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CEO Daily: Wednesday, 12th April

April 12, 2017, 9:58 AM UTC

Good morning.

My co-author Geoff sent me an email early yesterday suggesting I lead with with “the United Airlines incident” in that day’s newsletter. I declined, thinking furor over United’s action would soon pass.

Wrong about that. United’s rough dragging of a passenger off a flight to Louisville has now joined Cecil the Lion and Justine Sacco as case studies in social media outrage. It didn’t help that the passenger was Asian, making the video top trending topic on Chinese social media site Weibo. Nor did it help that United CEO Oscar Munoz made such a ham-handed attempt at apology – saying he apologized “for having to re-accommodate” the passenger, then later sending a note to employees blaming the passenger for being “disruptive and belligerent.” Not until yesterday afternoon, after the company’s stock swoon threatened to wipe out over a billion dollars of market cap, did Munoz issue a proper apology, saying “it’s never too late to do the right thing.” I disagree; it was too late.

I have some sympathy for Munoz. After suffering from a heart attack and receiving a transplant shortly after getting the top job in 2015, he’s made real progress turning around the troubled airline. Last year, he earned a spot (No. 20) on Fortune’s Businessperson of the Year list (read Shawn Tully’s profile here.) And responding to social media outrage is not something they teach at business school. Well, not yet, anyway.

Nevertheless, it has become an inescapable reality of business leadership today. As Dov Seidman told the CEOs who attended the Fortune Global Forum in Rome last December, moral judgment declines with distance – we’re most passionate about things closest to us – but distance has disappeared in today’s world. As a result, an event like Monday’s rough “re-accomodation” is instantly at hand to everyone, everywhere. That puts a big burden on CEOs like Munoz; they have to take moral responsibility for countless acts over which they have little control.

Can Munoz recover? It will take more than a single statement to convince people he’s sincere. The company says it is reviewing its policies, and change would help – overbooked flights are the bane of all frequent travelers. For others who want to learn from his example, the lesson is one Seidman delivered in Rome: in today’s connected world, leaders need empathy as much as they need expertise.

“We need a new leadership playbook,” Seidman said. “In many ways, I think we have gone from the industrial age, when we hired brawn – hands – to a knowledge economy where we hired heads, and now I think we are entering the human economy where we hire hearts.” (You can watch Seidman’s full comments here.)

Meanwhile, United’s competition is having fun at its expense on social media. “We beat the competition. Not you,” said a Southwest post. Delta stayed mum, however, still recovering from a storm-triggered meltdown that left many thousands of fliers, myself included, stranded last weekend.

More news below.

Alan Murray


Top News

Oil Surges on Hopes for Output Cut Extension

Crude oil prices surged to a six-week high on hopes that OPEC and other major producers will extend their existing deal on output restraint by another six months. The current arrangement is due to end in June, and the mixed record of compliance with the deal has led to it having similarly mixed success in reducing global stockpiles. Saudi Arabia has borne most of the burden so far, driven by the imperative to create a stable backdrop for its IPO of Aramco. But its patience with free-riders is finite. As Barclays analysts note this morning, you can expect a lot of noise in the next few weeks, but the only voices that matter are those of Saudi’s Prince Mohammed bin Salman, Iranian President Rouhani, and Vladimir Putin. Reuters

Bixby, Why Are You Late?

The English-language version of Samsung’s virtual assistant Bixby won’t be included in the Galaxy S8 smartphone when it launches in U.S. stores next week, The Wall Street Journal reported. The company hasn’t yet confirmed, but the WSJ said that the delay could stretch out until the end of May, while Samsung gets Bixby’s English up to scratch (alternatively, customers have a week to brush up on their Korean). The S8’s reviews have been largely favorable, so the delay may prove no more than a minor inconvenience, but the company appears to have undone some of the work it did in choosing not to rush the S8 to market. WSJ, subscription required

Wal-Mart Cuts More Jobs, Tailors Online Offers

Wal-Mart said it would cut hundreds more jobs in the U.S., largely technology and international positions, as it continues to whittle away at its cost base. More jobs will go at its Sam’s Club warehouse chain. This follows 7,000 back-office job cuts last year and 1,000 already this year (mainly in HR). Last Friday’s jobs report from the BLS showed that a net 29,000 retail workers lost their jobs in March, as the irresistible attack of e-commerce continues. Separately, Wal-Mart gave another illustration of how it’s adapting to that challenge, announcing special offers for those who order goods online but collect in-store. It apparently prefers lower unit revenues to an embedded higher cost structure that comes with a delivery business.   Fortune

A Wake-Up Call From Tesla’s True Benchmark

Developing yesterday’s theme that the auto industry may not obligingly roll over and hand global overlordship status to Elon Musk, Daimler announced first-quarter earnings up 60% from a year earlier, on a 16% rise in sales. The new Mercedes E-Class sedan was largely responsible for the improvement. BMW also reported record first-quarter sales. Both have obvious challenges ahead: meeting tough new EU rules on carbon dioxide emissions will require heavy investment in new engines, but they are streets ahead of Tesla in mass production, marketing and distribution, and remain a more suitable benchmark than anyone in Detroit. For the interested, Daimler’s market value is still 50% higher than Tesla’s, despite its shares trading at only 8.4 times last year’s earnings. Reuters

Around the Water Cooler

Uber’s Spin Queen Departs

Uber’s head of communications Rachel Whetstone has become the latest high-level executive to leave the company. Neither she nor Uber has explained the move, but Kalanick’s internal e-mail announcing the news was cordial, as were Whetstone’s comments in a statement provided to CNN by Uber. Whetstone has been a key part of the aggressive lobbying machine behind Uber that has seemed to lose its way recently as cities and taxi industries across the world have pushed back against it in recent months. Whetstone had been prominent in Uber’s response to the sexual harassment scandal that erupted after an ex-employee’s viral blog post, but Uber’s apparently limitless appetite for controversy and its insouciance about the concerns of others would overwhelm most mortal PR experts. Whetstone will be succeeded by her deputy Jill Hazelbaker. Fortune

Bomb Blasts Target European Soccer

Three explosive devices detonated close to the bus carrying a German soccer team to its last-eight game in the UEFA Champions League. While this isn’t a business story per se (pace the commercial office at UEFA), it all contributes to destabilizing the popular mood ahead of the French presidential elections at the end of the month, which could yet result in an unpalatable run-off between far-right and far-left candidates. French government bonds have sold off sharply in recent days at that prospect, but are steady this morning. The attack, which came ahead of Borussia Dortmund’s game against AS Monaco, a French team, has had ample coverage in the French media. Reuters

Elliott’s Foreign Adventures Misfire

It’s a good thing Paul Singer doesn’t mind a knock-back or two. Management at BHP Billiton rejected Elliott Advisors’ suggestion that it spin off its oil business and unify its dual-listing structure. It said Elliott’s proposals would “destroy $1.3 billion in value to save less than $2.5 million a year.” Elsewhere, Akzo Nobel, which it is trying to pressure into accepting an approach from PPG Industries, reported Elliott’s U.K. offshoot to the Dutch financial regulator for coordinating its activity with PPG. Elliott is seeking an extraordinary shareholder meeting to replace Akzo chairman Antony Burgmans, and allegedly leaked its intention to PPG beforehand. Fortune

Huawei Gets Into Cloud Services

Chinese telecoms equipment and smartphone maker Huawei Technologies said it wants to compete with Amazon and Alibaba as a global provider of public cloud services. The Shenzhen-based firm, which last month reported its slowest profit growth in five years, said it will expand in cloud computing with a dedicated division that will recruit 2,000 more people this year. It may face some issues globally, given historical suspicions of its closeness to the Chinese government, but it starts off with one key advantage in its strong network of alliances with telecoms providers. Fortune

Summaries by Geoffrey Smith;