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CEO Daily: Wednesday, 27th July

Good morning.


Is becoming President of the United States similar to becoming CEO of big company? That was the topic of a panel I moderated in Philadelphia yesterday, sponsored by the Miller Center, with former Treasury Secretary Robert Rubin, Deputy Labor Secretary Chris Lu, McKinsey’s Vivian Reifberg, and political historian Sidney Milkis.


The group agreed on some key similarities – getting the right team in place quickly, having a clear set of priorities, and clearly and repeatedly communicating goals. But inevitably, the discussion bogged down in the disturbing differences – the inability to get political appointees confirmed by Congress quickly, the barriers to removing poor performing bureaucrats, and the complete breakdown of bipartisan comity in Congress. Whether any leader will have the ability to repair our badly broken political system was a question that remained unanswered.


Later in the day, I visited the convention hall, where Bernie Sanders’ Bitter Enders were staging an assault on the press tent, and Bill Clinton was proving why Hillary was smart to keep him around all these years. You can read Fortune and Time coverage of the convention here and here.


Meanwhile, if you are still struggling to understand why so many Americans, like the Bitter Enders, have grown cynical about corporate leadership, consider the case of Yahoo Chief Marissa Mayer. By most measures, she failed in her task of making Yahoo a media powerhouse. Yet for that honor, she will receive a payday that Fortune’s Steven Gandel calculates was worth over $120 million. Perhaps she was given an impossible task. But I’m not sure why failing at an impossible task merits that kind of compensation.

More news below.


Alan Murray

Top News

Clinton Confirmed as Nominee

Hillary Clinton was confirmed as the first female presidential nominee from either of the U.S.’s two major parties, a moment no less historic for being a nailed-on certainty for the last couple of weeks. Clinton holds a 12-point lead over Donald Trump among female voters, according to one recent poll. After a calamitous start, the Democratic National Convention has managed a passable show of unity in the last 48 hours, with Bernie Sanders doing what Ted Cruz patently failed to do in endorsing his victorious rival, albeit to the noisy dissent of his hard-core supporters. Hillary’s ex-presidential husband Bill did his best to steer against the perception of his wife as the ‘status quo’ candidate in a speech last night, calling her “the best darned change-maker I’ve ever met in my entire life.” Fortune

Apple Reassures

Apple shares rebounded 7% after its second-quarter earnings and subsequent conference call reassured investors, despite confirming an expected slump in sales of its most important product, the iPhone. Net profit fell 27% on the year to $7.8 billion, while revenue fell 15%. That reflects, amongst other things, declining profitability as the lower-margin iPhone SE accounted for a bigger share of sales. However, the company slashed its unsold inventory and also posted the first increase in iPad revenue in over two years, due to sales of higher-priced Pro models. The company’s report also showed research and development spending was up almost $2 billion over the past nine months, mainly due to new projects. Apple has tapped veteran insider Bob Mansfield to run one of those projects, its venture into autonomous and electrically-powered cars. WSJ, subscription required, Fortune

Worry About Deutsche Instead

Deutsche Bank, which according to some estimates is the world’s most “systemically important” financial institution, said its net profit in the second quarter

collapsed to 20 million euros from €818 million a year earlier, as it wrote nearly €300 million off its asset management business, booked €207 million in restructuring charges and added €120 million to its litigation reserves. Weak financial markets and the exit from some previously important bond trading activites pushed revenues down 20% on the year, although they helped the core tier 1 capital ratio inch up to 10.8% from 10.7%. CEO John Cryan warned that further cuts could be necessary unless the economic environment improves—a tall order given the Brexit-related headwinds that most expect. The bank also confirmed it had started talks with the Department of Justice over its mis-selling of mortgage-backed bonds before the financial crisis. Reuters

French Security Flaws Exposed in Rouen Attack

France is again in uproar over the failings of its internal security officials after it emerged that one of the attackers in yesterday’s terrorist attack outside Rouen had been released from prison earlier in the year and was wearing an electronic tag. Evidence of a coordinated campaign by the so-called Islamic State increased yesterday as it emerged that both the Rouen attackers and the suicide bomber at a music festival in Anspach, Germany, both managed to distribute video clips to the IS-friendly Amaq news agency either during or before their attacks. Separately, Air France warned of “special concern” around France as a travel and tourist destination, although it returned to profit in the first half of the year after a damaging series of strikes in 2015. WSJ, subscription required


Around the Water Cooler

Apple Buys Carpool Karaoke

Apple has emerged as the surprise buyer of the unscripted TV series based on the “Carpool Karaoke” segment of CBS’ “The Late Late Show with James Corden,” according to Variety. The Apple Music service will distribute the series to its members in 100 countries worldwide. Apple sees the show as a natural vehicle to drive online activity for its streaming-music venture. The show has given a push to many of the songs its guests have ‘covered’. Michelle Obama’s rendition of Beyonce’s “Single Ladies” and Stevie Wonder’s “Signed, Sealed, Delivered” garnered 32 million views on YouTube, and the series’ segments to date have seen over 800 million views so far. Variety

McDonald’s Runs out of Steam

The revival of McDonald’s fortunes may have run its course. The fast-food giant said comparable sales grew only 1.8% year-on-year in the second quarter, down from 5.4% in the first quarter. The figures suggest that the initial bump to sales from new menu items isn’t being sustained, and that the longer-term trend toward healthier eating in the casual dining sector is reasserting itself. As flagged, earnings per share fell by 1% due to a $230 million restructuring charge mainly related to its efforts to put more outlets in the hands of franchisees (and leaving them with the problem of margin pressure as the campaign for a $15 hourly minimum wage gathers steam. FT, metered access

The EU Picks Its Own M. Brexit

The European Union indicated it will play hardball with the U.K. over its separation agreement. Commission President Jean-Claude Juncker confirmed that Michel Barnier, the architect of much of the bloc’s post-2008 financial regulation (and a former French agriculture minister) would lead the negotiations. Barnier’s past experience as EU Commissioner for the Internal Market gives him the perfect profile to regulate the fine points of how the two sides will trade together after the divorce. However, EU Commissioners are habitually subject to influence from their home governments, and France has made more noise than most about the need to ensure that the settlement deters any other member states from following the U.K.’s lead. The British government, which went into the referendum without any game plan for actually leaving the EU, has signaled it doesn’t want to start official talks until next year—a line that has found more sympathy in Berlin than in Brussels or Paris. Reuters

Analog Devices Buys Linear

In what looks at first glance to be an epilogue to last year’s flurry of consolidation in the chip sector, Analog Devices is to buy Linear Technology in a deal valued at just under $15 billion. Both companies specialize in chips using analog technologies, with smartphone makers accounting for much of their output. The deal is a headache for Texas Instruments, a direct competitor. Analog estimated the combined company would have about $5 billion in sales annually and a valuation of about $30 billion. It plans to fund the transaction half through new stock and half through new debt and cash.  WSJ, subscription required