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CEO Daily: Monday, 27th March

Good morning.

I’m back from a week’s vacation, refreshed and ready to reengage. And I’m happy to start by offering you a story that’s one of the most remarkable I’ve read in some time.

Its protagonist is Palantir—the big data company that has scarfed up all the office space in Palo Alto and now boasts a $20 billion valuation. Silicon Valley startups are famed for chutzpah, but Palantir has taken the cake with a recent lawsuit challenging entrenched Pentagon procurement practices.

Traditional defense contractors—Raytheon, Lockheed, Northrup, etc.—make their money by cozying up to government officials and securing their place in the so-called “Iron Triangle” of cost-plus contracts at taxpayers’ expense. But Palantir has taken a combative approach, suing the government for pursuing a $6 billion boondoggle of a data-intelligence system rather than purchasing Palantir’s off-the-shelf software at a fraction of the cost. Douglas Philippone, the 45-year-old ex-Army ranger who leads the Palantir effort, eschews diplomacy, saying the Pentagon is pursuing a system that “won’t work and will waste money,” and that the government’s procurement officials must be “either stupid or corrupt.”

Steven Brill takes a deep dive inside this extraordinary legal battle in the April issue of Fortune. Brill knows a thing or two about lawsuits—he’s the nation’s most distinguished legal journalist, having founded both the American Lawyer and Court TV. After reviewing all the documents and talking to many of the principals in the case, he concludes it is the most one-sided legal battle he has seen in a long career. The company already has won a preliminary victory in Court.

But the court ruling only requires the Pentagon to give Palantir more serious consideration. It doesn’t force the government’s hand. And the entrenched Pentagon procurement system has survived countless reform efforts in the past. Can Palantir really hope to win this time?

The answer may lie, not with the courts, but with Donald Trump’s Defense Secretary, James Mattis, and National Security Adviser, H.R. McMaster. Turns out both are familiar with, and said to be fans of, the Palantir system. And it doesn’t hurt that Palantir’s largest shareholder is Peter Thiel—the iconoclastic investor who broke ranks with his Silicon Valley colleagues last year to become an early supporter of Trump.

You can read Brill’s extraordinary story online this morning, here. Or you can read it in our April magazine—which still offers readers a very elegant user interface. (Subscribe here.)

More news below.

Alan Murray

Top News

Markets aren’t taking Trumpcare’s failure well

U.S. stock futures and the dollar fell on Monday while Asian markets struggled as President Donald Trump’s failure on healthcare reform raised questions about his ability to push through tax cuts. The Republican Party’s failure to repeal and replace the Obamacare health insurance reforms—which were a major campaign promise by the party—also spurred a rush to traditional safe assets such as gold and the Japanese yen. U.S. stock index futures fell 0.7% to a six-week low in heavy volume, suggesting a weaker start on Wall Street later in the day. But the mood isn’t entirely doom and gloom. “Markets have had a good run recently and this is a good opportunity for profit taking across counters,” said Alex Wong, a fund manager at Ample Capital in Hong Kong. Reuters

Uber suspends self-driving car program

Uber Technologies has suspended the company’s self-driving car program after one of its autonomous vehicles was involved in a high-impact crash in Tempe, Arizona. One of Uber’s Volvo self-driving SUVs was pictured on its side next to another car with dents and smashed windows, according to an image posted on Twitter. Uber later confirmed the incident and the veracity of the photo, while adding the ride-hailing company was suspending its autonomous tests in Arizona until it completes its investigation, and pausing its Pittsburgh operations as well. Bloomberg reports the Uber vehicle was not responsible for the incident and there were no injuries. Uber first began testing self-driving cars in Pittsburgh last year before expanding the program to Arizona. Bloomberg

American Airlines mulls tie-up in China

China Southern Airlines is in talks over a tie-up with American Airlines that could involve the U.S. carrier taking a stake in the state-owned airline, boosting routes between the world’s two largest travel markets. The potential deal would make American Airlines the second U.S. carrier to own part of a Chinese airline. Delta Air Lines made such a deal first, when it paid $450 million in 2015 for a 3.55% stake in China Eastern Airlines Corp. Meanwhile, China Southern said in a filing that the tie-up could involve a share issue as well as other forms of cooperation. It is the country’s largest carrier by passenger numbers. Hong Kong-listed shares of China Southern jumped by a little over 5% on Monday on the speculation. Reuters

‘Beauty and the Beast’ defeats ‘Power Rangers’

Disney’s Beauty and the Beast dominated the North American box office for a second weekend in a row with a $88.3 million haul last weekend, while Lionsgate’s rebooted Power Rangers launched with a solid $40.5 million this weekend. The Beauty and the Beast weekend is one for the record books as the fourth-largest second weekend of all time, trailing only Star Wars: The Force Awakens at $149 million, Jurassic World at $106 million, and Marvel’s The Avengers at $103 million. March has become a solid month for Hollywood, benefiting from new hits and strong February releases like Get Out and The Lego Batman Movie. Reuters

Around the Water Cooler

One CEO was paid $46 million for a month of work

Alex Molinaroli, who had been CEO of Johnson Controls since 2013, received $46.4 million in compensation from Sept. 2 to Sept. 30 according to documents recently filed with the Securities and Exchange Commission. Those documents also omitted what he made for the rest of the company’s fiscal year, though that doesn’t run afoul of SEC requirements because Johnson Controls merged with Tyco International in early September and the SEC doesn’t require a company to disclose what top executives were paid by a firm before it disappears or becomes a subsidiary in a merger. Some observers say this opaque approach isn’t necessarily nefarious—and other big mergers like United Continental and Office Depot-OfficeMax left pre-transaction pay undisclosed. But on the other hand, it does leave investors unsure and what has been omitted. “The immediate question is, what are you trying to hide, and why are you trying to hide it?” said Nell Minow, a longtime corporate-governance advocate. The Wall Street Journal (subscription required)

10 CEOs on what’s changing about the world of work

Fortune got 10 CEOs to share how they’ve responded to major shifts in the way we work, as new technologies and shifting demographics bring both new challenges and new opportunities. Brad Smith, CEO of Intuit, says “Trust and reputation are also more important than ever in today’s connected world. We strive to build our reputation based on trust and respect, to attract and retain top talent.” Meanwhile, Deloitte CEO Cathy Engelbert says “When I first started at Deloitte 30 years ago, I had no computer, fax machine, voicemail or email. Yes, no email! We used pencils and 12-column paper. Today, technology is moving faster than ever.” More insights are shared from the leaders of Publix Super Markets, Hilton, Delta Air Lines, and Marriott International. Fortune

Icahn’s dual role as investor and Trump adviser

The New York Times says billionaire investor Carl Icahn is raising ethical flags because he has been working behind the scenes to potentially revamp an Environmental Protection Agency rule that governs the way corn-based ethanol is mixed into gasoline nationwide—changes that would benefit a company he invests in. Icahn is a major investor in CVR Energy, a Texas-based oil refiner that would have saved $205.9 million last year alone had the regulatory fix that Icahn has been pushing been in place. Icahn says there is no issue with a potential conflict of interest because he points out he is an informal adviser who isn’t paid. “I’m not making any policy,” Icahn said. “I am only giving my opinion.” Wall Street, however, loves his point of view. CVR Energy’s stock price is up 50% from the pre-election level. The New York Times (subscription required)