CEO Daily: Thursday, 13th April
I mentioned in passing yesterday that responding to social media outrage is not something they teach in business school. Silly me. Turns out there is a Harvard Business School case study on just that topic. (Thanks to BJ for pointing it out.) And the company featured is – wait for it – United Airlines.
The incident happened in 2009, and involved a professional musician named Dave Carroll who watched from an airplane window as United bag handlers badly bashed his $3,500 guitar. In his effort to seek compensation, Dave got the runaround for months. Then he decided to write a song about the event, film it on video, and post it on YouTube. The song was called “United Breaks Guitars.”
The video went up at 10 p.m. on Monday July 6, and within the next couple of days started to pick up steam. A number of mainstream news organizations began calling Carroll for interviews. By Friday, nearly 1.6 million people had watched the video, and United was taking a beating.
The episode turned out well for Carroll – he was compensated by the airline, and his musical career got a boost. The effect on United’s business was serious, but doesn’t seem to have lasted long. Whether this time will be different remains to be seen. Worth noting that a couple of things have changed since 2009. First, David Dao didn’t have to make his own video; these days, there are cameras everywhere, ready to record any outrageous move at any time. Second, it took hours, not days, for this video to go viral, and spread across the globe.
Meanwhile, Dr. Dao has taken his case to court, filing a “bill of discovery” in Illinois demanding evidence of his “re-accommodation” be “preserved and protected.”
By the way, Southwest Airlines says it is not responsible for the slogan making rounds on social media attached to its logo: “We beat the competition. Not you.” But maybe it should hire the person who is.
• There Has Never Been a Currency War With Eastasia
President Donald Trump abruptly dropped his claims that China is a currency manipulator, telling The Wall Street Journal in an interview that the administration won’t be using that moniker in a hotly-awaited report this week. Trump acknowledged the truth of what economists and market observers had been saying for the last year – that China was propping the yuan up to stop private capital outflows weakening it too much. The dollar fell sharply as Trump repeated his view that it was too strong. “Partially that’s my fault because people have confidence in me,” he said. Elsewhere, the Commerce Department said the U.S. trade deficit with China narrowed some 2% in the first quarter to just under $50 billion. Fortune
• When the Public and the Murdoch Interests Meet
The Times of London accused Facebook of failing to take down child pornography and propaganda for Islamist terror groups despite being alerted to it. The social network only took the material down when told that the paper was going to write about it. It may or may not qualify as the “reckless” dissemination of propaganda that would violate U.K. laws on sponsoring terrorism. It certainly is aligned with News Corp’s interest in subjecting Facebook to the same kind of scrutiny as itself as it fights what is currently a losing battle for the digital ad market. Fortune
• Siemens, Bombardier Want to Merge Rails Ops
Germany’s Siemens and Canada’s Bombardier said they were in preliminary talks about merging their rail transport businesses, a response to the relentless advance of China’s CRRS and to a similar deal between GE and Alstom in 2015. The two businesses had combined revenues of over $15 billion last year. The move is notable for what it says about Joe Kaeser’s willingness to break up the German conglomerate, the European mirror image of GE. It has already said it will spin off its health unit, and there is speculation that it will also do the same for its wind power business, after bulking it up ia a merger with Spain’s Gamesa last year. FT, metered access
• Buffett Gives up on Wells Fargo
Berkshire Hathaway said it has withdrawn its application to the Federal Reserve to own more than 10% of Wells Fargo. Warren Buffett’s firm (currently Wells’s largest shareholder) instead said it had sold 9 million shares to keep it below that threshold. It’s a big change of heart from Berkshire, which spelled out that it wasn’t just taking profits on its investment after a nice little 17% run up in the stock since November. Fortune
Around the Water Cooler
• Elon Musk Is Enjoying Himself Too Much…
You can’t help but feel that Nemesis is humming a jaunty little tune to herself in front of the mirror somewhere, as she dolls herself up for a night out in Nevada. Elon Musk beat his previous personal best in the Hubris Handicap yesterday, telling his co-owners to go and buy Ford stock instead if they didn’t like the governance at Tesla (Ford's dual-share structure allows the family to hold 40% of its voting shares despite only having 4% of its total equity). Five big institutional investors wrote an open letter to Musk earlier this week urging him to add more independent directors to a seven-strong board that hasn’t changed much since Tesla’s IPO. Even the stock market got a little uneasy about the latest demonstration of Musk’s absolute power over Tesla, which ties the company’s fortunes very much to the personal qualities of its founder. The stock fell nearly 4%. Fortune
• …While David Einhorn Is Just Getting Started
Of course, not all two-tier share structures are created equal. David Einhorn’s Greenlight Capital, which is urging GM to create a new class of share that doesn’t pay dividends, nominated three directors to GM’s board and accused it of misrepresenting his plan to ratings agencies. Einhorn says the plan would help GM conserve cash in a weakening market, something that should strengthen its credit profile, all other things being equal. The agencies had come to the opposite conclusion on the basis of the materials GM submitted to them. Shareholders are due to vote on the proposals in the first half of June. Fortune
• Airbnb Hearts the IRS
Airbnb has struck new deals with dozens of jurisdictions to collect and pay taxes, doubling down on its effort to improve its image with restless local policymakers. The most recent, formally announced by the company Tuesday, came in eight U.S. cities and counties, the state of Texas and 31 cities in France (its largest foreign market), making for a total of 275 agreements. It’s not clear how successful Airbnb will be in collecting and remitting all the taxes it had pledged: many of the agreements are less than a year old. The deals go some way to removing regulatory uncertainty and smoothing the way to a possible IPO, but Airbnb is still likely to face pushback as cities fret about abuse of their zoning arrangements. In the words of Miami Beach mayor Philip Levine, "When you bought a house you didn't bargain on having a nightclub next to you." Fortune
• Crumbs of Comfort for Blackberry
Blackberry will get $815 million back in royalty payments that it made to chipmaker Qualcomm under an arbitration ruling handed down yesterday. It’s a measure of how far the firm has fallen that the money translated into a 15% rise in its share price. Qualcomm said it didn’t agree with the key view that Blackberry had overpaid for its patents, but said the ruling was unappealable. The silver lining is that it can now focus on a much more important legal fight with Apple, also over alleged overpayments for intellectual property. Qualcomm countersued earlier this week, saying Apple had lied to antitrust regulators who were investigation Qualcomm. Fortune
Summaries by Geoffrey Smith; email@example.com