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A Crisis of Leadership: CEO Daily, Thursday 17th August

August 17, 2017, 11:33 AM UTC

Good morning.

President Trump disbanded his two main business advisory councils yesterday—but only after they had disbanded themselves. The CEOs agreed that they could not continue to be effective, given the controversy that surrounded them. “We have always believed that dialogue is critical to progress,” IBM CEO Ginni Rometty subsequently wrote to her employees, but “this group can no longer serve the purpose for which it was formed.”

A few facts:

-One group’s members made the decision on their own to disband, then informed President Trump of their decision. He then preempted them by tweeting he was ending both councils.

-Several of the CEOs were ready to resign if the group wasn’t disbanded.

-Dissatisfaction among the CEOs had been growing since the president’s decision to pull out of the Paris agreement in June, and the group has been largely dormant since. The social media campaign against some of them added to concern, but was not the primary cause.

-While the president accused the CEOs who resigned of “grandstanding,” in fact the opposite is true. Virtually all of the CEOs were eager to avoid controversy, for the sake of their businesses.

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With his ambiguous response to the unambiguous situation in Charlottesville, President Trump has now completed his alienation of the congressional leadership of his own party, his top military leadership, and his top allies in the business community. Were some anti-fascist protestors in Charlottesville carrying clubs and looking for a fight? Yes. Were some good people opposed to removing the statue of Robert E. Lee? Of course. Did press coverage oversimplify the situation? Always. But the racist and anti-Semitic origins of the Charlottesville rally were unmistakable, and the president’s reluctance to call them out was a fundamental failure of leadership.

Several CEO Daily readers have written over the past three days urging me to keep politics out of this newsletter. Would that I could. But having spent three decades covering business and politics, there is no doubt in my mind that this week’s events have not only fractured the social fabric of our nation, but also greatly reduced any chance that the president and Congress have of enacting serious legislative reforms. What began seven months ago as a once-in-a-decade opportunity for a Republican-led government to make progress on health care, infrastructure, taxes, and American competitiveness has descended into disorder. There is blame to go around for that—unsteady congressional leadership, an overzealous press corps, a determined political opposition, gun-shy CEOs. But here, as in Charlottesville, the principle source of the problem is unambiguous.

The CEOs I talked with said they will continue to engage with the administration. Many are close to Gary Cohn and Dina Powell in the White House, or cabinet officers like Steve Mnuchin, Elaine Chao, Wilbur Ross, Bob Lighthizer and others. They still feel they can get a far better hearing on their economic concerns from this administration than from the previous one, which they felt was often hostile to business.

But the fact that the nation’s leading CEOs feel they can no longer work openly with the president of the United States on measures to strengthen the U.S. economy is a sad—and unprecedented—state of affairs.

More news below.

Alan Murray


Top News

40 Under 40

Fortune publishes its 2017 list of young global leaders today. Here, too, it’s been impossible to ignore politics this year, with France’s new President Emmanuel Macron topping the list. But just as much of a mold-breaker is Ireland’s new premier, the 38-year-old Leo Varadkar (our No. 5). Both represent a generational change in a continent whose distinguishing features during the last crisis were its failure to empower the digital revolution, and its structural discrimination against the young in the labor market. Macron in particular has pledged to restore a greater generational balance. Hopefully the sharp drop in his approval ratings since his triumph in May won’t get in the way of that. Fortune

…And Also Announcing FIRSTS

Fortune’s sister publication TIME also has an important list of its own out soon. FIRSTS is a year-long project featuring candid interviews with 45 ground-breaking women from Facebook’s Sheryl Sanderg to Serena Williams and Oprah Winfrey. You can find out more here. Time

A Countenance More in Sorrow Than in Oncor

Warren Buffett’s plans to buy the bankrupt parent company of Texas-based utility Oncor are in danger. Elliott Management increased its holdings of the company’s debt and now has enough to block Berkshire Hathaway’s $9 billion offer, according to the FT’s sources. Elliott has made a rival bid that was received coldly by state regulators who are sensitive to how Oncor manages its debts in future. WSJ, subscription required

A Continuing Jobs-Inflation Conundrum

There’s a widening split in the Federal Reserve over the timing of the next interest rate hike. The minutes of its last policy-making meeting, released Thursday, showed growing concern about the stubborn refusal of wages and inflation to respond to the apparent labor market tightening. Despite the lowest jobless rate in 16 years (4.3%) inflation remains stuck at 1.4%, well below the Fed’s notional 2% target. Similar problems were evident in Europe this week too: The U.K.’s jobless rate fell to a 42-year-low of 4.4% but nominal wage growth is still barely at 2%, below annual inflation. This morning, France announced its lowest jobless rate since 2012 (at 9.5%), while Germany said its economy added 475,000 jobs in the second quarter. Neither of the Eurozone’s two biggest economies is showing any sign of rapid wage growth. WSJ, subscription required


Around the Water Cooler

Cisco Disappoints

Shares in Cisco Systems fell over 3% after the bell following a disappointing set of earnings to end its fiscal 2017 year. Revenue at both the switching business (its largest) and at its closely-watched security business fell short of expectations, the former falling 9%, and the latter growing only 3%. The security business in particular is seen as key to Cisco’s transformation into a Cloud-based company. Fortune

Wichmann Steps up at UnitedHealth

UnitedHealth said its current president David S. Wichmann will succeed Stephen Hemsley as CEO next month. Hemsley will transition to be executive chairman, while current chairman Richard Burke will become the lead independent director. UnitedHealth has thrived in recent quarters after disengaging from an initially enthusiastic embrace of the Affordable Care Act’s regional insurance markets. Elsewhere Wednesday, the administration signaled it would make this month’s planned payments to insurers under the ACA, but gave no indication of whether it would continue to do so. Fortune

Creaking Sounds from Russian Banks

At last, a Russian story that has nothing to do with election hacking. A serious run of deposits at one of the country’s largest privately-owned banks has put the future of at least three more large banks in doubt. The outflows reflect growing concern that much of the banking system has little real equity, and that a round of “extend-and-pretend” by the central bank that fended off a crisis in 2014 has now run its course. President Vladimir Putin badly needs to avoid a systemic crisis as he prepares for elections next March. RBC, Russian language

The Internet Closes Around the Alt-Right

The guys who run the Internet are finding themselves increasingly forced to take sides in the arguments that have flared since the outbreak of violence in Charlottesville. Paypal has restricted the account of prominent alt-right figure Richard Spencer, while hosting and site maintenance firm Cloudflare followed GoDaddy and Google in withdrawing support for the neo-Nazi Daily Stormer website. Apple meanwhile suspended Apple Pay support for sites and stores selling neo-Nazi paraphernalia. Fortune

China Unicom’s New Owners Wait for Their Moment

China’s plans to pump private capital into some of the country’s most prominent state-owned companies aren’t going entirely smoothly. Shares in the two main units of telecoms carrier China Unicom remained suspended Thursday, a day after an $11.7 billion sale of shares to 14 investors including Alibaba, Tencent, and Baidu. The proceeds are supposed to go to enhancing Unicom’s 4G capacity and conducting 5G technical trials. Many of China’s Internet giants depend on Unicom’s networks to get their services to consumers. It’s not clear what degree of control they’ll get in return for their money. SCMP

Summaries by Geoffrey Smith