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CEO Daily: Tuesday, 7th March

March 7, 2017, 12:04 PM UTC

Good morning.

Do you have an AI strategy yet? Have you hired a Chief AI Officer? Time is running short, because, as a Wall Street Journal headline tells us this morning, Artificial Intelligence Will Change Everything.

I have no doubt that’s true. But for the moment, we still have a shortage of people who can tell you exactly how it’s going to change everything, or what you need to do to prepare for the change. A recent Bloomberg analysis found mentions of Artificial Intelligence in corporate earnings call transcripts have taken a hockey-stick-like turn upward in the last two years. Yet actual revenue resulting from AI-based business models, I suspect, remains scant. We are climbing the steep side of the Hype Cycle, without a clear sense of what lies on the other side.

The latest sign of that came yesterday. Salesforce, which is building artificial intelligence capacity under the brand name Einstein, is forming an odd-bedfellows alliance with IBM, which has brilliantly marketed its Watson technology as the cornerstone of its business transformation. Salesforce CEO Marc Benioff and IBM CEO Ginni Rometty discussed the partnership with my colleague Andrew Nusca yesterday, and you can read the full interview here.

In principle, Salesforce gets to bolster its number-crunching credentials,
which is important when you think it’s competing against against the likes
of Microsoft, while IBM gets to put Watson in front of Salesforce’s
fast-growing customer base. The stock market suggested that, Salesforce
stood to gain more: its shares rose some 2% in after-hours trading, while
IBM’s rose only 0.3% (they still outperformed the big indexes). I confess I still don’t fully understand practical applications of the partnership. But how can marrying Einstein with Watson be anything less than brilliant?

More news below.

Alan Murray

Top News

Trump Reissues Tweaked Travel Ban

President Donald Trump reissued a ban on immigration from countries deemed high-risk, tweaked to accommodate the concerns of the Federal appeals court. Under pressure from the Pentagon, the White House removed Iraq from the list and also removed a specific prohibition on refugees from Syria. These are eye-catching amendments to a bill designed to protect the U.S. from infiltration by Islamist terrorists, given that those countries are where ISIS is most active, and given that Iraqis have arguably more grounds for grievance against the U.S. than most other people of the world. The need to solidify the coalition of forces in Iraq fighting ISIS appears to have tipped the scales towards a more pragmatic approach.  Fortune

Republicans Unveil ACA Replacement

The Republican party unveiled its plan for replacing the Affordable Care Act. Broadly speaking, the draft will cut the tax credits available, especially for poorer and older people, while giving more relief to the middle class. It will make it more expensive, but not impossible, to get coverage for pre-existing conditions, and phase out the planned expansion of Medicaid by 2020 (despite the pleas of Republican state governors). The proposal hasn’t yet been scored by the Congressional Budget Office, so its overall fiscal impact isn’t clear. Time

Woods Shows the Way for Exxon

Exxon Mobil’s new CEO Darren Woods embraced tight oil, the fight against Climate Change and, not least, the Texan economy in a keynote speech that signposted the way ahead for the world’s largest public oil and gas company. Woods said Exxon will invest $20 billion on petrochemicals and refineries around the Gulf Coast in the 10 years through 2022 (a bit of a cheap headline once you realize it’s 30% historical), but still a strong statement of intent to add to the $6 billion purchase of Texan drilling acreage in January. The investment in new downstream operations is also eye-catching in the context of rising U.S. exports of gasoline and petchems—something that could be further boosted by administration plans for tax reform. Fortune

J&J Halts the Victory March of Talc Plaintiffs

Johnson & Johnson chalked up a rare victory in its legal battle with customers trying to link its talc powder to ovarian cancer. A Missouri jury sided with the drug giant after a string of three court cases in which it was ordered to pay plaintiffs a total of $197 million. All three cases were heard in St. Louis. The drug maker has tried to have the court cases removed from the St. Louis region and spread throughout the country to where the 2,500 plaintiffs reside, arguing that the jury pool in the area has been tainted by TV ad campaigns run by plaintiffs' lawyers (a claim that the lawyers reject).  Fortune

Around the Water Cooler

Snap – a Cute Puppy or a Dog in the Making?

Shares in Snap Inc. fell 12.2% Monday after seven banks who weren’t involved in bringing the deal to market issued either Sell (5) or Hold (2) recommendations on it, citing concerns about slowing growth, competition, and the lack of voting rights (which may affect its inclusion in key benchmark indices). No analyst beyond those acting for the company has yet recommended it (by the same token, no bank would admit to sour grapes on missing out on the deal even if they did play a part). The share’s closing price of $23.77 was below where it started trading last week, but still comfortably above the pre-IPO range. Investors such as NBCUniversal can still sleep easy, while calls for the lead managers’ heads may yet be premature. Fortune

Tax Hassle Drives Thousands to Renounce Citizenship

The drumbeat of corporate tax reform, the centerpiece of the new administration’s economic agenda, has drowned out pleas for what many consider an equally important reform of the tax code for individuals. The number of Americans renouncing their U.S. citizenship rose 26% last year to a record 5,409. Many of them are among the 7 million Americans living abroad, who often face IRS claims above and beyond what they pay to their local tax authorities. The 2010 Foreign Account Tax Compliance Act, originally designed to hit wealthy tax evaders in places like Switzerland, has had the unintended consequence of adding greatly to the hassle of being a U.S. expat. Fortune

Volkswagen Chairman Expects More Dieselgate Victims

Volkswagen chairman Hans Dieter Pötsch said he expects the company to sanction many more employees beyond the couple of dozen it has already suspended. Pötsch, who was CFO during the years when VW was developing and selling its diesel vehicles fitted with illegal software, suggested the company will be free to expand its action after Friday, when U.S. legal inquiries against it will likely come to an end with a guilty plea on three felony counts. The backlash against it in Europe continues, as more and more evidence of the damage caused by poor air quality comes to light. VW drummed up some more positive publicity yesterday with the release of its concept for a fully-autonomous vehicle at the Geneva Motor Show. Fortune

PwC Braces for More Negative Publicity

With the Academy Awards fiasco still fresh in everyone’s minds, this is arguably the last thing PwC needs right now. A trial opens in a Manhattan court Tuesday at which the administrator of MF Global’s bankruptcy plan is seeking $3 billion in damages from PwC, which was the brokerage’s accountant before it collapsed in 2011. The brokerage, headed by former New Jersey governor and Goldman Sachs partner Jon Corzine, had raided client accounts to shore up its liquidity when bets on Eurozone sovereign debt turned sour. PwC already settled for $65 million with MF Global shareholders and bondholders in 2015, but denied wrongdoing. Fortune

Summaries by Geoffrey Smith;