CEO Daily: Wednesday, 10th May
I began yesterday at the annual conference of the Shared Value Initiative, started by Harvard Professor Michael Porter and his colleague Mark Kramer to help companies find business opportunities in addressing social problems. Nestlé CEO Paul Bulcke was there, and addressed the issue raised in yesterday’s CEO Daily: how to reconcile the conflicting models of capitalism represented by Brazilian private equity firm 3G, which focuses on relentless cost-cutting, and Paul Polman’s Unilever, which puts “sustainability” at its core.
Bulcke clearly leans toward the Unilever model, and said it ultimately comes down to timeframe. “You can only create shareholder value over time if you connect positively with society.” While he didn’t criticize 3G directly, he said a strategy of drastic cost cuts may boost profits in the short term but endanger a company’s survival over the long term. Porter argued companies can’t trade the short term against the long term: “You have to pay attention to both…all the time.”
Later, I visited WeWork CEO Adam Neumann at his Manhattan headquarters, and heard a similar message about putting “passion and purpose”—as well as “people and product”—before profit. WeWork rents out office space to a new generation of businesses, and has convinced investors that it has more in common with tech companies than real estate companies—with a valuation of $17 billion in its latest fundraising. Neumann insists WeWork is neither tech nor real estate, but rather a “community business.” He believes its valuation is fully justified, saying “all our numbers are higher than Snap.”
I’ll let the markets sort that out. But Neumann, who was unfamiliar with the Shared Value Initiative, made an interesting argument during our conversation. He said Bill Gates might have had more influence in the world if he had used Microsoft’s market power to address social problems, rather than creating a separate philanthropy to do the same. He praised current Microsoft CEO Satya Nadella for being a different breed of CEO—“mission driven, purpose driven…he wants to make a difference.”
It’s no coincidence these kinds of conversations are becoming more common in today’s business world. As I’ve pointed out here before, an increasing number of leaders—young and old—are looking to reinvent or reinvigorate capitalism, and to rebuild public trust in business. That’s why at Fortune we are preparing for year three of our Change the World list, which highlights companies that have made measurable progress in addressing social problems. (Last year’s list included both Nestlé and Unilever). It’s also why we, in conjunction with Time, are launching The CEO Initiative to help highlight and encourage best practices in this area.
From the email messages that came in after yesterday’s post, many CEO Daily readers agree. I’ll share some of those messages later this week.
More news below, including the extraordinary firing of FBI chief James Comey.
• You’re Hired. No, Wait, I Mean Fired.
President Donald Trump fired FBI director James Comey, telling him in a letter that he had lost public trust and was “not able to effectively lead” the Bureau. Trump said he acted on a recommendation from Attorney General Jeff Sessions and his deputy Rod Rosenstein. They alleged that Comey, an Obama-era appointee whom Trump had initially appeared inclined to keep on, had mishandled the investigation into Hillary Clinton’s use of a private e-mail server. Democrats suspected Trump of trying to shut down the FBI’s current investigation into his campaign’s links with Russia last year. Senate Minority leader Chuck Schumer called for an independent special prosecutor to take over that investigation. Fortune
• Verizon Dials Down M&A Talk
Verizon CEO Lowell McAdam walked back some of his previous comments hinting at an acquisition spree to transform the company into a digital media powerhouse. “We don’t feel the urgency [to make deals] that seems to be out there in the analyst community, the banking community, and the media,” McAdam told investors. Speculation over a tie-up with Comcast or one of its rivals had mounted in recent months, but Comcast and Charter last week agreed not to make alliances with mobile carriers without the other’s permission, complicating any approach by Verizon. McAdam didn’t comment on a reported bidding war between Verizon and AT&T for Straight Path Communications, which owns some wireless frequencies that could be extremely valuable in rolling out 5G networks. Fortune
• Moon’s Shot for Peace on the Peninsula
Moon Jae-in, of the liberal-leaning Democratic Party, was elected President of South Korea in a landslide victory, riding on a wave of public outrage against the excessively pro-business (or at least, pro-her-own-business) President Park Geun-hye. The son of refugees from North Korea, Moon immediately offered an olive branch to the North, offering to visit the country to help improve ties. That’s a sharp contrast from the escalation of tensions over the North’s nuclear and ballistic missile programs in recent months. The benchmark KOSPI stock index, which hit record highs in anticipation of Moon’s victory, gave up 1% of its gains. Time
• Gloom at Toyota, Pressure at Ford
Toyota Motor said it expects profit to fall by 18% in the fiscal year that started in April, after an almost-as-dismal fiscal 2017. It blamed the slowing U.S. market, a slightly stronger yen, and high investment budgets for autonomous driving and alternative fuel vehicles. Its shares, already down 12% this year, fell another 0.7%. The fall was softened by news of a 250 billion yen share buyback. Meanwhile, The Wall Street Journal reported that Ford Motor’s board is pressing CEO Mark Fields to “sharpen his strategy.” Ford shares hit a 20-month low earlier in May. Reuters
Around the Water Cooler
• Neither Beastly nor Beautiful
Disney narrowly missed Wall Street estimates for the first quarter, despite a strong contribution from Beauty and the Beast and from its theme park business that drove earnings per share up 15% from a year earlier. CEO Bob Iger was at pains to play down the risks to its long-time cash cow ESPN, saying that the streaming services which many see as the biggest long-term threat to it had all sought partnerships with it. The market pushed company’s shares down 2.1%, not entirely convinced by Iger’s assurances. Fortune
• Qantas CEO Takes One for Team Tolerance
Qantas CEO Alan Joyce suffered the indignity of a pie in the face from a protester upset by his support for gay marriage, an issue that is still far from settled in socially-conservative Australia. Joyce and over 30 other Aussie CEOs earlier this year petitioned Prime Minister Malcolm Turnbull to introduce legislation on same-sex unions, an initiative that the 67 year-old pie-thrower considered “subverting the federal parliamentary process.” Joyce said he wouldn’t change his belief that CEOs need to speak up on economic and social issues. The pie was a lemon meringue, for those who are interested. Bloomberg
• Only Hope Remains in Pandora’s Box
Pandora Media, one of the earliest music startups to make it big, said it was exploring “strategic alternatives” after failing to stop a steep (75%) decline in its share price over the last three years. Its latest attempt to reinvent itself as a streaming service hasn’t stemmed losses, which will probably total over half a billion losses in the 18 months to June. It also said it had issued $150 million in preferred shares to hedge fund KKR which, like 9.9% shareholder Keith Meister, will likely be interested in finding a quick buyer. Fortune
• Valeant Revives
Shares in Valeant rose 24% after the Canadian drug company swung to a $628 million profit in the first quarter, helped by a one-off income tax benefit of $908 million related to a restructuring. The company is on track to meet its target of cutting debt by $5 billion by 2018, according to CEO Joe Papa. It also nudged its forecast for basic operating earnings this year a fraction higher, suggesting that its residual business is at least stable. Fortune
Summaries by Geoffrey Smith; firstname.lastname@example.org @geoffreytsmith