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Power Sheet – April 12, 2016

Today’s theme is how allies can be at each other’s throats when times get tough:

-The board of Valeant Pharmaceuticals yesterday “requested” that CEO J. Michael Pearson cooperate with the U.S. Senate Committee on Aging, which has subpoenaed him for a deposition in advance of a scheduled April 27 hearing. But he didn’t show up for the deposition last week. This is all exceedingly strange in at least a couple of ways. First, since when do boards of directors “request” that the CEO, whom they hire and fire, cooperate with government investigators? And second, since when do boards put this request in writing and send it out to the world via PR Newswire?

The explanation, of course, is that Valeant is in desperate trouble, and that fact changes everything. Less than a year ago Valeant was flying high, its stock rocketing to new records seemingly every week. Even a few months ago, when the wheels were threatening to come off, the board staunchly supported Pearson. But now Valeant stands accused of jacking up prices of life-saving drugs, Shkreli-like; that’s what caught the Senate committee’s eye. It has admitted to cooking the books. The stock is down 84%. Pearson has agreed to leave as soon as the board can find a replacement. Activist investor Bill Ackman is inside the gates and on the board. So now it’s everyone for himself or herself. Leadership evaporates in that environment, and it’s hard to see how things get better anytime soon.

-Halfway around the world in a starkly different industry we see a similar phenomenon of frazzled cooperation. OPEC – remember them? – will meet in Doha, Qatar, this weekend to talk about freezing oil output in an effort to prevent prices falling from their current $40 or so back to the $27 level of a few months ago. Talking, and maybe yelling, is probably all they’ll do. OPEC is a cartel, which means its success depends entirely on the voluntary cooperation of members. But with oil prices down dramatically from less than a year ago, several members are feeling stressed and have already made clear that they’re in no mood to cooperate with anybody.

The problem is that when a cartel is operating, even in the best of times, every member faces a powerful incentive to cheat. The cartel works only if all members restrict production in order to force the price up; but each member realizes that if it can surreptitiously raise production, it can sell more at the propped-up price without producing so much that the market price falls. When the cartel works, members resist the urge to cheat. But cartels almost always fail eventually, and in this case it will apparently fail without even going through the charade of an agreement. Iran, which was only recently allowed back into the global oil market, and Libya, which is in chaos, need every dollar of oil revenue they can get; they won’t restrict output and trust the honesty of other OPEC members. Times are tough. It’s everyone for themselves. So it’s virtually certain no agreement will come out of Doha, or at least no meaningful one.

Sometimes the value of leadership is most apparent when structural factors prevent any leader from stepping up.

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What We’re Reading Today

While Viacom tries to sell Paramount, Redstone says ‘No’

Viacom CEO Philippe Dauman thought he heard Sumner Redstone say ‘yes’ in February to Dauman’s proposal to sell a minority stake in Paramount Pictures. Redstone, 92, reportedly didn’t oppose a potential sale at a February board meeting. But Redstone has since told Paramount CEO Brad Grey and Dauman that he doesn’t want to sell. Several bidders are reportedly interested in a minority stake, and the sale process continues. Fortune

Valeant directors to CEO: Cooperate with the Senate 

The pharmaceutical company has asked outgoing CEO Michael Pearson to work with the Senate Committee on Aging in its investigation of Valeant’s drug pricing. Through his lawyer, Pearson said he would participate in an open hearing on April 27 to discuss Valeant’s former practice of buying niche drugs and multiplying the prices. The response comes after Sens. Susan Collins and Claire McCaskill threatened to hold Pearson in contempt for failing to show up for a deposition last week. WSJ

Trump turns attacks onto Republican elites 

Calling the delegate-selection system rigged, Donald Trump said the Republican National Committee will have a problem if it doesn’t recognize him as the candidate. He argues that he has two million more votes than Ted Cruz so far. Other candidates and PACs are spending millions on negative ads to derail his campaign, and it seems increasingly likely that no candidate will bring a majority of delegates to the national convention. CNN

Verizon workers set strike deadline

More than 36,000 East Coast workers say they will strike tomorrow if no new contract is agreed to. The union for workers in Verizon’s landline business say they’ve been negotiating for eight months with Lowell McAdam‘s company. Verizon officials said customers would not experience any service disruption in the event of a strike. NYT

Building a Better Leader

In order to cut people off in meetings… 

…set up a word beforehand to indicate that you don’t want to go down that path right now. “Jellyfish” is a strong safe word. Harvard Business Review

In order to improve your networking skills, relate to the person… 

…not the title. Once you have an understanding of who the person is, then you can add value. Fortune

Airlines fear long waits for passengers this summer

And they blame TSA. Chicago Tribune

Worth Considering

Brazilian committee votes to impeach the President 

The congressional committee’s vote of 38 to 27 means President Dilma Rousseff‘s impeachment proceedings will move to the legislature’s lower house, which will likely vote on impeaching Rousseff this weekend. If she loses the vote by a two-thirds majority, she would then face two votes in the Senate before being impeached. The Guardian

Takata turns to others for financial aid 

As the company faces the largest recall in vehicle history, it has created a committee  to find funding. Takata faces billions in fines and charges associated with fixing 50 million airbags worldwide. CEO Shigehisa Takada has been publicly invisible during the recall; his company’s faulty airbags are blamed for 11 deaths. Fortune

Tesla recalls some Model X 

The company is recalling the 2,700 Model X crossovers that were produced before March 26th because the third-row seats could fold over in a crash. Elon Musk‘s company says it’s a manufacturing defect, not a design one, and no one has been injured because of the problem. It’s the first recall of the Model X, which is being produced on a small scale so far. The Verge

Up or Out

Overstock CEO Patrick Byrne will take an indefinite leave of absence for health reasons. He will be replaced by Mitch Edwards in the interim. CNNMoney

Fortune Reads and Videos

Alibaba buys top e-commerce company in Southeast Asia

The $1-billion purchase of Lazada is in an effort to control the markets around China. Fortune

Facebook will push chatbots at F8

Businesses will be able to provide automated customer service with a somewhat human touch on Facebook Messenger. Fortune

Ford tested its self-driving cars in complete darkness

The passing grade shows the vehicles may be able to navigate roads that don’t have lights. Fortune

SEC charges Texas AG with fraud  

The allegations involve Ken Paxton‘s investment in a tech startup. Fortune

Quote of the Day

“The system, folks, is rigged. It’s a rigged, disgusting, dirty system…. I say this to the RNC and I say it to the Republican Party. You’re going to have a big problem folks because there are people that don’t like what’s going on.” — Donald Trump at a rally, discussing his anger towards GOP elites that have banded together against him CNN

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Produced by Ryan Derousseau