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CEO Daily: Wednesday, 19th July

Good morning.

I wrote yesterday about how much of the conversation at Fortune Brainstorm Tech isn’t about tech at all, but about people—and how you build human organizations that can deal with the complexity and the velocity of change facing today’s corporations.

Target CEO Brian Cornell continued the theme on Tuesday morning at the second day of our conference. He was on the Aspen stage, talking about how his company uses technology. But when asked later by Susie Gharib what the best leadership advice he ever received was, he said: “At the end of the day, it always comes down to people, and the values and empowerment that create a great team environment.”

That was also the theme at a luncheon conversation, hosted by Flex, that I moderated later in the day. The topic was business transformation, and around the table were twenty top executives and veterans of transformation efforts at storied companies. I asked them for lessons learned, and while I can’t quote them by name, I can pass on some of their wisdom:

–“Overweight the future” – to counter the fact that organizations tend to protect the past.

–“If you try to establish a vision for the future, you will fail. The question isn’t what you want to do in the future, but what you would like to do now, and can’t.”

–“Never get too high on the highs, and never get too low on the lows.”

–To develop great talent, don’t find “the best person for the job,” but the “best job for that person.”

–“If it has a different business model, it needs to be under a different roof—and maybe have a different bathroom.”

–“Not everyone is going to come along for the change. You can’t be shy about shooting people who don’t come along.” Or, as another participant put it, “at some point in time, you have to burn the ships on the shore.”

News below. Also be sure to read Michal Lev Ram’s story about whether Uber’s troubles are creating an opening for its smaller rival, Lyft. The story appears in the August issue of Fortune magazine, but we are publishing it online here today.

Alan Murray


Top News

We Must Stop Meeting Like This

President Donald Trump had a second, previously unacknowledged talk with Russia’s Vladimir Putin on the sidelines of the G20 summit, the White House confirmed. It said no U.S. officials (not even an interpreter) were present, and that the talk, which allegedly lasted nearly an hour, was “casual.” No U.S. record of the meeting exists. While the fact of the conversation proves nothing in itself, the fashion of its disclosure is a dismaying variation on an increasingly familiar theme. National Security Advisor Michael Flynn, Attorney General Jeff Sessions, senior advisor and son-in-law Jared Kushner, and Donald Trump Jr. have all failed to document their contacts with Russian officials properly over the last eight months. The President has now added himself to the list. His response, via Twitter, addressed only the G20 dinner itself, rather than the bilateral chat acknowledged by the White House. Fortune

21 and Counting for IBM

IBM’s long and troubled migration to the cloud took a turn for the worse in the second quarter. Revenue growth from the “strategic initiatives” on which it is betting its future slowed to only 5% (or 7% when adjusted for currency swings), while revenue from its legacy technology and cloud platforms business fell 5.1%, falling short of expectations. Overall revenue fell 4.7%, its steepest decline in five quarters and, of course, a 21st successive decline. The shares fell 2% in after-hours trading despite the fact that profit beat expectations, allowing the company to uphold its forecast for the year.  Fortune

Daimler’s Diesel Woes Mount

Daimler, the parent company of Mercedes-Benz, is being sucked ever further into the diesel emissions scandal. It announced a voluntary recall for 3 million vehicles across Europe to fix their excess emissions, at a cost of $253 million. It was silent about the diesel cars it sells in the U.S., where it is under investigation on suspicion of having used “defeat devices” such as those used by VW to deceive regulators. It hasn’t faced any charges and has repeatedly denied such allegations, though it acknowledged the risk of financial penalties from the U.S. for the first time in its last quarterly report. Fortune

UnitedHealth Better After Kicking ACA Habit

The U.S.’s biggest health insurer reported a rise in profits in the second quarter and raised its outlook for the rest of the year. UnitedHealth has all-but exited the Affordable Care Act’s marketplaces for insurance this year, and has consequently widened its net margin to 4.6% from 3.8% a year ago. The fastest growth was at divisions providing health care (thanks largely to the acquisition of Surgical Care Affiliates and the expansion of its MedExpress clinics). Its health services arm Optum also grew earnings 21%. Bloomberg

Around the Water Cooler

Uber’s Reputational Whack-a-Mole

Uber moved to neutralize one of the issues that has contributed to its PR problems in recent months by rolling out its in-app tipping function across the U.S. The feature should make up for some of the revenue that drivers lost after Uber raised its commissions. Against that, Uber will lose some of the customer-friendly certainty on pricing it justifiably boasted about. The company’s game of reputational Whack-a-Mole continued nonetheless, as disability rights groups sued it for violating human rights laws in New York by failing to make enough of its vehicles wheelchair-accessible. The issue is often cited by licensed taxi drivers to illustrate what they see as Uber’s exploitation of an uneven regulatory playing field. Fortune

McCormick Pays $4.2 Billion for Extra Mustard and Hot Sauce

McCormick & Co., the company behind Billy Bee honey, El Guapo and Kitchen Basics, has bought the food division of Reckitt Benckiser for $4.2 billion. The move will add names such as Frank’s RedHot and French’s mustard to its already strong lineup of condiment brands. For Reckitt, it’s an exit from a low-margin, non-core business that will patch up the balance sheet after its $18 billion acquisition of baby-food maker Mead Johnson earlier this year. McCormick had walked away from buying the U.K.’s Premier Foods last year rather than pay what it thought was too high a price. It’s paying much more for the Reckitt assets, but argues it can squeeze out $50 million a year in efficiency gains in a business that is in any case a lot closer to its core strengths. Fortune

Toshiba Returns to Blocking Western Digital

Toshiba said it had resumed blocking Western Digital’s access to data at their chipmaking joint venture, after a meeting between WDC executives and Japanese government officials failed to break the deadlock over the planned sale of the chip business. Toshiba had prepared to sell the crown jewel to a consortium backed by the Japanese government, but talks had stalled over valuation. Foxconn then also expressed interest. WDC, which claims first right of refusal to the asset under the JV agreement and has lodged a bid together with KKR, has secured injunctions against a sale. The dispute got some added spice on Monday when David Einhorn’s Greenlight Capital disclosed it had taken a stake in Toshiba, sending its shares up 20%. Reuters

Akzo Nobel CEO Steps Down

Ton Buechner has stepped down with immediate effect as CEO of European paints and coatings giant Akzo Nobel, citing health reasons. His decision comes only weeks after fighting off a $30 billion takeover attempt by PPG Industries, backed by activist investor Paul Singer’s Elliott Advisors. The Dutch-based company, which rallied the domestic investment and political establishment to fight off PPG, said Thierry Vanlancker, the head of its specialty chemicals unit, would step up to replace Buechner. FT, metered access

Summaries by Geoffrey Smith;