The British have voted to leave the European Union, pummeling financial markets and setting the stage for months, if not years, of economic uncertainty. British Prime Minister Cameron, who set the drama into motion four years ago by promising a Brexit vote, has resigned. You can read Fortune’s thorough coverage of this earth-shaking event here.
The vote will be analyzed—and likely overanalyzed—in the days ahead, so I want to be careful about what I say here. In part, it reflects political mismanagement by Cameron, who must regret ever calling for a vote in the first place. It is also a wake-up call for Brussels, whose odd mix of incompetence and overreach have fed the “leave” vote.
But there is a bigger message for the readers of this newsletter, even if they do no business in Britain. The post-World War II world was built on a commitment to steadily increasing globalization and a broad sense that the resultant economic tide would lift all boats. That sense has been shattered, and the Brexit vote will empower populists elsewhere, including Donald Trump in the U.S. (who is in Scotland today and called the vote “a great thing”) and Marine Le Pen in France (who called it “the right choice”) as well as nationalists like Vladimir Putin. A toxic soup of factors, including rising inequality, a migration crisis, a persistent hangover from 2008, and a tragic failure of Western governments, all have come together to feed a tidal wave of sentiment that now poses a very serious threat to the global businesses that populate the Fortune 500 and the Fortune Global 500. The system is broken. We need a new compact to restore the trust of people in the global economic order, and business leaders must play a key role in building it.
Some think that disorder in the U.S. and Europe will clear the way for the rise of Chinese business and economic leadership. I still have my doubts, and would urge you—after you’ve finished digesting the Brexit news—to read Scott Cendrowski’s story about how Xiaomi, China’s biggest and once most-promising “unicorn,” is stumbling in its efforts to go global. The story is in the July issue of Fortune magazine, but we are publishing it online this morning.
More news below.
• VW Will Pay $10 Billion to Settle Half-a-Million U.S. Claims
Volkswagen will have to shell out more than $10 billion to settle claims stemming from the German automaker’s high-profile U.S. diesel emission scandal, sources told Reuters on Thursday. VW faced almost 500,000 claims from car owners after the company revealed that software installed in some of its cars’ engines effectively cheated U.S. emissions tests. The automaker, which still faces German probes of former VW executives in relation to the scandal, has been working with U.S. regulators for weeks to reach a settlement that will pay the car owners in questions a reported average of $5,000 in compensation in addition to the value of their vehicles at the time of last fall’s scandal. VW also agreed to put money toward anti-pollution efforts. Reuters
• “Stress” Relief for Big Banks with Fed’s Passing Grade
Wall Street can breathe a sigh of relief after the Federal Reserve put away its red pen and delivered passing grades to all 33 of the banks subjected to its annual stress test. The U.S. central bank decided that every one of the banks—which included Bank of America, Citigroup, and Wells Fargo, among others—is capable of surviving a major economic downturn without the need for government assistance. As Fortune reported, Morgan Stanley seemed to come out at the bottom of the pack, with the largest percentage point drop-off (7.3) in a key ratio of financial health based on the Fed’s hypothetical financial meltdown. JPMorgan Chase also fell behind its rivals by posting the largest hypothetical losses according to the Fed’s test. Fortune
• Viacom CEO Demands “Immediate” Mental Exam for Redstone
Philippe Dauman made the latest parry in the ongoing fight with his longtime mentor, Sumner Redstone, for control of Viacom. In new court filings, lawyers for Dauman, the Viacom CEO and chairman demanded the court require Redstone to immediately submit to a medical evaluation with a neutral doctor in order to determine the 93-year-old billionaire’s mental acuity—an issue that has been the focus of a growing number of court battles involving Redstone’s capacities in recent months. Dauman and fellow board member George Abrams are disputing the fact that Redstone recently removed them both from the trust of National Amusements, which controls 80% of the voting shares in both Viacom and CBS. A hearing in the case will take place at the end of June in Massachusetts. Los Angeles Times
• Uber’s Kalanick Calls Company “Safety Net” for Unemployed
Speaking at the Global Entrepreneurship Summit in Silicon Valley on Thursday, Uber CEO Travis Kalanick said his ride-sharing company can play an important role in propping up the labor market by providing employment opportunities for people in communities with a lack of work options. From the stage of the event, the CEO championed the flexibility that comes with joining Uber’s fleet of independent contractor drivers. Of course, Uber and Kalanick earlier this year settled two class action lawsuits related to the employment status of its drivers, as the company agreed to pay up to $100 million to ensure it can continue classifying its drivers as independent contractors, rather than employees—a distinction that would entitle those drivers to various benefits under labor laws. The CEO’s comments also came a day after a BuzzFeed review of Uber data and documents found that the company’s drivers earn less per hour than Uber has previously said. Fortune
Around the Water Cooler
• U.S. Hopes Business Ties Keep Iran Deal in Place Down the Road
With less than a year left in the Oval Office, and seeking to cement aspects of his legacy, President Barack Obama’s administration is working to make it easier for U.S. companies to make deals with Iran in an effort to slow down any future administrations bent on undoing Obama’s landmark nuclear agreements with that country, according to senior U.S. officials. The effort mirrors similar tactics the administration has used to ensure its policies toward Cuba will also continue forward unhindered once Obama leaves the White House. Those efforts have already been made stronger by Boeing’s recent $17.6 billion deal to sell commercial aircraft to Iran Air, and the administration could reportedly also look to support a bid by Iran to join the World Trade Organization despite opposition throughout the Middle East. The Wall Street Journal (subscription required)
• How Twitter and Facebook Have Democratized Media
The Democrats’ sit-in on the floor of the House of Representatives this week might not have reached the masses without the help of social media platforms Twitter and Facebook, and their live-streaming tools. While the House’s GOP leaders shut off C-SPAN’s cameras, the demonstration was still seen by thousands of people, at least, thanks to Periscope and Facebook Live. Fortune’s Mathew Ingram writes about how the spread of live video and updates has democratized media by putting powerful tools in the hands of people around the world who can hold a mirror up to behavior and events that might have otherwise gone unnoticed by the traditional media or censored by powerful entities. Fortune
• A New Macy’s CEO Needs to Spur Sales Growth
Iconic department store chain Macy’s announced on Thursday that CEO Terry Lundgren will step aside in 2017 after more than three decades with the company. It’s a move that comes as the chain tries to rebound from five straight quarters of sales declines, which means that Lundgren’s planned successor, Macy’s veteran Jeff Gennette, will likely have his work cut out for him when he ascends to the role of chief executive. Speaking with Fortune, Lundgren and Gennette touched on plans for modernizing Macy’s, including bringing more specialty retailers into its stores, while also expanding its exclusive merchandise offerings. Fortune
• “Chucks” Aren’t Quite as Distinctive as Converse Thought
A ruling on Thursday by the U.S. International Trade Commission affirmed the uniqueness of the distinctive diamond-patterned outsoles on Converse’s iconic Chuck Taylor sneakers and barred all other companies from importing knock-off shoes that violated Converse’s trademark on that look. However, the ruling also represented a victory for a group of large retailers—including Walmart—who Converse sued two years ago for selling shoes that it alleged mirrored other aspects of its famous “Chucks,” such as the toe cap and stripes. The ITC ruled that those other aspects do not qualify for the same trade protections as the diamond sole patterns, which should provide those other retailers with some ammunition in their ongoing federal court battle with Converse. The New York Times