Skip to Content

CEO Daily: Thursday, March 17

Good morning, Daily readers. Alan Murray is off on vacation. Deputy Editor Clifton Leaf is filling in this week.

When the Supreme Court begins its next sitting on Monday, March 21, justices will hear oral arguments in the matter of RJR Nabisco v. European Community (or European Union, as it is now). The case goes back to 2002, when the E.U. and 26 of its member states sued cigarette-maker R.J. Reynolds (once part of RJR Nabisco, which no longer exists), alleging that it “orchestrated a global money-laundering scheme,” involving Colombian and Russian organized crime syndicates, drug-running, and an elaborate enterprise to use the laundered proceeds to buy cigarettes. (Reynolds has called the lawsuit baseless.)

The plotline, as the E.U. pitches it, is at the very least TV-movie quality. But the question for the Court is, as one might guess, more PBS than TNT: whether or not a U.S. statute (the Racketeer Influenced and Corrupt Organizations, or “RICO,” Act) applies extraterritorially—and if so, to what extent.

The case is one of several the High Court is slated to hear in the coming months (or in the next term) that could have a significant impact on global business. The docket of potentially doctrinal questions concerns everything from debt restructuring to collective bargaining to class-action litigation. And as of now, those meaty matters will be decided by a Court that’s one robe shy of a full closet.

Which brings me to Merrick Garland, the man President Obama nominated yesterday to fill the seat left vacant by the death of Antonin Scalia. My learned colleague Roger Parloff, who wrote this terrific post on Garland on Fortune.com, points out that “he is an impeccably credentialed, enormously respected, very moderate, slightly left-of-center judge with remarkably extensive experience as an appeals judge—19 years.” Garland, a former prosecutor and corporate lawyer, is meticulous, measured, and not given to sweeping statements—so most experts that Roger spoke with were not comfortable making broad statements about how he might rule on business-related cases. But Senator Orrin Hatch—the conservative Republican and former Senate Judiciary Committee Chairman—was strongly supportive of Garland in a past confirmation hearing, calling him a “consensus” nominee who would easily be approved, “no question.”

The Republican leadership of the Senate has made it clear they won’t hold confirmation hearings on the President’s nominee—or even meet with him. That may not be the wisest choice—or one that’s likely to meet with much approval from corporate leaders. Given the Court’s current four-four split, the Senate’s hard-nosed stance could leave critical business issues in an awkward limbo for a long, long while.

More news below.

Clifton Leaf
@CliftonLeaf
clifton.leaf@fortune.com

Top News

Fed pares back rate hike plans

The Federal Reserve has once again pared its plans for raising interest rates, citing the weakness of the global economy as a reason for greater caution about the prospects for domestic growth. The fed’s policy-making committee voted not to raise the benchmark rate at a meeting that ended on Wednesday, although general expectations at the beginning of the year were for an increase this month. Fed Chair Janet Yellen said the central bank remained relatively optimistic about the domestic economy, which she said wasn’t showing signs of damage from the wobbles of financial markets or weak global growth. The New York Times (subscription required)

GlaxoSmithKline CEO to retire

GlaxoSmithKline said Chief Executive Andrew Witty will retire in 12 months’ time, after leading the group since 2008, prompting Britain’s biggest drugmaker to start a formal search for his successor. Witty has been under fire from some investors in the past three years as sales and profits have flagged. His reputation was also hurt by a damaging bribery scandal in China. His departure, planned for the end of March 2017, comes at a time of uncertainty over the direction of GSK and investors may fear a period of limbo before a new CEO comes on board. Reuters

Rio Tinto names new CEO

Rio Tinto said its chief executive, Sam Walsh, would retire in July and be succeeded by the mining giant’s head of copper and coal Jean-Sébastien Jacques, in a sign the company could be emerging from years of hunkering down amid the global commodities slump. The Wall Street Journal reports that Walsh’s decision to retire after three years of running Rio Tinto is a surprise, as he had been credited with cutting costs and wisely focusing on iron ore. Mr. Walsh “leaves Rio Tinto as a much stronger company, with a bright future,” Chairman Jan du Plessis said in a statement, pointing to more than $13 billion of shareholder returns made under his leadership. The Wall Street Journal (subscription required)

Lufthansa hurt by competition

Shares in Germany’s biggest airline group Deutsche Lufthansa plummeted Thursday after the company said that a wave of strikes and low-cost competition hurt it even more than analysts had thought. The company missed analysts’ expectations for full-year profit by more than 10%, and said it only expected a small increase in profits this year despite enjoying the lowest fuel prices in over a decade and strong global demand for air travel. The threat from low-cost rivals such as Ryanair and Easyjet means that Lufthansa is having to move more and more of its business to its own in-house low-cost brand Eurowings. Fortune

McKesson plans big job cuts

U.S. drug distributor McKesson said it will cut 1,600 jobs, or about 4% of its U.S. workforce, to slash costs after the company lost some key customers. The move comes after McKesson in January said it would review its cost structure and decided that “reductions to our workforce would be necessary to align our cost structure with our business needs.” The company said it started informing workers about the lay-offs in mid-March. Reuters

Around the Water Cooler

Investors shrug off Alibaba fraud allegations

Alibaba’s investors appear to be getting used to the enormous amount of fraud on its biggest platform. That’s the takeaway from the reaction to a report earlier this week from China’s state-run broadcaster CCTV, which ran a critical investigation of sales fraud on Taobao, the eBay-like selling bazaar with 8 million-plus sellers, in the form of fake transactions boosting store rankings. But the stock price was hardly affected, in fact it ended higher on Wednesday following the report. That is a reversal from when a 2014 report detailed the fake goods hosted on Alibaba’s sites – news that led shares to shed $30 billion in value. Fortune

Coke determined to sell designer milk

Entering the milk aisle with the pricy Fairlife brand (which is of course high-protein, low sugar and lactose-free) is only the latest attempt by the beverage giant to offset declining soda consumption with healthier products. “We look at milk, honestly, as one of nature’s superfoods,” says Melanie Kahn, vice president for marketing at Fairlife. Early results are somewhat encouraging – Fairlife’s sales hit $90 million after the first year on shelves, and Bloomberg reports specialty milk sales jumped 21% last year, up from 9% growth in 2014, largely due to the launch of Fairlife. Can it turn into a billion-dollar brand blockbuster? The jury is still out on that. Bloomberg

Apple’s iCloud may be drifting to Google

A report has speculated that Apple may be moving a chunk of its iCloud business – where users store photos and documents – to Google’s cloud, lessening its dependence on Amazon Web Services. If true, it would be a big boost for the Google Cloud Platform at a time when it is trying to position itself as one of the three public cloud providers along with market leader Amazon Web Services and Microsoft Azure. In the public cloud model, one company buys and operates huge amounts of computer power, storage and networking bandwidth that it rents out to businesses that do not want to build more of their own infrastructure. Fortune

Nike’s new shoe ties itself

Nike’s got a plan to make it that much easier to put on shoes before setting out for that run: laces that automatically tighten. This futuristic feature was one of many product design innovations that the world’s largest athletic-gear maker unveiled at a swanky press event in Manhattan on Wednesday. The shoe, called the HyperAdapt 1.0, has adaptive lacing that constricts within seconds of putting your feet in the shoe. In the future, Nike’s designers says the shoe will adjust automatically as an athlete is out on a run. Nike points out that while out for a run, an athlete’s feet naturally swell. This technology could make a run all that more comfortable. Fortune