CEO Daily

By John Kell and Alan Murray
June 10, 2016

In California earlier this week, I interviewed the presidents of five divisions of supply chain firm Flex, covering autos, health, consumer technology, communications and energy. I asked them: “Which of your industries is undergoing the most rapid change?” All five raised their hands.

 

They aren’t alone. Business leaders of all stripes see change coming at them fast and furious. In our survey of Fortune 500 CEOs, we asked whether their companies would change more in the next five years than in the last five years; 97% said yes. Three quarters cited a transformative trio of technologies – cloud computing, mobile computing, and sensors and the Internet of Things – as being either “very” or “extremely” important to their business in the years ahead. Half added artificial intelligence and machine learning to that list. A full 67% agreed with the statement: “These days, I consider my company to be a technology company.” Whether they pump liquids, make machines, mine minerals, or print magazines, digitization has become their destiny.

 

I explore this digital transformation in a story for our Fortune 500 issue by looking at two very different companies. One is Henry Schein (No. 268 on the list), which is in the most mundane of businesses – wholesaling supplies to dentists. By making early investments in software, Schein has now found itself driving the digitization of the dentist office, and earning outsized returns for shareholders (16% annualized returns for the last 20 years – far above Berkshire Hathaway’s 10%).

 

The other is General Electric (no. 11 on the list), which hasn’t been as kind to shareholders, but over the last five years has made some farsighted investments that have put it at the leading edge of the “Industrial Internet.” The company is hoping its new Predix software will become the platform for digitizing the world’s heavy industries.

 

You can read the story this morning, here. And you’ll find more news below.

 

Alan Murray
@alansmurray
alan.murray@fortune.com

Top News

House passes bill to help Puerto Rico

The House of Representatives passed a bill to help Puerto Rico restructure its massive, $70 billion debt load and hopefully avoid defaulting on any more of its debt payments. The bill established a seven-person advisory board that will be in charge of negotiating with the island’s creditors, who lobbied hard against any kind of federal intervention out of fear the island would not pay its full debt. The bill, which passed 297-127, was strongly pushed by House Speaker Paul Ryan, R-Wis., and does not include any direct financial assistance. The bill now moves to the Senate, where leaders have said they want to find a solution before Puerto Rico’s next big payment comes due on July 1. USA Today

Twitter forces millions to reset user passwords

Twitter has locked some of the social media company’s users’ accounts in the wake of the apparent theft of over 32 million accounts’ login credentials. It is still not clear where the credentials came from and Twitter insists its systems were not breached. While the source of the data that was harvested still isn’t determined, Twitter reacted by requiring the owners of some accounts to reset their passwords. The data showed up on a shadowy site this week, at the same time as hackers tried to offer it for sale. It isn’t yet clear if those hackers were themselves responsible for stealing or compiling it. Fortune

Disney CEO laments U.S. tax system

Disney’s CEO Bob Iger has made it clear he’s not a fan of the way U.S. taxes are set up. In an interview with CNNMoney, Iger said corporate tax rates are too high and are “anti-competitive.” He went on to add they are ridiculously complex. “It doesn’t mean that a company shouldn’t pay taxes, but I think the structure is off…the tax base should be lowered, and the loopholes should be closed,” Iger said in the interview. Corporate taxes have been a focal point of the 2016 presidential election, with Democratic presidential candidate Bernie Sanders attacking businesses for using loopholes to pay less of them. Sanders has complained about Disney in recent months, saying the company exploits its workers, a charge Iger has denied by defending the entertainment giant as “positive for the United States and for the world.” Fortune

Tesla denies Model S defect

Tesla Motors issued a lengthy rebuttal to reports the U.S. is probing a potential safety defect involving Model S sedan suspensions, and said it hasn’t discouraged customers from reporting issues to regulators. “There is no safety defect with the suspensions in either the Model S or Model X,” the company said in a blog post on Thursday. However, the National Highway Traffic Safety Administration this week said it was looking into a potential suspension issue with the vehicle, with the agency confirming it was seeking additional information from Tesla and from vehicle owners. Bloomberg

Donald Trump’s unpaid bills

The nation’s two largest newspapers – USA Today and The Wall Street Journal – each deeply reported stories that look at Republican presumptive presidential nominee Donald Trump’s purported long stream of unpaid bill with suppliers that worked with Trump and the businesses he owns. USA Today reports Trump has been involved in more than 3,500 lawsuits over the past three decades. And at least 60 lawsuits, as well as hundreds of liens, judgments and other government filings, accused Trump and his businesses of failing to pay them for their work. WSJ, meanwhile, reports Trump has said he likes to hold back and “negotiate when people don’t do good work.” That publication added that that while payment disputes aren’t unusual in the tough construction industry, Trump’s withholding of payments appeared to be particularly aggressive. The Wall Street Journal (subscription required)



Around the Water Cooler

Wall Street has an ‘Obesity’ fund

One investor, Janus Capital Group, launched four new exchange-traded funds filled with weight-loss and health-related stocks. There is the Obesity ETF, which comes with the tagline “Invest in the Battle Against Obesity” and the ticker symbol “SLIM.” There is also a Health and Fitness ETF with the ticker “FITS” and a motto imploring investors to “Invest in our Passion for Fitness.” Shareholders of all sizes are welcome of course but it is important to note that ETFs aren’t actively managed – meaning even Janus itself won’t be busy trading the stocks in the fund. The top holding in the Obesity ETF is Novo Nordisk, a Danish firm that specializes in treatments for diabetes, while Nike leads the Health and Fitness ETF. Fortune

Instagram is beating Twitter in ad battle

Advertising agencies are turning to Instagram more frequently than Twitter for social media ad campaigns for the first time, according to a new survey, further indicating the weakness in an ad sales operation that had been one of the few bright spots for Twitter. The survey came the same week Twitter said its head of product, who took over the team in September, was leaving. While Twitter rejected the survey’s findings and touted its close relationships with advertisers, the company’s first-quarter results missed expectations due to weaker-than-expected spending by big advertisers and it issued a weak revenue forecast. Reuters

Money transmitters face headwinds

Banks are refusing to do business with money transmitters, closing or freezing their accounts over concerns about money laundering and extra regulatory scrutiny, The New York Times reports. The affected businesses includes small mom-and-pop convenience stores and also potentially limits options for millions of people living in the United States who want to send money home or forcing them to send cash, which can be risky. It is also problematic for the millions of Americans – over one-quarter of households – that rely on nonbank financial institutions for everyday banking needs. Large banks, meanwhile, are walking away from the business completely. Bank of America and JPMorgan Chase have both closed their remittance services in recent years. New York Times (subscription required)

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