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November 28 â&#x20AC;&#x201D; December 4, 2016 | bloomberg.com

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“Why didn’t I tell him to his face, immediately, that this was misogynist, racist, and unprofessional? He was my direct superior”

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“For any other purpose than paperwork, I consider myself an American”

“Putin’s a celebrity. Donald’s a celebrity. … He’s thinking, That guy’s a big dog. I’d rather be friends with him than one of these weaklings like Jeb Bush. That’s just the way he thinks”

“I’m seeing people smile now, clients of mine, where I didn’t even know they had teeth. Everyone I talk to is happy”

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Cover Trail

November 28 — December 4, 2016 How the cover gets made

Opening Remarks Trump’s trajectory may follow those of other elected autocrats

Bloomberg View Don’t bully central banks • The trouble with the president-elect’s ISIS plan

Movers ▲ Weed floats on the NYSE ▼ Cooling Swiss watches and a warming North Pole

Global Economics Modi tries to drain the swamp

The World Bank’s chief economist attacks the profession

Europe braces for the next tremors from Italy

Factories from everywhere set up shop in Russia

Charlie Rose talks to Sebastian Mallaby about his Alan Greenspan bio

Companies/Industries Take 350 designers with no one in charge—and presto!—another sale for Zara

To speed up food recalls, Walmart taps blockchain

In China, a spoonful of sugar makes the Champagne go down

Even if Donald Trump wanted to give up his business interests, it wouldn’t be easy

Obama-era regulators race for the finish line

Sizing up the impact if 740,000 Dreamers leave their jobs

Technology If Elon builds it, the crazies will come

Karhoo was said to have $250 million in the bank. It didn’t

IBM tries to be the ghostbusters of corporate hacking

Chewy (no, not that one) adds an occasional oil painting to its online pet supplies

Innovation: A hybrid walker/wheelchair to put activity back into aging

Markets/Finance Hillary who? Wall Street and Donald are BFFs now

John Paulson’s bet on Fannie and Freddie suddenly looks really smart

London closes a door on Europe and opens one to the Chinese

Features

COVER AND COVER TRAIL: PHOTO ILLUSTRATION BY JUSTIN METZ

“The implications are generally good, right? Fire provides warmth, and Lord knows it gets chilly this time of year. Trees just take up valuable space, so it’s a quick and easy way to clear some land. And the oil industry is stable to the point of being boring. This at least shakes things up a bit.” “Have you purposefully avoided reading the story?” “I’m just trying to stay positive.”

Politics/Policy

① “The story is about the Colonial Pipeline, specifically the implications of accidents like the explosion in Alabama.”

Alabama Shakes What happens when America’s biggest pipeline explodes

Memo to HR: Compliance videos don’t stop sexual harassment

King of K Street Paul Manafort never really went away

Etc. How brands became obsessed with the color pink

Drinks: Eight cocktails for winter nights

Workplace: Skirt Club attracts women who want to network (and see where the night takes them)

Astrology: December provides an opportunity to rethink long-term goals

The Critic: Miss Sloane has a lot to like, but can audiences stomach more politics?

What I Wear to Work: The global brand leader for W Hotels isn’t content with just one bracelet

How Did I Get Here? Daniel Lubetzky didn’t like his snacking options. Now we have Kind bars

Index People/Companies

14 56

Protecting the river

H&M (HMB:SS) Hayes, Tom HR Learning Center HSBC (HSBC)

18 11 44 12

I IBISWorld 44 IBM (IBM) 20, 29 Ikea 15 Inditex 18 Industrial & Commercial Bank of China (601398:CH) 34 Ingham, Anthony 63 Inkling 44 Innovative Industrial Properties (IIPR) 11 Inspired eLearning 44 Ishag, Daniel 28 Isla, Pablo 18

J Jaitley, Arun 12 J.Crew 56 Jefferies Group (LUK) 34 Johnson, Abigail 11 Johnson, Edward 11 JPMorgan Chase (JPM) 32, 44

K 4

A ABP London 34 Abramoff, Jack 62 ABX Air (ATSG) 11 Ackman, William 33 Acne Studios 56 ADP (ADP) 29 Agricultural Bank of China (601288:CH) 34 Ailes, Roger 44, 49 Al-Assad, Bashar 8 Alibaba (BABA) 21 Amazon.com (AMZN) 11, 20, 30 American Airlines (AAL) 38 American Apparel 18 American Continental Group 33 Amoruso, Sophia 56 Antonio, Jose E.B. 22 Apple (AAPL) 44 Arena, Bruce 11 Axelrod, David 51

B Bai Brands 11 Bank of America (BAC) 12 Bank of China (601988:CH) 34 Bannon, Steve 6, 32 Barclays (BCS) 34 Barrack, Tom 51 Bell, Larry 38 Berkowitz, Bruce 33 Berlusconi, Silvio 6, 14 Bernanke, Ben 16 BHP Billiton (BHP) 20 Black, Charlie 51 BlackRock (BLK) 30 Blankfein, Lloyd 32 Boeing (BA) 25, 27 Brandt, Bill Jr. 32 Breitbart News 6 Brookfield Property Partners (BPY) 34 Brown, Garrett 31 Bush, George H.W. 51

Bush, Jeb Butler, David

51 38

C Calsonic Kansei (7248:JP) Carlson, Gretchen Carter, Jimmy Century Properties Group (CPG:PM) Chanel Chastain, Jessica Cheers Cheney, Dick Chevron (CVX)

11 49 22 22 56 62 21 51 44

Jessica Chastain Chewy.com 30 China Construction Bank (601939:CH) 34 China Investment Corp. 34 Chipotle Mexican Grill (CMG) 20 Citic Group 34 Citigroup (C) 34 Clinton, Bill 22, 49 Clinton, Hillary 32, 51, 56 Coca-Cola (KO) 21 Cohen, Ryan 30 CoinDesk 20 Colonial Pipeline 38 Colony Capital (CLNY) 51 Comey, James 51 Common Projects 56 Correa, Rafael 6 Credit Suisse (CS) 34

Cruz, Ted Cuomo, Andrew CVS (CVS)

51 11 11

DEF Danler, Stephanie 56 Day, Michael 30 DCI Group 33 Deal, Nathan 38 Deripaska, Oleg 51 Deutsche Bank (DB) 22 Development Specialists 32 Dole, Bob 51 Domaine Chandon (Ningxia) Moët Hennessy (MC:FP) 21 Dr Pepper Snapple (DPS) 11 Duterte, Rodrigo 6 Emtrain 44 Erdogan, Recep Tayyip 6 Eurasian Development Bank 15 Euromonitor International 21 EuropaCorp (ECP:FP) 62 Exokinetics 31 Facebook (FB) 11 Fannie Mae 33 Farley, Richard 32 Fawcett, Chris 31 Fidelity Investments 11 Firtash, Dmitry 51 Founders Fund 31 Fox News (FOXA) 44, 49 Freddie Mac 33

G Gap (GPS) 18 Gates, Bill 18 General Electric (GE) 11 Glossier 56 Goldman Sachs (GS) 30, 32, 44 Google (GOOG) 44 Gramm, Phil 51 Greenland Holdings (600606:CH) 34 Greenspan, Alan 16

Kaczynski, Jaroslaw Kind Kinder Morgan (KMI) Kissinger, Henry KKR (KKR) Klinsmann, Jurgen Knopf Koch, Charles Koch, David Koch Industries Kushner Companies Kushner, Jared

6 64 38 16 11, 38 11 56 25 25 38 22 6, 22

L L.E. Bell Construction 38 Le Creuset 56 LeJeune, Geneviève 60 LifeLock (LOCK) 11 Lockheed Martin (LMT) 27 Lubetzky, Daniel 64 Lucas, Robert Jr. 13 LVMH Moët Hennessy-Louis Vuitton (MC:FP) 21 Lyons, Jenna 56

M MacInnis, Matt 44 Madden, John 62 Maduro, Nicolás 6 Mallaby, Sebastian 16 Manafort, Paul 51 Marenzi, Octavio 32 Marriott International (MAR) 25 Mars 15 Mastercard (MA) 12, 20 Masueger, Claudia 21 May, Theresa 8 McCain, John 51 McCarthy, Gina 24 McCarthy, Kevin 24 McKibben, Bill 38 Merkel, Angela 11 Mnuchin, Steven 32 Modi, Narendra 12 ModSquad 28 Moody’s (MCO) 38 Musk, Elon 27

N Nasdaq (NDAQ) NBC (CMCSA)

20 32

Netflix (NFLX) News Corp. (NWSA) Nike (NKE) Nordstrom (JWN) Northrop Grumman (NOC) Novartis (NVS) NPD Group NYSE (ICE)

44 25 22 44 24 11 20 11

SolarCity Sony Pictures Entertainment (SNE) Space Exploration Technologies Steinhafel, Gregg Stone, Roger Symantec (SYMC)

27 29 27 29 51 11

O Obama, Barack 22, 24, 25, 38 Oblong Industries 29 Off-White 56 Opimas 32 Ortega, Amancio 18

P Pantone Color Institute 56 Pascal, Amy 29 Paul, Rand 24 Paulson & Co. 33 Paulson, John 33 Pence, Mike 33, 51 Perera, Jonathan 62 Pershing Square Capital Management 33 Petco 30 PetSmart 30 Pigalle 56 Pope Francis 11 Prescott, Edward 13 Primark (ABF:LN) 18 Provost, Joe 29 Putin, Vladimir 6, 8, 14, 51

QRS Qatar Investment Authority 34 Quest Integrity 27 Renaissance Capital 15 Rentmeester, Marlien 56 Renzi, Matteo 14 Rokk Solutions 27 Romer, Paul 13 Rove, Karl 51 Sabra Dipping 11 Samsung (005930:KS) 15 Sargent, Thomas 13 Savills (SVS:LN) 34 Scaramucci, Anthony 32 Schumer, Chuck 32 Schwarzenegger, Arnold 44 Select Medical (SEM) 31 Selexys Pharmaceuticals 11 Sessions, Jeff 22, 51 Shell Pipeline (RDS/A) 38 Shinawatra, Thaksin 6 Shinawatra, Yingluck 6 Singh, Porush 12 Skillsoft 44 Smith, Donnie 11 Société Générale (GLE:FP) 18

Clarence Thomas

T T. Rowe Price 30 Target (TGT) 11, 29 Tesla (TSLA) 27 Thomas, Clarence 49 Trump, Donald 6, 8, 11, 14, 16, 24, 25, 32, 38, 49, 51 Trump, Ivanka 22 Trump, Melania 56 Trump Organization 22 21st Century Fox (FOXA) 44 Twitter (TWTR) 6 Tyson Foods (TSN) 11

UVW U+I Group (UAI:LN) 34 Uber 28 UBS (UBS) 18, 22 Vadon, Mark 30 Visa (V) 20 Volkswagen (VOW:GR) 15 Vornado Realty Trust (VNO) 22 W Hotels 63 Walmart Stores (WMT) 11, 20 Walt Disney (DIS) 56 Wax, Gavin 27 Wells Fargo (WFC) 33 West, Kanye 11 Wheeler, Tom 24 Willingham, Anthony Lee 38 Wine Intelligence 21

XYZ Xi Jinping Yanukovych, Viktor Yellen, Janet YouTube (GOOG) Zulily (QVCA)

21 51 8, 16 30 30

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BUTLER: PHOTOGRAPH BY CHRISTOPHER GREGORY FOR BLOOMBERG BUSINESSWEEK; CHASTAIN: STEVE GRANITZ/GETTY IMAGES; THOMAS: COLLECTION OF THE SUPREME COURT OF THE UNITED STATES

Grillo, Beppe Gucci (KER:FP)

Opening Remarks

By Joshua Kurlantzick

For the templates of his presidency, look to the experience of Thailand, the Philippines, and Italy

In the wake of Donald Trump’s stunning electoral victory, many American political analysts are arguing that his presidency has virtually no precedent in U.S. history, and so it’s impossible to know how he might govern. However, Trump isn’t without pre cedent in modern democracy if you look for examples outside America. To be sure, some of his populist mantras echo those of the increasingly power ful European hardright parties. But most of the hardright parties in Europe haven’t yet won control of a govern ment. Instead, it’s better to study the slew of elected autocracies that have taken over developing nations during the past decade—and touched richer countries such as Italy, Hungary, and Poland. According to the monitoring group Freedom House, democracy has been on the decline worldwide since the late 2000s, with the rise of elected autocrats—legitimately elected leaders who then undermine democratic insti tutions and culture—a major reason for freedom’s ebb. These elected auto crats include people on the left of the spectrum, such as former Thai Prime Minister Thaksin Shinawatra, Philippine President Rodrigo Duter te, and Ecuadorean President Rafael Correa, as well as rightleaning leaders such as former Italian Prime Minister Silvio Berlusconi and Jaroslaw Kaczynski, who dominates Poland’s current ruling Law and Justice Party. Many of these elected autocrats had little or no government experi ence before winning national elections. Like Trump, they’ve built personality cults greater than exist in most farright European parties. Most won elections as much on the power of their own cha risma as on any set of coherent policy ideas. (Leaders such as Berlusconi, Duterte, and now Trump took advan tage of complex political systems and multicandidate races, often winning with less than 50 percent of the popular vote.) They’re indeed deeply devoted

to themselves and their images, making their administrations reliant on their own personal influence. And in office, they usually conform less to policy orthodoxies than poli ticians with traditional backgrounds. Duterte, for instance, has mixed a leftist economic policy, which includes rural development and land reform, with a harsh and conservative antidrug crackdown. What else do the elected autocrats have in common? They usually win elections in part by dominating the media, sometimes by buying media outlets or having allies who do so. In office, they further undermine the traditional media, using alternative forms of communication and aggres sively stoking public antagonism at elites to blunt the power of reporting on their administrations. Berlusconi and Thaksin used their riches to pur chase major media outlets—the former had taken control of much of Italian private television by the time he was first elected in 1994—or had their friends buy up important newspapers. Berlusconi reveled in attacking the few Italian newspapers (along with many foreign publications) that criticized him, apparently believing his approach won him more supporters than it cost him. He sued the Economist for libel, and for almost a decade his posturing against the Italian media seemed to be popular. In Russia, Vladimir Putin has used his network of business connec tions to virtually control the broadcast media and ensure favorable coverage. Trump seems likely to take the same approach to the media, even if he will not buy networks and sites. His senior strategist, Steve Bannon, previously ran Breitbart News; his successors there could well turn the site into a kind of state media for President Trump. He has openly mused about deploying libel laws more aggressively, while demonizing the mainstream press at nearly every cam paign rally. It wouldn’t be unthinkable

for Trump allies, perhaps even family members, to purchase a major television network or set up a new one essentially dedicated to promoting the president. Trump, meanwhile, could continue using Twitter to delegitimize the mainstream media, mix fiction with fact to confuse the public, and

promote him self—a strategy he seems to be pursuing since his election. In office, elected auto crats try to slowly suffocate the civil service, military bureau crac y, and other government networks that are supposed to be apolitical and which normally provide continuity across presidential adminis trations. They substitute clientelism for professionalism. Thaksin, who first took office in 2001, purged the esteemed Thai civil service and replaced many senior officials with his allies, while also seeding the police and armed forces with family members and close friends. (Thaksin was deposed by a coup in 2006. ProThaksin parties came back and won multiple elections, before another coup in 2014.) In Venezuela, late President Hugo Chávez took similar measures with the civil service and staterun companies, while in Italy Berlusconi repeatedly attacked the judi cial system and oversaw the passage of multiple laws designed to shield himself and his empire from criminal pros ecution. It’s not hard to imagine that, as president, Trump would vocally attack judges who decided against his administration or try to stack the U.S. Department of Justice with allies whose primary qualification is loyalty.

The personalization of power is at the heart of the elected autocrat’s success—and failure

That said, elected autocrats’ extreme personalization of power is often their downfall. By surrounding themselves with unqualified family members and sycophants, they make graft much more likely. Berlusconi notoriously appointed former showgirls and other cronies to high office. Despite his efforts to revamp the legal system to protect himself, he was ultimately convicted of tax fraud. Trump’s children—and his soninlaw, Jared Kushner—are expected to be extremely influential, while at the same time having power over his businesses (page 22). David Frum of the Atlantic, a former speechwriter for George W. Bush, has already suggested that the Trump administration could be the least ethical in U.S. history. Trump, Frum wrote on Twitter, will “enable systematic looting & disable oversight.” Because of their person alization of power, elected au to c rat s a l s o o f te n have difficulty building lasting movements beyond themselves. Most struggle to name successors, in part because

they’re so fearful of delegating power. Chávez died in 2013 and left his party to a weak successor, beleaguered current President Nicolás Maduro. Facing cor ruption charges, Thaksin fled Thailand in 2008, leaving his party to his younger sister, Yingluck. Although she won an election in 2011, in part because Thaksin openly backed her, she proved an inef fective political operator and was beset by scandal and street protests before being deposed in a May 2014 coup. And Putin seems unable to imagine a future Russia without himself, leaving a void when and if he finally exits the scene. As the elected autocrats age, in fact, they also need to make greater and greater efforts to stoke their cults of per sonality. In recent years, Putin has over seen the rewriting of Russian history and the construction of monuments across Russia designed to bolster his personality cult and distract Russians from worrying about what will happen when he’s no longer around. In Turkey, President Recep Tayyip Erdogan has overseen the construction of a lavish, Ottomanesque palace for himself. The cults of personality that elected autocrats have created often don’t survive them. Ultimately, when they exit politics, their countries struggle to return to normal. After serving as prime minister, Berlusconi left Italy with slower growth and far weaker legal institutions. The country hasn’t yet recovered from the nine years he spent in office. <BW> Kurlantzick is author of the forthcoming A Great Place to Have a War: America in Laos and the Birth of a Military CIA.

Bloomberg View

To read Justin Fox on the jobs boom in Dallas and Albert Hunt on election myths that need to die, go to Bloombergview.com

It’s Wrong to Bully Central Banks Disagreements are part of the way things work—intimidation is not

finance minister or a head of government—directly criticizes the central bank’s decisions? It depends. A government can criticize a central bank’s choices without disputing that those choices are the bank’s to make. That’s sufficient independence to deliver the essential benefits of noninflationary public finance and stable financial conditions. The line would be crossed, though, if a government said, “Do as we tell you, or else.” Disagreement is OK. Intimidation is not. In the U.K., Theresa May’s comments on the Bank of England have fallen well short of that line. Trump’s interventions are more worrying. He’s accused Yellen of failing to do her job—and intimidation, after all, is how he likes to do business. He needs to learn that the Fed is one institution he shouldn’t try to bully.

Trump’s Too-Tidy Plan To Defeat Islamic State 8

The long-cherished principle of independence for central banks seems to be under attack around the world. That principle is worth defending: U.S. President-elect Donald Trump, for one, went too far in his repeated criticism of Federal Reserve Chair Janet Yellen. At the same time, central banks can’t expect to be above criticism or beyond politics. The case for leaving the banks alone to conduct monetary policy rests on three points. First, a government that controls a central bank might be tempted to finance unaffordable budget deficits by printing money. (See Zimbabwe.) Second, to provide economic stability, a steady hand on the monetary controls is required, and that demands some insulation from day-to-day politics. (Would anybody want to put Congress in charge of interest rates?) Third, monetary policy done right is a technical thing, like running a utility. It’s basically apolitical. The first two reasons remain as persuasive as ever. The third, however, was always suspect—and never more so than now. Monetary policy isn’t purely technical. It has real-world consequences. Changes in interest rates hurt some and help others. And central banks sometimes have to decide how quickly to curb inflation—with a short, sharp recession, say, or with gentler pressure applied for longer. Such decisions are hardly apolitical. That should be obvious to anyone who’s been paying attention to Fed policy for the past decade. Resorting to unconventional measures was necessary after the recent recession. The central banks were right to adopt these methods—governments failed to use fiscal policy effectively, leaving the Fed and its counterparts no choice. Independence isn’t all or nothing. Central banks are already politically accountable in various ways. They have operating mandates; Fed governors are appointed by the president and confirmed by the Senate; Congress hears testimony and asks questions. In effect, a balance has been struck. Is this now in jeopardy? Does it cross a line when a politician—especially a

Donald Trump has frequently spoken of having a “foolproof ” plan for a “total victory” over Islamic State, but he’s refused to divulge it. He has hinted, however, that he intends to fight the group in Syria by sending in a significant number of U.S. forces, quickly wiping out the terrorists, then bringing the troops home. He’s also told the Pentagon that it will have 30 days from his inauguration to send him a proposal and said the fight to retake the Iraqi city of Mosul from the terrorists was “a disaster.” The problem is that this tidy plan ignores the multitude of players in the war: the Syrian regime, Hezbollah, Russia, Turkey, Iran, Iraq, Kurds backed by the U.S., Syrian Arab rebels, and terrorist groups including the al-Nusra Front, an al-Qaeda ally. The Kurds have proved far and away the most effective fighting force on the U.S. side, and Trump has to find a way of supporting them without inciting a military response from Turkey, which fears the establishment of a Kurdish state across its southern border. Sending in more U.S. forces is probably necessary, but moving tens of thousands of combat troops and their support personnel and equipment would take weeks or months. A coordination plan with Russia and Syria would be essential. As for Mosul, there’s no changing a war plan that has shown consistent progress. Trump has made much of his negotiating skills and his relationship with Vladimir Putin. This would be the time to put both to the test. Putin and Syrian President Bashar al-Assad may be keen to work out a deal in which the U.S. eliminates Islamic State and then leaves the scene entirely. Unlike the current administration, Trump seems uninterested in the longer project of resolving the Syrian political conflict. This would leave the people there to a miserable fate, and create the potential for chaos that could give rise to an Islamic State successor. <BW>

ILLUSTRATION BY TOMI UM

His in-and-out military solution will not be quick, and may leave the area in greater chaos

Movers By Kyle Stock

▲ German Chancellor Angela Merkel, ▲ The Dow Jones industrial average rose to who′s been in a record high as energy companies benefited office since from an oil rally and investors anticipated Trump tax cuts. 2005, said she 2000 would seek a fourth term. Merkel expects 1750 next year’s campaign to be her toughest 1500 yet. Germany 1/2016 11/2016 doesn’t have term limits ▲ General Electric on its sold its Connecticut top job. headquarters for

▲ Abigail Johnson will succeed her father, Edward, as chairman of Fidelity Investments after he retires. ▲ Dr Pepper Snapple She’s agreed to spend already replaced him as CEO at the firm, to buy Bai Brands, 49 percent which makes a line of which is of healthy drinks, still under including family coconut ownership. water and “antioxidantinfused” fruit drinks. ▲ Weed hits the NYSE. Innovative Just seven Industrial Properties aims to raise years old, $175 million during its IPO to become Bai expects the first public $425 million real estate in sales next investment year. trust focused

$1.7b

Ups

ILLUSTRATIONS BY OSCAR BOLTON GREEN; MERKEL: KRISZTIAN BOCSI/BLOOMBERG; FRANCIS: LISA MAREE WILLIAMS/GETTY IMAGES

Downs

on the $7 billion marijuana industry. The company will use $30 million of the proceeds to buy a New York warehouse for growing weed.

$31.5m

to Sacred Heart University. GE is moving its C-suite to Boston for lower taxes and a $145 million incentive package, among other things.

▲ Pope Francis extended indefinitely the power of priests to forgive abortion, which is considered a “grave sin” in the Catholic Church. Typically, bishops were the only officials to grant such absolution.

$25m

▼ Store-branded aloe vera gel sold at Walmart, ▼ Rapper Kanye Target, and West was CVS showed no hospitalized for ▼ President-elect Donald Trump paid $25 million to settle fraud charges evidence of aloe exhaustion after against Trump University. Some 7,000 students will share the settlement, canceling his concert vera, according which is subject to court approval; plaintiffs’ attorneys waived their fees. tour. He lost to a lab hired by Bloomberg News. Meanwhile, the U.S. market in potential ticket ▼ Tyson Foods CEO Donnie sales for the for aloe products grew Smith, a 36-year veteran, 21 remaining shows. 11 percent this year, to will step down on Dec. 31 ▼ Temperatures at $146 million. and will be replaced by President the North Pole are Tom Hayes, who’s been at Tyson for 29 years. Smith will collect a golden ▼ Sabra Dipping recalled warmer than parachute worth at least $24 million. normal, delaying The announcement resulted the formation of ▼ U.S. Soccer almost immediately in the pack ice as winter dismissed Jurgen varieties of its approaches. Klinsmann as coach company losing about onehummus after it of the men’s national found listeria at one fifth of its market value.

$30m

36F

team, after the squad lost two World Cup qualifying matches. It replaced him with Bruce Arena, a Major League Soccer coach who held the position from 1998 to 2006.

of its plants.

“If there is a move to deport immigrants, then I say start with me.” ▼ New York Governor Andrew Cuomo, announcing a new state police unit dedicated to investigating hate crimes

The Harry Potter prequel Fantastic Beasts has a magical U.S. debut

$75m

Symantec acquires LifeLock, adding identity protection to its security technology

$2.3b

Novartis buys Selexys Pharmaceuticals, known for treating sickle-cell disease

$665m

Facebook staffs up to fill its new London office

500

KKR buys auto parts maker Calsonic Kansei

$4.5b

The expected number of (very grumpy) U.S. air travelers during Thanksgiving week rose 2.5 percent

27.3m

Pilots for cargo carrier ABX Air went on strike at a tricky time for Amazon.com, a major client

250

Swiss watch exports plunged more in October than they have in seven years

–16%

A fat flock helped bring turkey prices down this year

–11%

Queueing up to deposit and exchange discontinued currency at a bank on Nov. 17

Global Economics November 28 — December 4, 2016

India’s Cash-Canceling Experiment ▶▶Modi is installing an almost cashless system that will expand banks’ deposits ▶▶“We are sitting almost idle. There are no buyers” India Prime Minister Narendra Modi stunned the country on Nov. 8 by announcing that 500-rupee ($7.30) and 1,000-rupee notes, which account for more than 85 percent of the money supply, would cease to be legal tender immediately. The announcement set off days of turmoil as millions of Indians tried to swap their suddenly worthless old notes for hard-to-find new notes of 500 and 2,000 rupees or older ones in smaller denominations. On Nov. 17 the central bank tried, with little effect, to reassure the nation that the situation was under control. “There is sufficient supply of notes,”

the Reserve Bank of India said in a statement. “Members of the public are requested not to panic.” Modi’s action is aimed squarely at the cash-driven shadow economy, which accounts for about 25 percent of gross domestic product. Fewer than 5 percent of all Indians file tax returns. Many shop owners use cash for their transactions and don’t declare their income. Wealthy Indians often avoid taxes by paying cash for property and jewelry. Those businesses “are where black money is hidden,” says Capital Economics economist Shilan Shah. With so much

money going untaxed, Indian governments have had difficulty funding infrastructure projects and other public spending. Tax officials will get reports on cash deposits in excess of 250,000 rupees and compare those deposits with income disclosures. The authorities can demand a tax payment and impose a penalty equal to 200 percent of the tax owed. The government estimates that as much as 5 trillion out of 15 trillion rupees will remain unredeemed as tax evaders unwilling to risk detection accept large losses. As cash disappears, so does

An Italian referendum may foretell Europe’s future 14

Charlie Rose talks with Greenspan biographer Sebastian Mallaby 16

FROM LEFT: EPA/ALAMY; GURPREET SINGH/HINDUSTAN TIMES/GETTY IMAGES

Cheap labor. Cheap ruble. Russia’s the place for factories 15

economic activity. For three decades, Ashok Kumar has been a trader at Azadpur Mandi, Delhi’s largest fruit and vegetable market, where much of the buying and selling involves the now-banned notes. Since Modi’s announcement, Kumar says, cash transactions have nearly stopped. “We are sitting almost idle,” he says. “There are no buyers.” On Highway 24 between New Delhi and the town of Dadri, gas stations are empty and trucks stranded. Drivers spend their days playing cards, unable to operate their vehicles because transport company owners can’t get the cash to buy fuel or pay the drivers their 100-rupee daily food allowance. “There’s no work,” says Sundar Singh, a 38-year-old truck driver from Aligarh, a city about 90 miles southeast of Delhi. “I can’t even charge my cell phone,” he says, because he doesn’t have any change. To ease some of the pain, the Finance Ministry on Nov. 21 said farmers could use old 500-rupee notes to buy seeds for winter-sown crops from state-owned stores. Modi has been trying to follow through on promises to attack the shadow economy since he took office in 2014, with mixed results. An offer of amnesty for repatriated funds last year led to declarations of only about 25 billion rupees in tax—20 rupees per person. A separate amnesty that ended in September prompted the declaration of 652.5 billion rupees—about 0.5 percent of GDP, or 500 rupees per capita. Modi is risking a temporary economic setback from demonetization. Until the Nov. 8 announcement, GDP was on track to increase 7.7 percent this year, and the government had achieved some important goals in its drive to improve business conditions. HSBC said in a Nov. 16 report that the economy could lose 0.7 to 1 percentage point of growth over a year. “It’s going to be very disruptive,” says Diksha Gera, an analyst with Bloomberg Intelligence in Singapore, who expects consumers to postpone spending on big-ticket items

such as refrigerators and washing machines, as well as discretionary purchases like expensive apparel. “All of that will definitely take a hit,” she says. Gera says the pain may be shortlived. The attack on underground money will increase bank deposits by as much as 2 percent of GDP, according to Bank of America Merrill Lynch. Deposits swelled by 5.1 trillion rupees from Nov. 10 to Nov. 18. Because banks are getting a surge in deposits, Finance Minister Arun Jaitley said on Nov. 18, they’re better positioned to spur economic growth by making more loans. Modi’s currency reform may also lead to an increase in the use of electronic payment systems. The prime minister’s action “is a critical step in positioning India to be a leader in the global cashless and digital economy,” Porush Singh, Mastercard’s president for South Asia, said in a statement. In addition to legislative victories such as the approval of long-delayed tax reform and a new bankruptcy law, Modi this year eased restrictions on foreign investment in industries like pharmaceuticals, aviation, and defense. Unlike the previous government, his administration has been free of major scandals. The prime minister has been lucky, too: Thanks to low global oil prices, inflationary pressure has subsided, and after two years of drought, better rainfall this year has helped farmers. The central bank has cut the benchmark interest rate to its lowest point in five years. Modi said on Nov. 13 that the government will take more steps to curb tax evasion, including purchases of property investors make in the name of a third party. There are

5.1t Increase in rupee deposits at Indian banks from Nov. 10 to Nov. 18

plenty more targets for his campaign against the underground economy. “I don’t think it will stop here,” says Capital Economics’ Shah. �Bruce Einhorn, with Vrishti Beniwal, Archana Chaudhary, and Pratik Parija The bottom line Modi is trying to end tax evasion and impose a tax-compliant, above-board economy at all levels.

Economic Theory

How Rational Are Rational Expectations? ▶ The World Bank’s chief economist questions a macroeconomic pillar ▶ “Assume A, assume B … blah blah blah … and so … P is true”

Paul Romer hadn’t planned to trash macroeconomics as a math-obsessed pseudoscience. Or infuriate countless colleagues. It just sort of happened. In the months before taking over as the World Bank’s chief economist in October, Romer set out to write a paper to celebrate advances in the understanding of what drives economic growth. He soon lost heart. Global growth has been disappointing over the past few years, and economic models haven’t answered a core question of the past cycle: Why has productivity stalled? He found the mathematical models used by most macroeconomists unrealistic. Romer’s paper, The Trouble With Macroeconomics, landed like a grenade among his peers. “For more than three decades, macroeconomics has gone backwards,” it begins. For 20 pages, he critiques the state of his profession, accusing a cohort of economists of being more interested in preserving reputations than testing their theories against reality, “more committed to friends than facts.” In between, he offers a wicked parody of a modern macro argument: “Assume A, assume B ... blah blah blah ... and so we have proven that P is true.” Romer targets one of the basic

Global Economics

tenets of mainstream economics, the theory of rational expectations—the idea that consumers and businesses on average correctly predict the future and make rational choices. He thinks that’s not only wrong but also may result in the misguided conclusion that government action can’t fix big problems. That debate goes back at least to John Maynard Keynes, who thought policymakers needed to take bolder action to fix the deep shortfall in demand that was prolonging the Great Depression. By the 1970s, Keynes’s ideas were mainstream—but the policies they spawned failed to prevent that decade’s high unemployment and inflation. Economists came up with the theories of rational expectations and the “real business cycle.” They argued that Keynesian models didn’t account for how consumers and businesses change their behavior to take account of policy shifts. For example, the government can spend more, putting cash in consumers’ pockets. But those same consumers, the theory goes, can see far into the future and won’t be fooled: They’ll figure out that taxes will have to rise to pay for the handouts. So they hang on to their cash and render those policies less effective. The problem with that worldview, says Romer, is that it rules out policy or people as agents of change, leaving planners with the unrealistic conclusion that the economy can be moved along only by “external shocks.” Economists, he writes, should be asking, “What kind of things influence what people do? What actually leads to an improvement in productivity in a factory?” One reason he’s ruffled feathers is that he names names. Romer is particularly critical of a trio of Nobel prize winners: Robert Lucas Jr., Thomas Sargent, and Edward Prescott, the intellectual architects of rational expectations. Sargent says he hasn’t read the paper but suggests that Romer may be out of touch with the ways rational-expectations economists have adapted their models to reflect how people actually behave. Lucas and Prescott didn’t comment. Allies of the three have been more outspoken and point out that Romer doesn’t offer a new framework to replace the one he says has failed. “Burning down the edifice, and saying we’ll figure out what we’ll build on its

foundations later, just does not seem like a constructive way to proceed,” says V.V. Chari, an economics professor at the University of Minnesota. Romer’s heard that line before. He bristles: “I’m saying, ‘The car is broken.’ And everyone’s saying, ‘Romer’s a terrible guy, because he couldn’t fix the car.’ ” �Andrew Mayeda and Craig Torres The bottom line The World Bank’s chief economist blasts the state of modern macroeconomic theory for straying from science and rigorous testing.

Politics

A Petri Dish of Populist Dissent ▶ Italy’s Dec. 4 vote hints at the outcome of ballots across Europe ▶ The country is “a breeding ground for democratic crises”

To get a sense of Europe’s political weather, take a look at Italy: For the past century, it’s served as a barometer of the continent’s mood. In the 1920s, Mussolini’s fascism presaged Hitler and the Nazis. In the ’70s, Italy’s extreme left- and rightwing terrorist movements heralded armed groups in the rest of Europe. Curious about the future of a country run by a media-savvy billionaire with hair issues? Check out how Silvio Berlusconi destroyed traditional parties with TV slogans, anti-Establishment rhetoric, and garish displays of wealth. That’s why Europe will closely watch a Dec. 4 referendum over arcane details of Italian parliamentary procedure. The ballot could indicate whether the populism sweeping the world (think Brexit and Trump) is still ascendant or poised to abate. “Italy is like a seismograph,” says Marc Lazar, a professor at Sciences Po University in Paris. “It registers tiny political tremors that then spread to Europe and the rest of the world as bigger shocks.”

Prime Minister Matteo Renzi has staked his future on the vote, a constitutional reform aimed at shrinking the senate to make Italy more governable. He says the referendum would hit the old guard of Italian politics that’s paralyzed the country for decades, cutting the number of senators from 315 to 100, eliminating their ability to bring down the government with no-confidence votes, and reining in their power to block legislation. Although Renzi swept into office in 2014 as a fresh face pledging to make difficult choices, he’s now considered part of the Establishment, so many voters see the referendum as a chance to “drain the swamp,” Italian-style. And he’s threatened to quit if it’s rejected, so the ballot has become more of a plebiscite on Renzi himself than on the new senate rules. “This government was born to enact reforms,” says Lorenzo Guerini, deputy-secretary of Renzi’s Democratic Party. “If Italians reject the most important changes, we’ll have to deal with the consequences.” Austria, France, the Netherlands, and Germany face presidential or parliamentary elections in the coming year, and Spain is expecting a referendum on independence for the region of Catalonia. As governments and mainstream parties struggle to counter the virulent denunciations by insurgents on everything from poor economic growth to the influx of immigrants, there’s a big chance of further gains by nationalists and populists. Next year “gives me the shivers,” Marco Buti, the European Commission’s

Berlusconi

Renzi

Grillo

PHOTO ILLUSTRATION BY 731: PHOTOS: AP PHOTO (1); GETTY IMAGES (2); DATA: MINISTRY OF ENERGY OF THE RUSSIAN FEDERATION

Global Economics director general for economic and financial affairs, said in a Nov. 17 speech in Rome. While Berlusconi, who served as prime minister three times from 1994 to 2011, was undeniably populist, the trend gathered strength in 2009 with the emergence of the Five Star Movement. The nonparty, led by a former TV comedian named Beppe Grillo, created a system of online voting for its leaders and united an unlikely mix of disgruntled voters from all sides of the political spectrum. In fiery speeches peppered with expletives, Grillo and his surrogates give a voice to individuals with gripes ranging from unemployment and the euro to the dangers of climate change and the need for better relations with Vladimir Putin’s Russia. Five Star has surged to win City Hall in Rome and Turin and is neck and neck with Renzi’s party as the biggest force in Italian politics. The movement sees the referendum as a way to bump Renzi entirely from the stage, forcing new elections that could give it a shot at forming a national government. With parliamentary rules that grant seats in the legislature to parties with as little as 3 percent of the vote, Italy has become a petri dish for disruptive trends. That provides insurgents with a megaphone to air their grievances—and has given the country 63 governments since World War II. While constitutionalists argue the proposed reforms would curtail checks and balances designed to prevent the advent of a perilously strong leader like Mussolini, Renzi says the referendum will make Italy more stable. In the meantime, he’s taking a page from Five Star’s playbook by amping up his own populist rhetoric, railing against the bureaucrats and budget rules of the European Union, and giving other national leaders the cold shoulder. That could well be a harbinger of things to come across Europe, says Giovanni Orsina, a professor of government at Rome’s LuissGuido Carli University. “Italy’s

fragility makes it a breeding ground for democratic crises,” he says. “Its weak institutions mean new movements aren’t quelled or drowned out as quickly as they might be elsewhere.” �Alessandra Migliaccio and John Follain The bottom line Europe is watching Italy, a barometer of political trends, as Austria, France, the Netherlands, and Germany brace for elections.

Labor Costs

For Manufacturers, Russia Is Now a Bargain ▶ The ruble’s collapse has dragged salaries below levels in China ▶ The nation “may become the region’s factory”

Coming soon to a store near you: Madein-Russia washing machines, sofas, chewing gum, and possibly much more. The combination of the country’s worst currency crisis since 1998 and a slide in real wages has resulted in salaries that have become “broadly competitive” with China’s for the first time since the czarist era ended a century ago, according to investment bank Renaissance Capital. Companies including South Korea’s Samsung Electronics, Sweden’s Ikea, and Mars of the U.S. are taking advantage of the cheaper labor costs to increase exports from their Russian factories. “Russian suppliers are competitive today mainly because of the currency situation,” says Magnus Benon, head of purchasing operations for Ikea in Russia, which has started exporting upholstery products to Scandinavia and metal beds to China. “I don’t think this is temporary,” he says. Ikea has five factories in Russia, including a $62 million facility in the Novgorod region that came online in September. At $558 last year, the average monthly salary in Russia has dropped almost 30 percent since 2011, taking it close to incomes in other ex-Soviet republics such as Kazakhstan, according to the Higher School of Economics, a university in Moscow. Most of the decline has hinged on the ruble, which is down almost 40 percent in

the past two years against the dollar. With wages rising across much of Eastern Europe, Russia looks increasingly appealing to multinationals searching for a manufacturing hub from which they can supply the entire continent. In September, Samsung started shipping washing machines from its Kaluga factory to 20 European countries. That same month, Marsowned Wrigley inaugurated a $7.7 million facility in St. Petersburg, where it produces Juicy Fruit chewing gum, some of it for export. “It won’t be an exaggeration to say that Russia may become the region’s factory,” says Yaroslav Lissovolik, the Moscowbased chief economist at the Eurasian Development Bank, whose members are Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan. While industrial output is gradually rebounding, most Russian manufacturers aren’t in a position to exploit the opportunity provided by a weaker currency and falling wages. “For firms to capitalize on their current relative price advantage in international markets, they would need to expand and change their output capacity and invest in both their products and production processes,” said the World Bank in an April report on Russia’s export competitiveness. Natalia Russia’s Kostyukovich, a industrial output spokeswoman for Volkswagen’s 0.6% 0.4% Russian unit, -3.4% says the company’s locally produced vehicles “aren’t yet globally competitive.” 2014 2015 2016 “Time and PROJECTED investment are necessary for exports of Russianmanufactured products to become a trend,” says Oleg Kouzmin, a former central bank adviser who’s now chief economist for Russia at Renaissance in Moscow. “But there are grounds for Russia to carve out a niche in exports to Europe.” �Olga Tanas and Ilya Khrennikov, with Andrey Lemeshko The bottom line The average salary in Russia has dropped almost 30 percent since 2011, spurring some multinationals to boost manufacturing there.

Edited by Christopher Power, Matthew Philips, and Cristina Lindblad Bloomberg.com

Charlie Rose talks to... Sebastian Mallaby The author of The Man Who Knew, a new book on Alan Greenspan, discusses the former Fed chairman’s role in the financial crisis You’ve made the argument that Greenspan’s personality affected his decisions at the Fed, an idea Ben Bernanke has taken issue with. The notion that his psychological makeup has no relationship to his policy decisions isn’t very plausible. There was a paradox that Greenspan was extremely persuasive when it comes to one-on-one situations but was shy and diffident in groups. He was frightened of going directly at people with a disagreement. But to prick a bubble, you had to be able to take on public opinion. You had to say, “Your 401(k) is worth more than it should be.” He didn’t want to do that. His reputation imprisoned him. He was the maestro. The crisis was baked in by the time he left.

“Greenspan would leak stuff to the press to discredit adversaries. … He learned all the dark arts of politics pretty early on”

If you ask the smartest people, how do they rate Greenspan’s Fed tenure? The standard line is that his inflation policy—his interest rates—was great, because inflation was very stable. But the way he messed up was on financial regulations, and that’s why we had the subprime crisis. Because I’ve looked into the politics of that regulation, I actually think regulation in Washington is almost impossible to get right. So I’m less critical of Greenspan on the regulatory side, but I’m therefore more critical on the monetary side. If regulation isn’t going to stop the bubble, then you need to use interest rates, too.

Did he relish his position in Washington? He essentially established central bank status and independence by fighting back against the politicians. I think he did relish it, though sometimes he disguised that because he was shy. He’d go to a party, and he’d seem ill at ease. People would say, “Why did he come?” In the ’70s, they’d go to earnest conferences and discuss productivity. At the end, all the economists would go to the bar except for one, because there’d be a limousine outside with Barbara Walters inside, waiting for him to go to dinner.

There are other Greenspan books. What prompted you to do this one? I wanted to write a big sweep history of modern finance. He joined the Nixon campaign in the late ’60s, when the dollar didn’t fluctuate because it was tied to gold. Interest rates didn’t move much because they were capped. There were no derivatives. Over the next four decades, we created the modern system, and the person closest to the center of it was Greenspan.

Why did he join Nixon?

He was brought in by an Ayn Rand friend, a Libertarian who said, “We want to persuade Nixon to abolish the draft.” That was his first political document, not economics at all. And he got into the campaign. I found all the memos he wrote to Nixon in ’67, ’68. They were in Pat Buchanan’s basement. He was Nixon’s speechwriter. When I read them, you see the man going from giving advice on economic policy. ... By the end, he’s talking about messaging, spin, polling analysis. He was the guy who aggregated all the local polls, put them through his computer at work, and came back with advice on how you tweak the Nixon message. He later joined the Ford White House, and he would have these fights with Henry Kissinger, master of bureaucratic intrigue, but he lost when he was up against Greenspan. Greenspan would leak stuff to the press to discredit adversaries. He’d sneak in at the weekend to rewrite the president’s speech because some adversary had written it. He learned all the dark arts of politics pretty early on.

Watch Charlie Rose on Bloomberg TV Weeknights at 7 p.m. and 10 p.m. ET

Will Donald Trump and Janet Yellen be able to coexist? Trump’s economic program, insofar as we have details, is very inflationary. He wants to expand demand by having a tax cut, spending on infrastructure. And he wants to restrict supply by having zero immigrants, by disrupting trade deals. And all of this at a time when the economy is pretty hot, 2.9 percent growth in the last quarter. The Fed was going to raise rates before the election. It’s going to have to raise extra because of Trump. The presidentelect won’t like that, and he’ll come after the Fed. Yellen will have to learn to defend her institution What did you learn about his ties to Ayn in the way Rand as you wrote The Man Who Knew? Greenspan did in A lot of people read books like Atlas Shrugged when they’re 19 or 20. Greenspan was doing the early ’90s. this in his 30s and 40s, and he gave this long series of speeches when he basically was Ayn Rand’s chief economist. I found them in the basement of a Rand fanatic living in the woods in Virginia. He had the 300-page transcript of Greenspan’s speeches. And in those speeches it says, “The creation of the Federal Reserve was an historic disaster.” You couldn’t make up the irony.

COURTESY COUNCIL ON FOREIGN RELATIONS

Companies/ Industries

Zara designers at work in Arteixo, Spain

▶▶The world’s biggest fashion retailer is thriving as rivals falter ▶▶“Everyone▶…▶is trying to replicate its design prowess”

Deep inside a sprawling glass-andcement edifice the size of an airplane hangar in the Spanish town of Arteixo, 10 designers swarm around a model dressed in cropped gray trousers and a double-breasted navy blazer. Sweaters, shirts, and suits are spread out on the white-tile floor, while seamstresses in white labcoats stitch prototypes nearby. “It’s classic, but it’s new at the same time,” says a woman from China. “I’m not sure about the bold patterns,” counters a British woman, dressed in white sneakers and a flowing skirt. Others nod their assent or express doubt. This international tribe of thirtysomethings is a big part of the success of Zara, the brand that over the past four decades has grown from a single store in the Spanish city of La Coruña into the biggest fashion retailer on earth. As the team debates whether the collection is too plain or too daring, it becomes clear no one is in charge. Juan Mendivil, a menswear buyer, fields opinions, but the decision doesn’t rest with him, and everyone has a say. They finally agree on solid colors and traditional cuts for Europe and bold patterns for China, where sales data indicate such styles are popular. Unlike rivals such as Gap, H&M, and Primark, Zara has no chief designer, and there’s little discernible hierarchy. Its 350 designers are given unparalleled independence in approving products and campaigns, shipping fresh styles to stores twice a week. Guided by daily data feeds showing what’s selling and what’s stalling, the teams develop fashions for the coming weeks. Every morning, staff in Arteixo divine what’s popular by monitoring sales figures and thousands of comments from customers, store managers, and country directors in cities as far-flung as Taipei, Moscow, and New York. Zara’s culture isn’t as easily copied as the latest fashion trends, and that partly explains why Inditex, its parent company, is a breakaway success while most global clothing retailers are struggling. American Apparel filed for bankruptcy in November for a second time, sales have fallen at Gap stores, and profit is down at H&M. In contrast, Inditex powered ahead with an

ILLUSTRATION BY CAROLINE DAVID; COURTESY INDITEX (2); *REVENUE FOR FISCAL YEAR THAT MOST CLOSELY ALIGNS WITH CALENDAR YEAR; DATA COMPILED BY BLOOMBERG

November 28 — December 4, 2016

It’s blockchain vs. E. coli at Walmart 20 A sweet fix for a Champagne problem in China 21

11 percent rise in revenue in the first half of the year. “There isn’t a magic formula,” says Pablo Isla, Inditex’s chairman and chief executive officer. “There are no stars. We are able to react to data during the season, but in the end, what we offer our customers is fashion, and there’s a human element to that.” Controlled by Spanish billionaire Amancio Ortega, who this year briefly surpassed Bill Gates to become the world’s richest man before falling back to second place, Inditex posted €20.9 billion ($22.2 billion) in sales last year, from 7,100 stores in 93 countries. Other Inditex brands such as Bershka, Massimo Dutti, and Pull & Bear are growing, but Zara still accounts for two-thirds of sales. Ortega hired Isla, a bespectacled former Banco Popular Español executive, as CEO in 2005, but he hasn’t retired. At 80, he still comes to work most days, often sitting in the Zara women’s department, where his 32-year-old daughter Marta works on the commercial team after a stint at Bershka. While he can sometimes be seen walking his dog Pepe in the town square of nearby La Coruña, Ortega remains one of the world’s most secretive billionaires, leaving Isla to oversee Inditex. One concern for Zara is managing its growth, says Andy Hughes, a retail analyst at UBS. With Inditex’s sales almost doubling since 2009, Isla is adding stores at a slower pace, concentrating instead on a smaller number of flagship locations and its online business. Another concern is that rivals might figure out how to match

Zara’s quick turnarounds. “Everyone in the industry is trying to replicate its design prowess,” Hughes says. “No one could match Inditex, but the gap might close.” Isla rejects the fast-fashion label for Zara, saying it doesn’t reflect the time and detail that goes into designing each garment. And he says analysts place too much emphasis on Inditex’s much-vaunted supply chain, a network of factories in Spain, Portugal, and Morocco that produces 60 percent of its merchandise. With production nearby, Inditex can quickly switch gears if weather or fashion trends change, getting designs into stores in as little as two or three weeks, while rivals’ orders slowly make their way across the ocean on container ships. Fast Fashion, Speedy Growth Change in annual revenue* since 2004 240% 180% Zara 120% 60%

H&M

Gap 2004

2015

Just as important is the way Inditex “pulls” ideas from consumers, Isla says, rather than designing collections months in advance and “pushing” goods on shoppers with ads. While analysts say H&M spends as much as 4 percent of sales on advertising, Inditex has virtually no ad budget apart from social media marketing. Since 2010, the data on what customers want has been augmented with information from online sales. Those are fueled by twice-weekly releases of new designs on Zara’s website, highlighted with photos from rapid-fire shoots in Arteixo. On a rainy November day, buyers, analysts, and commercial managers sift through information on computers in a space the size of 22 football fields, engaging in a lively exchange of ideas with designers. “Without the design, there would be nothing,” Isla says, sitting at a pale-wood conference table in the company’s minimalist headquarters. “It’s not a formula.” This means the designers are constantly tinkering. When military jackets turned out to be big sellers this autumn, the commercial team asked the designers to keep tweaking them with new fabrics and cuts. In May, a blue-and-white collarless women’s coat for £69.99 (about $102 at the time) generated so much buzz that two fans created an Instagram account— @thatcoat—to document the craze. But instead of churning out more identical coats, design teams came up with different fabrics and prints using a similar cut, ranging in price from $69 to $189. “The root of Inditex’s success is its predominantly short lead time, which gives a greater level of newness to its collections,” says Anne Critchlow, a retail analyst at Société Générale. About two-thirds of Inditex’s products are generated under short lead times, vs. 20 percent for most retailers, she says. Small production

runs mean Zara can test designs in various markets without building up unwanted stock that it might need to unload at a deep discount. That gives Inditex among the lowest yearend inventories in the industry, says Richard Hyman, an independent analyst in London. “This is a business that really breaks the rules,” Hyman says. “They don’t really have seasons in the way a normal fashion retailer would.” �Stephanie Baker The bottom line A unique management formula may be why Inditex’s revenue growth—up 11 percent in the first half of 2016—far outpaces its rivals’.

Retailing

Blockchain May Help Walmart Stop Bad Food ▶ The technology behind bitcoin could speed recalls 20

▶ “That’s the difference between days and minutes”

Mention blockchain, and many people think of bitcoin, the digital currency that relies on blockchain’s database technology to track transactions and provide a secure alternative to conventional money. Walmart Stores, however, is using blockchain’s ability to catalog huge amounts of behind-thescenes data for a meat-and-potatoes purpose: identifying and removing food that’s been recalled. Like most merchants, the world’s largest retailer occasionally struggles to deal with tainted food. When a customer becomes ill, it can take days to identify the product,

shipment, and responsible vendor. co-produced by IBM, Walmart in Using a blockchain database, Walmart, October started tracking two produsing a single receipt, will be able to ucts via the database: a packaged produce item in the U.S. (it won’t obtain crucial data, including suppliers, details on how and where “If there’s an issue say which one) and pork in the food was grown, and who China. The test involves thouwith an outbreak of E. coli, this gives inspected it. The database sands of packages shipped to them an ability to can give retailers more granmultiple stores. immediately find ular information, not just on A blockchain is a distribwhere it came from.” the pallet but on each individ- �Marshal Cohen, uted ledger in which compaNPD Group ual package. “If there’s an issue nies doing business with each with an outbreak of E. coli, this other—such as growers, disgives them an ability to immetributors, and retailers—can diately find where it came from,” says record transactions securely. The dataMarshal Cohen, an analyst at researcher base’s strength lies in its resistance to NPD Group. “That’s the difference tampering; it’s difficult if not impossible between days and minutes.” to reverse a transaction or change an It’s also the difference between entry. A blockchain database can also pulling a few tainted packages in a hold much more data than what retailhandful of locations and yanking all ers get today, providing tools for more the spinach from hundreds of stores, detailed analysis. according to Frank Yiannas, vice presiThat could help Walmart deliver dent for food safety at Walmart. “With food to stores faster, reducing spoilblockchain, you can do strategic remov- age and waste. Cutting costs is critals and let consumers and companies ical for all retailers. Last year, retail have confidence,” he says. “We believe sales rose only 2.1 percent, the smallthat enhanced traceability is good for est gain since 2009, according to the other aspects of the food systems. We Retail Industry Leaders Association. hope you could capture other imporTraditional offline merchants also contant attributes that would inform decitinue to be pressured by Amazon.com sions around food flows, and even get and its efficient supply chain. more efficient at it.” If the test is successful, Walmart More than 1,000 outbreaks of foodwill expand it to multiple food items borne illnesses are investigated by state in both countries, Yiannis says. “So and local health departments each far things are flowing smoothly and year, according to the U.S. Centers for as expected.” Disease Control and Prevention. The Walmart has been at the forefront of CDC estimates that 48 million people new technologies before. More than are afflicted annually, with 128,000 a decade ago, it was an early adopter hospitalized and 3,000 dying. An outof wireless radio-frequency identificabreak can cripple a business—Chipotle tion tags, requiring big suppliers to put Mexican Grill has suffered a year of them on shipping crates and pallets to falling sales after several such events. help it better manage inventory across Using blockchain technology its supply chain. The retail giant began installing chip-card readers at U.S. checkout counters 10 years before the deadline mandated by credit-card networks such as Visa and Mastercard. This summer, it took Walmart Pay nationwide, becoming one of the first large retailers to introduce its own mobile-payment service. It’s also expanding a service that lets consumers order groceries online and then go to a store for pickup. Blockchain, a technology that came on the scene only in 2009, is already being widely tested in the financial, health-care, and natural-resource industries. Companies such as IBM, Nasdaq, and BHP Billiton have

ILLUSTRATION BY KRIS MUKAI; DATA: EUROMONITOR INTERNATIONAL

Companies/Industries

Companies/Industries deployed or are planning to deploy it to run their businesses more efficiently. Fourteen of the top 30 banks are testing blockchain to see if it can be of use in their businesses, according to CoinDesk, an industry researcher. In October the Walmart Food Safety Collaboration Center opened in Beijing. Through the Center, the retailer is collaborating with IBM and Tsinghua University to use blockchain to improve the way food is tracked, transported, and sold to consumers in China, where food safety is a hot-button issue. If Walmart adopts blockchain to track food worldwide, it could become one of the largest deployments of the technology to date. “They are setting the new standards in terms of how technology can be implemented to solve a problem that’s been with us for ages,” says Paul Chang, an expert on the global supply chain at IBM. �Olga Kharif The bottom line Each year, about 48 million Americans contract foodborne illnesses. Walmart is testing blockchain to address the problem.

Wine

For Chandon in China, a Kick From Champagne? ▶ The French vintner is making and bottling the bubbly locally ▶ People in China would add CocaCola “to make it drinkable”

At first glance, the bottle might look like a fine Champagne from LVMH Moët Hennessy-Louis Vuitton, the French maker of wine, spirits, and other luxury goods. Gold wrapping covers the pressurized cork, and the label bears the description “Méthode Traditionnelle.” The telling details are in the fine print. This sparkling wine is made by Domaine Chandon (Ningxia) Moët Hennessy, a partnership between the winemaker and the local government of Ningxia, a small region in north central China. LVMH, like other wine and spirits makers, is counting on China to become a major growth market. After more than doubling its vineyard capacity since 2000, China has more

land for growing grapes than France. China’s wine market this year will be worth 153.8 billion yuan ($22.3 billion), according to Euromonitor International. Since 2014 the joint venture has been producing a bubbly mix of chardonnay and pinot noir from locally grown grapes at its winery in Ningxia. To win over Chinese drinkers, the company is tweaking its traditional formula, says Davide Marcovitch, global president of LVMH subsidiary Chandon, which makes sparkling wines in Argentina, China, and other countries. “We are innovating for consumers who don’t like the traditional taste of Chandon,” he says. Sparkling wine typically isn’t sweet enough for local tastes, says Claudia Masueger, founder and chief executive officer of Cheers, a chain of wine stores throughout China. People would often add Coca-Cola “to make it drinkable,” she says. Now younger, affluent consumers willing to try different varieties of wine are buying it. Sparkling wine consumption in China is less than 1 percent that of nonbubbly wine. In the U.S., the figure is about 5 percent, and in Japan, France, and Britain it’s about 10 percent, says Chuan Zhou, research director with Wine Intelligence, a market-research and consulting firm in London. “There’s still a long way to go” to persuade Chinese to try it, he says. Traditionally, the bottles Chinese consumers did buy were mostly given as gifts, to curry favor with government officials—the price tag mattered, not the wine itself. But a crackdown on graft by President Xi Jinping’s government has curtailed such gift giving. Sales of sparkling wine in China will be 8 percent lower this year than they were in 2014, Euromonitor says. Chandon is trying to raise the profile of its Ningxia wines by offering tastings at supermarkets, organizing promotions at restaurants, and opening its winery to tourists. Early in 2017 the company will introduce Chandon Me, a sweeter bubbly made specifically for the Chinese market. (The name is a play on the Mandarin word for honey.) “We’re trying to balance the taste,” says David Tung, managing director of Chandon China. The winemaker, which will produce white and rosé versions of Chandon Me, also plans to open a store on Alibaba’s

online Tmall marketplace next year. The company hopes Chinese consumers will pay as much as 200 yuan for a bottle of Chandon Me. “To make them appreciate sparkling wine as it is today will take 20 to 25 years,” Marcovitch says. Chandon Me will try to create a market now. Ma Huiqin, a marketing expert and professor at the College of Horticulture at China Agricultural University, says if the brand is wellknown and the price is right, there’s “a very good chance” of success. Jim Boyce, a Beijing-based wine promoter and the founder of the Grape Wall of China blog, agrees the time might be right for Chandon. “We are seeing a fundamental change in the market,” says Boyce, who featured 16 sparkling wines in a Beijing tasting competition last December. “The Wine sales in China rise of the taste180% based consumer is Growth really going to have since ’10 Sparkling an impact on sparkling wine sales.” 90% To win over consumers in other Still Asian markets, 0% Chandon plans in 2010 2015 2017 to start selling a fruity sparkling wine in Japan and a sparkling wine in India meant to be served on the rocks. In the first half of 2016, revenue for LVMH’s wine and spirits group, which includes Chandon and Hennessy cognac, grew 7 percent from the year before, to €2.1 billion ($2.2 billion), better than the group’s overall revenue growth of 3 percent. Wine and spirits profit grew 17 percent, to €565 million, LVMH announced on July 26. Marcovitch dismisses Champagne purists who scoff at the changes Chandon is making to appeal to new customers. “We have to break the paradigm that sparkling wine has to be drunk in crystal only” and chilled, he says. “If you are in a hot climate and you put ice cubes in your sparkling wine, it’s really much more pleasant.” �Bruce Einhorn The bottom line To tap into the huge potential for sales growth in China, French vintners are breaking tradition to make sweeter sparkling wines.

Edited by James E. Ellis and Dimitra Kessenides Bloomberg.com

Politics/ Policy November 28 — December 4, 2016

▶▶It might be tough for Trump to divest his businesses, even if he wanted to (he doesn’t) Late on Nov. 21, President-elect Donald Trump tweeted: “Prior to the election it was well known that I have interests in properties all over the world. Only the crooked media makes this a big deal!” He may have been referring to stories, since denied, about whether he used a post-election phone call with Argentina’s president to discuss a planned Trump-branded development in Buenos Aires. Or photos of Trump

taking time off from vetting cabinet members to meet with his Indian business partners. Maybe it was the photo of his daughter Ivanka Trump sitting in on his Nov. 17 meeting with Japanese Prime Minister Shinzo Abe. Trump’s businesses, which give him an estimated net worth of $3 billion, are far-flung. He owes debts to foreign lenders, including Deutsche Bank and UBS. He’s associated with companies

battling with federal regulatory agencies, whose heads he will appoint. He has ties to real estate concerns in several countries, including Azerbaijan, the Philippines, and Turkey. Among the conflict-of-interest questions swirling around his global business interests, the $150 million Trump Tower at Century City in Manila’s financial district stands out. Century Properties Group, the Manila

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▶▶“Trump the brand is very closely intertwined with Trump the man”

Federal agencies race to write new rules 24 Will Trump be a nightmare for Dreamers? 25

company behind the tower, paid as much as $5 million to use the Trump name in a licensing agreement, according to the personal financial disclosure Trump filed with the Federal Election Commission in May. Trump has at least 10 similar deals around the world, each of which might complicate his administration’s international diplomacy. But in Manila, there’s an extra connection: In October, Century Properties’ chief executive and controlling stakeholder, Jose E.B. Antonio, was appointed to serve as a special government envoy to the U.S. for Philippine President Rodrigo Duterte, who has vowed to expel American troops from his country and is drawing closer to China. Antonio told Bloomberg News that he visited Trump Tower in New York days after the U.S. election; he didn’t speak to the president-elect but says he saw Trump talking with potential appointees. Trump spokeswoman Hope Hicks says: “They did not meet.” Antonio sees no conflict between his public role and Century’s private partnership. “My role is to enlarge the relationship between the two countries,” he says. Of his business tie to Trump, he adds: “I guess it would be an asset.” The president-elect could resolve real and apparent conflicts by liquidating all of the assets associated with the Trump Organization—including his golf courses, hotels, licensing arrangements, and office towers in Manhattan and San Francisco. Since his Nov. 8 election, Trump has shown no inclination to divest himself of his business interests. He plans to hand management over to his eldest three children—Donald Jr., Ivanka, and Eric—while he’s in office. Even if Trump wanted to divest, it wouldn’t be easy. Many of his assets are in real estate, rather than in simple stocks or bonds, while others depend on his involvement for their value. “Trump the brand is very closely intertwined with Trump the man,” says Harold Vogel, an expert on entertainment-industry finance. Trump’s international conflicts largely stem from his licensing deals with international developers. The structure of these arrangements, under which he lends his name to

owner-developers on the premise that it will help them sell condos and hotel rooms at higher prices, isn’t public. With other assets, Trump might not be in a position to get top dollar. The profitability of his golf course portfolio—12 in the U.S., two in Scotland, and one in Ireland, and two more planned in the United Arab Emirates—is mostly secret. The three European courses file annual reports that are publicly available, and all three are money-losers. Trump holds a 60-year concession to run a federal government building on Washington’s Pennsylvania Avenue as the Trump International Hotel, which opened in October. Under the arrangement, he shouldered about $200 million in renovation costs and pays $3 million a year in rent to the General Services Administration. According to the Washington Post, foreign diplomats are already million piling into the hotel to curry Maximum amount paid favor with a Trump to Trump by a Manila administration. developer who is now Trump owes a special U.S. envoy for the Philippines Deutsche Bank, his largest lender, about $300 million in loans against the hotel and his Doral resort in Florida. Deutsche Bank is in settlement talks with the U.S. Department of Justice over its lending practices leading up to the 2008 financial crisis. Trump has said he will appoint Alabama Republican Senator Jeff Sessions to be attorney general; Sessions hasn’t indicated whether he’d recuse himself from the Deutsche Bank case or others involving business partners of his boss. Christopher Jackson, a spokesman for Sessions, declined to comment. One of Trump’s most valuable assets is a 30 percent stake in two office towers—one in Manhattan, one in San Francisco—valued by Bloomberg at $590 million. Both are majority-owned and managed by the publicly traded Vornado Realty Trust. Trump’s name isn’t on either one. Cathy Creswell, director of investor relations at Vornado, didn’t return calls for comment. By remaining involved in the

Vornado partnership, he remains indirectly exposed to its debtors for those towers, including the Bank of China. Some of Trump’s other assets, like his Manhattan leaseholds for 40 Wall Street, an office tower, and the building at 6 East 57th Street, which houses a 90,000-square-foot Niketown store, would be relatively easy to part with, says Joshua Stein, a New York real estate lawyer. Trump hasn’t said whether he’ll put his liquid assets— stocks, bonds, and funds totaling about $170 million as of his May disclosure— into a blind trust. Both Bill Clinton and George W. Bush did just that. Jimmy Carter appointed an independent trustee to oversee his Georgia peanut business when he became president. Amanda Miller, a vice president of marketing for the Trump Organization, declined to comment. Even without selling his businesses, there are ways the president-elect could wall himself off from his financial interests, says Norm Eisen, a visiting fellow at the Brookings Institution who previously served as the Obama administration’s ethics czar. Trump could appoint an independent chief executive officer, institute a list of Trump Organization executives he won’t talk to, and remove his children from leadership roles there. “No matter how complicated it may be to unwind his involvement in these assets, it is going to be infinitely more complicated for him and the U.S. and the world if he doesn’t,” Eisen says. There have already been complications. Trump has agreed to pay $25 million to settle claims that his defunct Trump University cheated students. And the Trump Foundation admitted in an IRS filing to a self-dealing transaction with Trump. IRS rules generally prohibit such transactions. Rather than taking steps to reduce his conflicts, Trump has rejected the idea that they pose any problems. His daughter Ivanka joined his call with Argentine President Mauricio Macri; her brother Eric took selfies with one of his Argentine business partners on election night. Ivanka’s husband, Jared Kushner, who has his own real estate interests through the privately owned Kushner Cos., has been

advising Trump. “During his campaign, Trump thumbed his nose a little bit at our extreme sensitivity,” says the lawyer Stein. “I would expect him to thumb his nose at conflict-ofinterest concerns, too.” �Caleb Melby and Stephanie Baker, with Ben Brody and Ben Bartenstein The bottom line Trump’s business arrangements are unprecedented for an incoming president, and he’s shown no sign of wanting to divest.

Transition

A Rush to Regulate Before Inauguration ▶ Agencies are trying to lock in policies Republicans don’t like ▶ “Once you have a rule on the books, it’s harder to undo”

At federal agencies across Washington, regulators are scrambling to finalize rules before President Obama leaves the White House. In the two weeks following the Nov. 8 election, the administration finished reviews of nine economically significant rules, compared with eight during all of September. Recent entries in the Federal Register, where the

government enters new regulations into the public record, include a U.S. Department of the Interior rule cracking down on methane emissions from oil wells and measures aimed at helping highly skilled immigrant workers get green cards. On the horizon: limits on the use of hydrofluorocarbons, leak detection requirements for oil wells, and quotas for boosting biofuel use in gasoline. “We’re running, not walking, through the finish line of President Obama’s presidency,” U.S. Environmental Protection Agency Administrator Gina McCarthy told staff in a post-election e-mail. The later a regulation is released by an outgoing administration, the easier it is for the next president to kill it. That’s partly because of the Congressional Review Act, a 1996 measure to deter so-called midnight rule-making. The act enables lawmakers to pass resolutions voiding regulations entered into the Federal Register in the last 60 days of a legislative session. Presidents can also yank rules that haven’t yet taken effect. “That ability to put on hold and essentially withdraw rules by the previous administration is much, much more efficient than repealing rules,” says Amit Narang, regulatory policy advocate for Public Citizen, a nonprofit Washington watchdog group. “Once you have a rule on the books, it’s harder to undo.”

Digits

$1.1b Total paid to Northrop Grumman from 2011 through 2015 for the upkeep of spy planes known as JSTARS, even as maintenance costs increased and the planes’ combat capability declined, according to a Nov. 1 audit by the Pentagon’s Office of the Inspector General

It’s expected that immediately after Donald Trump is sworn in, his administration will place a moratorium on new regulations and pull back any others that are on their way to the Federal Register but haven’t yet been published, says Susan Dudley, director of the Regulatory Studies Center at George Washington University. The Trump administration could also delay the effective date of rules that have been published but haven’t gone into effect, giving appointees time to get confirmed, review the rules, and possibly undo them. That’s what the Obama administration did on Jan. 20, 2009. Top Republicans have already threatened to invoke their power to toss rules they dislike within 60 legislative days of their enactment on a simple majority vote. Senator Rand Paul (R-Ky.) said after Trump’s victory that legislators would repeal at least a half-dozen regulations in the week after the new Congress convenes in January. House Majority Leader Kevin McCarthy (R-Calif.) joined 21 committee chairmen in warning agencies that they would take a dim view of any policymaking in the Obama administration’s waning months. “We write to caution you against finalizing pending rules or regulations in the administration’s last days,” they wrote in a Nov. 15 letter to agency and department heads. “Should you ignore this counsel, please be aware that we will work with our colleagues to ensure that Congress scrutinizes your actions—and, if appropriate, overturns them.” Some agencies appear to be heeding that warning. After senior Republicans asked Federal Communications Commission Chairman Tom Wheeler to put the brakes on nearly all new regulations and actions, the agency canceled a planned vote on the rates charged for data lines used by businesses. Others say there’s really no good reason for agencies to hold back. “There’s a pretty significant chance that any one midnight regulation won’t be overturned by the next administration, so what’s the incentive to hold them?” says Sam Batkins, director of regulatory policy at the American Action Forum, a think tank that favors smaller government. “If you’re just playing the odds, obviously you should publish them.”

COURTESY NORTHROP GRUMMAN

Politics/Policy

80 percent of immediately eligible immigrants from Mexico have applied, a greater share than from any other country

Birth countries of undocumented immigrants registered for DACA

Politics/Policy Honduras 17k

South Korea 9k Ecuador 6k

El Salvador 27k Mexico 580k

All other 62k

AS OF JUNE 2016. DATA: U.S. CITIZENSHIP AND IMMIGRATION SERVICES, MIGRATION POLICY INSTITUTE

Colombia 6k

Guatemala 19k Peru 9k

Environmentalists are embracing that reasoning and lobbying the Obama administration to go big and bold by creating national monuments and imposing clean-air rules before they hand over authority. “We’ve told the White House and Interior Department on everything—whether it’s offshore drilling or national monuments—to be as ambitious as possible,” says Athan Manuel, director of lands protection for the Sierra Club. “We might as well ask for the moon.” �Jennifer A. Dlouhy The bottom line Republicans are threatening to undo last-minute Obama regulations in the new Congress, but federal agencies are pushing ahead.

Immigration

Immigrants Prepare For Life After Obama ▶ Trump has said he’ll cancel undocumented workers’ permits ▶ “Take them out of the workforce, that’s a problem for business”

Gabe Belmonte showed up to his Silicon Valley engineering job the day after the election in a state of shock. He hadn’t slept, couldn’t eat, and was struggling to ward off panic. Co-workers commented on how distraught he looked, Belmonte recalls: “Initially, I just said, ‘Yeah, the election was kind of rough.’ ” The truth is he’s one of more than 740,000 undocumented immigrants shielded from deportation and authorized to work under President Obama’s 2012 Deferred Action for Childhood Arrivals program (DACA), which Donald Trump has pledged to eliminate. DACA is available to young immigrants known as Dreamers, after the congressional Dream Act. That immigration reform bill has repeatedly failed to pass but formed the cornerstone of Obama’s

Brazil 7k

stand-in program, implemented by also include Michael Bloomberg, majorexecutive action. DACA applies to ity owner of Bloomberg Businessweek people who were born after June 1981; publisher Bloomberg LP.) Immigration advocacy groups are arrived in the U.S. under the age of 16; haven’t been convicted of felonies or advising people against filing firstsignificant misdemeanors; and are in time applications for DACA. People in the program are required to give school, have a high school diploma or their addresses, making it easier for GED, or have served in the military. immigration authorities to find parNow 34, Belmonte has lived in the ticipants. If Trump just cancels DACA, U.S. since he was 7. His mother brought “we create a terrible situation for them him from Mexico on a tourist visa, and where they are now exposed they stayed after it ran out. “There’s a lot of to deportation,” says Daniel Unable to take out loans, he concern that a guy who says he’s Garza, executive director of put himself through college going to focus on the Libre Initiative, a Latino by working in restaurants and criminals is going warehouses. He graduated in outreach group backed by to upend the lives the conservative billionaires 2008 with a degree in industrial of Dreamers on Day One” Charles and David Koch. engineering but couldn’t find a company willing to sponsor Anti-immigration groups say Trump should keep his him for a visa. So he spent the next four years working minimum wage promises. “What’s inhumane is to set jobs that he could get without one. After up a contradictory system where you have a sign on the border that says, qualifying for DACA, Belmonte was ‘Keep out,’ and then below it you have able to land work that made use of his college degree, first in tech support and a sign that says, ‘Come on in, and if you can get over the fence, the honey then as a quality engineer. pot of benefits are all yours, and help It’s not clear whether Trump would wanted,’ ” says Bob Dane, executive let workers such as Belmonte keep existing work permits until they expire director of the nonprofit Federation for or revoke them immediately if he American Immigration Reform, which cancels DACA. “There’s a lot of concern advocates restricting immigration. that a guy who says he’s going to focus While talking to lawyers about on criminals is going to upend the lives whether there’s a route for him to get of Dreamers on Day One,” says Frank a visa, Belmonte is making plans in Sharry, executive director of the immicase he gets deported. He’s paying off grant advocacy group America’s Voice. his credit cards, talking to his roomCanceling DACA and preventing ben- mate about finding someone to sublet, eficiaries from working would erase at and arranging for his U.S.-born son to least $433 billion in U.S. gross domesstay with his grandparents. “For any tic product over the next decade, other purpose than paperwork, I conaccording to an analysis from the nonsider myself an American,” he says. profit, left-leaning Center for American “Having that peace of mind that DACA Progress. “If you take hundreds of thou- has brought—that’s going to be lost. sands of best candidates and take them And so you go back to being fearful.” out of the workforce, that’s a problem �Josh Eidelson for business,” says Jeremy Robbins, The bottom line More than 740,000 people executive director of New American are qualified for work permits through an Obama program that Trump may cancel. Economy, a business-backed immigration reform group whose co-chairs include leaders of Boeing, Marriott Edited by Allison Hoffman International, and News Corp. (Backers Bloomberg.com

A perk-hailing CEO crashes his ridesharing startup 28

Amazon just isn’t this nice 30

IBM wants to be the Q for corporate cyberdefense 29

Giving a lift to aging with a walker/ wheelchair 31

November 28 — December 4, 2016

▶▶Are business rivals behind online attacks on Elon Musk?

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▶▶Critics say the Tesla CEO “gets subsidy after subsidy he doesn’t need” On Sept. 2 the conservative web magazine the Federalist published an article titled “Elon Musk Continues to Blow Up Taxpayer Money With Falcon 9.” The author was identified as Shepard Stewart. Two days earlier, the Stewart byline appeared on a piece on the Libertarian Republic website called “Here’s How Elon Musk Stole $5 Billion in Taxpayer Dollars.” Two days before that, the Liberty Conservative site carried a Stewart article headlined “Elon Musk: Faux Free Marketeer and National Disgrace.” Funny thing, though: Shepard Stewart isn’t a real person. “Definitely a fake,” says Gavin Wax, editor-in-chief of the Liberty Conservative. A chagrined Wax says the “Stewart” character “went totally dark on us after we published him.” Wax discovered that a photograph “Stewart” uses online appears

to be an altered version of a former Twitter executive’s LinkedIn headshot. Musk attracts an unusually large and varied number of shrouded online attacks, including phony op-ed pieces, websites with shadowy backers, and individuals who hide behind aliases. “These are tools used by those who don’t have facts on their side,” says Sarah O’Brien, a spokeswoman for Tesla, the electric car maker Musk co-founded and runs. The Liberty Conservative has taken down its Stewart article, as has the Libertarian Republic. The Federalist site still has its piece up. Editors with the latter two didn’t respond to e-mails and phone calls seeking comment. Musk inspires strong admiration and criticism for his industry-disrupting companies: Tesla; SolarCity, a solar panel installer he co-founded; and

Space Exploration Technologies, better known as SpaceX, a rocket company he founded and heads. On Nov. 17 shareholders approved Tesla’s $2 billion acquisition of SolarCity. These diverse business interests mean Musk has numerous rivals. “It seems like he’s got a lot of people who don’t like him,” says Brian Walsh, a partner with Rokk Solutions, a Washington, D.C., communications firm. Walsh ticks off coal companies and utilities uneasy about SolarCity and automakers and dealers concerned about Tesla. This spring, Walsh’s firm worked for United Launch Alliance, a joint venture of Boeing and Lockheed Martin, and helped persuade Congress to let ULA buy Russian-made rocket engines, over SpaceX’s objections. During the lobbying fight, a website called Who Is Elon Musk? maintained

Technology

“People tell me I shouldn’t talk about the fake rockets because it makes me sound crazy”

earlier that day when the company disclosed its second-quarter results. After some digital sleuthing, Tesla filed suit in September in California state court against Todd Katz, a longtime online critic of Tesla’s financial management who admits to using the aliases Elon Madoff and Enron Musk. Katz worked as CFO for Quest Integrity, an oil industry service company. He was part of an effort by the fossil fuel business to undermine the electric car company’s push for cleaner transportation, Tesla alleged. Without admitting or denying he’d sent the e-mail, Katz, who’s left his job at Quest, said in court papers that Tesla’s suit should be dismissed because the message in question was too “goofy” to be believed. In counterclaims, Katz accused Tesla of unlawfully hacking his Twitter account to “publicly embarrass and silence him, and discourage other critics.” Another online critic of Tesla’s, who posts under the name Keef Leech and Keef Wivaneff (“with-an-f”), is actually Australian Keith Leech, a retired computer engineer who says he’s “a bit of an obsessive.” He’s spent more than a year collecting photos of crashed Teslas from junkyards that he says show evidence of a defective suspension system. He says he’s filed about 100 complaints based on the photos with the National Highway Traffic Safety Administration. On the Tesla Bears Club, a site for short sellers, Leech has posted a “Tesla Hall of Shame” compiling his NHTSA complaints. He says he recently bought Tesla puts, another way to bet on a company’s stock dropping. Leech says he’s never driven a Tesla. On June 8, an auto site called the Daily Kanban reported on the suspension complaints, igniting broader coverage. On June 10, NHTSA said it was conducting a routine “review” and to date hadn’t “identified any safety issue with Tesla suspensions.” Musk said on Twitter that most of the NHTSA complaints were “fraudulent” and that “one or more people sought to create the false impression of a safety issue.” Tesla’s stock dropped 7 percent on June 9 and June 10. Spokesman Bryan Thomas says NHTSA doesn’t have anything new to say about the Model S suspensions. Leech, who continues to file Tesla complaints, also insists that SpaceX’s

success in landing rockets back on earth is a hoax, videos of the landings notwithstanding. “People tell me I shouldn’t talk about the fake rockets,” he says, “because it makes me sound crazy.” �Paul M. Barrett The bottom line Elon Musk attracts a wide array of real and fake online antagonists criticizing his work on electric cars, rockets, and solar panels.

Startups

A Would-Be Uber Rival’s Ride to Nowhere

▶ Karhoo’s funding was exaggerated while the CEO spent lavishly ▶ “I truly wish things had turned out very differently”

At ride-hailing startup Karhoo, the unusual expenses started small, relatively speaking. Vet bills, clothes, a pair of designer shoes. Finance staffers flagged the charges, but spending became more ostentatious: custom-branded Cuban cigars, first-class flights, a massive Vegas bacchanal. Nobody at Karhoo could do much about it. The culprit was Chief Executive Officer Daniel Ishag. Ishag’s spending, described by five former employees and others familiar with Karhoo’s finances, came to an abrupt end on Nov. 8, when the London-based company shut down. It owed $30 million to creditors, employees, property managers, and other contractors, one of the people says. About 200 workers lost their jobs. It was a shocking collapse, even by the Icarus-like standards of tech startups, because last year the Financial Times reported Karhoo had raised $250 million, and the company said it planned to bring in more than $1 billion. Based on those numbers, Karhoo seemed to have as good a shot

ILLUSTRATION BY 731

a steady drumbeat of criticism of SpaceX, as well as Musk’s other companies. A video on the site, titled American Swindler: The Elon Musk Story, accuses him of “lining the pockets of Democratic and Republican politicians with millions of dollars in donations.” (Musk has given about $515,000 to politicians and political groups since 2003, according to the Center for Responsive Politics, a nonprofit research group.) “That’s not us,” Walsh says of the website. “I don’t know who it is.” A United Launch spokeswoman says, “It would be inappropriate for ULA to comment on a site not related to our company or industry.” The site identifies its sponsor as the Center for Business and Responsible Government, “a nonpartisan organization dedicated to highlighting cronyism and its effects on American taxpayers and policy.” But there’s no trace of the center anywhere online or in the brick-and-mortar world. A similar website called Stop Elon From Failing Again lists its sponsor as a conservative advocacy group called Citizens for the Republic. Diana Banister, a PR executive who serves as CFTR’s executive director, says the site singles out Musk because “he is the epitome of a businessman who gets subsidy after subsidy he doesn’t need.” It’s impossible to tell who’s ultimately paying for CFTR’s campaign against Musk, as the organization is a so-called 501(c)(4) social welfare group, which under federal law doesn’t have to disclose its supporters. Banister says contributors to CFTR are “small donors, mostly” and “nothing competitive with” Musk. Asked whether oil companies antagonistic toward Tesla might be behind the website, Banister says: “We reached out to them [for donations], but they haven’t responded.” One online antagonist allegedly tried the bizarre approach of impersonating Musk in pursuit of inside information about Tesla. On Aug. 3, Tesla’s chief financial officer, Jason Wheeler, received an e-mail from ElonTesla@ yahoo.com requesting more detailed nonpublic data than had been released

The company paid

Karhoo’s app compiled a network of drivers from taxi and other car services

as anyone to take on the likes of Uber in Europe. In fact, two-year-old Karhoo had raised only $39 million as of September and couldn’t sustain its efforts to grab market share from Uber, according to internal documents shared with Bloomberg Businessweek. That was news to at least two former employees, who were told in job interviews that the $250 million figure was accurate. Potential business partners heard the same, according to a former employee who attended a pitch meeting. “I deeply regret the impact and inconvenience recent events have caused you all,” Ishag wrote in an e-mail to employees after the shutdown. “I truly wish things had turned out very differently.” He didn’t respond to requests for comment for this story, but he told the Times of London any personal expenses were repaid and Karhoo didn’t repeat the false funding number to employees or business partners. Employees say they were largely unaware of the company’s dire position until a recent Friday, when managers at its headquarters said they couldn’t cover payroll. There was no severance, and people weren’t paid for the previous month’s work. Earlier this year, what now look like warning signs could be dismissed as the travails of a young startup. The launch of Karhoo’s app, which compiled a network of drivers from taxi and other car services, was delayed from January to May. Quickly, though, it topped 300,000 downloads, and Ishag spent heavily to expand. By the time the app launched, Karhoo had offices in Singapore, Tel Aviv, and New York. It also rented two New York apartments, one of which cost $12,000 a month, says a person familiar with the matter. If the real estate wasn’t cheap, neither was Karhoo’s aggressive discounting. Because of a bug in the app, promo codes offering free rides could be used repeatedly. People on social media said they took more than 100 free trips. In October about 70 percent of Karhoo bookings used promo codes, internal documents show. Bugs hit Karhoo at almost every level of the app. Its payment-processing system lacked basic fraud protections, such as verifying a user’s address or requiring an e-mail address to set up an account, so at one point, more than

90 percent of passengers’ credit card payments were being rejected, say three people familiar with the systems. Customer service was such a problem that Karhoo had to hire ModSquad, an outside contractor, to handle it. ModSquad has sued Karhoo for $500,000 in unpaid bills. Karhoo and ModSquad are due in New York’s federal district court on Dec. 8. Taxi companies are also seeking payment. ModSquad’s attorney, Erik Anderson, declined to comment on the litigation. Ishag, who’d previously co-founded an online ad network and run a waste management company, said in a July interview with the online publication Startup that he conceived of Karhoo while in California, then developed a prototype in India. Employees say Ishag was more interested in pitching Karhoo to investors than in keeping the app working properly. He also charged the company $6,000 for his pug’s vet bills, flew first class, stayed in top hotels, and brought exotic dancers to the Las Vegas party he threw during a tech conference, say two people familiar with his expenses. Paul Cooper, the administrator managing Karhoo’s bankruptcy, says he’ll look into possible misuse of corporate funds. In the Startup interview, Ishag discussed the challenges of a tech venture. “It takes a toll,” he said. “It takes a toll on the people around you.” �Adam Satariano and David Hellier The bottom line Karhoo, a ride-hailing company that said it raised $250 million last year, shut down on Nov. 8, owing creditors about $30 million.

Cybersecurity

Training Companies To Handle a Hack ▶ IBM’s cyber range borrows tactics from military simulations ▶ “We don’t want to scare the crap out of people”

Despite billions of dollars invested in antihacking technology over the past 10 years, companies appear to have little idea of how to respond to a cyber attack. When Target was hacked during the busy 2013 Christmas season,

$100m

Technology

to buy Resilient

IBM’s security acquisitions 2016

2013

Resilient Network Systems Incident response

Fiberlink Secure mobile management

2014

Trusteer Advanced fraud protection

Lighthouse Security Group Cloud-enabled identity management CrossIdeas Identity governance

2011 Q1 Labs Security intelligence DATA: IBM, BLOOMBERG

investigators found the company had missed early warnings that might have prevented the loss of data belonging to 70 million customers. When the news came out, lawsuits were filed, and Chief Executive Officer Gregg From 2002 to 2010, Steinhafel resigned. IBM’s security arm bought 12 additional Sony Pictures companies Entertainment’s fumbling response a year later to North Korean hackers turned a bad situation into a terrible one, costing Amy Pascal, one of the most powerful women in Hollywood, her job as co-chairman. IBM, which has spent five years buying companies to make itself the third-largest cybersecurity provider globally, wants to train corporate security teams, CEOs, and PR departments to handle those kinds of crises. Shortly after Election Day, the company unveiled a facility that combines gaming techniques and millions of dollars of sophisticated hardware to re-create scenarios like Target’s and Sony’s in white-knuckle, stockplunging detail. The idea is borrowed from the Pentagon, which uses a similar approach to train soldiers for cyberwar. Instead of the pressure of combat, the facility at IBM’s security division headquarters on the Charles River in Cambridge, Mass., wants to re-create a postbreach pressure cooker that can move rapidly from a regulatory investigation to a call from the FBI to whatever else the range’s multimedia producers can conjure. “We don’t want to scare the crap out of people,” says Caleb Barlow, vice president of IBM Security. “We do want people to feel a little of the adrenaline burst and the pressure.” By the time IBM’s cyber range is fully operational in January, it will offer 12 training programs. Think of them as plays, Barlow says, with

settings, acts, and an unusually wide range of actors, including general counsels, marketing teams, and C-suite executives. The staging area is a bit like a flight simulator built for two dozen. Theaterquality video panels cover the front wall, and the ceiling is studded with the same sensors that allowed Tom Cruise to manipulate data with his hands in the movie Minority Report. (The ceiling array, made by Oblong Industries in Los Angeles, is the most expensive thing in the room.) Racks of servers located a floor below simulate the data stream of a full-size corporate network. During a recent afternoon demo, the training program began with a phishing e-mail sent to a fictitious HR rep. The hackers made off with a cache of data before the IT crew could isolate the source of the breach. Then an insider leaked news of the breach, and the pressure mounted. The U.S. Securities and Exchange Commission initiated an invesmillion tigation. More pressure. As the afternoon IBM spending on its cyber range and teams wore on, events for intel and incident spun out of control. response The security team discovered that the hackers hadn’t just stolen information, they’d also altered the company’s financial data shortly before its quarterly earnings report. Uh-oh. All this realism doesn’t come without risks. The range is designed to test out some of the most virulent malware, so the whole thing is airgapped, which means it’s not connected to the real internet. Instead, developers collected data from thousands of web pages to create a miniature, self-contained internet. Like many of the range’s features, that idea came from Joe Provost, the project’s threat modeling and simulation architect and a former employee of the National Security Agency. Days after hackers took some of the world’s most popular websites offline in October with a botnet of infected home routers, TVs, and other internetconnected devices, Provost figured out how to replicate the attack so he could add it to one of the range’s scenarios. In the simulations, he also

$200 30

plays the main bad guy. The facility is expensive, and IBM wouldn’t say exactly how much it costs to run. Barlow says the company had spent a combined $200 million on the range and the development of cyber intelligence and incident response teams for on-site investigations of major hacks. He may be reticent to break out spending on the facility, because there’s no guarantee the investment will pay off. IBM says it’s not planning to charge people who come in for the training sessions; it’s more of a marketing tool, an effort to convince companies there’s enough value in IBM’s various cybersecurity technologies to make them worth buying. “This is in some ways a grand experiment,” Barlow says. Roland Cloutier, chief security officer of payroll-services provider ADP, says that based on what he knows of the gaps in traditional cybersecurity training, IBM’s plan should work. “What IBM has been able to do is take two very different processes and combine them into a single training,” he says. “One is technology-based—I have an attack going on, and I have to stop it. But then you have crisis management, which is about leadership in tough situations. That’s a whole different skill set.” �Michael Riley The bottom line IBM has built a cybersecurity training center to test corporate readiness. Now it has to persuade customers to buy its gear.

E-Commerce

Pet Food That Comes With an Oil Painting ▶ Startup Chewy has quietly built a gigantic thoughtfulness machine ▶ “We keep profiles, we take notes. We know their pets’ names”

There’s customer service, and then there’s Chewy.com. After registering online, each of the pet supply startup’s 3 million customers gets a handwritten thank-you card in the mail. They’re also entered into a lottery to

receive a surprise gift—an oil painting of their pet, one of 700 made each week by one of Chewy’s 200 full-time portrait artists. “We have an aggressive approach to customer acquisition and retention,” says Chief Executive Officer Ryan Cohen. He’s understating it. About 460 of Chewy’s 3,000 employees are customer service reps trained in pet care. At a 24-hour, 30,000-squarefoot call center in Dania Beach, Fla., they can tell buyers which gluten-free food best suits a dachshund’s irritable bowel syndrome and which poultryflavored toothpaste will temper a cat’s halitosis. They’ll remember you, too. “We keep profiles, we take notes,” Cohen says. “We know their pets’ names.” Each year, Chewy sends more than 1 million handwritten holiday cards to its customers, wishing the “pet parents” a happy and slobbery season. Since buying out every stamp at the local post office in 2014, the company has begun preordering its postage. Cohen and co-founder Michael Day are betting that this unusual dose of thoughtfulness will help their company grab a bigger share of the $62 billion U.S. pet supplies market from the likes of Amazon.com, PetSmart, and Petco. Five-yearold Chewy says it’s on track to take in $880 million in revenue this year and expects to top $1.5 billion in 2017, though it isn’t yet profitable. Petco and PetSmart bring in about $4 billion and $7 billion a year, respectively; Amazon doesn’t break out its revenue from pet supplies. Cohen, 31, started an internet marketing company with Day, 33, after graduating from high school. They used their profits to start an online jewelry company, which morphed into a pet supply site after Cohen realized how much he enjoyed shopping

FROM LEFT: COURTESY CHEWY (1); COURTESY ZEEN (3)

Technology

Technology for his teacup poodle, Tylee. “We wanted to create a more convenient way to shop,” he says. “We also didn’t want to lose the authenticity that comes with your local pet store.” A crew of 40 uses three soundstages to produce pet-care tutorials for the company’s YouTube channel. Chewy has raised $236 million from investors including BlackRock and New Horizon, the venture arm of mutual fund T. Rowe Price. Billionaire e-commerce veteran Mark Vadon, Chewy’s chairman, says he’s the reason the company largely kept itself out of the press for its first five years. “I advised Ryan and Michael to lay low,” he says. “It’s better to avoid competition.” Two people familiar with the startup’s finances say Goldman Sachs is helping it prepare for an initial public offering next year. Cohen says he isn’t concerned about the Amazon threat hanging over his and every e-commerce business. Chewy’s auto-ship subscription program works a bit like Amazon’s Dash Button, setting customers up to regularly reorder such staples as pet food and kitty litter. The bigger question: If Chewy can’t turn a profit now, with $880 million in revenue, when can it? “It’s not so much that there are barriers to entry,” says Vadon, who took his online baby supply company Zulily public in 2013. “There are barriers to doing it well at scale.” Chewy won’t say how much it spends on portraits and other perks. Cohen acknowledges the overhead is high but says it’s worth it. “People want that great customer experience that we specialize in,” he says. By early 2018 the company plans to add three 600,000-square-foot warehouses in the U.S., doubling its current footprint. “Making sure we can maintain what we’ve built is the focus now,” Cohen says. “We’ll find a way. We are going to be No. 1, or we will die trying.” �Olivia Zaleski The bottom line Chewy is on track for $880 million in annual revenue but hasn’t been able to make its model profitable. Edited by Jeff Muskus Bloomberg.com

Innovation Walker-Chair Form and function

Innovators Garrett Brown and Chris Fawcett

The Zeen is a four-wheel, height-changing, hybrid walker/wheelchair designed to help people sit, stand, and walk without another person’s help.

Ages 74 and 58 Chief executive officer and chief technology officer of Exokinetics, a five-person Philadelphia startup that began this summer

1. Origin Brown, the Oscar-winning inventor of the Steadicam, started working on a more active wheelchair alternative in 2012, when his father’s health was in decline.

Standing The user sits on the seat and fastens the seat belt, then leans forward slightly to be lifted from a seated position to a saddlesupported standing one. Leaning back slightly shifts it back to a sitting position.

②

Funding Exokinetics says that by yearend it will close a $2 million investment from Select Medical, which runs hospitals and other facilities, and venture firm Founders Fund. “We don’t normally partner with device makers, but this could be revolutionary,” says Select President and CEO David Chernow.

Price Brown says he aims to charge $2,000 to $3,000.

① 2.

Walking To walk, the user pushes the armrests all the way forward or back to unlock the wheels and lock the seat at the desired height. The user’s hands are then left free to work, carry things, or perform household activities.

Next Steps Exokinetics is starting supervised tests in U.S. retirement homes and rehab centers. Brown says the team will decide next year whether to seek approval for the Zeen as a medical device. Either way, the product could be on sale by 2018 or sooner, he says. “Once older people go from walker to the wheelchair, there’s such a huge decline,” says Liron Sinvani, director for geriatric services at Hofstra Northwell School of Medicine in Manhasset, N.Y. “This really has the potential to improve quality of life.” �Nick Leiber

5. M

Markets/ Finance November 28 — December 4, 2016

Five Stages of Trump Grief 4. Richer 3. Elation 2. Acceptance 32

1. Shock ▶▶Donald Trump once made Wall Streeters anxious. They’re past it ▶▶“You can probably cut back on the legal team and compliance” Talking about the election result, a former Goldman Sachs executive’s emotions veer from grief over Hillary Clinton’s loss to enthusiasm for the coming Donald Trump administration in the course of a single phone call. Speaking on the condition of anonymity, he notes that what Trump does and says might hurt Muslims, immigrants, and women. But he says he accepts Trump’s win and perks up as he discusses the rise in bank stocks. Before Nov. 8, Wall Street was fairly comfortable with the status quo represented by Clinton, and like most Americans it didn’t see much chance of Trump winning anyway. But the Street has adjusted its attitude quickly, according to interviews with a dozen executives. People in the financial-services industry are anticipating the money to be made if Trump follows through on promises to dismantle regulations in the 2010

Dodd-Frank Act, spur infrastructure development, and give jumbo tax cuts to the richest 1 percent. Wall Street consultant Octavio Marenzi learned something about his clients’ grins. “I’m seeing people smile now, clients of mine, where I didn’t even know they had teeth,” says Marenzi, co-founder of Opimas, whose clients include some of the biggest banks. “Everyone I talk to is happy.” It didn’t hurt that financial stocks popped, with Goldman Sachs gaining 15 percent in the week after the election and JPMorgan Chase not far behind. Some turnarounds clocked in at less than an hour. Bill Brandt Jr., president of bankruptcy consulting firm Development Specialists and a friend of the Clintons, spent about 20 minutes in a state of devastation. “And then I moved on,” he says. “I’m in the

restructuring industry, and I’m going to get a tax cut. What a double-good thing,” he adds. “It’s all good for me.” On the campaign trail, Trump sometimes painted financiers as greedy criminals. “I’m not going to let Wall Street get away with murder,” he said at a January rally in Iowa. “Wall Street has caused tremendous problems for us.” An ad he aired at the end of his campaign showed Goldman Sachs Chief Executive Officer Lloyd Blankfein’s face as the candidate said in a voice-over that a corrupt global power machine was robbing the U.S. But by the Friday after the election, Trump’s transition team included Goldman Sachs veterans Steven Mnuchin, the campaign’s finance chairman and a front-runner for Treasury secretary; fund manager Anthony Scaramucci; and Steve Bannon, Trump’s chief strategist. “Regulatory overreach probably

ILLUSTRATION BY CAROLINE DAVID

More Richerer peaked,” says Robert McTamaney, a former Goldman Sachs partner who helped run its equities trading business in Asia until 2011 and now manages his own money. “It’s going to come off the boil, and you can probably cut back on the legal team and compliance.” Wall Street isn’t all glee, and not just because short-term boosts from deregulation, tax cuts, and higher interest rates can fade. Despite Republican control of Congress, Dodd-Frank may be difficult to roll back with Senate filibuster rules. Incoming Senate Minority Leader Chuck Schumer said on NBC’s Meet the Press on Nov. 20 that he has enough votes from both sides of the aisle to block a Dodd-Frank repeal. The Republican platform called for reinstating the Glass-Steagall Act’s wall between commercial and investment banking, set up after the 1929 stock market crash helped trigger the Great Depression. That’s hard to square with Trump’s promise to place a moratorium on new regulations. The officials who write them have been rushing to finish sweeping limits on Wall Street pay, the last major unfinished piece of DoddFrank. The compensation rule is meant to rein in risk across the industry by forcing executives to wait longer to cash out bonuses. Two traders who work for banks say they’re mostly optimistic. But they also worry that no matter what Trump does, there’s no going back to the fat old days. Markets in recent years have become much more transparent, with more transaction prices now reported publicly, increasing competitive pressure on banks. That’s unlikely to change. Clinton supporter Richard Farley, chairman of the leveraged finance group at Kramer Levin Naftalis & Frankel, says he’s surprised at how slow some people have been to pivot. “There is a lot of hysteria, unfounded hysteria,” he says. “This is not the ideal occupant of the White House. Nonetheless, we’re going to have a functioning government, most likely, with less regulation.” The thought cheers him. Excitement for the treats the next

president might bestow on Wall Street reminds Brandt, the bankruptcy consultant, of what he felt when he left a meeting in Florida two decades ago with President Bill Clinton and thenSenator John Kerry. “They turned and said, ‘We’re going to repeal GlassSteagall,’ ” Brandt recalls. “And I said, ‘I’m all for it, because it’ll make me rich.’ And it did.” �Max Abelson and Dakin Campbell The bottom line Bankers see tax cuts, lighter regulation, and more government spending ahead. Those matter more to them than Trump’s rhetoric.

Mortgages

John Paulson’s Long Bet on Trump Pays Off ▶ The campaign donor has a stake in Fannie Mae and Freddie Mac ▶ Lobbying for a fix “that restores the rights of shareholders”

John Paulson went long on Donald Trump when much of Wall Street went short. Now he’s reaping the rewards of Trump’s victory. Paulson made billions of dollars in the late 2000s with a contrarian bet on credit-default swaps and other investments that rose in value when the U.S. housing market crashed. Since then the hedge fund manager’s company has been lobbying actively in Washington. Much of its efforts are directed at shaping the future of Fannie Mae and Freddie Mac, the companies at the heart of the nation’s mortgage market, which were taken over by the government during the financial crisis. Paulson—a political donor and economic adviser to the president-elect— has invested through his funds in Fannie Mae and Freddie Mac. Once virtually worthless, the stocks of the two companies have soared more than 80 percent since Election Day. Trump hasn’t said what he’ll do with the companies, but investors are betting his arrival at the White House will mean some of the profits that are

China is building a better financial hub. On the River Thames 34

now being sent to the U.S. Treasury will go to shareholders instead. That’s what Paulson and several other prominent hedge fund managers have been espousing. They’ve spent years building a presence in Congress and the surrounding ecosystem of advocacy and influence. Even after Trump’s pledge to “drain the swamp” of Washington, political donors and lobbyists for some of the nation’s wealthiest industries were linked to the transition team. Vice President-elect Mike Pence has since promised to remove them. “My hunch is that every hedge fund has somebody in Washington by now, or will soon,” says Timothy LaPira, an associate professor who researches lobbying at James Madison University. Fannie Mae and Freddie Mac buy mortgages from lenders and package them into securities. They were created by Congress and had long enjoyed an implicit government guarantee but were run as independent, publicly traded businesses before the takeover in 2008. The feds spent $187.5 billion on the bailout. The Obama administration eventually changed the terms of the bailout, so the government received most of the companies’ profits, and it’s more than recouped the bailout costs. Shareholders have been seeking redress in court ever since—and

Markets/Finance A Trump Bump Fannie Mae stock price

$3.40

Freddie Mac stock price

$2.90 $2.40

Election Day

$1.90 $1.40 9/12/2016

11/21/2016 DATA COMPILED BY BLOOMBERG

also working furiously to change the policy, allowing the companies to keep more of their earnings for the benefit of shareholders. The move to sweep up all profits “violated the rights of thousands of shareholders across America,” Paulson’s company, Paulson & Co., says in an e-mailed statement. It says the government’s action violated the law that enabled the takeover of Fannie Mae and Freddie Mac, which many shareholders say requires the government to allow the companies to rebuild capital and eventually reenter the private market. “This action should be reversed,” the statement says, “and we look forward to an outcome that restores the rights of shareholders in these companies.” There are lots of ways to encourage that outcome. One is a direct track to influential politicians. Through the third quarter of this year, Paulson & Co. has spent $270,000 lobbying Congress, according to the Center for Responsive Politics, more than triple its 2007 outlay. Much of the money went to American Continental Group. An ACG lobbyist helped run the 2016 Republican convention. According to public filings, Paulson is also part of a group calling itself the Informal Coalition on Housing Finance Reform, along with three other money managers. This year the group has spent $180,000 lobbying through the third quarter, up from $10,000 in 2015. Late last year, DCI Group, a publicrelations firm that’s helped organize Fannie Mae and Freddie Mac shareholders, was also added to the coalition. Paulson, who was named as an economic adviser to the Trump campaign, cumulatively gave more than $330,000 this year to Trump’s presidential effort, the Republican

National Committee, and the National Republican Congressional Committee, according to the Center for Responsive Politics. The financier’s connection with the president-elect predates Trump’s campaign for the White House. In 2012, Trump bought the Doral Golf Resort & Spa in Florida from Paulson and other investors. There are also academics, nonprofits, and think tanks that have lined up behind Fannie Mae and Freddie Mac shareholder positions. They rarely disclose who, if anyone, they’re getting funding from or collaborating with, meaning that any particular investor’s involvement is unknown. In September, Yale lecturer Logan Beirne and National Consumers League Executive Director Sally Greenberg made the case for saving the companies by invoking the not obviously related scandal at Wells Fargo. Their separate op-eds—published on successive days in American Banker and the Hill, using sometimes identical language—argued that it would be risky to leave the plumbing of America’s mortgage system solely in the hands of banks. Their alternative is to allow Fannie Mae and Freddie Mac to become strong companies again by allowing them to retain more of their earnings and recapitalize. Greenberg told Bloomberg the text came from talking points circulated by a progressive advocacy group. Raben Group, a lobbying firm, says it helped place her article in the Hill; its spokesman, Jamal Simmons, says there’s nothing unusual in “the same messaging documents” being shared among diverse groups working toward a common goal. The Hill took down Greenberg’s op-ed after her response to Bloomberg. Beirne says he’d worked with a conservative think tank and had no contact with either the progressive group or with Raben. Then there are apparently grassroots movements of small investors pushing for outcomes that favor them—and also benefit those with a larger stake. DCI, the PR firm, has been actively organizing such an effort in the case of Fannie Mae and Freddie Mac, as it did during the Puerto Rican debt crisis. Sometimes, big-investor money supports existing advocacy groups. Nonprofits have made the case for

Fannie Mae and Freddie Mac on the grounds the agencies help provide affordable housing for ethnic minorities and low-income groups. The Leadership Conference on Civil and Human Rights has built a coalition to back recapitalization of the two companies. It says it’s received more than $300,000 in donations from DCI, which is a regular donor to a range of nonprofits. Paulson’s charitable foundation gave $25,000 to an affiliated group, the Leadership Conference Education Fund. Paulson isn’t the only investor suddenly doing well by Fannie Mae and Freddie Mac investments. Mutual fund manager Bruce Berkowitz, who said in a CNBC interview in September he would support Trump, saw his Fairholme Fund gain 12 percent between Election Day and Nov. 21, driven by gains in preferred shares of the two companies. Hedge fund manager William Ackman of Pershing Square Capital Management is the biggest holder of Fannie Mae common shares. At a conference in New York, he said he woke up on Nov. 9 “extremely bullish” on the president-elect. �Joe Light The bottom line A spike in stock prices of government-run Fannie Mae and Freddie Mac shows investors see Trump as friendly to them.

Real Estate

Chinese Investors Hear London Calling ▶ Since the Brexit vote, rents are down, and some see bargains ▶ The capital “is still a great magnet for companies from Asia”

With Britain trying to hammer out the terms of its exit from the European Union, is this the best time to start building a new financial district in London? China thinks so. Four of the country’s biggest banks this month agreed to finance the first stage of a £1.7 billion ($2.1 billion) transformation of an old East End dock into a hub for Asian businesses. In total, Chinese companies are on track to invest a record £4 billion

Markets/Finance in London property this year. The Brexit vote in June threatens to diminish London’s status as Europe’s financial hub, because banks based there may lose the passporting rights that allow them to easily do business everywhere in Europe’s single market. In July office values in the City of London fell the most in at least seven years on concerns that vacancy rates could rise and rents fall if companies move workers abroad. International businesses may shift as many as 100,000 jobs out of London within two years of the U.K. officially starting the EU exit process, according to Jefferies Group analyst Mike Prew. Chinese investors are looking at it from a different perspective. They’ve been bingeing on foreign properties around the world, driven by high prices and dwindling investment opportunities in commercial property at home. And Brexit has depressed the value of the pound against the yuan, making U.K. property look cheaper. “We’re now getting inquiries from investors who have sat on the sidelines for years,” says Rasheed Hassan, a director of cross-border investment at Savills. The long-term payoff still depends on London remaining a vibrant business center. “Chinese investors are betting that the U.K. will do well in the Brexit talks, and if it doesn’t, companies will still choose London as their base,” says Michael Marx, former chief executive officer of developer U+I Group. “London didn’t become the financial capital of the world

overnight, and it certainly won’t lose that status so quickly.” The project at the Royal Albert Dock, near London City Airport, is being developed by ABP London with investment company Citic Group and has reservations for 13 of the 20 buildings in the first phase. Bank of China, Agricultural Bank Spire London of China, Industrial & Commercial Bank of China, and China Construction Bank are lending to the development. ABP maintains that the drop in both London rents and the pound’s value could attract expanding companies from China and other parts of Asia looking for bargains. “We have seen no drop-off in interest since the vote; in fact, it has increased,” says ABP spokesman Neil Robinson in an interview at the site, where workmen prepare the ground for construction. Whatever happens with the EU, for those doing business in Europe the city still has the advantage of location, location, location. “London is still a great magnet for companies from Asia which already have trading agreements with the EU and can still trade irrespective of the trade deal that the U.K. eventually gets,” says Robinson. Chinese money is also flowing into residential real estate. In Canary Wharf, where banks including

RENDERINGS: COURTESY ABP LONDON; COURTESY GREENLAND HOLDINGS

Royal Albert Dock

Barclays, Citigroup, and Credit Suisse are scaling down office space and workers, Shanghai-based Greenland Holdings is developing Spire London, set to be Europe’s tallest residential building upon completion in 2020. At least seven prospective buyers signed up immediately after the project was unveiled in Beijing and paid the 10,000-yuan ($1,450) deposit to secure a slot when local subscriptions officially start. History shows that starting a London financial district can be a rough ride. Canary Wharf, built as a second financial center along what had once been East London’s busy docks, was taken over by creditors in 1992, after Paul Reichmann’s Olympic & York Developments said it couldn’t pay interest on its loans. Songbird Estates, the owner of most of the district, was forced in 2009 to sell shares to investors including China Investment Corp. to repay a loan as the economic crisis hit. Last year, Songbird was purchased by the Qatar Investment Authority and Brookfield Property Partners. “If you assume the exchange rate between the renminbi and the pound goes back to where it was, there’ll be a currency gain on top of any property returns, but there’s no guarantee that will happen,” says Colin Lizieri, a professor of real estate at Cambridge University. “Rents or capital values could fall over time if there are oversupply issues or dwindling demand.” Too much supply is already a risk. “There’s a lot coming onto the market, adding to the mix of the Brexit shock,” says Jefferies’s Prew. His firm is anticipating rents falling 8 percent to 10 percent over the next 24 months, “with a downside risk of as much as 20 percent if the market goes the way of 2001 and 2002, when the tech bubble burst.” �Bloomberg News The bottom line Chinese banks are developing commercial and residential properties in Europe’s financial hub, but the payoff is unclear. Edited by Pat Regnier Bloomberg.com

AA PIPIPPEELLININEE

As protests heat up, two accidents in Alabama ha By Christopher Leonard

David Butler, Riverkeeper for the Cahaba, downstream from a Colonial Pipeline explosion site

RUNS THROUGH I T RUNS THROUGH IT

ve shown how fragile Americaâ&#x20AC;&#x2122;s energy system is Photographs by Christopher Gregory

with an increasingly troubled safety record. Built in 1962, the Colonial was the largest private-sector infrastructure project of its time. Roughly half of all refined fuel products used in cities from Georgia to New Jersey run through its 5,500 miles, which branch out from oil refineries in Texas and on the Gulf Coast to gas stations in America’s most populated corridor. In 1999, Colonial Pipeline paid a fine of $7 million—the biggest ever at the time—for a massive spill in South Carolina. Four years later, it was fined $34 million, a new record, for spilling 1.45 million gallons of oil in five states. At the same time, Colonial has benefited from an increasingly dense regulatory environment for pipeline construction, which has helped protect it from competition and make it something of a piggy bank for its owners, to whom the company returns annual dividends that typically total about $300 million. Colonial’s pipeline consistently runs at 100 percent capacity, leaving gasoline refiners and fuel merchants, who pay transport rates in a manner akin to a toll road, vying for space. The company, headquartered in Alpharetta, a suburb of Atlanta, is privately held by a consortium of investors. The largest is Koch Industries, with a 28 percent stake; others include the private equity firm KKR, Shell Pipeline, a n d S o u t h K o r e a ’s National Pension Service. Tight capacity and the millions of gallons of new oil supplies produced by the U.S. shale boom have made some operators and industrial customers eager to build additional pipelines. Companies that rely on the Colonial, including American Airlines, First responders at the are among those press- Oct. 31 explosion ing for expansion. But although pipeline operators maintain that moving fuel underground is cheaper and safer than moving it by rail, barge, or truck, resistance to more construction has grown fierce, and not just in liberal communities. In addition to ongoing protests by Native American and environmental activists over the Dakota Access Pipeline in North Dakota, some deeply conservative Southern counties have opposed projects as well. Minutes after the explosion in Alabama, David Butler’s cell phone started ringing. Butler is a local leader of Riverkeepers, an alliance of activists who protect watersheds and rivers around the country. As Riverkeeper for the Cahaba, which snakes between the sites of the Colonial gas leak in September and the explosion in October, he counts among his responsibilities testing for pollution and responding to reports of sewer leaks. Colonial had also enlisted him to help monitor for pollution from its line and with cleanup after spills. That afternoon, Butler and his wife, who live about 20 miles from the blast, were preparing to take their kids trick-or-treating. His daughter was going to be Little Red Riding Hood, his son the Big Bad Wolf.

COURTESY ALABASTER FIRE DEPARTMENT/REUTERS

Halloween afternoon, nine men arrived at a wooded ridgeline in rural Alabama. They parked their vehicles next to a gravel road, forming a loose circle of pickup trucks, a semi, and an earth-moving track hoe. A driver turned on the track hoe and drove it down into a long stretch of grass that ran along a hillside—the right of way for the Colonial Pipeline, the largest gasoline pipeline in the U.S. Beneath the ground, a 3-foot-wide steel tube carried roughly 1.4 million barrels of gasoline each day to 50 million Americans in cities up and down the Eastern Seaboard. The men were there to conduct repairs. Just over a month before, the pipeline had sprung a leak, forcing a shutdown that caused gasoline reserves on the East Coast to fall from 64 million barrels to 55.5 million, the biggest one-week drop in U.S. history. Prices spiked at the pump in many cities from Atlanta to Jersey City. The leak had been fixed temporarily with a bypass, and now the crew was excavating about 5 miles from the original rupture to rebuild the stretch that had failed. They worked for a local contractor, L.E. Bell Construction, that the pipeline’s owner, Colonial Pipeline Co., had hired many times over the years. Among the team was Anthony Lee Willingham, a 48-yearold track hoe operator who’d been with L.E. Bell for almost 30 years. He was familiar enough with the routine procedures of pipeline repair to have built a kind of muscle memory. If he was at the wheel—the company hasn’t confirmed this—he would have known to operate the track hoe blade slowly, deliberately, without applying too much pressure. But somehow the blade struck steel, and the fuel ignited. At that moment, not far down the gravel road, a farmer named Douglas Wright was at home playing with his granddaughter. The explosion shook the house to its foundations. Wright looked outside and saw a column of flame rising hundreds of feet in the air. Black smoke billowed into the blue sky. He told his wife to take their granddaughter and drive as fast as possible, then he headed toward the fire, thinking to check on some elderly neighbors. As he got closer to the site, he heard screams. Wright arrived to find some of the workers on the ground, severely burned, as their uninjured colleagues tried frantically to move them away from the flames. The track hoe was charred. The semi was obliterated, and the pickup trucks were on fire. Amid the wreckage was the body of Willingham. Authorities were unable to collect his remains until the next day. Aftershocks quickly shuddered up the spine of America’s energy system. When gasoline traders realized that East Coast reserves were once again threatened, they started bidding up the price of fuel. In a matter of hours, the cost of a gasoline futures contract for December shot up 15 percent, the highest jump since the financial crisis in late 2008. Merchants scrambled to secure supplies from tankers carrying imported fuel, causing the cost of cargo freight from the Atlantic to surge more than a third, to about $17 per metric ton, according to data compiled by Bloomberg. The chaos revealed something millions of Americans had long been able to ignore: They depend on a single pipeline to deliver the gasoline that fuels their everyday lives. And that pipeline is operated by a single, little-known company

The first calls were from neighbors, asking if he knew what had happened. Then Colonial got in touch and confirmed that the fire had begun with an explosion. The implications were dire: Hundreds of thousands of gallons of fuel could be pouring into nearby creeks and rivers, imperiling the Cahaba’s 173 species of fish and mussels, 14 of which are listed as threatened or endangered. The waterway is also home to the rare Cahaba river lily, which attracts thousands of tourists after it blooms each May. (Local drinking water supplies were safe, since they’re drawn from a river farther away.) That evening, Butler arrived at the improvised command center Colonial had set up at a community building in the town of Pelham. After being cleared by security, he entered a large, gymnasium-like room where a disaster response team was working on a plan to contain the fire and assess the damage. Butler might have seemed out of place amid the fire department staff, pipeline personnel, and officials from the Environmental Protection Agency and other government bodies. With his dark beard, wiry frame, and casual clothing—he often wears jeans and a yellow Riverkeeper T-shirt— he typically looks like he’s just finished a long hike. He also has the metabolism of a hummingbird, frequently fueling himself with Powerade and miniature chocolate-chip cookies. That first night, Butler worked with Colonial employees and environmental contractors until roughly 3 a.m. to draw a map that showed where gasoline might be leaking into the Cahaba. One point of concern was a creek near the explosion that fed into the river. This small stretch of water is the isolated habitat of the oblong rocksnail, a species thought to be extinct until a small population was found in 2011. Butler and Colonial decided that in the morning they would test strategic points along the waterways for the presence of fuel. As they worked that night, the fire was spreading along the hillside to nearby forested land. Alabama was in the middle of an historic drought, which had left the forest floor covered with dry tinder. About 31 acres of land were engulfed

Damage costs for Colonial Pipeline accidents

$80m

GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: ENERGY INFORMATION ADMINISTRATION, PIPELINE AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION

In September, more than 300,000 gallons of gasoline leaked in Alabama; the next month the pipeline exploded

$40m

$0 2006

2011

2016 Linden, N.J.

Norfolk, Va. Nashville, Tenn. Birmingham, Ala.

Atlanta

Colonial Pipeline Houston Oct. 31 explosion

Sept. 9 leak

250 mi.

overnight. Butler considered it a stroke of luck that the fire wasn’t encroaching on the suburban communities dotting the highways between the explosion and Helena, a town 21 miles south of Birmingham. Colonial had moved swiftly to shut off the flow of gasoline in the pipe, leaving it to burn itself out as firefighting crews doused the edges of the blaze and built earthen berms to contain the fountain of ignited fuel. When Butler arrived in the morning to start collecting water samples, the fire was largely contained, but it remained about 20 feet high. As he went from site to site, the early indications looked promising: no oily sheen on the water, no odor of gas. He did, however, notice a somber air among the pipeline employees and contractors. They seemed almost embarrassed, he thought. Colonial had been having a very bad year in Alabama. The company had already reported five leaks from its pipeline in 2016, one less in 10 months than it had had in the previous five years. In late January, the Colonial had discharged about 126 gallons of fuel into nearby wilderness. Several smaller spills followed, culminating in the big leak in September, when 309,540 gallons of gasoline poured out of the line, filling local ponds and forcing the shutdown. Records from the federal Pipeline and Hazardous Materials Safety Administration (PHMSA) show that nationally, the number of reported pipeline accidents has been creeping up every year since 2012, from 573 that year to 715 in 2015. The number of reported accidents along the Colonial has also been climbing (though not in a straight line), from 12 in 2011 to 27 in 2015. Their cost, too, has been increasing. Last year, incidents involving the Colonial led to $18.1 million in property damage and cleanup outlays, the highest total by far over the preceding decade. This year, the figure had already reached $75.6 million before the accident on Oct. 31. Colonial refused to comment on what caused the September leak or why accidents are up sharply in Alabama this year. Malesia Dunn, a spokeswoman for Colonial, said that the company is looking into the causes of both major incidents and can’t comment until the investigation is further along. The PHMSA has yet to determine the cause of the September and October incidents and wouldn’t comment either. Butler had worked with Colonial to contain the September leak. As bad as it was, he said, it could have been far worse. It had been discovered only by chance, by a state inspector who smelled gas fumes while doing unrelated work in the area. And because of the drought, the nearby ponds were low, which allowed them to become catchments for the spill. Had they been full, the gasoline might have flowed into the Cahaba. Dunn wouldn’t discuss why the company failed to discover the September leak, but she stressed that it has an extensive detection system in place. The system includes pressuremonitoring equipment and flyover inspections, as well as training for local officials about Colonial’s operations, which lets them know “who to call if they see something,” she wrote in a statement. She added that a flyover inspection two days before hadn’t spotted the leak. After the September spill was contained, Butler said, he had jokingly told Colonial employees, “I hope I never see you again.” Now, as they once again raced to keep the Cahaba River safe from a gas spill, “it wasn’t like, ‘Hey, great to see you,’ ” he said. “It’s like, ‘Here we are again.’ ” Accidents like the ones on the Colonial have galvanized opposition to pipeline construction across the country. In North Dakota, protesters have built huge encampments

and blocked roads to halt construction of the Dakota Access Pipeline, a $4 billion project that would take crude oil from fracking wells in North Dakota to refineries and gasoline consumers in Illinois. Members of the Standing Rock Sioux Tribe argue that the pipeline’s proposed route runs too close to the Missouri River, the source of their drinking water. On Nov. 15, hundreds of marchers closed down streets near the White House, while other rallies took place from Los Angeles to New York. The Colonial’s history suggests their fears are justified. The leak in South Carolina for which Colonial Pipeline paid its 1999 fine, for example, sent roughly 1 million gallons of diesel fuel into a local waterway, contaminating a 23-mile stretch of river and killing an estimated 35,000 fish, along with beavers, muskrats, and turtles. In settling with the U.S. Department of Justice, Colonial pleaded guilty to criminal neglect. Over the past three decades, incidents like these, and the resistance they’ve spawned, have led to a much tighter regulatory environment for pipeline builders. Roger Williams, a pipeline developer from Wichita, said that in the mid-1980s he oversaw a project that laid 1,300 miles of pipe from Texas to California, crossing several states and a mountain range for good measure. At 85, he’s now vice president for operations on the 178-mile Pilgrim Pipeline project, which would serve cities in New Jersey and New York. His team has spent millions just to get to the beginning of the permitting process, including money to hire herpetologists and other wildlife experts to examine the ecological impact of the new line. After more than three years of groundwork, Williams said, “we don’t have one single permit yet.” In the meantime, the company has had to shut down a branch office in New York and lay off its staff. “They protect everything up there except human beings,” he said. New pipelines are being thwarted in the South, too. In May, Georgia’s Republican governor, Nathan Deal, signed a moratorium on pipeline permits following intense public opposition to a proposal by Kinder Morgan for a 360-mile pipeline called the Palmetto. The line would have branched off from the company’s Plantation Pipe Line, tracing a route through Georgia, South Carolina, and Florida, and serving cities with limited or no pipeline service, such as Savannah and Jacksonville. Opposition arose almost immediately, led in part by Tonya Bonitatibus, the Riverkeeper for the Savannah River. The Palmetto was to be buried beneath miles of marshy terrain that runs alongside sensitive rivers—wetlands that serve, Bonitatibus said, as the rivers’ “liver and lungs,” by letting pollutants settle out into sediment in the shallow, slow-moving water. While some of the anti-Palmetto movement’s concerns were environmental, their activism took on a conservative bent. Most of the resistance focused on Kinder Morgan’s authority to use eminent domain to take property from landowners who wouldn’t cut a deal with the company, a power granted to pipeline companies by a New Deal-era law intended to spur infrastructure development. “They were incredibly arrogant the entire time,” Bonitatibus said. “There was absolutely no way that Kinder Morgan should have access to eminent domain.” Allen Fore, a spokesman for Kinder Morgan, said that on a typical pipeline project the company uses eminent domain sparingly, invoking it for fewer than 5 percent of landowners. He added that the company had also been prepared to push ahead with Palmetto without eminent domain. But the activists’ message carried the day, and Deal passed his moratorium

with the backing of conservative state legislators. Even with financing and a customer base locked in, the regulatory uncertainty was too great for Kinder Morgan to carry on. “That, at the end of the day, was the problem of Palmetto—where you have a regulatory environment that shifts,” Fore said. “The playing field is not only altered, it’s basically shut down.” In the days after the Alabama explosion, as Butler collected water samples, employees from Colonial and L.E. Bell raced to get gasoline flowing again. The lessons of the September shutdown were fresh in their minds. They knew that oil traders and wholesalers would be counting the minutes until the pipeline reopened. The gravel road to the accident site was guarded by a rotating shift of Shelby County sheriff ’s deputies, who checked credentials and kept strangers and reporters away. Traffic was almost nonstop. Heavy trucks with the L.E. Bell logo came and went, along with vehicles from specialists and construction companies from around the Southeast. The men and women driving looked stoic, ignoring reporters as they passed by the entrance. At the site, workers prepared new sections of pipeline while fire crews sprayed smoldering tree stumps to prevent reignition. In the predawn hours of Nov. 4, four days after the blaze erupted, it finally burned out completely. The next day, the new section of pipeline was tested and prepared for use. Employees of L.E. Bell appeared shellshocked in the days after the explosion. Word of Willingham’s death had spread quickly, and four of his co-workers were being treated at a burn unit in downtown Birmingham. Trays of food and gallons of coffee were sent to provision family members as they held vigil. Those who knew Willingham seemed mystified by the accident, none more so than Jeremy Slaton, his next-door neighbor and close friend. The two often shot rifles together on a grassy hillside near their homes. Slaton recalled that Willingham could hit a target from several hundred yards away. Willingham was a steady hand and a competent worker, he said, which made him doubt that a simple mistaken swipe of the track hoe blade had been entirely to blame. “It would take tremendous, tremendous force to put a back hoe, or a track hoe, tooth through a piece of pipe,” he said. “I’m thinking there’s something else … something was hidden that caused this.” Shortly after the accident, Colonial released a statement saying that a track hoe had struck the pipeline, but the company didn’t confirm that Willingham had been driving or otherwise elaborate. The company and the National Transportation Safety Board are both investigating the accident, but neither would comment on their investigations or on the circumstances of the explosion. Larry Bell, the owner and operator of L.E. Bell Construction, declined to discuss the explosion in detail because of the legal troubles surrounding it. He would say only that it was a “freak accident.” He said, “it had nothing to do with unsafe pipeline or workmanship. I’m not a betting man, but you’d win money on that.” Bell lives on a large complex that also serves as his company’s headquarters, on a winding country road near Heflin, an hour or so east of Birmingham. On the left as visitors enter is a giant warehouse and open lot. Next to that is a small office building, where visitors are greeted by a caged parrot. A sign taped to the front door shows a pile of cash below the caption, “This is the money you could’ve saved if you hadn’t voted for Obama.” To the right of the office is a palatial house. The mix

the company agreed to improve safety practices as part of its settlement with federal regulators. This year’s incidents appear to be affecting the company’s bottom line. In 2015, according to Moody’s, Colonial spent $163 million on capital investments, which includes measures for system reliability. This year the figure is almost double that, roughly $300 million. That’s about the same amount the company has been returning to its shareholders in dividends in recent years, but Moody’s notes that Colonial will reduce the payouts this year because of the accidents. Koch Industries declined to comment. It’s possible that the presidency of Donald Trump will change the regulatory environment for pipelines, clearing the way for the Dakota Access to be completed and for the construction of the Keystone XL and other lines. But it’s unclear how much impact even a determined White House could have, given that most pipeline battles are fought at the lower levels of government. Moreover, g asoline supply crunches won’t likely persuade the environmental groups that pressured President Obama to kill Keystone XL and are now protesting the Dakota Access to back down from their objections. “My worries about ‘infrastructure fragility’ tend more towards, say, the effects of rapid sea level rise Buck Creek, a tributary of the Cahaba that runs through the town of Helena on the nation’s coastal cities,” wrote of home and business, Bell said, was “a country boy’s way of author and activist Bill McKibben, co-founder of the nonprofit doing stuff.” He was quick to point out that he and his wife 350. org, in an e-mail. were born poor and had been raised in a nearby small town. Environmentalists’ fight, he pointed out, is about more “We didn’t have no rich aunts or rich uncles or daddies … than preventing leaks—it’s a way to curb the construction of but we had some good ones,” he said. infrastructure that supports the oil and gas industry. “The Bell dropped out of high school to work as a laborer on the imperative need is to wean the world fast off fossil fuels—this Colonial in the early 1960s. He remembered when the pipe- is the hottest year our planet has ever recorded, with recordline ran its first gallons to fuel. His company now employs low polar ice for the date, with massive droughts and floods,” about 500 people, who help maintain the aging Colonial and McKibben wrote. “When we build new fossil fuel infrastrucother pipelines like it across the country. Colonial Pipeline, ture we condemn the nation to another 40 or 50 years locked he said, goes “extremely overboard to make sure everything into the current way of doing business.” is done right and everything is safe.” He described pipelines For now, at least, the risks of climate change, water contamas a necessity of modern life. “If we lined up trucks to trans- ination, and species loss remain the trade-off for driving our port our product from Louisiana and Texas to the East Coast, cars and heating our homes. By Sunday, Nov. 6, the Colonial we wouldn’t have any room on the interstate to run our cars,” was up and running again. Gas prices had barely been dishe said. “Anything we do has got risk to it. There’s nothing rupted, leaving some 50 million people to forget once again that man makes that does not have a risk to it.” what an important role a single tube of steel and the company Dunn, Colonial’s spokeswoman, wouldn’t say what specific that owns it play in their daily lives. actions the company will take to boost reliability. “When inciButler’s water tests from the accident site came back negdents do occur, we investigate and determine the cause along- ative for gasoline. It was great news for him and the oblong side government regulators, and take corrective actions based rocksnail, but he wasn’t celebrating. Instead, he was nervous on lessons learned to minimize the likelihood of similar events that the next call from Colonial would be coming soon enough. happening again in the future. We are doing the same here,” The risk was always hanging out there, he said. “It’s sort of she wrote in an e-mail. After each previous major accident, a guillotine.” <BW>

â&#x20AC;&#x2DC;I mean is ther anti-m trainin 42

n, re murder ng?’ Sexual harassment is alive and well in the American workplace. We’re all clicking through video compliance courses.

Something’s not working

By Claire Suddath

Nine women talk about on-the-job harassment

standing in a room full of 300 people, and an elected official came up behind me, grabbed me, and then put his hand between my legs. A colleague saw it happen. He pulled me into the hallway Marie Billiel, 27 and said, “If you don’t tell your boss, Boston I will.” So I did. Having someone else It started pretty quickly, within the see it validated my story. The man first two weeks that I was working at the couldn’t claim I was flirting with him or it diner. One of the cooks didn’t happen. grabbed my wrist and I know the elected tried to pull me into the official was talked to. I f you run a company in California, you have to take walk-in freezer where would’ve liked to see him state-mandated anti-harassment training every two there aren’t any cameras, banned from our meetings, but he wasn’t. One years. This October, Matt MacInnis, founder of a because he wanted to digital distribution business called Inkling, clicked time he caught me after a kiss me. I said no. I pulled through two hours’ worth of slides about inappromeeting and said, “I was away, went back out. I priate touching and sexual comments in an online out of line, I was drinkwas 18 and didn’t know course produced by an HR services company. As he ing, and I know that’s no how to deal with it. answered multiple-choice questions to prove he’d paid attenexcuse, but I’m sorry.” We were whistled at tion, a thought occurred to him: This is a farce. MacInnis That was three years all the time. Some girls couldn’t see how an online training course would keep “an ago. I still see him, but it’s were oinked at. They a--hole from still being an a--hole,” as he puts it. “There is better now. would watch pornography on their cell phones a laudable goal, but the way we address sexual harassment I actually wrote the now, the whole system is flawed,” he says. “I mean, is there and then try to show it to sexual-harassment anti-murder training?” us. I was kissed without policy for our organizaThe Equal Employment Opportunity Commission tion’s meetings after that. my consent. There were (EEOC), which by law must investigate all federal harassWe didn’t have a formal other women there who ment claims before they can proceed in court, received one. I mean, it’s 2016 for got straight-up groped. If 13,000 sexual-harassment complaints last year (16 percent God’s sake. I resisted their advances, of them from men), outpacing the number it received for *For the women who they would retaliate by racial, ethnic, or religious discrimination. “We by no asked to remain anony “forgetting” to make my means think that’s the extent of the harassment,” says mous, we have verified food or burning my orders Peggy Mastroianni, the organization’s legal counsel. She their names, place of or making other people’s estimates that as many as 90 percent of people who expeemployment at the time orders first. My tip goes rience sexually inappropriate behavior at work never of the incident, and the down because of that. take formal action. Many who do are contractually oblinames of the alleged There was one point gated to litigate through private arbitration, which the harassers. where I was in a walk-in EEOC can’t track. But decades of surveys show that harassfreezer with a cook who ment remains prevalent: In a 1981 Harvard Business Review Alexandra was consistently trying to Marchuk, 30 survey, 60 percent of women said they’d been “eyed up and get me to go out with him. down” by male co-workers; last year the EEOC reported Jacksonville, Fla. One of the other cooks that somewhere from 50 percent to 75 percent of women I worked at Faruqi shut the door on us and have experienced sexual comments or touches that made & Faruqi my second turned the lights out as them feel uneasy at work. summer of law school. this man was approaching me and asking if he For more than three decades, U.S. companies and instiThey offered me a job tutions have addressed such behavior through corporate could bite me. [It] was when I graduated in 2011. policies and awareness programs, although there’s little less than five minutes, It’s a small civil litigation evidence they’re effective. Compliance training makes up a but at the time it feels like firm in New York. The sizable portion of what market-research company IBISWorld an eternity. two founders are brother estimates is a $4 billion HR software market. In California, I told one of my manand sister, but the partwhich has the most robust training requirements of any agers. She passed it ners are mostly men. along to the owner, and There were some female nothing was done. I heard attorneys and of course the reason was because women paralegals and I’m not any less traumatized; I’m not any they’d heard that I had already been receptionists. Midway through that less assaulted. sexual with him, which is not the word [first] summer, Juan Monteverde was they used. That was untrue, but they hired. He specializes in intervening in Anonymous, 32* decided they weren’t going to intermergers on behalf of shareholders, vene based on something they’d heard Washington, D.C. saying the disclosures you’re making through the grapevine. I work for a political group. We do are insufficient. He was really good at [After Billiel left the diner and, in a lot of networking events. When you his job, sort of the rainmaker. 2014, blogged about her experiences, get people out of an office setting, they Juan had said some weird things the American Civil Liberties Union and change. This one time I was at an event, to me when I worked there over the the Massachusetts attorney general’s office filed separate complaints. The diner settled without admitting to any wrongdoing. Billiel and at least nine other women will share a settlement of between $112,000 and $200,000.] Receiving a settlement doesn’t necessarily feel good. The diner closed. I still had friends who worked there, and

summer. Once we’d been out at dinner, putting myself in a dangerous position. “quickly, forcefully, and painfully had and he joked in front of other people that And I still had to do the actual work. sex with her.” In his own court filing, I should give him a blow job for picking up I had this plan to wait until I got Monteverde disputed her account.] the check. I didn’t know until right before some experience and then jump ship. I actually went to work for two days I started that I’d be working directly I was trying to strike this balance— after that, but the second night I was like, for him. I was hesitant, but I also had don’t complain so you don’t get fired. “I can’t do this.” I called my mom, and she $250,000 in student loan debt and was In December [2011], I’d been there drove into the city and picked me up. really happy to have a job. three months, and we were at the firm’s I filed a lawsuit. I had gotten a fullOn my third day at work, we’d just holiday party. I started talking to Juan time job in Omaha before I filed, and I’m come back from a court still with that company. hearing and were having They let me deal with it in a drink at a bar when the best kind of way. So state, companies spend hundreds of millions of dollars on Juan started kissing me. on that front, I was OK. courses every year. About 80 percent of companies offer some He asked me to go have But I didn’t think it would form of training, although only three states—Connecticut sex with him. I was like, be covered so closely and Maine, in addition to California—require them to do so. “What? No.” He started by law blogs or followed (Thirteen more states order training for at least some govmaking comments all the by the law community. ernment employees.) They use all sorts of courses, produced time. He’d touch me in the There are details in there by dozens of companies, from the cut-and-dried to risible elevator when I couldn’t that, when you Google theatrical re-creations. get away. He kept inviting me—I mean, bloodstains Skillsoft makes compliance videos covering everything me out on his boat. He’d on the carpet. One of my from data privacy to environmental sustainability for about comment about my body close friends thought 7,000 companies; it leans heavily on hired actors who demin front of other people at to e-mail every single onstrate legal definitions in generic corporate scenes. HR the firm, asking me to go person in her firm about Learning Center advertises one of its courses with a picture to hearings with him so I it. It was entertainment of a man and a woman making out on top of a filing cabinet. could be “eye candy” for for a lot of people. Inspired eLearning, which MacInnis used at Inkling, starts the judge. The firm denied it. one of its videos with the words “charges of sexual and other A few weeks into this, [Monteverde said the forms of harassment can land your company in court,” folone of the female partrelationship was consensual.] They countersued lowed by a picture of a frightened gray-haired man on what ners took me out to appears to be a witness stand. Emtrain, which creates online me for $15 million, claimdinner, and I told her what courses and runs in-person events for companies such as ing I was “obsessed” with was going on. I got the Chevron, Netflix, and Nordstrom, urges employees to menhim. The lies they told sense later that she talked tally color-code their comments—green is respectful, red is don’t even make sense. to people about him, but offensive—and to call out their co-workers with gentle warnThey said I hadn’t been nothing was done. So I ings such as “that’s a little orange.” eligible for a bonus. Well, just ... I don’t know. It went Early versions of these programs first cropped up in the I kept my offer letter, and on and on. We did a case 1980s, but the their use didn’t pick up until two U.S. Supreme it says I’m eligible for a involving a company Court decisions in 1998 clarified when companies can be held bonus. They claimed I’d called BJ’s Wholesale, liable for harassment. In the cases, which considered what’s e-mailed the lawsuit to and he’d joke in front of known as “hostile work environment” harassment (frequent Juan and his wife and the another attorney about sexualized comments or touches), as opposed to the “quid firm’s clients. But it turned how much he liked getting pro quo” variety (the classic “sleep with me or you’re fired”), out that the IP address BJs. Sometimes it wasn’t the court decided that a company will be held liable when a where the e-mail came even sexual. He’d just do boss harasses a subordinate unless it can prove that it takes from was within Faruqi, things like make me work steps to prevent and address such behavior. after I’d already quit. They all weekend on someCatchall policies that disavowed harassment quickly thing that wasn’t necesended up dropping the became the norm. Pick any major institution today, and sary; or he’d threaten to countersuit. you’ll find one: “We do not tolerate harassment or inapprofire me knowing I had all I was deposed for a priate conduct,” JPMorgan Chase’s official code of conduct this student debt; or he full day. All of the named reads. Apple is committed to “a workplace free of said he’d chip in on my defendants got to sit in harassment.” In addition to the standard prohibitory rent if I let him sleep over the room and look at me at my apartment. as I did it. They had a psychologist evaluate me. It I dreaded going into was a three-hour session the office. I had to police in the library of an attorney’s law firm, about yearend bonuses, and he said he everything I said and did and what I and he asked a lot of questions about wouldn’t recommend me for one. We’d wore. I remember one time I was visiting been drinking, and he said we should go my hobbies. It seemed to bother everyhome, and my mom took me shopping at one that I had gone hiking on a vacation back to the office, and I agreed. That’s Brooks Brothers. There was a pencil skirt once during all of this. They asked a lot of when he—we ... she wanted me to buy, but I said, “No, questions about how I paid for the vaca(cries) Juan would comment on it.” I paid attention to when other people left for the day tion. They decided not to use the psy[In a lawsuit Marchuk later filed chologist in the trial, so I don’t know what so I wasn’t alone. It took an incredible against Monteverde and the firm, she the point of that was. amount of energy to make sure I wasn’t said that back in the empty office, he

The trial went on for weeks and was invited me to sushi for dinner. He said was like, “Am I overreacting? Is this guy insanely stressful. I read discovery from it would be a big group of co-workers. crossing the line?” I wasn’t sure. My some of my friends, and what they said When I got to the restaurant, though, supervisor said, “Absolutely he is. He about me in e-mails and Gchats behind there was nobody else there. I ate should not be sending you flowers and my back. By the time the jury had their dinner to be polite, but then I went home, asking you out when you tell him not verdict, so much had been argued that because it was weird. to.” He said he’d talk to him. That was it. I didn’t know what to expect. [Marchuk He started e-mailing me multiple mesEverything stopped. sages a day. He sent me flowers. He’d lost under federal and New York state I learned later from my supervisor say things like, “A friend of mine is a pilot harassment law, but won under New that they’d had other issues with him. York City’s human-rights Two other women complained about him after I law and was awarded did. I know they take this $140,000. In a postlanguage, Google urges its employees to “be excellent to decision interview with stuff very seriously there, each other.” Goldman Sachs says it does “not tolerate any the Above the Law and I’ve always felt very form of discrimination prohibited by law.” Despite the recent blog, a juror explained safe. But he still works outpouring of harassment complaints regarding former Fox that the jury didn’t at the studio. He’s had News Chairman Roger Ailes, the policy at the network’s believe Monteverde’s promotions. parent company, 21st Century Fox, says that “unwelcome sexual advances were DreamWorks declined sexual advances [or] … verbal or physical conduct of a sexual entirely unwelcome, that to comment. nature” aren’t allowed, and people should feel free to report Marchuk’s private e-mails any harassment they see or experience. Anonymous, 32 contained contradicThese policies often go hand in hand with the traintory messages about San Diego ing courses, which typically cover the legal definition of how she felt about the The first firm I worked harassment and what kind of behavior can get people into law firm, and that the firm for after law school, I was trouble. Maine and Connecticut passed their laws requiring had dutifully recorded a junior associate. The training in 1992, in direct response to the Supreme Court what Marchuk told the head of paralegal was confirmation hearings for Clarence Thomas. California folfemale partner about a guy who was about lowed suit in 2004 after 16 women accused then-Governor Monteverde’s actions.] 20 years older than me. Arnold Schwarzenegger of harassment. (“With your backThe decision was disBecause I’m an attorground, you probably ought to sign it,” Sarah Reyes, the appointing but well within ney, I was above him. He state assemblywoman who introduced the bill, said about the range of anything that took great issue with this. Schwarzenegger at the time.) But according to employment could have happened. He’d say things to me like, attorneys, HR managers, and the companies that design the You just don’t know. It’s “Why are you always such courses, their goal isn’t to stop harassment—it’s to guard just a bunch of strangers a b----?” “Why are you a against lawsuits. who get to judge whether hard ass?” It was offen“You’re building a defense in the event of an incident, sive and all, but it was just or not you deserved it. passing liability from the organization to the individual,” talk. I just thought he had In a statement, Faruqi says Eugene Van Biert, vice president for global compliance something in his craw & Faruqi founding partner solutions at Skillsoft. His company offers different levels about a woman of color Lubna Faruqi says the of training; he says most of its clients pick the basic online being his superior. law firm “takes the safety course that employees click through to learn the legal do’s One day he came into and wellbeing of our and don’ts. “They want to generate a record so they can my office, closed the team members very seri ously. We have policies say they’ve done it, then they want to move on,” he says. door, and grabbed me. It Skillsoft’s most comprehensive program includes a way for and procedures regard was so sudden I was like, people to report harassment they’ve experienced in the ing employment issues, “What is going on?” He past, but Van Biert says fewer than 20 percent of his clients including but not limited got me in this bear hug. choose the service. to, harassment and dis He’s a much bigger guy Despite its popularity, there’s little research on this kind crimination in the work than me, and I couldn’t of training. Last year the EEOC established a task force place. We considered move. He started shoving to investigate workplace harassment and concluded that Ms. Marchuk’s com his hands up my shirt. I “much of the training done over the last 30 years has not plaint to be without told him to stop it right worked as a prevention tool.” The commission could find merit and vigorously now, or I’ll scream. The defended ourselves in walls were thin, and I New York federal court.” knew all I had to do was Monteverde didn’t make noise, and someone and could fly us to Catalina Island for the respond to a request for comment. could come in. He stopped. weekend,” or “Do you want to go on a I didn’t say anything to anyone about Anonymous, 41 hot air balloon ride in the desert?” It was it. The owner of the firm wasn’t very good Los Angeles never, “Hey, let’s get coffee.” I turned him at dealing with conflict. If I had reported I started at DreamWorks around the down, but he would just keep asking. And it, I’m pretty sure I would have gotten winter holidays, so there were a lot of asking. And asking. fired. They’d come up with an excuse. parties. That’s where I met him. He’d stop I stopped being polite and started flat This was in 2010 or so, and legal jobs by my office, send me e-mails asking out telling him no. That made him escawere really scarce. Instead, I just made late. I eventually told my supervisor and if I wanted to have lunch. One night he sure other people were always around.

Pretty soon after that, we moved to another office, and I shared office space with someone, so I was rarely alone. Even so, I still felt on edge. It’s a hard feeling to describe, because once it’s there, it’s always present. It was a harsh transition into the real world. It goes against everything I believe, but honestly the best way to deal with that is to just blow it off.

team. I was also the only woman. When I was still new to the role, we had a week of team-bonding events planned. This was the first time I’d spent extended time with my manager. He made a number of highly inappropriate comments to me in professional and after-work events: comparing women from different Asian countries, telling me

regret for not standing up for myself in the moment. Did my nervous laughter egg him on or give him implicit consent to keep going? Why didn’t I tell him to his face, immediately, that this was misogynist, racist, and unprofessional? He was my direct superior. At work, I couldn’t focus. I lost my motivation. I was enraged at him for making these comments and angry at myself for Magdalena Zylinska, 45 not being stronger. I only three studies, the most recent of which is 15 years old, Elmwood Park, Ill. struggled with whether that evaluated training programs over time at companies. In one of the houses or not I should report “These training companies are making buttloads of money I used to clean, the man my manager to HR, or if off these courses, but what little information we have on was always taking his I should keep my head them raises serious questions about their efficacy,” says clothes off. He expected down and let it go. I was Vicki Magley, an organizational psychology professor at us to clean while he scared that I was blowing the University of Connecticut who co-authored two of the was working naked. things out of proportion. studies. There’s other academic research, Magley says, but it Sometimes he would ask He was well-respected usually deals with fictional programs designed by researchif you wanted to touch on the team, and I was ers rather than actual courses that companies might use. him. I didn’t know whether concerned about what In her experience, compliance courses help employees to run or stay and work might happen to our team understand the definition of sexual harassment, but don’t or what. I had a mortif he was disciplined or change people’s behavior. “I have absolutely no faith that gage. I had a kid. I needed even fired. What would any kind of an online course is going to do anything to stop the money. At the time I happen if his wife found harassment,” she says. was undocumented. So out, and I ruined their The companies that design the courses—and the HR I stayed, but I made sure marriage? I couldn’t make departments that implement them—also have trouble meathat when I cleaned his sense of why I continsuring their impact. “I kind of don’t have any answers,” says ued to feel such empathy house, there was always Phyllis Hartman, an HR consultant who’s been working on amidst my anger. It took someone with me. I’d tell anti-harassment training for 25 years. “You just sort of do it me two to three weeks, them, “If I scream, you just and hope it’ll be better.” Emtrain’s chief executive officer, but ultimately I decided to run and call the police.” Janine Yancey, says her company plans to publish a report report his behavior to HR. When I left [his house], I demonstrating how its services decrease harassment comHR set up an intertried to think about someplaints, but it hasn’t released any results yet. As a researcher, thing else, not about the view with me so I could Magley once teamed up with a company to evaluate its antiproblems. But the first recount what hapharassment training but had to discontinue her study after pened. They asked for couple of years, it was the company got nervous about legal liability should she the names of people who really, really bad. You’d find it didn’t work. “The attorneys from this company came might have witnessed the be working, and he’s in and said, ‘We are not finding out that information.’ They events, as well as spenowhere around, and you pulled out of the study because they didn’t want to know,” cific times and locations. go to the basement to do she says. “If we could ask companies, ‘Have you had fewer I cried. It was humiliation laundry, and he’s there on HR complaints after taking our training?’ ” says Felix Odigie, all over again. From there, the treadmill, naked. Inspired eLearning’s CEO, “and gather that kind of intel, they worked on corrobAfter three years or so, it would be gold. But I don’t know what company would orating my story with I just told him, you either provide that information. I asked the head of my own HR the witnesses I provided look for somebody else or department if they’d be comfortable with that, and she and also talked to my I’m going to call the police. looked at me like I had two heads.” manager to get his side He stopped. I guess he Focusing on the legal limits of harassment can make these of the story. Afterward, kind of respected me for courses culturally tone-deaf. Last year an internal investhey provided me with a saying something. I still tigation by the University of California at Berkeley found summary of their findings, clean for him, and sometimes he asks, “Can I get a vague statement that naked?” I’m like, “No.” disciplinary action was To protect Zylinska, taken and that it should that every guy goes through an Asian who still works for the client, we didn’t never happen again, and assurances fetish, asking me to sit on his lap (I didn’t), that Google had a no-retaliation policy contact the homeowner for verification. telling me about his sex life during a onein effect, so I should be protected in my Julia, 28 on-one meeting, and asking me to touch own career. They also checked in to see San Francisco the flesh of his palm as a way of describhow I was feeling after everything. ing why he had developed a strong sex I had recently switched teams at I don’t know the specifics of how drive at an early age. I responded with Google and had received a new manager Google reprimanded him, but I know nervous laughter and by changing the as a result. I was in my early 20s and that he was given additional sexualtopic. In retrospect, I still feel shame and was the most junior member on our harassment training. He apologized

to me for his actions and promised was the illegal workers—who were great, but I really loved that job. I love working not to do them again. He remained my outside. It’s hard as a woman to get by the way, always respectful. I think if manager for another year but was very someone to hire you to do manual labor. they hadn’t been illegal, they probably careful to only act professionally. He’s I applied at a few other stables, but they would’ve said something. But around still at Google today. didn’t look twice at me. Also, part of me certain people he’d act normal. I used to On the whole, I felt like Google and was like, maybe I’m being too sensitive. like to build fences with this one man in the HR department were on my side. Now it’s so clear to me that’s not at all his 50s, because when I was with him, They took my concerns seriously. But the case, but at the time I thought, well, H. wouldn’t say anything when he came it took a long time to rebuild my selfby. I don’t know if it was because he was maybe the problem was me. confidence. Later when I didn’t even think I was promoted, I wonabout reporting him. It dered if I deserved the just wasn’t an option. He’s that a renowned astronomy professor, Geoff Marcy, had for promotion or if it was probably not even going more than a decade repeatedly groped female students who given to me out of guilt. to remember a lot of the worked in his lab. (Marcy referred Bloomberg Businessweek Google declined to instances that caused me to his lawyer, who did not respond.) And yet the school’s comment. We reached so much stress, because online anti-harassment training course included a hypothetout to the manager for to him it was another day ical scenario that was almost the opposite of what the unicomment but didn’t at work. versity was dealing with. The course described a fictional receive a response. female student who “is attracted to her dissertation advisor, Cynthia Brzak, 64 Anonymous, 34 Dr. Randy Risktaker, and for months has repeatedly asked Geneva him out on dates.” Instead of discouraging a relationship, Missoula, Mont. I started working at Berkeley’s training course noted that legally, Randy Risktaker For two years startthe United Nations in could date the student as long as he first stopped being her ing in 2002, I worked a 1979. In December 2003, adviser. “I have to tell you, that is not a problem most of us summer job at a horse I was in a meeting with encounter as professors,” says Michael Eisen, a biology profarm. I was doing things six men, including Ruud fessor at Berkeley who took the course. like setting up jumps Lubbers, the UN’s high Sindy Warren, an employment attorney whose firm, [and] putting holes in the commissioner for refWarren & Associates, investigates workplace harassment, says ugees, who used to be ground for fence posts. I the best courses go beyond the law. “If you draw lines around prime minister of the worked with farm laborbehavior that’s just illegal, you’re missing the broader point. ers who were all illegal. Netherlands. When I got Lots of things are not illegal, but they’re not respectful or They were an all-male up to leave, two men appropriate,” she says. But she’s quick to point out that comcrew. Hispanic. The guy on my side of the table pliance training is better than no training at all. The EEOC’s who hired me, who paid stepped back to let me task force doesn’t want to do away with it either; it recomme—in cash, by the way— pass in front of them, but mends that companies supplement training with initiatives was this older, 50-yearMr. Lubbers grabbed me that emphasize broader topics such as civility and respect. old guy named H. He is from behind, pulled me MacInnis says he tries to do that at Inkling. Because his also sort of related to me: against him, and shoved company has only 150 employees, he often meets one-on-one H. is married to my dad’s his groin into me. I was in with people and asks about their concerns. Not long ago, for first wife. shock. When I got out of instance, he had lunch with a recent college graduate, and One of the first incithe room and by the elethey wound up talking about the gender wage gap most of dents I remember was vators, the director of the time because it was on her mind. “The idea is that more when we were washing human resources said, nuanced engagement will create the kind of environment off fencing for the “Oh, Cynthia, I saw what where, if it’s necessary, people can bring it up,” he says. steeplechase course. I the high commissioner Even so, in the seven years since he founded his was wearing Carhartt tried to do!” company, MacInnis has dealt with a few internal harasspants and a white T-shirt. At a follow-up meeting ment cases. “I have friends who are CEOs who’ve dealt H. came around to check to what we’d been talking with way more gnarly stuff than I have,” he says. “I’d like on what we were doing. about, I was waiting for to say I’m lucky, but usually there’s some sort of observHe made this comment: the elevators to go up to able behavior that you can see before it rises to the level “I should require you to the office, and the direcof something really serious.” <BW> tor of human resources wear white shirts and comes up to me laughing always be wet while and says, “Cynthia, what you’re working.” are you going to do if Mr. Every time I ran Lubbers tries it again?” He makes like into him after that, there’d be a little older, or English-speaking, or what. My comment about the size of my breasts primary way of dealing with the situation to grab me again, and I’m ducking out of his way. I said, “Why didn’t you protect or how he needed to hug me, because was to avoid him. He’s out of shape and me ... or at least say something? You’re it’d make his day better. As he’d hug smokes a lot, and I knew if I was building a fence in a field somewhere, I was the director of human resources!” As the me, he’d say, “I love feeling you press safer because he wouldn’t bother to go elevator doors closed, he replied, “So?” up against me.” It’s so gross to talk out there. For two whole months I didn’t do anyabout it even now. thing. I never told my best friends, my I worked there the next summer, Sometimes he said this stuff in front family, nobody. You have to realize, I’d too. I know you’re going to ask why, of other people, but most of the time it

been there 24 years. We have code of conduct training, we played the game, mouthing the politically correct stuff. But I knew what the culture was really like. Six-thousand staff members chose me to speak with management about personnel matters. [Brzak was staff council representative.] If I didn’t say “Enough!” who would? So a few months later, I reported it. An internal investigation verified everything and recommended Mr. Lubbers be reprimanded. But Kofi Annan, who was secretary-general at the time, decided not to do anything. I wasn’t allowed to see the report; it was mailed to me anonymously six months later. In 2006, I sued. But UN employees have diplomatic immunity. I took my case to U.S. District Court in New York, which upheld the immunity. I appealed. In 2010 we petitioned the U.S. Supreme Court to decide if the diplomatic immunity was even constitutional. They declined to hear the case. So that was it. When I sued, it made the news, and all of a sudden then Lubbers gets asked to leave. I worked at the UN until November 2010, when I accepted an agreed-upon separation package. I’ve had a hard time finding a new job. Had I known back in 2004 that my weird last name would be so Google-able that when even my children apply for jobs, they’d be asked, “What happened to your mother?” I don’t know if I would have done it. Contacted through his personal website, Lubbers didn’t respond to requests for comment. <BW> ——With Josh Eidelson

Why do so many women wait to come forward?

In October, Donald Trump’s senior campaign adviser, A.J. Delgado, told MSNBC that the women accusing the now president-elect of past assault and harassment couldn’t possibly be telling the truth because “these allegations are decades old. If somebody actually did that … any reasonable woman would have come forward and said something.” The same why-didn’t-yousay-something-earlier question has been asked during almost every headline-making sexual-harassment scandal. Earlier this year it was lobbed at former Fox News anchor Gretchen Carlson when she complained about her then-boss, Roger Ailes. Paula Jones got it in 1994 about Bill Clinton. Veiled character attacks aside, many women do, quite reasonably, assume they would come forward immediately if they were in that situation, says Louise Fitzgerald, professor emerita of psychology at the University of Illinois at UrbanaChampaign, who specializes in the psychological effects of harassment. “But that’s not what happens,” she says. In a landmark study published in 2001 in the Journal of Social Issues, psychologists Julie Woodzicka and Marianne LaFrance interviewed 197 women about what they would do if they were confronted with inappropriate or aggressive sexual provocation in a professional setting. The women said they would get angry and refuse to put up with it. But when Woodzicka and LaFrance subjected 50 of the women to inappropriate comments in what they believed were real job interviews—the interviewer asked if they wore bras to work, if they felt they were sexually desirable—every woman, without exception, sat through the interview and answered the questions. None reported the interviewer’s behavior. Later, they said they hadn’t been angry. What they’d felt was fear. “We really didn’t think the difference between their assumptions and their behavior would be so stark,” says LaFrance, a professor at Yale. “My first response as a scientist was, ‘Wow, this data is so great!’ My second thought was, ‘Oh God, this is awful for women.’ ” When the women were being harassed, their most common reaction was to smile.

“It was this fake placeholder smile that they plastered on their face,” says Woodzicka, a professor at Washington and Lee University, “and then just left there for the duration of the job interview.” “It’s like they were literally grinning and bearing it,” LaFrance says. In a follow-up study published in 2004, the psychologists showed footage of the women’s interviews to men and women and found that men were more likely to misread the smiles as genuine. Woodzicka and LaFrance studied only in-the-moment reactions, however. After the incidents, Fitzgerald explains, rational considerations about whether and how to respond come into play. A woman who’s been harassed might consider who did it and how important that person is to the company. Will she be believed? Can she afford to lose her job or burn a professional bridge? Quitting is often not an option for people living paycheck to paycheck. But Fitzgerald says highly paid women with prestigious careers also put up with harassment, because “the higher you go up the employment ladder, the more difficult it is to find a job to replace the one you’re leaving.” During Anita Hill’s testimony before the U.S. Senate Judiciary Committee about the sexualized atmosphere she experienced while working for Clarence Thomas in the 1980s, she was criticized for having kept in touch with him and for following him across two jobs (one, ironically, at the Equal Employment Opportunity Commission). “You might need to call on this person for references,” says Hill, now a professor of social policy, law, and women’s studies at Brandeis University. “Unless you’re willing to explain to future employers why you’re not speaking to this person, there is an understanding that if this is someone you worked for, someone who holds a key to your future in his hands, you’re going to have to maintain some kind of relationship. “I like to believe that now we understand these kinds of situations better,” she adds. “But people should remember that even if it takes them years, or they don’t come forward at all, that doesn’t mean it didn’t happen.” <BW>

PAUL MANA IS FO 50

BA T CK R

(BECAUSE HE NEVER WENT AWAY)

A new day is coming to Washington, and the King of K Street is primed and ready

On the morning of July 18, the first day of the 2016 Republican National Convention in Cleveland, a group of reporters covering the presidential campaign packed themselves around a long table for an on-the-record breakfast with Paul Manafort—the seasoned political hand who, as chairman of Donald Trump’s presidential campaign, had the unenviable task of trying to soften the candidate’s rough edges. Manafort, 67, was sharply dressed, as usual. As one of the most successful lobbyists of the Reagan-Bush era, he’d developed a taste for the finer things: handcrafted Italian suits and Parisian shirts; homes in Palm Beach, the Hamptons, and Trump Tower. Now back on the scene after almost a decade out of the public eye, Manafort looked a little beleaguered. The road to Cleveland had been rocky. Trump was entering the convention without the unified support of his party, and no one in the pundit class seemed to believe he could hold himself together long enough to convince anyone he had the temperament to lead. But over the course of an hour, Manafort calmly and steadily made a case for how and why Trump would prevail. The system, Manafort said, was “rigged.” Hillary Clinton, along with elites like the people in the room, didn’t understand how struggling Americans cared more about improving economic opportunity than addressing social issues. “This is an election about change,” he said flatly. “We have a candidate who everybody recognizes is a change candidate, and we’re running against the epitome of Establishment. I mean, you tell me any candidate—I couldn’t pick one off the shelf better than Hillary Clinton to run against on change-vs.-Establishment.” This wasn’t just spin, he argued; it was math. His internal polling, he said, all but confirmed Clinton’s inability to transcend her base. “To the 11 million voters in the several states we have to target, her profile is terrible,” he said. “People don’t see her as somebody who can solve the problem.” This was, many would now say, the very reason for Trump’s victory in November. But that morning in July, the reporters seemed unconvinced. What, some asked, about Trump’s lack of discipline, his volatility, his divisiveness? About all that, Manafort simply referenced another insurgent Republican he’d worked for a lifetime ago, at the start of his long career as one of Washington’s most powerful political operatives. “Just like with Ronald Reagan,” he said, “I think once Donald Trump is accepted by the American people as somebody who can be president, I think the race is over.” Then Manafort paused, allowing a small tilt of the head and a smile. “When that will be, I don’t know.”

By Robert Kolker

By the time enough Americans had accepted Trump to make him our 45th president, Manafort had all but disappeared from view. He’d resigned from the campaign on Aug. 19, after one too many run-ins with the candidate about his temper and one too many exposés about Manafort’s alleged ties to Russian oligarchs. His replacement, Breitbart News Executive Chairman Steve Bannon, let Trump be Trump. Since the election, Bannon’s influence has only grown, with his appointment as chief White House strategist drawing attention to his ties with white nationalists and the alt-right. But during the campaign, while Bannon was making noise with the fringe and Republican National Committee Chairman Reince Priebus was greasing wheels with the party faithful, it was Manafort who had the discipline to get Trump past a dismal stretch of spring primaries and on a solid road to the nomination, articulating the message the candidate would eventually ride to victory, then stepping aside when he saw that he wasn’t its most practical face. Manafort took Trump to the mountaintop. It’s a place

Manafort with Trump and his daughter Ivanka at the Republican National Convention

that?’ Then he kind of walked away, and he said, ‘Very impressive.’ He was nodding his head. He got it.” Stone says Manafort was like Trump in that they were limited-government Reaganites, not empire-building neoconservatives like Rove or Dick Cheney. But what motivated them both, more than ideology, exactly, was cash. “Paul is clearly driven by money, there’s no question about that,” says Stanton Anderson, one of Manafort’s oldest friends, who was also his lawyer for 35 years. “He needed to make a lot of money to sustain his lifestyle.” In the ’80s that was nothing to be ashamed of, especially on K Street. When Manafort was exposed later that decade for using his connections to get a $43 million U.S. Department of Housing and Urban Development grant for a developer client, he testified brazenly before Congress: “The technical term for what we do is ‘lobby.’ For the purposes of today, I will stipulate that, in a narrow sense, some people may term it ‘influence-peddling’.” That quote would dog Manafort for the rest of his career. He was never charged for any crime, but for a moment he became what he’d never hoped to be—visible, conspicuous, a target. The HUD project was an early attempt by Manafort to set up a business for himself. There followed a real estate development company in Manhattan, which was accused in a 2011 civil suit of being a money-laundering operation for one of his international clients, the Ukrainian natural gas dealer Dmitry Firtash. The suit was dismissed, and nothing was ever proved, but it was clear Manafort was circulating with oligarchs by then. They included the aluminum magnate Oleg Deripaska, a friend of Vladimir Putin’s whom Manafort introduced to both Bob Dole (whom Manafort helped to secure the Republican nomination in 1996) and Arizona Senator John McCain. Those new friendships ended up backfiring on Manafort. The problem, old friends say, arose from his connection to a longtime client, Viktor Yanukovych, an unpolished Ukrainian kleptocrat whom Manafort, Pygmalion-like, had transformed into a politician who was palatable enough to the country’s voters to win a presidential election. But Yanukovych was also influenced by the Kremlin. When, in 2006, the American ambassador to Ukraine asked Manafort to get his client to stop bad-mouthing NATO, Manafort flatly refused. His friends say that was the moment he crossed over. Where once he could rationalize his work by saying he was supporting American interests abroad, doing well by doing good, he now seemed suspect. When McCain became the Republican presidential nominee in 2008, friends recall that Manafort expected to work on the campaign, just as he had for Dole, the elder Bush, and Reagan. McCain was practically family: His campaign manager was Rick

PREVIOUS SPREAD: PHOTO ILLUSTRATION BY 731; PHOTOS: GETTY IMAGES (3); SHUTTERSTOCK (1); THIS SPREAD: RICK WILKING/REUTERS

Manafort knows well, where he still has contacts and friends. For years, he was the King of K Street, defining the modern-day cash-for-foreign-access lobbying system that Trump criticized during his campaign but has embraced during the presidential transition period. Manafort may never have the same visible role in Trump’s inner circle that he once had, but he maintains strong ties with key members of the transition team and with Trump himself. It’s already clear from the transition that the populist and nationalist platitudes of Trump’s rhetoric are colliding with the realities of Washington. That leaves Manafort poised to return to the role he knows best in D.C.: the most influential man you’ll never see. Manafort, who didn’t respond to requests to be interviewed for this story, has always worked best in the dark. In this way, he’s unlike many of the other political strategists of his vintage— swashbuckling friends like Roger Stone, folksy colleagues like Lee Atwater, and canny rivals like Karl Rove. Manafort came up in Washington as a young Republican in the 1970s, the same time as Stone and Rove. As the middle-class son of a Republican mayor in New Britain, Conn., “Manafort gets the Reagan Democrat phenomena,” Stone says. “That is, the swing group that elects Nixon and Reagan. This is a silent majority, the coalition of white Southerners and Northern Catholics—blue collars.” After helping Gerald Ford fend off an advance by Reagan in 1976, Manafort became one of the first hires to help the Reagan campaign in 1980. Then, with his man in office, he became one of the first to cash in on his connections to the new White House. He started a lobbying business with Stone, Charlie Black (Reagan’s 1980 political director, who also launched the career of Jesse Helms), and Atwater (whose Willie Horton ad would help close the deal for George H.W. Bush in 1988). Aside from helping Republicans such as Arlen Specter and Phil Gramm get elected, the firm—which was called Black, Manafort, Stone & Atwater (later Black, Manafort, Stone & Kelly)—changed the way foreign influence worked in Washington. In 1984, when Philippine President Ferdinand Marcos needed lobbying assistance, Manafort took the contract. In 1986, when Angolan guerrilla leader Jonas Savimbi needed an introduction in Washington, Manafort was there to help. In 1998, when Nigerian dictator Sani Abacha wanted to convince Americans that he was a progressive democrat, Manafort’s firm was there for him, too. “I am not one to knock honest greed,” William Safire wrote at the time, “but never has rainmaking seen such moneymaking.” Through many iterations of the firm and its roster of partners, what set Manafort and his colleagues apart was the hotline they had to the White House. “Manafort, at some point, became a very valuable asset for the State Department, whom he was working with,” Stone says. “If you look at all of our clients, they were all pro-Western, they were all pro-United States. They all had good relationships with Ronald Reagan and his administration.” Manafort continued to work on Republican presidential races, too, managing the 1988 convention for Bush. Stone remembers bringing Trump, who’d become one of the firm’s clients, into the convention’s production trailer to watch Manafort in action. Manafort had known Trump since the ’70s—they were said to have been introduced by the right-wing kingmaker Roy Cohn. Trump was now seeking help protecting his gambling business from the rise of Indian casinos. (Black, Manafort’s old partner, remembers Trump being slow to pay his bills. “The stories you hear about him screwing subcontractors and all are undoubtedly true, but I always held out till I got my money,” Black says with a laugh.) At the ’88 convention, “Donald kind of just soaked it all in,” Stone remembers. “And he asked a few questions—‘What’s the purpose of this? What’s the purpose of

Davis, Manafort’s partner at the D.C. lobbying firm, by now called Davis Manafort. But when Davis’s association with Manafort’s Ukraine work threatened to make him look bad, Davis disavowed everything, telling the Washington Post in 2008 that any Ukrainian connections he might have “all relate to my private business and have nothing to do with Senator John McCain.” Davis kept Manafort away from the campaign, and their firm shut down. Anderson, a friend of both, says the two haven’t spoken since. “I thought Paul was permanently damaged by the international stuff,” Anderson says. “I’m not sure any other candidate would have brought him back, other than Trump.” When Manafort joined the Trump campaign as a consultant this spring—he’s no longer registered as a lobbyist—many pundits wrote him off as a has-been. Trump seemed desperate, in a slump. He’d lost primaries in Wisconsin, Colorado, and North Dakota, and got 10 fewer Louisiana delegates than Ted Cruz, even though he’d won that primary. But within a month, Manafort had engineered the departure of Corey Lewandowski as Trump’s campaign manager and taken over as chairman. He righted the ship, amassing enough delegates to bring Trump the nomination. Then the narrative changed. Now Manafort was Trump’s Rasputin—an oligarch whisperer who’d worked his black magic in Ukraine and now was doing it for Trump. The media resumed the investigations into Manafort’s murky Russian connections. Was he a highly paid agent of the Kremlin, scheming to alter the Republican platform to help Putin’s interests? When Manafort had started consulting in Ukraine, such work wasn’t stigmatized in the way it became after the 2014 Ukrainian Revolution, when outbreaks of violence resulted in the ouster of Yanukovych, then the president, who’d balked at aligning the country less with Russia and more with Europe. That Yanukovych was on the wrong side of the revolution was one thing; the bigger problem was that Manafort didn’t seem to mind. “It was like he was willing to throw away the perspective that he came to that country with, the Reagan perspective,” says Jeff Link, a Democratic consultant who, with David Axelrod’s firm, worked for Yanukovych’s opponent, Yulia Tymoshenko. Link believes Manafort must have been willing to “just walk away from that [perspective] apparently for the contract. Because I can’t imagine that he embraced that ideologically.” Aside from his teenage criminal record of assault and robbery, Yanukovych was most famous for the culture of graft he instilled. “No one doubted that Yanukovych was scummy,” says Andrew Weiss, who oversees Russia and Eurasia research for the Carnegie Endowment for International Peace. “He was surrounded by all these thugs and then went on this kind of rapacious push.” Last summer, the New York Times seemed to connect the dots between Manafort and that corruption when it uncovered a registry suggesting that he received more than $12 million in cash from Yanukovych’s political party from 2007 to 2012. There was no proof of any such transfer, just his name listed 22 times. Manafort denied he received the money. Even if Yanukovych wasn’t exactly a favorite of Putin’s, his policies benefited oligarchs who are friends of Putin’s. That potential conflict made Manafort a target when he joined Trump’s team. Manafort, for his part, has roundly denied any connection to Russia, most recently telling NBC that the accusation was “Democratic propaganda.” Asked if there’s any possible truth to the notion that Trump chose Manafort because he had access to Putin and that the Kremlin was dictating policy and even hacking the opposition with Manafort’s help, his old lobbying partner Black laughs. “Putin certainly knows who

Paul is,” he says, “and he probably figures Paul did a good job for Yanukovych.” But the Trump connection isn’t convincing to Black. “Putin’s a celebrity. Donald’s a celebrity. [Trump] doesn’t stop and think through the strategic foreign-policy implications of things. He’s thinking, That guy’s a big dog, I’d rather be friends with him than one of these weaklings like Jeb Bush. That’s just the way he thinks.” On the campaign trail, Manafort was conspicuous again, in the spotlight. He wasn’t enjoying it. That, as much as the challenge of guiding Trump, may have motivated him to step aside. Since then, he hasn’t gone away so much as reverted to form, working behind the scenes. In the campaign’s final weeks, he was in close touch with Trump; Politico reported that Manafort helped the campaign develop a strategy to exploit the news when James Comey announced, 11 days before the election, that the FBI was looking at a new trove of e-mails from the private server Clinton operated as secretary of state. In the closing days, according to Politico, Manafort encouraged Trump to go after blue-collar votes in Michigan, which he did. Manafort’s advice, and his loyalty, proved useful until the end. After the selection of Mike Pence as Trump’s running mate, Manafort said he believed Pence could do for Trump what James Baker III did for Reagan: introduce the outsider to Washington and help him through the transition. It was another perfect prediction. Pence indeed is running Trump’s transition. A source close to Manafort says he’s in regular contact with the vice president-elect, as well as with Trump’s attorney general pick, Jeff Sessions, the Republican senator from Alabama and a Trump supporter and confidant. (Manafort and Sessions have known

“I’M NOT SURE ANY OTHER CANDIDATE WOULD HAVE BROUGHT HIM BACK, OTH E TH A N T R RU M P”

each other since the ’70s.) And Manafort is also close with Tom Barrack, the billionaire founder of Colony Capital, who has a spot at the top of Trump’s inaugural committee. Friends say Manafort wouldn’t want to become a lobbyist again or to have a concrete role with the administration; that would be too confining. But the Washington that Trump’s team will govern in is a place Manafort understands and had a strong hand in shaping. It’s a matter of time, perhaps, before his particular set of skills will be put to use again. And given the Trump team’s apparent warmth toward Russia, there should be plenty for the King of K Street to do—and plenty of money to be made doing it. The night of Nov. 8, Stone got a text from his old friend, at the exact moment one of the news outlets was calling the race for their man. The message was just four words: “How sweet it is.” <BW>

THE GUY BEHIND KIND

COME IN FOR A NIGHTCAP

BUILD YOUR ROLODEXXX

‘MISS SLOANE’ MISSES

How it became the color of our time By Jennifer Miller Photograph by Sara Cwynar

Etc.

Marketing

n September 2013, Marlien Rentmeester, founder of the fashion site Le Catch, was combing the racks at Shareen Vintage in Manhattan’s Chelsea neighborhood, when a fuchsia A-line frock caught her eye. “It was so shockingly pink, so cool and different, that I wore it out of the store,” she says. “On the street, women were giving me compliments left and right.” Rentmeester, the former West Coast editor for shopping magazine Lucky, had a sharp eye. In the months that followed, she started seeing pink everywhere: on streetwear blogs, in ad campaigns for Acne Studios and online beauty company Glossier, and in the pantsuits worn by Hillary Clinton. Fast-forward to 2016, and pink is an even greater phenomenon. Rentmeester long considered pink “fussy, dainty, babyish, or even weak.” Now she says the color is emblematic of women on the rise financially, culturally, and politically— even if Clinton’s pink pantsuits didn’t get as much attention as the pink pussy-bow Gucci blouse Melania Trump wore to the second presidential debate. (Some pundits suggested the bow was a subtle rebuke to her husband’s critics after the “grab them by the p----” tape leaked.) “We interpret our environment through the colors we wear,” Rentmeester says. “Pink is unapologetic, dramatic, and bold. We’re taking it back and making it our own.” That reclamation is a story that’s not just about skirts, pantsuits, and blouses, but about how fashion can upend larger cultural ideas about power and gender. Brands have long marketed pink in retrograde ways. Until recently, the NFL took a “pink-it-and-shrink-it” approach to women’s wear, making bubble-gum-colored jerseys in women’s sizes rather than offering choices in team colors, a strategy the league started phasing out early this decade. And pink products are often considered specialty items; as such, they’re routinely priced higher than identical products marketed to men, according to a 2015 report by the New York City Department of Consumer Affairs. Now, companies are imbuing pink with all sorts of positive associations, tapping into the same vibe Rentmeester felt. This fall, J.Crew—a struggling company but still a bellwether of mass tastes—promoted its new line around hundreds of customdeveloped shades of pink. In an e-mail, Jenna Lyons, president and creative director, explained that pink was worthy of the same rebrand as a once-sidelined vegetable: “If kale can have its own marketing team, so can pink! We feel that color is a natural mood enhancer, and like kale, it is good for

you.” Where J.Crew is promoting the color as a path to happiness, high- fashion brands such as Gucci and Chanel have recast it as funky and cool, with pink bomber jackets and bowler hats, respectively. Even cookware maker Le Creuset launched a series of hibiscus-hued pots and platters this year because it provided “vibrancy” and a “strong anchor” for the company’s spring line, says Will Copenhaver, marketing communications director. The idea that the color could be something other than a feminine stereotype isn’t new. Historically, “there were no strong gender associations with pink,” says Michelle Finamore, curator of fashion arts at the Museum of Fine Arts in Boston. Until World War I, babies of both genders were dressed in white because stains were more easily bleached. Even when stores began to introduce “baby pink” and “baby blue” into kids’ departments, they weren’t divided by gender. A 1918 article in Earnshaw’s Infants’ Department, a trade publication, explained that “pink, being a more decided and stronger color, is more suitable for the boy, while blue, which is more delicate and dainty, is prettier for the girl.” Jo Paoletti, author of Pink and Blue: Telling the Boys From the Girls in America, says modern associations with the colors “took generations” to sink in. It was only after World War II that brands began marketing pastels to women, largely as an antidote to the military-inspired fashions and textile rationing of wartime. Catalogs advertised pink appliances, wallpaper, and upholstery. Bathrooms and kitchens were painted “Mamie” pink, so named for Dwight Eisenhower’s wife, who wore a pink peau de soie gown to the 1953 inaugural ball. In 1955, Dodge introduced the pink and white La Femme, a two-door hardtop that came with a matching umbrella, purse, compact, and lipstick case. At the time, families were starting to buy multiple cars, and women were more involved in the decision. And yet the company stopped producing La Femmes a year later. “Pink as a marketing device was just too limiting,” says Virginia Scharff, author of Taking the Wheel: Women and the Coming of the Motor Age. “Buying a pink lipstick is not that big

There’s more than one way to name a pink

Mineral pink Burnished pink

Some of the ones J.Crew has come up with: Light mauve Standard pink Dark peony Light blush Punch Burnished coral Sun-washed pink Desert pink Metallic blush Light flamingo Tropical guava Vintage fuchsia Bright flamingo

Sharp pink Tea rose Heather beet Burnished shell Sweet guava Pink blossom Berry Neon flame Warm blush Fresh blossom Raspberry Golden rose Bright fuchsia Vintage blush Bright rhubarb Blush

Whisper pink Buff pink Heather quartz Heather blossom Deep rose Heather rosebud Heather deep coral Heather berry Dusty blossom Vivid fuchsia Frosty petal Sweet fuchsia Soft peony

Glamorous pink Crisp begonia Flash pink Azalea Larkspur pink

Iced blush Frosty berry Wild petunia Stanton pink Neon pink

Pomegranate Bright begonia Rose quartz Vintage pink Fuchsia Petal Pink Powder Ash pink Vintage shell Pink hibiscus Pink bouquet Pink lemonade Cool pink Dusty pink Bright berry Light pink Pinup pink

Faded shell Jasmine Flamingo Burnished rose Spiced rose Coral Desert rose Pale coral Tropical pink Pale blossom Paris pink Heather shell Caribbean pink Heather blush Heather peony Seaside coral

Palazzo pink Crisp pink Pale jasmine Redwood blush Shocking pink Rose petal Peony Heather petal Peppermint Tawny pink Cranberry punch Persian pink Vintage berry Pale hibiscus Flamingo pink Sail pink

Coral pink Mauve blush Victorian pink Soft blush Subtle pink Ashford berry Neon peppermint Classic pink Vintage quartz Fresh raspberry Dark flamingo Urban pink Sorbet Blossom Ballet pink

Pale shell Shell Sherbet Coral rose Rose dust Light raspberry Pink grapefruit Sunset coral Bright pink Seashell pink Bright sherbet Romance pink Rose apple Barbados cherry Sweet blossom Pale rose Picador pink Neon fuchsia

PHOTOGRAPH BY SARA CWYNAR FOR BLOOMBERG BUSINESSWEEK; ILLUSTRATIONS BY 731; CLOTHING COURTESY J.CREW

Etc. an investment. Buying a pink car is a different order of magnitude.” By the mid-1960s, brands were no longer exhorting women to “think pink.” The counterculture drove fashion, in particular, from the latter half of the decade through the ’70s; young people of both genders were more inclined to wear flowered patterns and vibrant colors. Fashion historians say our recent understanding of pink as an explicitly feminine color only emerged in the ’80s, when it became common for parents to learn the sex of their unborn babies. This created a marketing opportunity, says Paoletti, as stores could sell boy and girl versions of everything. And because pink had been associated with women in the ’50s, it became the de facto girl’s color. (See: the 1986 John Hughes classic Pretty in Pink, starring Molly Ringwald.) But, Paoletti says, there’s a distinction between how people viewed the color in the ’50s vs. the ’80s and ’90s. “In the 1950s, pink was presented as a fashion, a cultural choice,” she says, whereas later on “it was presented as part of [girls’] nature.” This happened with help from Walt Disney’s $5.5 billion princess empire. The irony is that Disney itself proves the nature argument wrong. Not one of the iconic princesses drawn prior to 1960 is known solely for wearing pink. Snow White (1937), Cinderella (1950), and the Sleeping Beauty (1959) are all featured in blue. In Peter Pan (1953), it’s baby Michael who appears in pink footsie pajamas. With the reappropriation of pink, millennial women have turned the dictate back into a choice. It’s why the cover of #GirlBoss, Sophia Amoruso’s best-seller about taking charge at work, is pale pink. It’s why Stephanie Danler, who wrote the hit coming-of-age novel Sweetbitter, was so excited when she first saw her book’s salmon-pink cover. “I know that women have an ambivalent relationship with pink because it symbolizes femininity and has been traditionally weak,” she says. “But I saw it as a statement color, as challenging.” She thought millennial women would feel the same way, and she was right. Since May the novel has sold more than 100,000 copies, and the cover has been tagged at least 2,500 times on Instagram—which Knopf told Danler is unusual for a book jacket. Some people at the Bohemian rose Fuchsia blossom Clay sand Iced quartz Vintage rose Dahlia Light shell Winter coral Spiced guava Hot pink Heather petunia Pink oxford Dusty begonia Neon blossom Beet Bright dahlia Coral shell Heather raspberry

Copper rose Dark azalea Heather geranium Light hibiscus Pink mist Misty rose Pampered pink Iced rose Heather snapdragon Wild rose Pure pink Guava Sweet dahlia Rose ash Light flamingo Dark mauve Tulip Quartz Bright guava

Dusty petal Pink sand Pale pink Dusty bloom Sweet jasmine Oxford pink Faded blossom Bright papaya Deep coral Petunia Brilliant azalea Autumn berry Heather sorbet Pale blush Powder pink Romantic pink Sweetbriar Vivid coral Dusty rose

Sheer pink Ornamental pink Soft seashell Summer sorbet Bright azalea Summer pink Wild berry Fresh peony Bright rose Soft azalea Heather pink Bright peppermint Antique pink Jasmine pink Faded guava Soft begonia Brilliant poppy Pink wash Smoky rose Neon berry

publisher worried the cover would alienate male readers, she says, but in fact, pink’s cross-gender appeal is part of its popularity: “There’s so much androgyny and fluidity that I didn’t think people”—men or women—“would be scared of the color,” Danler says. The un-gendering of pink helps explain why Gucci, OffWhite, and Pigalle all released pink menswear in 2016—and why the buzziest color of Common Projects sneakers, a favorite label among stylish men, was blush. It also explains why the Pantone Color Institute, which analyzes global color trends,

“A color becomes popular because it’s symbolic of the age we’re living in. These are turbulent times. People are looking for calm” named rose quartz a 2016 color of the year. Laurie Pressman, the institute’s vice president, says pale pink is associated with wellness and mindfulness. “A color becomes popular because it’s symbolic of the age we’re living in,” she says. “These are turbulent times. People are looking for calm.” She points to studies in which shades of pink have been shown to soothe unruly students or prisoners. Pantone found examples of companies that are “trying to help create balance for employees, reduce stress, and bring wellness-focused measures into the office space,” Pressman says, by using pink accents in décor. This year, for the first time, Pantone named a second color of the year: a pale blue called Serenity. As early as 2014, color experts began spotting an uptick in both shades across commercial spheres, often as complements to each other. Of course, now that pink has become chic among millennials, it’s fair to be skeptical of marketing that leverages the color. Are publishers and fashion houses interested in supporting a feminist cultural movement? Or are they just looking to sell books and footwear? How long until the backlash begins, if it hasn’t already? For now, those questions are less important than more practical ones. Historically, pink was marketed as a warm-weather color. “You’d never find it this time of the year,” Paoletti says. But that’s no longer true. A Le Catch reader recently asked if she could wear her pink Anne Fontaine moto jacket through November. Rentmeester’s answer was unequivocal: “Go for pink all winter long!” <BW>

Deep blush Neon azalea Pink begonia Dried papaya Fuchsia bloom Neon petal Soft blossom Bright coral Neon primrose Soft berry Pale rhubarb Dusty peony

Sunwashed blush Dusty shell Burnished rouge Shell pink

Guava berry Soft rose Rose blossom Peppermint ice Ash rose Soft fuchsia Brilliant coral Pale petal Coastal pink Coral reef Wild peony Intense pink Distressed quartz Soft pink Neon coral Hibiscus Wildflower pink Vibrant berry Daybreak pink

Island coral Neon dahlia Ashen clay Faded quartz Retro pink Dark berry Retro fuchsia Decorative pink Warm pink Fresh berry Dark bloom Dusty dahlia Carnival blossom Wild strawberry Dusty blush Capri pink Neon flamingo Fresh rose Pale fuchsia Festive pink

Provence pink Picturesque pink Fresh guava Frosty blossom Fresh bouquet

Pale bloom Metallic rose Jasmine Light berry Sunset pink Begonia Shore pink Peruvian pink

Sweet blush Pink frost Sweet papaya Heirloom pink Desert sunset Dusty quartz Brilliant peony Neon hibiscus Soft petal Neon rose Dover pink Fresh papaya Bauble pink Dried rose Bright tulip Dark begonia Faded blush Delicate petal Icy rose

Etc.

Drinks

Fancy a Nightcap? Eight ways to upgrade your end-of-day drink. By Sierra Tishgart Grand Street Cocktail Jessie Duré, bar manager at New York’s famed, newly reopened speakeasy Chumley’s, makes this soothing concoction with a dash of amaro. It’s great for settling your stomach before bed. One bag of Sleepytime tea, steeped in 4 oz. of hot water for 3 minutes ½ oz. Amaro Montenegro ½ oz. sweet vermouth 1 dash Angostura bitters Remove tea bag. Add amaro, vermouth, and bitters. Drop in a lemon wedge. Stir.

After-School Special Kyle Davidson’s Chicago bar Elske is opening soon. Once it does, he’ll be unwinding with this supersimple twist on the Manhattan.

The White Walker

1 ½ oz. Cynar 1 ½ oz. bourbon (whatever you have on hand—Davidson likes W.L. Weller 90 proof or Wild Turkey 101) Pour over rocks. Jiggle the glass. Add an optional orange peel or slice.

Corn ’n’ Oil If a nightcap can help you unwind and make you think you’re on a tropical island, so much the better. Anthony Schmidt, beverage director at San Diego’s new tiki-inspired bar False Idol, is happy to oblige and carry you away to the Caribbean. 2 oz. Barbados rum, such as Mount Gay ½ oz. John D. Taylor’s Velvet Falernum 2 or 3 heavy dashes Angostura bitters A squeeze of lime Mix ingredients, including the squeezed lime. Top with cracked ice. Stir.

Chamomile plus coconut milk is about as mellow as it gets. Chef Ari Taymor of Los Angeles’s Alma at the Standard mixes the two with a little rhum agricole and lemon to create a sweet, tropical nighttime treat. 1 ½ oz. rhum agricole 2 oz. hot chamomile tea 1 ½ oz. coconut milk ¾ oz. lemon simple syrup (one part lemon juice, one part simple syrup) Mix ingredients.

PHOTOGRAPH BY CAROLINE TOMPKINS FOR BLOOMBERG BUSINESSWEEK; PHOTOS: ALAMY; GETTY

Rum & Tonic

Etc.

“A nightcap for me usually revolves around really good tonic water,” says Tara Gallina, co-owner of Vicia in St. Louis. It’s easy to stock in the fridge and easy on the stomach, and it’ll gussy up whatever booze you have on hand. 2 oz. dark rum 2 dashes Angostura bitters 1 bottle Fever-Tree tonic 1 lime wedge Pour rum and bitters over ice. Stir and top with tonic and a squeeze of lime.

Pineapple Rum Rickey Off Broadway A nightcap doesn’t have to be much more than a couple fingers of bourbon or brandy—but if it could be both, wouldn’t you want that? Bartender Kevin King from McCrady’s Tavern in Charleston, S.C., uses apple brandy and orange bitters in this deliciously autumnal drink. 1 oz. apple brandy 1 oz. bourbon 1 oz. sweet vermouth 2 dashes orange bitters Stir with ice and strain into a coupe. Garnish with a twist.

Top Chef alum Kwame Onwuachi, who opened his restaurant, Shaw Bijou, in Washington, D.C., in November, looks for evenly matched sweetness and acidity to balance out the craziness of the day. 2 oz. aged rum, such as Cruzan Black Strap ¾ oz. pineapple juice ½ oz. lime juice ¾ oz. simple syrup Combine all ingredients in a shaker. Stir. Pour over ice. If you have mint on hand, muddle it in the shaker prior to mixing. If you have club soda, top it with some of that, too.

Play Crack the Sky On a cold night, Jon Lewis of the Rue bistro in Portland, Ore., recommends this spicy cocktail to warm things up. Miracle Mile bitters, made with exotic roots and spices, pairs well with any aged amber spirit. 2 oz. Old Grand-Dad, 100 proof ½ oz. genepi ½ oz. Punt e Mes 1 dash Miracle Mile Forbidden bitters Stir. Serve over a big ice cube with an optional orange peel garnish.

Etc.

Workplace

NETWORKING AT NIGHT

D 60

o you think you might get on the body tequila table?” asks Geneviève LeJeune. The founder of the all-women networking society Skirt Club, LeJeune is with about 75 female professionals on the Sunset Strip in Los Angeles at a bar called Mmhmmm, a thoroughly appropriate name considering the goings-on inside. One of the barely clad attendees stretches herself out, and lines of salt are spread down her legs, the red bottoms of her Louboutins reflecting in the mirrored walls. The fastest woman to lick the salt and down a tequila shot will be rewarded with a slice of lime, transferred via kiss. The scene isn’t quite as scandalous as it sounds. Although Skirt Club bills itself in press releases as an “underground ‘play party’ for bisexual & bi-curious women,” no sexual contact or “heavy petting” are allowed. And it isn’t just about tequila-soaked fun. Skirt Club’s motto is “confidence in the bedroom leads to confidence in the boardroom.” The way LeJeune sees it, leaning in to take a lime out of a woman’s puckered lips makes a woman more likely to lean in at the office. LeJeune, 34, started Skirt Club as an experiment—the first event was held in her living room. She’d been exploring versions of these parties in her native London three years ago, but all she encountered was “men grabbing and pushing and insisting and putting pressure on women to fulfill their fantasies,” she says. “I didn’t see women asking to fulfill their own.” That was because, she realized, they weren’t in a comfortable environment: Women today regularly convene at conferences and kibitz online about gender

politics, not to mention attend womenonly social clubs, such as the Wing in New York. But gatherings that provide a safe space for women to support and learn from one another while also embracing their sexuality are rare. There are now Skirt Clubs in London, New York, Miami, Sydney, and Berlin, with plans to expand to San Francisco, Chicago, and Toronto. More than half the club’s membership of 5,000 lives in London, where it’s growing an average of 14 percent per quarter; in the U.S., where the clubs were introduced earlier this year, growth is at 22 percent per quarter. Skirt Clubbers are often professionals with entrepreneurial leanings, though the largest group is lawyers. On

average, members self-identify as twos on the six-point Kinsey scale—one is exclusively heterosexual, three is perfectly bisexual, and six is exclusively homosexual. “Some of them are in a relationship, too,” LeJeune says, “and have come with the consent of their partner.” One L.A. attendee, a therapist, heard about it from her boyfriend, who paid her admission—$50 for the event at Mmhmmm, though occasional educational workshops cost more. While each event features some kind of central activity such as the body tequila table, more of the women seem to use the party as a networking opportunity than an erotic escape—of course the argument could be made that, in L.A., networking is eroticism. (If you’re wondering whether I exchanged business cards with a charmi n g E n g l i shwo m a n wh o described me as Jodie Fosteresque, I did.) Much has been made of the monetization of empowerment, but LeJeune has profited little from Skirt Club so far. After paying venue fees, hiring all-female bar staff, and purchasing “hundreds of bottles of Champagne” for each event, she says she feels as if she’s “running a charity.” Starting next year, she’ll impose an initiation fee for new members, who are vetted for the legitimacy of their interest. Her goal with Skirt Club is simply to provide a safe space for women to enjoy one another’s company under the liberating rubric of sexual exploration. While that aspiration may not be as filthy as the images that some minds might conjure, it’s more powerful. “We’ve had gentlemen’s clubs for centuries,” LeJeune says. “It’s high time we have our own.” <BW>

PHOTOGRAPH BY CAIT OPPERMANN FOR BLOOMBERG BUSINESSWEEK

Skirt Club wants to help women be as confident in the boardroom as they are in the boudoir By Megan Koester

By Ashleigh D. Johnson

Four of the more surprising corporate leadership changes, according to W. Glenn Rowe, associate professor of strategic management at Ivey Business School at Western University in London, Ont.: Apple, 1985 CEO John Sculley called an emergency board meeting after learning that co-founder Steve Jobs was planning to oust him. The board thought Jobs was erratic and went against him. Right move? There probably won’t be multiple biopics made about Sculley. Home Depot, 2000 Robert Nardelli wasn’t interested in an extended grooming period before assuming the top job, so then-CEO Arthur Blank stepped aside, despite the company being in good health. Right move? Over Nardelli’s seven years as CEO, Home Depot’s stock lost more than a third of its value. He was fired in 2007. Starbucks, 2008 Howard Schultz, who built Starbucks into a coffee giant in the 1990s, stepped aside as CEO in 2000; he returned in 2008, firing Jim Donald. Schultz wrote in his 2011 biography, Onward, that he wanted to return the company to its “core values.” Right move? Schultz saw Starbucks through the lean times of the recession. The business has become a model of corporate social responsibility. Four Seasons Hotels, 2013 Kathleen Taylor, who’d been with Four Seasons since 1989, was the heir apparent to founder Isadore Sharp before taking over the CEO job in 2010. There was never an explanation for Taylor’s departure, but some speculated that she hadn’t expanded aggressively enough. Right move? Nine new Four Seasons properties have come online this year alone.

HORO R E B S

Etc.

Astrology

60°

And you’ll have help: Saturn, the planet of long-range planning, Jupiter, the planet of abstract thinking, and Uranus, the planet of sudden change and progressive reasoning, are working together at the beginning of December, as they will be all next year, when Jupiter and Saturn form a sextile. Put day-to-day business aside and block out time to come up with goals for the future. On the 7th, emotional Venus enters inventive, socially conscious Aquarius, making it a good time to turn outward and find ways to help others. But don’t put those ideas in place until the 13th, when the full moon in sociable Gemini creates opportunities for fruitful partnerships. Mars moves into Pisces on the 19th, putting the planet of drive and willpower under the sign of compassion and sympathy. Pisces also rules prisons and hospitals, so you might focus your giving there. Also on the 19th, Mercury goes into retrograde, as it was at the beginning of the year. The sun enters determined Capricorn two days later on the 21st, the winter solstice, which can be a somber time of year; but Mercury going retrograde gives 2016 a natural bookend— you should feel more reflective than sad. Put those reflections to use on the 29th, when the new moon in Capricorn gives you the chance to restate long-term goals. That day, Uranus returns to forward motion after having been retrograde for a good chunk of 2016. This could open the door to sudden leadership changes at your company, so start imagining yourself taking a big leap forward, and it might soon be a reality. <BW>

A sextile—when the planets form a 60-degree angle with the earth—is considered a harmonious alignment.

Judith Beck, president of the Beck Institute for Cognitive Behavior Therapy in Bala Cynwyd, Pa., on how to make a New Year’s resolution stick: 1. Think small. Giving in to defeatist impulses is habit-forming. Aim for something you can achieve. 2. Focus on the payoff. Make sure the advantages of changing your behavior outweigh the disadvantages. For example: managing your time better during the day so you’re home to put the kids in bed. 3. Lock yourself in. Whatever you resolve, put it in your “no choice” category of behaviors, alongside things like checking for your keys on your way out the door.

For guidance in determining where to make charitable contributions, BBB Wise Giving Alliance (give.org), Charity Navigator (charitynavigator .com), CharityWatch (charitywatch.org), and GiveWell (givewell.org) are all good resources. �Amanda L Gordon

Etc.

The Critic

REALITY BITES

Miss Sloane’s release coincides with a moment that didn’t happen. By David Walters

in two directions, drawing in those who are up for a taut political counterfactual and scaring away people who’d prefer to sit through Bad Santa 2. It’s a shame, because there’s a lot to like. Chastain pops as Elizabeth Sloane, an insomniac workaholic and grade-A asskicker, the kind of unscrupulous lobbyist who learns all the rules so she can better circumvent them. When her boss (Sam Waterston) recruits her to drum up more female support for the Second Amendment (one suggested slogan: “God created women; Samuel Colt made them equal!”), she abruptly switches sides, joining a competing lobbying firm to ensure the passage of the Heaton-Harris bill, a piece of legislation proposing tighter gun control. But Sloane’s conversion isn’t a go-and-sin-nomore moment. To rouse congressional support, she dupes a school-shooting survivor (Gugu Mbatha-Raw) into becoming the public face of the movement. She also lies, cheats, and has emotionless sex with a high-priced male escort ( Jake Lacy). Eventually she’s dragged in front of a holier-than-thou senator ( John Lithgow) to answer for her professional indiscretions. In Sloane’s world, the end always justifies the means, no matter how often she’s told she’s gone too far

this time—and she gets told that a lot, mostly by her new boss (Mark Strong), who’s more of a not-by-any-means guy. First-time screenwriter Jonathan Perera delivers a surprisingly ambitious script, full of twists and turns and, perhaps most satisfying, the type of rata-tat dialogue that warms the hearts of West Wing fans. (The movie is directed by Oscar nominee John Madden.) Perera was inspired by real-life former lobbyist Jack Abramoff—who went to prison for conspiracy, fraud, and tax evasion— but the script also shares DNA with two Big Tobacco political films of the late 1990s and early 2000s: the Michael Mann thriller The Insider and Jason Reitman’s satirical Thank You for Smoking. It’s worth noting that, unlike the cigarette industry in those films, the pro-gun contingent in Miss Sloane isn’t a boo-hiss villain. There’s even a good guy with a gun. When he stops a bad guy with a gun, it lends credence to the National Rifle Association’s cherished ideal that more guns equals more safety—and gives the movie political verisimilitude. Still, nothing—not good guys, not bad guys—can stop Sloane. Like any good lobbyist, the case she makes proves too compelling. The question is whether audiences will want to listen. <BW>

TAUT POLITICAL COUNTERFACTUAL OR BAD SANTA 2 ?

KERRY HAYES/EUROPACORP

n a memorable scene from Miss Sloane, a high-stakes political drama about a Capitol Hill power broker taking on the gun lobby, the title character—played by an ice-cold Jessica Chastain—describes the job of a lobbyist to a Senate ethics committee that suspects it has backed her into a corner. It’s wrong. “Lobbying is about foresight,” she says. “It’s about making sure you surprise them—and they don’t surprise you.” As zingers go, it’s OK. But it’s also a line the filmmakers might wish they could take back. When French indie distributor EuropaCorp sought a late November release for Miss Sloane, it anticipated a moment when post-election policy wonkery and Academy Awards buzz might coalesce into a single, ripped-from-theheadlines conversation. The film is, after all, about a strong, ambitious woman—a Washington heavyweight—navigating a male-dominated industry while fending off sexism to get meaningful work done. The timing looked perfect. Surprise! Under different circumstances, Miss Sloane might have emerged as this year’s soapier answer to 2016 Best Picture winner Spotlight, a small-studio offering that rode sturdy performances and topicality to critical acclaim and an $88 million worldwide box office. Instead, it stands to send holiday movie-season audiences

What I Wear to Work

What do you do for W? I oversee any part of the W experience that touches the consumer, whether that has to do with where we build new Ws, the design process, the mix of bars and restaurants, or managing the preopening buzz.

Etc.

ANTHONY INGHAM

ESSENTIEL

WARBY PARKER

44, global brand leader, W Hotels, New York

What’s your day to day like? I move from dealing with real estate investors—who are generally a more corporate type—to mixing with our music director, who’s covered in tattoos and has a full beard.

LUCIO CASTRO APPLE 63

PHOTOGRAPH BY CHRISTOPHER LEAMAN FOR BLOOMBERG BUSINESSWEEK

How would you describe your style? Traditional cuts with urban streetwear—I like mixing it up. I have an aversion It’s nice that you to suits. get to wear jeans on the job. I found these in London years ago, and they were such a perfect fit. They’re slightly elastic, so even though they’re tight, they have some give.

Cool shirt. It has whimsical elements that give it a lighthearted touch. The print is tiny dogs.

BALLY

LEE

LINKS OF LONDON

Do you always wear bracelets? I do. I got the red-andwhite one at Davos in Switzerland. The green one I found randomly in Cape Town.

I like your glasses. They’re so affordable, you can just buy lots of them. Can you tell I’m an impulse shopper?

Tell me about your shoes. They’re trainers in style, but the uppers are leather, so they’re formal and casual at the same time.

OLIVER SWEENEY Interview by Jason Chen

DANIEL LUBETZKY Founder and chief executive officer, Kind

“My dad survived Dachau. Around 1984, when I was 16, there were antiSemitic incidents in Mexico City, and he decided to bring us to San Antonio.” With his parents in Mexico City, late ’70s

“I started selling watches in flea markets at 16, then graduated to mall kiosks. I thought I was going to have kiosks across America.”

Robert E. Lee High School, San Antonio, class of 1986 Trinity University, San Antonio, class of 1990 Stanford Law School, class of 1993

Work Experience

At his grandparents’ ranch in Mexico City, 1978

“I went to Israel to write a legislative proposal encouraging American companies to be catalysts for Arab-Israeli ventures. No one wanted a Mexican-Jewish American lawyer telling them what to do.”

1993–94

“PeaceWorks’ first venture was Arab-Israeli. I tracked down a bankrupt sun-dried-tomato spread maker and said, ‘Why don’t we partner?’ We still exist under the brand Meditalia.”

Haas Koshland Fellowship

1994– Present

Founder, president, PeaceWorks

2002– Present

Founder, OneVoice Movement

2004– Present Founder, CEO, Kind

At Kind’s first New York office, 2004

“I was dissatisfied with my snacking options. Everything was artificial—I thought there was a need for snacks that you could feel good about eating.”

2010– Present Co-founder, Maiyet

“It’s high-end stuff you’d find at Barneys, made by craftsmen in developing countries or where there’s been conflict.” Life Lessons

At a OneVoice meeting with Shimon Peres, president of Israel at the time, and actor Jason Alexander, 2011

“It’s an NGO for people who are fed up with terror and determined to seize back the agenda for conflict resolution.”

“We just announced the Kind Foundation. The inaugural program, Kind People, looked for people transforming communities through kindness. We got 5,000 nominations. We also recently became the first national snack brand to publish the added sugar content in our snacks.”

ea ning and purpose, or you’ll end up answering e-mail and letting life carry you away without a direction.”

Education

um 1. “Don’t allow yourself to believe it’s not gonna happen.” 2. “Show your humanity in commerce, business, and life.” 3. “Take time to reflect on what gives yo

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