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CEO Daily: Friday, 12th May

Good morning.

Lots of rich feedback on my posts this week, here and here, about the two different models of capitalism represented by Unilever—the epitome of corporate social responsibility—and Brazilian private equity firm 3G—cost cutter extraordinaire (or extraordinario). Some of that feedback is off the record, including an early morning phone call from a Fortune 50 CEO who insisted it’s a false choice, and that the world needs both kinds of companies. Some respondents agreed to let me share their feedback. A sampling below:

From B.M.:

“I’m finishing an MBA program this month, and the role of companies in society has swirled in classroom discussion. From these talks, I’ve come away fiercely opposed to 3G’s approach. I think zero-based budgeting has utility, but its repeated application sounds downright exhausting and degrading.

“To be clear, I do not shy away from rigor and a demanding work environment—I’m going to Amazon in Seattle post-MBA—but the strategic alignment matters. So does the long-term view. This is why I’m excited for Amazon and fairly disgusted by 3G.”


From P.V.B.:

“In my view, the whole issue is the appropriate time horizon that we incentivize our companies to work with. If we set up the rules of corporate governance so that this quarter’s results are the highest priority, it seems to me that the 3G approach will always win. One can fire people and cut costs quickly; you can actually affect this quarter’s profit numbers. Investing for longer term profit actually hurts the bottom line this quarter and the payoff is many quarters hence.”


From R.O.:

“A significant problem with the current USA corporate model is that management has taken a disproportionate share of the benefits. Management works for themselves more than shareholders or workers.”


And then the apocalyptic, from F.T.:

“Robotization, digitalization and automation are killing lower and middle class jobs at a speed and scale that is human-traumatic and destructive enough without further legitimizing the process by always putting shareholder interests as the primary goal. This sort of ruthless, class-divisive capitalism has got to stop or we’ll be ultimately having a people’s revolution of unimaginable societal dimensions.”


And similar from I.T.:

“High returns to capital and low returns to labor mean capitalism naturally creates deep inequality. People are deeply discontented—even amidst an economic recovery and 4% unemployment. Without either a) meaningful redistribution via tax code, b) a massive shock (Depression or World War) or c) a shift in mindset toward stakeholder capitalism in which employees are treated as important along with shareholders, customers and society—populist anger seems likely to boil over.”


I vote “c”. More news below.

News below—and enjoy the weekend.

Alan Murray

Top News

Convulsions Over Comey

Washington’s convulsions over the firing of FBI Director James Comey continued. Deputy Attorney General Rod Rosenstein reportedly threatened to quit after the White House cited his letter as the trigger for Comey’s dismissal. President Trump subsequently changed his narrative, claiming he had acted on his own initiative. He also admitted his dissatisfaction with Comey’s handling of the probe into Russian election hacking was a factor. Elsewhere, acting FBI director Andrew McCabe rebutted Trump’s assertion that Comey had lost the trust of the FBI’s rank and file. McCabe was one of four top intelligence officials to reaffirm their belief that Russia meddled in last year’s election campaign before the Senate Intelligence Committee yesterday. Director of National Intelligence Dan Coats testified that “only Russia’s senior-most officials could have authorized the 2016 U.S. election-focused data thefts and disclosures.” Fortune

The Wall Street Chain Store Massacre

Some in the Washington bubble are evoking echoes of Richard Nixon’s Saturday Night Massacre in 1973, but anyone who wants to see a real massacre in process only needs to take a walk down Main Street (or, at least yesterday, Wall Street). Macy’s shares fell 17% after it reported a 5.2% drop in comparable sales for the first quarter, while profit slumped by 39%. Kohl’s shares fell 7.8% after a 2.7% drop in sales that would have been worse without a solid launch of Under Armour products in its stores. And Nordstrom fell 12.2% after a 6.4% sales decline in sales at its full service department stores. Nordstrom’s overall sales fell by a much less dramatic 0.8%, but the market’s dismay reflected how many hopes had rested on Nordstrom’s efforts to defend margins by targeting wealthier consumers. Fortune

Uber’s Dirty Linen Will Be Washed in Public

District Judge William Alsup rejected a request from Uber to settle its dispute with Alphabet’s self-driving unit Waymo over intellectual property theft in private arbitration. Alsup referred the case to the Department of Justice for investigation, and also granted a partial injunction against Uber’s self-driving program using the trade secrets at the heart of the dispute. Robert Levadowski, the autonomous driving expert at the center of the case, has already invoked the 5th Amendment and refused to testify. Fortune

Ross Reheats China Access Deal

Commerce Secretary Wilbur Ross announced progress in opening up the Chinese market for various U.S. sectors from beef farmers and exporters of liquefied natural gas to banks and electronic payments companies. Some of Beijing’s commitments had already been outlined to the Obama administration, and U.S. companies have complained that Beijing’s implementation has fallen short of rhetoric. It will be interesting to see how U.S. ratings agencies use their new freedom to cast light on China’s battle with excess credit, especially credit extended by or to state-controlled entities.  Fortune

Around the Water Cooler

Dow, Dupont Directors to Review Post-Merger Breakup 

The independent directors of Dow Chemical and Dupont will review the company’s plan to redivide along business lines after they finalize their merger. The initiative comes amid fears that the combine-then-restructure approach may not, after all, be the best way to generate shareholder returns (however attractive it is for the two companies’ advisers). Dow also said CEO Andrew Liveris will stay on an extra year as executive chairman of the merged group. Liveris had earlier intended to leave in July this year. FT, metered access

Airlines ‘Take Customers for Granted

Airline bosses take heed: the string of viral incidents, documenting poor service from their staff are not outliers; they’re the tip of the iceberg. That’s the conclusion of two industry veterans in a piece contributed to Fortune. Robert Mann and Michael Baiada argue that airlines simply aren’t devoting enough attention to the basics of maintenance, crew management, and baggage handling because, ultimately, they believe that customers are motivated overwhelmingly by price, not service quality. United has grabbed most of the headlines recently, but there is clearly plenty of blame to go around. Fortune Insiders Network

Bolloré Beefs up Vivendi With Havas

France’s Vincent Bolloré, is, to coin a phrase, en marche. His flagship company Vivendi announced it would buy the Bolloré family’s 60% stake in Paris-listed ad agency Havas for 2.3 billion (in cash), and then buy out minorities. It’s part of a strategy to build a multi-media powerhouse capable of defending its home turf in Europe against disruptors like Netflix and rivals like Fox. Analysts said Havas’ data analytics would strengthen profitability at Vivendi’s Universal Music Group and Canal Plus TV (and, if it can ever get full control, Italian broadcaster Mediaset). Canal Plus, a former cash cow, is struggling from streaming-based competition that has eroded its value to advertisers. It recently suffered a landmark defeat by telecoms group Altice in a battle to broadcast Europe’s top soccer competition, the UEFA Champions League. Reuters

Fox Sexual Harassment Bill Hits $45 Million

The parent company of Fox News has paid $45 million in sexual harassment settlements since the middle of last year according to a quarterly filing. That’s $10 million more than what was listed in Fox’s previous quarterly report. Nearly half of the sum is accounted for by a $20 million settlement for former presenter Gretchen Carlson. The report didn’t detail any costs arising from the departures of president Bill Shine or anchor Bill O’Reilly. The company said it didn’t expect a material hit to its bottom line but warned that the changes in its prime-time lineup “could have a negative impact” on ratings. Fortune

Summaries by Geoffrey Smith; @geoffreytsmith