CEO Daily: The Best in Business Reading

Oct 23, 2016

Good morning.

Sometimes, you just need a little home-cooking. Having (I hope) established some bona fides in the past few weeks by emphasizing the work of other publications, I want to start this week’s edition by calling your attention to two excellent Fortune features before spotlighting some other superb work.

1. The Return of Steve Cohen

Jen Wieczner’s profile of Steve Cohen ("Inside Billionaire Steve Cohen’s Comeback"), the hedge fund trader who is famous or infamous, depending on your point of view, is a must read. Cohen made his bones at a fund he named after his initials, SAC. He was a notoriously demanding and successful trader and boss—so successful that customers were willing to pay 3% fees and give up 50% of the investment gain for the privilege of letting him invest their money. As Wieczner’s article points out, Cohen was dogged for years by suspicions—were they mere jealousy or a reasonable reading of the evidence?—that his stellar returns were, let’s say, assisted by information not available to the average investor. Cohen always denied wrongdoing, but his firm ultimately pleaded guilty to criminal insider-trading charges in 2013 and agreed to close down. Cohen himself, a bogeyman for a succession of ambitious prosecutors, never faced criminal claims. The article describes a very favorable civil settlement with the Securities & Exchange Commission. It barred Cohen from managing investors’ money (but let him keep overseeing it for himself, his family, and his employees) only till 2018, when he can resume. Cohen is cagey as to whether he will actually do that, but it’s hard to imagine he’ll be able to stop himself. This is a man who brings five computer screens with him to trade when he goes on vacation, and even when he’s on a yacht in a different time zone, buries himself below decks during the stock market’s trading hours.

I was particularly struck by one moment in the story, and let me note here that Wieczner interviewed Cohen while he was flanked by two public relations operatives and his general counsel. Interviewees, as is their right, often try to control a conversation, and outnumbering the questioner four to one is a power move, the interview equivalent of a boss situating his desk and chair on a raised platform so that every visitor feels small by comparison. Cohen and his team were clearly trying to convey the impression that he is relaxed, at peace with himself, and has left his legal problems in the distant past. (You should check out the story just to see the photos of Cohen kicking back at his Connecticut mansion.) Despite all that, revealing moments can occur. For my money, that moment comes in Cohen’s quote below that he’s “not trying to prove anything.” Sometimes, through the alchemy of rhetoric and context, a comment ends up conveying the exact opposite of the actual words:

“Graze the memory of 2013, though, and Cohen’s merry expression morphs to stone. It’s a period he doesn’t like to talk about, a year that in recollection remains dark, painful, and full of shame, one that his friends and associates think he would do better to forget. To truly redeem himself, he’ll have to demonstrate unwavering adherence to the law—and show that he can still post industry-topping returns while under that microscope. That’s the only way people will believe that he earned his billions honestly and trust him with their money again. 'I think he wants to correct the record,' says a former portfolio manager at SAC. While many of his associates believe that theory, Cohen rejects it. 'I’m not trying to prove anything, okay?' he says, his face grave as a cement slab. 'I just don’t want to ever go through, nor do I want my employees to go through, what we went through a few years ago.'”

2. Untangling Red Tape

If there’s anything all businesspeople can agree on, it’s that business is ever more choked by a tangle of rules and regulations. It’s a statement so obvious and unassailable that…the truth must be more complicated. That’s what Fortune’s Brian O’Keefe reveals in rich and fascinating detail in “The Red Tape Conundrum.” You’ll learn the origins of the phrase (“red ribbons… were used to bind up important legal documents” in England hundreds of years ago), but also finds an insightful working definition of the phrase: “rules, regulations, and procedures that have a compliance burden but do not achieve the functional objective of the rule,” according to one expert O’Keefe cites. Still, red tape is an I-know-it-when-I-see-it problem that turns out to be tricky to pin down. “I would say that our sluggish growth is partly connected with regulation,” says one scholar in the article. “But it’s hard for me to put a number on it. And God knows I’ve tried.”

O’Keefe establishes unequivocally that the quantity of regulations is on the rise (Dodd-Frank and Obamacare are particular culprits) and the article offers a series of sidebars showing the way regulations can constrict even the simplest operation (check out this item on what it takes to open a taco truck in New York City) along with an entertaining and informative history of U.S. red tape all the way back to the Constitution

But O’Keefe also explores the many paradoxes here, many of which will make you understand why we are likely never to be rid of voluminous and demanding rules. For starters, as he notes (quoting a book from the 1970s, one of many reminders that this problem has been endemic), “one person’s red tape may be another’s treasured procedural safeguard.” The article shows how able companies—particularly the large ones—are at adapting to regulations, transforming an obstacle into a competitive advantage. More often than not, he points out, what corporations object to isn’t regulation per se, it’s new regulation. That’s part of what makes the rules so difficult to kill. “Once you get a benefit, you pay a lobbyist to keep that benefit,” says one of the experts O’Keefe quotes. “That’s why it’s so hard to simplify anything.”

The stultifying length and complexity of laws and regulations? O’Keefe has a fresh take on that, too. He quotes a Senate staffer who worked on the Dodd-Frank legislation and describes how the Volker Rule against proprietary trading by banks grew from a few pages to 950: “Now, why is that?” the staffer asks. “Primarily because of the financial industry. The industry lobbied over and over and over again for this exception, that exception, this clarification, this interpretation, this permitted activity. Almost all of the length in these rules are demanded by the industry—and then they complain about the length and complexity of the rule.”

A New Global Drug Scourge

For years, the United States has been grappling with an epidemic of addiction to opioids (painkillers like OxyContin, which mimic the chemical structure of heroin), which, since OxyContin was reformulated to make it harder to abuse, has seemingly morphed into a crisis of heroin addiction. In “Tramadol: The Opioid Crisis for the Rest of the World,” the Wall Street Journal explores how another synthetic heroin-like painkiller is ravaging lives in large swaths of the planet.

Like the generic molecule that became OxyContin, tramadol sprang to life in a German lab. In the case of tramadol, writer Justin Scheck provides this chilling detail about the person who tested it: “a former Waffen SS official who conducted nutrition experiments that killed prisoners during World War II.” As with OxyContin, tramadol was deemed unlikely to be addictive—until it became clear in the real world that it very much is addictive. To compound the problem, the key international regulatory agency “doesn’t regulate tramadol, initially the result of long-ago assumptions that the drug isn’t prone to abuse,” according to Scheck.

Here’s how he describes the drug’s global effects: “Fueled by cut-rate Indian exports and inaction by world narcotics regulators, tramadol dependency extends across Africa, the Middle East and into parts of Asia and Eastern Europe. Tramadol is abused in Guangzhou, Chinese researchers found. The Egyptian government is waging a crackdown within communities including Cairo’s cabdrivers. Saudi officials in May confiscated several thousand pills smuggled in a shipment of frozen meat—one of dozens of busts around the Persian Gulf. A documentary by Pittsburgh filmmakers last year showed tramadol abuse among street children in Ukraine. It is also hitting the developed world. In the U.S., which is already struggling with addiction to the synthetic narcotic fentanyl, the federal Substance Abuse and Mental Health Services Administration last year reported emergency-room visits related to tramadol misuse more than tripled in 2011 from 2005, to 21,649. In Northern Ireland, tramadol is killing more people than heroin.”

It’s a deeply reported article, with Wall Street Journal reporters fanning out to Frankfurt, Germany; Madras, India; and Yaoundé, Cameroon. And both the writing and photography are disturbingly evocative: “Tramadol that goes from India to Benin makes its way to places like Garoua, a smoky city in northern Cameroon where vultures circle over the edge of town. Men in caftans buy boxes labeled ‘Super Royal X-225’ from curbside vendors for a few cents a pill. The potent red tablets are known as ‘tomates’ because the little red apples printed on their boxes remind locals of tomatoes. Coffee sellers with outdoor stands will empty a couple of tramadol capsules into a customer’s Nescafé for 10 cents.”

Speaking of Nescafé, the Wall Street Journal also has a feature on coffee-growing in strife-torn Congo, where some five million people have died in recent decades in calamities and crimes linked to an ongoing civil war and broader turmoil: “The many challenges of doing business in Congo include death threats, kidnapping and extortion. Government officials often concoct new taxes on the spot or forge documents to demand more money than what is owed. Last year, at least 175 foreigners and Congolese, many working for aid organizations, were abducted and held for ransom, according to Human Rights Watch.” This article doesn’t pack the wallop of the tramadol story, but it’s worth checking out for its vivid photography and the story behind your cup of joe at Starbucks or Blue Bottle (two chains that are buying Congolese beans).

If "Chinatown" Were A Magazine Article About LA Start-ups...

You’re not likely to read many articles like “Silicon Is Just Sand,” by Stephen Elliott, in a publication called Epic Magazine. I thank my colleague Erin Griffith for bringing it to my attention. The article is subtitled “Money, murder, and sadomasochism: A journey into the hidden world of the Los Angeles tech boom.” That may sound like an oxymoron, but it turns out to be a good description of the article. Lyrical, at times almost hallucinatory, elliptical yet evocative, it opens with a murder on the boardwalk in Venice, Calif., involving a Sri Lankan immigrant property-owner, a local gangbanger, and a homeless person, not far from where Google, Hulu, Snapchat and other tech companies now have outposts. But that’s only a small part of the story. Elliott presents an overlapping series of portraits with, say, a YouTube entrepreneur alternating with a local dominatrix, to present a picture of American capitalism as it’s refracted through the lens of one particular corner of greater Los Angeles. He captures the grandiose ambitions of what Venice was supposed to be (a canal-filled American equivalent of the great Italian city), the artistic creativity it inspired, the tawdry reality it succumbed to…and now its startup-fueled gentrification (complete with a class conflict centered on a culture, and a climate, that welcomed the homeless).

Here’s one passage that gives a flavor of Elliott’s approach: “The water is much colder than when I first arrived and shocks me awake. I dive in, thinking of dead poets, third-round funding, seed funding, pre-seed funding, series A—and emerge into the soft haze of a mild and cloudy day, 30, 40 feet from shore.” If this passage doesn’t appeal to you, stop right here. The article is extremely lengthy, Elliott inserts himself repeatedly, and he’s almost more of a short-story writer here, cross-cutting impressions. But if you have the time and disposition to luxuriate in his writing, it's wonderful.

Here’s a longer section that captures more of what he’s doing (as well as some of his droll humor). In this instance, Elliott is focusing on a start-up entrepreneur, Meredith Perry, whose company, uBeam, is trying to create a device that will make electricity wireless. “‘Los Angeles is a city of entrepreneurs,’ Meredith says. ‘Here you form a production company and you pitch your movie to a producer and that’s your project. There’s a lot of entrepreneurial DNA in this town. It’s an inspiring place to be.’ She’s 26 years old and she’s lived here a year and now she’s explaining the city’s sociology to me. People say she’s a genius, but what does that even mean? I was at a party at Sundance once with James Franco’s manager and his wife. His wife introduced me to someone as a genius. Then she introduced me to 10 more filmmakers and writers, all geniuses as well. If there is one place where being a genius means nothing, it’s Los Angeles.

“Meredith takes me for a tour of the office. For a hot company with tons of funding, it’s surprisingly underpopulated. In the hallway there are a handful of employees tapping on laptops at a long table, but most of the rooms are empty. She gives me a tour of workshops full of hardware, but there are no engineers. She shows me the progressions of prototypes, with tiny silver caps inside. These are the new, smaller ultrasonic transducers, less like bullets and more like flat birdshot. In the largest workshop, back near the entrance, we stand around the workbench, just me, Meredith, and the publicist.

“A couple of weeks after talking to Meredith I get a call from one of her publicists.

“‘Meredith has been getting a lot of bad press recently, and we don’t think she should be in your article at this time,’ she tells me.

“ ‘It’s too late,’ I tell her. ‘Anyway, I think Meredith is a genius.’

“ A few days later another one of Meredith’s publicists calls me.

“ ‘You misled us!’ She’s practically screaming. ‘You said you were writing about Silicon Beach, but I found out you interviewed Mona [an eccentric trans-ish Venice landlord]. Mona has nothing to do with technology.’ The publicist says Meredith is being compared to another young female entrepreneur named Elizabeth Holmes, and it’s not fair. I’m baffled because I have no idea who Elizabeth Holmes is.”

Looking For The Truth At 20,000 Feet

Have you ever read about the mummified corpses of Incan sacrifices who were buried under permafrost in the high Andes for half a millennium, only to be discovered in recent years by scientists as the glaciers melt? Outside has a compelling adventure yarn that reminded me of that phenomenon (and a hat tip to the LongForm website, which featured the article). Entitled “Whatever Happened To Eastern Airlines Flight 980?” it has only a tenuous connection to business. It’s about a plane crash in 1985—a jet flown by since-defunct Eastern Airlines—that occurred at such altitude (nearly 20,000 feet) in the Bolivian Andes that the crash site was highly inaccessible and, as a result, was barely investigated at the time. Or at least, that’s one theory, since more conspiratorial ones have been circling for decades (including one about a wealthy Paraguayan family that may or may not have been smuggling alligator skins to Miami).

Thirty-one years after the crash, an American in search of an adrenalin-charging escapade—he’s an Iraq war veteran who now works for an Internet company—decides that he and a buddy are going to hike up at least 16,000 feet and see if they can unravel the mystery and, among other things, discover the plane’s black boxes. They decide to take along a reporter from Outside—I won’t spoil the surprise by telling you what they find—but the result is wonderful storytelling.

Nicholas Varchaver
@nickvarchaver
nicholas_varchaver@fortune.com

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