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CEO Daily: Wednesday,11th January

Good morning.

The business press is having a hard time this week sorting out whether Exxon CEO Rex Tillerson is getting a sweetheart tax deal for joining the Trump administration. At the New York Times, Andrew Ross Sorkin took on those who say Tillerson is dodging a huge tax bill, with a headline that declared: “That’s not the case.” But Jesse Drucker at the same paper quoted tax experts saying the deal may raise eyebrows at the IRS. Justin Fox at Bloomberg likewise finds Tillerson’s deal “entirely reasonable,” while Lynnley Browning at the same news organization quotes experts calling it a “72 million dollar tax advantage.”

At issue here, as my colleague Stephen Gandel has explained in detail, is not the $54 million in Exxon stock Tillerson owns outright. On that, which he is selling, he does indeed get a tax deferral that was put in place to encourage corporate executives like him to serve in government. Rather, the controversy is over the roughly $175 million worth of restricted stock units Tillerson has that were slated to vest over the next decade.

Exxon has decided to convert those stock units to Treasury bills and other cash-like assets, to avoid any conflict of interest that would come from Tillerson still having an interest in Exxon stock. But it will defer payout of the cash, thus allowing Tillerson to defer taxes.

You can read the stories above if you want to delve deeper into the tax debate. But the bottom line is this. Tillerson’s move into government has given him a one-time opportunity to diversify his investment portfolio out of Exxon stock without facing immediate tax consequences. That is an undeniable, and an undeniably large, benefit to him.

But doing so solves two important problems. First, it eliminates any potential conflict of interest that would come from his continuing to have a financial interest in Exxon. In this, he is going far beyond the half-way solutions likely to be adopted by President Trump and his son-in-law Jared Kushner. Second, it prevents Tillerson from having to pay an immediate tax bill totaling more than $70 million – a price tag that would likely discourage experienced corporate leaders like Tillerson from serving in government in the first place.

So is this a giant tax break for Tillerson? It is indeed. Should we be upset about it? Probably not. There are much bigger things to worry about.

More news below.

Alan Murray
@alansmurray
alan.murray@fortune.com

Top News

The First Trump

President-elect Donald Trump will hold his eagerly-awaited press conference at 11 Eastern Time. The event should shed light on the PEOTUS’ plans for issues such as tax reform (including the ‘big border tax’ that he has threatened the auto industry with via Twitter in recent days), the resolution of potential conflicts of interest, the replacement of the Affordable Care Act and all the usual foreign policy hot potatoes. He’s likely to be pressed on all things Russia-related, including an unverified dossier detailing alleged ties between his campaign team and the Kremlin. Trump already dismissed the dossier as “FAKE NEWS – A TOTAL POLITICAL WITCH HUNT!” through his Twitter account last night. Time

VW to Plead Guilty, Pay $4.3 Billion to Settle Criminal Case

Volkswagen said it’s in advanced talks to settle a criminal investigation into its deception of U.S. regulators over excess diesel emissions. It confirmed it’s likely to pay around $4.3 billion, as well as plead guilty to certain charges and accept a “statement of facts”, the last of which may strengthen outstanding investor lawsuits against it. The settlement will bring the running check for the Dieselgate scandal to nearly $22 billion. But it’s not all bad news for VW. Sales figures out yesterday suggested it would regain its crown as the world’s top-selling automaker in 2016 after a major turnaround of its China operations. Its shares hit a new post-Dieselgate high. Fortune

Walmart, Boeing to Cut Jobs

Wal-Mart is to cut hundreds more jobs at its corporate HQ and regional offices, its latest effort to keep costs under control as it raises wages for the hundreds of thousands of workers in its stores. The cuts will be made this month, so as to keep the associated costs within its current fiscal year. Elsewhere, Boeing also warned its staff in an internal that there would be more layoffs this year, against a background of plateauing demand. It listed dozens of job categories eligible for voluntary layoffs in Washington state, southern California and South Carolina. Fortune

Samsung Heir Apparent to be Quizzed

Lee Jae-yong, vice-chairman of Samsung Electronics and widely seen as heir apparent to ailing patriarch Lee Kun-hee, is to be questioned by Korean prosecutors as a witness in the corruption scandal that did for President Park Geun-hye (confirmation of her impeachment from the country’s top court is still pending). Prosecutors suspect Samsung and other conglomerates of making big donations to foundations controlled by a friend and advisor of Park in return for political favors. The implication of Lee Jae-yong would seriously complicate succession planning at the company. Reuters

Around the Water Cooler

Sonos CEO MacFarlane to Step Down

John MacFarlane is stepping down after 14 years as CEO of wireless speaker maker Sonos. The company’s products are coming under increasing pressure from competition such as Amazon’s Echo and Google’s Home, which offer multi-functionality above and beyond the playing of music. That said, reviews suggest Sonos still outperforms in the core function of sound quality and Sonos is already working with Amazon to allow greater voice-activated control of its speakers. Patrick Spence, one of MacFarlane’s deputies, will succeed him. MacFarlane has latterly made no secret of his desire to devote more time to family issues. NYT

Small Business Really Liked the Election Result

A gauge of U.S. small business confidence rose to a 12-year high in December as optimism about the economy intensified among business owners following the November election, the National Federation of Independent Business said on Tuesday. The group’s index of small business confidence rose to 105.8, its highest since December 2004. It was up 7.4 points from November, which was its biggest monthly increase since 1980. Even accounting for the disproportionately Republican membership base of the NFIB, the numbers are eye-catching. NFIB chief economist Bill Dunkelberg noted that capital investment intentions had turned up more sharply than hiring, which is an interesting break with the general trend of the post-crisis economy. Fortune

Elon Musk Goes Grave-Robbing

Elon Musk set aside his traditional disdain for “Tesla graveyard” Apple, hiring Chris Lattner away from the Cupertino giant to head Tesla’s autonomous technology team “to accelerate the future of autonomous driving.” Lattner was a prominent figure in the Apple development community, having overseen the creation of its open-source Swift programming language. Lattner’s hiring will strengthen a critical part of Tesla’s business that is set to stay in a very harsh spotlight for the foreseeable future. It also allows Jinnah Hosein, who has doubled up at Tesla and SpaceX in recent months, to concentrate solely on his work at SpaceX. Fortune

London Financiers Beg for a Brexit Transition

Senior figures from the U.K.’s financial services industry begged lawmakers for time to adapt their businesses if the government insists on leaving the EU’s Single Market. Xavier Rolet, the outgoing CEO of London Stock Exchange Group, and HSBC chairman Douglas Flint told a parliamentary committee Monday a five-year transition period was needed to stop business fleeing London when formal divorce talks start later this year, and to guarantee the security of contracts currently in force. The pound hit a 31-year low against the dollar earlier this week in reaction to hints by Prime Minister Theresa May that the U.K. couldn’t “hang on to bits” of its EU membership. Reuters

 

Summaries by Geoffrey Smith Geoffrey.smith@fortune.com;

@geoffreytsmith