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December 2 — December 8, 2013 | businessweek.com

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© 2013 Samsung Telecommunications America, LLC. Samsung, Galaxy Note, Galaxy Gear and The Next Big Thing Is Here are all trademarks of Samsung Electronics Co., Ltd. Screen images simulated. Samsung and its products are not afﬁliated with or endorsed by any third party whose product appears in this photo. Galaxy Gear is a companion device for the Samsung Note 3, sold separately. “There’s no group or individual saying, ‘Let’s screw 3 the black

guys today’ ”p56 “This is not a store for “Give me “I never take my college kids anymore. That 30 to 35 days, grandchildren to woman over there—look. the woods, because She’s buying three pairs of and I’ll build £375 leather ankle boots” you a kidney” they’re full of holes” p50 p39 p15 4 COVER AND THIS PAGE: PHOTO ILLUSTRATION BY JUSTIN METZ FOR BLOOMBERG BUSINESSWEEK; BODIES: PHOTOGRAPHS BY AARON DYER FOR BLOOMBERG BUSINESSWEEK; HEADS: GETTY IMAGES (2) Starwood CEO Frits van Paa What IWear toWork: Anadvertising account executive whotakes hissocks seriously Britney SpearsandOneDirection have new albumsfor oldies Eight appsthat willhelpyou entertain—and impress—clients Clearblue’s marketing itspregnancy tests withnew technologyandTwitter. It’s working This holiday season,take amoment toremember that bubblydoesn’t have to beChampagne )PXŏTTUBS"MZTTB.JMBOPCFDBNFUIFQJPOFFSPGTQPSUTBQQBSF Etc. Luck of thePolish The ManWhoTook OnMerrill J.Crew Crosses thePond Features Bid &Ask: Abattle for Australian milkprocessor Warrnambool pushesitspriceupto$472 million Record highsinequitiesare drivingastampede of money backinto stock mutualfunds In search of yield,investors are reigniting thesubprimemarket, thistimefor autoloans Chinese “aunties” couldvault themainlandpast Indiaingoldpurchases .FFU&SJD4DPUU)VOTBEFS UIFTDPVSHFPGIJHITQFFEUSBEFST Markets/Finance Innovation: Hologram-generating eyeglasses willgoonsalenext year Virtual globalpandemics,just 99 An Indiantelecomcompany isusingsubsidiestotryboost wireless customers’ monthly bills GE planstospendbillionsmake jet enginepartswith3Dprinters "TTQBDFĭJHIUDPNQBOJFTOFBSMJGUPƘ UIFZŏSFMPPLJOHUP3%PVU Technology The Sierra Clubandmembers of theTea Party ﬁndcommonground intheirsupportfor solarenergy David Cameron’s ﬁght against childpornography inBritain Hawks intheSenate may derail thenucleardealwithIran 3FQVCMJDBOFƘPSUTUPSFHVMBUFBCPSUJPODMJOJDTBSFQVTIJOHUIFN Politics/Policy Briefs: Thehunter becomesthehunted inthetakeover A. BankandMen’s scuffle between Jos. Wearhouse Job Onefor new Wal-Mart Stores CEO DougMcMillon:Bringbackthegrowth Can aformer Monsanto executive puttarnishedcruiseoperator Carnival backoncourse? areAmericans cutting backongluten,andnoone’s stepping uptodefend wheat "SBQJESJTFJOŐHPMEFOIFMMPTőřIVHFTJHOJOHCPOVTFTGPSJODPNJ Companies/Industries Correlations: Tracking outsourcing’s negative impactonwages Will 2013’s weak harvest bringBordeaux pricesbacktoearth? Homegrown talent is transforming Mexico’s autoindustry -JGFBOEEFBUIJO6LSBJOFŏTJMMFHBMDPBMNJOFT Global Economics Bloomberg View Opening Remarks %FDFNCFS — %FDFNCFS 0OMJOFHBNCMJOHTIPVMECFMFHBMŚ*SBOŏTOFYUNPWFXJMMTIPXJU What raising theminimumwage doesanddoesn’t do 5IFQPPS HSBZOBUJPOUIBUUVSOFEJOUP&VSPQFŏTNPTUEZOBNJDFD sschen discussesthe virtuesof ¢ 5IFGBTIJPOQPXFSIPVTFUBLFT"NFSJDBOBHMPCBM for Android oriOS

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③

Index People/Companies

Paltrow, Gwyneth 25 Toyota (TM) 28 A PepsiCo (PEP) 25, 75 Tradeworx 45 Abercrombie & Fitch (ANF) 52 Perry, Katy 39 Tusk, Donald 63 Accenture (ACN) 42 PGA Tour Caddie 73 Twitter (TWTR) 45, 74 Adelson, Sheldon 12 15 Pissarides, Christopher 9 Adidas (ADS:GR) 63 An illegal mine PoliSpace 39 Aguilera, Christina 74 in Ukraine Pollan, Michael 25 UV Aker Solutions (AKSO:NO) 49 PrimeSense 49 Uber 28, 73 Alden Shoes 52 Procter & Gamble (PG) 39, 72 Unilever (UL) 39 Alere (ALR) 72 Progressive (PGR) 28 Valve Software 43 Amazon.com (AMZN) 28, 39 Van Paasschen, Frits 76 American Eagle (AEO) 68 Vaughan, James 42 Apotheker, Léo 23 R Verizon (VZ) 49 Apple (AAPL) 23, 41, 45, 49 Reebok (ADS:GR) 68 Victoria’s Secret (LTD) 52, 68 Arby’s Restaurant Group 23 Reichental, Avi 40 Virgin Galactic 39 Arison, Micky 25 Reid, Harry 33 Virtu Financial 45 Arizona Public Service 36 Reliance Aston Hill Financial (AHF:CN) 23 Communications (RCOM:IN) 41 Rice, Condoleezza 68 39 Ringer, Adam 63 Virgin B River Oaks Chrysler Jeep Galactic Bank of America (BAC) 58 Dodge Ram 47 Banks, Carl 68 Rogers Communications Barclays (BCS) 25, 48 (RCI/A:CN) 28 Barrick Gold (ABX) 23 Rolls-Royce (RR/:LN) 40 Bass, Lance 74 Royal Bank of Canada (RY) 46 Bats Global Markets 45 Royal Caribbean BBC 34 Cruises (RCL) 25 Bega Cheese (BGA:AU) 49 Rubio, Marco 33 Bernanke, Ben 48 Rycroft, Melissa 72 Best Buy (BBY) 23 Volkswagen (VOW:GR) 18 Bezos, Jeff 39 Deutsche Telekom (DTE:GR) 49 Hugo Boss 63 Von Furstenberg, Diane 52 Bharti Airtel (BHARTI:IN) 41 Diamond, Peter 9 Hunsader, Eric Scott 45 M S Bieber, Justin 39 Dion, Celine 74 Made in Space 39 Samsung (005930:KS) 41, 49 BlackRock (BLK) 48 Direct Edge Holdings 45 Maguire, John 25 Samuelson, Ruth 36 W Blackstone Group (BX) 47 Donald, Arnold 25 I Marchesa 68 Santana, Carlos 74 Wal-Mart Stores (WMT) 9, 26, Bloomingdale’s (M) 68 Donovan, Jeff 45 IbisWorld 72 Marunych, Dmytro 15 Saputo (SAP:CN) 49 58 Blue Origin (AMZN) 39 Dooley, Debbie 36 Inglot 63 Mastrettadesign 18 Schumer, Charles 33 Walt Disney (DIS) 76 Bodek, Haim 45 Dr. Luke 74 Insight Pharmaceuticals 72 Mattrick, Don 23 Sears (SHLD) 58 Walton, Rob 26 Boeing (BA) 28 Drexler, Millard “Mickey” 52 Intel (INTC) 49 Mazda Motor (7261:JP) 18 Seat Sherpa 73 Warrnambool Cheese & Butter Boston Consulting Group 76 Duke, Mike 26 InterContinental (IHG) 33 McDonald’s (MCD) 9, 63 Siemens (SI) 18, 40 Factory 49 6 Branson, Richard 39 Dunkin’ Brands (DNKN) 23 McGraw, Tim 74 Singh, Gurdeep 41 Wells Fargo (WFC) 25, 58 Brinker International (EAT) 23 DuPont (DD) 49 McKinsey 76 Six Flags Entertainment (SIX) WEtv (AMCX) 72 Burger King (BKW) 63 DVF 52 J McMillon, Doug 26 23 Wheeler, Tom 42 Burlington Coat J Sainsbury (SBRY:LN) 9 McReynolds, George 58 Spears, Britney 74 Whole Woman’s Health 31 Factory (BURL) 9 J. C. Penney (JCP) 23 Meesh & Mia 68 Spencer Stuart 23 Wilkinson, Kendra 72

E J.Crew 52 Menendez, Bob 33 Standard & Poor’s (MHFI) 47 Will.i.am 74 TY IMAGES Eater 73 Johnson, Ron 23 Men’s Wearhouse (MW) 28 Standard Chartered (STAN:LN) Williams, Serena 68 Ebay (EBAY) 52 Jolie, Angelina 39 Merck (MRK) 39 41 Wine Investment Fund 19 Edmunds.com 47 Joly, Hubert 23 Merrill Lynch (BAC) 58 Starwood Hotels & Resorts Wintour, Anna 52 EQT Holdings 49 Jos. A. Bank (JOSB) 28 Micromax 41 Worldwide (HOT) 76 Woolrich 52 Equilar 23 Microsoft (MSFT) 23, 34, 49 Stewart, Rod 74 WTGoodman 49 Exeter Finance (BX) 47 Milano, Alyssa 68 Stifel Nicolaus 26 Experian (EXPN:LN) 47 K Mitsubishi (MMO:GR) 47 Stratasys (SSYS) 40 39 Keibler, Stacey 68 Mitsubishi Heavy StubHub! (EBAY) 74 X Jeff Kellogg (K) 25 Industries (7011:JP) 39 Subway 63 Xcor Aerospace 39 Bezos F Kerry, John 33 Monsanto (MON) 25 Facebook (FB) 42, 72 KFC (YUM) 63 Morgan Stanley (MS) 47 Federated Media Publishing 75 Khatri, Armand 75 Mortensen, Dale 9 T Y Ferrari (F:IM) 63 Kickstarter 43 Mullaney, Michael 48 TBS (TWX) 68 Yahoo! (YHOO) 34 C Fiduciary Trust 48 Kirk, Mark 33 Munk, Peter 23 Technical Illusions 43 Yelp 73 Caesars Entertainment (CZR) Fink, Laurence 48 Krugman, Paul 9 Murray Goulburn 49 Telsey Advisory Group 26 YouTube (GOOG) 45, 72 74 Ford Motor (F) 18 Kuraray 49 Thompson, Don 9 Caffe Nero 63 Foursquare 73 Kutcher, Ashton 39 Thornton, John 23 Cahill, Gerald 25 N 3D Systems (DDD) 40 Z Calvin Klein (PVH) 68 Nanex 45 Tiffany (TIF) 28 Zagat (GOOG) 73 Cameron, David 34 G L Narang, Manoj 45 Timberlake, Justin 74 Zara (ITX:SM) 52 Capgemini 46 G-III Apparel Group 68 Lane Crawford 52 Nasdaq OMX Group (NDAQ) Timberland (VFC) 63 Zarif, Mohammad Javad 33 Carnival (CCL) 25 Gap (GPS) 52 Leading Investment 45 Tovar, David 9 Zero Gravity Solutions 39 Chesapeake Energy (CHK) 23 General Electric (GE) Management 46 Nestlé (NESN:VX) 75 Townshend, Pete 74 Zynga (ZNGA) 23 China Telecom (728:HK) 41 18, 28, 40 Netanyahu, Benjamin 12 Chrysler Group 18, 47 General Mills (GIS) 25, 75 New England Patriots 68 Church & Dwight (CHD) 72 General Motors (GM) 18, 28, 47 New York Giants 68 How to Contact Citigroup (C) 41, 47 Georgia Power (SO) 36 New York Mets 68 Bloomberg Businessweek Colbert, Stephen 9 Giant Interactive (GA) 49 New York Stock Comcast (CMCSA) 75 GM Financial (GM) 47 Exchange (ICE) 45 Editorial 212-617-8120 Ad Sales 212-617-2900 Comme des Garçons 52 GMI Ratings 23 Newmarketbuilders 26 Concannon, Chris 45 GMO 48 Newton-John, Olivia 74 Subscriptions 800-635-1200 Concept Laser 40 Godwin, Richard 39 Nike (NKE) 40, 63, 68, 76 Address 731 Lexington Ave., New York, NY 10022 Coors (TAP) 76 Goeser, Louise 18 52 Nissan Motor (7201:JP) 18 E-mail [email protected] CoverGirl (PG) 68 Goldman Sachs (GS) 23 Jenna Nokia (NOK) 45 Fax 212-617-9065 Subscription Service Cowell, Simon 74 Goldwater, Barry Jr. 36 Lyons Norwegian Cruise Line PO Box 37528, Boone, IA 50037-0528 Credit Suisse Group (CS) 40 Goodell, Roger 68 Holdings (NCLH) 25 CruiseDirect.com 25 Google (GOOG) 34 NPD Group 25, 68 E-mail bwkcustserv@cdsfulﬁllment.com Cyrus, Miley 74 Grantham, Jeremy 48 Levi’s 68 Reprints/Permissions 800-290-5460 x100 or Guess? (GES) 63, 68 LG 41 [email protected] Liberty Global (LBTYK) 49 OP D LinkedIn (LNKD) 73 Obama, Barack 9, 12, 33 Letters to the Editor can be sent by e-mail, fax, Davidowitz, Howard 52 H Lord & Taylor (HBC:CN) 68 O’Neal, Stanley 58 or regular mail. They should include address, phone Davis, William 25 H&M (HMB:SS) 52, 63 Los Angeles Dodgers 68 OpenTable 73 number(s), and e-mail address if available. Decimus Capital Markets 45 Hellman & Friedman 49 Los Angeles Kings 68 Ovitz, Kimberly 68 Delphi Automotive (DLPH) 18 Hewlett-Packard (HPQ) 23 Lululemon Athletica (LULU) 23 Paciﬁc Investment Connections with the subject of the letter should Deschanel, Zooey 25 Hill, Faith 74 Luther, Jon 23 Management Co. (ALV:GR) 48 be disclosed, and we reserve the right to edit for

Deutsche Bank (DB) 47 Honda (HMC) 18 Lyons, Jenna 52 Packaged Facts 25 sense, style, and space. III/WIREIMAGE/GET DZIEKAN S. HENRY LYONS: KIRKPATRICK/BLOOMBERG; T.J. BEZOS: BUSINESSWEEK; BLOOMBERG FOR SYWENKYJ JOSEPH MINES: THE ESSENCE OF BRITAIN Made in Switzerland by BREITLING

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8 ISN’T ENOUGH

A higher minimum wage would boost workers and bring America in line with the rest of the world. Helping the least fortunate will require a whole lot more By Peter Coy and Susan Berﬁeld Tom Wolfe himself couldn’t have imagined Raising the minimum wage Obama appealed to that sentiment in his a better New York juxtaposition. Pizza, is neither as wonderful State of the Union address when he said, Pepsi, and hot chicken wings were out “Tonight, let’s declare that in the wealth- on the table one November evening at as its advocates claim iest nation on earth, no one who works Strive New York, an agency in East Harlem nor as dangerous as its full time should have to live in poverty.” that helps ex-convicts and other chroni- detractors warn A Gallup poll in November found that cally unemployed people get and keep 76 percent of Americans would vote for jobs. Luz Droz, 32, who has a 10-month- a $9 federal wage floor. old son, explained that she was trying to generations of students were taught in The public images of low-paying turn things around after “a little situation freshman econ, new research finds that employers such as Wal-Mart and in my life,” which turned out to be two minimum-wage increases at the state McDonald’s take a hit during the holi- prison sentences totaling eight years for level have caused little, if any, harm to days, when Americans are seized by a dealing drugs and passing bad checks. She employment. “Outside of the simple spirit of charity. Stephen Colbert mocked detests being on welfare but was turned Econ 101-type environment, increasing Wal-Mart after employees at one of its down recently for a minimum-wage job workers’ pay can improve the functioning stores started a Thanksgiving food drive at Burlington Coat Factory. “I thought I of the low-wage labor market,” Arindrajit for fellow workers. “Now, some critics was going to get it,” she said. “Once I get Dube, a University of Massachusetts econ- out there say Wal-Mart isn’t doing a job, I’m off to the races.” omist, testified before Congress in March. enough, but they’re wrong,” Colbert said, The same evening, one stop south on On the downside, a higher wage floor “because Wal-Mart isn’t doing anything.” the 4 express subway line, waiters were would undoubtedly price some mar- Recognizing that they can’t get on the serving hors d’oeuvres of tuna tartare ginal workers out of the market. Interns, wrong side of their customers, many of and basil-slathered shrimp in the Upper for example, aren’t allowed to work for whom have below-average incomes, Wal- East Side apartment of billionaire George less than the minimum while they learn Mart and McDonald’s are attempting to Soros. The guest of honor was Soros’s the ropes. (They can be unpaid, but then change the narrative. Both say they pay fellow billionaire David Sainsbury, the they’re not allowed to do real work.) A above the minimum to the vast major- former chairman of the family-founded higher minimum wage would do nothing ity of their employees. “Nationally, there British supermarket chain J Sainsbury. He for the unemployed, among whom are has been an erosion of middle-class jobs, has a new book, Progressive Capitalism. the poorest of the poor. For them, other and we want to be part of the solution,” Sainsbury will probably never meet Luz solutions are needed. “The search for a David Tovar, Wal-Mart’s vice president Droz, but he, too, had minimum-wage silver bullet is a mistake. We need lots of for communications, e-mailed journal- employment on his mind. To compete bullets,” says Steven Pressman, an econo- ists on Nov. 21. The same day in Chicago, with China, he said, “the West must race mist at New Jersey’s Monmouth University. McDonald’s chief executive officer, Don to the top” and not try to “screw down Raising the wage to catch up with Thompson, pointed out at Bloomberg’s 9 the wages.” inflation invariably polls well, because The Year Ahead: 2014 conference that The down-on-her-luck mom who can’t most Americans perceive it as a matter 60 percent of the company’s franchisees land a job at minimum pay and the bil- of justice. Their hearts go out to the likes started in hourly jobs. lionaire who can’t imagine paying so little of Shawndraka Mack, 40, who works full Ultimately, the case for higher are two voices in a global debate over time at $7.60 an hour for a McDonald’s minimum pay should be evaluated not only the minimum wage, but also the in Charleston, S.C. She and her dis- on its economic merits. “Wages are a bigger challenge of helping the least for- abled fiancé are raising two teenagers market price—determined by supply and tunate members of society. The federal in the trailer home she inherited from demand, the same as the price of apples minimum wage is $7.25 an hour. President her mother. “I love what I do,” she says, or coal,” one economist wrote in 1998. Obama called for a $9 federal minimum “but I don’t want to work for nothing.” “The amorality of the market economy by 2015 in his State of the Union address is part of its essence and cannot be legis- in February and then this fall endorsed The minimum wage as a lated away.” (That economist—surprise— a more ambitious bill, which is stuck in percentage of the national was Paul Krugman, who was skeptical House and Senate committees, to raise it average pay in 2012 about living-wage ordinances but today to $10.10 by 2015. California, New York, says a healthy jump in the minimum wage Connecticut, Rhode Island, and New Jersey is justified on economic grounds.) 100% voted to raise state minimums this year. The latest support is based on the Last August fast-food workers in almost economic theory of “search frictions,” 60 cities struck or walked out in a bid for which won a Nobel Prize in 2010 for starting pay of $15 an hour. In recent weeks Peter Diamond, Dale Mortensen, and 75% two of the nation’s largest private employ- Christopher Pissarides. It’s the idea that ers, Wal-Mart Stores and McDonald’s, employers and job seekers don’t find have taken heat for paying many of their each other immediately. Fact: Some workers so little that they need government 3.9 million job openings went unfilled benefits and charity to get by. 50% at the end of September, according to Raising the minimum wage is neither the Bureau of Labor Statistics. Raising as wonderful as its advocates claim nor as the minimum wage makes workers less dangerous as its detractors warn. On the likely to quit, which reduces the number upside, it would increase pay for millions 25% of openings at any given time, the theory of Americans, not only those earning the goes. That boosts employment, offset- minimum but also those at fixed incre- ting layoffs of workers who are no longer ments above it. These are people who worth their pay at the higher minimum. 0 France Ireland Israel Canada U.K. Spain Japan U.S. Mexico PHOTOGRAPH BY 731; GRAPHIC BY BLOOMBERG BUSINESSWEEK DATA: OECD DATA: BUSINESSWEEK BLOOMBERG BY GRAPHIC 731; BY PHOTOGRAPH could really use a raise. Contrary to what “There’s a widespread recognition that 10 received anaverage $1.2 billion ayear in (Families of McDonald’s workers have pay, live partly on government benefits. employees, asaresult oftheirmeager as “welfare queens” because someoftheir recently blastedWal-Mart andMcDonald’s Ritholtz Barry Bloomberg View columnist welfare,stamps, andhousingassistance. sibly fillthevoid food ofinadequate only forworkers, however, itcan’t pos- to cover it’s theirhighercosts.Because instead inthepricesthatemployers raise showsCongress: Thecosttosociety up require getting through increase atax attractive toliberalsbecause itdoesn’t It’s net. than safety apieceofthesocial training, andworkforce development.” he says, involves “expanding education, Wal-Mart’s Tovar. Thelong-term solution, wage fix,” ashort-term is contends was 36 theminimumpercent. “Raising unemployment rateforblackteenagers jobs. Now 67 percent the do. InOctober percent81 ofmenaged 20andolderhad inflation-adjustedpeakof$10.70 anhour, 1968, when theU.S. minimum wage hitits any totheworld connection ofwork. In isn’t low pay. It’s thatmany have lost Research in Brasília. ident oftheInstituteApplied Economic conditions, says Marcelo Neri,pres- Côrtes andmeetother andvaccinated educated payments aslongtheyget theirchildren Família program, which gives familiescash thantherenownedviating poverty Bolsa wage, butit’s beenfarlesseffective inalle- Brazilhasaminimum Chicago economist. face,” writesJohn aUniversity Cochrane, of the real, first-order problems suchfamilies of reducing poverty. “It’s justirrelevant to responseinadequate tothelarger challenge for three years running. easiest placeinEurope todobusiness World Bankhasranked Denmark asthe about $20anhour. De groups theequivalent andunionsis of set by employer negotiations between national happiness, theminimum pay and leading countriesinincomeequality the sky falling.InDenmark, amongthe low—only behigherwithout thatitcan that prove doesn’t and Development except Mexico. That forEconomicCo-operation Organisation than thatofany othermemberofthe of theU.S. average pay, alower ratio ars studying theminimum wage. who’s ofanewgeneration part ofschol- says Dube,theMassachusetts economist, really thelabormarket,” understand we needmodelswithsearchto frictions In arguingforahigherminimum wage, The minimum wage never bemore can The deeperproblem fortoday’s poor theminimumStill, raising wage an is America’spercent minimum wage 27 is the U.S. toois floor spite that, thespite that, to theworld of work have lost any connection today’s pooristhat many The deeperproblem for positions followservice manufacturing rarily, butpermanently? Whatifmany some peopleoutofwork nottempo- livelihoods. throws Butwhat iftechnology should beresponsiblement, forworkers’ and private employers, notthegovern- themselves by thesweat oftheirbrows— peopleshould supportable-bodied grounded inthetraditionalethicthat in someways deeply conservative. It’s theminimumnotion ofraising wage is to stay unemployed. people who landedwork orinducethem who got ajob. Butthatwould penalize ers would betocutoffbenefits anyone inadvertently subsidizingprivate employ- example tofollow. Theotherway outof of Dickensian cruelty. That’s hardly an locked themupinsteadinpoorhouses ients ofrelief from working forthem.It sidies toemployers by preventing recip- New Poor Law of1834triedtoendsub- they would disappear entirely. Britain’s wage rose, butit’s unreasonable tothink employers would shrink iftheminimum helped organizethesummerstrikes.) funded by Fast Food Forward, which benefits, according study toanacademic Although afavorite ofliberals,the True, thosehiddensubsidiesto economicpuzzle. But it’s only onepieceofavery large workers andharmless totheeconomy. higher wage rightforlow-skilledis floor adoption ofauniversal basicincome.A minimum wage farmore is likely than themselves, orboth. anteed by thegovernment, or tofulfill of living above oneguar- thespartan if theycould,eithertoearnastandard say mostpeoplewould stillwanttowork epidemic ofshirking work. Butbackers anmoney unconditionally couldstart (The datehasn’t Giving beenset.) people on thenationalballotinSwitzerland. fallpetitioners managedThis toget it unconditionalbasicincomemovement. ness ofthewelfare state. higher incomes—toreplace theintrusive- ant—a payment thatwould phaseoutat favored economist, late libertarian avari- minimum wage. MiltonFriedman,the work It’s ornot. abigstepaway from the rich orpoor, regardless ofwhether they that goes toevery personinacountry, annual grantoffixedincome—an size advocates termunconditionalbasic professor Fe atthe Santa Institute. speculates BrianArthur, anonresident whose are services nolonger needed, ways toshare itsabundancewithpeople willhavehappens, society todevelop new hamburger-making robot forsale.) If that jobs intoobsolescence? (There’s already a In theU.S., anincreaseinthe fortheEurope headquarters is what solutionis One up-and-coming —With Mark Gimein Los Angeles A protest in on Nov. 7

LUCY NICHOLSON/REUTERS Come to Berlin with your children. One day they’ll be here anyway.

the place to be for talent. www.be.berlin.de View To read Pankaj Mishra on Bangladesh and Virginia Postrel on entertainment spending, go to

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comply with laws targeting money laundering and prohibi- The Case for Legalizing tions against underage gambling. Again, it wouldn’t be fool- proof, but neither are real-life casinos. Online Gambling Finally, a federally regulated system would help move online gambling toward licensed—and taxed— domestic operators. Federal oversight is the best way Gamblers could be assured that their financial transactions to make the industry more rational are safe and legal and that the games aren’t rigged. Public officials, meanwhile, would be rewarded with a windfall: Taxing online wagers could lead to as much as $41 billion in revenue over 10 years. People clearly like gambling. Letting them do so where they want would make them happy. Regulating it properly would keep them safe. And taxing it will make lawmakers smile.

Keep a Close Eye on Iran’s Next Move The test of the country’s intentions will be how aggressively it pursues a ﬁnal agreement

In a victory for fun, liberty, and sound fiscal policy, New Jersey has become the third state after Delaware and Nevada to permit Of all the details about the historic deal announced on Nov. 24 12 online gambling within its borders. A dozen or so other states in Geneva limiting Iran’s nuclear program, the most salient one will consider doing so next year. By 2023, according to a fore- may be its scope: It’s intended to last for only six months. Iran cast by Bloomberg Industries, annual online gambling revenue agreed to take the essential steps required to freeze its progress, could reach $23 billion nationwide. In a just world, it would which include halting enrichment of uranium to 20 percent, just be legal in all 50 states. a short leap from weapons-grade, and converting its stockpile Online gambling, like everything else on the Internet, is of the fuel to less dangerous forms. Iran also agreed to accept inherently interstate commerce. That makes federal regula- more intrusive inspections—in some cases daily—by the Interna- tion sensible. tional Atomic Energy Agency. In exchange, the so-called P5+1— Two bills in Congress are on the right track. One would legalize China, France, Russia, the U.K., the U.S, and Germany—have all forms of online gambling, except sports, and create an over- relaxed about $7 billion of the $100 billion sanctions. sight office at the U.S. Department of the Treasury. It would also Israeli Prime Minister Benjamin Netanyahu is correct that allow states to opt out of permitting such wagering. The other the agreement clearly establishes any final pact will leave Iran bill proposes a 4 percent federal tax on operators and permits with an enrichment capacity, albeit one that is limited and mon- states to collect an additional 8 percent in taxes. Combined, the itored. This is a departure from United Nations Security Council two bills offer the outline fora rational federal approach. resolutions in place since 2006 and the zero-enrichment Of course, there will be plenty of objections. Sheldon Adelson, demands made by the U.S. and its European allies for the last who made his zillion-dollar fortune separating casino-goers from 10 years. That strategy, however, failed. The tacit acceptance their money, has recently discovered moral objections to gam- that Iran will be allowed to go on enriching uranium up to bling (online, anyway). He should stop whining. Casinos—like every 5 percent merely recognizes this failure. other industry from music to media to retail—will have to adjust A permanent settlement needs to meet the legitimate con- to the Internet’s ruthless disruption. Some states may not like cerns of Israel, Saudi Arabia, and others in the Middle East— the idea, either. They might depend on tax revenue from casinos and it must enforce the repeated pledges of President Obama to shore up their budgets, for instance, or they might object to that Iran never become a nuclear-armed state. Critics of the online gambling on moral grounds. Yet states will be able to raise interim agreement are right that Iran may use the negotia- substantial new revenue from online wagering, and traditional tions to run out the clock, gradually wearing down sanctions casinos will still be producing cash for a long time to come. If state but leaving the country with the freedom to develop nuclear officials find gambling sinful, they can always opt out. arms. The best way to prevent this is to make clear to Iranian At any rate, problem gambling and other harmful side leaders that failure so late in the game would mean military effects will probably be easier to prevent online than they action, while success could lead to other deals Iran craves on have been with casinos. If would-be players are required to trade and regional security. open an account and have their identities verified, imposing The real test of Iran’s intentions comes now, not just in whether loss limits should be fairly manageable from a technical per- it implements the terms of the interim deal, but also in how spective. (As with most things digital, convenience comes at the aggressively it pursues a final agreement. That’s what support-

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Bordeaux’s very bad year 19

December 2 — December 8, 2013 In Ukraine, Desperate Workers Turn to Illegal Mines

People die and streets collapse as the mines proliferate “I never take my grandchildren to the woods, because they’re full of holes” The birthplace of the Stakhanovite movement, designed to inspire workers under Stalin, the area became the Soviet Union’s major supplier of coal and a hub of steel mills, foundries, and chem- ical factories. By Soviet standards it was a prosperous place. The social fabric frayed after the 1991 fall of the Soviet Union. Many state mines and factories shut down, and jobs became scarce. Crime and drug use skyrocketed, bringing with them HIV and tuberculosis. The provincial capital of Donetsk is 15 surrounded by towns like Shakhtarsk, with row after row of drab residential blocks linked by crumbling roads decorated with monuments of miners and soldiers. Oleksandr Kendyukhov, head of the economic management department at Donetsk National Technical A woman drops University, says that the area trash into the needs massive investment and gaping mouth of a that Ukraine as a whole needs defunct illegal coal a complete restructuring of When Andrey Kandourov started if they’re injured. They work mine. Below, the its coal industry. Where the working in an illegal coal mine near the for as little as 150 hryvnia funeral of Andrey investment will come from is eastern Ukrainian city of Torez on Oct. 1, ($18) a day, below the regional Kandourov, who unclear. The country’s leaders died in a mine. he wouldn’t let his mother buy him a average of 185 hryvnia. Mining had been negotiating a trade respirator, because he thought it was and energy experts estimate agreement with the European too expensive. Two weeks later he was that hundreds die every year in Union, but the government dead. The police told his family he died such unlicensed mines, which produce has recently turned away from the EU, of a heart attack, even though another anywhere from 3 million to 10 million looking to Russia for assistance. worker died in the mine with him at tons of coal, or about 4 percent to The kopanki started in the early 1990s the same time. The family says it never 12 percent of the country’s annual total. as a way for families to get a bit of extra received any compensation from the “Andrey kept telling me, ‘Mom, coal for the winter, but they’ve turned state social insurance fund. I can’t find any work,’ ” Valentina into a big organized business, accord- Kandourov, who was 44, is one of Kandourova says as she shares photos of ing to Dmytro Marunych, co-chairman many casualties of Ukraine’s illegal coal her son in her small, tidy apartment in a business, a nightmarish world where concrete, Communist-era housing block day laborers—some in their teens—toil in the town of Shakhtarsk. She weeps underground in narrow, crudely dug bitterly as she describes the depth of shafts without proper structural support her son’s desperation. “That mine had or ventilation. The miners usually labor been closed once before by a court order without safety equipment, and they because it was too dangerous,” she says. have no hope of a pension when they Most illegal mines, called kopanki, are

PHOTOGRAPHS BY JOSEPH SYWENKYJ FOR BLOOMBERG BUSINESSWEEK(5) BLOOMBERG FOR SYWENKYJ JOSEPH BY PHOTOGRAPHS can no longer work or health insurance in the Donetsk region in eastern Ukraine. An elderly woman Global Economics (left) who works as a guard at a kopanka, stands in the doorway of her small trailer home. A worker (right) repairs a cable at the entrance of an illegal mine near Davydovka.

of the Kiev-based consultant Energy Strategies Fund. He says that most of the unlicensed mines are owned and run by loosely connected criminal networks that hire the workers and bribe local police to keep quiet. Since they don’t pay taxes, social security, or health insurance, or invest in safety equipment, the coal is four to five times cheaper than what comes from the highly inef- ficient state mines, which spend about $200 to produce a ton of coal. The Ukrainian Parliament has just passed a 16 law that could lead to a crackdown on the kopanki, but it remains to be seen whether it will have any effect. According to Marunych, the state mines indirectly buy coal from the kopanki through an official trading agency, Coal Ukraine. Kopanki operators sell coal to traders, who in turn sell it on the internal Ukrainian market, where it’s eventually bought by Coal Ukraine. This coal is counted as part of the state mines’ production: The state mines get government subsidies for each ton of coal they produce. So Ukrainian taxpayers end up subsidizing kopanki owners. “Since 2009 the government has spent 60 billion hryvnia on coal subsidies,” Marunych says. “It’s so huge it destabilizes the country’s budget. And it’s only making the kopanki thrive.” Coal Ukraine did not have an immediate comment. Because the kopanki are shallow and dug by profiteers rather than professional mining engineers, they cause environmental damage, says Anatoly Akimochkin, first deputy chairman of the Independent Trade Union of Miners of Ukraine in Donetsk. “Real mines exploit the coal layer much deeper underground, so they pose no immediate threat to the environment,” he says. “Kopanki are in areas where no one should have the right to extract coal, often right by people’s houses.” Global Economics

Valentina Kandourova, holding a picture of her son, recalls how joblessness drove him into the mines. Global Economics

Part of the street where Zinaida coughing Lada motor, while Aleksandr, Made in Mexico, From Scratch Trofimova lives near Snizhne has caved a supervisor with 35 years of experience in as a result of illegal mining in the yard in state mines, talks on a walkie-talkie Mastretta MXT of a neighboring house. The pensioner to the two men working underground. has complained to authorities many Due to the illegal nature of their work, times but says they’ve always turned a no one will give his last name. “This blind eye. “I was showing it to the police, mine is operated under conditions that and they said, ‘Eh, what do you want?’ ” aren’t too different from what we had she says. “Sometimes when I go to bed, under the Czar,” Aleksandr says, wiping and the night is quiet, I hear the walls soot from his face. “These kids, they cracking.” A short walk into a protected don’t know what they’re doing. Can almost nothing,” he says. “I knew quite nature preserve reveals more makeshift life get any worse than this?” —Ladka a lot by the time I started working here.” mines. “I never take my grandchildren to Bauerova and Kateryna Choursina Mexico had 579,814 students enrolled the woods, because they’re full of holes,” The bottom line As much as 12 percent of in engineering programs in 2011, double Trofimova says. “Once a cow fell into one Ukraine’s coal production comes from illegal the number five years earlier and of the holes.” Yet even she can’t imagine mines run by criminal networks. more than Brazil or Germany, accord- life without the mines: Her son works in ing to data from the United Nations one to feed his three children. Educational, Scientific, and Cultural For a supposedly illegal activity, the Organization (Unesco). The country has kopanki are very visible. Trucks loaded almost 4.9 engineering students per with coal rumble down country roads, Skills 1,000 people, compared with 3.6 in the while unregulated open-pit mining has U.S. A Mexican company, Mastretta turned parts of the countryside into a Mexico’s Surprising Cars, has used local engineers to design lunar landscape. One reason the police Engineering Strength and build most of a high-powered rarely arrest anyone could be that some sports car, the Mastretta MXT, which highly placed politicians are involved in sells in Mexico and the U.S. for $63,000. The country’s auto industry gets the trade, according to Yuriy Korolchuk, It typically takes 1.3 engineers a boost from homegrown talent a member of the advisory board of the in Mexico to do the work of one in Institute of Energy Strategy in Kiev. The “We are transitioning from Made the U.S., says Cary Leslie, Chrysler 18 Ministry of Social Policy, which works in Mexico to Designed in Mexico” Group’s director of engineering for on employment issues, including those Mexico. In part that’s a function of of miners, had no immediate comment. As global automakers pour billions of experience: Engineers in Mexico have The energy and coal minister did not dollars into their Mexican factories, been on the job an average of about find time to meet in October, nor did the Marcos Perez is trying to make sure the eight years, compared with 25 in ministry answer written questions. nation’s future goes beyond assembly Michigan. Labor costs including bene- In the Davydovka settlement near lines. The head of product development fits for Mexican engineers are typically Torez, not far from the mine where at Ford Motor’s Mexico unit, Perez has 40 percent of U.S. costs, according to Kandourov lost his life, rickety barrels helped the company almost triple its Ford and Chrysler. filled with coal are fastened to a worn local engineering staff, to nearly 1,000, Automakers hiring engineers in steel cable and pulled up from a depth of since 2010. His engineers have filed for Mexico are catching up to companies about 180 meters (591 feet) by an engine 40 U.S. patents in the last three years, such as General Electric, which has from an old Lada, the ubiquitous car of including one for a low-cost crash pro- about 1,600 engineers working in the Soviet era. Igor, the youngest of the tection system that boosts safety ratings Querétaro on turbines to sell to makers three workers aboveground, adds the without adding much weight or cost. of jet engines and power plants. coal to a growing pile. Nikita revs up the “It’s an inflection point,” Perez says. Siemens has opened three engineer- “We used to be a simple-assembly kind ing centers in Mexico in the last three of country, and we moved to a truly core years to work on electrical systems, Ukraine Coal Consumption manufacturing country, where most of according to Louise Goeser, chief exec- our assembly plants are hitting record utive officer at the company’s Mexico 80m Tons of oil numbers on productivity, on quality, and Central America unit. equivalent on cost. Now we are transitioning from More such jobs will open up routes 70m Made in Mexico to Designed in Mexico.” to the middle class. Engineering With the fall of the Soviet Union, In a cubicle at a Ford assembly plant graduates, the most sought-after by 60m manufacturing—and on the outskirts of Mexico City, Gerardo employers, usually make as much as with it demand for Rodriguez, a 24-year-old mechanical 45 percent more than people with non- coal—collapsed engineer, is working on reducing noise technical degrees, according to the 50m in the Ford Fiesta, which is exported Mexico City office of Michael Page from the factory to the U.S., Canada, International, a recruitment company. 40m and Latin America. He participated in a “As that value chain expands, from Ford trainee program as an undergrad- manufacturing to suppliers, from man- 30m 1985 2012 uate at Universidad Iberoamericana and ufacturing to research and devel- was hired two weeks before graduat- opment, you get a much broader,

DATA: BP ing. “I went into the program knowing stronger economy,” Goeser says. GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: LIV-EX use inauto around theworld. factories for ponents, fuelpumps,andelectronics com- transmission design engineparts, About 1,300engineersinCiudadJuárez says thecenter’s Collins, Duane director. level asthoseindeveloped countries, border from ElPaso, have asimilarskill centerinCiudadJuárez,nical across the engineers ata plant eastofMexico City. wagen in anearby next state year, and and pany’s third inMexico. that openedinNovember, thecom- Nissan Motor Arbor, Mich.Thatincludesa$2billion forAutomotiveCenter Research inAnn the lastthree years, $12.7billion inMexican investments over skills, we don’t have enoughpeople.” if you go tomore advanced technical them withthebasicskills,” hesays. “But level a in Mexico City. “We get can alotoflow- an auto withA.T. consultant Kearney the highly skilled, says Ricardo Haneine, turing couldsharpen competitionfor andDevelopment. Co-operation forEconomic in theOrganisation development amongthe34 gross domesticproduct onresearch and Mexico spendsthesmallestshare of to Unesco. With theexception ofChile, years lessthanintheU.S., according less thaninArgentina andalmostfive almostayearpeople olderthan25 is Its 8.5 average years ofschoolingfor in theU.S., Germany, andSouthKorea. way togo levels tomatcheducational and universities, Mexico hasalong up from in2013 15cars 51 cars 2014 production price base $63,000 Price of GM’s Toluca engineering operation. tion equipment, says David Rojas, head reduc-conditioning systems, andnoise components suchasdoorpanels, air 40 mileswest ofMexico City, design 400 ofits640 engineers inToluca, ondesign inMexico.emphasis About General MotorsGeneral After gainingafewyears’ experience, Global automakers have announced The expansion ofauto manufac- Outside afewworld-class Mazda Motor ssembly workers, andwe train can ’s Audi buildinga$1.3 billion is Delphi AutomotiveDelphi plant in Aguascalientes plantinAguascalientes are opening is increasing its is according tothe “ Giesemann CEOCars Conrad Mexico.” — but it’s alldesignedin partsabroad,some Obviously, we bought done here inMexico. All theengineeringis Honda Motor countries companies Mastretta Volks- factories factories tech-

Vintners Exchange London International Bordeaux onthe Investors trade Liv-ex FineWine50Index though, were notsofabulous: British themomentum. demand sustained 2009 and2010, respectively. Chinese hikes of 204 percent and12percent in lous enoughtocommandaverage price Vintages from 34toplabelswere fabu- region have enjoyed somefatyears. Wine producers inFrance’s Bordeaux theMarketVintage Hits A DismalBordeaux Commodities Skilled engineersare onereason. $12.7 billioninMexico inthelast three years. The bottom line —Brendan Case Mexican. memorable—and have masstodosomething thecritical product- were 60or70 engineers,” hesays ofthe Germany. “WhenIleftMexico, we Ford plants inMichigan,Japan, and in 2009afterspendingnineyears at Santillanreturnedplant. toMexico ing fortheFord atitsCuautitlán Fiesta sees product- body, says JuanSantillan,who over- from tothe thechassis duction, ing anentire vehicle formasspro- to play aleadingrole indevelop- neers andaChrysler operationwith350. tech alsohometoaNissan is The city Dec. 2012

deflate pricesfurther A disappointing harvest may prepared topay thenew prices” “Old-fashioned … buyers are not The vintages of2011and2012, The next stepmay beforMexico nical center with almost 500 engi- centerwithalmost 500 nical development group. Now they development engineer- Carmakers have invested March 2013 “a “a Robinson 2011 Jancis calls wine critic reds; justbeenhitwith they’ve haven’t losttheirappetite forFrench the firsttimesince1999. TheChinese importer,the biggest fell last year for from arecent peakinMarch. annual decline,tumbling7.9 percent in 1855, headingforathird is straight underEmperor Napoleon III quality) (aranking currentby classifications Bordeaux wines,which received their Liv-ex Index FineWine 50 ofleading reaching arecord in2011,London’s tors have soured onBordeaux. After de Bordeaux (UMB). wine merchants, theUnion desMaisons the chairmanofBordeaux’s guildof probable pricedrop, says AllanSichel, perceived lower are behindthe quality determined.Weakenedis demandand ing next April, when thewine’s price 2013 vintage more than25 percent start- ranked châteaux may cutpricesforthe ing toFrench government Top- data. year,this to543 millionbottles,accord- wineregion, willdroptant 23percent in Bordeaux, France’s mostimpor- est harvestsince1991.Wine produced were picked early andyieldedthesmall- time,thegrapesthatsurvivedharvest summer hailstorms,andrainrot at Damaged by coldweather inMay, fabulous ofalltherecent vintages. stock from 2011and2012. châteaux have beenstuckwithunsold has fallen,andthemiddlemen 2008, before thegreat takeoff. Demand are stillpaying 30percent more thanin nearly enoughto please customerswho depth andpersistence.” Bordeaux from 2012“have alackof Sales ofred Bordeaux toChina, The crummy harvest comesasinves- The 2013 Bordeaux lookstheleast Prices have dropped some,butnot forgettable year,” andsays most lost interest buyersChinese Prices slidas Global Economics Nov. 2013 320 325 330 295 300 305 310 315 19 Global Economics 26% sticker shock over the prices of high- end Bordeaux. Exports to China of Correlations By Mark Glassman less expensive French wines from the regions of Languedoc-Roussillon and Côtes du Rhône rose, trade data show. Miles Davis, a partner at Wine Asset One Job, Two Wages Managers in London, says buyers aren’t willing to absorb the Bordeaux that the Chinese no longer want. “The old- Researchers have long suspected outsourcing is linked to a decline in pay, fashioned Bordeaux buyers are not pre- but it’s hard to prove. A recent study from the University of California at pared to pay the new prices,” says Davis Berkeley and Simon Fraser University in Vancouver used the U.S. Depart- of the mostly British and French con- ment of Labor’s employment database to study outsourcing at American sumers who find it too expensive now. A 12-bottle case of 2009 Château Lafite airports. The study, funded by the Service Employees Air-transport- Rothschild sold for £6,750 ($10,864) on International Union, found outsourced workers tend to related the Liv-ex market on Oct. 18, a record jobs outsourced low for that wine. That’s down from make less than direct hires in the same job. in 2011 £10,000 in May 2010, immediately after 2012 U.S. airport workers the vintage’s release, and less than half the £14,300 reached in November 2010 by occupation = 500 workers Direct hires Outsourced hires Wheelchair and other ground Cleaners of vehicles Ticket agents when Chinese demand was peaking. Average transportation attendants and equipment $17.22 | $13.23 Bordeaux’s classified estates—the top hourly $14.44 | $10.58 $13.56 | $10.94 producers, including châteaux Margaux, wage Haut-Brion, and Lafite Rothschild—sell wine en primeur, or still in the cask, to merchants in a futures market. Many Cargo and freight agents 2012 Bordeaux wines quoted on the $19.32 | $14.57 Liv-ex exchange have dropped below Customer service the prices at which they were first 20 representatives offered. The average price of all 344 $15.13 | $15.38 Bordeaux wines from 2012 offered en primeur was down 7.6 percent from the 2011 vintage, Decanter magazine reported in June, citing data from wine broker Tastet & Lawton. The high prices of top-classified Bordeaux of recent years have sent investors looking for more affordable Freight, stock, wine from other regions such as and material movers $15.66 | $12.76 Champagne and Italy’s Tuscany, as Bellhops and porters well as older Bordeaux vintages. “The $11.09 | $10.49 Bordeaux market is dead. People are fed up with en primeur pricing,” Davis says. The latest vintage may bring the aggressive pricing to a halt. “No one will be excited about the 2013 vintage, so it’ll be complicated to justify high prices,” says Sichel, of the UMB. The young wine Ticket agents tend that he’s tasted so far doesn’t have “a lot to cost more to train and require of depth,” Sichel says, and may have dif- company-specific ficulty developing much complexity as knowledge it ages. Says Chris Smith, an investment director at the Wine Investment Fund in London: The châteaux need to price the 2013 Bordeaux “realistically” or “risk Number of trips, year- 8m Passenger flights end holiday air travel losing the market completely.” during the Christmas —Rudy Ruitenberg and New Year’s period The bottom line Overly ambitious pricing and Outsourced or not, airport China’s diminishing thirst for fancy Bordeaux staffers have been dealing with many more holiday travelers are weakening producers’ pricing power. since the end of the recession 2m 2001 2012 (est.) Edited by Christopher Power Businessweek.com/global-economics GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: UNIVERSITY OF CALIFORNIA; SIMON FRASER UNIVERSITY; DEPARTMENT OF LABOR; AAA Options shown. ©2013 Toyota Motor Sales, U.S.A., Inc. 1.800.909.9461 att.com/wirelesshomephone Visit a Store

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Carnival’s new CEO Briefs: Now Men’s gets his sea legs 25 Wearhouse is trying on Jos. A. Bank 28

December 2 — December 8, 2013

Big CEO signing bonuses are the latest compensation practice to draw criticism from activists “It’s up to the board to make sure it’s good for shareholders. I consider a request for cash a red ﬂag” For years corporate boards have used Ron Johnson show that such tactics can in cash and stock for less than one so-called golden handcuffs (retention quickly lose their glitter—at least for year’s work. incentives) to keep treasured chief shareholders. J. C. Penney fired CEO Some directors agree front-loading executive officers in the fold or pro- Johnson in April, 17 months after giving such largesse is bad governance. “The vided golden parachutes (severance him a signing bonus of $52.7 million incentive should be they will come packages) to ease their departures. in shares to recruit him from Apple. to the company and perform and be Lately, another gilded pay prac- “Investors should be skeptical of golden rewarded,” says Jon Luther, chairman tice has taken hold: golden hellos, or hellos, which represent pay decou- of Arby’s Restaurant Group, a direc- multimillion- dollar signing bonuses pled from performance and provide tor at Six Flags Entertainment and used to get CEO candidates to join the no retention incentives,” says Lucian Brinker International, and former CEO team. The number of U.S. companies Bebchuk, a Harvard Law School profes- of Dunkin’ Brands. Candidates for high- in the Russell 3000 Index and Canadian sor who has studied CEO pay. level positions who asked for signing ones in the S&P/TSX 60 Index making Some welcome payments can yield bonuses where he’s been a board upfront payments to executives has disappointing returns: J. C. Penney member have been rejected in favor of risen to more than 70 this year, from 41 shares slumped 50 percent during those who didn’t, he says, declining to in all of 2012, according to governance Johnson’s reign, while Hewlett- identify the companies and candidates. advisory firm GMI Ratings. Among this Packard’s dropped 46 percent under Luther says he never asked for a bonus year’s biggest: Zynga’s $45 million Léo Apotheker, ousted in 2011 just to take a job and was never offered one: package to attract game industry 10 months after getting $8.6 million in a “I said I’ll get it done, and you can take veteran Don Mattrick. signing bonus and relocation benefits. care of me when I succeed.”

ILLUSTRATION BY STEPH DAVIDSON STEPH BY ILLUSTRATION Yet high-profile flameouts such as In total, he was entitled to $34.7 million Golden hellos are often a sign Companies/Industries The former Apple Stores chief lasted 17 months

Biggest CEO Signing Bonuses

Company CEO Previous position Signing bonus Stock price during tenure

J. C. Penney Ron Johnson* Head of retail at Apple; 11/1/11 4/8/13 Plano, Tex. Age: 55 formerly an exec at Target $31.71 $15.87

Zynga Don Mattrick President for interactive 7/8/13 11/25/13 San Francisco Age: 49 entertainment at Microsoft $45m $3.29 $4.50

Best Buy Hubert Joly CEO of hotelier Carlson, 9/4/12 11/25/13 Richﬁeld, Minn. Age: 54 after a stint at Vivendi’s $16.3m $18.02 $39.73 video game unit

Chesapeake Energy Robert Lawler Senior vice president at 6/7/13 11/25/13 Oklahoma City Age: 47 Anadarko Petroleum $9.5m $22.00 $26.27

Hewlett-Packard Léo Apotheker* CEO of German software 11/1/10 9/22/11 Palo Alto, Calif. Age: 60 maker SAP $8.6m $42.49 $22.80

*DEPARTED; DATA: COMPILED BY BLOOMBERG of other compensation dysfunc- of evidence the bonuses were getting a big name, but now he really has to tions, says Greg Ruel, a GMI senior bigger, Ruel says. The payouts have deliver.” In an e-mail, Barrick spokes- research analyst. On average, compa- risen even as CEO turnover last year fell man Andy Lloyd said the gold pro- nies dinged by GMI for giving out big to the lowest level since at least 2004. ducer’s board is in the process of upfront payments also have received Companies often justify golden hellos strengthening governance practices grades of D for their overall pay prac- by saying they compensate for pay that through the addition of independent tices. Chesapeake Energy and Best new CEOs had to forgo for leaving their directors and improvements to execu- Buy, two that have been flagged by previous employers. Such payments tive compensation. GMI for offering golden hellos, also in partly explain why hiring an outside At J. C. Penney, Johnson got his 24 recent years lost so-called say-on-pay CEO costs about one-third more than November 2011 signing bonus in votes, nonbinding stockholder polls promoting from within, says Chris restricted stock to make up for the on pay plans granted by their boards. McGoldrick, a senior research analyst compensation he had to forfeit at Those ballots were evidence of share- at compensation tracker Equilar. Board Apple, where he’d led retail opera- holder dissatisfaction—and ultimately compensation committees may have to tions. Johnson couldn’t be reached for prompted changes in the companies’ consider that as they search to fill CEO comment. Kristin Hays, a J. C. Penney compensation practices. vacancies at Microsoft, Lululemon spokeswoman, declined to comment. In April, the same month as Athletica, and J. C. Penney, which is Sometimes golden hellos do pay Johnson’s ouster, golden hellos seeking a replacement for its interim off for investors. Best Buy’s shares again were thrust into the spotlight, CEO. Last year about 26 percent of new have more than doubled since the this time at Toronto-based Barrick S&P 500 CEOs were hired from outside consumer electronics retailer lured Gold. Dissenting investors, includ- the company, according to executive former hospitality and video game ing Canada’s six largest pension funds, recruiter Spencer Stuart. executive Hubert Joly to be its CEO opposed an $11.9 million “This is the kind of “The board has to decide if in 2012 with a welcome package that cash welcome package to situation where they want to pay the freight to included a $3.5 million cash bonus and Co-Chairman John Thornton, you are not getting move the CEO from one job to equity grants and options valued at a former Goldman Sachs pres- anything in another,” says David Larcker, almost $13 million. For Zynga, a social ident. (Although the bonus advance, but yet a Stanford Graduate School of gaming pioneer whose games have wasn’t rolled back, Barrick you have to pay Business professor who has faded in popularity, it’s too soon to tell upfront for the did adopt other governance hopes ... of what done research on executive whether shareholders will benefit from changes.) “This is the kind of will be delivered.” compensation. “It’s up to the Mattrick’s hiring. Although the stock situation where you are not —Robert Gill board to make sure it’s good has risen since the former Microsoft getting anything in advance, for shareholders. I consider a president of interactive entertain- but yet you have to pay upfront for request for cash a red flag, though.” ment arrived in July and began cutting the hopes and the aspirations of what Barrick Chairman Peter Munk told expenses and engineering a restruc- will be delivered down the road,” says investors who opposed Thornton’s turing, it still trades at less than half Robert Gill, a Toronto-based fund bonus at an April shareholders’ its 2011 initial public offering price. manager at Aston Hill Financial, which meeting that he needed the former Dani Dudeck, a Zynga spokeswoman, manages $7.6 billion in assets, including banker, “a highly desirable, well- declined to comment. Barrick shares. “We don’t think that’s known commodity,” to secure access to Some management experts say direc- commensurate with how the industry governments and protect against pos- tors must try harder to compare poten- should remunerate people.” sible losses of mineral rights. Some tial CEOs’ relative value. “The board GMI decided to include golden hellos investors aren’t so sure. Says Aston has to be careful not to fall in love in its rating system in April because Hill’s Gill: “I do realize Thornton has with any one candidate,” says James Companies/Industries

Post, a governance and ethics pro- Mills and Kellogg are creating pricier Kirstie Foster. “We’re responding as we fessor at Boston University School of gluten-free versions of their prod- think we should.” Management. “You have to look for ucts, while leaving industry groups The reluctance of grain produc- a good candidate at a good price, not a to defend their regular fare. The U.S. ers to defend gluten surprises Michael good candidate at any price.” market for gluten-free foods will climb Pollan, author of The Omnivore’s —Jeff Green from $4.2 billion in 2012 to $6.6 billion Dilemma and other books on nutrition. The bottom line The number of companies by 2017, according to researcher “The industry has been flat-footed in granting CEO signing bonuses is up more than Packaged Facts. their response,” he says. “They should 70 percent so far in 2013 from last year. “Large companies have learned be reminding people that gluten is not to overreact to these flash trends,” protein, generally thought of as a says Mark Lang, a food marketing pro- healthy nutrient compared to fats or fessor at Saint Joseph’s University in carbs.” —Matthew Boyle Philadelphia. “There is nothing to gain, The bottom line Major U.S. food companies Nutrition and you have everything to lose.” have refrained from challenging the gluten- Fifteen years ago, diets that limited free trend for fear of sparking a backlash. Will Nobody Speak carbohydrates sent sales of white Up for Wheat? bread and pasta plummeting. Out of that crisis rose organizations such as the Whole Grains Council, which As gluten has come under attack, encourages consumers to eat more Travel food makers have remained silent brown rice and whole wheat bread. An Unlikely Captain “Large companies have learned not The group counts General Mills and to overreact to these ﬂash trends” PepsiCo’s Frito-Lay snack unit among Takes Carnival’s Helm its members. Cynthia Harriman, the Although fewer than 1 percent of group’s director of food and nutri- Americans suffer from celiac disease, tion strategies, says her initial reaction an autoimmune disorder that requires to Wheat Belly was that it was “such them to avoid gluten, almost one in nonsense.” Once she realized gluten- three people say they are cutting back free “was not going away,” she used the on products containing the protein council’s website 25 found in wheat, barley, and rye, to point consum- according to NPD Group. Many are ers toward grains influenced by antigluten books such 1 in 3 such as rice and as Wheat Belly and Grain Brain, as well corn that contain as celebrities who have embraced no gluten. With no prior cruise experience, the gluten-free lifestyle, such as Spying an Americans cutting Arnold Donald is sailing upstream actors Zooey Deschanel and Gwyneth opportunity, back on gluten, Paltrow. Consumption of flour in the though just 1 percent Kellogg intro- “I had to think about whether I was U.S. is at a 22-year low, says the U.S. of the population has duced a gluten-free the right person at this time” Department of Agriculture. celiac disease version of its Rice That’s created a conundrum for Krispies cereal Arnold Donald had been on the board of cereal and other makers of prod- in 2011. A variety of PepsiCo’s Doritos Carnival for 12 years when he got a call ucts that contain gluten. Fight back, nacho cheese tortilla chips without in June from the cruise company’s lead and they risk offending people with the protein came out the same year. director, Stuart Subotnick. It was an offer celiac disease or calling attention to General Mills sells more than 400 to succeed Micky Arison as Carnival’s antigluten activists such as William gluten-free products, including ver- chief executive officer, and Donald was Davis, author of Wheat Belly, who calls sions of its Pillsbury cookie dough and incredulous. “OK, what’s the call really wheat “the world’s most destructive Betty Crocker baking mixes. Sales of its about?” he asked. dietary ingredient.” Instead, Chex cereal, available in seven vari- Donald’s skepticism was under- $6.6b companies including General in 2017 eties without gluten, have jumped standable. Arison, the son of Carnival’s by at least 10 percent in founder, had run the company for each of the past three fiscal 34 years; Donald, a former Monsanto U.S. sales of gluten- years, while the $6 billion executive, had no prior cruise-operating free products breakfast cereal category experience. Carnival—the world’s largest has remained stagnant. Still, cruise company with 10 brands ranging $4.2b General Mills has been from the low-cost Carnival to the pricey in 2012 careful not to align itself 173-year-old British Cunard Line—had with any of the antigluten been in crisis since its Costa Concordia gurus. “There’s a new diet ran aground off the Italian coast in 2012, book every week, and killing 32 people. That was followed by most of them really should more incidents this year, including a fire go without comment,” says aboard the Carnival Triumph in February

BREAD: FRANK BEAN/GETTY IMAGES (2); DONALD: C.W. GRIFFIN/MIAMI HERALD/MCT/NEWSCOM; SKY, ROPE, HAT: GETTY IMAGES (3) GETTY IMAGES HAT: ROPE, SKY, HERALD/MCT/NEWSCOM; GRIFFIN/MIAMI C.W. DONALD: (2); IMAGES BEAN/GETTY FRANK BREAD: company spokeswoman that further tarnished the company’s Companies/Industries

image with exten- In September, Carnival rolled out a customers will be the judge of whether Carnival’s stock sive news video of $25 million ad campaign, its largest in Carnival’s board should have tapped treads water passengers stranded five years. The line sought heartwarm- one of its own. If he succeeds, the CEO at sea. Says Donald, ing stories from customers, and more says, “shareholders will be happy, and $60 who pondered the than 30,000 responded. The resulting no one will care how I got this job.” offer for two days: “I Moments That Matter spot is a montage —Christopher Palmeri and Carol Massar $40 had to think about of home movies taken by passengers The bottom line To draw travelers, Carnival’s whether I was the on its ships. “This marketing cam- midmarket cruise brand has had to cut prices right person at this paign is very different than anything by 15 percent this quarter from last year. $20 time for Carnival.” we’ve ever done before,” says Gerald 2003 2013 Since taking over Cahill, CEO of the Carnival Cruise Lines on July 3, he’s been brand. “We said, ‘Let’s let our guests implementing changes that include a tell our story for us.’ ” $700 million investment in shipboard fire Among Donald’s first steps were meet- Retailing prevention and backup power systems, ings with travel agents to repair relations a new marketing campaign, and an frayed in recent years as the company Wal-Mart’s New Chief effort to get Carnival’s various cruise put more emphasis on automated Faces Old Woes lines (which target different economic or online bookings. That strategy reduced demographic groups) to collaborate and agent commissions. In recent months Doug McMillon has big challenges become more efficient. “We started out Carnival has enhanced its travel agent abroad and at home with a few ships,” he says. “We grew to a website and created a bonus program fleet. And now we have an armada. We for salespeople. “Carnival had been sort “He’s … one of the few most senior have huge opportunities to take advan- of aloof, but now they’re coming back,” executives who knew Sam Walton” tage of our scale in terms of creating says John Maguire, founder of online demand and creating new revenue.” agency CruiseDirect.com. The incoming chief executive officer Carnival shares have risen 3.1 percent Donald’s also looking for ways that of Wal-Mart Stores, 47-year-old Doug on Donald’s watch. Yet the stock the company’s cruise lines can work McMillon, is a company man and a remains more than one-third below its together, such as jointly obtaining space native of Arkansas—the retailer’s home 2004 peak. Since the Feb. 10 Triumph at ports. Currently, each line negoti- base. By most accounts he’s well- 26 mishap, Carnival’s shares are down ates separately. Together they could liked, engaging, and accessible. The 7.7 percent, lagging the advances get better locations and pricing, he $470 billion empire he’ll be running of rivals Royal Caribbean Cruises says. Still, Wells Fargo analyst Timothy come February, when Mike Duke (23 percent) and Norwegian Cruise Condor says it likely will be 2015 before retires, could use a good dose of all that. Line Holdings (22 percent). the benefits from such changes and the But it also needs a lot more: The world’s Although a novice in the travel indus- brand rebuilding begin to bear fruit. biggest retailer must contend with try, Donald is no stranger to con- In addition to about $50 million slowing sales in the U.S. and abroad, an sumer businesses. After earning a in rescue and refund costs for the underwhelming digital presence, allega- mechanical engineering degree from Triumph incident, the Carnival tions of corruption at its Mexican Washington University in St. Louis, he line has been forced to discount subsidiary, and worker pro- joined Monsanto in 1977. He supervised prices to fill its ships. The tests over low wages. “Wal- the company’s Roundup weed killer average cost of a Carnival Mart, and all of retail, is at business—helping transform it into a brand cruise is down a crossroads,” says Carol lawn-care staple for suburban home- 15 percent this quarter from Spieckerman, the founder owners—before agreeing to lead a private a year earlier and 9 percent of Newmarketbuilders, a equity firm’s acquisition of Monsanto’s for voyages scheduled for the retail strategy firm. “Wal- Equal sweetener operation in 2000. first quarter of 2014, according Mart’s sheer size makes it Carnival was already deep into a to Barclays. The parent company difficult to drive growth. Most public-relations makeover when Donald has lowered its 2013 earnings forecast retailers are happy if they’re not became CEO. After the Triumph inci- three times, warning in September going backward.” dent, which left 3,100 passengers that it may lose up to $17 million this McMillon first worked at Wal-Mart without enough food or working toilets quarter. It said advance bookings are as a warehouse employee during the for four days, the company introduced down through the first half of 2014. summer of 1984. He graduated from a “vacation guarantee,” promising to Jeffrey Sonnenfeld, a management the University of Arkansas, and in refund money and fly guests home if professor at Yale University who sat on 1990, while earning an MBA from the they’re not happy with their cruise. the board of rival NCL, says Carnival’s University of Tulsa, he returned to the board erred in choosing industry retailer—and never left. After holding novice Donald and should have various merchandising positions, “We have huge opportunities to explored other candidates. He doubts McMillon was named CEO of Sam’s Club take advantage of our scale in the steps taken so far will win back cus- in 2006. He replaced Duke as head of terms of creating demand and tomers. “Their ad hoc stabs in the dark Wal-Mart’s international operations aren’t going to rebuild the fabric of three years later. “He’s really been a creating new revenue” trust that’s been unraveled,” he says. CEO in training,” says David Schick, a

—Arnold Donald Donald says that ultimately Stifel Nicolaus analyst. BLOOMBERG BY COMPILED DATA: Health care Only 5% of employers reform is say they understand confusing. health care reform really well.*

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That’s McMillon’s official bio. Then there’s his cultural pedigree. “He’s Briefs By Kyle Stock probably one of the few most senior executives who knew Sam Walton. That’s a huge thing for Wal-Mart,” says Joe Feldman, senior managing director Changing Suitors of researcher Telsey Advisory Group. The Walton family owns slightly more than half of Wal-Mart’s B stock, and Walton’s eldest son, ○ ○ In the bargain-suit business, the hunted has Rob, is chairman. become the hunter. Less than two weeks after In the U.S., Wal-Mart’s lower- income customers are struggling rebuffing a bid from Jos. A. Bank, Men’s Wearhouse amid persistent unemployment

has turned around and offered to buy its rival at Drivers for Uber’s and higher payroll taxes. Many $55 a share. Although Men’s Wearhouse is roughly mobile-based seem to have fled to dollar stores car-booking service are in search of even lower every- about to get a bargain on twice the size of its target by sales and number of new cars. The ﬂedgling day prices. Other shoppers are stores, Jos. A. Bank has more cash on hand and company has struck frustrated, because Wal-Mart deals for cheaper rates doesn’t always have enough on vehicles from General has been much more profitable in recent years. Motors and Toyota. workers to keep its shelves well- H stocked. And Amazon.com has ○ ○ In Switzerland, home to five of Europe’s lured away customers with its low prices 20 best-paid CEOs, voters overwhelmingly rejected a pro- and quick shipping. In November, Wal-Mart reported its third quarter of posal to limit executive pay to 12 times that of junior employees. declining sales at U.S. stores open for Opponents of the pay cap argued that it would tarnish the coun- more than a year—a key measure of a s retailer’s well-being. And though Wal- try’s probusiness repu tation. ○ ○ Rogers Communications Mart began offering Black Friday deals a 28 agreed to pay $4.9 billion for rights to National Hockey League week early, it also said it expects same- store sales during the holiday season to games for the next 12 years. The deal marks the first time the be “relatively flat.” NHL has granted Canadian rights to a single company. Rogers, Under McMillon, Wal-Mart’s international business—29 percent of the com- a media conglomerate that is Canada’s largest wireless carrier, pany’s sales last fiscal year—hasn’t been Estimated decline in the will air the games on tablets faring too well, either. In China, Wal- number of turkeys raised Mart faces competition from increas- in the U.S. this year. High and mobile phones, and has ingly savvy local companies even as corn prices discouraged farmers from fattening also made agreements to more shoppers migrate online. The up birds. 4.8% giant retailer plans in the next three let other broadcasters carry years to close as many as 30 poorly per- some games. ○o○ Boeing ’s forming stores in the mainland and open about 100 in smaller cities. nascent 787 model has hit Wal-Mart this year broke with its yet more turbulence as U.S. regulators ordered airline pilots venture partner in India, delaying its ambitious plans to build hundreds of to steer some of the planes clear of thunderstorms. So-called supercenters there. And the retailer Dreamliners equipped with General Electric is cooperating with a federal investigation into allegations that employees engines have shown signs of icing up and in Mexico used bribes to secure build- losing power in bad weather. GE plans to ing permits—allegations that predate McMillon’s tenure. fix the problem with software modifications. McMillon just got the job he’s been ○u○ Asian shoppers and higher prices groomed for. Now everyone is waiting to see if all that experience pays off. continue to put a shine on Tiffany . Profit at —Susan Berfield the jeweler surged 50 percent in the recent The bottom line Wal-Mart has seen sales at quarter, far more than analysts expected. “It’s better than Scotch.” U.S. stores open for at least a year fall for three Peter Lewis, marijuana straight quarters. Sales in Asia increased 27 percent, and the advocate and chairman of insurer Progressive, who company’s gross margin swelled. died on Nov. 23 at age 80 Edited by James E. Ellis

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David Cameron’s crackdown on child porn 34

December 2 — December 8, 2013

Whole Woman's Health has had to stop abortions at some of its Texas clinics

The Vanishing Abortion Clinic

A Republican push to regulate clinics more heavily is accelerating shutdowns “People who have inﬂuence work from within to enact change” Amy Hagstrom Miller fired 34 people have admitting privileges at local hospi- take effect. The Texas law is emblem- in November. “It’s hard to look people tals. To get an abortion, the mostly poor atic of a shift in the tactics of abortion in the eye and say they don’t have a women who relied on Miller’s establish- opponents: State-level laws targeting job anymore, not because of anything ment in McAllen, on the state’s border women and providers have become a they or we did incorrectly or because with Mexico, will now have to drive more effective tool than the past noisy we weren’t caring for women in a fab- 150 miles to Corpus Christi or to the clinic blockades and violence against ulous way,” she says. “It’s illogical.” local flea market, where illegal, do-it- doctors. Since 2011, legislatures in 30 Miller, founder and chief executive yourself drugs start at $15 a pill. mostly Republican-controlled states officer ofWhole Woman’s Health, At least a dozen clinics in Texas have have passed 203 abortion restrictions, based in Austin, had to stop or sharply closed their doors or stopped offer- about as many as in all of the prior curtail abortions at four of her six Texas ing the procedure in the past month decade. At least 73 clinics have closed clinics because a new state law requires after a federal appeals court and the or stopped performing abortions. New

PHOTOGRAPH BY JARED MOOSSY FOR BLOOMBERG BUSINESSWEEK BLOOMBERG FOR MOOSSY JARED BY PHOTOGRAPH doctors performing the procedure to U.S. Supreme Court let the new statute laws are responsible for roughly Politics/Policy Miller

present an “undue burden” to women seeking abortions, made legal in all 50 states by the 1973 Roe v. Wade decision. Courts are now clogged with challenges to recent state laws testing what “undue burden” means. The number of clinic closings would probably be higher were it not for legal fights that have pre- vented some laws from taking effect. Nearly half the 6.7 million pregnan- cies in the U.S. each year are unintended, and almost half of those end in abortion. Rates of both unintended pregnancy and abortion are higher among minorities and the poor. The abortion rate hit 19.4 per 1,000 women in 2005, the lowest since Roe v. Wade, and has remained steady since. The ranks of clinics have been thinning since the late 1980s, when the number of large nonhospital providers—those that performed 400 or more abortions per year—peaked at 705, according to the Guttmacher Institute, a New York- half of the closures, while declining parental notification requirements. based reproductive health research demand, industry consolidation, and “People who don’t have power protest organization. By 2008, the most recent crackdowns on unfit providers have on the street,” says Cheryl Sullenger, year for which data are available, the also contributed to the drop. senior policy adviser for Operation number had fallen to 591. Laws aimed at the clinics, such as Rescue, an anti-abortion group based Both sides in the debate have a 32 mandates to widen hallways and install in Wichita. “People who have influence stake in the proposition that restrict- high-tech surgical scrub sinks, are work from within to enact change.” ing access to clinics is holding abor- proving more powerful than those aimed In 1992 the U.S. Supreme Court ruled tion rates down. Social scientists say at patients, such as waiting periods or states could pass restrictions that don’t that’s not the whole story. Increasing

Landscape of Closures Nationwide, at least 73 abortion clinics have shut down or stopped providing the procedure since 2011 amid a Republican-led push to A federal judge has blocked legislate new restrictions on the industry North Dakota’s ban on abortions after six weeks, A crackdown on unﬁt calling it unconstitutional providers has shuttered several clinics in Pennsylvania

Reasons for closing ○ Legislation ○ Business decision ○ Unﬁt provider or safety violation ○ Difficult work environment/ No doctor available Arizona’s ban on At least a dozen clinics ○ Demographics/Other abortions after 20 in Texas stopped weeks was struck down performing abortions States that have passed by an appeals court in November, the month abortion laws since 2011 in May a new restrictive law took effect GRAPHIC BY BLOOMBERG BUSINESSWEEK; DATA: COMPILED BY BLOOMBERG, GUTTMACHER INSTITUTE FROM LEFT: PHOTOGRAPH BY JARED MOOSSY FOR BLOOMBERG BUSINESSWEEK; WIN MCNAMEE/GETTY IMAGES —Esmé E. Deprez—Esmé E. convenience ofhaving timetogrieve.” of stunned,” she says. “Idon’t have the or make costly upgrades.“I’mjustsort for find new fivequarters ofherclinics generators hallways, janitors’closets,andbackup centers gical to becomehospital-like outpatientsur- in Septemberrequires clinics abortion sion oftheTexas law thattakes effect battles stilllieahead,though.Aprovi- to provide Somebig anapplication.) Miller says even onehospital refused existprospects inMcAllen, where (Nosuch services. resume abortion admittingrights,allowingtal herto in theFort Worth area won hospi- end ofNovember when herdoctors 4.2 inthebirthrate. percent rise nationally andasmuchabortions asa could produce a15 percent in decrease on thoseunwilling orunabletotravel where itremained Buttheimpact legal. ofwomen wouldity stilltravel tostates lawed tomorrow, abortion themajor- Research out- foundthatif31states from theNationalBureau ofEconomic A2012paperbeen, are alsofactors. are more effective thantheyhave ever prevalent useofcontraceptives, which accompanied therecession, andmore thathood, thedeclineinpregnancies ofsinglemother-cultural acceptance day, would theObamaadministration be they failedtoreach anagreement that Mohammad JavadMinister thatif Zarif good cop. Kerry toldIranianForeign bad coptotheObamaadministration’s Congress asthe casting in thebook, employed theoldestnegotiating trick onNov. Geneva InterContinental 23,he joined thenuclear negotiations atthe When U.S. John ofState Kerry Secretary A DealWithIran DerailCongress Could Diplomacy chambers, Republicans are getting results. abortion rights from thestreets tolegislative The bottom line

Congress toincrease sanctions” There isan“urgent needfor mood tocompromise Hawks intheSenate are inno Miller scored a small victory attheMiller scored asmallvictory . Thatwillforce Millerto —complete withwider —complete Bymoving thefight over members ofCongress whose goals tion willhave toconfront themany priorities inafinalagreement. undoubtedly beamongTehran’s top and rampantinflationinIran, will tions, asource weakness ofcurrency of Iran.Rescinding thosebankingsanc- Bank businesswiththeCentral ducting onanysanctions foreign bankscon- administration’s advice) thatimposed Authorization Act (againsttheObama amendment totheNationalDefense The following year, an itattached country’s purchases ofgasoline. Divestment which Act, targeted the and Accountability Iran Sanctions, Congress passedtheComprehensive In2010,of sanctions. erate onseveral rounds ties have managed tocoop- majori- years, bipartisan gridlock ofthepastseveral much tougher. Despitethe imposed by Congress is interim agreement. in foreign ofthe assets,part to restore accessto$7billion good onitspromise toIran willmakethe administration enforcing them.That’s how White House tostop decide them requires only thatthe tions againstIran,removing tive order, asare many existing sanc- ofanexecu- theproduct If they’re those were imposedinthefirstplace. dependsonhow set ofsanctions return from theThanksgiving break. need stronger aftermembers sanctions” would review the deal“and seeifwe ReidHarry (D-Nev.) saidtheSenate On Nov. Leader 25, SenateMajority where Iranhawks outnumber thedoves. depends oncooperationfrom Congress, easethoseinplace.Andthat ically butalsotodramat- newsanctions stall White House promise notonly tofore- willrequireBut suchapact thatthe a more far-reaching deal. disarmament agreement justthefirststeptoward is officials Geneva have thatthe insisted pathizers inCongress, administration andtheirsym- allies intheMiddleEast temporarily freeze itsnuclear program. powers hadstruckadealwithIranto the hotellobby toannouncethatworld hours later, Kerry walked andZarif into than24 Less ing additionalsanctions. unable toprevent Congress from approv- Sooner orlater theadministra- Removing sanctions The methodforremoving agiven from American In thefaceofcriticism “How doyou define —eao —Senator an Iranian who’s an Iranian out of bulletsand Mark Kirk(R-Ill.) money.” moderate? That’s standing. But the talks couldbeunder- Butthetalks standing. much away. Jersey’s Menendez Bob saiditgave too andNew ing” inawrittenstatement, Charles Schumer it“disappoint- called against theinterimaccord: NewYork’s ators have alsopronounced themselves ing capabilities.” sen- AfewDemocratic abandons itsenrichmentandreprocess- untilIrancompletely increase sanctions even more urgent needforCongress to Rubio (R-Fla.) declared: now “There is an deal wasannounced,SenatorMarco of bulletsandmoney.” After theGeneva recently. “That’s anIranianwho’s out topassCongress, askedof sanctions themostrecentco-sponsored round erate?” Senator Mark Kirk (R-Ill.), who allowed any nuclear capabilities. declared thatIranshould notbe compromise, many have legislators enrichment program inany future ancedes thatIranwillmaintain interim agreement essentially con- sharply from itsown. Althoughthe for thenuclear negotiations diverge immediately have tomake thecase a comprehensive dealwithIran,itwill doesachievethat iftheadministration Obama’s onIran,says formeradviser Ross, athome.Dennis its Iranpolicy rightnow selling is priority policy including women andminorities.” and freedoms ofIran, ofallcitizens therights protecting andis ernment, gov- elected a free anddemocratically transitioningto is prisoners, all political “the Government ofIranhasreleased program by keeping theminplaceuntil andthenuclear sanctions link between thatwouldlegislation have severed the year, this Earlier action. Kirk drafted Obama administration’s scopefor Thatmay allturnouttobegrand- “How doyou defineanIranianmod- The WhiteHouse’s foreign biggest Congress hastriedtolimit the sive agreement. comprehen-ies ofanacceptable to defineinadvance theboundar- interim agreement. Thebillseeks It wouldn’t bethe firsttime six monthscovered by the prehensive dealduring the if itfailstoagree toacom- againstIran impose sanctions bill thatwould automatically gressional group pushing a is con- Abipartisan of sanctions. and ontheeventual removal tions onfuture negotiations settingcondi- pass legislation mined ifCongress seeksto Politics / Policy 33 Privacy Politics/Policy that there is no other diplomatic remove any copies of such material that alternative. “Those on the Hill who dis- are later reposted to the Web. agree would then be forced to make the The government effort comes after Notice case for war,” Ross says. “I want to see reports that Savile, host of the much- who would say at that point, ‘No, that’s loved TV show Top of the Pops for 20 not good enough.’ ” —Cameron Abadi years, abused children on BBC prop- Occasionally, and subject to applicable The bottom line The White House doesn’t erty, in hospitals, and elsewhere. Public laws, we may share your name, address, have the power to lift all sanctions on Iran and anger escalated after two men con- and e-mail address with other units within will need cooperation from Congress. victed of murdering young girls in sepa- Bloomberg L.P., its subsidiaries, and its rate crimes were found to be purveyors of child porn online. Such cases, as well affi liates as well as to selected outside as Cameron’s initiatives, have boosted companies whose products or services public awareness of the problem. Calls to we feel may be of interest to you. Many Internet a child abuse hot line run by the Internet of our subscribers fi nd these promotions In Britain, a New Front in Watch Foundation, an industry group valuable, whether they are shopping for that fights illegal porn, have climbed new services or taking advantage of a The War on Child Porn 40 percent in the past year. special off er. Please be assured that we Cameron’s strategy would be hard to replicate in other countries. In France take your concerns about your privacy Rage at a pedophile TV star spurs and Germany, where nudity isn’t seriously, and we intend to take every the prime minister’s war on smut unusual on late-night television and reasonable eff ort to protect it. “Going after private companies isn't in advertising, such broad restrictions necessarily the way to go here” might be considered overreaching. In To that end, we have developed a the U.S., freedom of speech concerns comprehensive Customer Privacy Policy. Revelations that late BBC TV host Jimmy would likely scuttle any broad effort If you’d like more information about our Savile sexually abused hundreds of chil- to restrict access to such material. use of customer data, please review our dren have prompted soul searching “Looking for online content is a very Privacy Policy, located at: across Britain over how his star power sensitive area, even though child porn trumped years of suspicion. With con- is illegal,” says Carolyn Atwell-Davis, www.businessweek.com/privacy. stituents enraged, Prime Minister David vice president for government affairs Please note that this information is Cameron has made restricting access to at the National Center for Missing & stored in a secure location in the U.S. pornography, and especially stamping Exploited Children in Alexandria, Va. and that access is limited to authorized out images of children, a signature issue. The Index on Censorship, a London persons. Cameron in April asked public Wi-Fi group promoting freedom of expres- networks to filter explicit content in sion worldwide, says it’s studying If you would prefer not to have your data public settings such as coffee shops, Cameron’s measures. While restrict- shared by Bloomberg Businessweek train stations, and libraries. The six ing child pornography—which Britain biggest providers have complied. Then also legally bans—is an admirable goal, with either other units within Bloomberg in July the father of four threatened to says Padraig Reidy, a senior writer at L.P. or outside companies, please go to: require companies offering home 7 Opt out the index, mandatory porn bwso.businessweek.com/r/bwo_o.asp Internet service to install filters that 7 Opt in filters are “slightly wor- automatically block pornography; sub- rying,” adding, “It should If you have any questions or comments, scribers would need to “opt in” to view be an active choice to opt out of adult or want to confi rm the accuracy of your such material. Once again, the indus- content, and the government isn’t information you have provided, please try agreed; by early 2014, the filters will making it so.” be on virtually all Internet accounts in Even child safety advocates have call 1-800-635-1200 or write to: Britain. Adults wanting to view explicit come out against Cameron’s tactics. Bloomberg Businessweek Customer content will “have to have a discussion” Pedophiles don’t search for victims on Service: 2005 Lakewood Drive Boone, with their spouse or partner, Cameron Yahoo!, Google, or Bing, but lurk in IA 50036 told BBC Radio on Nov. 18. social networks frequented by kids and At a London conference that day, in chat rooms where they can be anon- Bloomberg Businessweek publishes Google and Microsoft announced con- ymous, says Jim Gamble, the former weekly, except when combined issues trols that limit child porn searches, ini- head of the U.K.’s Child Exploitation are published that count as two issues, tiatives Cameron threatened to enforce and Online Protection Centre. “Going through legislation if not enacted volun- and when an additional special issue after private companies isn’t necessar- tarily. The companies have introduced ily the way to go here,” he says. may be published. algorithms that block illegal content and A more appropriate focus, Gamble have halted auto-complete on potentially says, would be peer-to-peer networks abusive search terms, so typing “under- where child porn is traded in anonym- age g…” doesn’t suggest the word “girl.” ity. Much of that traffic is hosted on the Google is implementing technology that Tor network, created by the U.S. gov- brands child porn videos with a unique ernment a decade ago to boost Internet ID code, which will help authorities freedom in authoritarian countries. HELP A VETERAN DURING YOUR MORNING COMMUTE

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Meanwhile, the filters Internet access goal is to reignite support for environ- Mecklenburg, helped fight off attempts providers voluntarily deploy sometimes mental conservation and fight traditional earlier this year to gut the state’s block nonporn websites, says Andrew utilities’ market power by pushing alter- renewable energy mandate. The Kernahan, public affairs manager at the native energy sources, especially solar 2007 law—similar to ones in 29 other country’s Internet Service Providers’ power. “Some people have called this an states—requires North Carolina’s util- Association. “We’ve been pushing the unholy alliance,” says Debbie Dooley, a ities to produce more of their power government to provide clarity around co-founder of both the coalition and the (12.5 percent by the legal issues on this,” he says. Atlanta Tea Party Patriots. “We agree on Worldwide 2021) from renew- Despite the government’s stepped- the need to develop clean energy, but Energy Prices able energy such up tactics, some groups are engaged not much else.” Per megawatt hour as wind and solar.

in vigilante activity. Parents in In recent years, Dooley organized Solar Republican oppo- Leicestershire banded together under protests of what she calls Georgia nents had intro- the name Letzgo Hunting to lure online Power’s stranglehold on its customers. $143 duced a bill that pedophiles to meetings by posing as She was especially rankled in 2009 after Nuclear would have cut the young girls. The group posted films the company, the state’s largest utility, $101 requirement in half. of the encounters online and passed added a monthly surcharge to customer Natural gas But renewable details on to authorities. Local police bills to finance the development of two $70 energy advocates say six men were arrested, though nuclear reactors south of Augusta. In faced a recent none have been charged while officers 2012, Dooley was approached by the setback in Arizona. On Nov. 13, the gather more evidence. The group dis- local chapter of the Sierra Club about state’s utilities regulator agreed in a 3-2 banded after a 23-year-old man jailed joining forces to lobby Georgia’s Public vote that Arizona Public Service can for child sex abuse killed himself when Service Commission to require Georgia collect $4.90 a month from custom- confronted by Letzgo Hunting. Police Power to buy more solar power. ers with solar panels. (Solar developers asked the group to leave such inquiries At the coalition’s Aug. 6 inaugural reached a compromise on the proposed to officers, says spokesman Brendan meeting, about 100 small-government fee, reducing it from $100 a month.) McGrath, “and not to start an amateur advocates mingled with Sierra Club Arizona Public argued that a rule investigation.” —Kristen Schweizer members at a Quaker meeting house in requiring it to buy solar power from The bottom line The British government has Decatur. Attendance was almost evenly customers with rooftop panels unfairly used the threat of regulation to spur Internet split between conservatives and liber- shifts some of its costs to people 36 providers to install pornography ﬁlters. als, Dooley says. without panels; the commission agreed Politics aside, everyone was celebrat- with the argument. Barry Goldwater ing a recent win: In July the utility reg- Jr., son of the late senator and presi- ulators passed a bill requiring Georgia dential candidate, campaigned against Power to buy 525 megawatts of solar the utility on the issue. Utilities “don’t Energy power capacity by 2016; about a fifth like the competition,” he says. “I’m a of that must come from residential and conservative Republican, and I think Red and Blue and Green commercial rooftops, as opposed to people should have a choice.” All Over solar power farms built by large utili- Many Republicans remain opposed to ties. The groups more recently worked solar energy because of the high costs, to persuade state regulators to reject according to Americans for Prosperity, Georgia Power’s proposal to charge cus- a group funded by the billionaire Koch tomers with solar panels an additional brothers that often allies with the Tea a $5.56 per kilowatt for use of the grid. Party. “We’ve had disagreements over Facing increasing opposition, the utility solar,” says Virginia Galloway, director has withdrawn its request. of Americans for Prosperity’s Georgia “There’s no competition here,” Dooley chapter. Coal and gas both generate elec- says. “Solar is our only way to force” the tricity at a lower cost than solar, she says. utilities to compete. On that, the Sierra Making utilities buy solar will raise costs Tea Partyers and conservationists Club’s position aligns with the coalition, that will be passed on to consumers, she come together on solar energy says Colleen Kiernan, director of the says. “We oppose any mandates that “Some people have called this an club’s Georgia chapter. “With the conser- would raise utility rates,” Galloway says. unholy alliance” vative side, it’s a desire to provide a fair The coalition’s Dooley says she won’t market for everyone and eliminate subsi- give up anytime soon. “I want a cleaner Heres’s a riddle to vex the Washington dies, and we agree to that,” she says. world for my grandson and his grand- political class: When do Tea Party “The free-market approach works children,” she says. “I’ll join whoever I Republicans stand together with Sierra well in Republican circles, so I can need to in this fight.” Club environmentalists? understand how these [groups] come —Christopher Martin The answer lies in their support for together,” says Frank Maisano, an The bottom line Some Tea Party members are solar energy. The Green Tea Coalition, energy specialist at the Washington law breaking ranks with fellow conservatives and a Georgia-based group, is reviving a firm Bracewell & Giuliani. “It becomes pushing for clean energy. Republican Party link with the Sierra an economic argument.” Club that dates back more than a century In North Carolina, Representative Edited by Cristina Lindblad & Dimitra Kessenides

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“We willroll outof thegarage. … This isgasandgo” As countdowns near, spaceﬂight companiesturntoR&Dclients Grow aKidney It’s Faster to Than Down Up Here There for mobile data plans for mobiledata Getting Indianstopay jet engines 3D printing for its GE invests in in 2014, here. For realtime.Sometime this spacetravelCommercial almost is flights willoffer quicker chancesfor costly andinfrequent. Thenewspace- vations, buttrips thatfarintoorbitare they couldundergo whereInternational SpaceStation, ments would beperformedinthe Who cares?” Solutions startup of stem-cell Godwin, thechiefexecutive officer kidney,” says genetic engineer Richard me 30to35 days, and I’ll buildyou a makes stemcellsgrow superfast:“Give workers can Spacealso innearorbit. intends totestwhether its3Dprint- on animals. Startup on animals.Startup drug research suborbital to conduct devicesinlow Gandwantsmedical Heavy Industries ofgravity. effects plicating withoutthe com- inisolation, disease or theirengineered antibodiesattack toothpaste howyears tobetterunderstand their performed experiments inspacefor as suchrange Companies oftechnologies. researchers, onawide desirableeffects hasuncanny and,foras microgravity experiments. toconduct gravity ers insearch ofalittletimeatnear-zero them going: companiesandresearch- glamorous source ofbusinesstokeep companies expect toturnaless in 12to18months.Somostofthespace it willrunthrough list itsstar-studded panies flying forever. Virgin estimates rate executives won’t keep com- these justyet. out apricelist says it’s closebehindbuthasn’t put by Amazon.com founderJeffBezos, Origin $100,000, thecompany says. Xcor Aerospace Booking aflighton on flights. rival lined upwith600otherpeopletoget eccentric and Richard Branson,thecompany’s Kutcher, Perry, Katy Justin Bieber, Already Angelina Jolie, Ashton minutes. $250,000. Thepricetag: put you innear-zero forafew gravity to fly 100kilometersintothe sky and Ideally, many oftheseexperi- The near-weightless known state andwealthy actors, Musicians, corpo- Procter &Gamble , thespacecompany launched Virgin Galactic 40 billionaire founder, have . “How expensive that? is ingredients bindtogether 41 41 willcostroughly hastestedits Zero Gravity longer-term obser- Made inSpace glasses Innovation: Hologram effect of thePlague Learning isoneside and willbeable Mitsubishi Merck 43 Blue have have

42 39 40 cles lookalittlelike across between Cruces,N.M. vehi- inLas Both quarters it’sthe spaceport buildingatitshead- Galactic’s Lynx commercial flightsofitsto begin the MadeinSpaceprintingproject. sions thatinterest theagency, suchas NASA mis- torunsomeofthescientific with Virgin hascontracted Station. sometimes totheInternationalSpace ferried experiments intospaceand was mothballedin2011,regularly which before itsspaceshuttle program competing forformerclientsofNASA, PoliSpace. Thecompaniesare also pendent spacepolicy says James Muncy, thefounderofinde- fly their experiments multiple times,” space conference inOctober. and operations,saidataSiliconValley Xcor’s ofpayload director services just rely onmodels,” KhakiRodway, ments andget somehard andnot data go intothefieldand get somemeasure- it’s upthere. can “Now spacescientists withtheirequipment whileto interact Space Specs Technology experimentation and allow scientists Xcor, basedinMojave, Calif., plans “Unlike researchers tourists, will spaceship inlate2014. Virgin SpaceShipTwo suborbital ﬂights aday. research onuptofour peopleandto carry like aplane. Expected to take off and land propulsion system Payload Altitude Ship Xcor Aerospace back toearth. From there glide itcan earth’s atmosphere. pilots beyond the andtwopassengers Payload Altitude Ship Virgin Galactic is slowed by parachute. The capsule’s descent research into space. astronauts and carrying capsule abooster sends Payload Altitude Ship Blue Origin consultancy consultancy willfly from

Lynx SpaceShipTwo New Shepard 330,000 feet 360,000 feet 330,000+ feet Uses arocket Uses Carriessix Arocket space customers. Virgin says flying andlicensable.” patentable that is and have oftheplant anewvariety might beabletogrow stuffin this Texas crop.and couldbeanewcash You as abiofuelthancornorswitch grass that produces percent 500 more yield nisms,” Godwinsays. “Here aplant is and itignitesallofitssurvival mecha- a plantdoesn’t know what’s going on, home. “Whenyou turnoffgravity, out how thegenes toactivate backat genes. tofigure stilltrying They’re previously unknown cold-tolerance sure tolow toexpress began gravity found thatjatropha cells underexpo- NASA duringa2010spaceflightonthe lected col- temperatures. atdata Looking tosurvive by coolon earth itsinability jatropha, apromising biofuellimited genetic codeofatropical plantcalled the tocrack Fla., hasbeentrying research. Zero Gravity, Raton, inBoca spaceflights willhelpaccelerate tobuyaspotonregular the ability the program wasstilloperating,says which got room onNASA shuttles when gasandgo.”is roll out ofthegarage,” she said.“This flight atamoment’s notice.“We will ence thatthecompany’s goal space- is said duringtherecent spaceconfer- development manager ErikaWagner are working.” BlueOriginbusiness and make sureity your experiments with aboutsixminutes ofmicrograv- to $2millionanddo10flightseach “With Xcor, you spend$1million can NASA’s traditionaltimescale,” hesays. “Researchers have beenturnedoff by Center, which spacestartups. advises oftheSiliconValleydirector Space sayspast, SeanCasey, themanaging offered inthe theprivate sector what government programs had ment would beamajorleapbeyond tomers doingresearch anddevelop- hurdles itscommercial flights. tobegin December andsomefinal regulatory the results ofafewlasttestflightsin ants. Virgin says it’s justwaitingon line ofAxe body sprays anddeodor- 23 peopleintospacetopromote its and 10 flightsearmarked for folks;regular Citizens inSpace,which hasbought Heavy;Mitsubishi agroup called year-old Xcor hassigneddealswith the spaceshuttle Fourteen- andajet. Price may forsome remain acatch Godwin ofZeroGodwin Solutions, Gravity Regularly scheduledflightsforcus- Unilever Endeavor , which planstosend , Godwin’s researchers space.” ittheSilkRoadsame thing.Icall from the volume is andhighvalue,this make aprofit,”Godwin says. “Itwaslow and walked from to ChinatoIstanbul people putaloadoncamel’s back of$1.2million.“Centuries agonorth selves foraflightwillhave topay the company’s tothem- spacecrafts $50,000, butclientswho wantoneof bag orstorage locker willcostaround simple, nonhazardous singlecargo a For PlaneParts GE Turns to3DPrinters Engineering interestedbusinesses inmicrogravity research. $100,000 ormore aseat andexpect toattract The bottom line we’re going to have tobeontothenext nology, tothree butwithintwo years up withthecurrent generation oftech- Technologies. “We ramping start can 3Dcompany,acquisition ofhis Morris company lastyear, ofGE’s aspart Aviation. Morrisjoinedthe leader foradditive atGE manufacturing says Greg Morris, business 60 to70, make toefficiently the nozzles, take toomany machines,” asmany as outputatalowerquality cost. tion needs,which require faster, higher- tohandleGE’s produc-enough capacity Today’s industrial3Dprintersdon’t have an engine.There’s justoneproblem: temperatures (up to2,400F) inside theextreme withstand bly lineandcan lighter thanthosemadeontheassem- is strongerThe finishedproduct and using traditionaltechniques, GEsays. to create designsthatcan’t bemade canbeused process more and is efficient a successive layering ofmaterials.The piece,throughthe unitsinonemetal manufacturing, 3D ferent Alsoknown parts. asadditive the nozzles are assembledfrom 20dif- a biginvestment in3Dprinting.Usually making jetengines,is for itsnewLeap to buildmore than85,000 fuelnozzles Electric General

out there … for thiskindof work” “There doesn’t exist asupplychain toward assembly-line printing The company isleadingapush “With today’s technology, itwould —Ashlee Vance Spacecompanieswillcharge , onthehunt forways printing can create create can printing development aerospace

CLOCKWISE FROM BOTTOM LEFT: COURTESY OF BLUE ORIGIN; COURTESY OF VIRGIN GALACTIC; COURTESY OF XCOR AEROSPACE; COURTESY OF GE AVIATION (2) GE90 engine

The GE90 is one of the world’s most powerful jet engines. GE plans to produce 100,000 3D-printed components for the next generation GE9X and Leap models.

generation to meet our cost targets,” he technology estimates that the industry Expanding 3D printing will give GE says. So GE is waiting for development is poised to almost triple, to about clout with device manufacturers, an of new printers with three to four times $6 billion in sales, by 2017. opportunity to guide the growth of the the capacity. Sales of 3D printers and related industry. “There doesn’t exist a supply 41 As part of a $3.5 billion investment services rose 29 percent in 2012, to chain out there right now for this kind in its aerospace supply chain, GE says $2.2 billion, according to Wohlers. of work,” Morris says. “GE has to be it will spend tens of millions of dollars They’re on track to keep rising as GE, involved in developing it.” —Tim Catts to invest in new Siemens, and Rolls-Royce among The bottom line GE is making a game- technology and, others invest in industrial-grade changing investment in 3D printing, helping to over the next five systems capable of producing metal bring the technology to more assembly lines. years, triple the parts. Demand from the aerospace size of its 70-person industry alone is driving huge growth, 3D-printing staff Credit Suisse Group said in a Sept. 17 Each Leap engine and expand its note. That’s creating opportunities for will contain 19 metal factory floor companies such as 3D Systems, the Mobile 3D-printed fuel nozzles. The part fourfold. (The largest maker of 3D printers in the U.S. Discount iPhones is lighter and 85,000 nozzles are GE is testing equipment from the Rock more durable than for engine orders Hill (S.C.)-based company, as well as traditional parts. Come to India that will enter full from Concept Laser. production in late 2015.) “We have an excellent relationship A wireless carrier subsidizes The company’s embrace of 3D print- with GE at the highest levels, and phones to boost spending on data ing throws the weight of the world’s we’ve been collaborating with them largest jet-engine maker behind a for several years now on a variety of “We are hungry for growth, and process invented in the 1980s to fabri- additive manufacturing applications,” this could be the tipping point” cate scale models. As the technology says 3D Systems Chief Executive Officer has advanced, 3D printing has evolved. Avi Reichental. Signing up for a monthly wireless Today, Boeing uses the process to make The stock price of 3D Systems contract to get a subsidized iPhone plastic air-conditioning ducts has more than doubled is common in the U.S., but in India, for its 787 Dreamliner jet, and ‘‘[General this year through mid- Apple fans are accustomed to paying Nike has a football cleat made Electric’s] November, while that of the phone’s full price. In November, on 3D printers. “[GE’s] invest- investment another major 3D print- Reliance Communications (RCom), ment changes everything, and changes ing player, Stratasys, has India’s third- largest mobile operator it’s also unprecedented,” says everything, and jumped 59 percent, beating by market value, became the first to Terry Wohlers, president of 3D it’s also the 27 percent advance hand iPhone 5Cs to customers willing to printing consulting company unprecedented.” for the Standard & Poor’s commit to 2,599 rupees ($41) a month —Terry Wohlers Wohlers Associates. The com- 400 MidCap Index, to for 24 months. Gunjan Hasan, who got pany’s annual report tracking 3D which they both belong. one at an RCom shop in Mumbai, says Technology

she’d been putting off buying a phone fuel a rise in mobile gaming and social Industries analyst Praveen Menon. And because of the upfront costs. “When you networking. RCom’s average revenue per Indian customers aren’t used to a long have a family and other expenses, you user jumped 26 percent, to 120 rupees lock-in period with a service provider, really need to think before paying up to ($1.92), during the three months ended in says Harit Shah, an analyst in Mumbai 50,000 rupees [about $800] or so for just September. To increase averages further, with Nirmal Bang Equities. “Six months, a phone,” says Hasan, 36, who works at the company said in a Nov. 5 state- maybe,” he says, “but not two years.” KSA Development Venture, a teacher- ment that it had disconnected 10 million —Bruce Einhorn and Bhuma Shrivastava development company in New Delhi. “unprofitable, low-end subscribers.” The bottom line An Indian mobile operator is The subsidies are part of Chief Most Indian operators are counting using U.S.-style incentives to lure customers Executive Officer Gurdeep Singh’s plan on devices cheaper than the iPhone. into pricier, more profitable plans. to reduce RCom’s dependence on low- High prices have kept Apple a distant margin users. India is the second-largest No. 8 in the local market, well behind mobile market first-placeSamsung . Almost 80 percent Monthly Average after China. In the of Samsung’s smartphone sales in India Revenue Per User fiscal year that come from models priced below $380. Apps Q2 2013 ended in March, its Local brands such as Micromax offer active subscribers many low-cost smartphones, too. India’s A Plague That’s Carried $10 hit 788 million, smartphone shipments will grow from On Mobile Devices up 37 percent 16.3 million in 2012 to 41.4 million this

$5 in two years, year, according to market researcher according to the IDC, which predicts the number will Cellular Operators hit 128 million by 2015. Association of Most operators need to persuade $0 China Bharti India. Most of those more Indians to use phones for more Telecom users, however, than voice calls before they can woo have cheap voice- them with Apple products, says Ankita only plans; India market leader Bharti Somani, an analyst in Mumbai with Airtel averages $3.10 per subscriber Angel Broking. “First they have to each month, compared with $8.80 at increase data usage in the country,” Plague Inc.’s contagion app thrills comparably sized China Telecom. which is about 10 percent of overall 42 gamers—and the CDC Subsidies may nudge shoppers toward revenue, she says, predicting that slice pricier data plans, Singh says: “We are will grow at double-digit rates. “Games like this reach people who hungry for growth, and this could be Ten years ago, RCom tried subsidizing don’t think about … science” the tipping point.” Samsung and LG handsets but ended If he’s right, RCom could help solve the program after customers stopped The disease didn’t look like a killer. The an ongoing headache for telecom opera- making payments and walked off with symptoms were coughs and sneezes, tors in the world’s fastest-growing smart- the phones. Now the company requires and its spread attracted little notice. phone market. With the country’s mobile users to agree to automatic credit card Then someone with the virus got on a users accustomed to paying less than a payments. It’s teamed with banks that plane, launching its journey around the penny a minute for voice calls, India’s run credit checks, including Citibank globe. Sneezes gave way to fatal hem- operators make far less per customer and Standard Chartered. “Credit rating orrhages; thousands of infected turned than their international peers. Averaging and history go a long way in determining into millions. The virus mutated and only $1.60 a month per user, compared the success of this plan,” Singh says. developed drug resistance. Soon it with $69 for U.S. companies, Indian oper- Not many Indians use plastic, though. wiped out the human race. For players ators have slashed data fees by as much The country has only 18.5 million credit of the mobile game Plague Inc., that as 90 percent, betting cards, or about one for every 50 mobile counts as a win. cheaper rates will help phones, according to Bloomberg The object of the game, available for Quoted 99¢ on iPhone, iPad, and Android, is to create an infectious disease that kills as many people as possible. Players exploit countries’ vulnerabilities— climate, population density, poverty—to “Modern technologies can help the disease spread before a cure is discovered. James Vaughan, the game’s deliver mobile services creator, designed it around actual risks such as antibiotic resistance. in the air safely and reliably.” With more than 15 million downloads since its release last year, Vaughan’s New Federal Communications Commission Chairman Tom Wheeler in a Nov. 21 statement. After an outcry from people who oppose phone calls on planes, he creation has captured the attention of said that it’s up to airlines to act on his technical advice. gamers and public health officials alike. The latter see Plague Inc. as a tool to raise awareness of real-world pandemic

risks at a time when research is under ILLUSIONS TECHNICAL OF COURTESY INNOVATORS: BLOOMBERG; BY COMPILED DATA: MOBILE “It’s going to deliver on the dream of Technology the holodeck.” —Bre Pettis, chief executive officer pressure. “Right now there’s a dire of 3D printing funding crunch for science in the U.S.,” company MakerBot says W. Ian Lipkin, director of Columbia Innovation University’s Center for Infection and Immunity. The U.S. National Institutes of Health was required to cut 5 percent, or $1.55 billion, from its fiscal 2013 oper- Hologram Glasses ating budget. “Games like this reach people who don’t think about the Form and function Innovators importance of science,” Lipkin says. Jeri Ellsworth Technical Illusions has developed castAR, a pair and Rick Johnson In March the U.S. Centers for Disease of high-tech glasses that project 3D hologramlike Ages 39 and 42 Control and Prevention invited Vaughan images, and a “magic wand” that can be used Titles Co-founders of to speak to researchers in Atlanta and to interact with the holographic projections to Technical Illusions, a startup agreed to let its name appear in the enliven gaming and teaching. in Woodinville, Wash. game’s mock news alerts. For example, a text bubble may pop up saying that the CDC has identified the first case of a disease in humans. “We think everyone can learn from this,” says Dave Daigle, Projectors a CDC spokesman. “Public health is one of those things very few of us know about unless something goes wrong.” The agency has tried before to reach younger people via social media. It built its own iPad game this year, called 1. Solve the Outbreak, where “disease Tracking detectives” win by finding the cause High-tech frames Two tiny of infections based on real outbreaks projectors mounted on the that the CDC has investigated. In 2011 frames of the glasses cast the agency posted to its Public Health game images (a chess piece 2. or a monster), while a head- 43 Matters blog a tongue-in-cheek primer movement tracking system Light fantastic For users to on how to cope in the event of a zombie adjusts the holographic scene see 3D effects, they must to make it appear realistic. apocalypse. Daigle says kids unenthu- place a retro-reflective siastic about prepping for a hurricane sheet on a wall or table that or tornado were happy to remind their bounces the light from the parents to stock up on water, food, med- glasses back to their eyes. icine, and other supplies to survive an onslaught of the undead. Plague Inc. has the same appeal, says Vaughan, 26, who isn’t an epidemiolo- gist and didn’t build the game with education in mind. While a consultant for Accenture in London, he sought a creative side project. He spent less than $5,000 developing the game over the Funding Ellsworth course of a year, collaborating with con- and Johnson have Background Ellsworth, a relied on savings tractors for the programming, art, and hardware engineer, has and on Kickstarter, sound. Now “I get e-mails and tweets developed computer chips the crowdfunding and Facebook messages from people and toys; Johnson, a video website. About 3,900 game pioneer, helped create people pledged teaching 11-year-olds all the way up titles such as Quake 4 and about $1 million, to people doing Ph.D.s in infectious Soldier of Fortune. Both more than double disease,” he says. “Parents are sending were fired from video game the co-founders’ maker Valve in February and Demo gameplay $400,000 target. me messages saying, ‘Little Timmy launched Technical Illusions was just asking where Bolivia is and he to commercialize the castAR wants to know what climate it’s got. technology. He’s never shown any interest in geog- raphy before.’ ” —Meg Tirrell Next Steps The bottom line Plague Inc. is a hit with gamers Ellsworth and Johnson aim to start manufacturing their hologram glasses and public health officials, who see it as this summer. The castAR starter kit, which includes the specs and the retro- a tool to raise awareness about pandemics. reflective surface, will sell for $189. The wand to manipulate the images will cost an additional $60. They anticipate the glasses will be available for retail —Nick Leiber Edited by Jeff Muskus purchase by the fall. Businessweek.com/technology FRANKLIN INCOME FUND A GREAT STORY SINCE 1948

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Subprime loans keep Bid/Ask: Apple buys the the U.S. auto market in Israeli startup behind high gear 47 Kinect 49

December 2 — December 8, 2013

Eric Scott Hunsader, the scourge of Wall Street’s high-frequency traders, operates out of an office above the Bliss Salon— manicure/pedicure $45—on Elm Street in the Chicago suburb of Winnetka. Hunsader is the founder of Nanex, a 13-year-old firm that operates as a “ticker plant,” taking price streams from U.S. exchanges and distributing the data to clients through software that allows them to analyze and chart it and write their own trading programs. Spending long hours staring at four computer monitors, he looks for signs of illicit trading hidden in psy- chedelic images of triangles dancing with dots. Each dot and triangle repre- sents a trade or a quote to buy and sell U.S. stocks by the millisecond. To him the images provide evidence that high- frequency trading firms areexploiting market rules to turn a profit in a lawless environment. “You ever see Lord of the Flies or read that book?” he asks. “When you don’t have a parent around, things fall apart.” 45 Since regulators opened trading to greater competition six years ago, the almost $22 trillion U.S. market has frag- mented to the point where orders bounce among 13 exchanges and more than 40 alternative platforms. In Hunsader’s view, high-frequency traders pose a threat to other market partici- pants because they react so quickly to price movements. He also says the millions of orders they place—and sometimes immediately cancel—drive up data-processing costs and can lead to lurches in the price of individual stocks, not to mention outright disasters such as the May 2010 “flash crash” when the Dow Jones industrial average fell almost 1,000 points in minutes. To illustrate computerized trading to the public, Hunsader has turned data into animated videos. One posted on YouTube shows a 50-millisecond period in which quotes for Nokia dashed around the market at a rate of 22,000 per second. He pro- grammed a computer to play piano notes corresponding to different bids and offers for a popular exchange- traded fund, resulting in a manic stac- Eric Hunsader sees signs of abuse in his charts of market action cato composition. He says such projects are meant to highlight the absurdity of “If you can’t prove your point, then disprove mine” modern computerized trading.

BRAD BARKET/GETTY IMAGES BARKET/GETTY BRAD People at HFT firms accuse A frame from a video showing about a third / of a second’s trading in Markets Nokia on Oct. 9 Finance Hunsader of mis- then disprove mine. our markets are a whole lot better than understanding what But don’t go around they were 10 or 20 years ago, the reality he sees in market saying we think is, hey, there’s still some blemishes data. Manoj Narang, you’re making leaps around the edges that can and should chief executive officer ofTradeworx without backing it up.” be addressed. And he draws attention in Red Bank, N.J., compares Nanex The flash crash inspired Hunsader to them.” —Michael P. Regan to the “truthers” who doubt the offi- to look more closely at the data he was The bottom line Nanex’s founder is on a cial explanation of the Sept. 11 terror- distributing. He and Nanex program- mission to expose what he sees as market ist attacks. “The conclusions that they mer Jeff Donovan, a Southern California manipulation by high-frequency traders. form generally have a paranoid or con- surfer and ticker-plant programmer spiracist sort of bent to them,” he says. who also develops three-dimensional Chris Concannon, a partner at Virtu graphics software, drilled through the Financial and a former Securities and quotes. Patterns they saw as evidence of Exchange Commission attorney, joked market manipulation emerged in charts Commodities in a recent speech that Nanex’s slogan for stock orders. They called them crop should be “making markets better with circles, a reference to the mysterious pat- China Is Ready to Pass inaccurate information.” terns sometimes reported in grain fields, India in the Gold Race Nanex’s interpretations are helping and published the research on the firm’s to drive the public debate about the website. Calling them crop circles “was Falling prices send aunties on fairness of the modern stock market. a blessing and a curse,” Hunsader says. jewelry-buying sprees Virtu and Nanex have traded insults “It was a blessing because it caught the since Hunsader published a Sept. 20 eye of Main Street, and it got us into the “You look around and see very few report titled Einstein and The Great Fed Atlantic, which got us into the New York places to put your money” Robbery. The report cited market data Times. But the curse was that the Wall it said showed a trading firm or firms Street glitterati, or elites, would always Yang Cuiyan, a 41-year-old housekeeper somehow got advance word about the associate us with conspiracy theories.” from Anhui province, is one reason Fed’s Sept. 18 decision not to reduce its A high-frequency tweeter with China is poised to topple India as the $85 billion in monthly bond purchases, more than 11,000 followers, Hunsader world’s top consumer of gold. Standing then used the milliseconds-long head conducts his crusade on the Internet outside Beijing’s busiest jewelry store, 46 start to place bets totaling more than and through interviews with journal- wearing a thick coat against the autumn $1 billion. Following the report, the Fed ists, documentary filmmakers, and chill, she clasps a gold necklace that began a review and ultimately tightened others looking for someone to explain cost her 10,000 yuan ($1,640), or five the way it releases its statements. Virtu today’s computerized market. Many months’ wages. “I can put it on when issued a report saying Nanex’s study was of his Twitter posts link to his charts I go back home to show everyone that “severely flawed.” Hunsader replied that highlighting unusual patterns in stock I’m doing well.” Virtu needs to buy a “new calculator.” quotes and often blame computer Yang is one of the legions of Concannon didn’t respond to requests algorithms used by HFT firms. middle-aged Chinese women, respect- for comment. “Obscene manipulation in $AAPL fully referred to as aunties, who bought Calling patterns crop circles, “Everybody who’s stock. Where’s @SEC_News on this & coins and jewelry this year. Gold pur- “caught the eye of gone this route” of taking 1000’s of other examples?” he tweeted chases in the world’s second-largest Main Street. … The on the trading establish- on Oct. 5, referring to the symbol for economy will surge 29 percent in 2013, to curse was that the ment “has had to be a Apple and a Twitter feed run by the a record 1,000 metric tons, according to Wall Street little bit theatrical, and SEC. An SEC spokesman declined to the median of 13 estimates from analysts, glitterati, or elites, Wall Street doesn’t like comment on Nanex’s assertions, as traders, and gold producers in China would always it,” says Haim Bodek, did representatives of the New York surveyed by Bloomberg News. China’s associate us with conspiracy founder of Decimus Stock Exchange, Nasdaq OMX purchases of gold climbed 30 percent, theories” Capital Markets, which Group, and Bats Global Markets, to 996.3 tons, in the 12 months through develops computer pro- which is combining with Direct Edge September, while sales in India rose grams to help institu- Holdings. Bloomberg LP, parent of 24 percent, to 977.6 tons, according to tions trade with HFT Bloomberg Businessweek, operates an the London-based World Gold Council. firms. “The irony here is that he really is alternative equities platform called India was No. 1 in 2012. Each country addressing these deep flaws.” Tradebook and is a provider of market buys more gold than the U.S., Europe, Nanex’s offices consist of a room data and analytics. and the Middle East combined. dominated by Hunsader’s wall of mon- Among those who have come to Gold’s burnished appeal in China itors, another filled with stacks of Winnetka to consult with Hunsader stems in part from a lack of alterna- servers, a common area with a mini- is James Angel, a finance professor at tive investments. While the MSCI fridge full of soda, and not much else. Georgetown University who studies All-Country World Index of equi- Hunsader, 51, says he’s released about markets. “I don’t think his analy- ties rose 18 percent this year through 3,000 pieces of trading research and sis is always correct,” Angel says. Nov. 22, the Shanghai Composite Index never stood down from a finding. How “He doesn’t know who’s trading, slumped 3.2 percent. Policymakers do you publish that many reports, he who’s putting in the various quotes.” clamped down on property invest- asks, “and not ever have to retract Nevertheless, he says, Hunsader’s work ments in March to cool the housing them? If you can’t prove your point, is important: “Even though on average market, ordering the central bank LAM YIK FEI/BLOOMBERG(5) capita income intheﬁrstcapita for thenumberof people with $1millionormore in Rise inruralRise China’s per sales inChinafor 2013 China’s rank worldwide Projected tonsof gold from thesameperiod bar, jewelry, andcoin nine months of 2013 Buying on investable assets the Dip last year gold purchases inChina Projected growth in for 2013 below 2011’s record high Price perounceof gold on Nov. 22,35percent thicker.” to competeseewhose necklaceis tives andfriendsbackhome.We all like shop. “Iwanttokeep upwithmy rela- relativesher ruralhometovisit and fromthe 650-mile journeytoBeijing safest choice,” says Yang, who made to buyproperty, soIfigured the is gold market, andIdon’t have enoughmoney “I don’t know aboutthestock anything in thatbracket lastyear, up14 percent, more ininvestable assets,with643,000 the number ofpeoplewith$1millionor worldwideThe nationranksfourth for the nationalbureau show. ofstatistics able incomerose 9.5 from percent, data earlier, dispos- while urbanpercapita the year jumped12.5 percent from ayear incomeinthefirstninemonthsof capita reflects rising China’swealth. ruralper gold willremain afavored choice.” nudging peopleaway from real estate, share market down andthegovernment Investment Management. “With the atShanghaiLeading Shihua, apartner places toputyour money,” says Duan you lookaround andseevery few with excessive pricegains.“InChina, ments forsecondmortgages incities down-paymentto raise require- eighth percentile, she d score wasbelow 500, inthebottom commute. Even thoughhercredit forherdaily looking tobuyacar showroom inHouston inOctober intoAlanHelfman’sA woman came Boosting CarSales Subprime LoansAre Bonds 996.3 tons,toppingIndia’s 977.6 tons. 30 percent inthe12months endedSept. 30, to The bottom line aunties clearing shelves

before they pay else” anything “They have topaypayment thecar funds for buyers withweak credit Yield-starved investors provide The increased appetiteThe increased forgold also Chinese mediashowed images of gold fell14 percent days, intwo lowed by Japan andGermany. Canada. TheU.S. fol- ranksfirst, firm Capgemini and Royal Bankof according toareport by consulting In April, when thepriceof —Bloomberg News Markets China’s goldpurchases rose rove away rove ingold shops. / Finance 47 Markets/Finance

with a new Dodge Dart. A year ago, making Dodge the brand with the Mutual Fund Flows “I would’ve told her don’t even bother highest percentage of loans at more than Bond coming in,” says Helfman, who owns 10 percent, followed closely by Chrysler Stock $400b River Oaks Chrysler Jeep Dodge Ram, and Mitsubishi. Dodge’s U.S. sales rose where sales rose about 20 percent this 17 percent this year through October year. “But she had a good job, so I told compared with a year earlier, propelling $200b her to bring a phone bill, a light bill, Chrysler Group to 43 straight months of your last couple of paycheck stubs, and rising sales. bring me some down payment.” About 13 issuers have raised money $0 As the fifth anni- in the asset-backed bond market to “Perhaps more than versary of the make subprime auto loans this year, any other factor, Federal Reserve’s according to Citigroup. Among them -$200b easing credit has policy of keeping are GM Financial, the lender known 2007 2013 been the key to the interest rates near as AmeriCredit before it was acquired U.S. auto recovery” DATA: ICI zero approaches, by General Motors in 2010, and new the market for sub- entrants such as Exeter Finance, from the four years through 2012, when prime borrowing owned by Blackstone Group. Exeter investors put $1 trillion into bond funds, is again becoming has issued $900 million of bonds linked and the financial crisis drove many to frothy, this time in to subprime auto loans this year, data abandon stocks and miss out as the the car business compiled by Bloomberg show. Exeter Standard & Poor’s 500-stock index instead of housing. has higher loss rates compared with almost tripled from its March 2009 low. U.S. auto sales, on pace for the best other lenders, S&P said in a Sept. 17 The Barclays U.S. Aggregate Bond year since 2007, are increasingly report. A spokeswoman for Exeter Index—a common fund benchmark— being fueled by borrowers with spotty declined to comment. declined 1.4 percent this year through credit. They accounted for more than Shoddy home loans packaged into Nov. 19 and is heading for its first annual 27 percent of loans for new vehicles bonds by Wall Street banks fueled the loss since 1999. Some professionals in the first half of the year, the highest financial crisis. Subprime auto loans see bigger trouble ahead for stocks. proportion since Experian Automotive are a good investment, Helfman says: “We will have the third in the series began tracking the data in 2007. That “A person that has to get from point A of serious market busts since 1999,” 48 compares with 25 percent last year and to point B, they’re not going to jeop- wrote Jeremy Grantham, chief invest- 18 percent in 2009, as lenders pulled ardize their job. They have to pay the ment strategist at money manager back during the recession. “Perhaps car payment before they pay anything GMO, in a November letter to clients. more than any other factor, easing else.” His Dodge Dart customer with BlackRock Chief Executive Officer credit has been the key to the U.S. auto the bad credit had to pay a higher-than- Laurence Fink says stocks may decline recovery,” Adam Jonas, an analyst with average interest rate on her loan. “It as much as 15 percent because of polit- Morgan Stanley, wrote in an October wasn’t pretty, but it wasn’t crazy,” he ical risks in China, Japan, France, and note to investors. says. She was “so happy she couldn’t the U.S. People moving their money The money for subprime loans comes see straight.” —Sarah Mulholland and from bonds into stocks “are jumping from yield-starved investors who buy Tim Higgins from one frying pan to another,” bonds backed by them. Issuance of such The bottom line Borrowers with spotty credit says Eric Cinnamond, manager of bonds, which pay higher rates than U.S. accounted for 27 percent of auto loans in the the $694 million Aston/River Road government debt, soared to $17.2 billion ﬁrst half of 2013, up from 18 percent in 2009. Independent Value Fund. this year, more than double the amount Bonds have fallen in value since sold during the same period in 2010, but May, when Federal Reserve Chairman still below the peak of about $20 billion Ben Bernanke raised the possibility in 2005, according to Harris Trifon, an of scaling back the Fed’s $85 billion analyst at Deutsche Bank. Equities monthly bond- buying program. The The interest rates on subprime auto yield on the 10-year Treasury note loans can climb to 19 percent, accord- Record Highs Lure rose to 2.79 percent as of Nov. 20, ing to Standard & Poor’s. “Right now, Investors Back to Stocks from 1.93 percent on May 21, the day you have to have fairly bad credit to be before Bernanke first mentioned the paying above 3 percent,” says Jessica idea. Bond prices fall as rates rise. Cash pours into equity mutual funds Caldwell, an analyst with auto research Pacific Investment Management after ﬁve years of withdrawals firm Edmunds.com.Chrysler Group Co., the biggest operator of bond has been a beneficiary of the subprime “Jumping from one frying pan into funds, had withdrawals of $39 billion boom. Fifty-eight percent of loans taken another” in the third quarter. “People are rotat- out to purchase its Dodge brand vehicles ing into stocks because they opened in October were above an annual per- Investors are rediscovering their up their statements and saw losses in centage rate of 4.2 percent, the indus- taste for equities. Stock funds took in their bond funds for the first time in try average, according to Edmunds. The $148 billion in the year’s first 10 months, God knows how long,” says Michael average loan for a Dodge charged an after five years when money flowed Mullaney, chief investment officer for APR of 7.4 percent, and 23 percent of the out, according to Investment Company Fiduciary Trust. loans had APRs of more than 10 percent, Institute data. The shift marks a reversal Individual investors have grown Markets/Finance

increasingly optimistic about stocks as benchmarks set new highs. The S&P 500 closed above 1,800 for the first Bid/Ask By Evan Applegate time on Nov. 21, and the Dow Jones industrial average broke the 16,000 mark on the same day. Bullishness in the American Association of Individual Investors’ weekly survey has aver- aged 43 percent this quarter, up from 29 percent in August and a long-term average of 39 percent. The stampede into stock funds could be a sign the rally is nearing an end, says Jonathan Pond, an independent financial adviser in Newton, Mass. “The timing of retail investors tends to be ter- rible.” That isn’t always a reliable indicator. Annual mutual fund flows turned from negative to positive twice before in the past 30 years, according to ICI data: in 1989, preceding market gains in eight of the next 10 years, and in 2003, when the S&P 500 rose until October 2007. In the past, investors returned more quickly to stocks after market declines. When the S&P 500 index plunged almost 50 percent from March 2000 to October 2002 following the collapse of $472m the technology bubble, individual inves- A dairy bidding war Down Under drags into its third month. tors shook off the damage and added 49 $140 billion to stock funds in 2003. The Bega Cheese, Murray Goulburn, and Saputo are vying for Australian milk 38 percent drop for stocks in 2008, the processor Warrnambool Cheese & Butter Factory. The latest bid was worst year for the U.S. benchmark since made by Canada’s Saputo, which is after a Pacific foothold to capitalize World War II, had a deeper impact on on Chinese demand. Bega and Murray Goulburn, both partial owners of investor psychology because the losses were so widespread, according to Warrnambool, may raise their offers to keep out their foreign rival. Burton Greenwald, a mutual fund consultant in Philadelphia. “The public was beaten down,” he says. “It took a long Deutsche Telekom sells its digital-classiﬁeds business. time for confidence to return.” The sale of Scout24 to private equity ﬁrm Hellman & Dismal fixed-income returns, and the $2b Friedman will free up cash for mobile network upgrades. potential for worse, are leading people to overcome their fear. “People seem WTGoodman wants Brazilian warehouses. The Australian REIT offered to buy 34 industrial buildings from to realize that if they want their money $1.4b BR Properties, which would use the money to repay debt. to grow they have to be willing to take more risk,” says Theresa Wan, a finan- China’s Giant Interactive receives an offer to go private. cial planner in Dumont, N.J. One of her The game company’s chairman and a group of investors clients, retired doctor Michael Resnick $913m would pay a 21 percent premium over its share price. of Suffern, N.Y., in July agreed with her suggestion to increase his allocation to EQT Holdings buys a unit of Aker Solutions. To focus on deepwater drilling, the oil company sold its well services stock funds to 35 percent of his portfo- $659m division to the Swedish private equity fund. lio from 30 percent. Resnick, 77, says he was wary because he has a low toler- DuPont sells off a glass-coatings division. Japan’s ance for absorbing losses. “But expec- Kuraray bought the Glass Laminating Solutions/ tations for bonds are very low, maybe $543m Vinyls unit to expand its vinyl acetate business. 2 percent or less,” he says. “I’m sleeping all right.” —Charles Stein Intel sets a price for OnCue. The chipmaker wants to sell its online pay-TV service. Potential buyers could include The bottom line Investors have put $148 billion $500m Samsung, Verizon, and Liberty Global. into stock funds this year, after pouring $1 trillion into bond funds over the past four. Apple acquires PrimeSense. The Israeli startup, whose technology powers Microsoft’s Kinect, makes hardware $350m that allows cameras to perceive depth and movement. Edited by Eric Gelman

BID/ASK ILLUSTRATIONS BY OSCAR BOLTON GREEN BOLTON OSCAR BY ILLUSTRATIONS BID/ASK Businessweek.com/markets-and-ﬁnance The J.Crew Invasion The preppy sweater company has redefined American style. Can Mickey Drexler’s vision triumph across the pond? By Emma Rosenblum Illustration by David Parkins ozens of shivering British resembles the preppy patriarch in a J.Crew (who heads merchandising and buying), fashion bloggers, TV per- ad, though his raspy accent is more Bronx use to describe the company’s internation- sonalities, and socialites than Martha’s Vineyard. Drexler is constant- al strategy are “thoughtful” and “careful.” snake down London’s ly doing his own market research and pauses J.Crew rolled out shipping for online Regent Street, waiting to greet some VIP shoppers. “How do you purchases in more than 100 countries last patiently to get into the like the new store?” he asks. (Everyone loves year, but the U.K. stores are its first phys- Nov. 6 opening night everything, which seems to disappoint him.) ical outlets overseas under Drexler. He’s party for the J.Crew flagship store. Inside, “The interesting thing about apparel and planning two stores in Hong Kong next bearded men like James Middleton, clothes is that it’s emotional,” he continues. spring. In addition to the Regent Street brother of Kate and Pippa, browse skinny “People’s emotions can change quickly. And flagship, there’s a women’s boutique in the ties and shrunken blazers. Women in full the advantage we have in coming to London upscale shopping area of Brompton Cross, skirts and crop tops paw through tables of now is that it’s not J.Crew how it used to selling the higher-priced J.Crew Collec- pastel cashmere. Everyone’s hair is chicly be. It’s J.Crew. It’s brand new. Oh my God!” tion, and a men’s shop on Lambs Conduit disheveled, as are their teeth. On the stairs The J.Crew that Drexler’s referring to Street that specializes in suiting. “We’re up to the second level of the 17,000-square- isn’t that new; it’s also very much a Jenna not flooding the markets. We’re not out foot space, the biggest of the three J.Crew Lyons Production. Drexler took over as CEO to become a mass brand,” says Wadle, 40, stores that opened in London in November, in 2003 and plucked Lyons from relative who worked with Drexler at Gap and has two partyers pause. “Oh! There’s Mickey obscurity to run all of design (she’d been been at J.Crew since 2004. “And so we’re and Jenna,” one whispers reverentially, at the company since 1990), promoting her putting a lot of pressure on the stores we pointing at J.Crew Chief Executive Officer to creative director in 2007. Under Lyons, are doing to succeed.” Millard “Mickey” Drexler and Creative who’s 45, J.Crew has become an unlikely J.Crew is still small compared with the Director and President Jenna Lyons. He’s fashion force. Her style—a quirky mix of Gap’s more than 3,000 stores—but its rise playing town mayor in a navy blazer and a classic pieces, vivid colors, and louder, points to something significant. While white button-down. She’s in sparkly green often sparkly accents—has been copied fashion is inherently elitist, Lyons has made pumps and her signature oversize black everywhere from the glasses. There’s a photo booth and Cham- Gap to the pages of pagne cocktails, and it’s all very fabulous Vogue. Editor Anna and also kind of funny, because it’s just Wintour is a fan, as is “The advantage we have J.Crew, after all. Michelle Obama, and Minus a few British touches, such as since 2012, J.Crew has mannequins topped with Grenadier Guard- presented its collection in coming to London style caps, the Regent Street store could at New York’s Fashion be in Ohio or Nevada or New York. It’s Week. With prices hov- now is that it’s not 52 artfully filled with the latest designs from ering above fast- fashion Lyons’s team, the same ones sold in stores chains such as Zara and J.Crew how it used to across the U.S.—women’s skinny jeans and H&M but below design- worn-in chambray shirts, men’s vaguely er lines such as Alexan- vintage plaid button-downs and slim-cut der Wang and Thom be. It’s J.Crew. It’s brand chinos. Lyons says there was talk of tweak- Browne, J.Crew has ing the collection to be more British “for found a lucrative niche new. Oh my God!” maybe five seconds,” but “we have a point as an aspirational des- of view. We felt good about exporting what tination for younger we were currently doing.” That includes shoppers and the go-to store for wealthy it less so. “Style is for everyone,” she says. everything from hair elastics to hand-knit customers seeking wardrobe staples. “I “We don’t talk down to our customers.” Fair Isle sweaters to $1,800 embellished don’t want to risk being arrogant, but I The ethos of J.Crew is design plus value; jackets. The vibe is casually stylish, cool yet think a lot of what we’ve done has connect- the cashmere is made in Italian mills, but cheerful. Perfectly American. A British man ed emotionally with America,” says Drexler. costs less than at Blooming dale’s. Nothing in tweed stares at a baseball cap in awe. Growth has been steady; there are falls apart. (If it does, the salespeople will Back in the store the next day, Drexler, now 446 stores within the J.Crew family happily replace it.) The post-2008 demand sitting on a couch in the women’s shoe area, of brands in the U.S. and Canada, and for value coincided with a resurgence in is thrilled to talk about the transformation last year revenue was up 20.1 percent, to buying made-in-the-USA products and sup- of his company from sweater catalog to $2.2 billion, according to the company. porting local manufacturing. J.Crew smartly the kind of international brand that draws J.Crew is finally in the black. After losing began beefing up its In Good Company A-listers on a chilly London night. “The $10.5 million as recently as the second offerings, which include American heri- party was below-the-radar cool,” says quarter of 2011, its net income over the tage brands such as Sperry Top-Sider, Red Drexler. “They all looked good. Oh my God, same period in 2012 topped $22 million. Wing Shoes, Alden Shoes, and Woolrich. if we could look like that!” Even so, Drexler says, it’s trying not to rush Although most of J.Crew’s products are Drexler, 69, does look like that—with his things. The words that Drexler and the manufactured overseas, the company has gray scruff and translucent plastic glasses he president of the J.Crew brand, Libby Wadle come to own the Americana movement

A brief history First catalog First retail Sold to Drexler The of J.Crew, hits American store opens in TPG for takes company mailboxes South Street $560 million over as goes public from twin sets Seaport CEO to skinny ties 19831988 1997 2003 2006

Number of stores 1 50 154 203 collaborations), an outfit that reflects her fashion image than Gap,” as he said—he high-low aesthetic. Lyons is J.Crew the way couldn’t resist. Drexler took J.Crew public Diane von Furstenberg is DVF; her own in 2006, then in 2010 oversaw the sale of the image is so intertwined with the clothes she company back to TPG and Leonard Green creates that it’s hard to separate the two. & Partners for almost $3 billion. The deal Yet she says she’s not necessarily design- was controversial: There were reports that ing for herself. “You want to love what you Drexler had been courting buyers without make,” she says. “I don’t wear shorts, but the board’s knowledge and that he ignored we design lots of shorts. I can have a really bidders other than TPG. He won’t talk about robust dialogue about shorts!” it except to say that, “fashion, by its nature, Of course, J.Crew has always sold shorts, is not a straight-up business, and most but not the $425 leather kind that Lyons shareholders in the public market have a is talking about. The first J.Crew catalog very short view.” In November, J.Crew issued arrived in American homes in 1983, filled bonds worth $500 million to pay a dividend with glossy photos of rosy-cheeked yuppies to its owners, leading to talk of a possible in ruffled blouses and pea coats. (“Crew” initial public offering or sale within the next was chosen for its association with the Ivy two years. Drexler won’t comment but said League sport.) An offshoot of Popular Mer- in an earlier conversation, “Being private is chandise Inc., a privately held direct-selling much more fun.” Drexler and Lyons at the Nov. 6 catalog company, the brand targeted the Since 2010, Drexler has increasingly Regent Street opening night party Official Preppy Handbook crowd that wanted empowered Lyons as the company’s in London Ralph Lauren’s vision of a better life but visionary. “When we’re thinking about an at a lower price. J.Crew took off—in 1990, item, with Mickey it’s never just, ‘is it the in men’s fashion—rugged button-downs, founder Arthur Cinader told the New York right price, and how many units should we broken-in-yet-slim-fitting jeans, upscale Times that the company had been growing at buy?’ It’s ‘do we love it, is it beautiful, is it field jackets (think chic WPA workers). Older 25 percent to 30 percent a year—and by 1988, the thing we want?’ ” says Lyons. J.Crew’s brands such as Brooks Brothers and Ralph the year before J.Crew opened its first store headquarters houses both the design and Lauren have profited from this trend, newer in New York’s South Street Seaport, annual business sides of the company, and the lines like Band of Outsiders have also cashed sales had reached $100 million. areas look pretty indistinguishable. Racks in, and larger retailers like Club Monaco By the mid-’90s, America knew its of J.Crew clothes are everywhere, and Drex- are moving in that direction—hence its heather pine cardigans from its lilac. ler’s voice pipes over a loudspeaker for new $450 Varsity Jacket. And Americana Crinkly brown J.Crew packages dotted everyone to lovingly roll their eyes at. The has gone global. In Asia, especially, there’s suburbia’s welcome mats, and college stu- 4,900 employees, mostly women, channel huge demand for the “authentic” heritage dents crowded quads in barn jackets and Lyons—fresh-faced, well-accessorized J.Crew 53 brands that J.Crew has curated—Japanese rollneck sweaters. But by 1997, as a result soldiers. In 2006 it bought the name of buyers are bidding as much as $1,000 for of increased postage costs and manage- defunct clothing line Madewell to use for Red Wing boots on EBay, and Alden has ment turmoil, J.Crew was foundering. The a standalone denim brand aimed at young opened a successful standalone store in Cinaders sold a 60 percent stake to invest- women that now has 64 stores. That same Shanghai, decorated with American flags. ment firm Texas Pacific Group (TPG) for year it restarted Crewcuts, J.Crew’s chil- While there’s no single “American look”—the $560 million and gave up day-to-day control. dren’s brand, which features $88 bejew- country is too big, the concept too fuzzy— The company went through three CEOs in eled dresses for girls and $65 boys’ hoodies. Drexler & Co. are betting that J.Crew is the three years. A few years ago, the top executives closest thing to an exportable national style. Drexler, meanwhile, was turning the started thinking about London, but “there Gap into the largest apparel chain in was never a moment of, like, ‘It’s time to J.Crew is headquartered in a converted the world. Under Drexler, Gap acquired go on a big international expansion!’ ” says loft in downtown Manhattan near Cooper Banana Republic, launched Old Navy, and Wadle. She says J.Crew is still growing in Square. On a warm November morning the made khakis hip. He took the company the U.S. but is focusing more on specialty streets are filled with New York University from $400 million in revenue to more than stores—and that the brand felt particularly students in jeans and sweaters, girls wearing $14 billion but by 2002 had made a series relevant, so the London move made sense. chunky necklaces and guys in old-school of strategic errors, most notably trying “We certainly weren’t a pioneer coming New Balance sneakers. Lyons’s influence is to make Gap more fashion-forward (the here,” says Drexler. “We did our own brand everywhere. Sitting at a large table in her low-rider jeans were not a hit). That led to research, and then it became an easy deci- office, which is white and airy and piled losses for 29 consecutive months and his sion.” Wadle agrees, with reservations: “Am with sketches, she talks about her role at dismissal from the company. I worried? I’m not worried,” adding wryly, the company. “At the end of the day, all I That same year, J.Crew posted a loss “I’m anxious, of course.” really want is for people to be excited about of more than $40 million. The brand had clothes,” she says. She’s wearing gray slacks become uncool, too reminiscent of Friends. “Historically, overseas expansion in and a navy Comme des Garçons sweater When the J.Crew board approached Drexler fashion has been tricky,” says

CLOCKWISE FROM TOP: RICHARD YOUNG/REX USA; COURTESY J.CREW (2); GAP/BLOOMBERG NEWS; AP PHOTO AP NEWS; GAP/BLOOMBERG (2); J.CREW COURTESY USA; YOUNG/REX RICHARD TOP: FROM CLOCKWISE (another of J.Crew’s In Good Company to take over—“a great name with a better Howard Davidowitz, chairman of

Opens Starts In Good Hires Opens the Obama poses in the first Company Muytjens Liquor Store Vogue wearing Madewell partnerships as head of in Tribeca J.Crew store menswear

2007 2008 2009

227 260 300 retail consulting firm Davidowitz & Asso- issues,” says Lyons, who manages all ciates. “Go ask Abercrombie & Fitch,” he aspects of marketing and store design. says. Abercrombie, which made a big push “Stuff you wouldn’t think of. The light- into Europe starting in 2007, opening seven ing wattage you’re allowed in London is flagships and 62 Hollister stores, has strug- lower, which we didn’t know, and so we gled abroad. Last year comparable store spent the night before the opening chang- sales internationally were down 8 percent, ing all the light bulbs. We were like, ‘It’s and the company announced plans to close dark over there, it’s dark over there!’ ” all of its stand-alone Gilly Hicks stores, she says. There were also staffing issues. both abroad and in the U.S. “The worst J.Crew prides itself on “store experience,” thing you can do is open a bunch of stores as Wadle puts it, and finding the right sales- to big fanfare and then have to retrench,” people has been harder than expected. says Allen Adamson, managing director Says Lyons: “When someone’s in the dress- of brand consultant Landor Associates. ing room saying, ‘This isn’t really working,’ J.Crew is part of a pack of retailers that where we excel is having the salesperson expects to succeed in London. Mass Amer- say, ‘We have these three other things, or ican brands such as Victoria’s Secret and this option online.’ ” To help, the team Banana Republic have recently increased has imported staff from America to train their presence in the city, and high-end British employees. labels like 3.1 Phillip Lim, Rag & Bone, and The Regent Street megastore, one of J.Crew is deep into its leasing negotiations Opening Ceremony have opened stores three J.Crew outlets that opened in for the two planned Hong Kong stores. The there in the past year. “London is a good London in November brand has some experience in the city—last place to start an international rollout,” says year, it began a collaboration with upscale Adamson. “It’s very cosmopolitan and open Street flagship. “She’s buying three pairs department store Lane Crawford, displaying to brands from other parts of the world suc- of £375 leather ankle boots. They’re J.Crew merchandise in a store-within-a-store ceeding. Unlike Paris, which is very hard.” made in Italy, and designed by us. We format. Drexler says that venture “did really The Regent Street megastore followed take it from our costs directly, so there well, though I can’t tell you the numbers, J.Crew’s more guerrilla-style entry, the isn’t a double markup. These would be ’cause then you’d have to report them.” His men’s shop on Lambs Conduit. It’s a wisp twice as much at a department store,” executives, however, seem more measured of a spot, about the size of the large closet he says. The gray boots, with their sleek about J.Crew’s move into Asia. of a very wealthy hipster. It resembles the shape and pointed toe, do look a lot like “The U.K. really connects well with Liquor Store, the Partners & Spade-designed a Manolo Blahnik version that sells at America,” says Wadle, who was promoted J.Crew outpost in New York’s Tribeca that Barneys New York for $1,055. But to buy to her current position in April. “It’s much 54 opened in 2008, the same year Lyons tapped the same J.Crew shoes in America, cus- more of a mall culture in Hong Kong,” she designer Frank Muytjens as head of mens- tomers pay only $375. Many items in the says, “and the biggest difference is the size wear. Muytjens brought a distressed yet Regent store and on the U.K. website of store. They’re smaller, and rents are tailored sensibility to the men’s line, inspired are priced the same in pounds as in much higher.” The merchandising team by vintage American workwear. (Muytjens is U.S. dollars. With the exchange rate at is working on editing down J.Crew’s col- from Amsterdam, but he spent the early part $1.60 to the pound, cute ballet flats cost lection for the reduced square footage of his career at the very American Polo.) He 40 percent more in the U.K. while still maintaining the brand identity. fixed the pants fit—no more pleats, nothing Drexler has gotten some flack for They’re also researching Asian sizing. “You oversize—and also introduced higher-end the jacked-up British prices: “Shoppers go in with the impression that everything fabrics. A men’s magazine darling, Muytjens shocked as Michelle Obama’s favourite would have to be smaller, but we’re seeing managed to do for J.Crew’s menswear what brand J.Crew lands in UK ... at double the that that’s not necessarily the case,” says Lyons did for women: make it accessibly, price!” read a Nov. 8 headline in the Daily Wadle. Lyons was surprised by how many authentically cool. Mail. “Prices are different from country to size medium sweaters were selling at Lane In the back section of the Lambs Conduit country. I’ve been coming to Europe for Crawford. “I don’t know if that’s expats or store, decorated with Jasper Johns prints decades, and it’s always been that way,” people wearing them slouchy. I have no and Brian Eno posters, is a wall of Ludlow says Drexler. The bad press doesn’t bother idea,” she says. suits. At about $800, it’s J.Crew’s answer to him. “Opening international stores enor- Asian customers have historically gravi- mid-priced, stylish suiting. A common sight mously helps your domestic business. tated toward logos and the it-costs-more-so- in Brooklyn, Los Angeles, or East Austin, Because then customers will buy even it-must-be-better mentality, as Drexler puts Tex., is a framed wedding photo in which more when they come to America, because it, and luxury brands like Prada, Coach, the entire bridal party is outfitted in Ludlow it’s cheaper,” he says. and Burberry have profited accordingly. suits and J.Crew bridesmaid dresses. Drexler may sound breezy, but Lyons So far, based on online sales, Lyons isn’t “This is not a store for college kids and Wadle are more forthcoming about worried about J.Crew’s understated vision anymore. That woman over there—look,” the challenges of J.Crew’s British inva- succeeding in Hong Kong, but “China Drexler says, pointing at a middle-aged sion. “Everything’s different over there, proper? That will be a different conversa-

shopper in the shoe section of the Regent from the labeling to compliance to legal tion,” she concedes. TEODORO/WIREIMAGE WENDELL (3); J.CREW COURTESY TOP: FROM CLOCKWISE

Sold back Teams up with Lyons First Wadle Three to TPG CFDA/Vogue Fashion promoted presentation promoted stores and Leonard Fund to create to president at New York’s to brand open in Green for capsule collections Fashion Week president London $3 billion with winners 2010 2012 2013

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George McReynolds sued Merrill Lynch for racial discrimination and won an historic settlement. Then he went back to work The Man

56 Who Took On Merrill

By Karen Weise Photograph by Jono Rotman

“I’ll give you as much time as you want,” George McReynolds terms of cash, the $160 million won for 1,400 black brokers drawls, leaning back in his chair in his Nashville office. That, he was a record for a racial bias case. says, has been his philosophy during the 30 years he’s worked as McReynolds’s case, a class suit alleging unintentional yet a financial adviser at Merrill Lynch. At 69, he’s a slow-and-steady systemic bias, is “extremely rare,” says Michael Zimmer, a law kind of guy: He’s lived in the same home for almost four decades; professor at Loyola University Chicago. He estimates that of he never takes his tan Chevy Malibu over the speed limit. the roughly 15,000 discrimination lawsuits filed each year, But McReynolds couldn’t wait forever to be treated equally fewer than 100 make similarly broad claims. Most are brought by his employer. Over the years at Merrill—he started there in by indi viduals contesting specific incidents. The suits are so 1983—McReynolds had gotten used to inequities small and large. unusual in part because they’re hard to win. Workplace bias With only a few fellow black brokers in the Nashville office, he has become more subtle, Zimmer says, and thus is harder to felt isolated. Often excluded from work social events, he took to prove, and the Supreme Court has tightened the law around eating lunch at his desk; if he was out, he says, the receptionist class actions. And such suits are big and expen sive, “because sometimes told callers he didn’t work there. He also noticed the employers fight back very hard,” he says. that the other African American financial advisers at Merrill “They already messed up my career,” McReynolds says now. were rarely top producers—meaning they generated less busi- “I just felt they couldn’t hurt me any more.” In taking Merrill ness than their white colleagues—though they seemed to work to court, McReynolds put before judges a core and complex as hard as everybody else. question about why the ranks In 2001 his manager of African Americans were asked him to team up with few and their production two younger white brokers, low: Was society racist—were pooling their accounts and clients to blame for not giving splitting the profits. The bulk their business to blacks more of the combined accounts “They already often—or was Merrill? came from McReynolds. Right away the three had problems. McReynolds was born in “We didn’t agree on how Louisville to a mother who business should be done,” messed up taught third grade and a father he says. After two years the who worked as a janitor at a team broke up, and the office bourbon distillery. After the manager gave a majority of Supreme Court’s 1954 ruling the accounts to the younger my career. in Brown v. Board of Educa- brokers. McReynolds says he tion, McReynolds’s elemen- lost $40 million in client assets tary school became one of 58 and had to give up his office. the first in the state to deseg- His new desk was in a carrel I just felt they regate. Before he entered his outside the ladies’ restroom. integrated fifth-grade class- “In this business, assets equal room for the first time, his income,” McReynolds says. “It father warned him to keep cut my income in half.” his head down and stay out The incident made him couldn’t of trouble. His father, he says, consider suing Merrill, but he was like him: quiet, not one to worried he’d never prevail in rock the boat. court. (Merrill says numerous When he was a teenager, factors could determine how hurt me McReynolds watched a movie the accounts were divvied on his family’s television that up after so long.) Then, in showed stockbrokers working the spring of 2004, an arbi- the phones. Making deals tration panel found Merrill any more” looked like a fun job. That had systemically discrimi- thought stayed with him while nated against female brokers he worked on the Project and awarded $2.2 million to a Gemini satellite program for single employee. The ruling McDonnell Aircraft, earned was part of a spate of cases women brought in the 1990s against an electrical engi neering degree at Tennessee State Univer- the financial industry, including the infamous Boom-Boom sity, then entered the management program at Sears. On the Room suit against Smith Barney. At the time, women were a side, McReynolds started playing the market. He made a bit of third of managers and executives in finance. African Ameri- money, and his broker suggested he join the profession. The cans made up 4 percent. In 2004, Merrill had almost 10,000 small number of African Americans in the industry deterred full brokers, not including trainees; fewer than 150 were black. him. “You know what I look like,” McReynolds countered. The The women’s victory gave McReynolds hope. Over several broker put him in touch with a black broker at Edward Jones, months that year, he and Maroc “Rocky” Howard, a former where McReynolds got a job in 1980, cold- calling prospects Army captain in Merrill’s Dallas office, talked about filing a listed in the city directory. After three years, Merrill hired him. lawsuit. The friends, who’d met a decade earlier, knew they Merrill was founded almost a century ago as Americans faced steep odds. began longing for a piece of the action on Wall Street. They During the next eight years, their case meandered through started investing in stocks in earnest after the turn of the the judicial system, its journey marked by personal and pro- 20th century, and by the Great Depression about a quarter of fessional misfortune, countless legal setbacks, unexpected households owned equities, according to Julia Ott, an assistant breakthroughs—and finally redemption, when, last August, professor in the history of capitalism at The New School. At the Merrill Lynch and McReynolds announced a settlement. In time, Merrill Lynch was a large and growing retail brokerage, Black Brokers … and Even as Trainees, Are Rare … They’re Left Behind Sales workers employed at U.S. Average account assets Merrill transferred to trainees securities brokerages in each of their ﬁrst 28 months, according to the plaintiffs’ experts, which Merrill disputes Whites Blacks

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with about 50 offices scattered across the country. After World brokers would later assert in their suit that Merrill’s efforts War II, investment returned to pre- Depression levels and stayed were superficial and didn’t address the real issues they believed 59 steady until the late ’70s. The industry itself remained mostly were holding them back—such as who gets what resources and white and male. accounts. Merrill says it focused on helping brokers bring in In 1974 the Equal Employment Opportunity Commission clients because production played an important part in its cal- sued Merrill, then the biggest brokerage, over race and sex culations for divvying up accounts. discrimination. The firm, which admitted no fault, settled and Year after year, the number of black brokers at the firm entered a consent decree promising to increase the hiring of barely budged. One black employee did particularly well: In black brokers from a little more than 1 percent of the work- 2000, Merrill asked Stanley O’Neal, who came up through the force to 6.5 percent. Merrill still hadn’t met this goal when the investment banking arm, to run the brokerages. He became pact expired in 1995. chief executive officer two years later. O’Neal, as Merrill would By the beginning of this century, more than half of later point out in court filings, is the grandson of a slave and Americans owned stocks. While the demographics of inves- grew up during the 1950s in Alabama, where his family had no tors have broadened, the brokerages have been slow to change. indoor plumbing and lunch counters were segregated. In 1994, McReynolds flew to Chicago for an informal meeting In 2005, Howard and McReynolds hired Chicago-based organized by experienced black brokers at Merrill. About 50 Stowell & Friedman, the firm that had represented the women attended. “For most of us, it was like, ‘Wow, there were other against Merrill in the ’90s. Stowell & Friedman took the racial- blacks in the firm, and they’re just like me,’ ” says Howard, discrimination case on contingency and footed the upfront who met McReynolds at the get-together. costs. Ultimately, 15 other brokers joined the suit. The plain- They gathered in Chicago annually for the next several years tiffs asked the court to recognize a class of black brokers and to compare notes. The challenges they faced, Howard says, trainees who worked at the firm from 2001 to 2006. As with weren’t overt. “There’s no group or individual saying, ‘Let’s most class actions, the biggest hurdle would be getting the screw the black guys today,’ ” he says. While white brokers judge to agree they had enough in common to be certified as often partnered up, African Americans were rarely asked to a class. After that happens, financial expediency and exhaus- join teams. And they consistently felt shortchanged when man- tion drive almost all cases toward settlements. agers divvied up new accounts. All these problems seemed Merrill reacted swiftly. While it denied the claims made by compounded by the fact that the bigger a broker’s book, the McReynolds and his team, it did announce changes at the bro- more support—and assets—he’d get from Merrill. kerages. The firm created new minority recruitment incen- Merrill started several programs over the years to help black tives, added an Office of Diversity to the duties of the unit’s brokers. The firm ran focus groups and took over the informal operating chief, and went on a hiring spree that, for a period, annual meetings. Some sessions Merrill organized were helpful, more than doubled the number of black financial advisers. (Not explaining new products and giving tips for attracting clients. many of the new hires stuck around; the attrition rate of black But others, along the lines of “how to manage your manager,” brokers remains high.) O’Neal met with the plaintiffs in New seemed tone-deaf to Howard. “You would have less success than York, and McReynolds got his office back. Among co-workers, what Obama is having in Congress trying to manage someone though, McReynolds found the response “chilly.” At the

LINE CHART: GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: EEOC DATA: BUSINESSWEEK. BLOOMBERG BY GRAPHIC CHART: LINE who didn’t want you there in the first place,” he says. The Christmas party, only a black sales assistant and a black couple who’d retired would talk to him. “After seeing the way seemed to be in denial. Like the others, Ross reiterates that many, Merrill Lynch treated me and other African Americans, two if not most, of their clients, people who have entrusted them with of my children told me they would never work for a place like their savings and their retirements, are white. Merrill Lynch,” McReynolds wrote in court documents. “A third The plaintiffs’ two experts, who charged a combined child who has an MBA was told she was not qualified, even $1.6 million, argued that Merrill’s policies didn’t just repli- though a colleague’s son without a college degree was hired.” cate societal realities—they made them worse. They found that Through it all, McReynolds kept serving his clients, hoping black brokers were far less likely to be asked to join teams than to see the case through. Every morning he stepped onto the white brokers, which in turn limited the size of their books. ele vator in the downtown office tower and pressed the button The experts calculated that this alone accounted for as much for the 17th floor, a button embellished with a drawing of as 28 percent of the wage gap. Merrill’s raging bull. They also found that, beginning in the first month of the training program for new hires, the company gave more and Merrill did not dispute that African Americans made up fewer larger accounts from new customers or retiring brokers to the than 2 percent of its financial advisers and were less likely than white trainees. (Merrill disputed their methodology.) That dis- white brokers to be top producers. But it disagreed about why. parity was compounded by a seemingly meritocratic Merrill The firm spent more than $12 million on eight experts who argued policy that rewarded higher producers by giving them even that society was prejudiced, not Merrill. Their data aimed to show more accounts. “Even if all you did was give [white brokers] that black brokers don’t have the same access to wealth as their an advantage in Month One, blacks would always fall behind,” white counterparts, that they have weaker social networks of says Linda Friedman, a lead attorney for the plaintiffs. wealthy potential clients, and that customers are likelier to invest For McReynolds, the experts’ findings were a revelation, with brokers who are similar to themselves. Merrill said this made an affirmation that he wasn’t crazy. “We were working uphill, white brokers more likely to be higher producers, which in turn while a lot of people were on level ground,” he says. Ross says made them more desirable teammates to other brokers, who the numbers the attorneys uncovered were startling. “All of picked their own partners. And because the firm rewarded top the things we suspected were not only true, but there was producers with more account distributions, this also explained even more,” he says. any differences in how new accounts were distributed. Still, Howard didn’t discuss the case with his family and More than a dozen Merrill executives, including O’Neal, tes- friends. “You are almost embarrassed that you were suffer- tified that the organization was doing the best it could in a busi- ing,” he says. “You were in a position where you could make ness that depended on getting access to the wealthy in America, by most people’s definition a really good salary”—most experi- who are largely white and inclined to socialize with people enced brokers, including McReynolds, usually make more than like themselves. “I think it is a fact of existence that reaching $100,000 a year—but at work, “you were being told you were a across cultural boundaries and racial boundaries … can be a total failure.” The four men who’d taken the helm of the case— challenge in this country,” O’Neal testified in a 2006 deposition, McReynolds, Howard, Ross, and Miller—turned to each other, 60 sitting across a conference table from McReynolds and at least the only people who knew what they were going through. a half-dozen other plaintiffs. He went on: “The concentration of They’d formed a brotherhood, Howard says. wealth in most parts of this country … is mostly in the hands of Amid the drawn-out discovery phase of the case, the group whites, which means, by definition almost, most African Amer- was rocked twice. First, in October 2007, O’Neal was ousted as ican financial advisers have to reach across racial … boundaries Merrill collapsed under the weight of flawed subprime securi- to establish those relationships in order to be successful, to ties in a downward spiral that would eventually lead to Bank build a broad book of business. I think this is one of the seminal of America buying the firm. Three days after Christmas that challenges of being an African American financial adviser.” year, McReynolds had a heart attack and a quadruple bypass. That, he argued, “to some degree, maybe a significant degree,” Complications caused his heart to stop for 17 minutes, and he accounted for why white brokers produced more. remained in intensive care for three months. “It was hurtful,” says Marshell Miller, a plaintiff. “Although he’s McReynolds’s toes, riddled with clots, were amputated. He African American, you felt he didn’t really have a clue what we had to stop flying to court hearings, because his special shoes were going through.” Frankie Ross, another plaintiff, says O’Neal made security screening a hassle. His wife, Elaine, insis ted on driving the eight hours to Chicago with him for the hearings, where, over and over, they kept losing procedural battles. In Miller, Howard, Ross, and McReynolds (left to right) at the August 2010, Federal District Judge Robert Gettleman dealt a 7th Circuit courthouse in Chicago in January 2012 major blow to McReynolds, ruling that the brokers didn’t have enough in common to be called a class. The decision essentially invalidated the suit and left the plaintiffs with few options other than appealing. To Friedman, who like almost every lawyer in her firm is white, it was inconceivable that the suit might fail. The plaintiffs, on the other hand, were less surprised. They sent flowers and prayers to console her. “Any person who is breathing knows that typically whites see justice diff erently than African Americans,” she says. Then came a ruling that changed their luck. In the summer of 2011, in a 5-4 decision in the case of Wal-Mart v. Dukes, the Supreme Court ruled against female workers who had sued Wal-Mart Stores for bias. The court said that Wal-Mart’s decision to give local managers the power to hire and promote workers did not constitute a nationwide policy that discrimi- nated against women. By absolving the retailer of respon sibility for local managers, the ruling was widely seen as a serious setback for future discrimination suits. But for Friedman, it had a silver lining: The justices spelled out the type of formal policies, set at the corporate level, that could give employees has asked for 21 percent of the pool; the rest will be split up the common experiences necessary to be considered a class. among the more than 1,400 black brokers employed from 2001 The McReynolds team now argued that Merrill had nation- to September 2013. The class representatives, 17 named plain- wide policies for how brokers teamed up and how the bank tiffs, will each get a $250,000 bonus for their involvement in doled out accounts. They lost in district court, but with a twist: the case. How much each plaintiff gets will be determined by In denying their class once again, Judge Gettleman made an an independent monitor, but given McReynolds’s tenure, it’s unusual remark, encouraging Friedman to appeal his own not hard to imagine that his take could approach $1 million. ruling because the Wal-Mart decision had changed the legal Merrill also agreed to three years of policy changes. The landscape. “You’ve made a good argument,” the judge told firm won’t distribute accounts to trainees in their first year her in court, “and I think it deserves to be put to rest one way and will place extra emphasis on the clients trainees bring in or the other.” on their own. Merrill will hire two coaches to work with black The 7th Circuit Court of Appeals agreed to hear the case, and in brokers and two experts, one chosen by the plaintiffs and one the middle of January 2012, George and Elaine McReynolds made by Merrill, to study the impact of team selection. Finally, all the snowy drive back up to Chicago. There, the brotherhood the settlement efforts will be overseen by a council of black sat side by side in the wood-paneled courtroom as Friedman brokers. “This is a very positive resolution of a lawsuit filed argued their case. During the first half of the time she had to in 2005,” Merrill Lynch spokesman Bill Halldin said in a state- present, the judges didn’t ment. “These new initiatives, seem to be buying her argu- developed in partnership with ments. Then, Friedman drew African American financial ad- on a trick she’d learned over visers and their legal team, years of working on civil rights “Any person will enhance opportunities cases. White people, even for finan cial advisers in the judges, sometimes seemed to future.” McReynolds will be on understand gender discrimina- the committee in the first year. tion better than racial bias, so who is breathing Similar changes implemented she likened Merrill’s teaming at Coca-Cola, after it settled a policy to when police depart- 2000 bias suit, helped make ments first allowed women it a diversity leader. Among into the force. If departments knows that the soda maker’s employees allowed veteran officers to pick today is McReynolds’s oldest their own partners, the force daughter, Jennifer. would never have been inte- McReynolds was at home grated, she reasoned. This, typically whites recovering from another Friedman argued, is what was surgery when news of the set- 61 happening to black brokers at tlement broke. Elaine and his Merrill. Judge Richard Posner, daughter Julie fielded a week one of the leading conservative of near-constant calls from the jurists in the country, pounced see justice press. McReynolds received on the analogy, posing a series letters and calls from sup- of additional questions. “Is it porters, and one former black like a fraternity? They’re not broker from Merrill made picked?” he asked. diff erently what Elaine calls “a pilgrim- “When Judge Posner age to George” to thank him related it to a fraternity, we in person for bringing the suit. felt somebody finally got The Supreme Court’s what we were trying to say,” than African ruling in Wal-Mart v. Dukes McReynolds says. “It wasn’t “no question was a setback” clear that he would rule our for class actions, says Cyrus way, but at least he under- Mehri, a plaintiffs’ attor- stood our perspective.” Americans” ney who wasn’t involved in this suit. Even with the About a month after the McReynolds ruling, plaintiffs hearing, Posner and the two other judges ruled in McReynolds’s won’t bring “a lot of cases” because they’d be such a long shot, favor, order ing the district judge to certify the class. Posner he predicts. The McReynolds case has, though, “breathed life” wasn’t saying that Merrill did discriminate—that’s something into employ ment class actions in which the facts may point that would be argued in trial—but that the brokers did face toward discriminatory corporate policies, he says. Stowell companywide policies. Citing the example of female police & Friedman, for one, is bringing a similar suit against Wells officers, Posner wrote that the teaming policy could set off a Fargo’s brokerage, which declined to comment. “vicious cycle” where black brokers aren’t chosen for teams, The men say they’re ready to put the suit behind them. so they earn less, so they don’t get as many accounts given to McReynolds expects to travel more and do some sailing, if them, which in turn makes them less likely to be put on teams his health holds up. But first the brotherhood will savor one in the future. Friedman says the decision was the first time a last chance to be together on Dec. 6, when they expect Judge judge certified a racial class against a financial firm, where the Gettleman to give the settlement final approval. Jennifer, with certification was not itself part of a settlement. her husband and daughter, will meet the family at the court- A trial was scheduled for early 2014, but by the summer of room. George, Elaine, and their two other kids will pile into 2013, Merrill agreed to settle. The firm denied any wrongdoing the Chevy. Two decades after the brokers began informally but said it would pay $160 million, the largest cash award ever meeting, and eight years after filing his case, McReynolds will

COURTESY GEORGE MCREYNOLDS; BAR CHART: GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: COURT DOCUMENTS COURT DATA: BUSINESSWEEK. BLOOMBERG BY GRAPHIC CHART: BAR MCREYNOLDS; GEORGE COURTESY in a racial-discrimination employment case. Stowell & Friedman make what he hopes is his last long drive to Chicago. 62

FORMER COMMUN OR, GRAY IST COU HOW DID A PO YNAMIC ECON NTRY ’S MOST D OMY? BECOME EUROPE BY STEPHAN FARIS he oldest coffee shop in Warsaw has been in operation nearly without T interruption since the end of the 18th century. In the upstairs room, a young Frédéric Chopin played one of his last concerts before emigrating to Paris. During the Nazi occupation from 1939 to 1945, the cafe was strictly for Germans. When the city rose up at the end of the war, the building, like much of the old city around it, was completely destroyed— then reconstructed from photographs in the years following. The cafe was state- owned under communism and privatized in 1989 after the fall of the Iron Curtain, sold to a journalist and a jazz musician. “And now,” says Polish businessman Adam Ringer, sitting in the cafe in early October, “it’s been bought by an international company.” Ringer, 64, reopened the cafe earlier this year under the name Green Caffè Nero, a coffee chain co-owned by Ringer, another Polish partner, and the U.K.-based chain Caffe Nero. “Here you have the whole history of Poland,” he says. “Look at that wall. Each brick is different. They were gathered from the ruins of prewar Warsaw.” Although they’re always aware of the past, Ringer and his countrymen are charging ahead. Revenue at most of his chain’s locations is up 10 percent from the year before, and the company is in the 63 midst of a rapid expansion. “People are much richer than they were, and you can easily feel it,” he says. With much of Europe still struggling to recover from the impact of the 2008 financial crisis, Poland stands out as an unlikely island of economic success, a place where companies and individuals plan for growth rather than decline. In 2009, when the gross domestic product of the Europe- an Union contracted by 4.5 percent, Poland was the only country in the union to see its economy grow, by 1.6 percent. The EU economy as a whole remains smaller than it was at the beginning of 2009 and isn’t

YEAR-OVER-YEAR GDP GROWTH Poland 8%

European Union –4% average 2001 2012

expected to recover its losses until the end of next year. In that same period, Poland is projected to enjoy a cumulative growth of more than 16 percent. “Poland didn’t feel the crisis, really,” says Ringer. There are various reasons Poland, a country of 38.5 million with more than CHANGE IN REAL GDP SINCE 2008 were lifted, government wages were countries followed policies of austerity, 20% capped, trade was liberalized, and the government spending in Poland actually Polish currency, the zloty, was made con- went up,” says Gavin Rae, a professor Poland vertible. The policies left millions out of at Kozminski University in Warsaw and European Union work but freed Poland to begin to recover author of Poland’s Return to Capitalism. average 0% from decades of mismanagement. The “At the point of the crisis, the foot was –5% economy got a further boost with the put on the pedal.” 2008 2014 (proj.) country’s entry into the EU in 2004. A series of tax cuts, including a drop At the onset of the global financial in Poland’s top rate from 40 percent to 200 years of tragic history, suddenly finds crisis, Poland’s burden of public debt was 32 percent, took effect just as the cri- itself in a position of envy. It has a large below 50 percent of GDP, low compared sis’s first shock waves were sweeping internal economy, a business-friendly the world. Meanwhile, the EU budget for political class, and the hypercharged POLAND’S YEAR-OVER-YEAR GDP GROWTH 2007-2013—which, among other things, potential of a developing country catch- 7% distributes aid from richer countries ing up with its western peers. It is playing to the union’s poorer members—made an increasingly influential role in EU Poland the biggest beneficiary of subsi- negotiations, often providing a voice of dies, showering the country with some Poland restraint during discussions on how to enters €101.5 billion ($137 billion). Although rebalance an off-kilter euro zone. the EU: 0% it was not labeled a stimulus package, The secrets of Poland’s resiliency Q1 2000 2004 Q4 2006 Poland’s combination of increased spend- trace back to the postcommunist era, ing and tax cuts was half again as large in when its leaders pushed through a set of with many European countries—in part per capita terms as the U.S.’s $800 billion painful but ultimately effective reforms. the result of a clause in its 1997 constitu- American Recovery and Reinvestment Two decades later, the country bene- tion limiting government borrowing to Act of 2009. fited from an infusion of foreign assis- 60 percent of GDP. Individual and corpo- Poland spent it quickly. The country tance at the precise moment other EU rate debt was relatively restrained, kept had been elected along with Ukraine to members were getting clobbered by the in check by strict financial regulation and host the 2012 European soccer champion- financial crisis. The story of the Polish a cultural aversion to borrowing. “Which ships, one of the biggest events in world miracle is a testament to the importance sports. Polish officials from city coun- of prudent policymaking—but it’s just as DEBT AS A PORTION OF GDP cilmen to the president were eager to much about luck. European Union average 90% use the tournament as a national show- Poland case, adding government spending to the 64 “I remember how it was 20 years ago,” says incoming funds. The result was transfor- Ringer. “Gray, dirty, with nervous people, mative. All across Poland, large cities and always running.” The street outside his small towns underwent much-needed cafe, until recently a tarmac thoroughfare, 0% makeovers. In addition to new stadi- is now a narrow cobblestone lane flanked 2003 2012 ums, everything from rail stations to city by wide sidewalks, where in the evening squares to airports were upgraded. Before tourists mingle with students from the countries suffered the biggest busts?” says the recent surge of infrastructure, Poles nearby university. A 20-minute walk away Leszek Balcerowicz, an economist and like to say, the country’s only real highway stands what was once the headquarters of former deputy prime minister who was was the one built by Adolf Hitler. Stretch- Poland’s Communist party, squatting over a the architect for the country’s most impor- ing from the western town of Wroclaw small city block. From 1991 to 2000 it was tant reforms. “Those that previously had to the border with Germany, it was once home to the Warsaw Stock Exchange. the booms. One of the main reasons why known as the longest staircase in Europe Today a Ferrari dealership neighbors a we did not suffer a recession is because we for the sensation caused by driving over Montblanc outlet. didn’t allow the boom to develop.” its disjointed concrete slabs. Since the fall of the Iron Curtain, Private borrowing had begun to edge For older Poles such as Ringer, who Poland has refashioned itself as a model up in the two years before the crisis, can remember the way things used to be, of free-market economics. From 1989 to but not so much that when the bottom the contrast can be breathtaking. Even dropped out of the global credit market, those too young to have lived under com- POLAND’S STOCK MARKET PERFORMANCE companies or individuals found them- munism feel a palpable sense of accelera- 60k selves dangerously in the red. “We were tion. “It’s hard to imagine how things were Warsaw Stock Exchange late to the party,” says Marcin Piatkowski, compared to what we have right now,” Total Return Index 40k an economics professor at Warsaw’s says Grzegorz Inglot, executive adviser to Kozminski University. “And it was over the board of directors of Inglot, a major 20k before we had time to get drunk.” Polish cosmetics company. At 23, he was Many of the characteristics of the born the year after the fall of the Berlin 0 Polish economy are shared by its Central Wall. “Poland is growing year by year,” he Q3 1991 Q3 2013 and Eastern European neighbors, all of says. “New investments, new roads, new whom suffered deep if not catastrophic buildings. It’s just more of everything.” 2007 its economy grew 177 percent, out- recessions in the early years of the crisis. In the Continent’s other capitals, shop- pacing its Central and Eastern European Poland, though, had an additional advan- ping centers usually rise on the periphery, neighbors as it nearly tripled in size— tage: It was the beneficiary of an almost squeezed out of the centers by property the result of a series of aggressive mea- accidental Keynesian stimulus that arrived prices and existing buildings. In Poland, sures taken by the government after the just in time, boosting domestic consump- wartime destruction and communist-

collapse of communism. Price controls tion and saving the economy. “While other era stagnation have left plenty of unused BLOOMBERG BY COMPILED DATA EUROSTAT, DATA: BUSINESSWEEK. BLOOMBERG BY GRAPHICS or underutilized lots ripe for redevelop- rant in the town of Jawor, not far from the deferred fiscal challenges. The government ment. Warsaw’s iconic Palace of Culture border with the Czech Republic, the beer is pushing up against the constitutional and Science, a Stalinist skyscraper built by market was dominated by multination- debt limit and is desperate for funds. Many the Soviet Union in the 1950s, is flanked al breweries marketing mass-produced Poles say a recent change to the pension on both sides by shopping centers, offer- Polish brands. Theirs was the only es- system, in which privately held funds are ing brands ranging from Guess?, Hugo tablishment to introduce beers from the being transferred into the state system, Boss, and H&M to Nike, Adidas, and country’s rapidly multiplying microbrew- is motivated by an effort to shore up the Timberland—not to mention Burger King, eries. “Now they’re all over the place,” balance sheets. “They’ve done a lot of cre- Subway, KFC, and McDonald’s. “We’ve says Michal, 31. Poles of their generation ative accounting to keep the deficit down,” had 20 years of transformation and are starting to demand the quality prod- says Andrew Kureth, editor-in-chief of growth, but we still have to catch up,” says ucts sought by consumers across much of the Warsaw Business Journal, an English- Leszek Baj, a business reporter at the daily the rest of Europe. “Our parents remem- language newsweekly. Unemployment newspaper Gazeta Wyborcza. Adds his col- ber a time when somebody high up [in remains stubbornly high at 10.3 percent; league, Patrycja Maciejewicz: “We want to the Communist Party] knew better than among the young, the figure is 26 percent. buy what everybody in Europe is buying.” they did how the beer should taste,” says In September the country’s trade unions Even as subsidies from the EU fueled Jacek, 28. Adds Michal, “We’re coming organized one of the largest demonstra- its growth, Poland has benefited from re- back to explore the tastes that were here tions since 1989, protesting working condi- maining outside the common currency. before the World Wars.” tions. Prime Minister Donald Tusk recent- From September 2008 to February 2009, “The consumer has changed,” says ly reshuffled his cabinet, fired his finance the zloty lost about a third of its value Małgorzata Starczewska-Krzysztoszek, minister, and pledged “an acceleration of relative to the euro, before stabilizing chief economist at Lewiathan, Poland’s economic growth.” later that year at about 70 percent of its private employer’s confederation. “They Despite some inevitable problems, peak value. The resulting boost in global want to have good quality for a good Poles have reason to remain optimis- competitiveness for Polish companies price.” When Starczewska-Krzysztoszek tic. Growth next year is projected to be quickly accomplished a rebalancing that surveyed small and medium enterprises the euro area’s weaker economies are still in 2009, 60 percent of respondents said POLAND’S PROJECTED GDP GROWTH they were planning to compete on price 7% PRICE OF ONE ZLOTY IN EUROS and nothing else. “I was very worried,” Historical growth 0.3 she says. “I tried to explain that we can’t compete with China and India.” In 2012, High Median when she ran the numbers again, only Low 10.6 percent said they planned to compete 0% on price. Nearly half said they were 65 0.2 focused on quality. 2006 2012 2015 (proj.) 1/2008 12/2009 Despite its expansion, Poland hasn’t been totally shielded from the vicissi- 2.5 percent, driven in part by a recovery struggling to achieve. Measured in euros, tudes of the business cycle. A slight rise in parts of the EU, especially Germany, the value of Polish exports dropped in unemployment in 2012, coming not the destination of more than 25 percent 15.5 percent from 2008 to 2009—but in long after the Euro Cup splurge, led of Polish exports. The EU budget for 2014- zloty terms it grew 4.4 percent. to a sudden plunge in consumer spend- 2020 was the first in the union’s history The drop in the zloty not only made ing. Many construction companies had that saw cuts in total spending, but the Polish exports more competitive but also money allocated to Poland rose nonethe- raised the relative cost of imports. The POLAND’S UNEMPLOYMENT RATE less. Because of a mix of factors—includ- result was a boon for local companies, 11% ing its size and proximity to Germany, the which increasingly are concentrating on EU’s biggest economy—Poland is eligible quality. Standing in the Inglot flagship for €105.8 billion, making it once again the store in the upscale Galeria Mokotów biggest beneficiary among member states. mall in Warsaw, Greg Inglot says his The funds are expected to start flowing by company “felt a little slowdown, but it 9% the end of 2014. was nothing big. Our numbers were going 1/2011 1/2012 9/2013 It isn’t just money that’s pouring in. up year to year.” Inglot, which produc- In addition to Green Caffè Nero, Ringer es 95 percent of its cosmetics in Polish drastically underbid for Poland’s infra- runs a training center that helps doctors factories near the Ukraine border, has structure projects, leading the industry prepare for positions across Europe. continued a rapid domestic expansion, to slip into recession. When he started 13 years ago, the stu- opening 113 stores since 2009, most Cities found themselves with giant dents were almost exclusively Poles. In of them in new shopping malls. The modern stadiums but no plans to fill recent years, as Polish doctors began company opened its first flagship store them. The stadiums are largely unprofit- to receive attractive wages at home, in the U.S. in 2009, in New York’s Times able, pulling in too little through confer- the school has suddenly found itself Square. It now has 31 locations in the ences, concerts, and the occasional game catering to Greeks, Spaniards, Portu- U.S. and outlets in 50 countries, includ- to pay for their maintenance, much less guese, and Croatians. “Can you imagine ing Belarus, Dubai, Guatemala, Malaysia, to pay down the loans that were taken a Greek doctor coming to Warsaw to and the Philippines. to fund them. “The spending gave the learn Norwegian and then moving to As Poles have gotten wealthier, their economy a boost, but in the long term it Western Europe?” says Ringer. “That’s tastes have grown more sophisticated. wasn’t necessarily a wise investment for the European Union right there.” And Three years ago, when Jacek Rusiecki and the country,” says Rae. Poland is one place where, for now, any- his brother Michal opened their restau- Poland also must address some long- thing seems possible. Special Advertising Section E -LEARNING 2013

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SHE’S THE BOSS How Alyssa Milano created a fan-gear fashion empire for women. By Joel Stein

Photographs by Ramona Rosales Etc. Fashion

lyssa Milano isn’t crazy about pink. major sports leagues. G-III Apparel agreed to manufacture and “I was in Dodger Stadium, and I was distribute her nascent line, Touch by Alyssa Milano, which had freezing—it was the beginning of the this motto: “Where the game meets the after party.” season, before the poop smell sets in,” “My idea was to make Touch fashionable enough for women says the star of TV’s Who’s the Boss? to wear outside the arena,” Milano says. The line, which was and Charmed, recalling a launched in 2008, now includes $85 quilted baseballA game she attended eight years ago. “I went jackets in team colors, $45 jeans with logos on into the store to get something warm to wear. And I was MORE WOMEN the back pockets, and $30 pendant necklaces offended.” The only color available in women’s cloth- WATCH THE with the logo in a crystal-lined silver heart. ing was pink. “Their answer for female sports apparel Milano chose the designs and modeled every back then was ‘pink it and shrink it.’ It was either that SUPER BOWL piece on her website. or buy something from the kids’ section. Which I did. Still, her pitch meetings were a bust. She I got a kid’s hoodie.” In Dodger blue. THAN had trouble convincing team buyers that she Milano, 40, figured she could do better than the mini THE OSCARS even knew enough about sports to understand Pepto-Bismol tees. So in 2007 she paid a fashion illus- what she was selling. “It was a lot of work to trator to draw some less boxy, team-color- appropriate validate my passion and knowledge. It’s prob- clothing. Her agent happened to be friends with someone at ably what every woman goes through when she’s a sports fan. Major League Baseball’s marketing division and got her a meeting Except I was trying to validate it to Jim Rome,” she says of being with some execs. They liked her idea enough to set her up with interviewed by the loudmouthed sports talk show host. Milano former New York Giant Carl Banks, who runs the sports cloth- grew up in Brooklyn, where she bonded with her dad and brother ing collection for G-III Apparel Group, the $1.2 billion company over New York Giants and L.A. Dodgers games. (Her dad stayed that has licensing deals with Levi’s, Guess?, Calvin Klein, and the loyal even when the Dodgers did not.) She’s dated several professional athletes, such as hockey player Wayne McBean and pitch- ers Carl Pavano, Barry Zito, and Brad Penny. She’s also had L.A. Kings season tickets since she was 15 and Dodgers season tickets for the past 10 years. Milano blogs for 68 MLB.com; hosts segments on the TBS network called Hot Corner; and wrote a book in 2009 called Safe at Home: Confessions of a Baseball Fanatic. Her Australian shepherd is named Dodger Dog. When Milano failed to score much retail space in stadiums, she started selling Touch merchandise through MLB.com and her own website in time for 2008 spring training. The collection sold out in five weeks, which surprised everyone, including G-III, which had no quick response plan to supplement stock. It lost time and profits while restarting production overseas. The clothing was cute, fit well, and had an American Eagle vibe. Most important, it filled a hole no one had realized existed. “We recognized that Milano was a go-getter. It wasn’t like, ‘Here’s my name, you can make a hangtag and put it on there.’ This was, ‘I’m sitting in on the focus groups, and I’m sitting with the designers,’ ” says Tim Brosnan, MLB’s executive vice president. After her one year of exclusivity with baseball ended, Milano added deals with the NFL, NHL, NBA, and some colleges, and has since MILANO: PHOTOGRAPHS BY RAMONA ROSALES FOR BLOOMBERG BUSINESSWEEK; PROP STYLING: GEORGE SEGAL; WARDROBE: JULIE MATOS; MAKEUP: MAKEUP: MATOS; JULIE WARDROBE: SEGAL; GEORGE STYLING: PROP BUSINESSWEEK; BLOOMBERG FOR ROSALES RAMONA BY PHOTOGRAPHS MILANO: added Nascar, MLS, and minor 731 BY PHOTOGRAPHS PRODUCT KEOUGH; DAVID HAIR: KAYE; STELLA Etc.

RETHINKING PINK A sampling of Milano’s Touch collection

L.A. Dodgers Washington Baltimore Ravens Kyle Busch Miami Heat triple play Capitals scripted chain-and-leather- all-star tri-blend Signature jeans; $45 tank top; $37.95 three- quarter- strap bracelet; $23.95 slim-fit T-shirt; sleeve T-shirt; $39.95 $34.95 league baseball. Touch is now the only apparel company with 14 percent in 2002. In turn, the NFL reports that spending on licensing agreements for women’s clothes with all the major women’s apparel has risen 76 percent since 2010. Milano’s line American sports. “You could identify her as the driver for what captures only a small percentage of that segment, but she still now is an accepted part of the business. Retail buyers now says Touch is one of her proudest accomplishments. “I could come to the table expecting that you have a full female offer- live off the money I’m making, but it’s not as much as you might ing,” Brosnan says. There’s a Touch boutique in the Mets’ Citi think. You’re cutting the pie in many different ways because Field, and Bloomingdale’s and Lord & Taylor carry the line. of the leagues,” she says. “It’s not Jessica Simpson clothing Touch has grown every year, even during the recession, and line kind of money.” Milano spends a few hours every day marketing the brand by As in regular stores, women do far more buying at stadiums 69 showing up at playoff games and store signings. “I send a lot than men, and so the leagues realized they were leaving a lot of of stuff to players’ wives,” she adds. Milano still models nearly money on the table. “Men are likely to wear last year’s or, God everything herself and even writes poems that she puts on ads forbid, something from 10 years ago. She will buy every year and hangtags: and buy for other people in her life,” Kane says. The NFL started To rally for each other its own women’s line in 2010 under Tracey Bleczinski, the vice To play fair president of consumer products (who recently left to head con- To run with abandon sumer products for the Ultimate Fighting Championship). The To dance with life line includes maternity wear and is promoted with ads featuring Is to Touch Condoleezza Rice, Serena Williams, Melania Trump, and super- There weren’t a lot of poems at stadiums before that. model Karolina Kurkova. This season, the NFL put so-called As soon as Touch proved that women will wear jerseys in style lounges, with dressing rooms, in 10 stadiums, and adver- public—away from games—and around other women, the big tised its women’s clothes in a 16-page Marie Claire insert called sports apparel companies, including Nike and Reebok, came “The Savvy Girl’s Guide to Football.” NFL Commissioner Roger out with more fashionable lines of women’s team wear. In 2010, Goodell sat front row at designer Kimberly Ovitz’s show during Victoria’s Secret introduced team-licensed cloth- New York Fashion Week, because women’s clothing as part of its younger Pink line, including leg- ing is now something Goodell has to know about. gings, panties, and a shirt that says “Fantasy Player.” VICTORIA’S Marshal Cohen, the chief industry analyst at More recently, CoverGirl packaged groups of nail SECRET HAS NPD Group, doesn’t credit Milano with creating color and gave instructions for making “fanicures.” the category but says she “ignited it.” Products Marchesa sold a Swarovski crystal-bejeweled Jets top TEAM-LICENSED that are made specifically for women, he says, for $110 in 2012. And this fall, former pro wrestler PANTIES. now make up 17 percent of sports apparel, and Baltimore Ravens cheerleader Stacey Keibler whereas eight years ago it was close to zero. landed licenses with several teams to sell, through MARCHESA “There are two big surprises in the world of sportswear line Meesh & Mia, a $180 New England MADE A fashion: Why they don’t make more plus-size Patriots faux fur vest along with other items. clothing, and they don’t make sports-branded “Milano gets all the credit in the world for being BEJEWELED product for women,” he says. “The sports a trailblazer,” says Leo Kane, the NFL’s senior vice JETS TOP apparel business is steeped in tradition. It was president for consumer products. too far-fetched from where they were. It took Milano was prescient: Some 46 percent of a jolt of recognition and an experiment.” In self-identified MLB fans today are women, and 44 percent January, Milano will launch another venture, a comic book of NFL TV viewers are women, up from 34 percent in series called Hacktivist, about an Anonymous-like group. “I 2011. More women watch the Super Bowl than the Oscars— really like breaking into businesses where women aren’t as 46 percent of the viewers for that game are women, up from predominant,” she says. Etc. Drinks NON-CHAMPAGNE CHAMPAGNES This season, the most enticing bottles don’t come from a certain region in France. By Evan S. Benn

Winner!

2004 CA’ DEL BOSCO FRANCIACORTA 2008 IRON HORSE CLASSIC THIERRY GERMAIN BULLES DE ROCHE ANNAMARIA CLEMENTI ROSE, ITALY VINTAGE BRUT, CALIFORNIA SAUMUR BRUT NV, FRANCE The hills of Franciacorta in north-central This Sonoma County vineyard specializes in The Loire Valley’s Vouvray region has been Italy produce the juicy pinot nero grapes chardonnay and pinot noir, which are popular in wine circles for a few used to make this delicious sparkler. French the traditional Champagne grapes. No surprise years now. But the nearby Saumur area, law requires aging Champagnes for at least then that most of their sparkling wines are where winemaker Thierry Germain 30 months before releasing them for sale; this exceptional. With comforting notes of toasted crafts his exceptional nonvintage blends, one spent 84 months bottle-aging. That bread and pie spices, the 2008 brut is is still relatively unknown. In this bottle, extra time in contact with yeast adds depth, one of the winery’s best, and it’s well-suited chenin blanc grapes dominate, resulting along with aromas and flavors of lime, to the holiday comfort food season. in a fizz that’s minerally, bone-dry, and raspberry, and fresh-cut grass. PERFECT FOR: sharing with friends at highly acidic with a beautiful lemon color. PERFECT FOR: celebrating a new job. $119.95 a dinner party. $37.95 PERFECT FOR: impressing

PHOTOGRAPHS BY AARON DYER FOR BLOOMBERG BUSINESSWEEK BLOOMBERG FOR DYER AARON BY PHOTOGRAPHS your wine snob co-workers. $16.95 Etc.

BUZZWORDS Five terms to make buying bubbly easier BRUT METHODE CREMANT Extra brut, brut, CHAMPENOISE French for creamy, and extra dry reflect Certain wines that these wines have in descending have undergone less carbonation order the amount centuries-old and are often of residual sugar production light and herbal. in sparkling wine. processes fall under Seven regions The middle this classification. in France and one option balances Faster and cheaper in Luxembourg a dry finish methods create have designated with sweetness. an inferior swill. producers.

A YEAR (ANY YEAR, REALLY) CHEAP VINEYARD TO KNOW: GRUET Winemakers focus on the best You can count on this U.S. years for vintage wines—made producer for two reasons: 1) The with grapes primarily from bottles offer tremendous value. 71 one harvest—so a date signifies 2) The vineyard, based off the higher status. Nonvintage grid in New Mexico, distributes wines (labeled NV) are nine sparkling varieties typically less expensive. to all 48 continental states. HOW TO OPEN, POUR, DRINK, AND STORE

Stand it up If you must It’s best to keep most wines in a cool, dark show off place on their sides to prevent corks from To saber, start with drying out. But sparkling wine should be a cold bottle left upright, because carbonation produces and remove the foil, enough humidity to keep corks damp. A study wire cage, and commissioned by the French government paper label at the found spoilage can occur in fizzy bottles kept neck. Standing on their sides, as their flared corks shrink outdoors, hold the from too much moisture and allow in oxygen. bottle near its base in the palm of Cool it down Sip, savor, repeat your nondominant A chill keeps bubbles Sparkling wine hand at a 45-degree small. Too warm, works alone angle, pointed sparkling wine gets as a celebratory away from people. frothy. Too cold, aperitif, but the Find the vertical aromas and flavors crisp carbonation seam on the glass disappear. Two hours and bright acidity and hold a long in the fridge is ideal. make it an ideal chef’s knife (or QUARTZ REEF METHODE TRADITIONNELLE SZIGETI GRUNER VELTLINER match for fatty sword) flat against Hiss, don’t pop foods like cheese, it, with the dull ROSE BRUT, NEW ZEALAND BRUT NV, AUSTRIA The sommelier- roasted duck, edge aimed toward Winemaker Rudi Bauer creates this Szigeti, a winery that sits on Austria’s approved way to serve or tempura- the top. Swiftly run salmon-pink rosé from handpicked Hungarian border, ferments grüner sparkling wine is to fried vegetables. the blade along the grapes grown in a single vineyard veltliner grapes, which are standard for secure the cork with With each seam and strike the in south-central New Zealand, where wines in the country but unheard of one hand and slowly sip, the bubbles neck’s ring, which he extracts the full flavor of the in the world of bubbly. This option balances twist the bottle with will refresh will come off clean. grape. Its first taste of cherry and rhubarb peachlike sweetness with peppery spice, your other hand, your palate. Follow through. turns to an almost creamy finish, making it incredibly versatile with food. It’s applying downward making it a no-brainer to pour with dessert. a thoughtful gift for a Champagne pressure as the cork Finish the bottle PERFECT FOR: a Thanksgiving aficionado, but if you keep it for yourself, rises. You should hear Sorry, but you shouldn’t save any for later: or New Year’s Eve host gift. $33.95 enjoy with ice-cold oysters. a little hiss, not a loud Food scientists have concluded the PERFECT FOR: right now. $20 pop, as gas exits. old spoon-in-the-neck trick to be bogus.

GO TO WWW.WINE-SEARCHER.COM TO FIND THESE BOTTLES AT SHOPS NEAR YOU. Etc. Marketing ASK A BILLIONAIRE

Dyson’s first invention was the Rotork Sea Truck, IT’S a watercraft he sold while in POSITIVE! art school Clearblue is winning over the pregnancy-test market with the help of new technology and reality stars

By Jessica Grose

n October two celebrities posted revealing pregnancy-test results in pictures of their positive pregnancy YouTube videos, Instagrams, and Facebook tests on Twitter. Kendra Wilkinson— photos. Clearblue’s brand manager, Kirsten James Dyson former Playboy bunny, now on WEtv’s Suarez, says the company reached out to Managing director, Dyson Kendra on Top—tweeted, “Round two. Wilkinson and Rycroft to tweet their posi- Net worth: $4.4 billion Here we go!! :)” on Oct. 31 with the tive pregnancy tests after seeing many cus- I hashtag #ClearblueConfirmed. She tomers post the news on its Facebook page. included a smiling selfie featuring a SPD, a venture between Procter & Clearblue Advanced Pregnancy Test with Gamble and Alere, has a 25 percent share HOW DO Weeks Estimator, which confirmed she was of the $228 million pregnancy-testing more than three weeks along. This was industry. It competes with Insight quickly retweeted 1,500 times, and more Pharmaceuticals, which makes e.p.t tests, YOU than 5,000 fans marked it a favorite. Nine and Church & Dwight, which makes First days earlier, Melissa Rycroft, erstwhile Response. Clearblue pioneered the hCG DEAL 72 Bachelor contestant, tweeted using the concentration test, and it may woo Gen Y WITH NEGATIVE same hashtag about expecting her second consumers, says IbisWorld researcher child. The post was sandwiched between Jocelyn Phillips. “Millennials want things FEEDBACK? musings on Funyuns and hair conditioner. to be as high-tech as possible, and they’re —@amalt Clearblue’s Weeks Estimator, which hit having kids later, so they have the dis- stores in May, uses new technology that posable income,” she says. These women informs if you’re one-to-two weeks, two- might be willing to pay more—the digital You learn from it. to-three weeks, or three-plus weeks preg- test costs about $20 for two, compared Often it starts a line of nant. Standard kits test urine for the hCG with the standard test at $15 for two. development: Well, yes, hormone—if it’s there, you’re with child— (Insight Pharmaceuticals and Church that person said they but this innovation measures the concen- & Dwight are likely working on similar want a light vacuum, which tration of that indicator. And while it may advancements, she says.) is impossible, because motors seem bizarre for Clearblue to advertise a Analysts predict the industry will are very heavy. So you new product by having D-list celebrities grow an annualized 1.5 percent in the say, “We might develop light tweet pictures of pee sticks, it’s actually next five years because of a postrecession electric motors—no one’s smart marketing. baby boom, yet Phillips anticipates a ever done it before; we must Swiss Precision Diagnostics (SPD), the pregnancy-test plateau. As more young do it.” About 18 years ago, maker of Clearblue, is capitalizing on an women become eligible for health insur- we set off on that journey. Internet trend: The Web is littered with ance through the Affordable Care Act, It took us 15 years before hundreds of thousands of young women they can visit doctors for more accu- we launched a revolutionary rate results. In the late 1970s, small, light motor. Negative when home pregnancy tests hit feedback is really interesting. the market, one of their biggest appeals was the privacy factor. In I enjoy it in a masochistic way. 2013 most women, regardless of marital status, aren’t embarrassed to go to the obstetrician. But Clearblue is betting on it being more fun for women to post pictures of their results online, from the comfort of their own bath- room. The visit to the doctor’s office doesn’t trump a few hundred favor- Submit your questions on Twitter with

ites from friends. the hashtag #askabillionaire. BUSINESSWEEK BLOOMBERG FOR LATHIGRA KALPESH BY PHOTOGRAPH DYSON: IMAGES; HAMILTON/GETTY JEFFERY TEST: PREGNANCY Tech Etc.

THE BEST APPS

FOR CLIENT ENTERTAINING “Eh, let’s watch Eight ways to impress your guests some real By Sam Grobart athletes.”

PGA TOUR CADDIE SEAT SHERPA With more than 40,000 golf courses on file, This maps out hundreds “Hey, we’re this helps your foursome on just about any links of stadiums and sports The business- in the world. Tour Caddie’s features include arenas—helpful if your yardage books, 3D flyovers of holes, and statistic duties include getting journey people. tickets for a Final Four Of course tracking so you can evaluate your game. It begins. uses GPS to calculate distance to the green, and game. The app provides we golf.” if you track your shots, it will even make seating charts and club recommendations. No tipping required. allows users to upload photos and videos so you can check the view before you buy. You can store maps OPENTABLE FOURSQUARE offline for easy retrieval. You have You may think Foursquare is just an app “Famished. OpenTable on people use to stalk one another, but it’s evolved Who wants your phone, right? into a location-specific gold mine. It has to eat?” No? Go do that. access to more than 250,000 menus and collects OpenTable shows all comments from previous visitors, so you’ll up-to-the-minute know that when you’re at, say, New York’s Minetta 73 availability at Tavern, the Black Label Burger is a must. restaurants—more Book title here than 30,000 of By Firstname Last them—in almost (Publisher), $00 every major city in EATER the U.S. and some “Oops! We Why Eater and not, smaller towns as say, Yelp or Zagat? Those well. Menu info and forgot to make a apps tell you about user reviews help places people love— set expectations. reservation.” Eater tells you about the restaurants that people “Hello, are going to love. There couch.” are two lists: The best restaurants in town— tried-and-true bastions “What do of excellence—and the we feel newest places everyone CARDMUNCH like— wants to check out red or next. Between the two, “Here’s my card.” You white?” you’ll find a spot heard that a dozen times. that pleases conservative Snap a photo of each with or daring tablemates. CardMunch. The service, a part of LinkedIn, has actual humans transcribe them, which is much more accurate than apps using optical WINERATINGS+ UBER character recognition. You’ll also get a LinkedIn profile The waiter hands you the Yes, there are other car- when the data’s returned wine list. It’s on you now. service apps, but Uber to you, in anywhere from Cool your nerves with Wine is the only one that’s an hour to overnight. Keep Spectactor’s app, WineRatings+. reliable. When the check everything in the app or While your clients are chatting arrives, open the app and copy to your phone book. about today’s boardroom choose a car. Uber bills the drama, quickly search the ride to the credit card you magazine’s database of almost have on file and e-mails 300,000 bottles to check “Get home a receipt. Because it ties you ratings. A vintage chart gives safe, now.” in to a network of drivers, “Nice to the best years from a particular Handshakes, you won’t be waiting on finally put region. Or scan preselected etc. hold with some car-service a face to lists such as Top 100 Wines or company while your guests the name.” Blue Chip Collectibles. are getting their coats. ILLUSTRATIONS BY DAN WOODGER DAN BY ILLUSTRATIONS Etc. The Critic

for it—Circus made its debut at No. 1, selling 505,000 copies its first week. Yet no one is a “new” Britney Spears fan. With Midnight Memories, out on TOUCH OF Nov. 25, boy band One Direction is taking a subtler approach to growing up, gently sliding down pop’s spectrum, hoping no one makes a big fuss. The Simon Cowell- GRAY backed group, whose five members are all between 19 and 21, is clearly attempt- Two pop acts try to stay relevant ing to wean itself off the tweenybopper by targeting older fans market in favor of fans closer to its own age—the album still contains references By Claire Suddath to first kisses and fights with parents, but it also has a number of simple love tunes aimed at more mature audiences. They’re ritney’s back. Back again. On venue with a dance floor for the audience, already coming around: A February Nov. 29, the 31-year-old pop star which it expects to be men and women in StubHub! survey found that 46 percent released her eighth studio album, their 30s, loyal Spears fans who grew up of the group’s fans were older than 35. Britney Jean, a Dr. Luke and listening to her music. Work it, old people. The songs on Midnight Memories are will.i.am production. This isn’t a tri- Pop has had a hold on the music crisp and clean. Some make use of ’80s umphant declaration that “Britney’s charts since the late 1990s, when Spears, guitar riffs; others, such asStory of My Life here to stay!”—that was the job of Christina Aguilera, and a glut of color- and Strong, adopt Mumford & Sons-esque her 2008 album, Circus—it’s more coordinated boy bands unseated grunge. banjos and hand claps. If You & I (chorus: like a comforting acknowledgment According to industry trade magazine “We can make it ’til the end / Nothing can that she’s still alive. Britney and Music & Copyright, pop music come between you B Jean are her first and middle names. accounted for 31 percent of global and I”) doesn’t appear Instead of touring to promote music sales in 2012—that works BRITNEY IS on some sappy, flash the album, Spears has opted for a two- out to about $7.4 billion. AGING, AND mob proposal video 74 year residency at the Planet Hollywood Yet profitable longevity is soon, the Internet Resort & Casino in Las Vegas, where she’ll tricky for teen idols. Miley Cyrus EVEN ONE isn’t doing its job. perform a 90-minute retrospective of released her breakout album, It’s going to take hits 48 times a year. Her first show is on Bangerz, this year and found DIRECTION IS some time, and prob- Dec. 27, at which time her transition from success and controversy by GROWING UP ably more than one virginal schoolgirl to bald paparazzi target jumping into adulthood in one album, before One to Celine Dion will be complete. big swoop. Justin Timberlake, of Direction sheds its Vegas visitors can currently catch course, is the gold standard. He broke Tiger Beat image. Directioners, as the Rod Stewart, Olivia Newton-John, Carlos from ’N Sync in 2002, but it took until his group’s teenage followers call them- Santana, and Tim McGraw and Faith 2006 album, FutureSex/LoveSounds, along selves, are so blindly fanatic about their Hill, among others, but “as far as I know, with several appearances on Saturday idols that they eschew any critical inter- this is the first pop star residency ever Night Live, for people over the legal drink- pretation of the band’s music. Earlier this [of Spears’s generation],” says Jason ing age to admit they liked him. The rest year, when critics pointed out that the Gastwirth, senior vice president for mar- of the members of ’N Sync, well, they intro to Midnight Memories’ first single, keting and entertainment at Caesars weren’t so lucky. (Poor Lance Bass didn’t Best Song Ever, sounded like the guitar riff Entertainment, which owns Planet even make it to space.) in the Who’s Baba O’Riley, fans launched Hollywood. The gossip sites Spears has tried to win a Twitter attack on The Who, writing are claiming Spears will ’em over with con- things like “WHO THE HELL IS THE WHO make $15 million a year for sistency. Her sound EVEN?” Eventually, Pete Townshend had the gig. (In 2011, Caesars hasn’t changed to release a statement saying he wasn’t paid Dion $100 million much since her 1999 going to sue One Direction and that he for a three-year run.) The debut, …Baby One More did like them. That’s one way to win over casino has outfitted its Time. She hasn’t suffered an older listener.

BUSINESS BOOK HAIKU

Sure, quit your Here’s how dull job! to get rich: Social media You won’t miss Become a haiku KEEP YOUR Is kind of like the money spent writer! a fistfight? On this dumb Now where’s my

DAY JOB Hashtag incorrect. book. Swear. book deal? IMAGES BUSACCA/GETTY LARRY DIRECTION: ONE IMAGES; KEMPIN/GETTY JASON SPEARS: What I Wear to Work Etc. BANANA REPUBLIC

What’s Federated Media? It’s a digital advertising company. We connect bloggers with Fortune 100 brands ARMAND for advertising opportunities. I work with Pepsi, Nestlé, General Mills, and Comcast. KHATRI 26, account executive, Federated Media Publishing, BONOBOS New York

I like your socks. Dominic, one of my co-workers, started an Instagram hashtag called What’s your look? #sockgametuesday. Neat. I’m tall and It’s become a big thing here. It’s a photo of thin, so I have my your Tuesday socks. dress shirts tailored Did you go buy to fit perfectly. more? Yeah. I already had quite a few, but you don’t want to repost 75 the same pairs every Tuesday. I particu- What do you larly like this pair like most in because they came in a two-pack, so I clothes? gave Dom one. We’re The whimsical brothers in socks. elements that garner smiles.

Like your blazer lining? Yes! I found it at a sample sale NORDSTROM and absolutely love the very cool lining. I love small details in clothing that are not necessarily 7 FOR ALL MANKIND noticeable at first glance, like contrast stitching.

COLE HAAN What’s the dress code? We don’t necessarily have one, and people usually have things going on after work. Not like those boring people who just go home. I’m not knocking that! Most nights I go home, too. I like my eight hours. Does your style reflect your work personality? When I’m reaching out to new clients, noticing small details can make H&M all the difference in them Interview by Arianne Cohen

PHOTOGRAPH BY CHRISTOPHER LEAMAN FOR BLOOMBERG BUSINESSWEEK BUSINESSWEEK BLOOMBERG LEAMAN FOR CHRISTOPHER BY PHOTOGRAPH feeling it’s worth their time to respond to you. Etc. How Did I Get Here? eek.com/

FRITS VAN PAASSCHEN President and chief executive officer, Starwood Hotels & Resorts Worldwide

“I actually can’t remember doing much homework in high school. I’m sure it happened, EDUCATION but it wasn’t much.”

Mercer Island High “I spent most of my School, Mercer Island,

time running additional mailing and at N.Y., York, New paid at postage Periodicals L.P. Bloomberg by and one in December, “These were the most Wash., class of 1979 important years and drinking beer Amherst College, and oversleeping, of my life. I met my wife Amherst, Mass., there. I also ran class of 1983 which as it turns out was great Harvard Business #12829 9898 GST L.P. as Bloomberg GST for Registered QST#1008327064. a, ON L5T 2N1. E-mail: bwkcustserv@cdsfulﬁllment.com. my best marathon.” Publication Canada Post Boone, IA 50037-0528. 37528, Box Businessweek, P.O. changes to Bloomberg Send address 22. POSTMASTER: School, class of 1988 preparation for NUMBER 0414N68830 CPPAP PRINTED IN THE U.S.A. x100 or [email protected] 800-290-5460 at Group The YGS working at http://www.businessw our website: or log onto Subscriber Services: Call 800-635-1200 or e-mail: [email protected]. 0-298-9867 Nike, Coors, and “I thought I wanted to be a doctor until I read a Harper’s Starwood.” article about young consultants WORK doing all these cool things EXPERIENCE for companies. I had no idea that “My biggest coup was even a job until then.” was making $300 in 76 1976-83 a carpet shampooing Dishwasher, janitor, business.” “Disney was such an newspaper delivery boy American-focused 1983-85 company at that time. Consultant, Boston Consulting Group “We didn’t worry about market I kept telling them research. We were trying that there was an 1989-95 Consultant, to solve problems for athletes, opportunity for growth McKinsey not create products that around the world.” 1995-97 maybe athletes Vice president of would like to use.”

finance and planning a double issue in August for except Published weekly, 4357 H Issue no. (ISSN 0007-7135) Dec. 2 – 8, 2013 900) (USPS 080 “We were losing share volume. for Disney consumer I remember one day someone product, Walt Disney said the only thing we know 1997-2004 “I’d interviewed for the job for sure is that people who Corporate vice drink light beer like to drink it president and before but didn’t get it. I read Bloomberg Businessweek Bloomberg York, NY 100 New Avenue, Lexington Businessweek, 731 Offices: Bloomberg Advertising and Editorial, Circulation, Executive, offices. Permissions: & General Reprints [email protected] at Center Clearance Copyright Permissions: Educational custserv/manage.htm. cold. That’s how we came general manager, in the newspaper that they Unit4, Mississaug Blvd- to DHL Global Mail, 355 Admiral Canadian addresses undeliverable Return Number 41989020. Mail Agreement 80 Sales: Call Single Copy Office. Patent in the U.S. Title registered reserved. All rights L.P. Bloomberg 2013 Copyright RT0001. up with the frost brew liner.” Europe, Middle East, Africa, Nike were looking for a CEO. I said to 2004-07 my wife, ‘I still want that job.’ ” Opening the renovated President and Le Méridien Al Khobar in 2011 CEO, Coors 2007- PRESENT CEO, Starwood

2013 Runs his 13th marathon “I’ve been running ever since 1968, when I watched the Olympics on TV and decided I wanted to

become a runner. I was e’s a self-made memory.” selective man has a very

LIFE LESSONS h

s 7 years old.” e v e li be 1. “Eff ort is more important than talent.” 2. “Being bilingual helps you appreciate that people might see things very diff erently than you.” 3. “Anyone who Eye- Images; vacuum: Michael Buckner/Getty Top: Images Ben Hider/Getty Mickey: Stock/Alamy;

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