Forbes usa june 29 2017 by Somsak Rakagsorn

B EXCLUSIVE: TRUMPâ&#x20AC;&#x2122;S GOLF CHARITY GRAB SPECIAL IS SUE

100

2017

YEARS

INVESTMENT GUIDE

EST. 1917

POP STAR

THE WEEKND TURNING 3.2 BILLION STREAMS INTO $92 MILLION

BAD IDEAS GONE GOOD

BUY GOLD! TRADE OPTIONS! HOCK YOUR HOUSE!

STREAMING GROWS UP

FROM MUSIC TO FILM TO COMEDY, THE NEW ENTERTAINMENT ECONOMY IS BOOMING PLUS: THE 1OO TOP-EARNING CELEBRITIES

Is your portfolio TOO LOCAL

100%

of the time, over the past 30 years, the top-performing equity market has been outside the U.S.1

78%

of global GDP comes from non-U.S. countries.2

only

of the world’s publicly traded companies are based in the U.S.3

Diversify your portfolio with Fidelity international funds.

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Stock markets are volatile and can decline signiﬁcantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magniﬁed in emerging markets. 1 Source: MSCI All Country benchmark returns 1986–2015.

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Source: Nominal GDP in current U.S. Dollars via the IMF World Economic Outlook Database — April 2016. Source: FactSet as of 03/31/2016. Data presented for the MSCI AC World Index, which represents 23 developed and 23 emerging market countries and contains 2,480 constituents, covering approximately 85% of the global investable equity opportunity set. The index is not intended to represent the entire global universe of tradable securities. Fidelity Brokerage Services LLC, Member NYSE, SIPC. © 2016 FMR LLC. All rights reserved. 675573.5.0 2 3

A CENTURY OF MAKING HISTORY, AND WE’RE JUST GETTING STARTED.

A M E R I C A’ S # 1 P U B L I C G O L F C O U R S E GOLF DIGEST

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INTRODUCING FAIRWAY ONE

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LOCATED ALONG THE FIRST FAIRWAY OF ICONIC PEBBLE BEACH GOLF LINKS IS FAIRWAY ONE AT THE LODGE. Fairway One is a distinctive addition to The Lodge at Pebble Beach and offers an entirely new and enhanced guest experience with a personalized touch. Featuring 38 guest rooms including two luxurious four-bedroom cottages, Fairway One provides guests with oversized accommodations, a greater sense of privacy, as well as signature amenities and the renowned service that guests have come to expect from The Lodge at Pebble Beach.

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Two cottages each offering up to four individual guest room options and a tastefully appointed living room

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A new meeting facility with ﬂoor-to-ceiling views of the ﬁrst fairway

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Conveniently located steps from the ﬁrst tee at Pebble Beach Golf Links and The Lodge

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Pebble Beach®, Pebble Beach Resorts®, Pebble Beach Golf Links®, The Spa at Pebble Beach™, Fairway One™ at The Lodge, Spanish Bay®, The Inn at Spanish Bay™, The Links at Spanish Bay™, Spyglass Hill® Golf Course, The Lone Cypress™, The Heritage Logo and their respective distinctive images are trademarks, service marks and trade dress of Pebble Beach Company. © 2017 Pebble Beach Company. Photo: © Tom O’Neal.

Contents // JUNE 29, 2017

VOLUME 199 NUMBER 7

ON THE COVER 95 | THE CELEBRITY 100: STREAMING GROWS UP A trickle of pennies has ﬁnally turned into a gusher of dollars for the entertainment industry. Now many of the world’s 100 top-earning celebrities, with aggregate earnings of just over $5 billion, are cashing in by the barrel. EDITED BY ZACK O’MALLEY GREENBURG AND NATALIE ROBEHMED

96 | MUSIC GOES FREEMIUM Physical album sales and digital downloads are down. But more people are listening to more music than ever, which presents staggering opportunities to artists like the Weeknd who connect with an audience. BY ZACK O’MALLEY GREENBURG

98 | NETFLIX ZOMBIES Once a career kiss of death, the direct-to-video model has been revived by Adam Sandler and other actors and comedians marketing directly to their hard-core fans through streaming. BY NATALIE ROBEHMED

102 | IF YOU BUILD IT, THEY WILL COME Knowing terrestrial talk shows won’t last forever, Ellen DeGeneres created a platform for the streaming age. Now other top stars are following her lead. BY MADELINE BERG

ON THE COVER: THE WEEKND WAS PHOTOGRAPHED BY JAMEL TOPPIN AT MOHEGAN SUN. THE WEEKND WEARS A WOOL SUIT, SILK TIE AND GOLD TIE CLIP BY DOLCE & GABBANA; COTTON SHIRT AND LEATHER SHOES BY SAINT LAURENT PARIS CREATIVE STYLE DIRECTOR: JOSEPH DEACETIS; STYLE PREP: DEB MILSTEIN; STYLIST: BREAUNNA TRASK; STYLE ASSISTANT: MAXIMILLIAN PARKINSON; HAIR & MAKEUP: CHRISTINE NELLI ON THIS PAGE: THE WEEKND WEARS A WHITE SHIRT BY SAINT LAURENT PARIS; BLACK WOOL VEST; BLACK SILK TIE; BLACK TROUSERS; GOLD TIE CLIP BY DOLCE & GABBANA; BLACK LEATHER LACE UP SHOES BY SAINT LAURENT PARIS

| FORBES JUNE 29, 2017

JUNE 29, 2017 26

15 | FACT & COMMENT // STEvE FORBES The Medicaid disaster: what the GOP must do now.

LEADERBOARD 19 | REEL ESTATE: A MOGUL’S PRIvATE MOvIE PALACE Real estate billionaire Charles Cohen indulges his lifelong love of cinema with a gorgeous, tricked-out theater beneath his Connecticut home.

22 | THE 10-Q: DOUG BURGUM North Dakota’s business-minded governor talks smart investing. Plus: Ted Lerner, Washington Nationals owner and Maryland’s richest man.

26 | NEW BILLIONAIRE: FEvER HIGH Strong investor interest has vaulted Outcome Health founder Rishi Shah into the ranks of the richest.

28 | 30 UNDER 30: GREEN THUMBS

Agri-solutions from top young entrepreneurs.

30 | DEAL TOY: THE BEST DEFENSE

The Cold War’s end forced consolidation on the military-industrial complex. Northrop pressed its advantage—and won the battle.

32 | SPORTSMONEY: SOCCER’S MOST vALUABLE TEAMS No sports franchise leverages its brand as effectively as England’s Manchester United. Plus: the Beautiful Game’s highest-paid players.

34 | FLOWCHART: WHAT’S YOUR SUMMER BOOk?

Whether you’re looking for true crime, business advice or the sordid history of Van Halen, we’ve got your beach reads covered.

36 | FORBES @ 100, JUNE 12, 1989: CYBER-SOvIETS The USSR was dying, but Russia’s community of computer enthusiasts was springing to life.

38 | CONvERSATION

Readers debate the Canadian who will be a big player in any U.S. infrastructure boom. Plus: Donald Trump, fabulist? Say it ain’t so!

TECHNOLOGY 41 | DIAL-A-CARAvAN Ride-sharing startup Careem is outdistancing Uber in the Arab world with superior cultural knowledge, better maps and more drive. by parmy olson

46 | AvENGING MYSPACE

Chris DeWolfe once ran the world’s most successful website. Now he’s back, seeking permanence in the ephemeral sphere of mobile games. by kathleen chaykowski

STRATEGIES 50 | ROWING UPSTREAM As billions pour out of active management, T. Rowe Price is hunkering down and quietly setting up a New York quant shop, just in case. by matt schifrin

ENTREPRENEURS 56 | “GO GET YOUR ELEPHANT” Government regulation forced sunscreen entrepreneur Holly Thaggard to pivot—and think big. by amy feldman

60 | LEARNING ON THE FLY

60 8 | FORBES JUNE 29, 2017

Sky Zone CEO Jeff Platt built a $300 million chain of indoor trampoline parks and created an industry. Now he’s got venture-backed competition. by noah kirsch

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JUNE 29, 2017 65

FORBES LIFE 65 | 2017 LUxURY WATCH GUIDE Chronographs, perpetual calendars, cocktail watches and other timepieces worth the investment.

FEATURES 41 mm stainless steel and yellow gold black bay s&g by tudor ($4,975). PhotograPh by david arky

104 | “EvERYBODY GETS BILLED” Donald Trump is one the least charitable billionaires in the world. Eric Trump is far more altruistic. In a clash of values, the president directed hundreds of thousands of dollars from his son’s kids-with-cancer foundation into his company coffers. by dan alexander

INvESTMENT GUIDE 123 | BAD IDEAS GONE GOOD Sometimes the worst plans can make you richer. We highlight strategies that may seem foolish at first, until you dig into them. edited by Janet novack and matt schifrin

126 | SLEAzY IMAGE, SMART PLAY Reverse mortgages have a low-rent reputation. But they could play a bigger role in affluent Boomers’ retirement plans. If that happens, a 39-year-old neat freak will be a big winner. by lauren gensler

128 | GOLD IS FOR CRANkS? NOT SO FAST Bad inflation may never return. But if it does, you’ll wish you owned some metal and hogs. by william baldwin

123

with state street global advisors

what etf investors need to know about smart beta and esg investing 129

132 | MILkING YOUR STOCkS Trading options is a gambler’s bet, but for a math-minded investor, they can also provide a steady and relatively safe source of income. by John dobosz

136 | DIvIDE YOUR HOME

Forfeit part of your “best” long-term investment? It might make sense. by samantha sharf

138 | SHRINk YOUR SALARY

Newt Gingrich, John Edwards and (it appears) Donald Trump did it. Maybe you should too. by kelly phillips erb

142 | WHEN PAPER BEATS CASH

Sacrificing salary for hard-to-value options is crazy—unless you can do the math. by william baldwin

148 | FACELESS RETURNS

Jack Bogle and a chorus of indexing champions say active investing is futile. BlackRock thinks Andrew Ang and his computer-driven ETFs are the strategy’s last great hope. by nathan vardi

158 | THOUGHTS On independence.

10 | FORBES JUNE 29, 2017

Overtime victories. Delivered to us safely in boxes.

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From the Makers of Paper and Packaging

inside scoop EDITOR-In-CHIEF

Steve Forbes CHIEF PRODUCT OFFICER Lewis D’Vorkin FORbEs MagazInE EDITOR Randall Lane ExECUTIvE EDITOR Michael Noer aRT & DEsIgn DIRECTOR Robert Mansfield FORbEs DIgITal vP, DIgITal COnTEnT sTRaTEgy Coates Bateman vP, DIgITal EDITOR Mark Coatney vP, InvEsTIng EDITOR Matt Schifrin svP, PRODUCT anD TECHnOlOgy Salah Zalatimo vP, WOMEn’s DIgITal nETWORk Christina Vuleta vP, vIDEO Kyle Kramer assIsTanT ManagIng EDITORs Kerry A. Dolan, Luisa Kroll WEalTH Frederick E. Allen lEaDERsHIP Loren Feldman EnTREPREnEURs Tim W. Ferguson FORbEs asIa Janet Novack WasHIngTOn Miguel Helft sIlICOn vallEy Michael K. Ozanian sPORTsMOnEy Mark Decker, John Dobosz, Clay Thurmond DEPaRTMEnT HEaDs Avik Roy OPInIOns Jessica Bohrer vP, EDITORIal COUnsEl bUsInEss Mark Howard CHIEF REvEnUE OFFICER Tom Davis CHIEF MaRkETIng OFFICER Jessica Sibley sEnIOR vP, salEs, U.s. & EUROPE Janett Haas sEnIOR vP, bRanD sOlUTIOns & sTRaTEgy Ann Marinovich sEnIOR vP, COnTEnT PaRTnERsHIPs & sTRaTEgy Achir Kalra sEnIOR vP, REvEnUE OPERaTIOns & sTRaTEgIC PaRTnERsHIPs Alyson Papalia vP, DIgITal aDvERTIsIng OPERaTIOns & sTRaTEgy Penina Littman vP, salEs PlannIng & analyTICs Nina La France sEnIOR vP, COnsUMER MaRkETIng & bUsInEss DEvElOPMEnT FORbEs MEDIa Michael S. Perlis CEO & ExECUTIvE CHaIRMan Michael Federle PREsIDEnT & COO Terrence O’Connor CHIEF aDMInIsTRaTIvE OFFICER Michael York CHIEF FInanCIal OFFICER Will Adamopoulos CEO/asIa FORbEs MEDIa PREsIDEnT & PUblIsHER, FORbEs asIa Rich Karlgaard EDITOR-aT-laRgE/glObal FUTURIsT Moira Forbes PREsIDEnT, FORbEsWOMan MariaRosa Cartolano gEnERal COUnsEl Margy Loftus sEnIOR vP, HUMan REsOURCEs Mia Carbonell sEnIOR vP, glObal CORPORaTE COMMUnICaTIOns FOUnDED In 1917 B.C. Forbes, Editor-in-Chief (1917-54) Malcolm S. Forbes, Editor-in-Chief (1954-90) James W. Michaels, Editor (1961-99) William Baldwin, Editor (1999-2010)

JUNE 29, 2017 — volUmE 199 NUmbEr 7 FORbEs (Issn 0015 6914) is published monthly except August and semi-monthly in June, September and December, by Forbes Media LLC, 499 Washington Blvd, Jersey City, NJ 07310, Periodicals postage paid at Newark, NJ 07102 and at additional mailings offices. Canadian Agreement No. 40036469. Return undeliverable Canadian addresses to APC Postal Logistics, LLC, 140 E. Union Ave, East Rutherford, NJ 07073. Canada GST# 12576 9513 RT. POSTMASTER: Send address changes to Forbes Subscriber Service, P.O. Box 5471, Harlan, IA 51593-0971. COnTaCT InFORMaTIOn For subscriptions: visit www.forbesmagazine.com; write Forbes Subscriber Service, P.O. Box 5471, Harlan, IA 51593-0971; or call 1-515-284-0693. Prices: U.S.A., one year $44.95. Canada, one year C$67.95 (includes GST). We may make a portion of our mailing list available to reputable firms. If you prefer that we not include your name, please write Forbes Subscriber Service. For back Issues: visit www.forbesmagazine.com; e-mail getbackissues@forbes.com; or call 1-212-367-4141. For article Reprints or Permission to use Forbes content including text, photos, illustrations, logos, and video: visit www.forbesreprints.com; call PARS International at 1-212-221-9595; e-mail http://www.forbes.com/reprints; or e-mail permissions@forbes.com. Permission to copy or republish articles can also be obtained through the Copyright Clearance Center at www.copyright.com. Use of Forbes content without the express permission of Forbes or the copyright owner is expressly prohibited. Copyright © 2016 Forbes Media LLC. All rights reserved. Title is protected through a trademark registered with the U.S. Patent & Trademark Office. Printed in the U.S.A.

12 | FORBES JUNE 29, 2017

Great People Doing Great Things by lEWIs D’vORkIn

“What’s NeW?” It’s the question my colleagues and I are asked all the time by our marketing partners, ad agencies and reporters. In a fast-moving media universe, the answer had better be good. I believe ours is. We’re launching an innovative mobile product. Our 30 Under 30 franchise (see p. 28) is on fire at home, in Europe and in Asia. A new cutting-edge digital publishing platform is in development. Our Hong Kong bureau is staffing up to extend our reach throughout the region. And that’s just for starters. With our centennial celebration only months away, our print and digital audiences continue to strengthen as 35 million people across social media follow what we’re up to every day. There’s one question that’s rarely asked. How did all that happen? The answer: great people. Unlike most of our traditional-media brethren, we’ve brought on entrepreneurially minded individuals with bold—and often controversial—ideas to jump-start what competitors were afraid to do or never thought of in the first place. Forbes started down this path seven years ago, acquiring a startup with content and ad models that have since changed the course of our company. A year later came a new magazine editor. He knew our readers wanted more out of life than money. His idea: an annual philanthropy summit for those wanting to give back. For the Mark Zuckerberg, change-the-world generation, he started the Forbes 30 Under 30 list and summit. Once again, 7,000 people will gather for it in Boston in October. Other creative thinkers joined our newsroom. We bought a startup app company, and its founder now runs the product and tech team that’s spearheading the cutting-edge Progressive Web App featured at Google’s annual developer conference last month. An entrepreneur runs our Women@Forbes team, too. Her vision to connect twentysomethings with fortysomethings is catching hold with advertisers. Our contributor model is now in the hands of a journalist who left traditional media to become employee number ten at Tumblr. The video team is surging behind a new leader doing for us what he did for a successful content startup. Each is at the core of the now and the next. All of our change agents work with Forbes veterans who deeply understand and believe in our mission of entrepreneurial capitalism. We have young talent as well, none more committed than Dan Alexander, the reporter who cracked the story about Eric Trump’s foundation (see p. 104), digging into documents and getting people to talk on the record. Here’s the question I’d ask us: So, what’s next? My answer: Stay tuned, it’s gonna be good. F

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FACt & COMMENt “With all thy getting, get understanding”

The medicaid disasTer er whaT The gop musT do now BY STEVE FORBES, EDITOR-IN-CHIEF

A big stumbling block to getting a health care reform bill through the senate (the House of Representatives passed one in may) is medicaid. This is surprising, given that the program is probably the worst-designed health insurance system in the history of the Free World, ballooning in costs while providing clients with increasingly lousy care. Properly fixing this program would save substantial amounts of money and provide patients with better outcomes. medicaid was enacted in 1965 to replace and beef up state programs to help the indigent get medical care. medicaid would make all of these efforts virtually uniform—becoming, in essence, a one-size-fits-all program. The federal government would pony up half the costs, the states the other half. but even though the states shared the tab, Washington dictated the rules. states managed the program but couldn’t make any changes without getting “waivers” from the Department of Health & Human services. in addition to covering low-income earners, medicaid was expanded over the years to help pay for seniors who have no assets and for long-term care for people with disabilities. costs immediately spun out of control. There was no fixed budget, and spending went to whatever medical bills were submitted. The only way governors could contain costs was to reduce the reimbursement rates for health care providers, which is what happened. Around one-third of physicians no longer take on new medicaid patients. it’s no surprise that a perverse incentive took hold: consultations were skimped on, as these were not reimbursed, but tests of all sorts—many of them medically unnecessary or even harmful—skyrocketed. moreover, since most of any savings a state achieved would go to uncle sam—Washington now pays 63% of total medicaid expenses, local governments only 37%—the spur to rein in ever rising costs and take on political heat is obviously de minimis. After all, the biggest employers in most states are hospitals, and their lobbying clout is immense. shockingly, reputable studies have found no difference in

the health outcomes of people on medicaid and those who have no insurance. nonetheless, obamacare substantially expanded medicaid by relaxing the eligibility rules. under the constitution, Washington couldn’t force the states to go along. so obamacare offered what many governors found to be irresistible bait: The feds would pay 100% of the costs of covering these new people until 2016, phasing down to 90% by 2020 (19 states refused to bite for fear that future sharing formulas would be scaled back and they’d be left holding a heavy fiscal bag). medicaid’s rolls expanded by 11 million, rising to a total of 75 million people. costs soared, while the quality of medical care deteriorated, as more and more providers refused to accept medicaid patients. more money, worse care—quite a feat, that! House Republicans want to rein in medicaid’s runaway costs by, among other things, gradually rolling back much of the obamacare eligibility expansion of medicaid funding, starting in 2020. more important, they would give states more leeway in making changes to the program. in return states would get a set amount of funding per person, which would grow by a fixed formula, instead of being open-ended, as it currently is. states could also choose to receive a block grant, that is, a chunk of money from uncle sam that would provide a fixed amount of medicaid funding and remain unchanged. Republican governors, and, no surprise, Democratic ones as well, are worried that the House bill would mean devastating cuts to beneficiaries, because its changes would slow the growth of medicaid spending. Their fears are overblown. it’s puzzling, to say the least, that they can defend a program that is ever more costly, increasingly ill-serves its beneficiaries and is riddled with fraud—the government Accountability office has found that more than 10% of the program’s payments are “improper.” instead, they and Republican senators should plug for a clean solution that would provide enrollees with better

JUNE 29, 2017

FORBES | 15

FORBES

FACt & COMMENt

STEVE FORBES

coverage at less cost. The House bill helps get us there. The senate should chuck restraints and just do it—openly “incentivize” states to enact a program in which most participants would have comprehensive catastrophic coverage and generous health savings accounts (HsAs). The insurance would have high deductibles, which would make it cheap. People would use the money in their HsAs for regular medical expenses. The key is that medicaid beneficiaries would own their accounts. it would be their money. This basic reform would go a long way toward creating a patient-oriented health care market in which we would happily experience what we always get with free markets: abundance at lower and lower costs. medicaid is killing state budgets: 16 states are considering freezing or cutting payments to providers; 8 are mulling over tax hikes on providers. Pollyannaish? consider this: medicaid spending per person is $7,500, which would work out to be a pot of $30,000 for a low-income family of four. That’s more than enough to buy an excellent high-deductible catastrophic health insurance policy, while leaving at least $10,000 for everyday expenses. instinctively, one knows that such a family would get far more value with this HsA money than it would with the current system of patient passivity.

Better ways To do medicaid Two states, Rhode Island and Indiana, have been able to make major changes to the traditional Medicaid programs, which allowed them to curb costs and enhance their recipients’ quality of care. Patient satisfaction went up sharply. in 2009 Rhode island sought and won an unprecedented waiver from Washington. gary Alexander, the state’s secretary of health and human services at the time, describes what happened: “We agreed to a fixed amount of funding from [the federal government] for five years; in return, the feds agreed to waive the burdensome restrictions that prevented us from instituting imaginative reforms, such as

16 | FORBES JUNE 29, 2017

shared living for seniors, delivery of a specialty to only the small patient cohort that needed and benefited from it and improved reimbursement incentives for home care and prevention.” Patients loved the idea of being able to stay home instead of being institutionalized. As Alexander noted, “These reforms, in turn, gave patients greater independence and better outcomes, and their satisfaction soared. . . . The imaginative remedies we implemented were so responsive and customized to our patients’ needs that their experiences and health improved even as we spent less.” let’s emphasize those last few words: “even as we spent less.” indiana instituted even better medicaid reform. The Hoosier state has long pushed the idea of health savings accounts (HsAs) coupled with highdeductible health insurance that covers catastrophic medical expenses. As the state has observed: “About 96% of [the state’s] employees have voluntarily elected to enroll in a consumer-driven health plan option. in its first four years of offering [such options] to state employees, the state saved 10.7% annually, as employees used hospital emergency departments at lower rates, had fewer physician office visits, lower prescription costs and a higher generic-medication dispensing rate.” When patients own their health care money, they spend it wisely and get better outcomes. What patients in indiana don’t spend in their so-called Personal Wellness and Responsibility (PoWER) accounts they may roll over. now the Hoosier state is expanding this state-employees concept and applying it to its medicaid recipients. nondisabled medicaid enrollees will receive $2,500 in their PoWER accounts. The high-deductible insurance offered is being expanded to cover more benefits, such as dental and vision expenses. in order to get this expanded insurance, however, enrollees must make small monthly contributions of a few dollars to their accounts. other states are considering similar approaches. Patient power via HsAs and catastrophic insurance is the way to go. F

Restaurants: Go, Consider, Stop Edible enlightenment from our eatery experts and colleagues Richard Nalley, Monie Begley and Randall Lane, as well as brothers Bob, Kip and Tim.

l Union Square Cafe

101 East 19th St. (Tel.: 212-243-4020) Though Danny Meyer’s iconic American restaurant has moved to new, stellar multilevel quarters, it remains all about the food. From chef Carmen Quagliata’s classics, such as polenta with maitake mushrooms with pesto, gnocchi with ricotta filling and a drizzle of tomato and basil, the Berkshire pork chop and the USC burger with Beecher’s cheddar and bacon on brioche, to his ten new dishes—some changing with the seasonal market— all are top-notch. Desserts are happily decadent.

l Left Bank

117 Perry St., at Greenwich St. (Tel.: 212-727-1170) This is the perfect setting for a cozy, intimate dinner. The menu, though limited, is varied and sure to satisfy. The soups and salads are delicious; the grilled octopus with potatoes and spicy chipotle sauce is beyond fabulous, with the steak tartare running a close second. For main courses choose from excellent pastas and meat and fish dishes. Throw restraint to the wind and have the incredible dark chocolate espresso mousse for dessert.

l Butter

70 West 45th St. (Tel.: 212-253-2828)

The yellow light isn’t about the food but the dismal service and the gloomy basement setting (despite the skylight). The receptionist can barely be bothered to look up from her cellphone, and the staff continually underperforms. As for the fare, the wild salmon tartare is tasty, and the Butter chopped salad with radishes, kale, apples and cucumber is dressed to tangy perfection. Delectable raspberry-jam-filled beignets with vanilla-bean dipping sauce are a triumph.

l Kingside

124 West 57th St., the Viceroy Central Park hotel (Tel.: 212-707-8000) Marc Murphy’s new restaurant looks a bit like a stylish diner, but it sure ain’t no greasy spoon. The pecorino toast with ricotta and truffle honey is as tasty as it sounds, and the cauliflower chowder is delicious. The hand-roasted scallops with squash, parsnips and almonds and the brined, roasted chicken with Parmesan, farro and chili are both home runs. All the desserts are wonderful, but our favorite is the affogato.

l Motel Morris

132 Seventh Avenue, at 18th St. (Tel.: 646-880-4810) This place is unpretentious fun: friendly, happening, reasonably priced—and loud. The decor of the small space has elements that evoke an upscale 1960s motel. The pimento cheese deviled eggs with pickled chilis are as spicy and fabulous as they sound. To go with your hand-cut steak tartare and sriracha potato chips, order some irresistible Parmesan-crusted onion rings with BBQ aioli. Finish with the banana pudding pie, and you’ll be in heaven.

To learn more, visit netjets.com/onlynetjets or call a Private Aviation Concierge at 1-877-JET-4446.

LeaderBoard 22 rebooting n. dakota

26 unicorn delirium

32 most valuable soccer teams

34 summer reads

36 cyber-soviets

billionaires

Reel estate Inside a mogulâ&#x20AC;&#x2122;s million-dollar home theater.

photographs by franco vogt for forbes

At Age 3, ChArles Cohen fell in love with the movies when his grandmother took him to see Cinderella. He made her sit through it twice. He spent his preteen years watching as many foreign films as possible at a movie theater near his home in New Yorkâ&#x20AC;&#x2122;s Westchester County. Sometimes he hopped the bus to

june 29, 2017 FORBeS | 19

LeaderBoard billionaires

White Plains to see double features. He also made three short films between ages 16 and 20. “Movies were a window to the world for me,” he says. After law school, he went to work for, and later bought out, his family’s Cohen Brothers Realty—the source of his $2.8 billion fortune—but his cinéaste side remained. At first he kept his interest private, spending about $500,000 to build an elaborate theater in 1994 beneath his Greenwich, Connecticut, mansion (which you can see in these photos). Over the years he spent another $500,000 on upgrades, such as a digital projector to play 3-D films and a curved movie screen that’s brighter than normal screens, intended for movies shot with ultra-highdefinition lenses or in 3-D. He has, however, stepped out of his theater to further indulge his passion. In 2008, he invested in and produced Frozen River, directed by a colleague’s wife. He lost a little money, but the film received two Oscar nominations. Two years later, he started a film-distribution company, and he now has the rights to 1,000 mostly classic and international movies— including the 2017 Oscar winner for best foreign film, The Salesman, an Iranian picture he distributed with Amazon Studios in the U.S. Coming soon, Cohen is creating stylish movie houses—he began by renovating the Quad Cinema in Greenwich Village and reopening it in April—and is producing a remake of the 1970s family favorite Benji. 20 | FORBeS june 29, 2017

the entrance ceiling’s ﬁberoptic lights dim to create the illusion of a starry nighttime sky, as if you’re entering the lobby from outside. the custom-built paramount sign is ﬂanked by intricate metalwork that cohen bought from the company that restored grand central terminal.

a member of the academy of Motion picture arts & sciences, cohen also belongs to the elite bel air circuit, which sends first-run commercial films to insiders. over Memorial Day weekend, he and his family watched the fifth Pirates of the Caribbean, Paris Can Wait and Baywatch.

the four original 81-inch movie posters hanging in the entrance are for alfred hitchcock’s Frenzy (left), the James bond ﬁlm For Your Eyes Only (right), Chinatown and The Day of the Locust. cohen buys antique movie posters at auction and restores them; he has more than 100, rotating them in and out of display. also on the walls are smaller posters for From Russia With Love (left) and original lobby stills of North by Northwest (right).

the ticket collector is a fully dressed soft sculpture that cohen had handmade by a Massachusetts artisan for $10,000.

the theater doors incorporate eight pairs of brass push-bar handles from the original paramount theater at 43rd street and broadway in times square. a chandelier from cleveland’s centrum theater hangs in the lobby just beyond the entrance. cohen’s movie palace was built to evoke the grand theaters of the 1920s and ’30s, from the terrazzo ﬂoors to the faux-limestone walls.

cohen is a hitchcock fan, a bond nerd and a foreign-ﬁlm devotee who insists he loves all movies, especially indies. What’s his all-time favorite? “that’s like asking who’s your favorite child or what’s your favorite meal. It’s a continual journey, and there are so many wonderful ﬁlmmakers.”

BY LUISA KROLL

there’s not a bad seat in the house: the screening room has stadium seating for 24, plus a love seat, with each row of seats two steps above the one in front; the intricate ceiling is modeled after that of new york’s roxy theater.

june 29, 2017 FORBeS | 21

LeaderBoard the 10-Q

richest BY state

REBOOTING THE GOVERNOR’S MANSION Great Plains to Microsoft?

My old buddy Ballmer called in 2000. I said no two times. I wanted to make sure Microsoft wanted a company and its people, not just a product. Finally I said yes. You left Microsoft in 2007 and made two successful enterprise software investments: Success Factors and Atlassian.

Both asked me to join their boards. I said I’d join only if I could invest. I like to have skin in the game. Why become governor, too?

I had 30 years of trying to attract talent and capital back to North Dakota. I thought, Wouldn’t it be great to run a state like that? The Dakota Access Pipeline caused quite a commotion after you won the gubernatorial race in 2016.

How’d you go from Arthur, North Dakota, to Stanford Business School?

In college I started a business sweeping chimneys. The newspaper wrote a story with a photo of me sitting on top of an icy chimney. This caused a stir in the Stanford admissions office: “Hey, there’s a chimney sweep from North Dakota that applied.” At Stanford, you met Steve Ballmer.

Got to know him very well. Steve was a rock star. He’d been to Harvard, then P&G. What got you interested in software?

After Stanford, I worked at McKinsey. One of my

workmates said, “Check this out.” He taps Apple II and it chugs away, like four minutes, recalculating a simple spreadsheet. I instantly knew it would change everything. When you bought into Great Plains Software, how much did you invest?

$250,000. When my dad passed away, I inherited farmland. I mortgaged it all to invest. I literally bet the farm. How did Great Plains break through?

Differentiated support. Pay high for one-hour response time, low for 24-hour response time. Customers loved it. What persuaded you to sell

Crowdfunding changes the nature of protests. The Dakota Pipeline protest raised about $13 million to pay for buses, hotels, meal vouchers. I met with law enforcement and said: “Look, let’s all agree that we can’t arrest our way out of this.” The protests eventually dissolved, and the pipeline is active today. How’d you defuse the situation?

We invited anyone who wanted to come to a meeting in Cannon Ball, North Dakota. We started at 6 p.m. and listened till 11:30. Later we shared data about pipelines and rivers that showed it could be done safely. Listen, show basic respect and you remove a lot of tension. Show them data, and you can have a real conversation.

gOvERNOR dOUg BURgUm SpOkE with Rich kaRlgaaRd, OUR EditOR-at-laRgE aNd glOBal FUtURiSt. This inTerview has been ediTed and condensed. For The exTended conversaTion, visiT Forbes.com/siTes/richkarlgaard.

22 | FORBES JUNE 29, 2017

MARylANd PoPulation: 6 MIllION 2016 Gross state Product: $378.3 BIllION (1.3% Growth) GsP Per caPita: $62,877 (ranks no. 11 nationwide) richest: TEd lERNER, $5.5 BIllION number of billionaires: 8 NOT All IS doom and gloom in Washington, D.c. The capital city’s baseball team, the nationals, is firmly entrenched in first place in its division—and no one has more reason to be pleased than property developer Ted lerner. When lerner bought the team for $450 million in 2006, it had recently been shipped from Montreal and was a perpetual cellar dweller. a decade later, the nationals, who seem primed to capture their fourth division title in five years, cross the plate as Mlb’s tenth-mostvaluable franchise, at $1.6 billion. lerner, 91, has a history of betting big on his hometown and winning. in 1952 he borrowed $250 from his wife to start selling beltway houses. after selling 22,000 of them, he switched to building, then opened one of Maryland’s first malls. Today lerner and his family own 20 million square feet of commercial and retail space, plus hotels and 7,000 apartments, mostly in the D.c. suburbs of Maryland and virginia. looking ahead, his lerner enterprises is on the short list to build a new Fbi headquarters in landover, Maryland—but the project is on hold until congress can figure out how to pay for it. RICHEST BY STATE BY SAMANTHA SHARF Joe Treleven For Forbes; illusTraTion by chris lyons

north dakota’s entrepreneurial-minded governor doug burgum on betting his farm on a startup, his old friend steve ballmer and the dakota access Pipeline.

The innovation era as we know it has ended.

Rising in its wake is

From healthcare to manufacturing, from technology to media, from government to retail, join us as we explore the industries being rewritten as a result of the largest behavioral shift in history. Forbes.com/TheGreatRewrite

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1000

As cities grow, trade and labor become increasingly specialized, inspiring guild and merchant groups to begin trusting each other with trade secrets and collective pools of money. This motivates them to act in each other’s best interests. That trust helps form the foundation for the growth of urban centers and financial systems. It also makes collaborating members responsible for each other’s shared assets, since they were available to any member in need.

HISTORY’S LESSONS IN TRUST

Investing in History THE ACT OF INVESTING is an

ancient one, but its modern iteration is the result of more than a thousand years of evolution. In that millennium, landmark moments have demonstrated shifts in the meaning and process of investment, but trust between individuals has remained a key factor in the success of any ﬁnancial transaction.

Money as an institution

1792

The opening of the New York Stock Exchange

Twenty-four brokers on Wall Street sign the Buttonwood Agreement, pledging to trade financial assets only with each other based on the mutual confidence that they had established among its members. That group would become the New York Stock Exchange, a space for traders to buy and sell stock on behalf of investors, under the assumption that they would do so only to benefit those investors.

1940

The Investment Advisers Act

The increasingly complex world of investing leads to the rise of investment advisors. Recognizing their importance to the financial system, a new federal law gives the Securities and Exchange Commission the responsibility to provide oversight, ensuring that advisors register themselves and abide by the fiduciary standard, which requires that they act in their clients’ best interests. Starting small, with approximately 700 advisors, the act further reinforces the level of trust between advisor and investor.

“INVESTORS NEED HELP FROM A TRUSTED ADVISOR. TRUST MEANS INTEGRITY AND CONFIDENCE, LOOKING OUT FOR AN INVESTOR’S BEST INTEREST.” YONHEE G. REGISTERED INVESTMENT ADVISOR

For more, visit: www.ﬁndyourindependentadvisor.com

2008

The Great Recession

The power of marketplace forces to overwhelm caution and prudence demonstrates the need for greater vigilance and stronger protections for individual investors. Market manipulation and the proliferation of mortgage-backed securities and other derivatives led to the most severe economic crisis since the Great Depression. The recession and market collapse make clear that the trust economy was in need of retooling.

2017

The present day

New policies address practices that led to the recession. But as the political climate changes, the fate of these policies is uncertain. Investors need to make informed decisions now more than ever, and advisors can help investors make those decisions. As part of their research process, investors can consider working with advisors, such as registered investment advisors, who are required to act in their clients’ best interests. However uncertain policy may be, investors keep trust at the heart of their financial relationships.

LeaderBoard NEW BILLIONAIRE

FEVER HIGH

THE INTENDED OUTCOME of Outcome Health’s marketing is clear. You’re meant to think it purveys sophisticated medical technology. Its website has slick videos and impressive-sounding statistics. Outcome, it says, provides “health intelligence to more than half a billion patients a year.” But Outcome is really a media company; its CEO, 31-year-old Rishi Shah (right), launched it with president Shradha Agarwal and a third cofounder as ContextMedia nine years ago. It installs tablets and interactive screens in doctors’ offices that display medical information from Outcome’s 100 or so content partners— cancer data in an oncologist’s waiting room, say, or 3-D depictions of anatomy for specialists to share with patients. It also displays ads, mostly from pharmaceutical companies such as Pfizer and Merck. Shah says Outcome had nearly $200 million in revenue last year, the biggest chunk from advertising. Hardly lifesaving. But after stonewalling investors for years, Chicago-based Outcome is now attracting money faster than if it offered a new wonder drug. In May, Shah announced an initial outside funding round of just under $600 million from firms such as Goldman Sachs, Google-affiliated CapitalG and the Pritzker Group, equating to a $5.6 billion valuation. That bullish number assumes Outcome will be in a majority of doctors’ offices in just three years. It also means that Shah’s 71% stake in Outcome is worth about $3.4 billion, even after accounting for company debt. Such eye-popping numbers have some muttering about another Theranos. Investors say the company has long been profitable and does more than marketing. Perhaps Outcome fans did learn something from Theranos, though: They have a put option that lets them cash out their shares in six years, whether Outcome goes public or not. Just in case.

26 | FORBES JUNE 29, 2017

BY MATTHEW HERPER AND ALEX KONRAD JAMEL TOPPIN FOR FORBES

Theranos be damned! Investors delirious for the next great health care unicorn have pushed Rishi Shah’s startup to a $5.6 billion valuation.

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LeaderBoard 30 UNDER 30

GREEN THUMBS Agri-solutions from the Forbes 30 Under 30, in 30 words or less. EMILY CUNNINGHAM AND KWAMI WILLIAMS

PATRICK PITTALUGA AND SEAN WARNER

MoringaConnect | 26, 25

Grubbly Farms | 26, 26

Their startup has partnered with 2,500 farmers in Ghana to harvest leaves and seeds from the moringa tree for beauty products and food, helping the farmers earn $450,000 so far.

This Atlanta-based company is expanding its operations with a new facility to raise millions of fly larvae on recycled food waste as a sustainable substitute for traditional chicken feed.

RICKY ASHENFELTER

EVAN LUTZ

Spoiler Alert | 30

Hungry Harvest | 24

The Deloitte alum’s software helps 300 nonprofits and food distributors, including giant Sysco, avoid landfills by distributing their excess food products through donations and discount sales and as animal feed.

Collects farmers’ “ugly” and surplus produce (2.7 million pounds to date) that doesn’t get into supermarkets and delivers it to subscribers’ doorsteps. Lutz forecasts $6 million revenue this year.

JEFF PROST-GREENE, KRISTOF GRINA AND KATHLEEN O’KEEFE Up Top Acres | 26, 26, 27

ANNIE RYU The Jackfruit Company | 26

Works with 350 farming families in rural India to grow jackfruit, a nutrientrich meat substitute with a significantly lower carbon footprint (and less attendant deforestation) than meat production.

28 | FORBES JUNE 29, 2017

MATT LAROSA AND JASON GREEN Edenworks | 23, 28

Having raised $2.5 million, Brooklynbased Edenworks houses an “aquaponic” greenhouse—one that grows plants and raises fish for consumption year-round while using less water and energy than traditional farming.

Forbes Under 30

Listen to young innovators, disruptors and entrepreneurs

BY NATALIE SPORTELLI ILLUSTRATIONS BY PATRICK WELSH FOR FORBES

The trio has transformed an acre of rooftop in Washington, D.C., into plots growing 70,000 pounds of produce (baby greens, tomatoes, even melons) to sell to building tenants and restaurants.

power couple.

vapor-distilled for purity, electrolytes for taste.

LeaderBoard deal toy

The BesT Defense THE COLD WAR’S END wasn’t so hot at first for American defense contractors: Peace paid few dividends initially as war-footing contracts expired. The companies’ new battle plan was consolidation, and Northrop’s takeover of Grumman in April 1994 kicked off a blitzkrieg of deals that led to the booming aerospace and defense behemoths of today.

suiTors sTep up

from Top Gun To BoTTom feeDer

loaded with debt and in turmoil after its chairman pleaded guilty to bank fraud in 1990, long Island– based Grumman—maker of the World War II navy Hellcat, the apollo lunar module and the F-14 of Top Gun fame—entered the 1990s in dreadful shape. Wall Street’s marching orders were soon clear: Sell or die.

In early 1994, defense-andconstruction conglomerate martin marietta bid for Grumman. Within days, northrop did the same—ultimately winning it that april for $2.1 billion (equal to $3.6 billion in 2017). The marriage joined Grumman’s airborne surveillance systems, used mainly by the navy, with northrop’s air Force–focused technologies (including the in-development b-2 stealth bomber). Within two years, the merged company had $8.6 billion in sales and profits of $264 million—a return to revenue growth and a 71% total increase in profits since 1993.

everyBoDy’s DoinG iT

30 | FORBES junE 29, 2017

ConsoliDaTion naTion

between the northrop Grumman merger and September 11, 2001, some $153 billion in defense and aerospace deals were inked, according to bloomberg data. merger mania paid off: During the past two, war-torn decades, the sector’s returns have trounced the S&p 500. over the past five years, northrop Grumman has led the way, posting a 388% total return, nearly four times that of the S&p—and with president Trump bullish on defense spending, the sector is up 15% so far in 2017. by ANTOINE GARA Sam Kaplan For ForbeS

northrop didn’t stop with its Grumman pickup. In 1996, it acquired Westinghouse’s defenseand-electronics business for $3 billion, about $4.8 billion today. It snapped up Teledyne ryan aeronautical (which made the Spirit of St. Louis) in 1999 and, by 2002, had acquired contractor litton Industries, conglomerate TrW and even nautically minded newport news Shipbuilding. other industry players caught the bug; blockbuster 1990s deals included martin marietta and lockheed (’94), boeing and mcDonnell Douglas (’96) and raytheon and Hughes aircraft (’97).

Slack is where work happens, for millions of people around the world, every day. Find out why at slack.com.

LeaderBoard sportsmoney

the World’s Most valUaB Ble soccer teaMs valUaBle

West haM United’s valuation surged 17%—the highest percentage increase among the clubs in our ranking— following a $900 million renovation of its london stadium.

No sports fraNchise on the planet leverages its brand more efficiently than Britain’s Manchester United. It banked some $405 million this past season from marketing sponsorships—deals with a varied group that includes a Mexican bank (Invex Banco), an Indonesian drink maker (You C100) and even the Hong Kong Jockey Club. Its marketing aplomb is a big reason the club has regained its top spot on our annual list of the world’s most valuable soccer franchises. Man U is now worth $3.7 billion, an 11% increase from a year ago. That’s far more than the 3% average increase for the teams on our list, whose average value is now $1.5 billion.

1. cristiano ronaldo real madrid / portugal total earnInGs:

$93 Mil

2. lionel Messi Barcelona / argentina total earnInGs:

$80 Mil

3. neyMar Barcelona / Brazil total earnInGs:

$37 Mil

4. Gareth Bale real madrid / Wales total earnInGs:

$34 Mil

5. Zlatan iBrahiMovic manchester united / sweden total earnInGs:

$32 Mil

Manchester United england Glazer family

OpERATINg INCOME ($MIL) ($MIL MIL)

11%

$765

$288

CuRRENT vAL vALuE ALuE ($ ($MIL) ($MIL MIL)

$3,689

2 Barcelona club members

spain

688

113

3,635

3 real eal Madrid club members

spain

–2

688

181

3,580

M 4 Bayern MUnich club members

Germany

657

120

2,713

5 Manchester city england 8 al nahyan ahyan sheikh mansour bin zayed al

583

162

2,083

6 arsenal arsenal e. stanley Kroenke

england

–4

520

122

1,932

7 chelsea helsea r oman a bramovich roman abramovich

england

497

1,845

8 liverpool england John Henry, tom Werner

–4

448

1,492

9 JUvent ventUs JUventUs a gnelli family agnelli

–3

379

1,258

10 tottenhaM hotsp otspUr england hotspUr Joseph lewis, Daniel levy

310

1,058

11 paris paris saint-GerMain france Qatar sports Investments

578

841

12 BorUssia Bor d ortMU ort MUnd nd Germany dortMUnd evonik Industries, Bernd Geske

–3

315

808

13 ac Milan li yonghong

–3

238

–50

802

14 atletico atletico de Madrid spain Gil family

254

732

15 West haM United David sullivan

england

213

634

16 schalke 04 club members

Germany

–4

249

629

17 as r oMa roMa James p allotta pallotta

Italy

242

–21

569

18 inter Milan Italy –4 suning commerce Group, erick thohir

199

537

19 leicester city england Vichai srivaddhanaprabha

n/a

191

20 napoli a urelio De laurentiis aurelio

–4

158

409

averaGe

Italy

413

In april, billionaire silvio Berlusconi sold ac Milan for $800 million to a group of chinese investors.

379 1,481

MethodoloGy: all revenues and operating income figures are for the 2015–16 season, converted into u.s. dollars based on average exchange rates for the same period. operating income is earnings before interest, taxes, depreciation and amortization, player trading and disposal of player registrations. team values are enterprise values (equity plus net debt) and are based on exchange rates on april 24, 2017. 32 | FORBES junE 29, 2017

by MICHAEL K. OZANIAN AND CHRISTINA SETTIMI fotopress/Getty ImaGes; etsuo Hara/Getty ImaGes; Ian macnIcol/Getty ImaGes; marco luzzanI/Getty ImaGes

1-yEAR EAR REvENuE R EvEN ENuE COuNTRy CO OuNTRy CHANgE % ($MIL) ($MIL ($ MIL)

LeaderBoard FLOWcHART

what’s your summer book?

How to Be Everything: A Guide for Those Who (Still) Don’t Know What They Want to Be When They Grow Up By Emilie Wapnick

A read for every sunny ambition. Hmm.

Muskets or microchips?

what’re you dreaming about?

Creating something revolutionary.

Give me liberty or give me death.

Starting a company.

I’m bingewatching Silicon Valley. October: The Story of the Russian Revolution By China Miéville

hell, no.

there’s no better place.

Yes.

I exist only on the dark Web.

No.

Adaptive Markets: Financial Evolution at the Speed of Thought By Andrew W. Lo The Emigrant Edge By Brian Buffini Black Edge By Sheelah Kolhatkar

Wild Ride By Adam Lashinsky

does dad own the company?

Yep, he’s the president.

Playing Dead By Elizabeth Greenwood

I’m making my own way.

Women Who Work By Ivanka Trump

Military.

Runnin’ With the Devil By Noel Monk, Joe Layden

What kind of motivational clichés do you favor?

sports.

Music.

Carpe Diem By Roman Krznaric One Mission By Chris Fussell

American Kingpin: The Epic Hunt for the Criminal Mastermind Behind the Silk Road By Nick Bilton

I’m already gone.

Like a laser.

34 | FORBES junE 29, 2017

are you willing to disappear?

Who, me? No!

Wait, what . . . ?

Nothing but a Circus: Misadventures Among the Powerful By Daniel Levin

Whatever’s fastest.

If I could, I wouldn’t be here.

Can you stay focused?

Valiant Ambition: George Washington, Benedict Arnold and the Fate of the American Revolution By Nathaniel Philbrick

No.

are you an immigrant?

Can you get insider information? Possibly.

Crime doesn’t pay.

Earning a promotion.

Investing smarter.

In the bay area?

Legally?

Getting rich.

The Captain Class By Sam Walker

by abram brown Makoto IshIda For Forbes

More like hammer and sickle.

> INTRODUCING THE WORLD’S MOST SECURE INDUSTRY STANDARD SERVERS P ro t e c t y o u r d a t a l i k e i t ’s n o b o d y ’s b u s i n e s s . B e c a u s e i t i s n ’ t. E x p e r i e n c e u n i q u e p ro t e c t i o n f ro m s e r v e r s i l i c o n t o s o f t w a re – s o y o u ’ l l n e v e r h a v e t o c o m p ro m i s e . I t ’s a l l p a r t o f t h e n e w g e n e r a t i o n c o m p u t e ex p e r i e n c e f ro m H P E .

L e a r n m o r e a t h p e . c o m /s e c u r i t y © C o p y r i g h t 2 0 1 7 H e w l e t t P a c k a r d E n t e r p r i s e D e v e l o p m e n t L P.

LeaderBoard

forbes @ 1oo As Forbes’ September 2017 centennial approaches, we’re unearthing our favorite covers.

JuNe 12, 1989: Cyber-soVieTs

NoTable aNd NewsworThy

rich Gets richer

America’s most-wanted white-collar fugitive, commodities trader marc Rich (left), was quietly growing wealthier through sly plying of U.S. trade policy. His Richco Grain trading operation had “taken in more than $65 million in subsidies from Washington in grain deals” over the six years since Rich had fled to Switzerland to dodge tax-evasion charges in America.

before rUSSIA GreW bold and sophisticat ed enough to hack a U.S. presidential election, the country’s affinity for computers was evident even amid the collapse of the Soviet Union. In the late 1980s, a growing group of entre preneurial Russians ran computerfocused cooperatives, the private enterprises introduced under perestroika. They resold used Western computers, distributed Microsoft software and installed technology systems. They even wrote and marketed their own programs. Maxim Khomyakov, for instance, helped create an oper ating system called Chaos, a lessthansubtle poke at dysfunctional Soviet office life. It monitored the completion of paperwork and routine tasks and cost 50,000 rubles, or approximately $80,000 (roughly $160,000 in today’s money). “Computer hackers in the Western sense don’t exist in the Soviet Union. Yet there exists a sizeable but indeterminate community of free spirits,” concluded Forbes’ Esther Dyson, daughter of noted English physicist Freeman Dyson and editor of Release 1.0, an influential newsletter on the emerging computer industry. “While the Soviets may lack the ability to use computer tech nology effectively, they are rich in fundamental . . . intelligence.” Three decades later, it appears the hackers, not the entrepreneurs, reign supreme. The ediTor’s desk

FasT-Forward

Extraterrestrial Earnings

1989: Steven Spielberg and his wife, Amy Irving, were divorcing, and she had a strong claim on earnings from the director’s work prior to their 1985 marriage because of their long-standing, on-and-off relationship. 1996: Despite a reported $100 million divorce settlement with Irving (approximately $195 million today), Spielberg nonetheless became a billionaire less than ten years later after a t. rex–size payday (some $300 million–plus) from 1993’s Jurassic Park. 36 | FORBES junE 29, 2017

malcolm Forbes had a stern message on proper answeringmachine etiquette: the appropriate greeting, he instructed, skipped “all that time-wasting, cheerful exuberance . . . that [drives] a caller up the wall” and simply said, “ ‘We’re unable to answer; at the beep leave your message.’ ”

amaziNg ads

walking on Air

After the immense success of its Walkman cassette player, Sony introduced the Video Walkman in 1988. the tV-VCR combination weighed 2.5 pounds, had a 3-inch color screen, played four-hour-long videotapes—and was a complete flop.

by AbrAm brown GUIDO ROEOESLI/AFP/GEtty ImAGES; ALAmy; ROn GALELLA/GEtty ImAGES

To the Point

YOUR WORLD IS HYBRID

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LeaderBoard CONVERSATION

ANTOINE GARA’S cover profile of Brookfield Asset Management CEO Bruce Flatt (May 16) showcased the billionaire Canadian who has become one of the world’s biggest commercial real estate managers and a key player in the U.S. infrastructure push. The piece put some readers in mind of the last time we compared a major investor to Warren Buffett. Tweeted the Wall Street Journal’s Dave Benoit: “Remember that time Forbes called Bill Ackman ‘Baby Buffett’ 2 months before” his stake in Valeant Pharmaceuticals began to implode? Riposted Benoit’s colleague to the north, Journal Canada reporter Jacquie McNish: “Highly doubtful Flatt will have the same problem.” With infrastructure the topic du jour, others had more prosaic concerns. “We just need the roads fixed,” Brandon Cherry wrote on Facebook. “Preferably I-85 right about now.”

THE INTEREST GRAPH

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LISA RYAN, THE CUT, NEW YORK:

“The president has not yet tweeted a reaction to this news, but give him time.”

@CHRISRIOTTA, NEWSWEEK: “Trump

Everyone craves a good 9-to-5. Our rundown of the country’s top workplaces generated hundreds of thousands of clicks—and, we suspect, untold numbers of updated résumés.

has either been lying about the size of his penthouse or he isn’t that familiar with his own real estate. Sad!”

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Donald Trump Has Been Lying About the Size of His Penthouse 89,799 Small Giants: America’s Best Small Companies 58,255 Brookﬁeld’s Bruce Flatt: Billionaire Toll Collector of the 21st Century 40,043 Starting Over: How FreshBooks Reinvented Its Accounting Service on the Fly 37,316 The Haute Bungalow: Inside Jocelyne Sibuet’s Villa Marie in St. Barth

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“Using the correct square footage, we estimate the president’s pad is worth $64 million, less than a third of his number.”

“With competition for the best employees as hot as it’s ever been, attracting top talent is crucial.”

documented that President Trump is a bit of a size queen, but now he’s run into some hard numbers that don’t lie: square footage in New York City. In real estate journalism, that’s what’s known as a ‘massive burn.’ ”

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you been inside that penthouse? Looks like everything is gold. His wallpaper and toilets are probably worth $64 million.”

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garish decor isn’t as widespread as he bragged about.”

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technology

strategies

entrepreneurs

di s r up tor s : tr anspo r tat i o n

Dial-a-Caravan

Ride-sharing startup Careem is outdistancing Uber in the Arab world with superior cultural knowledge, better maps and more drive. By parmy olson

O Siddharth Siva/redux PictureS For ForbeS

n St. Patrick’s Day, Uber offered customers the option to summon a bagpiper for a short serenade, a marketing gimmick that followed other quirky deliveries for different occasions—pups for the Puppy Bowl on Super Bowl Sunday, Christmas trees and summertime ice cream. But as of now, sheep sacrifices are not part of Uber’s repertoire. That’s just one area where Careem, its top rival in the Middle East (excluding Israeli startups) and the only unicorn in the region, has one-upped Uber in the race for regional ride-hailing dominance. In September 2016, Careem offered sheep, sacrificed according to Muslim law, to customers in Riyadh, Saudi Arabia. It was a

careem cofounders Magnus olsson (left) and Mudassir Sheikha dreamed up their uber competitor while working as McKinsey consultants.

JUNE 29, 2017 FORBES | 41

Verticals

42 | FORBES JUNE 29, 2017

just like smartphones leapfrogged landlines in much of the developing world. Public transport in the region is woefully underdeveloped, and while some governments pour money into roads, car ownership is low: In the U.S. 80% of people own a car, compared with 40% in Saudi Arabia, 5% in Egypt and less than 2% in Pakistan. In Saudi Arabia it’s worse for women, since the government refuses to issue them driver’s licenses. And while Uber is nothing if not an aggressive competitor, and one that enjoys a $3.5 billion investment from Saudi Arabia’s Public Investment Fund, Careem enjoys a first-mover advantage. By the time Uber launched in Dubai, in August 2013, Careem had been in the region for a year. What Uber, valued at $15 billion, has raised in venture capital dwarfs the $425 million Careem got from state-run Saudi Telecom and Japanese e-commerce powerhouse Rakuten, but Careem is doing a better job of giving riders what they need, including having superior maps and dedicated call centers. Uber and Careem both stand to benefit from an unexpected bonanza: Donald Trump. Because of the American president’s policies—including his attempt to place restrictions on visas and travel for citizens from six Muslim-majority countries—a growing number of engineers and executives born in the region and trained in Silicon Valley are willing, even eager, to return home. In the past six months, around 15% of Careem’s

a woman in riyadh, saudi arabia, holds up a phone displaying Careem’s ridehailing app. saudi arabia, where women can’t drive themselves, is a key market for Careem.

FAisAl Al NAsseR/ReUteRs/AlAmy

move designed to simplify a tradition around the Eid al-Adha holiday that requires people to visit a local farm to buy a sheep or goat, get it home somehow, sacrifice it and distribute it to friends, family and the needy. “We got it, sacrificed it for you, then brought it back in boxes,” says Careem cofounder Mudassir Sheikha, a 39-year-old Stanfordeducated Pakistani with an engineer’s obsession for optimizing everything. Careem made sure the meat was divided according to custom: a box for you, one for family and friends, and one for charity. After some customers said they wanted live sheep so their kids could play with it beforehand, Careem mobilized a fleet of pickup trucks for the job. Careem’s obsessive focus on the unique demands of the region’s people, its geography and its infrastructure (or lack thereof) has helped it stay ahead of Uber in countries ranging from Morocco to Pakistan. Sheikha hopes the approach will turn Careem into “the biggest mover of humans and things in the Middle East.” Moving people is a big enough opportunity: The region has a population of 700 million, with the potential, according to Sheikha, of between 150 million and 200 million trips a day. In five years, Careem has amassed 10 million registered users in 60 cities in 11 countries, likely higher than Uber, which got into the region late. Some 250,000 contractor drivers, called captains, work for Careem, and ride numbers have been growing at a 25% monthly clip for the past two years. The privately held company is shy about discussing numbers, saying only that annual revenue is in the “hundreds of millions” of dollars and profits will come in “a year or two maximum.” Careem claims to have broken even in Dubai and several cities in Saudi Arabia. Sheikha and his Swedish cofounder, Magnus Olsson, whom he met while both were working as consultants at McKinsey, share a double-digit stake in Careem, the first Middle Eastern ride-share startup to reach a $1 billion valuation. Call it a “unicamel,” Sheikha quips from his headquarters in a glistening Dubai high-rise, just down the road from Uber’s regional hub. Sheikha expects ride-hailing to leapfrog traditional transport infrastructure in the Arab world,

technology

Verticals

technology

massive regional problem that had affected them during their consulting work. While each had a personal driver in cities they visited frequently, half the time the driver wasn’t available and would send a brother or cousin who often didn’t know the way. “You’d haggle on price, pay in cash,” Olsson says. “The experience could be completely insane.” The pair started Careem, which means “generous” in Arabic, as a car-booking service for corporate customers, working out of a 500-square-foot room in Media City, a tax-free hub for businesses in Dubai. Its users gradually started booking Careem for personal trips to the airport. Women started using it to take their kids to school, and Careem grew into a wider, consumer-facing service. In the early days, Careem had to grapple with bad maps and confusion about addresses; residents of Dubai are more likely to give you the name of a local tower than a street, while in Pakistan home could be the “second right after the grocery store,” product chief Wael Nafee says. When the Jumeirah Village Triangle, a large residential area in Dubai with hundreds of occupants, showed up as a blank space on Google hoW to play it BY JON D. MARKMAN Maps, Sheikha sent A robust logistics software platform is at the heart of every modemployees there with ern mobility business, whether one is transporting people or cargo. phones to log as many Nobody does that better than Descartes systems Group. Founded GPS locations as they in 1981, the $1.8 billion Canadian company makes cloud-based softcould. Careem now ware used by 10,000 customers in 160 countries—including 1,600 has a dedicated team ground carriers, 90 airlines, 30 ocean carriers and 900 freight to do the same across forwarders. From American Airlines to UPs, companies depend on Descartes the region as it builds products to schedule, track and route their goods, as well as meet regulatory compliance. sales reached a record $203.8 million and cash flow reached $72.6 million its own location datain fiscal 2017. While ride-sharing companies tend to be persistent money drains, base. “Much as Google software makers like Descartes are growing annuity businesses. the stock is up and Nokia’s maps are 17% in 2017 and 195% over the past five years. Bottom line: Bet on the logistics great, they really suck software maker, not the transporters they serve. in this part of the Jon D. Markman is president of Markman Capital Insight. world,” Nafee says. Unlike Uber, Careem isn’t out for global domination. Its local surgery in the United States, he flew to Thailand to sit in silence with Buddhist monks and reassess focus—much like other Uber clones like Didi’s in China and Ola Cabs in India—combined with his life. “I needed to build something, and it had Silicon Valley know-how may pay off in the long to be big and meaningful,” he says. term. While Uber clearly benefits from a cerOlsson, who’s prone to earnest monologues tain coolness factor with the region’s Millenniabout letting go of fear, was educated at Sweden’s als, Careem has blunted it with a savvy social-meprestigious Lund University and speaks Arabic. dia campaign and satirical videos on YouTube He settled in Abu Dhabi after meeting his Pales(one ad plays out as a faux soap opera). “We are tinian wife-to-be there on a work stint. He quit just building to last,” Sheikha says, “and inshallah McKinsey while Sheikha took a leave of absence, [God willing] this is going to be around for many and the two brainstormed in cafes across Dubai decades and centuries to come.” and Abu Dhabi. They hit on transportation as a new engineering hires have been returnees from the Valley. They join Sheikha, who went to Stanford and spent eight years at Silicon Valley startups, and a quarter of his executives, who got their training at Valley icons like HP and Facebook. Engineers in the U.S. cite “the new government administration as a big factor in them having a chat with us,” says Careem’s talent-acquisition manager, Nicki Hague. Of course, returning to the Middle East also means coming to terms with moral quandaries: The Saudi ban on women drivers, while distasteful to many U.S.-educated professionals, helps Careem. Close to 80% of its Saudi customers are women, and women represent 60% of its total user base. “We are their means of transport in the kingdom,” Sheikha says. Sheikha and Olsson started Careem in 2012 while they were colleagues at McKinsey, with the latter’s ambitions spurred by a near-death experience. The year before, while attending a management-training seminar in Cambridge, England, Olsson, who was then just 29, suffered a brain bleed that could have killed him. After lifesaving

FInal THoUGHT

“Always focus on the front windshield, and not the rearview mirror.” —COLIN POWELL 44 | FORBES JUNE 29, 2017

PROTOTYPE

BLOCK PARTY this summer, 80 years after its founding, lego will launch Boost ($160; lego.com/en-us/ boost)—sets that enable kids to build robot vehicles, animals, castles and more, then use drag-and-drop modules on a tablet to program them to life. the modules— color-coded to govern movement, speech and more complex actions—control Boost bricks with sensors and motors. initial instructions cover ﬁve creations: Frankie the Cat, Vernie the Robot, a guitar, a roving vehicle and a contraption that itself can build smaller machines. Boost works with ordinary legos so you can use the ones you’ve had boxed up since 1978 to indulge your 21st-century whimsy as well. (tell your kids they can play too. if they act nice.) —Kathleen Chaykowski

Verticals

d i s rup tor s : gam i ng

Avenging MySpace a decade ago, Chris DeWolfe ran the world’s most successful website, one that facebook turned into a punch line. now DeWolfe is back, seeking permanence in the ephemeral sphere of mobile games. BY KAthleen ChAYKoWsKI

C Jam City cofounders Josh Yguado (left), Chris DeWolfe (center) and Aber Whitcomb have scored with two massive smartphone hits: Cookie Jam and Panda Pop. In all, their games have been downloaded some 800 million times.

46 | FORBES junE 29, 2017

hâteau-Crème-a-Lot is a digital fortress of giant wafers, dipped cones and marshmallow swirls. It’s one of several dessert islands where the bright-eyed Chef Panda solves puzzles with shaped chocolates to earn ingredients to make everything from cookies to cake pops on a quest to be the best confectioner. Sounds silly, but it’s serious business. Chef Panda is the star of Cookie Jam Blast, a new game by Jam City, a seven-year-old mobile-gaming company in Culver City, California. It’s a spin-off of Jam City’s most successful franchise, Cookie Jam, which has been downloaded more than 100 million times and generated about half a billion dollars in revenue since its 2014 debut. “We expect Cookie Jam to be around 50 years

from now,” says Jam City cofounder and CEO Chris DeWolfe, 51. Such longing for permanence seems jarring in the hyperactive world of smartphone gaming, but it makes perfect sense when one recalls that in a prior life DeWolfe was the CEO and cofounder of MySpace, the pioneering social media company that most definitely did not become Facebook. This time he wants his creation to stick around. It’s off to a good start. Since its launch in 2010, Jam City has become one of the fastest-growing private mobile-gaming companies, amassing 50 million monthly users and sending six titles to the charts that track the 100 highest-grossing games. It competes with giants such as Activision Blizzard, Tencent-owned Supercell and Electronic Arts. “There are only about ten companies who have had more than one game in the top 100,” says Wedbush Securities analyst Michael Pachter, who estimates the mobile-gaming market at $40 billion. “Getting more than one means you’ve figured out a formula that’s impressive.” Jam City, which until last year was known as Social Gaming Network, builds half its puzzle and storytelling games from scratch and the other half using licensed major entertainment brands like Futurama and Peanuts. The original properties are more successful—they account for an estimated 75% of revenue—but the Hollywood stuff is safer, since it comes with “an instant user base,” says Josh Yguado, a former 20th Century Fox executive, who along with ex-MySpace CTO Aber Whitcomb helped DeWolfe start the company. But safety comes at a price—usually about 10% to 12% of a Hollywood title’s revenue is paid as a royalty to the studio. The mix of swinging for the fences with original titles and bunting with Hollywood brands is paying off. Jam City saw sales of $322 million last year and hopes to exceed $400 million this year. Using a business model common in mobile gaming, Jam City receives the majority of its revenue from so-called “in-app purchases,” in which play-

Ethan PinEs for forbEs

technology

game and rolling out advertising only after data shows it boosts in-app purchases. “MySpace didn’t become Facebook,” DeWolfe says, looking wistful but not defeated. “You have to ask yourself why.” The paraphernalia in DeWolfe’s office mirrors his nostalgia. A New Yorker cover hanging above a sleek couch features a collage of all things hot in 2006: MySpace, Snoop Dogg, Scarlett Johansson. On his coffee table is a book of Banksy graffiti, including an image of an elderly woman with the words, “You looked better on MySpace.” “As an entrepreneur, I had a lot of unfinished business,” DeWolfe says. DeWolfe, a native of Portland, Oregon, got the inspiration for Jam City while traveling in Japan for MySpace in 2006. He noted how often people accessed social media and games from mobile devices at a time when they had yet to take off in the U.S. When DeWolfe wanted to start another company after MySpace, he saw that the future of entertainment was mobile and decided to capitalize on the trend. After seeding the company with $1 million of his own cash and securing a $26.5 million investment from Austin Ventures, Jam City hoW to play it BY MARC GERSTEIN released its first original i usually find ideas by screening, but sometimes i reverse the games in 2012. process by taking specific companies and looking to see how In 2015, Jam City they’d fare under the kinds of screens i create. for videogamraised $130 million from ing, where tastes and game lineups change all the time, i’m Seoul-based mobile-gammore interested in big-picture capacity to succeed than hereand-now chart-toppers. so financial brute force is a good ing company Netmarble, starting point. i decided to examine Activision Blizzard and electronic Arts, which took a 60% stake at the big gorillas in the publicly traded arena, both growing in mobile gaming. a valuation of $220 milElectronic arts is better in return on equity and financial strength, but i’d be lion. The investment fueled happy to own both. Valuation metrics are high, but if you want stakes in this the company’s estimatbusiness, you’ll have to pay up for the growth you expect. ed $100 million purchase Marc Gerstein is director of research at Portfolio123.com. last year of TinyCo, a startup that builds Hollywoodthemed games and delivered Jam City’s Marvel purchases and how to retain users by personalizand Family Guy titles. ing games. “Half of the business is super-creative art and “They’re known for data,” says Tero Kuittinen, chief strategist at Kuuhubb, a Helsinki-based ven- storytelling, and the other half is hard-core data,” ture firm that specializes in digital entertainment. DeWolfe says. The 500-person company has a lot on its Once, MySpace was a cultural juggernaut plate: prepping for an IPO, trying to diversify with 130 million users and the internet’s largest away from its two big hits, and eyeing the ChiTV and music libraries, and the online home of nese market, perhaps with a partner like Tencent. icons like Taylor Swift and then-president Barack Regardless of what the future holds, DeWolfe says Obama, with about $750 million in annual revthat as an entrepreneur he’s here to stay. enue. Hasty monetization, pressured by its $580 “It’s just what I like to do, manage big commillion sale to News Corp. in 2005, killed growth. panies and grow them to scale,” he explains. “It’s Now DeWolfe is vigilant about protecting Jam not really about the money.” City users, testing every feature before it enters a ers pay for special features like new characters or extra lives. (All Jam City games are free to download.) The company has been diversifying its revenue streams by adding in-game advertisements, which could make up 10% of 2017 revenue. Jam City, which aims to go public within a year, says it has been profitable for three years but won’t disclose precise figures. Pachter estimates a profit of about $20 million this year. Smartphone gaming is a fickle, hit-driven business. King Digital Entertainment is the industry’s cautionary tale. After launching its topgrossing game, Candy Crush, in 2012, King sold itself to Activision for $5.9 billion—and hasn’t made a hit since. How can Jam City avoid a MySpace-like tumble or King-like slump? It’s a real risk, and some view the company as a derivative game shop that succeeds by making polished knockoffs of its core franchises, alongside more lukewarm Hollywood retreads. But the company claims its expertise in data analysis will fuel steady growth for years. Jam City rigorously mines player data to figure out how to encourage more of those lucrative in-app

FInAl thoUGht

“Only after disaster can we be resurrected.” —CHUCK PALAHNIUK 48 | FORBES junE 29, 2017

FOLLOWTHROUGH

PHOTO FINISHED? in March 2013, GoPro founder and then-billionaire nick Woodman took Forbes along on a ski trip suffused with red bull consumption and Woodman’s trademark howl of enthusiasm—all, of course, caught on the portable camera that made his fortune. Woodman has a different reason to howl these days: since GoPro’s iPo in June 2014, its shares have fallen close to 80% as consumers increasingly turn to ever-sharper phone cameras. Meanwhile, one of the company’s new innovations, the Karma drone, was voluntarily recalled last november and remained off the market for three months, and GoPro has cut nearly a fourth of its workforce since late 2016. Woodman says his newest camera, the hero5, will turn things around. Q2 earnings, announced next month, should help the picture come into focus. —Madeline Berg

PhotoGraPh: EriC MiLLEttE

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StrategieS

aSS et managem ent

Rowing Upstream as billions pour out of active management, stockpicking standout T. rowe Price is hunkering down and quietly setting up a new York quant shop, just in case. By mATT SchifRin

DaviD Yellen for forbes

A boatload of T. Rowe Price leaders, including vice chairman Edward Bernard, on the far left, and chief executive Bill Stromberg, fifth from the right.

he age of active investment management could not have gotten a more emphatic eulogy. In February, Warren Buffett, the world’s richest and most famous stock picker, devoted five pages of Berkshire Hathaway’s closely read annual letter to the virtues of passive index investing. It was as if Moses had written a lengthy essay explaining why adhering to the Ten Commandments was actually, in practice, pointless. Such is the environment for stock pickers these

days. Last year, $263 billion flowed out of actively managed U.S. equity funds, bringing the exodus over the last decade to more than a trillion. And yet, in the struggling port city of Baltimore, where civil unrest grabbed national headlines in 2015, 260 investment analysts and portfolio managers at T. Rowe Price continue to study company fundamentals in search of stocks that will “create alpha” by beating the indexes. Only 5% of the firm’s $862 billion in assets use passive index strategies. “Passive has captured the airwaves. It is controlling the debate,” says T. Rowe Price’s chief executive, Bill Stromberg. “We see a lot of firms pulling back, reducing investment staff or moving to quantitative or smart beta because they’re not sure they can deliver that alpha.” Asset managers, including giant $5.4 trillion (assets) BlackRock (see story, p. 148), are increasingly choosing machines over men. T. Rowe (as it’s popularly called) is a holdout, a bulwark of humans picking stocks. And they’re good at it. According to an internal study verified by Morningstar, 78% of the firm’s active diversified

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Verticals mutual funds have beaten their index-fund benchmarks (after fees) over the past 20 years in more than 80% of the rolling ten-year periods. While competitors like Franklin Resources saw doubledigit asset declines in 2016, T. Rowe, with its superior performance, held its asset bleed to just 0.4%. At least on the surface, from an investing standpoint, not much has changed at the company since it was founded by growth-stock legend Thomas Rowe Price Jr. in 1937. The firm still has a methodical team-driven, bottom-up stock-picking culture that seeks companies among “fertile fields for growth.” It is the antithesis of the typical eat-what-you-kill, me-first Wall Street operation. At T. Rowe’s Baltimore headquarters there is a collegial, almost academic atmosphere, where shirt-sleeve meetings are common and consensus building is mandatory. Unlike competitor Fidelity Investments, where a Peter Lynch or Will Danoff might be regarded as walking on water, there are no stars at T. Rowe. The firm is so team-obsessed that the role of chief investment officer is now held jointly by six veteran money managers. Spend an hour with chief executive Stromberg and there is no “wow” moment. His office is standard-issue corporate—a 12-by-15 space with built-in laminated wood desk, cabinets and credenza. There is no expensive C-suite artwork, just a few mementos from 30 years of service and some family pictures. A framed article from 2005 lauds several analysts at the firm, but Stromberg’s name isn’t even mentioned. A native Baltimorean and onetime star wide receiver for Johns Hopkins, the 57-year-old CEO seems happy to be seen as a steward, the latest in a line of smart but unassuming former stock pickers who have led the company since Price sold his firm to partners in the late 1960s. “Sustaining the excellence that we have experienced over the years, from the previous generation before me, to the generation that comes after me, is what is foremost in my thinking,” he drones. Given the industry’s current existential crisis, Stromberg’s apparent lack of dynamism would ordinarily be cause for alarm. But in the business of money management, where compounding is the driving force, boring can be good. T. Rowe Price may be structurally immune to fads, but that doesn’t mean it’s stuck in the past. It has always been open to innovation in its pursuit of investment alpha. Take, for example, the firm’s big stake in private companies, particularly in Silicon Valley, where its portfolio managers like Henry Ellenbogen are well known. According to Morningstar, among mutual fund families, T. Rowe Price 52 | FORBES junE 29, 2017

StrategieS

is one of the biggest holder of private companies, with $2.5 billion invested as of March 31, 2017. Its startup investments have included Facebook, Uber, Airbnb, Warby Parker, GrubHub, Atlassian, Workday and Snap. Ellenbogen’s New Horizons Fund, now closed to new investors, has $19 billion in assets and has invested in no less than 63 private startups. By T. Rowe’s reckoning, these private investments have enjoyed an estimated 35% average annual return since 2009, helping New Horizons achieve an 11.4% average annual return over that period, versus 8% for the Russell 2000. Or consider target-date retirement funds. In this fast-growing category, T. Rowe’s aggressive stance—it weights its asset allocation “glide path”

Asset Wars

100%

among these large asset managers, blackrock has been the biggest beneficiary of the rush to passive investing. activeobsessed T. rowe Price has been able to stanch outflows with strong performance. acTive - equiTY acTive - fixeD income hYbriD/balanceD Passive - equiTY Passive - fixeD income oTher (incluDing moneY markeT) SourceS: MorningStar Direct anD coMpany reportS.

BlAckRock

invESco

T. RowE PRicE

more heavily toward equities than do competitors Vanguard and Fidelity—has been the primary factor in its superior long-term performance. At the root of the current industrywide activemanagement crisis are two factors: poor performance by managers and the looming generational asset transfer. Today two-thirds of T. Rowe’s assets are in retirement accounts. The beneficiaries of the next large pools of wealth—Generation X and Millennials—are skeptics when it comes to financial advice but embrace automation and disruptive technologies. So long as T. Rowe’s own fund performance holds up, the challenge of reversing asset flight falls largely to vice chairman Edward Bernard, a 29-year company veteran who oversees distribution, client service and technology. A religious studies and Asian history graduate from Brown who is fluent in Mandarin, Bernard cut his teeth in direct marketing in the early 1980s, selling jew-

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and instead use so called “conversational UI,” similar to text messages, to open up accounts. Even more disruptive is Faulkner’s new Technology Development Center on Park Avenue in New York City. This skunkworks project will employ 60 data scientists, developers and software engineers. Their mission is to work with the stock pickers in Baltimore and to infuse new ideas for creating alpha using big data, advanced analytics and machine learning. Faulkner has already hired several veteran quants from the famed hedge fund Bridgewater Associates. “If you’re looking for someone who’s a great, say, Java developer, with quant skills and has worked on a trading floor, that is not a skill set that’s easy to find here in Baltimore,” says Faulkner. “What we want to do is augment [T. Rowe’s competitive advantage] with some of these technologies. In many cases, that will literally mean acceleration.” For example, if a traditional analyst in Baltimore comes up with an alpha-generating idea, the quants can model it, backtest it and hasten its path HOW tO PLaY it HENRY ELLENBOGEN to becoming a salable T. ever since growth-stock god and founder Thomas rowe Price Rowe Price product. But Jr. retired in 1971, star managers have been shunned at the Faulkner sees his quant baltimore firm. star funds are a diﬀerent story. small-capteam as more than a techfocused new horizons fund has a ten-year 11% average annual service bureau. return versus 8% for the russell 2000, in part because manager He cites a recent rehenry ellenbogen has become a well-regarded funding source for silicon valley startups ranging from facebook and airbnb to Workday. new cruitment interview he had horizons, which has big stakes in stocks like vail resorts, shopify and Wix.com, with a hedge fund quant, is closed to new investors, but you can expect similar performance and startup who came to the meeting exposure at funds like T. Rowe Price’s media and Telecom fund, up 12% on claiming that he was using average annually over the last decade, and T. Rowe Price Science and Technolmachine learning to wring ogy fund, which has a 10.9% ten-year average annual return. —M.S. 80 basis points of alpha trading nine stocks in one sector at the end of each quarter. The potenand algorithmic strategies. Faulkner’s résumé intial hire wanted to turn his algorithm into a new cludes stints at Credit Suisse, Goldman Sachs and fund, but Faulkner saw immediate value in it as a Merrill Lynch. trading overlay, applying the strategy to the myriHis mission? “Our goal is to take technology ad of stocks the firm already trades. from being operationally critical to strategically “I can imagine about a third of the group we defining,” says Faulkner, who recently opened an hire being of the type where we actually tailored a innovation lab 12 miles away from headquarters in an effort to revamp 38 existing digital client in- role to their skills,” says Faulkner. He predicts the New York outpost will become a hotbed for intelterfaces, which T. Rowe calls “journeys.” One recently refurbished journey is a new mo- lectual property and new products, which will ultimately help drive the firm’s alpha. bile and Web-based interface that allows users to Will Faulkner’s high-tech skunkworks turboseamlessly fund new accounts as easily as logging charge T. Rowe or spoil it? Steady as ever, Strominto an online checking account. Faulkner’s codberg isn’t concerned. “We are being more fronters are also working on a new Millennial-friendly interface that would do away with digital forms footed,“ he says. “It’s early days yet.” elry, sports memorabilia and other collectibles via mail for Danbury Mint. Bernard knows T. Rowe Price must keep up digitally, but other than some limited offerings, he refuses to forge headlong into the hypercompetitive zero-margin world of no-fee funds and robo advice. Instead, Bernard is pursuing a two-pronged counterattack. The first is to seek market-share gains from less price-obsessed channels—through financial advisors, banks and insurance companies here and overseas. In the U.S., T. Rowe accounts for only $380 billion of the $18 trillion controlled by financial advisors. Overseas there is $30 trillion up for grabs. The second part of Bernard’s plan is more radical by T. Rowe Price standards. In a company where prerequisites for entering senior management typically include decades of loyal service and an aversion to anything that hints of Wall Street, Bernard and Stromberg recently hired Nigel Faulkner, a chief technology officer with deep experience in electronic trading, dark pools

finAl ThoughT

“it is strange how new and unexpected conditions bring out unguessed ability to meet them.” —EDGAR RICE BURROUGHS 54 | FORBES junE 29, 2017

BY THE NUMBERS

CLOSING TIME america’s neighborhood bars are going the way of the three-martini lunch. The number of watering holes that serve no-frills booze and no food has dropped by nearly a fifth in the last dozen years. an increase in restaurants nationwide means more places overall to grab a cold one, but brewers in particular would like all those lo-fi dives to come back: The average bar sells nearly twice as much beer every year as the average restaurant. cASuAl-Dining RESTAuRAnTS NUMBER (DEC. 2016)

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nEighBoRhooD BARS 58,678 –0.9% SPoRTS BARS 9,501 +4.3% nighTcluBS 7,249 –5.9% finE-Dining RESTAuRAnTS 6,169 +3.1% PREmium BARS 2,571 +23.9% Source: nieLSen cga.

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“Go Get Your Elephant” Government regulation forced sunscreen entrepreneur Holly thaggard to pivot—and think big. By Amy FeldmAn

or Holly Thaggard, the moment of truth arrived in 2010 when she was celebrating Thanksgiving with her family. The business she’d started four years earlier to sell sunscreen to schools was going nowhere. Desperate, Thaggard decided she needed $25,000 to pitch her product at a trade show in New York, an expensive gamble for a company with just $45,000 in annual sales. “It was tears,” Thaggard recalls. “Ultimately, my dad left me a check on the counter and said, ‘Go get your elephant, honey.’ ” With a combination of pluck and luck, Thaggard did just that. While the trade show itself didn’t jump-start the business, the push from her family did. Today Supergoop, which is based in San Antonio, is distributed by Sephora, Bluemercury, Birchbox and Nordstrom, and its sales could reach $20 million this year. The fast-growing company has been plowing cash into marketing and is not yet profitable, but Thaggard says she expects profitability to be on the agenda at the next board meeting. Sunscreen has long been a sleepy category in the U.S., dominated by mass players like Coppertone, Banana Boat and Neutrogena, hawked heavily for beach season. But consumer interest in natural ingredients and newer brands is growing in all categories—beer, burgers and beyond—making room for startups like Supergoop. The research firm Euromonitor International forecasts that U.S. suncare sales will reach $2.1 billion this year, up from $1.5 billion a decade ago. But that doesn’t capture the full potential as sun protection gets added to an increasing number of products, blurring the line between sun care and skin care, a $120 billion global market. With skin-cancer rates rising, Thaggard wants to make sun protection a year-round sell. “Without heroics,” says John Kenney, cofounder of JMK Consumer Growth Partners, a Supergoop investor, “we can see the company getting to the $100 million-size range.” Thaggard, 45, grew up in Baton Rouge, Louisiana, where her father ran a heavymachinery business and her mother was a portrait painter. Thaggard recalls listening to her father’s tapes of sales guru Zig Ziglar as a preteen. After college at Louisiana State and a year as a grade-school teacher, she It occurred to Holly Thaggard that she’d never seen sunscreen in a classroom.

56 | FORBES junE 29, 2017

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Thaggard also booked a trip to San Francisco, where Sephora’s U.S. operations are based, and left a message for the buyer. “I remember driving to the airport, and she hadn’t called me back,” says Thaggard, who had no other reason to travel to the West Coast. Thaggard eventually scored a pitch meeting. Doubling down on the same trip, she got a friend to connect her with Nordstrom’s skin-care buyer, bluffing that she would soon be launching in Sephora. The bluff worked. In the summer of 2011, Supergoop launched in both Nordstrom and Sephora. Priya Venkatesh, who oversees the latter’s skin-care and hair-care products, says she recently urged Thaggard to create sunscreen that could be applied over makeup to appeal to the chain’s makeup-centric customers. The result: Supergoop’s mist and powder. “They get in the kitchen with you,” says Amanda Baldwin, who joined Supergoop as president last year. In 2013, the company raised its first outside financing, bringing in tennis star Maria Sharapova as an invesHOW tO plaY it BY WILLIAM BALDWIN tor and spokesperson. It has this could be a great century for entrepreneurs, like now raised a total of $8.6 milthe one portrayed here, who create novel consumer lion from JMK, Grace Beauty goods. losers would be the hierarchical institutions Capital and others. This month, that used to control the flow of capital to new ideas Supergoop is rolling out sunand the flow of goods to consumers. Winners would screens in Sephora stores in Sinbe the companies that flatten supply, distribution and financial networks. My losers list includes Citigroup (too many gapore, Malaysia and Thailand. branches), Goldman sachs (new-age entrepreneurs don’t go public), Across the beauty industry, Prologis (old-fashioned warehouses are worth less) and simon the big players are gobbling up Property Group (malls are doomed). Winners: Alibaba (internet supinnovative upstarts, a trend that ply chain), Ally Financial (online banking), Amazon (flea market for could play in Supergoop’s favor. producers), Fedex, Intuit (Quickbooks) and UPS. But beauty is a fickle market, William Baldwin is forbes’ Investment Strategies columnist. and the fight for shelf space is a constant. Supergoop faces stiff competition not just from the sunscreen giants but cause it’s classified as an over-the-counter drug. So from established skin-care players like Kiehl’s and she was forced to focus on private schools. “I had a Shiseido and other small innovators like Coola, big failed business model from the start,” she says. which touts its organic formulations and has a sepIn need of a new approach, she started going arate brand, Bare Republic, at Target. Ultimately, to trade shows and slowly getting mom-and-pop Supergoop will have to determine whether it can stores to stock Supergoop. She printed her cellgrow through its existing retail network or whether phone number on her packaging and got a call it will have to go mass-market. “There are very few from Sephora’s skin-care buyer. The buyer didn’t offer a deal, but Thaggard had spotted her elephant. skin-care brands that make it past $50 million,” warns Bluemercury cofounder Marla Beck. First, she took the buyer’s advice about trying to One big win for Thaggard is that she’s finally getget press, taking another expensive risk by paying ting sunscreen into schools. The rules have begun the equivalent of more than twice the brand’s anto change, state by state, and in a move that is part nual sales to a publicist. The gamble paid off when mission, part marketing, Thaggard will send SuperSupergoop products were featured in Redbook, goop to any classroom that wants it—for free. People and Parade. made a good living as a harpist (her grandmother’s playing had sparked her interest in the instrument). Then a close friend of Thaggard’s husband was diagnosed with skin cancer at the age of 29. Shocked, Thaggard spoke with a dermatologyresident friend and learned about the risks of longterm sun exposure. A light bulb went off as she realized that in her time as a teacher, she’d never seen sunscreen in the classroom or on the playground. Thaggard found chemists by reading scientific articles and began working with them to test formulas for a sunscreen free of oxybenzone, parabens and other controversial ingredients. She referred to the lab samples as “goop” and the formulation that finally worked as “supergoop,” a name that stuck. Her original idea was to package Supergoop Everyday SPF 30 for schools in wall-mounted containers like soap dispensers. Thaggard didn’t bargain on outdated government regulation. Despite rising skin-cancer rates, almost all states prohibited sunscreen in public schools be-

FInAl THOUGHT

“In a thousand years, archaeologists will dig up tanning beds and think we fried people as punishment.” —OLIVIA WILDE 58 | FORBES junE 29, 2017

MARGIN PROPHET

RAY KROC, M.D. Zawadi Bryant is Ceo of nightlight Pediatric Urgent Care, a ﬁve-location chain based in Houston. it expects $8.5 million in revenue this year—but has much bigger ambitions. Are there other centers similar to NightLight?

Very few. PM Pediatrics is a pediatric urgent-care center with 20 clinics in new York, new Jersey and d.C. night lite Pediatric in florida, which is not related to us, has more than 20 clinics. there’s deﬁnitely opportunity for a major national player. Have you taken on outside investors?

no. We have good, strong banking relationships. that’s the cheapest form of money. Any surprises?

one big aha moment: When we went from one clinic to two, it nearly killed us. When we took ourselves out of the ﬁrst one, it started to decline. that’s a turning point for any entrepreneur: You want to feel necessary, but that’s to your detriment if you want to grow. How are you managing growth now?

Whether you go to our sugar land or Webster location, the same procedures will be followed. i want to be the Mcdonald’s of urgent care in our systems and processes. —A.F.

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since he was 22. On his watch, the chain of trampoline parks has grown from an oddball concept with m a n ag i n g two locations into a franchised business with 176 parks in six countries. Twenty-five million people will visit this year, generating more than $300 million in sales. Last year, Sky Zone corporate’s revenues were $50 million, with a 20% profit margin. In a room typically reserved for children’s birthday parties, Platt shoehorns his action-figure physique into a picnic-table seat and explains the sky Zone Ceo Jeff Platt built a master plan. “We want to create a world where ev$300 million chain of indoor eryone plays every day,” he says earnestly. trampoline parks and created an But while Sky Zone has created its own indusindustry. Now he’s got venturetry, its ascent has attracted competition. Rivals backed competition. now operate roughly 75% of the 600-plus domesBy Noah Kirsch tic trampoline parks. One, CircusTrix, has millions of dollars in venture capital and runs more earing a tight black V-neck T-shirt than 80 locations under an array of brand names. and mid-top sneakers, Jeff Platt, Fighting to stay ahead of such threats, Platt’s 32, glides his Tesla to a stop, snaps marketing team is working to engage teenagers by off his sunglasses and enters his enlisting YouTube influencers and generating buzz 30,000-square-foot kingdom: a warehouse near on Snapchat. New technologies, like a wearable gadLos Angeles outfitted corner-to-corner with tram- get that will track activity on obstacle courses and polines. Employees in orange shirts emblazoned in dodgeball matches, are part of a strategy to gamwith the name Sky Zone tend to the jousting arena ify all aspects of the Sky Zone experience. As Platt and dodgeball court. Opening time is approachleaves the party room, the warehouse echoes with ing, and hundreds of kids—most between 6 and the sounds of screaming kids. He grins: “This is fun.” 17—will soon arrive to bounce in anarchy. Sky Zone did not get off to a promising start. Platt, Sky Zone’s CEO, has run the company At the turn of the millennium, Rick Platt, Jeff ’s father, had closed his scrap metal company in L.A. and was looking for a new venture. Opportunity came at one of his son’s high school volleyball games, where he heard an idea for a sport played on trampolines in which athletes would attempt to jump through a suspended hoop while holding a ball. He scouted a location in Las Vegas, then spent a year building a facility and another recruiting athletes. He used funds invested by family friends, who insisted he not tell anyone they had given him the money, lest they look insane. The “sport,” called Sky Zone, was a massive flop. Platt quickly abandoned the concept and opened his trampolines to the public. His initial customers were Keep bouncing: Jeff Platt is kids from a nearby skate park betting that indoor trampoline parks will prove to be more who paid eight dollars apiece. than a passing fad. In his first month in business,

Learning On the Fly

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had grown up, and approached his dad with a plan to start franchising. They concluded it would be the fastest way to grow. “We had a big list of people that had inquired already about franchising,” Jeff says. By 2010, the first franchise was up and running, and within three years, dozens more had opened across the country. The model was simple: Each franchisee pays $40,000 to $60,000 in upfront costs and 6% of gross sales, plus an additional 2% to a national marketing fund. Owners also agree to buy merchandise and much of the in-store equipment from Sky Zone corporate. With the average store bringing in more than $2 million in annual sales, there have been few complaints directed at headquarters, which is affectionately referred to as the “Home Zone.” “They’re very collaborative and transparent,” says Caroline Irving, a franchisee with four parks in Canada. Today Platt’s empire is based in a gray office building in L.A.’s financial district, where he shares a floor with an animal talent agency and a modeling school. The office has the kinds of perks more often seen HOW tO pLaY it BY JOHN BUCKINGHAM at a tech startup: free food, sometimes it takes the second generation to transform a videogames and a liquor cart. family business. brian Roberts, son of cable-tV pioneer and “It’s interesting to work at a comComcast founder Ralph Roberts, became president in 1990, pany like this that’s more freewhen the company was more narrowly focused and had wheeling,” says chief marketing sales of $657 million. Its 2016 revenues were more than $80 officer Josh Cole, whose team billion, and its stock is up more than 200% in the last decade. comcast has two strong businesses: cable and NbCUniversal. Comcast will produces an annual dodgeball benefit from advertising demand for the super bowl, the Winter olympics tournament that draws thouand the World Cup (on telemundo) in the 2017–18 season, while its new sands of competitors. The event, Universal theme park attractions, like the Wizarding World of harry Potter in complete with play-by-play anhollywood and Jimmy Fallon’s Race through New York in orlando, should nouncers and TV-quality video draw additional visitors. Its recent DreamWorks acquisition is already conproduction, gets exposure on tributing to ebitda, and like that, Comcast is expanding its diversified income ESPN and Snapchat. stream and augmenting its ample opportunities for organic growth. Those marketing plays are John Buckingham is chief investment officer of AFAM Capital. vital in a domestic landscape increasingly saturated with competitors, many with similar names (SkyWalk, Sky care for her, leaving Jeff, at 22, in charge. Rick Platt High Sports, Aerozone). The global prospects are never resumed a day-to-day role, even after Jan passed away in 2009, though he retains a board seat. equally challenging, as rivals have established footAs his father stepped back, Jeff immersed him- holds in Europe, Australia and Asia. “In the next three years we hope to have taken indoor extreme self in Sky Zone, running birthday parties and managing teenage employees. “I had no idea what sports to every continent,” says CircusTrix CEO Case Lawrence, whose company has raised over I was doing,” he says. “It was learning on the fly. $30 million in venture capital. All of my buddies were at Goldman Sachs or lawPlatt says he has passed on multiple buyout inyers or going to business school. And I was the quiries, though he acknowledges the temptation GM of some indoor entertainment park.” of cashing out. For now he’ll keep evangelizing But the parks were succeeding. In 2008, two about playtime. “We created a billion-dollar inyears after opening in St. Louis, he moved to Sacdustry from scratch,” he says. “There’s a lot left to ramento to launch the company’s third outlet. Four accomplish.” months later, he returned to Los Angeles, where he in 2004, 1,000 people paid for admission. The second, 2,000. Then Platt aired a TV commercial, and in month three 10,000 people showed up. “It was like, ‘Oh my God, we have revenue,’ ” Jeff recalls. In the first year, revenue totaled almost $1 million. Jeff, at the time a college student in St. Louis, decided to pitch the business in an entrepreneurship course he was taking. As part of the class, he met with local investors. To his surprise, they liked the concept and suggested he build a location in St. Louis to see if it would work outside of Vegas. Platt initially hesitated, then dived in. Armed with $600,000 from family friends, granted under the condition that he remain in St. Louis and manage the operation, he opened the second Sky Zone in 2006, soon after his graduation. The location generated $220,000 in its first month. “It blew our expectations out of the water,” he says. Then, just six weeks after the grand opening, Jeff ’s mother, Jan, was diagnosed with ovarian cancer. His father backed away from the company to

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“Exuberance is better than taste.” —GUSTAVE FLAUBERT 62 | FORBES junE 29, 2017

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Dialing Back Watch brands always reach into their archives to revive a classic model or produce one that simply evokes the past—particularly retro chronographs. Last year, TAG Heuer asked customers to vote on the design of the 2017 Autavia, a chronograph from the 1960s that became iconic a decade later when it was worn by Formula One driver Jo Siﬀert and, of course, Steve McQueen. Time has also added to its appreciation—in December 2016, a first-generation Autavia sold at auction for $125,000.

66 | FORBES

JunE 29, 2017

clockwise from bottom: 42mm stainless steel autavia by tag heuer ($5,150); 42mm el primero 36,000 vph with ceramiciZed aluminum case by Zenith ($8,700); 41mm brv2-94 black steel by bell & ross ($4,600); 41mm titanium bugatti aerolithe by parmigiani ($22,900); 43mm stainless steel manero flyback by carl f. bucherer ($8,700).

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Cocktail watches date back to the early 20th century, when it wasn’t considered proper for ladies to wear a wristwatch. The solution? Disguise it as petite, delicate jewelry. Over the years, the cocktail watch has come in and out of vogue, and as cases have gotten slimmer for women (and men too, for that matter), their time has come once more. As for vintage pieces, provenance adds to their allure. In 2011, several of Elizabeth Taylor’s cocktail watches sold at Christie’s—including a gold Piaget—for more than 20 times the presale estimate.

center: 25mm white gold charms by van cleef & arpels ($13,600). clockwise from top left: 23mm gem-set stainless steel hermès cape cod ($12,650); 21mm white gold and diamonds avenue classic by harry winston ($37,600); 26.5mm white gold and diamonds heures crÉative heure romantiQue by vacheron constantin ($48,800); 26.7mm stainless steel and diamonds boyfriend tweed black by chanel ($9,200).

JunE 29, 2017 FORBES | 67

The Timeless Travelers

FroM here To eTerNallY

center: 43.9mm platinum marine ÉQuation marchante 5887 by breguet ($230,400). clockwise from top: 40mm white gold reference 5320g by patek philippe ($82,800); 45mm sapphire crystal unico perpetual calendar sapphire by hublot ($111,000); 39mm 18k red gold heritage spirit perpetual calendar sapphire by montblanc ($20,900); 43mm stainless steel da vinci perpetual calendar by iwc ($29,900).

68 | FORBES

JunE 29, 2017

No complication is as beloved or as useful as the perpetual calendar, which needs to be set only once a century—or longer—and is smart enough to know it’s leap year. Among the legendary perpetual calendars lost to time is the Patek Philippe reference 2499 that Yoko Ono reportedly bought for John Lennon’s 40th birthday. The classic timepiece is popular with other classic rock stars— in 2012, Eric Clapton’s 2499 from 1987 set a then auction record when it sold for $3.6 million. It also sends a powerful message that you’re here to stay— renowned watch collector Vladimir Putin is often seen wearing a Patek Philippe perpetual calendar.

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clockwise from top left: 41mm stainless steel diagono scuba watch by bulgari ($6,550); 40mm stainless steel tribute to fifty fathoms mil-spec by blancpain ($14,100); 47mm luminor submersible 1950 bmg-tech 3 days by panerai ($10,200); 42mm stainless steel diver le locle by ulysse nardin ($9,600); 46mm stainless steel superocean hÉritage ii 46 by breitling ($4,735); 45.5mm ceramic seamaster planet ocean “big blue” by omega ($11,700).

Even those who never dip a toe in the ocean appreciate the rugged look of a dive watch. And there’s no shame in selecting one that isn’t ISO certified for diving—meaning, among other things, it’s water-resistant to 100 meters and has a unidirectional bezel. It can still tell time on land. Among the most famous dive watches in history have been those worn by James Bond. The top three sold at auction are Daniel Craig’s Omega Seamaster Planet Ocean from Skyfall ($254,000 in 2012), Craig’s Planet Ocean from Casino Royale ($255,000 in 2012) and Roger Moore’s Rolex Submariner ref. 5513 from Live and Let Die, which sold for $365,000 in 2015. But, hey, you only live twice.

JunE 29, 2017 FORBES | 69

The New Gold STaNdard clockwise from top right: 41mm yellow gold galet classic by laurent ferrier ($208,000); 38mm yellow gold sbgw252 by grand seiko; 9mm yellow gold la mini d de dior satine by dior ($28,500); 140mm yellow gold altiplano 60th anniversary edition by piaget ($25,200). page 65, left to right: 39mm yellow gold royal oak extra thin by audemars piguet ($55,400); 40mm yellow gold oyster perpetual cosmograph daytona by rolex ($27,500); 27mm yellow gold panthère de cartier by cartier ($21,200).

The Bullion Market All that glitters was not always rose gold. Or white gold—or even platinum. Everyone from the ancient Egyptians to Bruno Mars understands the 24k magic of yellow gold, which has made a dramatic return to watches in the past year. It’s easier to find in vintage timepieces, but of course it’s also highly treasured. In May, a 1969 yellow gold Rolex Daytona Paul Newman known as “The Legend” sold at auction for a record-setting $3.7 million. One of only three known yellow gold Paul Newmans, the watch was so rare that even Newman himself never owned one. 70 | FORBES JunE 29, 2017

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Steering Collaboration in an Era of Global Uncertainty

By Judith L. turnock

he Executive Leadership Council (The ELC), the nationâ&#x20AC;&#x2122;s premier organization of global black senior corporate executives, begins its fourth decade of advocacy for broad diversity and inclusion with the nation and the world in the midst of widespread transition. Technology, the Fourth Industrial Revolution, has already changed the global economy

and culture irreversibly, and there is more to come. The ELC now represents three waves of historical business and policy experience, positioning it and its members to lead during the transition and in the new normal.

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As new strains of discontent challenge the status quo, The ELC’s foundation is stable and prepared for the future, both globally and at home. The Fourth Industrial Revolution Is Changing the World of Work Technolog y a dva nces have a lrea dy changed the way people all over the globe live, work and relate to each other, and the changes will continue. “Our digital lives are significant in terms of what jobs they create and, most importantly, what jobs they eliminate,” predicts ELC Chief Operating Officer Brickson Diamond. “Finding new strategies and solutions is exactly the space where The ELC and its members have always excelled,” states Ronald C. Parker, ELC president and chief executive officer. It is no secret that Silicon Valley companies have been slow to embrace blacks and women in their ranks. “We need thinkers and people with vivid imaginations. Different perspectives reach that creative space,” offers Diamond.

The Mastery of ELC Members The resilience and creativity of The ELC’s 700 members in the face of new and highly charged environments, honed before and during their corporate careers, have prepared them for challenges, for new opportunities for their companies and for their own contributions. As new strains of discontent challenge the status quo, The ELC’s foundation is stable and prepared for the future, both

Sir Kim Darroch, British Ambassador to the United States (at podium), hosted a reception for The Executive Leadership Council at his residence in Washington, D.C., as a prelude to The ELC’s London Convening.

globally and at home. “As the tone, tenor and language around issues of inclusion become more aggressive,” says Orlando Ashford, ELC board chair and president of Holland America Line, a Carnival Corporation brand, “we have to make sure we represent the black agenda.”

Extending the Reach of ELC Membership As the global economy becomes more integrated, The ELC has recognized that it is “a world citizen with a universal mission,” declares Michael Hyter, managing partner, Korn Ferry, and ex officio ELC Board member, “and it is exciting that this opportune moment in our development intersects with transition on a global scale.” The ELC began its intentional global outreach well over a year ago, before holding its 2017 summer meeting in London. Since then, 20 new ELC members from around the globe are representing their companies, and more are expected by the end of 2017. “We’re having more conversations about the kinds of bridges we can build between African-American blacks and African blacks,” relates Ashford.

Last month, The ELC was hosted by British Ambassador Sir Nigel Kim Darroch at his home in Washington, D.C., as a prelude to the 2017 summer meeting in London. British-based black corporate executives, among whom a number were born in Africa, joined ELC members in panels discussing global issues. Other avenues increasing membership in The ELC are the inclusion of entrepreneurs and thought leaders. “Many of our members have become major entrepreneurs in business and financial services, collaborators with ELC members,” states Ashford. “It makes sense to bring them into the fold, so we can work together on developing black executives.”

New Generations of Business Leaders, Different Expectations New generations of African-American business leaders are looking beyond longterm corporate careers for different business challenges. Many in the first waves of ELC members became entrepreneurs, but only after retirement from corporate careers. In the current wave, more members are leaving corporate America before

Throughout this Special Section, there are highlights from conversations between ELC Chief Executive Officer Ronald C. Parker and four visionary leaders about the future of diversity and inclusion in this era of transition powered by technology: Julie Sweet, Accenture; John W. Rogers, Jr., Ariel Capital; Carla Harris, Morgan Stanley; and Stephen Howe, EY. Also throughout this Section, reports on each supporting company sample the range of corporate initiatives on diversity and inclusion The ELC supports and inspires.

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ADVANCING BLACK LEADERS ADVANCES US ALL. JPMorgan Chase is proud to partner with the Executive Leadership Council. We value our relationship and share a mission to increase the number of black executives, domestically and internationally. Through philanthropic endeavors and corporate partnerships, we are strengthening communities and building the next generation of global leaders. At JPMorgan Chase, we strive to recruit the best, diverse talent. Encouraging diversity and inclusion in the workplace is a cornerstone of how we do business. We know that only with the most inclusive workforce can we best serve the needs of our diverse clients and customers. Through our Advancing Black Leaders Diversity Strategy, we are committed to not only support our current leaders and promote leadership excellence at all levels, but also to expand the pipeline of top talent and provide ample opportunity for all to thrive and advance. To learn more, visit JPMorganchase.com/aboutABL. ÂŠ2017 JPMorgan Chase & Co.

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T h E E L C Each year, nearly a thousand aspiring black mid-level managers and executives attend The ELC Institute’s Mid-Level Managers’ Symposium, where they hear from ELC members and career coaches about how to navigate their way to senior-level positions.

Millennials, the younger wave of business leaders, became adults with a wide variety of successful black role models in business, government, academia, the arts and politics, including Barack Obama as their president. retirement, to find faster advancement and greater control. They have the confidence, ambition and, increasingly, the access to capital to step out on their own. Millennials, the younger wave of business leaders, became adults with a wide variety of successful black role models in business, government, academia, the arts and politics, including Barack Obama as their president. “Every day, I hear talented young managers, MBA students, young people all across the country, come up with new solutions of how to live in the future, including a new vision of what corporations can do,” reports Nat Irvin II, professor of Management Practice, University of Louisville College of Business. Changes at The ELC anticipate the rising expectations of Millennials.

Innovative Collaboration: CEO Action for Diversity and Inclusion™ The announcement of the CEO Action for Diversity and Inclusion™, an initiative spearheaded by The Executive Leadership Council, PwC, Procter & Gamble, General Atlantic, EY, Deloitte, KPMG, New York Life Insurance, BCG and Accenture, has been signed by more than 150 CEOs. These companies are committing to continuing to make their workplaces 4

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inclusive; implement and expand unconscious bias education; and share best – and unsuccessful – practices. This new public and high-level collaboration will increase transparency and visibility of the issue, prioritize its importance and produce valuable progress. It is more proof of the respect The ELC has earned.

BANK OF AMERICA: Focused on Continuing Strides Toward Diversity and Inclusion

D. Steve Boland, head of consumer Lending, ELc member

“Being a diverse and inclusive organization has long been a priority for our company, and is demonstrated by Chief Executive Officer Brian Moynihan, who has chaired our Global Diversity & Inclusion Council (GDIC) for 10 years,” declares D. Steve Boland, head of Consumer Lending, and ELC member. “It’s a commitment we see in every level of our company,” he says. The GDIC

is made up of management team members and key business leaders, including Boland, who serves as one of three vice chairs. “This group provides strategic direction on D&I by setting priorities, driving progress and helping make an impact on the issues that matter most to our employees. We see results in our diverse workforce and programs to support our employees.” Indeed, women make up 50% of the company’s global workforce, more than 40% of its management team and more than 30% of its Board of Directors. The U.S. workforce is more than 40% racially and ethnically diverse. “We are very proud of our strong representation in these key areas,” reports Boland. For its efforts externally, in 2014, Bank of America was inducted into the Billion Dollar Roundtable, an elite club of 22 companies that spend at least $1 billion annually on diverse-owned suppliers. “The 2016 spend was $2.6 billion,” states Boland, “and we are the first and only financial services member. “We invest in diversity in our company and in the communities we serve,” explains Boland. “It’s just one of example of how we’re driving sustainable economic growth and making a long-term impact.”

REATIVITY

If people think differently, they can unlock their full potential. “Sozosei” (creativity), pervades everything we do and also reﬂects our Japanese heritage. It’s fueled by a broad range of viewpoints, backgrounds and experiences. We encourage this diversity of thought for Otsuka-people to push themselves to achieve remarkable breakthroughs. Otsuka in the US healthcare companies share one corporate philosophy: “Otsuka—people creating new products for better health worldwide.”

Let’s connect @OtsukaUS

www.otsuka-us.com

Otsuka America Pharmaceutical, Inc. Otsuka Pharmaceutical Development & Commercialization, Inc. © Otsuka America Pharmaceutical, Inc. May 2017 01US17EUC0097

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Embedding Diversity and Inclusion in the Corporate Culture

JULIE SWEET chief Executive officer, north America, Accenture

our program pays multiples of the referral fee we have typically paid for successful referrals of diverse talent. that says loud and clear that we are deadly serious about getting the best diverse talent …”

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Ronald C. Parker: What are your thoughts on using technology to improve where we are on this journey of diversity and inclusion?

RP: How do you transfer that courageous leadership to the next generation of leaders so it becomes a part of your leadership legacy?

Julie Sweet: I’d say we’re at a very important inflection point. The disruption caused by technology has created two important conditions for success: Achieving continuous innovation is a key success factor for all companies, and there is a clear recognition that diversity is important to innovation. In addition, closing the enormous gap between the necessary job skills and the number of people able to provide them is critical to competitiveness. There were recently 500,000 jobs in the U.S. for people with computer science degrees but only 40,000 graduates. If we are not tapping into women and minorities in areas where there is a skills gap, we are simply not going to have the supply of talent we need. For the U.S., this is an economic imperative.

JS: Diversity is a topic of conversation on par with all the other critical business topics. When I evaluate my team, we discuss three to five topics, and diversity is one of them. It factors into compensation decisions. We’ve covered personal accountability, and then there’s corporate accountability and ensuring you are building the diverse leaders of the future. We have found targets an important tool. We publicly set a target to hire 40% women, which we reached a year early, and we just announced a new goal to achieve a gender-balanced workforce by 2025. We’re also focused on hiring African Americans and Hispanic Americans, and we expect to move the dial again. Last year, we announced a diversity referral program. Employee referrals are our best hires. To help build a larger pipeline of diverse talent, our program pays multiples of the referral fee we have typically paid for successful referrals of diverse talent. That says loud and clear that we are deadly serious about getting the best diverse talent, and it helps build the networks of diverse talent internally.

RP: You have said you have to make this journey personal. How do you do that? JS: A year ago, I made the decision to be transparent about our workforce demographics. We released them publicly and said we’re not where we need to be. Owning where we are is critical to our credibility among our existing workforce and the people we need to recruit. It says we’re serious. And we cannot ask people to personally take ownership if we are not transparent. This transparency is not just about numbers — it is talking directly about where we are. When I announced a new leadership team last December, the team had 50-50 men and women, which was to be celebrated, but only two people of color. I hit head-on that we have more work to do to achieve the diversity in leadership we believe is critical to our business.

RP: You’ve been an active part of creating the CEO Diversity and Inclusion Pledge that The ELC and PwC CEO Tim Ryan are spearheading. Will this approach be more impactful than past initiatives? JS: We are trying to be very expansive. Many of the companies on the steering committee are competing for the same talent, but we all basically agreed we have an obligation to partner and share ideas. By sharing, we can help companies leapfrog to where we are. Scaling up could make this Pledge really different.

Diversity isn’t just a seat at the table. It’s every seat at the table. We believe that a room full of diverse perspectives and backgrounds produces the best work. That’s why more than 40% of our employees—including recent college graduates—are people of color. At AT&T, diversity isn’t just a catchphrase. Every day, we practice a culture of inclusion because a diverse workplace is fundamental to our success. And we’re proud to continue our eﬀorts well into the future. Learn more at att.com/diversity

All marks used herein are the property of their respective owners.

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T H E E L C CENTENE: A Model of Inclusive Practice

Keith Williamson, Executive Vice President and General counsel, ELc Member

Wade Rakes, chief diversity & inclusion officer

Centene, the nation’s largest Medicaid managed care company, values the diverse ideas, experiences and cultures of the company’s more than 30,000 U.S. employees. Headquartered in St. Louis, Centene is a $40 billion health insurer providing government-sponsored health care programs to over 12 million beneficiaries. “A focus on diversity and inclusion strongly aligns with Centene’s business model,” explains Keith Williamson, executive vice president and general counsel and ELC member. One of the keys to Centene’s success in advancing its diversity and inclusion goals is top-level leadership, driven by Chief Executive Officer Michael Neidorff, who also chairs the National Urban League Board of Trustees. “Valuing diverse voices and cultures fuels improved service, innovation and business performance with all stakeholders including members, providers, employees, suppliers and the community,” Williamson adds. “Our executive leadership team comprises 40% women and 29% Asian, African-American or Hispanic executives,” says Wade Rakes, chief diversity and inclusion officer. The value of diversity is equally strong across the health plans that Centene operates. “Our 28 health plans have a total of 93 community leaders that serve as outside directors of those local entities. Onethird of them are women, and 40% are either African American, Hispanic, Asian or Native American,” states Williamson. 8

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The ELC’s annual CEO Summit brings together chief executives to share their experiences and perspectives on advancing diversity and inclusion in their enterprises.

Centene has a strong focus on ensuring its talent pipelines continue to foster diverse and inclusive teams. For instance, Centene has been a long-standing participant in the Consortium of Graduate Study in Management, an alliance committed to increasing the representation of minorities in American business schools and corporate management. “Centene actively recruited me while I participated in the Consortium,” says Rakes, “helping me foster an accelerated and broadened career experience, preparing me for larger leadership roles such as the one I am in today.”

CARNIvAL CORPORATION: Newly Energized Through Diversity and Inclusion

Orlando Ashford, President, holland America Line (a carnival corp. brand), ELc Board chair

Carnival Corporation, founded in 1972, is now the largest leisure travel company in the world. It comprises 10 brands, more than 100 sailing ships, 120,000 employees and 11.5 million passengers per year. It has always been a successful business. Since Arnold Donald – a former CEO of The ELC – took the helm of Carnival Corp. as chief executive officer in 2013, reports

Orlando Ashford, Holland America Line (a Carnival Corp. brand) president and current ELC board chair, there have been “appropriate tweaks to reenergize the company, create some new excitement and accelerate the brand.” Donald has “identified people inside and outside the organization with different backgrounds, skills and perspectives, and that collection has really generated powerful innovation and insight,” says Ashford. Carnival Corp. started with metrics, because “you have to hold yourself accountable” for bringing in different people. Then, continues Ashford, assessing the work environment: “Is it a place where those folks can be collaborative, where they can work together in a cohesive fashion, where they can handle both constructive criticism and new ideas?” The “secret sauce,” says Ashford, is “well-managed, diverse teams.” Ashford loves to quote Mark Twain, who said more than a centur y ago, “Travel is fatal to prejudice, bigotry and narrow-mindedness,” and Maya Angelou, who added more recently that through travel “we may even become friends.” All Holland America Line cruises, Ashford believes, are about opening minds and hearts. “We create those once-ina-lifetime experiences – those magical moments – for our guests,” he says. In the end, only results matter. “If you believe diverse teams deliver better results,” notes Ashford, “then you better show results.” And Carnival Corp.’s

Gina Adams Corporate Vice President, Government Affairs FedEx Corporation

Shannon Brown Senior Vice President HR/ Chief Diversity Officer FedEx Express

Gloria Boyland Corporate Vice President, Operations & Service Support FedEx Corporation

Matthew Thornton, III Senior Vice President/ US Operations FedEx Express

Delivering on the promise of a more diverse workplace FedEx is proud to support the Executive Leadership Council At FedEx, we understand the importance of a diverse and inclusive culture. Itâ&#x20AC;&#x2122;s reflected in our recruiting, hiring, training and promotion practices, but also extends to the makeup of our corporate decision makers. Weâ&#x20AC;&#x2122;re proud to honor these FedEx team members who serve on the Executive Leadership Council.

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Building Wealth Should Be the Focus of Diversity and Inclusion Efforts Ronald C. Parker: You and I and others have been at this a long time, John. Where would you say we are on our journey toward diversity and inclusion? John Rogers: We’ve gone backwards over the last 35 years, when I graduated from Princeton. RP: What’s going on? JOHN W. ROGERS, JR. Founder and chief Executive officer, Ariel capital

We need minority-owned private equity firms, hedge funds and law firms – where real wealth is created – and participation with anchor institutions.”

JR: Dr. King said, “I cannot see how the Negro will totally be liberated from the crushing weight of poor education, squalid housing and economic strangulation until he is integrated, with power, into every level of American life.” And yet, 50 years later, African Americans have not made inroads into the major areas where wealth and power are being created in our society. The wealth and power in today’s society really are coming from two places, Silicon Valley – the technology world – and Wall Street – the financial services sector. Many well-meaning diversity initiatives focus on ‘supplier diversity,’ which encourages the use of minority-owned businesses, often in lower margin industries such as construction and catering. But tomorrow’s business – technology and finance – is where the real wealth and jobs are being created. Additionally, large companies and nonprofit institutions – what I call our anchor institutions – often don’t live up to what they say they believe on their websites and in their annual reports. RP: So how do we disrupt this trajectory, create a different narrative and a different outcome? JR: The number-one answer is, it’s up to us minority leaders in corporate Amer-

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ica and on boards – African Americans, Asians and Latinos – working together, as we do in our Directors Conferences, to help these anchor institutions live the values they say they believe in. And I don’t mean just corporate boards. I include university, hospital, museum and foundation boards. And we need to keep track of C-suite jobs, philanthropy and spending by category. Again, I stress how critical professional services jobs are. We need minorityowned private equity firms, hedge funds and law firms – where real wealth is created – and participation with anchor institutions. It’s not enough to hire a minority caterer. All that does is create a wider wealth gap, making the problem worse, not better. And this is where today’s students can get directly involved. They need to connect the dots to jobs, their future jobs. They can take a page from President Obama, who began as a community organizer. Now his Foundation, where I’m on the board, is focusing on getting young people to be more effective organizers. I’d suggest they go to their college presidents and ask, how much business are you doing with minority-owned companies? And are you asking your law firm, accounting firm or investment banking firm, or private equity firm about the diversity or lack thereof on their teams? They shouldn’t allow their universities to ignore minority-owned businesses or accept majority-owned businesses that ignore diversity. With these opportunities, we could create more jobs and more philanthropy for our churches and our civil rights organizations. We’d be better prepared to run for office, to lead in politics. You can’t do that if you can’t first create the wealth.

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T h E E L C Left: ELC President and CEO Ronald Parker (second from right) with representatives of the Bipartisan Congressional HBCU Caucus. Rep. Alma Adams (D-NC) (third from right) is a co-chair of the Caucus. Rep. Bobby Scott (D-vA) (third from left) is Ranking Member on the House Committee on Education and the Workforce. Inset: (L-R) Rep. Bradley Byrne (R-AL), co-chair of the Congressional HBCU Caucus, with Ronald Parker.

results are impressive. Over the last three years, their net income and earnings per share have both more than doubled, and the stock price has almost doubled. “When diversity and inclusion are done right, it delivers phenomenal results,” Ashford concludes.

EDWARD JONES: Building on the Business Case for Diversity

Anthony McBride, chief human resources officer, ELc Member

Emily Pitts, Principal, diversity and inclusion, ELc Member

Determined to treat associates as partners in the business and treat clients fairly by offering appropriate, quality investments, Edward D. Jones, Sr., established the firm that bears his name nearly a century ago. His son, Ted Jones, took that vision and launched a strategy to serve individual investors from branch offices located where those clients lived and worked. Today, that branch office business model has powered the firm’s growth to 15,000 financial advisors serving more than 7 million clients. 12

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The opportunity to increase client impact is directly related to Edward Jones’ success in attracting, retaining and developing a talented, diverse workforce. Firm leaders believe that to cultivate innovation, one must embrace diversity of thought, background and experience across the firm. “We see a parallel to that early vision because our client opportunities and growth opportunities are found together in today’s multicultural markets,” says Emily Pitts, the Edward Jones principal responsible for diversity and inclusion, and an ELC member. One of the firm’s core planning strategies is to increase the capability and diversity of associates and leaders. Anthony McBride, chief human resources officer and ELC member, explains that connecting business success and diversity is natural: “It is steeped in our DNA and reinforced on a day-to-day basis by our current leadership.” McBride says the f irm’s 20-member Management Committee is “heavily invested” in building a culture of inclusion. Each of 10 inclusive business resource groups in its home offices has a Management Committee sponsor. Along with other principals, they volunteer in the firm’s eight-year-old mentoring program that pairs more than 350 mentors with mentees. Edward Jones innovates to create new leadership pathways and address unconscious bias. To support diverse financial advisors in the field, the Cross-Cultural Development Program creates a networking opportunity and addresses the nuances of successfully building a multicultural business.

“We believe people do business with organizations that value them, where they feel represented,” states Pitts. “That goes straight to the bottom line.”

HENRY FORD HEALTH SYSTEM: Leadership in Diversity, Healthcare Equity

Wright Lassiter, henry Ford President & cEo, ELc Member

Henry Ford Health System is a $6 billion organization headquartered in Detroit and one of the nation’s leading comprehensive, integrated health systems. Henry Ford provides both health insurance and care delivery, including five acute-care hospitals, 200 care sites, and a robust, research, innovation and education enterprise. Henry Ford President & CEO Wright Lassiter, an ELC member, is proud of the system’s longtime leadership in diversity and inclusion, and points to the rich diversity of the 30,000-member workforce, where 33% of employees represent U.S. minorities. “We believe we are a better organization when we ref lect those we serve, and this is magnified in our patient care with nationally recognized health equity initiatives.” The System has received the American Hospital Association’s Equity of Care Award and is consistently named among the top-ranked health systems by DiversityInc.

COMMITTED TO: DIVERSITY. INCLUSION. COMMUNITY. THE MORE YOU KNOW, THE MORE WE MAKE SENSE. Serving our clients and our communities starts with a commitment to a diverse and inclusive workforce and leadership team. From our Cross-Cultural Development Program, which helps financial advisors build successful businesses in diverse communities, to coaching and mentoring individuals from diverse backgrounds, we’re not just trying to create a better workplace. We’re trying to create a better world.

Visit edwardjones.com/knowmore

Everett Johnson Integrated Software Development

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Millennials Expect and Will Demand Diverse and Inclusive Workplaces Ronald C. Parker: Where are we on this journey to diversity and inclusion?

CARLA HARRIS Vice chair, Wealth Management, Managing director, Senior client Advisor, Morgan Stanley/ Former ELc chair

[Millennials] are going to turbo-boost this conversation. they will get done in a fraction of the time what we’ve been trying to do for 20+ years.”

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Carla Harris: I’ll use a baseball analogy: We’re about on second base. The real conversation around diversity and inclusion at the corporate level started in earnest around 1990, so we’re 27 years in. Second base means people have enough evidence to see real commercial benefits come from folks from all kinds of backgrounds. Their contributions drive innovation, which boosts both the top line and the bottom line. Then we added inclusion, which means acknowledging we are not yet mature enough in any industries for diversity and inclusion to be a natural part of the thinking and strategy. RP: How do your clients talk about diversity and inclusion? CH: I just spent a couple of days out of the country talking to C-suite executives in financial services companies. They are very focused on how they can continue as employers of choice, because, they say, they don’t have a track record of having very strong women and very strong people of color in their firms. So, they asked for my best thinking on what they can do about this in short order. Not two years from now, not five years from now. What can they do today to produce an impact a year from now?

RP: When you are talking to global leaders, who approach this issue in a much broader context, how does the black narrative not get lost in this broader, global discussion? CH: I don’t think the black narrative will get lost because everyone in corporations around the world knows African Americans have always led in this space. So when you start talking about diversity, there’s an assumption we are included. Other ethnicities certainly followed us into the journey. And that’s good. RP: We’ve been at this for a while, Carla. If we don’t lean into this in the year 2017, what’s at risk? CH: Well, the real risk is reinventing the wheel, starting all over again, but I’m actually excited about where we are right now. The first wave of Millennials is now coming into their own, 7- to 10-year professionals. Many of them are getting ready to move into second careers, many as entrepreneurs, and a whole later wave of Millennials is coming into the workforce. They are going to turbo-boost this conversation. They will get done in a fraction of the time what we’ve been trying to do for 20+ years. For them, excellence looks like a diverse group of people at the top. They’ve grown up with a parent, maybe even a mother, who’s been in the C-suite. They’ve gone to great schools where kids from different backgrounds were their classmates. I think they’re going to force everything to change. I’m excited about their emergence on the scene and then movement into leadership positions.

LEADING FORWARD, MOVING AHEAD.

We travel in many styles, across ten incredible brands. We call hundreds of extraordinary destinations home. Delivering memorable moments and exceeding our guestsâ&#x20AC;&#x2122; expectations around the world is our common objective. Pictured: Orlando Ashford, President, Holland America Line | On board since 2014

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Leadership Development Week in Miami and Las vegas brings ELC members and career coaches together with aspiring mid-level managers and executives to share experience and knowledge to prepare participants for global responsibilities.

ACCENTURE: “Building Bridges” to Diversity and Inclusion

Martin W. Rodgers, Managing director, d.c. Metro office, ELc member

Accenture’s courageous decision to release publicly its demographics on diversity and inclusion last year has “prompted us to converse externally with our clients and community partners about what works and what doesn’t,” states Martin W. Rodgers, office managing director, D.C. Metro, and ELC member. “It also created the opportunity to move the needle internally, to really change the game.” One such opportunity evolved into the initiative “Building Bridges.” Given the incidents in and around communities of color in the U.S., Julie Sweet, chief executive officer, North America, decided to lead a nationwide webcast for all employees, where any of the more than 50,000 Accenture people in North America could comment or question. “We encouraged our people to join their external selves with their corporate selves, to set the tone and tenor for more such difficult conversations going forward,” explains Rodgers. Nine city office gatherings – and others arranged by employee resource groups (ERGs) or different business groups – complemented the broadcast. “We aspire to be the company with the best solutions, innovation-led, insight-driven, the first mover,” declares 16

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Rodgers. “The only way to do that is to have the best people, and that means diversity of experience, background and thought.” “As a company, we’ve learned that taking risks can jump-start that inclusive culture,” he states. “We have more work to do with certain communities, but we’ve crossed the threshold. We’ve reached the tipping point – a critical mass at the board and leadership levels and in the general population – and there’s no turning back.”

CORPORATE PLAYBOOK: Leadership Development From a Pro

Deb Elam, President & cEo, ELc Member

With the recent launch of Corporate Playbook, Deb Elam leverages her decades of experience at General Electric, in the U.S. and globally, for a new generation of ambitious and innovative leaders. Retiring after a stellar 30-year career, Elam brings her brand of authentic leadership to the niche markets she has identified: • Pre-C-suite and newer C-suite executives in various venues; • Organizations that want to build a more inclusive work environment and give back to their communities, but lack the staff to fashion, measure

and communicate strategic initiatives; and • Crisis management, guiding rapid responses to all stakeholders. “I’m excited,” says Elam. “I now have the opportunity to use my skills and experience to help others achieve their dreams, as I’ve been able to live mine.” Learn more: www.corporateplaybook. com. Contact Elam: deb@corporateplay book.com.

FEDEx: Balancing the Needs of Workplace, Communities and the Planet

Matthew Thornton, III, Senior Vice President, u.S. operations, ELc Member

“We’ve known for years – and numerous studies have proven – that workforce diversity and inclusion are key drivers of business success,” states Matthew Thornton, III, senior vice president, U.S. Operations. FedEx has more than 400,000 team members worldwide. Minorities make up close to 50% of the U.S. workforce, and the Board of Directors is 33% women and people of color. Further proof of the commitment are the four senior vice presidents who are members of The ELC, including Thornton. FedEx’s involvement with The ELC goes deeper. A sponsor of the Mid-Level Managers Symposium (MLMS), FedEx annually sends many of its young managers

WHEN IT COMES TO HEALTH, EVERYTHING — AND EVERYONE — MATTERS. Since its founding as a single local health plan in 1984, Centene has understood that quality healthcare should be both local and personal —because every community, and every individual, is unique.

If you are interested in joining our team, please visit us at: centene.com/careers

From that day until now, Centene has worked tirelessly to fulfill unmet needs in healthcare, and help more individuals. The diverse backgrounds, perspectives and talents of all our employees and partners strengthen our ability to address those needs and bring our company’s purpose to life: Transforming the health of the community, one person at a time.

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Personal Commitment to Diversity and Inclusion Drives Business Success Ronald C. Parker: In this era of change, where’s the private sector on this journey to diversity and inclusion?

StePHen R. HOWe, JR. U.S. Chairman and Americas Managing Partner, EY

Stephen Howe, Jr.: The lesson that I and many other leaders have learned is: businesses can, and must, make a difference. This couldn’t be more true right now. We ask people to bring all of themselves to work every day. Especially, in these complex times, they bring their fears and concerns. People need organizations that listen to, value and trust them. Most important, people want to stand with leaders who are personally committed to enacting change to make the world a better place. RP: On a personal level, how did you feel when you were given the Higginbotham Corporate Leadership Award?

Leadership is a privilege, but the privilege is useful only when it’s exercised. So I’m a very visible driver of diversity and inclusion.”

SH: More than half a century ago, President Kennedy challenged a group of influential attorneys to accept nothing less than equal rights across the U.S. They formed a movement in the legal profession that found its namesake in a powerful civil rights advocate – Judge A. Leon Higginbotham. To win an award in his name … I can’t tell you how humbling that is. Like Judge Higginbotham, I entered a profession that wasn’t diverse. As I grew as a leader, I saw that diversity was both a moral imperative and a competitive advantage. Diversity brings with it a richness of talent, perspectives and great ideas – the lifeblood of any business. More important, it helps realize our human potential. To get there, organizations have to listen, engage their people and inspire trust; that’s the heart of EY’s approach to diversity and inclusion. RP: Looking to the future, what’s next? Where are companies focusing for the next 5-10 years?

Diversity

SH: Clearly, the business community needs to continue progress on racial, gender, LGBTQ and generational issues. We also need to expand our vision to become even more inclusive. At EY, one emerging area of focus is “diverse abilities.” My own father was severely injured in an accident as a young man. Despite disability, he thrived as a CPA and entrepreneur. His example taught me to see in each individual their passion and potential - not a disability. At EY, we help people with diverse abilities realize their full potential. The hearing impaired – one of EY’s founders in fact was both visually and hearing impaired. Veterans coping with physical trauma. A young man with a spine injury, who dreams of competing in the next Paralympics. Recently, EY began hiring highfunctioning people with autism, who have extraordinary focus and an affinity for data analysis. They just need the right accommodation. We believe it’s our responsibility to create an environment where everyone feels productive and valued. RP: What do you find is your role as the chief executive in driving diversity and inclusion? SH: Leadership is a privilege, but the privilege is useful only when it’s exercised. So I’m a very visible driver of diversity and inclusion. I have made it imperative for all leaders at EY and every member of the board. Our brand resonates with these themes, and our people know they are ambassadors of our culture in the marketplace. EY’s recent recognition as #1 in diversity by DiversityInc adds to our responsibility as a leader. To us, it’s about listening and valuing everyone’s perspectives. When you truly understand someone, you achieve compassion and empathy. That’s what will move us all forward.

Promotion

T h E E L C to the event. Adding ELC programs, like MLMS and Leadership Development Week offerings, to individual development plans at FedEx is routine. Participation in the 100,000 Opportunities Initiative™ (part of the FedEx Cares citizenship strategy), has fast become a robust pipeline for reaching and preparing youth for employment, retention and advancement. FedEx is one of more than 50 companies that support what many describe as “job fairs on steroids.” Moving the workforce further along the continuum from diversity to inclusion is FedEx’s “promotion from within” philosophy. “Ninety-eight percent of our officers are promoted from within,” reports Thornton, “and I’m one of them.” “We realize the interests of our communities, our workplaces and the planet are intertwined,” declares Frederick W. Smith, founder, chairman and CEO, in

FedEx’s 2017 Annual Global Citizenship Report. “Our future depends on recognizing and balancing those needs in everything we do across our business.”

AT&T: Building a Strong Talent Pipeline Through HBCU Partnerships

Corey Anthony, Senior Vice President, hr & chief diversity officer, ELc Member

Even as business transcends and dissolves borders, many U.S. companies struggle to build truly diverse workforces and inclusive cultures at home. AT&T has learned that success requires deep

Corporate Playbook

leadership commitment, purposeful outreach and an employee value proposition rooted in inclusion. Those factors underlie the company’s outreach to Historically Black Colleges and Universities (HBCUs) – and they’re working. With a history of producing young black men and women able to take on complex challenges and move quickly into leadership roles, HBCUs play a key role in AT&T’s talent attraction efforts. Its threestep process for recruiting such incredible talent is simple: Be present, build lasting relationships and share the story. Be present According to Corey Anthony, recently appointed senior vice president of HR and chief diversity officer, and ELC member: “Former AT&T executive and ELC member Ray Wilkins, who mentored and

Promotion

T H E E L C sponsored me when I joined AT&T in 1995, would often say, ‘You must be present to win.’ AT&T is present on HBCU campuses, at their social and athletic events, and in their communities. Where they are, we are.” Build lasting relationships We all build trust over time, and by really getting to know people. AT&T commits to know not just HBCU students but also the people they trust: faculty members, administrators, community leaders and family members. Share our story When considering where they’ll launch their careers, HBCU students are wise to select a company that not only aligns with their values – but one where they can see themselves in a leadership role. At AT&T, ELC members work closely with the company’s staffing team to convey that message. Graduates bearing an HBCU diploma are in high demand. AT&T gives them reasons to join its team – “because when they do, everyone wins: customers, shareowners, other employees and these incredible young people,” Anthony concludes.

Otsuka: “For Better Health Worldwide”

kabir Nath, President & CEO, Otsuka North America Pharmaceutical Business Division

Worldwide” Dr. William H. Carson, President & CEO, Otsuka Pharmaceutical Development & Commercialization, Inc., ELC Member

Numerous affiliated companies under the Japanese global pharmaceutical giant Otsuka Pharmaceutical Co., Ltd. are at work in the United States, focused on providing innovative solutions for 20

Diversity

the eLC Women’s Leadership Forum is held annually by eLC women members and their protégées to explore issues of significance for black women executives.

some of the most vexing medical problems within neuroscience, oncology and cardio-renal. Ja p a ne s e c u lt u r a l e le me nt s a r e reflected in how Otsuka manages its U.S. business and influence how it hires top talent. “Diversity of thought,” explains K abir Nath, president a nd CEO of Otsuka North America Pharmaceutical Business Division, “is critical to recruiting and retaining professionals from different backgrounds who are open to collaborating in a creative environment and dedicated to producing results.” Dr. William H. Carson, president and CEO of Otsuka Pharmaceutical Development & Commercia lization, Inc. (OPDC), and ELC member, praises Otsuka’s diversity and inclusion. “We actually look very much like the country,” notes Carson, who helped shape the company’s “diversity of thinking” culture. OPDC, which conducts clinical trials for Otsuka’s broad portfolio of products globally, is therefore most effective at being able “to meet patients where they are and deliver meaningful outcomes.” “The people we serve are the most important people to us,” declares Nath, a British citizen whose career path has moved him throughout Asia. “Any one of us could be a patient or a caregiver” at some time. “You can’t effectively serve a diverse population if your workforce does not adequately reflect it.” Diversity, he believes, is “a natural consequence of the business we’re in.”

JPMOrgaN CHase: Diversity and Inclusion equals talent

Patricia David, Senior Diversity Advisor, ELC member

“We think of diversity here at JPMorgan Chase as synonymous with talent,” declares Patricia David, senior diversity advisor and ELC member. “It’s how we achieve our business objectives.” Diversity objectives and guidelines are embedded in business plans, increasing management accountability. Fully 20% of the bank’s more than 240,000 employees globally are members of company business resource groups (BRGs). “BRGs promote leadership and professional development opportunities for members, who serve as active volunteers, advocates and recruiters in our key markets,” explains David. “They connect the company’s employees to distinct and diverse communities.” A new strategy, just celebrating its first anniversary, is the responsibility of Valerie Rainford, head of Advancing Black Leaders (ABL) and Diversity Advancement Strateg ies, and ELC member. The ABL strategy was identified by the JPMC Operating Committee in February 2016, to expand sourcing and recruitment capability and promote leadership

Our commitment to diversity and inclusion At Bank of America, weâ&#x20AC;&#x2122;re committed to making financial lives better through the power of every connection. Diversity and inclusion strengthens our company to better meet the different needs of our employees, customers and communities. Since 2014, weâ&#x20AC;&#x2122;ve invested $14 million in organizations that support the Black/African American community, including close to $1 million in education, $11 million to civil rights and advocacy organizations and more than $2.5 million to promote and preserve arts and culture. Thanks to our teammates, we are a stronger company with programs, organizations and partnerships that demonstrate our ongoing commitment to growing, advancing and developing Black/African American leaders internally and in our communities. Learn more at bankofamerica.com/inclusion Connect with us:

@BofA_News

Promotion

T h E E L C excellence and retention at all levels from within the black community. Plans are under way to apply the same strategy to Hispanic and Asian communities. “We are striving to be the company where people who might otherwise feel they’re ‘different’ in some way are comfortable being themselves and happy to come to work,” reasons David. “We want to embody a culture of inclusion.” Chairman and Chief Executive Officer Jamie Dimon states: “Ensuring a diverse and inclusive workforce is a core value for our company.” Each year The Executive Leadership Council awards dozens of scholarships to outstanding college students through its National Essay Contest, Business Case Competition, Al Martins Scholarship and Ann Fudge Scholarship programs.

The ELC’s Future: Opportunity in an Era of Global Uncertainty

Irvin labels “cultural anxiety.” Discontent with and rebellion against dictatorships in the Middle East and northern Africa, along with massive emigration and immigration, will further fuel the anxiety. The business community can no longer view business and politics as separate issues. Through this global transition, “The ELC will lead,” predicts Board Chair Ashford. “Black contributions will be properly represented.” “ELC members have long demonstrated mastery in inspiring pathways through unfamiliar territory,” declares CEO Parker. “They are uniquely positioned to lead in today’s uncharted business and cultural world.”

Growing job dislocation in the U.S., rapid changes in demographics and the increasing role of technology continue to widen the income gap between owners and workers, fueling what Professor

To join The ELC and so many major corporations in achieving the value of diverse and inclusive work environments, visit www.elcinfo.com.

Leading

t h e wa y.

All For Tomorrow’s Medicine.

ALL FOR YOU. It begins with a deeper understanding of our individual differences. The uniqueness of every person. It’s what drives all of us at Henry Ford Health System. By understanding all about our patients, from their DNA, their history and life story, we craft treatments that will not only improve their health, but the health of the overall community. We’re rapidly moving medicine forward, one life at a time.

Wright L. Lassiter III, President and CEO, Henry Ford Health System 22

Diversity

APRIL 23 - 24, 2017 | HALF MOON BAY, CA From April 23-24, the 2017 Forbes CIO Summit gathered the best-in-class global CIOs, CTOs and CEOs from leading technology companies and venture capital ﬁrms for two days of high-level discussion, networking, and collaboration. This year’s theme, “Managing Digital and Technology in a Period of Unparalleled Opportunity and Complexity” produced thoughtful solutions and ideas to the pressing issues of today’s ever-evolving business landscape.

Presented By

C E L E B R I T Y 1 00

Streaming Grows Up A TRICKLE OF PENNIES HAS FINALLY TURNED INTO A GUSHER OF DOLLARS FOR THE ENTERTAINMENT INDUSTRY. NOW THE MEMBERS OF THE CELEBRITY 100 ARE CASHING IN BY THE BARREL. Five years ago, Spotify was a fledgling music-streaming service only months removed from its U.S. launch and YouTube had just started its push into original programming; Netflix was a year away from doing the same, starting with House of Cards. For the members of the Celebrity 100—our annual accounting of the top-earning entertainers on the planet—meaningful streaming income was a distant dream. But sometimes profound change happens quickly. Streaming is now the dominant platform for music consumption, and it’s growing rapidly—up 76% year-over-year, according to Nielsen. YouTube has birthed a whole new breed of celebrity: the YouTube star. And Netflix plans to spend hundreds of millions annually on original content. “It’s not just about music—it’s about every form of entertainment,” Nielsen’s David Bakula says. “You don’t really have to own anything anymore, because for $10 a month you can do this: You can have everything.” The members of our list have been fattening their pockets accordingly. While the aggregate earnings of the Celebrity 100 are flat at just over $5 billion in the past 12 months compared with the prior year, income directly related to streaming surged to $387 million from $177 million. For musicians, the going rate of a little less than a penny per on-demand stream may not sound like a lot, but it adds up for the 14 performers on our list who topped 1 billion spins over the past year. Comedians with devoted fan bases, from Adam Sandler to Chris Rock, have been extracting eight-figure checks from Netflix. And stars turned impresarios, like Ellen DeGeneres and Dwayne “the Rock” Johnson, now have video-streaming ventures they can call their own, just as Dr. Dre did with Beats Music and Jay Z is doing with Tidal on the audio side. The indirect spoils of streaming can be even greater. Abel “the Weeknd” Tesfaye parlayed his play count—5.5 billion streams in the past two years—into an estimated $75 million touring advance. To him it’s all part of the model he’s been following throughout his rapid rise, one that applies to all sorts of businesses: Create an excellent product, make it widely available and flip the monetization switch when the timing is right. “I really wanted people who had no idea who I was to hear my project,” he says. “You don’t do that by asking for money.” The Weeknd is grossing over $1.1 million per stop on his Starboy: Legend of the Fall 2017 World Tour, thanks to the ubiquity of his streaming music.

PHOTOGRAPHED BY JAMEL TOPPIN AT MOHEGAN SUN THE WEEKND WEARS A WHITE SHIRT BY SAINT LAURENT PARIS; BLACK WOOL VEST; BLACK SILK TIE; BLACK TROUSERS; GOLD TIE CLIP BY DOLCE AND GABBANA; BLACK LEATHER LACE UP SHOES BY SAINT LAURENT PARIS

JUNE 29, 2017 FORBES | 95

C E L E B R I T Y 1 00 1. Diddy

RANDALL SLAVIN/CONTOUR BY GETTY IMAGES

MUSICIAN U.S. $130 MIL Nearly two decades after appearing on the cover of the ﬁrst-ever Celebrity 100 issue, Diddy tops the list thanks to his Bad Boy Family Reunion Tour, a partnership with Diageo’s Ciroc vodka and selling one-third of his Sean John clothing line for an estimated $70 million.

2. Beyoncé

MUSICIAN U.S. $105 MIL

3. J.K. Rowling

AUTHOR U.K. $95 MIL

4. Drake

MUSICIAN CANADA $94 MIL

5. Cristiano Ronaldo

ATHLETE PORTUGAL $93 MIL

6. The Weeknd

MUSICIAN CANADA $92 MIL

7. Howard Stern

PERSONALITY U.S. $90 MIL

8. Coldplay

MUSICIANS U.K. $88 MIL

9. James Patterson AUTHOR U.S. $87 MIL

10. LeBron James ATHLETE U.S. $86 MIL

11. Rush Limbaugh

PERSONALITY U.S. $84 MIL

11. Guns N’ Roses

MUSICIANS U.S. $84 MIL

13. Justin Bieber

MUSICIAN CANADA $83.5 MIL

96 | FORBES JUNE 29, 2017

THE WEEKND WEARS A BLACK T-SHIRT BY SAINT LAURENT PARIS; GOLD CHAIN ARTIST’S OWN

CREDIT TK

ATHLETE ARGENTINA $80 MIL Though only the second-highest-paid in soccer, Messi still earned more than any athlete on Earth not named LeBron or Ronaldo. Roughly two-thirds of his haul came from his FC Barcelona salary, the rest from endorsing brands, including Adidas, EA Sports and Gatorade.

CLIVE BRUNSKILL/CONTOUR FOR GETTY IMAGES

14. Lionel Messi

15. Dr. Phil McGraw

PERSONALITY U.S. $79 MIL

16. Ellen DeGeneres

PERSONALITY U.S. $77 MIL

Music Goes Freemium

17. Bruce Springsteen MUSICIAN U.S. $75 MIL

18. Adele

MUSICIAN U.K. $69 MIL The singer broke her Album of the Year Grammy in half to share with Beyoncé, but these earnings are all hers: Despite turning down millions in endorsements over the years, the belting Brit still cashes in with consistent touring.

PHYSICAL ALBUM SALES AND DIGITAL DOWNLOADS ARE DOWN. BUT MORE PEOPLE ARE LISTENING TO MORE MUSIC THAN EVER, WHICH PRESENTS STAGGERING OPPORTUNITIES TO ARTISTS LIKE THE WEEKND WHO CONNECT WITH AN AUDIENCE. BY ZACK OÕMALLEY GREENBURG

or signed a record deal in his life; he has only freely distributed his work via streaming services. He generates enough spins to make several million dollars that way. And he’s cashing in bigtime on lucrative festival gigs and arena dates, as well as deals with brands like Apple and Kit Kat. It’s akin to the freemium model that’s worked so well for apps ranging from Tinder to Candy Crush—give your stuff away to the many and then soak a smaller group of devotees. It’s the model the Weeknd has pursued from the beginning of his career. The son of Ethiopian immigrants who fled during the east African famine of the 1980s, he was born in Toronto and raised by his mother and grandmother. At 17, he dropped out of school and ran away from home. A decade earlier, that might have been the end of the road for him. But in 2010, he started recording music—a genre-bending party blend—and distributed it free on YouTube in a series of mixtapes, picking the Weeknd as his mysterious nom de plume. “I didn’t want to put a face to it,” he says. “I wanted to create a fan base that loved me for my art.” In the old entertainment economy, he would have waited to be discovered by a record label. Instead, that fan base found him, and all those free streams enabled him to force record labels to bid on him. As far as the future is concerned, the Weeknd is smartly eyeing other parts of the entertainment economy that have been touched by the streaming revolution. “I kind of treat my albums like films when I write them, telling one big story,” he says, before revealing his next step: “More visual candy and hopefully a venture into my first true love, cinema.” Netflix, you’re on notice.

MATT SAYLES/INVISION/AP

JAMEL TOPPIN FOR FORBES

Steve Jobs would have been the logical choice to headline the launch of Apple’s eponymous streaming service, but by the time the tech giant rolled out Apple Music two years ago, he was busy putting dents into faraway universes. In his place was a pair of young musicians who walk the line between hip-hop, pop and R&B: Drake and the Weeknd. The latter stunned the crowd with the first-ever live performance of his new single “I Can’t Feel My Face,” which premiered on Apple Music and has generated more than 1.5 billion spins across all streaming platforms. The Weeknd knows as well as anyone that streaming isn’t the future of music—it’s the present. As digital downloads and physical sales plummet, streaming is increasing overall music consumption—since their Apple appearances, Drake (No. 4 on our list at $94 million) and The Weeknd (No. 6, $92 million) have clocked a combined 17.5 billion streams —and that creates other kinds of monetization, including touring revenue. “We live in a world where artists don’t really make the money off the music like we did in the Golden Age,” says the Weeknd, 27. “It’s not really coming in until you hit the stage.” “The reason the Weeknds of the world and the Drakes of the world are exploding is a combination of a global audience that’s consuming them freely at a young age [and that] they just keep dropping music,” Live Nation chief Michael Rapino says. “They’re delivering an ongoing, engaged dialogue with their fan base.” The model of making music available cheaply in order to cash in on touring and endorsements has been taken to its logical conclusion by Chance the Rapper (No. 95, $33 million). The 24-year-old has never sold a physical album

18. Jerry Seinfeld

COMEDIAN U.S. $69 MIL

20. Mark Wahlberg ACTOR U.S. $68 MIL

21. Metallica

MUSICIANS U.S. $66.5 MIL

22. Dwayne Johnson ACTOR U.S. $65 MIL

23. Roger Federer

ATHLETE SWITZERLAND $64 MIL

24. David Copperﬁeld MAGICIAN U.S. $61.5 MIL

25. Kevin Durant

ATHLETE U.S. $60.6 MIL

26. Garth Brooks

MUSICIAN U.S. $60 MIL

26. Elton John

MUSICIAN U.K. $60 MIL

26. Gordon Ramsay

PERSONALITY U.K. $60 MIL

29. Ryan Seacrest

PERSONALITY U.S. $58 MIL

30. Chris Rock

COMEDIAN U.S. $57 MIL

31. Vin Diesel

ACTOR U.S. $54.5 MIL

32. Paul McCartney MUSICIAN U.K. $54 MIL

32. Red Hot Chili Peppers

MUSICIANS U.S. $54 MIL

34. Louis C.K.

COMEDIAN U.S. $52 MIL

35. Jimmy Buffett

MUSICIAN U.S. $50.5 MIL

JUNE 29, 2017 FORBES | 97

C E L E B R I T Y 1 00 35. Adam Sandler ACTOR U.S. $50.5 MIL

37. Andrew Luck ATHLETE U.S. $50 MIL

37. Rory McIlroy

ATHLETE U.K. $50 MIL

39. Jackie Chan

ETHAN PINES

ACTOR CHINA $49 MIL Known as “Big Brother” in China, Chan— who has a government perch in the world’s hottest ﬁlm market—makes most of his money on mainland movies you’ve probably never heard of, recently Railroad Tigers and Kung Fu Yoga.

40. Calvin Harris

MUSICIAN U.K. $48.5 MIL

41. Robert Downey Jr. ACTOR U.S. $48 MIL

42. Steph Curry

ATHLETE U.S. $47.3 MIL

43. Dave Chappelle COMEDIAN U.S. $47 MIL

43. Judy Sheindlin

PERSONALITY U.S. $47 MIL

45. James Harden FRAZER HARRISON/GETTY IMAGES

ATHLETE U.S. $46.6 MIL

46. Lewis Hamilton ATHLETE U.K. $46 MIL

47. Kim Kardashian West PERSONALITY U.S. $45.5 MIL

48. Drew Brees

ATHLETE U.S. $45.3 MIL

49. Taylor Swift

MUSICIAN U.S. $44 MIL After pulling in $170 million in 2016, mostly from her record-breaking 1989 World Tour, Swift mints millions even in a quiet year on the strength of music sales and deals with Keds, Apple and AT&T.

Netflix Zombies JOHN SALANGSANG/INVISION/AP

ONCE A CAREER KISS OF DEATH, THE DIRECT-TO-VIDEO MODEL HAS BEEN REVIVED BY ADAM SANDLER AND OTHER ACTORS AND COMEDIANS MARKETING DIRECTLY TO THEIR HARD-CORE FANS THROUGH STREAMING.

98 | FORBES JUNE 29, 2017

BY NATALIE ROBEHMED

In a scene from 2006’s Click, Adam Sandler finds a magical remote control that gives him the ability to control time. More than ten years later, it’s remote controls that give him a shockingly good income for some-

one whose best professional years are way, way behind him. Over the past 12 months, Sandler has made an estimated $50.5 million (No. 35 on the Celebrity 100), thanks mostly to a Netflix deal

DEAR PREDICTABLE, IT’S OVER. -SEE YOU AROUND,

GIULIA

INTRODUCING THE ALL-NEW ALFA ROMEO GIULIA.

alfaromeousa.com

C E L E B R I T Y 1 00 50. Simon Cowell

PERSONALITY U.K. $43.5 MIL

50. Phil Mickelson ATHLETE U.S. $43.5 MIL

52. Tom Cruise

ACTOR U.S. $43 MIL

53. Kenny Chesney MUSICIAN U.S. $42.5 MIL

53. Steve Harvey

GENARO MOLINA/CONTOUR FOR GETTY IMAGES

PERSONALITY U.S. $42.5 MIL The talk show host joins our ranking thanks to paychecks from Family Feud, Little Big Shots, his eponymous gabfest and, yes, even the Miss Universe gig, which he retained despite announcing the wrong winner in 2015.

55. Luke Bryan

MUSICIAN U.S. $42 MIL

55. Celine Dion

MUSICIAN CANADA $42 MIL

55. Jay Z

MUSICIAN U.S. $42 MIL

58. Sofía Vergara

ACTOR COLOMBIA $41.5 MIL

59. Kylie Jenner

AURORE MARECHAL/SIPA

PERSONALITY U.S. $41 MIL At just 19, the youngest list member— and most junior scion of the Kardashian-Jenner clan—earns a small fortune from endorsements, her family’s reality TV show, a namesake cosmetics company and clothing line.

60. Bruno Mars

MUSICIAN U.S. $39 MIL

60. Tiësto

MUSICIAN NETHERLANDS $39 MIL

62. Russell Westbrook ATHLETE U.S. $38.6 MIL

63. Sebastian Vettel

ATHLETE GERMANY $38.5 MIL

100 | FORBES JUNE 29, 2017

that understands his core audience is more couch potato than art-house moviegoer and keen to stream dopey Sandler flicks at home, whenever they want. It’s an updated version of the old straight-to-video model, except it’s geared toward entertainers with deeply loyal audiences versus those whose appeal is broader and thinner. Howard Stern’s $500 million Sirius XM radio deal presaged this era a decade ago. But now the money is bigger—Netflix gives Sandler a budget of around $60 million per movie—as is the audience. Netflix, which generated $8.8 billion in revenue last year (but which keeps viewership numbers largely secret), said in April its members have spent more than 500 million hours watching Sandler’s movies since December 2015, an average of five hours of Sandler per subscriber. Jerry Seinfeld earned more than any other funnyman on our list (No. 18, $69 million), largely because of two carriers: Hulu, which owns streaming rights to his eponymous sitcom and pays syndication fees, and Netflix, which insiders say is doling out $20 million apiece for two stand-up specials plus more for the rights to his Web series, Comedians in Cars Getting Coffee. It’s the 21st-century version of an HBO special, but Netflix is paying far more than the prestige channel ever did. Dave Chappelle (No. 43, $47 million) is back on the Celebrity 100 after an 11-year hiatus, nabbing $20 million per hour for his three specials. Chris Rock (No. 30, $57 million) is pocketing $20 million for each of his two stand-up specials— four times what he received in 2008 for his last one, HBO’s Kill the Messenger. Paul Verna, principal video analyst at eMarketer, says of comedy specials: “If they were drivers for subscriptions on cable, they would be the same for the streaming world.” Streaming is also filling the vacuum left by the collapse of the DVD and home entertainment market, which used to nearly double revenue from theatrical releases. But as the bottom fell out, crushing the income of studios like Paramount (not to mention the now-defunct Blockbuster) and actors like Sandler, a ray of hope appeared for him and others who have a core fan base. His domestic box office continued to disappoint: That’s My Boy (2012) managed just $36.9 million in the U.S. on a $70 million budget, while Blended (2014) brought in only $46.3 million domestically and cost $40 million. But Sandler drew a sizable, nearly comparable audience at home: Blended tallied $18.5 million in DVD

and Blu-Ray sales, more than double the disc sales of the Sandler-less Horrible Bosses 2, which performed similarly in theaters. “If the DVD sales and rentals are there, that means there is a Sandler Nation, [even if] it’s a guilty pleasure for them,” said Paul Dergarabedian, senior media analyst at ComScore. Enter Netflix. In 2014, Sandler signed an estimated $250 million pact to make four movies exclusively for the service—the more asinine, the better. “Let the streaming begin!” said Sandler, who rarely speaks to reporters and declined to comment for this story, in a press release at the time. His review-agnostic audience followed through. His first release, The Ridiculous Six (2015), which critics deemed “frequently unwatchable” and scored 0% on Rotten Tomatoes, was the most-viewed film on Netflix in its first month, the company said.

SANDLER’S WAS NETFLTHE RIDICULOUS SI FILM IN ITS IX’S MOST-VIEWEDX F I R ST M O N TH.

These days, even critical darlings like Brad Pitt are mining streaming’s deep pockets; the actor was said to have been paid $20 million to star in the recently released Netflix battle satire War Machine. Other Hollywood mainstays continue to benefit, with the video giant shelling out $90 million for Will Smith’s Bright; sources say Smith will pocket some $30 million. The cash should keep coming for the Celebrity 100’s comedians, too. In the wake of Rock’s massive payday, Louis C.K. (No. 34, $52 million) and Amy Schumer (No. 69, $37.5 million) banked double-digit millions for their taped performances. Meanwhile, Netflix is doubling down on Sandler with another four movies at similar budgets. It’s a fraction of the $6 billion the platform plans to dish out on entertainment this year, most of which will be spent on licensing other people’s content. Though analysts question how long Netflix can sustain such spending, the company’s stock is up 65% in the past 12 months, and its market cap is $71.1 billion, more than 13 times that of Blockbuster at its peak. Sandler and his ilk are laughing all the way to the couch.

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C E L E B R I T Y 1 00 64. Damian Lillard ATHLETE U.S. $38.4 MIL

65. The Chainsmokers MUSICIANS U.S. $38 MIL

65. Shah Rukh Khan ACTOR INDIA $38 MIL

65. Jennifer Lopez MUSICIAN U.S. $38 MIL

68. Novak Djokovic

ATHLETE SERBIA $37.6 MIL

69. Amy Schumer

COMEDIAN U.S. $37.5 MIL

70. Tiger Woods

STAN BADZ/PGA TOUR/GETTY IMAGES

ATHLETE U.S. $37.1 Though unlikely to do hard time after his recent DUI incident, Tiger isn’t out of the Woods just yet: He could be in jeopardy of losing some of the endorsements that account for a staggering 99.7% of his total earnings.

71. Salman Khan ACTOR INDIA $37 MIL

71. Neymar

ATHLETE BRAZIL $37 MIL

71. Bill O’Reilly

PERSONALITY U.S. $37 MIL

STEVE SCHOFIELD/CONTOUR BY GETTY IMAGES

MUSICIAN U.S. $37 MIL Country’s queen hit the road in style, grossing mid-six ﬁgures per city across 63 dates during our scoring period. Thanks to the tour and income from her Dollywood theme park, the 71-yearold makes the list for the ﬁrst time in her career.

MUSICIAN U.K. $37 MIL

76. Dwyane Wade ATHLETE U.S. $36.2 MIL

77. Fernando Alonso ATHLETE SPAIN $36 MIL

77. Sean Hannity

PERSONALITY U.S. $36 MIL

102 | FORBES JUNE 29, 2017

KNOWING TERRESTRIAL TALK SHOWS WON’T LAST FOREVER, ELLEN DEGENERES CREATED A PLATFORM FOR THE STREAMING AGE. NOW OTHER TOP STARS ARE FOLLOWING HER LEAD. BY MADELINE BERG

71. Dolly Parton

71. Ed Sheeran

If You Build It, They Will Come

$65 million). While his streaming earnings thus far have been negligible, his Seven Bucks Digital Studio is setting him up for success. Its YouTube channel, which streams premium Rock-related content and fully produced miniseries, gained more than 2 million followers in the past 12 months. “That’s the wonderful part about being in this business,” Johnson told Forbes.com five years ago as he emerged into superstardom. “I love knowing the audience and listening to the audience.” Even for DeGeneres, traditional media and licensing deals still account for the bulk of earnings—about 90% of her $77 million tally in the past 12 months—as The Ellen DeGeneres Show regularly garners more than 3 million viewers. But over the past decade, she’s positioned herself to cash in as the ratio shifts. She understands that different mediums call for different programming. Her videos are short and fun, built for virality and mobile consumption, to the tune of 700 million views per month. They tap into young talent, from YouTube star Tyler Oakley to a 5-year-old whom DeGeneres made famous on her television show. They’re heavy on brand integration (PetSmart-sponsored Ellen’s Pet Dish). And unlike billionaire Oprah Winfrey, DeGeneres doesn’t have to deal with the logistical headaches of running a fullfledged television network. Still, DeGeneres and the others aren’t putting all their eggs in one digital basket. YouTube has invested in exclusive series featuring Hart and DeGeneres that will premiere soon, and the subscription service YouTube Red has ordered a series from Johnson’s production company. DeGeneres just agreed to a deal with Netflix for her first stand-up special in 15 years, which insiders say will come with a paycheck of at least $17 million. “If Ellentube is a flop one day but it makes her brand stronger, she can still monetize all these other platforms,” Klein says. “If Ellentube is a great success, she may never have to worry about any other platform.” F

METHODOLOGY About the list: The Celebrity 100 ranks “front of camera” entertainers around the world by pretax earnings from June 1, 2016 to June 1, 2017, before deducting fees for agents, lawyers and managers. Our numbers are based on ﬁgures from IMDB, Nielsen and Pollstar, as well as interviews with industry experts and many of the stars themselves. Edited by: Zack O’Malley Greenburg and Natalie Robehmed. Reported by: Kurt Badenhausen, Madeline Berg, Hayley Cuccinello, Rebecca Lerner, Maggie McGrath and Susan Radlauer. Online: Sarah Rempe and Forbes Video.

77. Rihanna

MUSICIAN BARBADOS $36 MIL

80. Bon Jovi

MUSICIANS U.S. $35.5 MIL

80. Akshay Kumar ACTOR INDIA $35.5 MIL

82. Billy Joel

MUSICIAN U.S. $35 MIL

83. Dr. Dre

MUSICIAN U.S. $34.5 MIL

83. Florida Georgia Line MUSICIANS U.S. $34.5 MIL

83. Toby Keith

MUSICIAN U.S. $34.5 MIL

83. Jordan Spieth ATHLETE U.S. $34.5 MIL

87. Derrick Rose

ATHLETE U.S. $34.3 MIL

88. Usain Bolt

ATHLETE JAMAICA $34.2 MIL The fastest man in the world’s Olympic career appears to be over: He’ll formally retire after this year’s World Championships. But so far, brands including Mumm, Advil and Sprint are still showering him in cash.

MORGAN HANCOCK/CAL SPORT MEDIA/APZ

SMALLZ & RASKIND/CONTOUR BY GETTY IMAGES

Last year, when Barack Obama awarded Ellen DeGeneres a Presidential Medal of Freedom to celebrate her past, the talk show host offered a glance into her future. She gathered fellow honorees, including Bill Gates, Diana Ross and Michael Jordan, in the West Wing to take on the Mannequin Challenge—a viral video trend wherein subjects set an elaborate scene and hold poses as cameras roll. Hours later, the 30-second clip was streaming on Ellentube, DeGeneres’ platform for exclusive content and original series. Ellentube, launched in October 2014 to offer bite-size content directly to fans, got a boost when DeGeneres established the Ellen Digital Network in May 2016 in partnership with Warner Bros. Her network, which also folds in the website for her television show and her official YouTube page, makes the 59-year-old DeGeneres a pioneer in the new streaming economy. “The social platforms gave talent the opportunity to cultivate and have a direct relationship with fans,” says Jason Klein, cofounder of media analytics firm ListenFirst. “Now that the talent has that audience, why not take the fans to platforms they own and control 100%?” DeGeneres’ network serves as a blueprint for other members of the Celebrity 100. Kevin Hart (No. 98, $32.5 million) has amassed a huge social following (35 million on Twitter and 53 million on Instagram) and will soon launch Laugh Out Loud, a streaming comedy network. Lionsgate and his own Hartbeat Digital teamed to form the joint venture, putting up $40 million to create original content and procure streaming rights to existing material. Much like Ellentube, the network will have a free ad-supported tier, but Hart will also offer a subscription-based premium option. “I understand the direction in which the television business is headed,” he said last year. “I see this big new space toward which audiences are starting to gravitate.” So does the world’s second-highestpaid actor, fellow Celebrity 100 list member Dwayne “the Rock” Johnson (No. 22,

89. Gareth Bale

ATHLETE U.K. $34 MIL

89. Conor McGregor ATHLETE IRELAND $34 MIL

89. Britney Spears MUSICIAN U.S. $34 MIL

92. Kei Nishikori

ATHLETE JAPAN $33.9

93. Fletcher Cox

ATHLETE U.S. $33.4 MIL

94. Clayton Kershaw ATHLETE U.S. $33.3 MIL

95. Chance The Rapper MUSICIAN U.S. $33 MIL

95. Katy Perry

MUSICIAN U.S. $33 MIL

97. Carmelo Anthony ATHLETE U.S. $32.6 MIL

98. Jason Aldean

MUSICIAN U.S. $32.5 MIL

98. Kevin Hart

COMEDIAN U.S. $32.5 MIL

100. Zlatan Ibrahimović ATHLETE SWEDEN $32 MIL

JUNE 29, 2017 FORBES | 103

Donald Trump is one of the least charitable billionaires in the world. Eric Trump is far more altruistic. In a clash of values, the president directed hundreds of thousands of dollars from his son’s kids-with-cancer foundation into his company coffers. By Dan alexanDer

104 | FORBES junE 29, 2017

BoBBy credit Bank/Wireimage/getty tk images

“Everybody Gets Billed”

junE 29, 2017 FORBES | 105

FORBES

ThE ERIC TRUMP FOUNDATION

ike autumn leaves, ing and misleading donors. It also raises more than $1.2 million that has no docusponsored Cadillacs, Ferraris and Maser- mented recipients past the Trump Organi- larger questions about the Trump famatis descend on the Trump National Golf zation. Golf charity experts say the listed ily dynamics and whether Eric and his Club in Westchester County, New York, brother, Don Jr., can be truly indepenexpenses defy any reasonable cost justifiin September for the Eric Trump Foundent of their father. cation for a one-day golf tournament. dation golf invitational. Year after year, Especially since the person who speAdditionally, the Donald J. Trump the formula is consistent: 18 holes of cifically commanded that the for-profFoundation, which has come under preperfectly trimmed fairways with a dose it Trump Organization start billing hunvious scrutiny for self-dealing and adof Trumpian tackiness, including Hootdreds of thousands of dollars to the vancing the interests of its namesake ers waitresses and cigar spreads, followed rather than those of charity, apparently nonprofit Eric Trump Foundation, acby a clubhouse dinner, dates encouraged. used the Eric Trump Foundation to funcording to two people directly involved, The crowd leans toward real estate insid- nel $100,000 in donations into revenue was none other than the current presiers, family friends and C-list celebrities, dent of the United States, Donald Trump. for the Trump Organization. such as former baseball slugger Darryl And while donors to the Eric Trump IN ORDER TO understand the Eric Strawberry and reality housewife (and Foundation were told their money Trump Foundation, you need to unbankruptcy-fraud felon) Teresa Giudice. was going to help sick kids, more than derstand the Donald J. Trump FoundaThe real star of the day is Eric Trump, $500,000 was re-donated to other chartion. The president was never known the president’s second son and now the ities, many of which were connected to for giving his foundation much money, co-head of the Trump Organization, who Trump family members or interests, inand from 2009 to 2014, he didn’t give it has hosted this event for ten years on be- cluding at least four groups that subseanything at all. Outsiders still donated, half of the St. Jude Children’s Research quently paid to hold golf tournaments at though, allowing Trump to dole out their Hospital in Memphis. He’s done a ton of Trump courses. money to a smattering of more than 200 good: To date, he’s directed more than All of this seems to defy federal tax charities as if it were his own, with many $11 million there, the vast majority of it rules and state laws that ban self-dealvia this annual golf event. He has also helped raise another $5 million through events with other organizations. The best part about all this, according to Eric Trump, is the charity’s efficiency: Because he can get his family’s golf course for free and have most of the other costs donated, virtually all the money contributed will go toward helping kids with cancer. “We get to use our assets 100% free of charge,” Trump tells Forbes. That’s not the case. In reviewing filings from the Eric Trump Foundation and other charities, it’s clear that the course wasn’t free—that the Trump Organization received The Eric Trump Foundation golf outing brought in millions for St. Jude, billings for the Trump Organization. payments for its use, part of

106 | FORBES junE 29, 2017

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ThE ERIC TRUMP FOUNDATION

Power Shift

The Eric Trump Foundation’s board started as a group of friends with no clear business connections to the Trump Organization. Within eight years, the boardroom table was stacked with two Trumps, six Trump Organization employees and one entrepreneur ready to cash in on the Donald Trump presidential campaign.

p rum T c eri

Independent board members

2007 Independent board members

of the donations helping his business interests. Eric Trump set out to do things differently. Coming out of Georgetown, he decided he would try to translate the good fortune he had inherited into support for children’s cancer research. Why this cause, especially for a guy who still doesn’t have kids? “It’s a great question— it’s one that I’ve been asked before— and I’m not really sure,” he says. “I think 110 | FORBES junE 29, 2017

there is something about that innocence that has always affected me.” After visiting various hospitals, he chose to give to strength, St. Jude, the world’s best-known pediatric cancer center. Eric Trump set up his foundation as a public charity, a classification that allows it to raise most of its money from outside donors. In 2007, when he was 23, the first Eric Trump golf tournament took place, raising $220,000. A compelling

sales pitch evolved—the free golf course and the donated goods and services assured donors that every penny possible went to charity. The Eric Trump Foundation employed no staff until 2015, and its annual expense ratio averaged 13%, about half of what most charities pay in overhead. His original seven-person board was made up of personal friends, an innocuous lot who helped sell tournament tickets, which last year ranged

peter and maria hoey for forBes

Board members financially dependent on Donald Trump

eric Trump lara lea Trump, wife of eric trump

Ind

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rd m

ard

Michael Cohen, personal attorney for donald trump

fin

cia

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from $3,000 for a single all-day ticket to $100,000 for a pair of VIP foursomes. For the first four years of the golf tournament, from 2007 to 2010, the total expenses averaged about $50,000, according to the tax filings. Not quite the zero-cost advantage that a donor might expect given who owned the club but at least in line with what other charities pay to host outings at Trump courses, according to a review of ten tax filings for

ald

Tru m

Matthew Calamari, trump organization executive lynne Patton, former assistant to eric trump; current senior advisor, trump administration

Board members financially dependent on Donald Trump

peter and maria hoey for forBes

en to

larry Glick, trump organization executive vice president

Independent board members

Dan Scavino Jr., former trump organization executive vice president; current assistant to the president

2015

ers

Kerry Woolard, trump Winery general manager

other charitable organizations. But in 2011, things took a turn. Costs for Eric Trump’s tournament jumped from $46,000 to $142,000, according to the foundation’s IRS filings. Why would the price of the tournament suddenly triple in one year? “In the early years, they weren’t being billed [for the club]—the bills would just disappear,” says Ian Gillule, who served as membership and marketing director at Trump Nation-

Christl Mahfouz, founder of ace specialties, which sold $16m of goods and services to trump campaign

al Westchester during two stints from 2006 to 2015 and witnessed how Donald Trump reacted to the tournament’s economics. “Mr. Trump had a cow. He flipped. He was like, ‘We’re donating all of this stuff, and there’s no paper trail? No credit?’ And he went nuts. He said, ‘I don’t care if it’s my son or not—everybody gets billed.’ ” Katrina Kaupp, who served on the board of directors at the Eric Trump junE 29, 2017 FORBES | 111

FORBES

ThE ERIC TRUMP FOUNDATION Foundation in 2010 and 2011, also remembers Donald Trump insisting the charity start paying its own way, despite Eric’s public claims to the contrary. “We did have to cover the expenses,” she says. “The charity had grown so much that the Trump Organization couldn’t absorb all of those costs anymore.” The Trump Organization declined to answer detailed questions about the payments. But it seems that for the future president, who Forbes estimates is worth $3.5 billion, a freebie to help his son directly fight kids’ cancer took a backseat to revenue. “I saw that Eric was getting billed,” Gillule adds. “I would always say, ‘I can’t believe that his dad is billing him for a charitable outing.’ But that’s what they wanted.” It’s also very consistent. The Donald J. Trump Foundation famously acted like an arm of the overall business, using the charity’s money to settle a Trump business lawsuit, make a political donation and even purchase expensive portraits of its namesake. Meanwhile, Trump businesses billed the Trump campaign, fueled by small outside donors, more than $11 million to use his properties, chefs and private aircraft. At first the extra bills did not cost the Eric Trump Foundation anything. Shortly before the spike in costs, the Donald J. Trump Foundation donated $100,000 to the Eric Trump Foundation—a gift explicitly made, according to Gillule, to offset the increased budget. Thus, the Eric Trump donors were still seeing their money go to work for kids along the same lines as previous years. The Eric Trump Foundation declined to comment on that donation. In effect, though, this maneuver would ap-

pear to have more in common with a drug cartel’s money-laundering operation than a charity’s best-practices textbook. That $100,000 in outside donations to the Donald J. Trump Foundation (remember: Trump himself didn’t give to his own foundation at this time) passed through the Eric Trump Foundation— and wound up in the coffers of Donald Trump’s private businesses. “His father, Mr. Trump, always, until the presidency, had a very, very tight rein on what was going on,” says Gillule, referring to the company’s golf courses. “The buck always stopped with him.” THE COSTS FOR ERIC’S golf tournament quickly escalated. After returning, in 2012, to a more modest $59,000— while the event brought in a record $2 million—the listed costs exploded to $230,000 in 2013, $242,000 in 2014 and finally $322,000 in 2015 (the most recent on record, held just as Trump was ratcheting up his presidential campaign), according to IRS filings. This even though the amount raised at these events, in fact, never reached that 2012 high. It’s hard to find an explanation for this cost spike. Remember, all those base costs were supposedly free, according to Eric Trump. The golf course? “Always comped,” he says. The merchandise for golfers: “The vast majority of it we got comped.” Drinks: “Things like wine we were normally able to get donated.” And the evening performances from musicians like Dee Snider of Twisted Sister and comedians like Gilbert Gottfried: “They did it for free.” So many sponsors donated, in fact, that the event invitation has carried enough logos to make a Nascar team proud.

“I wOULD ALwAyS say, ‘I

can’t believe that his dad is billing him for a charitable outing.’ But that’s what they wanted.”

112 | FORBES junE 29, 2017

Eric Trump, in speaking with Forbes, maintains that “our expenses on a tournament that made us somewhere in the $2 million range every year was somewhere around 100 grand,” even though his foundation’s tax records show costs soaring to $322,000. When asked for an itemized list of expenses, the Eric Trump Foundation declined to respond. Thus it’s hard to figure out what happened to the money. All the listed costs are direct expenses: Items like overhead and salaries appear elsewhere in its IRS filings. Even if the Eric Trump Foundation had to pay the full rate for literally everything, Forbes couldn’t come up with a plausible path to $322,000 given the parameters of the annual event (a golf outing for about 200 and dinner for perhaps 400 more). Neither could golf tournament experts or the former head golf professional at Trump National Westchester. “If you gave me that much money to run a tournament, I couldn’t imagine what we could do,” says Patrick Langan, who worked at the club from 2006 to 2015. “It certainly wasn’t done that way.” Opaque accounting doesn’t help, as the Eric Trump Foundation began hosting a few other golf events and fundraisers; former board member Kaupp says some were lumped into the cost figures of the Westchester event on the IRS filings. Hundreds of thousands of dollars over this time went directly to the Trump Organization, including one payment of $87,000 to Trump’s golf course in Washington, D.C., which hosted a separate event for St. Jude. For his part, Eric Trump offers no indication that the charity is paying for much beyond the day in Westchester. “I’m sure if I hunted, I could find examples of expenses associated with the charity that aren’t due to day-of activities,” he says. “But I would probably have to think pretty long and hard about that.” IT DOESN’T SEEM A COINCIDENCE that at the same time the Eric Trump Foundation went from what appeared to be a clean, efficient operation to a seemingly Byzantine one that suddenly found itself saddled with costs, there was a clear shift of control.

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ThE ERIC TRUMP FOUNDATION

In 2009, outside donors gave $1.1 million to the donald J. trump foundation. the president gave none of his own money, but that didn’t stop him from doling out the cash as if it were his own.

In 2010, he gave $100,000 to his son’s charity with the explicit intent of offsetting costs for its annual golf fundraiser and demanded that the nonprofit eric trump foundation pay his for-profit business for the event, according to a former trump employee.

On the Green How Donald Trump turned charity money into business revenue.

Thus, money that started as charity from others apparently turned into revenue for donald trump.

In 2010, the year the economics of the tournament suddenly pivoted, four of the seven original board members, who were personal friends of Eric, left. Those 4 were eventually replaced by 14 new board members, the majority of whom owed all or much of their livelihoods to the Trump Organization. Six of them were effectively full-time employees, including Trump lawyer Michael Cohen and executive vice president Dan 114 | FORBES junE 29, 2017

Scavino Jr., who both serve in political roles for President Trump. Another owns a company that billed the Trump campaign $16 million. Add in Eric himself, as well as his wife, Lara, and 9 of the 17 Eric Trump Foundation board members had a vested interest in the moneymaking side of the Trump empire. The foundation had become a de facto subsidiary of the Trump Organization. “They were wearing two hats,” says

Langan, the former director of golf, who says he sat in on meetings where he couldn’t tell where the business ended and the charity began. “You’re dealing with people talking about the event and the charity who also at the same time are thinking about it as a corporation and as a business. It’s a for-profit club. You know, they’re trying to make money.” Until this board turnover, the Eric Trump Foundation pretty much did

peter and maria hoey for forBes

The eric Trump Foundation hosted its annual fundraiser at the trump national golf club in Westchester county, new york, and dutifully paid the president’s company.

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FORBES

ThE ERIC TRUMP FOUNDATION what it told its donors it would: send its money to St. Jude. But starting in 2011, more than $500,000 was redirected to a variety of other charities, many of which were personal favorites of Trump family members and several of which had nothing to do with children’s cancer—but happened to become clients of Trump’s golf courses. In 2012, the Eric Trump Foundation sent $5,000 to a charity called Abilis, which provides services to people with disabilities. That same year, Donald Trump’s nephew Fred Trump, whose son has cerebral palsy, hosted the inaugural Golf for Abilis fundraiser at the Trump National Westchester. Over the next five years, Abilis spent an estimated $240,000 hosting tournaments at the property. In 2013 and 2014, the Eric Trump Foundation paid $15,000 for tables at a gala for the Little Baby Face Foundation, according to a spokesman for the latter foundation. Over the next three years, Little Baby Face spent an estimated $100,000 to hold golf outings on the Trump course. The foundation denies any direct connection between the two transactions. Janet McHugh, the founder of a small charity named Julie’s Jungle, was delighted to receive $25,000 in total donations from the Donald and Eric Trump foundations in 2013—money she figured came from Eric and Donald Trump personally. Two years later, her charity hosted a golf tournament at Trump National Hudson Valley. McHugh says the decision to hold her tournament there was unrelated to the donation. “They didn’t comp us the golf course,” she says. “We paid.”

Altruism as a business-development strategy isn’t necessarily illegal. But a situation in which outside donor money is redeployed away from the core mission in ways that seem to ultimately benefit the family that pays the majority of the board is—at best—an appearance problem. Other extra expenditures raise eyebrows. In 2013, for example, Eric Trump used his foundation’s money, rather than his own, to pay $1,600 to the American Society for Enology & Viticulture for a copper wine still and an antique bottle washer at a trade event and fundraiser that he was keynoting. Eric runs the family vineyard in Charlottesville, Virginia, about an hour down the road from where the event took place. “I have no idea what that is,” says Eric Trump, referring to the payment. In 2012, the Eric Trump Foundation wrote a check for $25,000 to the George Rodrigue Foundation of the Arts. That same year, George Rodrigue, who had said that his famous “blue dog” paintings sometimes sold for about $25,000, created a portrait of Donald Trump for the auction at Eric’s event. That portrait ended up hanging over the couch in Eric Trump’s house, where he was photographed sitting beneath it two years later. Perhaps Eric bought the painting for himself at the auction or on the aftermarket. Perhaps Rodrigue gave or sold him a copy. What does Eric say about the donation? “Let’s follow up later on,” he replies, when asked about it in a phone call, before getting off the line. Later the next day, after being told

MORE ThAN $500,000

was redirected to a variety of other charities, several of which had nothing to do with children’s cancer—but happened to become clients of Trump’s golf courses. 118 | FORBES junE 29, 2017

Forbes had several other questions, he sent a paragraphs-long text message, which read in part: “I was reflecting on it last night and have to say I was really disappointed when you said the story would be ‘fair.’ . . . It seems like there is a motive against either myself or my family. And if that is the case, I would simply rather disengage.” A spokesperson for the Trump Organization similarly declined to respond further to questions about Eric and Donald Trump. THE ULTIMATE TRAGEDY HERE is that the Eric Trump Foundation has done so much good. Yes, Eric has indulged in the family trait of vainglory, from Eric Trump bobblehead dolls at the tournament to statements that leave the impression he’s giving the money personally, even though tax records suggest he’s donated six figures total, at most. (Trump wouldn’t tell Forbes how much he’s given to his own foundation. “I think it’s totally irrelevant,” he says, citing the fact that “we never charge” for use of the courses.) But in 2015, a new intensive-care unit at St. Jude opened with Eric Trump’s name on it, and the foundation’s money has funded research into a rare form of cancer. It’s hard to imagine how the early incarnation of the golf tournament—big hauls, understandable costs—would have any problem continuing to spew out millions for years to come. Last year, the Eric Trump Foundation donated $2.9 million, according to St. Jude. But in December, Eric Trump said he would stop fundraising. Running an event with an increasing commingling of business and philanthropy created the kind of conflict-of-interest (not to mention image) concerns that similarly plagued Ivanka Trump’s aborted attempt to auction off a coffee date on behalf of Eric’s foundation. More recently, the foundation has rebranded itself as Curetivity. A spokeswoman for the organization said it would continue hosting golf tournaments to raise money for St. Jude. A Curetivity event was held this past May outside Washington, D.C., with Eric Trump in attendance, at the Trump National course. F

PROMOTION / ECONOMIC DEVELOPMENT

TURKEY

A StAble economy And burgeoning mArket Stable economic growth, progressive reforms, and a strategic geographic position are driving Turkey’s progress

Economic developments in 2017 indicate the continued resilience of the Turkish economy. This comes following a successful economic transformation process, underway since 2002, which has led to comprehensive reforms being introduced, particularly in the banking sector and in public finance. Turkey’s Deputy Prime Minister, Mehmet Şimşek, shares the following highlights: “Turkey has enjoyed a booming economy over the last 15 years, with an average annual GDP growth of 5.9%, while interest payments as a percentage of government revenue have fallen from 86% to 11%.” And his projections are positive: “The outlook is that Turkish democracy will grow stronger and the rule of law will be strengthened. He concludes: “The Turkish economy’s foundation is strong enough to resist any effects of a future decision by the U.S.

According to Şimşek, “Turkey was among the few countries to prove that its banking sector was resilient during the global financial crisis.” Naci Ağbal, Turkey’s minister of finance, adds: “Turkish growth has shown resilience despite an unfavorable global setting. In the post-crisis period (201115 ), Turkey grew by nearly 4.4%. The country aims to be among the top-three performing economies in Europe within a decade.” Ağbal has promising objectives for the coming years: “Between 2017 and 2018 we are aiming to hit 5% growth, suppor ted by produc tivit y gains, increased investment and rising savings.”

Mr. Ağbal is of the view that the Turkish banking system is well capitalized and profitable. He states: “As a bridge bet ween A sia and Europe, Istanbul is progressing towards being both a regional and global financial hub.” The Centr al Bank of the Re public of Tur key (CBRT ) determines the country’s monetary policy. Murat Çetinkaya, governor of CBRT says, “We believe that our contribution to Turkey’s 2023 centenary vision will be to achieve and maintain

Mehmet Şimşek deputy Prime minister

An expanding Financial Sector At present, banking accounts for around 60% of overall financial services in Turkey, while insurance services and other financial activities also show significant growth potential.

“Turkey has enjoyed a booming economy over the last 15 years, with an average annual GDP growth of 5.9%.” mehmet ŞimŞek, dePuty Prime miniSter

Federal Reserve to hike interest rates.” This strong economic performance has also led Turkey to increasingly be viewed as an emerging market on the world economic stage, with experts and international institutions making confident predictions about the country’s future.

An ex panding loan base and favorable liquidity conditions contribute to the healthy growth of the country’s financial services. The sector currently has a growing asset size and a strong equity structure protecting it against shocks that may arise from loans or turbulent market conditions.

Economic Development

PROMOTION / ECONOMIC DEVELOPMENT price stability. This will support the country’s growth potential by contributing to macroeconomic stability and boosting long-term investments.” Investment Opportunities Turkey offers significant opportunities for foreign investors. Its investment environment includes a qualified and competitive labor force, g ood infrastructure, low taxes, and a l a rg e d o m e s t i c m a r ke t , while its geographic position serves as a perfect gateway between Europe, the Middle East and Central Asia. According to Şimşek: “Turkey presents unique opportunities for foreign investors. We have reformed many areas of our economy and improved the investment environment considerably.” Çetinkaya adds, “Turkey’s FDI framework provides equal treatment to all investors, and does not differentiate between nationalities.

Investors in Turkey can also benefit from the opportunities in the surrounding region.” Reforms have led the country’s financial sector to become one of the preferred sectors for FDI. Odeabank Makes a Splash With a Fresh Approach Offering a wealth of banking products and services, Odeabank, part of the Bank Audi group, has made a formidable impac t on Turkey’s banking sector since it was launched four years ago. Already in the top 10 among non-state banks in terms of assets and deposits, the intrepid newcomer is also paving the way in technological advancement: It has only 50 branches, yet some 700,000 customers and $11 billion in assets. The secret of Odeabank ’s success lies in having a fresh approach to banking, CEO H ü s e y i n Ö z k ay a e x p l a i n s: “We’ve achieved exactly what

we promised our shareholders we would by being flexible and innovative and doing what our instinct tells us,” he says. “We’ve grown organic ally, doing almost everything that the larger banks that have been around for 50 to 60 years are doing, but in a faster and more efficient way. Our cost to assets make up nearly half of the sector’s, which proves how efficiently we operate. We acquire customers on a low-cost basis while investing in our technology and branches. We have a holistic approach toward our operations. “The bank’s accessibility is also a draw. We are extremely flexible. We are totally accessible. Our staff and our customers are able to reach senior management, including myself, easily. There are no layers. Odeabank is commit ted to sustainable growth. “The pillar of our success is having an even split between the core areas of

our activity, be it retail, corporate, SME, commercial or credit cards,” Özkaya says. “If we just depended on one area, we wouldn’t have a safe balance. You always want to be stable.” Digital Expansion at TEB Currently the 10 th-largest bank in the country, Türk Ekonomi Bankası (TEB) has expanded its expertise in corporate, commercial and private banking, including SME banking. Established in 1927, the bank now has 4.9 million customers and 9,927 employees. TEB’s primary emphasis is on innovation and its online platform has been a true success, with 200,000 users primarily using this service over the bank’s physical branches. Digital services is the area where the bank sees most of its expansion. Ümit Leblebici, CEO of TEB, says: “From our analyses it appears clear that there are many opportunities

An Innovating Force Within A Range of Growing Sectors One of the mos t prolif ic conglomerates in Turto Europe and elsewhere. At this juncture, five promikey’s recent history, the Saya Group’s star is firmly nent pharma companies stepped in to partner with ascendant. The company is dedicated to doubling its output Saya. “So far, we have contracts with GlaxoSmithKline, every five years, giving back in the form of education and Abbott, AstraZeneca, Reckitt Benckiser and Sandoz,” supporting the arts and culture. Sancak says. “Our manufacturing capacity is 330 million An innovative name in a young and naturally entrepreboxes a year. It is a big facility within a pharma context. neurial country, Saya has achieved success across a range We are also making serious inroads into biotechnology of sectors, including construction and pharmaceuticals, investments.” proving that diversity and resourcefulness are at the heart Real estate is another prime motivator for savvy invesof Turkey’s most resilient firms: “The construction industry tors in Turkey, and Saya has a strong presence there, too. has been one of the key drivers of the Turkish economy in the “Our construction company, Folkart, built the original past and shows double-digit growth rates each year, so we high-rise office blocks in Izmir, Turkey’s third most-popubelieve that it is going to continue,” says Saya’s Vice Chairlous city, and is now working on high-quality residential man, Abdulhaluk Sancak. “In the manufacturing industry, projects,” Sancak says. “This is a booming industry in Turwe are producing electrical motors–that is also a growing Abdulhaluk Sancak key and we are one of the few successful players. We have part of the national economy–but as a group we have more Vice Chairman, Saya Group nine projects under way and invite foreign investors to join aggressive growth plans because we have invested heavus. Folkart is known not only for the quality of the projects ily in the research and development needed to bring new technologies they are developing, but also for their support of the arts, sports, culture and products to the market. We have started in Germany and will go and more. We are proud to have built up such a strong reputation in the from there. Aegean region.” “In terms of pharmaceuticals, for the past 70 years, Turkey has been With the Turkish economy having grown 2.5 times more than the global one of the few countries able to manufacture high-quality pharmaceutiaverage in the past 15 years, investing in Saya is a logical move. Saya cal products in this region. Quality standards on generic products are believes it will grow at the same rate over the next 15 years too. “Turkey extremely high and we have the added bonus of being extremely comis a young country and the Turkish people are consumers,” Sancak says. petitive on price.” “The population will not decrease, but stabilize, and we will keep adding Seeing the incredible potential in this field led Saya to invest $200 mil- young people to our workforce. All these factors offer a huge advantage lion in a manufacturing facility to satisfy domestic demand and export to investors looking for a stable foothold in the region.”

SAYA Group Mahmutbey Mh. Dilmenler Cd. Aslanoba Plaza No: 19/3, 34218, Bagcilar, Isatanbul, Turkey Tel: +90 444 7292 | Fax: +90 212 445 1185 | www.sayagrup.com.tr

Economic Development

PROMOTION / ECONOMIC DEVELOPMENT in the digital world. Our whole system is ‘in-house,’ which we are therefore easily able to develop. I believe TEB has got the best digital infrastructure.” TEB is currently focusing on suppor ting SMEs, star tups and female participation in banking. It is the only bank in Turkey to have a dedicated start-up department. TEB also combines banking with consulting services, advising SMEs, start-ups and female entrepreneurs on areas such as taxes and market research. Leblebici emphasizes the bank’s focus on SMEs: “TEB comes from a corporate background, however in the last 15 years we built a very strong SME banking system and we are the best SME bank in the country. Our aim is to create value for our clients, and in turn create value for our society. “Our main aim is to be a good bank: Good for society, good for employees, good for shareholders and good for clients. These are our four pillars.” He concludes: “Whole economies in the world are changing. Turkey has to adapt itself to the upcoming technologies and new economies. As a bank we believe we have to support whoever has ideas in their mind.” A Growing Energy Market Turkey’s energy sector has a highly competitive structure with a number of oppor tunities for development and growth. Its power distribution is now entirely in the hands of the private sec tor, while the privatization of its power generation assets is set to be completed within the next few years. The country’s strategic location between a number of major energy consumers and suppliers leads it to serve as a regional energy hub. The existing and planned oil and gas pipelines, the critical Turkish straits and the promising

finds of hydrocarbon reserves within the country give Turkey increased leverage over energy prices and reinforce its status as a gateway to the region. Naturelgaz is a market leader in the relatively niche, but rapidly g rowing, com pre s s ed natural gas (CNG) market. It is the largest CNG company in Europe. Kanat Emiroğlu, CEO of Naturelgaz, says, “We see international expansion opportunities in about nine countries.” As the transportation of gas is extremely important, Turkey’s position between the producing countries and the consuming countries is crucial. Emiroğlu continues: “Gas is what makes Turkey unique – soon to be the largest commodity on Earth. Everything is set up for Turkey to take advantage of pipeline competition.” A ‘Pharmerging’ Country According to the IMS Health Report, Turkey is one of the top 20 “pharmerging” countries, ranked 19 th in 2014, and expected to reach 17th place by 2019. There are approximately 300 pharmaceutical entities operating in the Turkish sector, with about 67 manufacturing facilities that meet international standards, 12 of which are owned by multinational companies. Between 2009 and 2015, sales in the pharmaceutical industry grew by 27.8%, and 43 multinational pharmaceutical companies entered the Turkish market, bringing the number of foreign entities in the market to 116.

Murat Çetinkaya Governor, Central Bank

Naci Ağbal Minister of Finance

Saya Group, a private group of companies operating in Turkey, works in construction, pharmaceutical manufacturing and electric motors, primarily in the area of production. The Group’s mission is to invest in areas that support education and social development policies, and help improve overall living standards, while contributing to research

and development, expor ts, and employment within the country. Overall, the future of Turkey’s pharmaceutical sector looks promising. IMS Consulting Group predicts that the Turkish pharmaceutical market will grow from 11% to 14% between 2015 and 2019. ■ This section can also be read at: www.custom.forbes.com

Economic Development

LAUREN CONRAD WANTS TO SAVE THE SEA TURTLES

Fishing nets used to catch some of our favorite seafood catch, injure and kill thousands of sea turtles every year. For species like the Kemp’s Ridley, extinction is too close for the government to ignore the problem. Stand with Lauren and Oceana. Help save sea turtles at www.oceana.org/saveseaturtles

the investment guide

Bad Ideas Gone Good

Sometimes the worst plans can make you richer. In this special Investment Guide we highlight strategies that may seem foolish at first, until you dig into them. Buy gold? Trade options? Take a reverse mortgage? All can provide big returns in the right circumstances. To help lead the way is the man behind pretty much every bad idea on HBO’s cult sitcom Silicon Valley—actor and comedian T.J. Miller, whose Erlich Bachman somehow always pulls through. edited by janet novack and matt schifrin

contents a 180 on reverse mortgages

126

gold’s new golden rule

128

keeping your options trading open

132

a home divided

136

how to shrink your salary

138

stocking up on a startup

142

the wisdom behind smart-beta etfs

148

t.j. miller photographed by ethan pines for forbes CrEATIvE STylE DIrECTOr: JOSEpH DEACETIS; STylE ASSISTAnT: MAxIMIllIAn pArkInSOn; WArDrOBE STylIST: nICHOlE luMpkIn; GrOOMInG: SEAnA GArlIC; prOp STylIST: DAvID MIEzAl WOOl SuIT By THEOry; COTTOn SHIrT By GIOrGIO ArMAnI; WATCH By rOlEx.

123 | FORBES junE 29, 2017

junE 29, 2017 FORBES | 123

the investment guide

retirement

Sleazy Image, Smart Play

Reverse mortgages have a low-rent reputation. But they could play a bigger role in affluent Boomers’ retirement plans. If that happens, a 39-year-old neat freak will be a big winner. By Lauren GensLer

porting light stubble and an open-neck dress shirt, Reza Jahangiri settles into his office and promptly apologizes for the strong smell of Windex. The 39-year-old founder and CEO of American Advisors Group, the nation’s largest originator of reverse mortgages, confides that he wipes down the surfaces in his office several times a day. He also has three organic meals delivered to his office daily and follows a workout regimen that includes boxing with a trainer twice a week. If Jahangiri seems a tad obsessive, it’s a quality that has served him well in the rocky 13 years since he first heard about, and became convinced of the big potential for, a congressionally blessed product known as a Home Equity bad idea Conversion Mortgage, inReveRse MoRtgage sured by the Federal Housing w Administration. good Move Depending on their age use to and house’s value, homeownboost ers 62 and older can borrow social up to $636,150 against their secuRity homes—taking it in a lump sum, monthly payments, a line of credit or a combination of all three. The borrower makes no monthly payments. Instead, the accruing interest and FHA insurance fees are added to the principal, and the whole amount becomes due when the borrower (and spouse, if there is one) dies or moves out. This is a non-recourse loan, and if more is owed on the mortgage than the house is worth, Uncle Sam eats the shortfall. When he first heard about reverse mortgages, Jahangiri was attending night law school at Loyola Marymount and working on a medical screening startup with his brother and his dad, who had fled Iran in 1978 with his wife and two young sons. Reza formed AAG in 2004. In 2007, he went all in, plowing $750,000 he had raised from selling out of the medical business into his reverse-mortgage shop.

126 | FORBES junE 29, 2017

Then the housing bust and Great Recession hit. Since then, FHA-insured reverse-mortgage originations have dropped more than 50%, Wells Fargo and Bank of America have exited the business, and federal rules on who qualifies for the loans and how they may be marketed have been tightened. Adding to Jahangiri’s challenges, AAG’s first two celebrity pitchmen died unexpectedly—Mission: Impossible’s Peter Graves from a heart attack in 2010 and actor/ex-U.S. senator Fred Thompson from a recurrence of lymphoma in 2015. Yet, bolstered by $5 million in equity he had raised in 2009, Jahangiri hung in there. AAG now has 1,200 employees, and last year, it originated 12,000 of the 49,000 new reverse mortgages the FHA insured. Its 2016 revenues of $219 million came mostly from reselling securitized loans on the secondary market. Jahangiri says the company has been profitable for seven years running—though he won’t disclose how profitable. Say this for Jahangiri: As the second-largest owner of AAG, with a stake that Forbes estimates is worth $100 million, he’s sitting pretty should more Baby Boomers decide that tapping home equity is a necessary, or desirable, part of their retirement plan. Certainly the untapped potential is huge. Currently, there’s $145 billion in FHA-insured reverse-mortgage borrowings outstanding. But Americans 62 and older have $6.2 trillion of home equity, while those in their 50s are sitting on another $3 trillion. “From the point of view of providing a sustainable retirement for people in the future, this is going to be a very important component,” says Robert Merton, an MIT professor and Nobel laureate in economics. Increasingly, retirement experts are discussing reverse mortgages as a planning tool for middle-class and affluent retirees. One strategy: Use several years of reverse-mortgage withdrawals to delay taking Social Security retirement benefits until 70, which results in a 76% bigger monthly check than if you’d claimed benefits at 62. Another idea: Keep an untapped reverse mortgage as a backup should stock prices tank—to limit “sequence of returns” risk. (If stocks crash early in your retirement and you don’t cut back on withdrawals from your

Cotton shIRt By stRong suIt; Bow tIe By LanvIn.

portfolio until they recover, you’re in trouble.) Retirement income expert Wade Pfau has discovered that young retirees can even turn a reverse mortgage into a cheap put against their home. Here’s the play: The percentage of your home’s value you’re approved to borrow is determined by your age (younger folks can’t borrow as much) and interest rates at the time you get the mortgage. When rates are low, as they are now, you’re approved for a higher starting percentage. Currently, a 62-year-old can get a mortgage line equal to about 50% of his home’s value. That line, if left untapped, grows as you age. By the time you’re 86, there’s a 90% chance it will be greater than your house’s current value, Pfau calculates. (Growth also depends on future rates.) If housing prices collapse, you can draw down the full line, knowing that when you sell the house or die all the lender can recover from you or your heirs is the lesser amount the home is worth. (Pfau predicts the FHA will eventually curb this gambit but says it can’t change terms retroactively for lines that are already open.) So will retirees embrace reverse mortgages? Too soon to say, but they haven’t yet. “We were early to market,” Jahangiri says with a pained smile, taking a sip from a pinklettered Drop Dead Diva coffee mug. (His wife, actress Kate Levering, was a regular on the hit Lifetime television show.) He adds later: “It’s going to feel great years from now to say we saw this coming and we doubled down on it.” At AAG’s glass-walled headquarters in Orange County, California,150 licensed loan officers listen patiently on their headsets to seniors who have responded to ads featuring the company’s current pitchman, Tom Selleck. It’s a tough sell. Of the half-million folks who called last year, only 9,000 took a reverse loan. (Another 3,000 borrowers were brought to AAG through a network of independent mortgage brokers and community bankers.) It’s hard to convert callers to customers, in part because many don’t qualify. Plus, the fees are high (upfront costs on a loan can be as much as $12,000), and both the product and the process of securing a loan are complicated. Among other things, the FHA requires all would-be borrowers to talk to a certified mortgage counselor independent of AAG, a consult that typically costs $125. And then there’s that bad rep—something the 72-year-old Selleck confronts head on in one of AAG’s ads. “I know what you’re thinking. I thought what you thought,’’ says the star of the 1980s hit Magnum, P.I., as he stands framed in the arched window of a lux urban condo. But, he adds, “I did some homework” and found “it’s not another way for the bank to get your house, and it’s also not too good to be true.” In a second ad, he sits on a chair in a tastefully decorated suburban home and touts home equity as the fourth leg of retirement—along with the traditional three legs of Social Security, pensions and private savings.

“We’re trying to give people financial stability through an underutilized asset,” Jahangiri says. “But it’s an uphill battle, and there’s still a perception issue.” That perception issue stems from real problems with how— and to whom—reverse mortgages were sold in the past. Under the terms of the HECM program, a homeowner can lose his property if he fails to pay real estate taxes, lets property insurance lapse or allows his home to fall into disrepair. In a 2012 report, the Consumer Financial Protection Bureau found strapped borrowers were taking out (and spending) too much of their equity at once and that nearly 10% were at risk of foreclosure because they wouldn’t be able to pay tax or insurance bills later on. The consumer agency later cracked down on “deceptive advertising” by reverse-mortgage companies, including AAG, which last year settled for a $400,000 fine. (AAG admitted no liability and said it had already changed the disputed practices.) More significantly, the FHA tightened the rules, requiring prospective borrowers to demonstrate they’ll have the cash to keep up with taxes and insurance, and discouraging them from drawing the money down too fast. The sum of these changes: Reverse mortgages are no longer a last resort for desperate homeowners. Future growth depends on whether the middle class is ready to use their home equity to finance retirement. F junE 29, 2017 FORBES | 127

the investment guide

alternatives—exchange-traded Funds

Gold Is for Cranks? Not So Fast Bad inflation may never return. But if it does, you’ll wish you owned some metal and hogs. By William BaldWin

128 | FORBES junE 29, 2017

commodity fund. For most investors, funds are the right choice. Good news on that front: They’re getting cheaper. Among commodity ETFs, the granddaddy is Invesco’s PowerShares DB Commodity Index Tracking Fund, with $2 billion of shares outstanding. Expense ratio: 0.85%, or $85 a year for every $10,000 invested. Since that fund opened for business in 2006, ETF vendors have been in a price war. In 2014, Invesco opened a sister fund, PowerShares Optimum Yield Diversified bad idea Commodity Strategy No buy Gold w K-1 Portfolio, with an anGood move nual fee of 0.6%. This year use etfs ETF Securities chopped the fee to 0.29% on two new broad-basket commodity funds (see table on p. 130). Despite a burst of prosperity in 2016, long-term investors in funds like these have not fared well. In the past ten years PowerShares DB has delivered a compound annual return of –5%. And yet commodity bulls can come up with three reasons why their misery will end.

Leather jacket By arcady; cashmere sweater By citizen cashmere; watch By roLex.

nflation is creeping up, from 1.6% just before the election, as measured by price changes over the trailing 12 months, to 2.2% recently. How are your bonds doing? Probably not too well. Maybe you could use an inflation antidote—like commodities. This is a wild bet with a rational basis. Wild, because commodities have delivered such rotten results over the past decade. But rational, because prolonged inflation is sure to damage a fixed-income portfolio and likely to help out things like precious metals, soybeans and oil. So says Maxwell Gold, director of investment strategy at ETF Securities. This aptly surnamed guy is talking his book: His employer is a $23 billion manager of exchangetraded funds, predominantly invested in precious metals. But he has data to back up the idea of using commodities as an insurance policy. Over the past 26 years, he calculates, a 10% allocation to commodities would have trimmed the annualized volatility of a 60/40 stock-and-bond portfolio from 8.5% to 7.6%. There are several ways to get your exposure to commodities. You could buy futures contracts in Chicago, investing a fair amount of effort to roll them over before they mature and perhaps worrying that if you forget to do that you’ll wind up with 5,000 bushels of wheat on your lawn. You could, at considerable expense, hire a commodities trading advisor to do the futures trading. Or you could buy a

WITH STATE STREET GLOBAL ADVISORS

What ETF Investors Need To Know About Smart Beta And ESG Investing

xchange-traded funds (ETFs) have embraced smart beta. A smart beta ETF looks beyond market capitalization, which has been the traditional investing standard for ETFs for the last quarter century. Its investment strategy is instead based on factors such as a stock’s valuation characteristics, growth potential, momentum or volatility profile. In short, smart beta, or factor investing, gives investors exposure to the smart strategies that define actively managed funds, while keeping fees more in line with those of a passive fund. “Factor investing has been used by institutional investors and pension funds for years now,” said Jim Ross, chairman of the global SPDR business at State Street Global Advisors. “Now it’s really coming into the mainstream.” Investors like getting the premiums that active strategies commonly deliver and the efficiency historically associated with traditional index funds. If traditional indexing investments are the “big Greyhound bus of investing,” Ross said, and active investments are “the sports car, then smart beta ETFs are the hybrid car.”

Holding On For The Market Cycle Like traditional ETFs, which tend to be

buy-and-hold vehicles, smart beta lends itself to a long time horizon. Investors should be prepared to be patient and hold their ETFs for at least a full market cycle, or traditionally eight to 10 years. years. That way they can avoid making that all-too-common investing mistake: selling out at the wrong moment. At the same time, different investors may use smart beta strategies for different goals. Retirees, or people nearing retirement, might choose a low-volatility

Looking To The Future Beyond smart beta, what’s next on the ETF landscape? ESG investing — the acronym stands for “environmental, social and governance” — is becoming more popular, Ross said. ESG investing involves choosing companies according to how they rank in terms of certain social criteria. But there’s nothing soft-minded about it, given that socially conscious companies also generate higher long-term returns. The initial selling point for ESG was that it could make investors feel good about how they were putting their money to work. Now it’s how ESG gives them access to companies that comport themselves in a responsible way — as quality companies tend naturally to do. Intelligent investors will want to stay ahead of the curve by educating

Factor investing has been used by institutional investors and pension funds for years. Now it’ss really coming into the mainstream. Jim Ross Chairman of the global SPDR business at State Street Global Advisors

ETF. They’ll give up a degree of upside, of course, but they’ll also sleep better when the markets get volatile.

themselves about both smart beta and ESG, just as they would about any other investment vehicles.

Younger investors seeking growth of the sort that the tech sector has recently delivered might be fine with higher volatility, understanding that they’re seeking high returns by taking higher risks.

That means investors must define their goals and understand how different strategies can help achieve those goals — or not. It could also mean taking the tried-and-true route, and consulting with an independent financial advisor.

Important Risk Information Investing involves risk including the risk of loss of principal. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. SSGA provided content, maintained editorial control, and is not affiliated with Forbes. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns. Standard & Poor’s, S&P and SPDR are registered trademarks of Standard & Poor’s Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings

LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation’s financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index. State Street Global Advisors Funds Distributors, LLC, member FINRA, SIPC, One Lincoln Street, Boston, MA 02111. ©2017 State Street Corporation - All Rights Reserved Not FDIC Insured – No Bank Guarantee – May Lose Value IBG-23327 Exp. Date: 05/31/2018

JUNE 29, 2017 FORBES | 129

the investment guide

alternatives—exchange-traded Funds

best buys

the new offerings from etf securities are the most economical way to own a diversified basket of commodities. ticKer

year started

exPense ratio %

assets ($mil)

hoW taxed1

ishares gold trust

iau

2005

0.25%

$8,163

collectible

etfs bloomberg all commodity strategy

bci

2017

0.29

offshore

etfs bloomberg all commod strat longer dated

bcd

2017

0.29

offshore

etfs Physical silver

sivr

2009

0.30

343

collectible

Fund

Long-term gains in PrecioUs metaL etFs are taxed at the coLLectiBLes rate (maximUm, 28%). FUnds Using oFFshore intermediaries convert net gains to ordinary income and can’t carry Forward net Losses. SourceS: MorningStar; ForBeS.

One is scarcity. The planet has only so much tin ore and arable land. Next is the desire of producers to offload risk onto speculators, for which speculators ought to be compensated. A farmer might be willing to sell hogs now worth $1 in a futures contract at 99 cents, in order to lock in a spread over feed costs. This pricing pattern is called backwardation, and when it happens it’s a blessing to investors on the long side of the futures trade. They can pick up a penny of profit in a flat market. The third reason for optimism is at the Federal Reserve, whose loose-money policies of the past decade are likely to be reversed in the next one. Jason Bloom, a global market strategist at PowerShares, says that, historically, commodity indexes have delivered 18% annualized returns during episodes of Fed tightening. Now hear out two reasons to be bearish. The first is that many commodity markets, most of the time, experience contango, the opposite of backwardation. This has to do with the cost of stockpiling. A dollar’s worth of gold trades in the futures market at $1.01, the extra penny covering the cost of financing the metal and hiring someone with a rifle to stand outside the vault. In a sideways market people who own either gold futures or gold bars get poorer, a penny at a time. The other problem is technology. Shale drilling and genetically modified seeds have created abundance where there used to be scarcity. So, should you be bullish or bearish? Maybe neither. Think of owning commodities as purchasing insurance rather than stepping into a windfall. Insuring against inflation is going to cost you money, whether you do it via a commodity fund or do it by accepting low yields on inflation-protected Treasury bonds. Maxwell Gold, the analyst at ETF Securities, concedes as much: His study showing commodities shaving 0.9 percentage points off the volatility of a balanced fund also has them trimming 0.2 points off the annual return. Our advice: Buy a fund, not futures. Get the cheapest one. Be aware of the quirky tax rules (see box) or, better still, put your fund in a tax-deferred account. F 130 | FORBES junE 29, 2017

tax devils hold commodities in a taxable account? Plan on getting a stiff bill from either the irs or your accountant. here are four ways you can get taxed. Bullion. Precious metals, held as either bars or etFs, are taxed as “collectibles,” with a maximum 28% federal rate on long-term gains. Futures. a futures contract traded in the U.s. is taxed as if you sold the position on dec. 31 and bought it right back. these paper gains and losses are presumed to be 60% long and 40% short, a weird formula whose architect, years ago, was a crooked congressman. Partnership funds. the Powershares dB fund and others like it are partnerships. Paper gains and losses on their U.s. futures contracts flow through the fund onto your tax return via an irksome document known as a k-1. (London metals can get a different treatment.) your taxable profit will usually be inflated, or your loss reduced, by the amount of the fund’s management fee. this rule was put in place by some congressmen who might have been honest but weren’t thinking clearly. K-1-free funds. this newer breed of commodity product erases the k-1 and replaces it with a simple dividend. But simplicity comes at a fearsome price, warns jeffrey sion, a tax lawyer at dechert. the erasing mechanism converts capital gains into high-taxed ordinary income, and it causes net capital losses for any year to vanish into the ether. example: you buy the etF at $10. it sinks to $8 the first year and then rebounds to $11 the next. the fund cannot carry forward the $2 loss incurred in the first year. in year two, the irs forces the fund to disgorge onto you a $3 distribution of ordinary income. at that point you can sell the ex-dividend share for $8, capturing a $2 long-term capital loss. But the loss cannot be used to offset the distribution, and it may or may not do you a lick of good elsewhere on your tax return. —W.B.

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the investment guide

income

Milking Your Stocks

Trading options is a gambler’s bet, but for a math-minded investor, they can also provide a steady and relatively safe source of income. By John DoBosz

132 | FORBES junE 29, 2017

keep the premium and look for another call to sell. Repeating the process over and over kicks off a steady stream of income that regularly reduces the cost of your position. This type of strategy works well when the market doesn’t move much, but selling calls in a raging bull market may lead to intense seller’s remorse. If Apple shoots to $200 and you sold the bad idea $155 call, you’d kick yourself for OptiOns trading trading away $47.24 in capital gains w for $4.80 in options premiums. gOOd mOve puts is a way for invessell them torsSelling who are bullish on a stock to fOr buy it below the current market incOme price. If the stock price is below the strike price of the puts at expiration, you are on the hook to buy it at the strike price. If the stock stays above the strike price, you’re off the hook and keep the premium. “Even though market volatility is well below average, this is still a good environment for selling options, because the market has consistently overestimated future volatility,” says Mike Buckius, chief investment officer at Gateway Investment Advisers in Cincinnati. “It’s usually a good idea to sell something that’s priced too high.” F

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t’s become virtual dogma in the investment world that low costs and long holding periods produce the best results in the stock market. History doesn’t do much to dispute such a view: According to Ibbotson, large-cap U.S. stocks have produced 10% annualized returns since 1926, meaning that you would have done fine over the past 90 years by sitting back and riding the wave to wealth. It’s hard to argue with the long-term success of buy-and-hold, but there are times when incurring trading costs means generating additional income from your portfolio. “I call it creating my own dividend, even on stocks that don’t pay ’em,” says 48-year-old Jamie Darcey, owner of two Little Caesars restaurants in Houma, Louisiana. “I shoot to make about 1.5% a month from selling options.” Selling options means committing yourself to buying or selling a stock at some point in the future at a predetermined strike price. Money earned for taking on these obligations is called the premium, and the amount fluctuates with the price of the stock, time until expiration, proximity of strike prices, and any dividends to be paid on the underlying stock. Options come in two types: Put options “put” the seller on the hook to buy the stock at the strike price anytime until the options expire. Call options “call” upon the seller to sell a stock at an agreed-upon price until expiration. You sell puts on stocks you want to own, but at lower prices, and you sell calls on stocks you already own. Pocketing upfront cash of 1% to 2% per month makes you indifferent to whether you own the stock after expiration or move on with a small profit over a short period. Here’s how it works: If you own Apple and don’t see the stock rising much above its current price of $152.76 this summer, you could earn $4.80 per share selling $155 August call options. If Apple stays below $155 through expiration, you

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An aerial view of Health City Cayman Islands

Employers Are Destined for Health Quality and Cost Savings

Surgeons perform a coronary artery bypass graft

Health City Cayman Islands Joint Venture between Narayana Health and Ascension, with the support of the Cayman Islands Government

By Laura Carabello

t the intersection of high-quality healthcare and the most affordable costs imaginable, sits a jewel of a hospital: Health City Cayman Islands (HCCI), just an hour's plane ride from Miami. At a time when self-insured employers throughout North America are struggling with the inflated costs of employee benefits packages—and failing to find this unique combination of 50% savings accompanied by quality outcomes that meet or exceed the best American hospitals—they are discovering this tertiary care, 104-bed Center of Excellence. Founded by U.S.-based Ascension, the largest nonprofit health system, and Narayana Health, this Joint Commission International (JCI)-accredited facility is nestled in the eastern districts of Grand Cayman for peace and tranquility. “Ascension’s objectives for the partnership in the Cayman Islands were to extend our mission into the C a rib b e a n , cre ate a d e s tin atio n fo r h ig h - q u a lit y, low-cost healthcare, and determine what we might

HealtHCare

bring back to our U.S.-based sites of care,” says John Doyle, executive vice president, Ascension. “We are very pleased with the progress of Health City Cayman Islands relative to the quality of care, the experience of the patients and the ef ficiency of the operation. We believe there is much for our country’s healthcare system to learn from this example.” With sophisticated, modern technologies and the most innovative operational designs, Health City is already attracting many high-profile, mid- to large-size employer groups. Simply stated, they like what they hear and see. Many of these companies are waiving deductibles and co-pays to incent employee utilization of this benefit option. Here’s why: Even after factoring in the cost of travel and accommodations for the employee and a companion, the savings are extraordinary and can significantly lower a company’s total healthcare spend. Driving adoption of the HCCI model rests upon key benchmarks.

Promotion

Quality Performance & Outcomes HCCI uses 90 Key Clinical Performance Indicators and International Patient Safety Goals monitored monthly. Here are some validated results: <1% infection rate; <1% readmission rate; 0% incidence of bedsores; and door-to-balloon (angioplasty) time for emergencies less than 90 minutes.

Bundled Pricing: Knowing Total Costs Up-Front All-inclusive pricing transparency relieves employers of administrative burdens surrounding coding, billing and claims adjudication. Pricing bundles include consultations; pre- and post-operative investigations such as labs, X-rays, MRIs and CT scans; admission charges; physician’s surgical fees; operating room fees; anesthesia fees; implant cost; room and food charges; medications; post-operative physiotherapy; and transportation. All physician visits up to two weeks posttreatment are also included.

Volume … That Speaks Volumes

experience, backed by extensive education and training. For example, an HCCI fellowshiptrained orthopedic surgeon with 10+ years’ experience as an arthroscopic and joint replacement surgeon has performed 4,000 orthopedic surgeries, 600 joint replacement surgeries, 1,000 arthroscopies and 700 arthroscopic ligament (knee) reconstructions.

Technology HCCI purchases only the best heart valves and orthopedic implants, with all services supported by a robust electronic medical record system to augment clinical care.

as requested, as well as coordinated follow-up care in the home country.

Service Lines Medical specialties offered at Health City Cayman Islands include Adult & Pediatric Cardiology; Electrophysiology; Adult & Pediatric Cardiothoracic Surgery; Adult & Pediatric Orthopedics & Sports Medicine; Neurosurgery; Spine Surgery; Urology (HIFU); Pediatric Endocrinology; Pulmonology & Sleep Lab; GI & Bariatric Surgery; Colorectal Surgery; Medical Oncology; and pharmaceutical support for treatment of Hepatitis C, HIV and more.

Robust Marketing Legal Recourse The hospital and all of its physicians are covered by malpractice insurance. Under Cayman Islands law, any patient can sue for economic damages. Thus far, there has been no such litigation against Health City Cayman Islands in its three years of operation. Low-premium insurance is available to cover the costs of complications, should they occur.

Studies show that the higher the volume of patients in a hospital and the Optimizing the Patient more experienced the surgeons, the Experience better the care. Concierge-level care is provided by a dediHCCI is modeled upon the 25 hos- cated, international patient care team that pitals across 14 cities in India oper- helps each patient to navigate the proated by Narayana Health and noted cess. Personalized guidance begins from worldwide for their effiinitial contract, through ciency and quality. The on-the-ground and the inNarayana cardiac hoshospital stay and with folpital performs 40 heart low-up care at home and surgeries a day for less beyond. Patients typically than $1,600 a case. stay between 3-14 days, Prior to joining HCCI, depending upon the proone cardiac surgeon was cedure and rehabilitation performing three to four needs, with every effort open-heart surgeries every made to ensure a rapid day, six days a week, over return to work. the past 10 years. A single point of con“That’s more than what tact coordinates the inia typical U.S. surgeon tial Skype consultation does in a lifetime,” says Dr. Chandy Abraham, MD, Chief with surgeons, and the Dr. Chandy Abraham, MD, Executive Officer and Director of sharing and transfer of Medical Services chief executive officer clinical records, X-rays and director of medical services, who has and scans. As a patient advocate, the held many senior administrative positions care team coordinator handles flight throughout his distinguished career. reservations, greets patients at deplaning and escorts them through immigration and customs. This ser vice also Medical Team With includes hotel accommodations, onImpeccable Credentials All HCCI surgeons have 10 to 20 years’ island transportation and sightseeing

HCCI continues to host delegations of employers, healthcare business purchasing coalitions and other benefits influencers. Representatives are actively meeting directly with organizations such as the Northeast Business Group on Health and the Pacific Business Group on Health. They also visit employers of all sizes and in every industry, and contract via relationships with Third Party Administrators, brokers, benefits consultants and other intermediaries. Companies in the East and Central regions of the U.S. dominate discussions with HCCI, with growing interest among those in the Midwest and West Coast as well as Canada, the Caribbean and Central America. “What I think American employers like most about HCCI is the quality and affordability of our services, while the Canadians are interested in reducing wait times for surgery and some of the Caribbean countries simply don’t have access to these end-to-end services,” says Dr. Abraham. “We’ve been proposed as an example of the future of American and global healthcare, and expect to expand our footprint so that this model can serve an even greater number of companies and individuals worldwide.”

About the writer: Laura Carabello is editor and publisher of Medical Travel Today (www.medicaltraveltoday.com) and US Domestic Medical Travel (www.usdomesticmedicaltravel.com), the leading B2B newsletters for the industry.

HealtHcare

the investment guide

real estate

Divide Your Home

Forfeit part of your “best” long-term investment? It might make sense. By Samantha Sharf

136 | FORBES junE 29, 2017

chairman and co-CEO Thomas Sponholtz, who was a fixedincome manager at Barclays Global Investors before cofounding Unison (originally called FirstREX). But this isn’t cheap money. Whether the deal makes sense depends not only on what happens to your home’s value but also on why you’re sharing appreciation. Eoin Matthews, who bad idea cofounded Point in 2015, Share Your home’S got interested in shared appreciation equity when he helped w friends buy a house begood move cause their own cash was Share the downSide, too tied up in the husband’s startup. Point, which is now buying pieces of existing homeowners’ equity, plans to expand to down payments soon. Shared appreciation has some economist fans. In his 2014 book House of Debt, Princeton’s Atif Mian proposed the whole home-lending industry offer “shared-responsibility mortgages,” where borrowers would give up a small percentage of gains in return for some downside protection. The startups, he says, are an indication the mortgage market “can move away from this heavy reliance on the traditional debt contract.” F

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hen Gallup polled Americans recently about what they consider the best long-term investment, more picked real estate than chose stocks, bonds or gold. Yet a handful of startups are betting that homeowners will give up some of their potential gains to either buy a house they couldn’t otherwise afford or to liberate cash for other uses—say, starting a business, paying for college or even investing in stocks. (Over the past three decades, the S&P 500 has produced an average annual return of 11%, compared with 4% average annual appreciation for U.S. housing.) Among the startups are Point Digital Finance, with Andreessen Horowitz as lead investor; Patch Homes, which counts an Airbnb cofounder as a backer; and Own Home Finance, which is developing a special mortgage with shared appreciation built into it. The granddaddy and leader of this tiny sector is San Francisco-based Unison Home Ownership Investors, which was formed in 2004 and for years bumped along buying equity from existing homeowners. In 2012, it expanded into shared down payments, which it now offers (in concert with mortgage lenders) in Washington, D.C., and 12 states, including California, New York, Illinois and New Jersey. In February, Unison announced it had raised more than $300 million from institutional investors—enough to complete the 2,500 shared-appreciation deals it expects to make this year. For a $1 million home, the purchase program works like this: The home buyer makes a $100,000 down payment, and Unison kicks in $100,000, reducing the monthly mortgage payment (including property taxes and insurance) from $6,161 to $5,118. (This estimate, from Unison, assumes a 30-year fixedrate mortgage and a one-percentage-point-higher interest rate without the extra 10% down.) When the house is sold, Unison gets its $100,000 back plus 35% of any appreciation—before selling costs such as a Realtor’s commission, which come out of the homeowner’s share. If the house’s value has declined, Unison subtracts 35% of the loss from the $100,000 it’s owed. “It is the home that pays us, not the homeowner,” insists

Capital Creates Better Connections A more connected world enriches lives. That’s why All Aboard Florida is developing Brightline, an express, intercity train service in the Sunshine State, with the potential not just to bring people together, but to also potentially add up to billions of dollars to Florida’s economy in the next several years.* Morgan Stanley helped All Aboard Florida raise capital to make those new connections possible. Capital creates change.

morganstanley.com/brightline

the investment guide

taxes

Shrink Your Salary Newt Gingrich, John Edwards and (it appears) Donald Trump did it. Maybe you should too.

t’s natural to measure success by the size of your paycheck. If you own a business or are selfemployed, get over it. You might be able to save tens of thousands of dollars in taxes by cutting your salary. Newt Gingrich and John Edwards famously used this strategy, and it appears President Donald Trump did too. Moreover, if Trump enacts his proposed tax reform—a big if—the savings from the cut-your-pay ploy will increase exponentially. Normally, when you receive a paycheck or earn self-employment income (reported on Schedule C of your 1040), you pay not only income taxes but also Social Security and Medicare taxes, also known as payroll or FICA taxes. The Social Security tax is levied on the first $127,200 of wages at a 12.4% rate—half paid by the employee, half by the employer. The Medicare tax hits every penny of earned income at a 2.9% rate, also evenly split. Plus, as part of Obamacare, the employee is hit with an additional 0.9% Medicare surtax on wages over $200,000 for an individual or $250,000 for a couple. The self-employed get stuck paying both the employer and the employee share, meaning high earners pay a 3.8% Medicare tax.

138 | FORBES junE 29, 2017

Here’s the play: Maybe you formed a limited liability corporation for your business for legal protection but are still reporting your income on Schedule C as a sole proprietor. By checking a box on IRS Form 2553, you can elect for your LLC to be taxed as a Subchapter S corporation, which pays no taxes itself but passes through all its earnings to your 1040. You’ll have to file an annual 1120S corporate income bad idea return (and pay a tax pro cut your $500 or more to prepare it). pay w But on that return you treat good move only some of what you earn report salary. The rest of your net earnings as earnings flow to your individas profit ual 1040 (via a Schedule K-1) as business profits, which aren’t typically subject to those pesky payroll taxes. The federal income tax rate on profits is the same as it would be for salary or self-employment income. But if you earn, say, $1.25 million and treat $1 million of that as profits, you’ve avoided $38,000 in Medicare taxes. Not bad

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the investment guide

taxes

As Graetz notes, Trump wouldn’t be the first politician to use this technique to save big-league on payroll taxes. When Gingrich ran for the 2012 interested in using an s corp to cut your payroll taxes? here are some Republican presidential nomination, he smart moves to protect yourself from the irs. released a 2010 tax return showing that he and his wife, Callista (nominated by • Make sure all payments are made to your corporation, not to you Trump as ambassador to the Vatican), personally, and that contracts for work specify your corporation is the earned more than $3 million in consultprovider. ing and book income but reported just $450,245 of it as salary. When John Ed• open a corporate bank account, and keep business and personal wards, the 2004 Democratic vice presiexpenses separate. dential nominee, released his back tax returns, they showed that in 1997, before • investigate how much employees in your profession and geographic he entered the Senate, he reported more area earn—a number the irs will use in determining “reasonable than $11 million in taxable income from compensation” if you’re audited. if you pay yourself less than that rate, his work as a trial lawyer yet treated just document why. $360,080 of that as salary. There are, to be sure, potential draw• if you have employees, pay yourself at least as much as the highestbacks from the Sub S cut-your-salary paid one receives. approach. One is that you’re more likely to face an IRS audit. While 60% of the • Document the need to reinvest in your business—a rationale for audits of Subchapter S corporations retaining profits and not paying them to yourself as salary. result in no change, if the IRS can show you’ve paid yourself too little salary, the • separate what you bill for your labors and what you bill for back taxes, penalties and lawyers’ fees the work of subcontractors or other employees. Money earned from can mount quickly. marking up other folks’ work is easier to wave off as profit. Another reason for pause is that the gambit might affect your retirement income. If you report less than the $127,200 for simply checking a box. And get this: Under Trump’s in maximum salary subject to Social Security taxes, you’ll proposal, the tax rate on your Sub S profits would be 15% earn lower Social Security benefits. instead of 35%, so you’d chop Uncle Sam’s take by an adPlus, you can make tax-deductible contributions to a ditional $200,000. retirement plan based on your salary but not on your Sub Is this legit? The IRS doesn’t like it, but if you do it S profits. For example, a self-employed person who is 50 or right and pay yourself reasonable compensation (see box), older can in theory put as much as $54,000 pre-tax into a you can get away with it under current law. That offends solo 401(k) in 2017: $24,000 as an employee contribution tax policy geeks such as Columbia law professor Michael and $30,000 as an employer contribution. But the employGraetz, a veteran of George H.W. Bush’s Treasury Departer’s share can’t amount to more than 25% of your salary. ment. He calls it “a notorious ploy that should be stopped” So to reach that $30,000 employer max, you need to book but admits it’s “hard to close a loophole that the politicians at least $120,000 of income as salary. If you’re not making seem to use so much.” much more than that and want to claim the full retirementIn fact, in a New York Times op-ed last year, Graetz savings deduction, it probably doesn’t make sense to be and former IRS commissioner Fred T. Goldberg Jr., now a taxed as an S corp. partner at law firm Skadden, wrote that they believe Trump What if you’re pulling down substantially more? If “avoided paying millions of dollars of Medicare taxes that you’re nearing retirement age, using a C corporation should have gone to support senior citizens.” They based instead of an S corp could allow you to shelter hundreds that conclusion on Trump’s required 2015 financial discloof thousands of dollars a year in an employer-sponsored sure form, which listed $14,222 in salary subject to payroll defined-benefit pension plan, suggests Eva Rosenberg, taxes, from his reality-TV show, The Apprentice, but no author of Small Business Taxes Made Easy. A C corp, unlike salary from the hundreds of other profitable entities he an S corp, pays a corporate-level tax on its profits, but in controlled and ostensibly ran. (Of course, since Trump has the right situation, a mammoth pension-plan contribution bucked tradition by refusing to release his individual tax could wipe out those profits, she notes. returns, we don’t know for sure. The White House declined Bottom line: Get a tax pro to help you work through all to comment.) the angles before you check the Sub S box. F

keep the IRS at bay

140 | FORBES junE 29, 2017

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the investment guide

Compensation

When Paper Beats Cash Sacrificing salary for hardto-value options is crazy— unless you can do the math. By William BaldWin

ot long ago an employee of a fast-growing firm I’m looking at a $1 million payday. near San Francisco was, after only a year on the Then he did another calculation. Instead of assuming that job, on the verge of decamping for greener pasthe value of the company will march straight up, he put it on tures. (We’ll call this person Harry.) At 25, he was a random walk, moving it up 40% or down 30% each year on getting a salary close to $100,000—plus options. Harry’s boss the flip of a coin. Other employees’ options would be diluting didn’t want him to leave. Harry already had 18,000 options, the payday, the VC money might have a liquidation prefervesting over four years. Stick around, ence and he might not be there to see the he was told, and we can throw another company go public. The value of 36,000 bad idea 18,000 your way. options shrank to $44,000. Harry quit. Startup What would those options be worth? This is the world in which the talent of OptiOnS aS COmpenSatiOn Silicon Valley lives. Coders, designers and That’s not an easy question to answer for w a company, like this one, that has yet to product managers are constantly being gOOd mOve go public. The older options had strike lured from one unicorn to the next, the dO the math prices in the neighborhood of $2, entibait being a slew of options atop the cash firSt tling employees to buy shares of common salary. Just what are options in a private stock at $2. The newer ones would be company worth? We persuaded a few issued at a higher strike price. There was no official disclosure job-hoppers to tell us, under a promise of anonymity, about of what shares in this outfit were worth, but rumors had new employment offers and how they evaluated them. The unaniventure capital coming in at $10. mous answer: I had no idea how to value the equity. Suppose, Harry figured with back-of-envelope numbers, It’s fairly easy to slap a dollar value on equity compensathat I stay around long enough for all the options to vest, that tion in a public company like Alphabet. A “restricted stock the growth continues, that the business goes public at $35 . . . unit,” for example, has a precise value as soon as it’s available

142 | FORBES junE 29, 2017

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Content by Hispanic Achievers

Customer – and Community – Service Key to Tampa Auto Dealer’s Success Jay Rosario of Wesley Chapel Nissan Lauded as ÔGood NeighborÕ

ay Rosario learned the importance of customer service as a child working at his parents’ delicatessen in New York City. Provide quality products at fair prices, they told him. Keep your inventory stocked. Treat your customers and employees with respect. Be a good neighbor. “My parents were immigrants, so it was important for them to do well in their business as they pursued the American Dream,” said Rosario. “But it was even more important for them to support their customers and serve the community. If someone got into trouble, my father would provide whatever help he could, including food and even money. He didn’t make a big deal about it. He just did what he could to help.” Rosario, owner of Wesley Chapel Nissan in Tampa, Florida, adopted his parents’ business philosophy when he entered the automotive industry. After a few years in sales, he was promoted to sales manager. He graduated from the National Automobile Dealers Association (NADA) Dealer Academy at age 26 and became the youngest Hispanic dealer in Ford’s history when he purchased Rolling Hills Ford in Clermont, Florida, in 1998. This year marks Rosario’s 12th year at the helm at Wesley Chapel Nissan. The award-winning auto dealership, which employs 120 people, did $93 million in revenue in 2016, ranking 52nd of 1,200 Nissan dealerships nationwide in sales. Rosario also serves as vice chairman of the National Association of Minority Automobile Dealers (NAMAD), a trade organization that advocates for the nation’s 1,500 minority auto dealers. “The Wesley Chapel area has seen an influx of new auto dealers in the past three years, but with Jay’s leadership, his business has not only maintained its market share, it has thrived,” said Nissan Division Vice President Billy Hayes.

Rosario’s dealership is a beacon in the community, customers said. He supports schools, law enforcement and service organizations. He funds scholarships and co-sponsors a program that provides lawyers for indigent juvenile crime suspects. He pushed for Florida’s first Hispanic Achievement license plate. His volunteerism was honored by President Barack Obama with the President’s Lifetime Achievement Award in 2016. The Barbara Bush Foundation for Family Literacy recognized him for his contributions to education.

“Leaders of Hispanic descent like Jay Rosario help inspire all entrepreneurs with his personal community involvement. I congratulate him on his successes.” - U.S. Sen Marco Rubio (R-Fla.) Rosario took his volunteerism to another level when he joined the Orange County Sheriff’s Office Reserve Unit in 2012. He was working a special detail early Sunday, June 12, 2016, when a terrorist invaded the Pulse nightclub in Orlando, shot several people and took hostages. Rosario sped to the scene, where 49 club patrons were fatally shot by the gunman before he was

Content by Hispanic Achievers

Rosario with Orange County (Fla.) Sheriff’s Reserve Unit Chief Deputy Ross Wolf and Sheriff Jerry Demings.

killed by police. “Without thought for his own safety, Reserve Deputy Sgt. Rosario was one of my first responders to enter the Pulse nightclub shooting incident,” said Orange County Sheriff Jerry Demings. “He assisted in moving patrons out to safety and he was among the officers who attempted to apprehend the shooter.” For his work that day, the City of Orlando and Demings’ office named Rosario the Reserve Deputy of the Year. The sheriff’s office also presented him with the Medal of Valor. NAMAD presented him its first-ever Humanitarian Award.

“Jay’s a natural leader. He’s a self-made millionaire who runs a successful dealership, yet he volunteers as a reserve officer. He doesn’t have to do that. It’s a testament to his commitment to helping people.” - NAMAD President Damon Lester Rosario is preparing for the next step in his entrepreneurial evolution. He is working to open a second dealership in Tampa in the next 12 months. Dozens of accolades have been heaped on him for his

Rosario with his children Caden, Carlyn and Cooper at his dealership.

Rosario celebrates Wesley Chapel Nissan’s designation as Florida’s only Motor Trend Certified Dealership with Steve Richards, vice president, EasyCare/Motor Trend Certified; Rob Mirra, APCO EasyCare national director; TV personality Mario Lopez; Joey Falcon, Wesley Chapel Nissan’s exec GM; and NAMAD President Damon Lester.

business accomplishments, as well as his volunteer work. The Wesley Chapel Chamber of Commerce named his dealership the Small Business of the Year in 2014. Rosario is among an elite group of dealers to be nominated for the Time Magazine Quality Dealer Award. He is also the first Hispanic entrepreneur to receive Black Enterprise magazine’s Rising Star Award. Rosario believes the biggest challenge facing auto dealers is to foster one-on-one relationships with customers as technology plays an increasing role in the industry. “Today's car-buying consumers expect an experience focused on their needs, their desires and a process that respects their time,” Rosario said. “With the continuing evolution of digital technology, successful car dealers will need to remain flexible and be ready to embrace new technologies to ensure they can deliver a seamless customer-centric buying experience.” Rosario recently opened Wesley Chapel Nissan for a customer appreciation event which coincided with the company being awarded the only Motor Trend Certified Dealership designation in Florida. The event, which drew 2,000 visitors, was emceed by television personality Mario Lopez. “As Florida’s governor 12 years ago, I was at Jay’s Nissan dealership’s grand opening,” said U.S. Rep. Charlie Crist (D-Fla.), who was among the revelers. “He’s an astute business executive who also believes in family and helping others. That’s what makes him an outstanding entrepreneur. ” Rosario shares his business and community commitments with his children – Carlyn, 20; Cooper, 18; and Caden, 11. He looks forward to them continuing the family legacy. “The ultimate measure of success, for me, is the effect that I have on my family, my employees, my customers and the community,” Rosario said. “It’s no coincidence that I’ve experienced growth in my faith as I’ve experienced growth in my personal life and in my business. I hope I’ve been a positive force in the lives of the people I encounter. It’s important to me to contribute. It’s what my parents taught me to do.”

the investment guide

Compensation

the complex bookkeeping attached to employee equity. Take the stars out of your eyes. Ward sets an example of transparency Your million-dollar option dream could by publishing Eshares’ capital structure. With it, his workers can know exactly what be wrecked by dilution, preferred stock they’d pocket at various exit valuations. But or the early demise of your job. he’s finding few clients willing to take up the cause of financial candor. for sale, and that value shows up in a W-2. Employee So what to do when you get a job offer? For help on valuoptions in public companies can be compared to options ation, we turned to Chad Willbur, an Eshares executive who traded in Chicago. calculates what expense an employer should book when it But when you get equity in a private company like Airbnb dishes out an option or a restricted stock unit. He provided a or Dropbox, you can’t assess it without knowing things like the list of factors that should appear on your scratch pad. valuation of the business at the last round of equity financing, One factor works in your favor. The common shares at stake the number of shares outstanding and your shares’ peckin employee awards are usually priced at a discount to the preing order on the balance sheet. You may not be let in on any ferred shares that outside capital is buying. A company that has of these things. Says Kyle Holm, an associate partner at Aon private equity funds begging to get in at $10 might be assigning Hewitt who helps tech companies design equity compensaa fair market value of $3 or $5 to the common, and it’s the latter tion: “Typically they’re not going to give you the full picture.” that determines the strike price of options. If the venture takes A product marketer to whom we’ll assign the name Sam off, you get a windfall as these two values converge. knows this firsthand. “It’s difficult to get the information you Everything else works against you. need while also negotiating your position,” he says. “It’s a Vesting. A typical option award is earned out over four black hole.” He’s been working for several years at a softwareyears. Say it’s for 10,000 shares. You are entitled to nothing heavy company with a (rumored) valuation in the billions. if you quit (or get axed) within 12 months. You get 2,500 The firm doesn’t disclose what price it’s getting for the preoptions at the one-year anniversary and further amounts ferred stock sold to outside financiers, although it does reveal monthly or quarterly. The fact that people job-hop makes opthe price assigned to employees’ common shares. tions less valuable than they appear to be. Sam could make out well. Two batches of options will Expiration. The option probably dies if your company is allow him, once they're fully vested, to pay $141,000 for shares still private a decade later. Which it might be. Uber Technoloostensibly worth more than $450,000 today. But if he leaves gies, for one, is in no hurry to go public. Another common before the public offering, those paper profits will evaporate. gotcha is that you have to use your options within 90 days of A young software designer we’ll call Sally has had tours of leaving the company. That could make them worthless. duty at two private outfits. The first paid $90,000 plus 15,000 Suppose you have 100,000 options with a strike of $5 and options. Believing in the company but buying blindly, she the last valuation of common shares came out at $8. When exercised all her vested options after quitting and now owns you leave, you have to write out a check for $500,000 to retain illiquid shares in this outfit. your stake. You may not have the cash, and even if you do you At the next employer, the negotiation turned into somemay not want to own $800,000 of shares in a private company. thing of a poker game. Sally had the choice of taking close to Liquidity. Your fully paid-up shares might be unsalable. $130,000 in annual pay with a certain number of options, or You try to get a decent price for them in a private transaction, taking $24,000 less in annual cash and getting an extra 23,000 but the company can chill offers by exercising its right of first options over a four-year vesting period. The employer was, refusal (on page 45 of a contract you didn’t read). in effect, offering to sell options at approximately $4 each. Preferences. Standard practice is for outsiders funding a Was this an invitation to future wealth? Or a cynical way to new company to get preferential terms in a merger or public cut its compensation expense? There was no way to judge. offering. Their preferred shares may be entitled to 100% or Sally knew the exercise price, near $7, but almost nothing else 200% of the amount invested before common folk (that’s you) bearing on valuation. Suspicious, she took the high pay/low get a nickel. option package. Dilution. If you own options, so does the person sitting Large sums are at stake, as can be seen in Snap’s public next to you. That could turn a big gain for the venture into a sale of shares this year. Overnight, the transaction converted small payoff. equity-compensation awards from contingencies to realities. Bake all these factors into a sober assessment. But don’t That caused a $2 billion hit to earnings. write off employee equity as worthless. Sam, the guy with Are private companies undermining their recruiting options in the money, takes inspiration from a colleague who efforts with their smoke screens? The question is posed by has hit the jackpot twice in previous jobs at private companies Henry Ward, chief executive of Eshares, a privately held Palo that went public. The options keep Sam from wandering off. Alto, California, firm that helps other private companies with “They’re golden handcuffs,” he says. F 146 | FORBES junE 29, 2017

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the investment guide

exchange-traded Funds

Faceless Returns Jack Bogle and a chorus of indexing champions say active investing is futile. BlackRock thinks Andrew Ang and his computerdriven ETFs are the strategy’s last great hope.

n a recent Friday afternoon, Andrew Ang sits in a drab conference room on the seventh floor of BlackRock’s midtown Manhattan headquarters and seems exasperated by the recent debate raging over “smart beta,” the investment craze he has helped spread. It’s the practice of training computers to screen broad market-cap-based indexes for “factors” like low P/Es and 12-month price momentum, in an effort to improve returns. The strategy, which is sometimes called “strategic beta,” has reached investment-fad status among financial firms, with $620 billion devoted to it in more than 600 exchange-traded products. In just the past 24 hours, Vanguard founder Jack Bogle has railed against it, saying smart beta “makes claims that are beyond its ability to fill.” Even smart-beta pioneer Rob Arnott, whose firm’s investment strategies are used to manage $179 billion, is now worrying that smart beta could go “horribly wrong.” Undeterred and sounding like a salesman, Ang tees off: “Don’t you want to buy cheap, buy high-quality names, find, identify and participate in trends? It’s the language of investment excellence.” He adds, “What is new is we can package these insights in a more transparent, cheaper and

148 | FORBES junE 29, 2017

easier-to-access way.” For Ang, a former senior finance professor at Columbia University, the argument is not academic. He runs factor investing at BlackRock and oversees $173 billion that includes $87 billion of smart-beta exchange-traded funds, making BlackRock the world’s biggest provider of smart-beta ETFs. BlackRock, which manages $5.4 trillion, has been firing bad idea active human stock pickers and investing betting that factor investing w is the future of the struggood move gling active-investmentuse smart management business. beta Disappointed with mutual fund managers and hedge funds, investors have rushed into these strategies, which aim to fuse the low fees and transparency found in passive investments that match the market’s return (beta) with the marketbeating goals of active management. Ang expects there to be $1 trillion invested in smart-beta ETFs by 2020, and he has focused BlackRock’s offerings on six factors: small size, value, dividend yield, momentum and quality for return enhance-

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the investment guide

exchange-traded Funds

Trying to operate like Ben Graham today would be “like trying to write a play with a quill because Shakespeare used to.” ment, and low volatility to reduce risk. Forget about Peter Lynch and ten-bagger stocks. Ang, a Star Trek nerd with a Ph.D., is the face behind the faceless future of active management. At 44, he has been researching factors for 20 years. Born in Malaysia, Ang is the son of a delicatessen owner and physical therapist and grew up in Perth, Australia. To earn his doctorate from Stanford University, he wrote a dissertation that focused on factor investing. Ang was immediately offered a job running factor-based investments at Barclays Global Investors in 1999, but he turned it down. Instead, he headed to New York, where in addition to his professorial duties he would consult for Peter Muller’s quant trading shop, PDT. He also did work for sovereign wealth funds on diversifying portfolios across factors that drive returns, as opposed to asset classes like stocks and bonds. The approach resonated after asset-class diversification failed to protect portfolios from the financial crisis. Ang argued convincingly that factors were the nutrients of asset classes and their risks needed to be understood just as with food. By the time Ang showed up for a meeting with senior BlackRock strategists in 2015, factor investing had gone mainstream and a large swath of it became known as smart beta. A paper co-written by Ang had shown that the most volatile stocks have abysmally low risk-adjusted returns, sparking a wave of so-called low-volatility ETFs designed to avoid those stocks and replicate market returns with less risk. BlackRock was churning out ETFs that cheaply tracked indexes tied to certain factors, and its low-volatility ETF, with an expense ratio of 0.15%, had become wildly popular. BlackRock CEO Larry Fink, who had built the firm’s ETF business by buying Barclays Global Investors, essentially offered Ang the same job in 2015 he had declined 16 years earlier. “I realized in order to bring factor investing to a wider audience you can’t operate out of an ivory tower and engage a couple of institutions,” Ang says. Ang’s faith in factors is based on back-tested returns on decades of data, but there is always the danger such evidence is flawed. So Ang says he also requires an economic rationale that is rooted in tried-and-true financial theory. “Graham and Dodd were geniuses who were the first to do value and quality in 1934,” Ang says. “These concepts have been well studied, but with technology we can gather this information, analyze it and trade with better execution.” Ang says trying to operate like Ben Graham today would be “like trying to write a play with a quill because Shakespeare used to.” To date BlackRock’s most popular smart-beta ETFs have been its dividend-stock-weighted indexes like iShares Select 152 | FORBES junE 29, 2017

Dividend ETF and its low-volatility funds, like iShares Edge MSCI Min Vol USA ETF. Ang compares creating a factor-based index for an ETF to constructing a Lego building that looks different from what is pictured on the box. BlackRock has used the “Lego blocks” to build multifactor stock ETFs—which might, for example, overweight price momentum and small size—that can serve as one-stop shops. Most of BlackRock’s factor ETFs rely on factor indexes developed with MSCI, whose Barra unit has been doing work for quant shops for decades. According to Ang, single-factor ETFs should be used to complement an existing portfolio that doesn’t have exposure to all the available sources of returns or to replace underperforming active managers. He currently favors value and momentum ETFs and thinks it makes sense to tilt toward some factors over others during certain periods in accordance with different signals. That puts Ang right in the middle of the war of words that has been waged by pillars of the smart-beta set: Arnott, whose firm builds factor indexes and recommends markettiming factors, and billionaire Cliff Asness, who runs $188 billion AQR Capital and thinks factor timing is nearly impossible. Burton Malkiel, Princeton economist and author of the investment classic A Random Walk Down Wall Street, is more blunt. “Smart beta may not be smart investing,” he says. “BlackRock has realized stock-picking active management hasn’t worked—so is there some way to continue to get the fees?” There are also questions about how much capacity these increasingly popular strategies can handle, and some risk managers, like Richard Bookstaber at the University of California, are worried there won’t be enough natural liquidity providers if investors suddenly head for the exits. “It’s a flavor-of-the-month sort of thing,” he says, “and in terms of scenarios that I am modeling, it’s one of the biggest concerns right now.” Ang responds that smart beta represents a tiny sliver of the S&P 500 today and that the marketplace is getting more robust with product offerings. He can also point to the fiveyear track record of BlackRock’s flagship low-volatility ETF, which has pretty much done what it was created to do and returned 14.5% annualized, nearly matching the 14.8% return of the S&P 500, with less risk. What’s next? Ang and BlackRock would like to see smart beta play a major role in retirement plans. He has already launched nine target-date factor mutual funds and three smart-beta bond ETFs. Two more smart-beta bond ETFs are on the way. “Factors are the core elements of what the best active investors have been doing for a very long time,” Ang insists. “For active managers the pace of innovation is only going to accelerate.” F

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—GreTa Garbo

—mae WeST

“The proverb warns, ‘You should not bite the hand that feeds you.’ But maybe you should, if it prevents you from feeding yourself.” —ThomaS SzaSz

“I would rather sIt on a pumpkIn and have It all to myself than be crowded on a velvet cushIon.” —henry david Thoreau

—edWard Gibbon

“I have never had an impulse to go to the altar. I am a difficult person to lead.”

“I’m sIngle because I was born that way.”

“The most courageous act is still to think for yourself. Aloud.”

“People have only as much liberty as they have the intelligence to want and the courage to take.”

—CoCo Chanel

—emma Goldman

FINAL THOUGHT

“I wIll accept nothIng belongIng to you, not even a thread or the strap of a sandal, so that you wIll never be able to say, ‘I made abram rIch.’ ” —GeneSiS 14:23

“If you are a brainworker, let nothing— nothing—crush your individuality. It is your contribution to the world.” —b.C. ForbeS

SOURCES: CATCH-22, BY JOSEPH HELLER; HERCULES AND THE WAGGONER, BY AESOP; MEMOIRS OF MY LIFE AND WRITINGS, BY EDWARD GIBBON; AN ENEMY OF THE PEOPLE, BY HENRIK IBSEN; AS YOU LIKE IT, BY WILLIAM SHAKESPEARE; WALDEN, BY HENRY DAVID THOREAU; INVISIBLE MAN, BY RALPH ELLISON.

158 | FORBES junE 29, 2017

clockwise from top left: Zuma press/Newscom; hultoN archive/striNger; paramouNt/getty images; BettmaNN/getty images; heritage image partNership/alamy; lipNitZki/roger viollet/getty images; BettmaNN/getty images; DeagostiNi/getty images; toDD plitt/ap

“the gods help those who help themselves.”

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TOTAL USD BONDS

IUSB

INSPIRED BY A GREAT SECOND ACT. U.S. BONDS

AGG

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