’s
Store will allow fans to paintings have garnered
take home a piece of her $7 million at auction, and
idiosyncratic vision—or her Infinity Mirror Room
even ride of on it. The exhibitions consistently
89-year-old Japanese sell out. If you like her
artist has emblazoned work, consider this a route
her beloved dots, in to art cred—and street
vibrant shades of yellow cred—for not a lot of cash.
and black or red and $200; store.moma.org
white, on the decks of
$200 skateboards. The
release is perfectly timed:
Skateboarding makes its
debut at the Olympics in
2020 in Tokyo, Kusama’s
city of residence and the
location of a new museum
dedicated to her work.
LAST THING With Bloomberg Opinion
Bloomberg Businessweek (USPS 080 900) September 24, 2018 (ISSN 0007-7135) S Issue no. 4585 Published weekly, except one week in January, February, April, June, July, September, and December, by Bloomberg L.P. Periodicals
Mississauga, ON L5T 2N1. E-mail: bwkcustserv@cdsfulfillment.com. QST#1008327064. Registered for GST as Bloomberg L .P. GST #12829 9898 RT0001. Copyright 2018 Bloomberg L .P. All rights reserved. Title registered in
changes to Bloomberg Businessweek, P.O. Box 37528, Boone, IA 50037-0528. Canada Post Publication Mail Agreement Number 41989020. Return undeliverable Canadian addresses to DHL Global Mail, 355 Admiral Blvd., Unit 4,
the U.S. Patent Office. Single Copy Sales: Call 800 298-9867 or e-mail: busweek@nrmsinc.com. Educational Permissions: Copyright Clearance Center at info@copyright.com. Printed in the U.S.A. CPPAP NUMBER 0414N68830
postage paid at New York, N.Y., and at additional mailing offices. Executive, Editorial, Circulation, and Advertising Offices: Bloomberg Businessweek, 731 Lexington Avenue, New York, NY 10022. POSTMASTER: Send address
Why the Fed Is Scared
Of This Very Safe Bank
By Matt Levine
The Federal Reserve is, among other Institutional investors looking to park
76 things, a bank for banks: They keep cash somewhere safe tend to skip
deposits there and earn interest at a rate smaller banks, preferring the stability
currently set at 1.95 percent. Big institu- of the too-big-to-fail ones. TNB’s stabil-
tional investors that aren’t banks can ity comes not from its size but from its
also deposit money at the Fed, but they narrow business model: It can ofer high
use a diferent program with a lower rates and more safety than a big bank,
interest rate: 1.75 percent. injecting much-needed competition into
This suggests an obvious trade. An the marketplace.
institution could deposit money with The Fed hasn’t yet said why it denied
a bank, which would then turn around TNB an account. But you can see how
and deposit it with the Fed. The Fed that business model—and that sort of
pays the bank 1.95 percent interest, the competition—might worry a central
bank collects a fee for its trouble, and the institution gets bank. The point of a banking system is not to be as safe
the balance—say, 1.9 percent. as possible—or not just that, anyway. The point of banking
In fact, a bank has started up to do exactly this. It’s is to mobilize capital, to pool society’s wealth so it can be
called TNB USA Inc., which stands for The Narrow Bank, a invested in productive endeavors. “The money’s not here,”
reference to a business model that’s as narrow as can be. says George Bailey in It’s a Wonderful Life, ilm’s most famous
All it would do is take deposits from institutions, plop them depiction of banking. “Your money’s in Joe’s house—that’s
into its Fed account, and pass along the interest earned. right next to yours. And in the Kennedy house, and Mrs.
Because its functions would be limited, its costs would be Macklin’s house, and a hundred others.” That regular banks
low. More important, its risks would be low. By putting take deposits and invest them in mortgages and business
its money only in Fed reserves—rather than mortgages or loans makes them risky, but it also makes them useful.
business loans or securities or derivatives or any of the Narrow banking cuts right through all of that. It ofers
other things regular banks get up to—it could do what they institutions big deposits that really are safe but don’t get
ILLUSTRATION BY GEORGE WYLESOL
can’t: give large institutional customers absolute assurance put to work in mortgages or business loans or anything
they’ll get all their money back. else. They’re just held in reserve at the Fed, safe but ster-
There’s a hitch in TNB’s plan. When it applied to open ile, pure abstract money rather than risky but produc-
an account with the New York Fed, the Fed said no. Now tive claims on the work of other people. As a trade, it’s as
TNB is suing, arguing not only that the law requires the Fed safe as can be; but as a business model, it’s a little scary.
to give it an account but also that the Fed should want to. —Levine is a inance columnist for Bloomberg Opinion
W I L L YO U R
NEXT FINANCIAL
A DV I S O R
B E A R O B OT ?
F i n d o u t a t B l o o m b e rg ’s t e c h n o l o g y
s u m m i t t h i s O c t o b e r i n N YC.
O c t o b e r 1 6 , N YC
AT T E N D T H E E V E N T
b l o o m b e rg l i v e .c o m /s o o n e r- t h a n -y o u - t h i n k