September 12 — September 18, 2016 | bloomberg.com

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PHOTOGRAPH BY JEREMY LIEBMAN FOR BLOOMBERG BUSINESSWEEK BLOOMBERG FOR LIEBMAN JEREMY BY PHOTOGRAPH p32 p76 p58 Cover Trail September 12 — September 18, 2016 How the cover gets made

① Opening Remarks Trump uses social media to be noticed. Justin Trudeau uses it to govern 10 “We got an interview with Putin.”

Bloomberg View Quantum computing’s security risks • How the EU can help Merkel 12 “Really? After all the stories we’ve done about the Russian government? Particularly the Movers A super move for Super Mario  Fox’s payoff to Gretchen Carlson 15 stories about hacking, corruption, discrimination, war … ” Global Economics “To be fair, those are the kinds of In Saudi Arabia, women’s lib begins with dropping the veil 16 stories we do about many places, including the U.S.” China talks supply-side, but means something else entirely 17 “Great point. I’m thinking we can There’s plenty of land for sale—just not at prices builders want to pay 19 photoshop him riding a bear shirtless, An Indonesian corruption cop comes back to finish the job she started 20 crashing through the interview studio, since he won’t be photographed.”

Companies/Industries “He agreed to a shoot.”

With their market far from locked up, private prisons look for ways to diversify 23 “Whaaaa?”

Why London is Hollywood’s Visual Effects Central 24

Mitsui O.S.K.’s new LNG ship is longer than three football fields. It needs temp work 26 “Wow, that’s great.” With China ravenous for natural foods, New Zealand’s Comvita proffers manuka honey and more 27 Politics/Policy

As tattoos become a billion-dollar business, the FDA wonders if it should take a closer look 28 “Oh, wow.” Cap and trade is a soft market in California—and faces a legal threat 29 4 The growing debate over whether Delaware’s business court isn’t pro-business enough 31 Technology “Wow, Dress young, talk young, get a face-lift: How over-40s try to survive in Silicon Valley 32 wow, wow.” A hospital painkiller called virtual reality 34

A game of war over Game of War spotlights Cisco’s buggy software 35 “Can we run all three?” Innovation: Sound that beams directly to the ears of the hard of hearing 36 “Let’s do two—though I love your Markets/Finance enthusiasm.”

This bank’s stadium-naming deal has a family connection 38

Moscow skyscrapers keep going up, but demand is going nowhere 40 Domestic Cover A cloud that contains the market’s whole history 41 Features

So, Mr. Putin … A Q&A with the Russian president. Plus: Who’s in line to succeed him 42

Strait to the Top The first luxury liner to cruise the Northwest Passage 50

Deep Pockets Is Exxon liable for climate damages? 58 Etc. International Cover Networks are prodding us to stream their back catalogs. A seven-night TV guide 65

Food: Kris Yenbamroong’s modern Thai mini-empire looks to expand 68

Fashion: Yes, you can wear white jeans after Labor Day. Here’s how 70

The Critic: The Chinese sci-fi epic that made it onto Obama’s and Zuckerberg’s reading lists 72

Design: Straighten up your office with clean-lined furniture 74

What I Wear to Work: MSNBC’s Jacob Soboroff likes desert boots because, he read, Anthony Bourdain does, too 75

COVERS AND COVER TRAIL: PHOTOGRAPH BY JEREMY LIEBMAN FOR BLOOMBERG BUSINESSWEEK BLOOMBERG FOR LIEBMAN JEREMY BY PHOTOGRAPH TRAIL: COVER AND COVERS How Did I Get Here? Sam’s Club’s Rosalind Brewer mastered competitiveness at her all-women’s Christian college 76 SPONSOR CONTENT

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powerful water supply in a once every further downstream thing—whether Purchasing and Supplier Network. barren landscape is helping to drive you accelerate it, brake it, crash it—you Sustainability has been integral to AWKH ODUJHVWFDUERQÀEHUSODQWRQ have less energy to contend with. You the group’s core strategic principles since Earth, and with it, BMW Group’s ambitious end up with weight saving throughout DQGLVQRZÀUPO\HQWUHQFKHG sustainability goals. the vehicle.” throughout the value chain, from the Before the construction of the Grand 7KHFDUERQÀEHUSURGXFHGDW0RVHV development of fuel-saving and alternative Coulee Dam in 1941, Moses Lake was a Lake is now used in the bodies of all vehicle concepts, through to production sparsely populated, grassland stretch of the BMW i, BMW M models, and the new processes and recycling practices. Columbia Basin. Today, it is home to the BMW 7 Series vehicles. BMW Group now holds leading Moses Lake production plant, a pioneer in ´&DUERQÀEHUKHOSVWRUHGXFHDYHKLFOH·V positions in many global sustainability WKHPDQXIDFWXUHRIVWUXFWXUDOFDUERQÀEHU weight, and thus its fuel consumption UDWLQJVLQFOXGLQJWKH'RZ-RQHV and nothing short of a game-changer for DQGFDUERQHPLVVLRQVμH[SODLQV'U.ODXV Sustainability Index, Carbon Disclosure the automotive industry. Draeger, Board Member of BMW AG, Project and Corporate Knights Global 100. The joint venture between BMW Group and SGL Group harnesses clean hydroelec- tric energy from the massive dam to create Coming soon: What does the future hold for ultra-lightweight vehicles. Of everything in the process chain, it is the production of those who like to travel on two wheels? FDUERQÀEHUVWKDWUHTXLUHVWKHPRVWHQHUJ\ The plant is run entirely on renewable BMW Motorrad believes inventive, intel-

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Sony (SNE) 34 Southwest Airlines (LUV) 35 Spiegel, Brennan 34 Sprouts Farmers Market (SFM) 15 50 SugarCRM 32 Arctic Sugarman, Elizabeth 38 adventure Sugarman, Jason 38 T Tesla (TSLA) 15, 32 Thesys Technologies 41 Tillerson, Rex 60 Tiravanija, Rirkrit 68 Trace Research 27 Transneft 40 TransPerfect Global 31 Trudeau, Justin 10 Trump, Donald 10, 44 Turtle Beach (HEAR) 36 Tusk Strategies 31 Twitter (TWTR) 16, 60 UVW Uber 15, 32 Under Armour (UA) 15 Vaino, Anton 46 Velodyne 32 Viacom (VIAB) 31 Villaraigosa, Antonio 38 VMware (VMW) 32 Volkswagen (VOW:GR) 15 VTB Group (VTBR:LI) 40 Walker, Claude 60 Walt Disney (DIS) 24 Warner Bros. (TWX) 24 Wass, Barnaby 31 6 Wells, Theodore 60 Whitehouse, Sheldon 60 Widodo, Joko 20 Clinton, Hillary 10, 44, 60 Google (GOOG) 12, 32, 41 Redshaw, Louis 29 Will, George 60 ABC Coakley Development Group 19 Gore, Al 60 M Redstone, Sumner 31 Wood Mackenzie 26 Abu Dhabi Commercial Bank 16 Coffey, Chris 31 Grande, Tony 23 Machine Zone 35 Renaissance Construction 40 Abuljadayel, Kariman 16 Comvita 27 Guber, Peter 38 Management & Training 23 Rhythm & Hues Studios 24 Ackman, Bill 15 Corrections Corp. of McCarron, Suzanne 60 Ricker, Andy 68 Ailes, Roger 15 America (CXW) 23 McKibben, Bill 60 Rodriguez, Edie 50 Al-Jouani, Souad 16 Coulter, Scott 27 H Mercedes-Benz (DAI:GR) 32 Rosneft (ROSN:RM) 46 Al-Manea, Abdullah 16 Creative Artists Agency 68 Healey, Maura 60 Merkel, Angela 12 Rowling, J.K. 24 Alibaba (BABA) 27 Crystal Cruises 50 Hewlett Packard Miller, Alexei 44, 46 Royal Bank of Amazon.com (AMZN) 41 CS Financial 38 Enterprise (HPE) 32 Mitsui O.S.K. Lines (9104:JP) 26 Scotland (RBS:LN) 40 Ancestry.com 31 CS LNG 26 Hininger, Damon 23 Modi, Narendra 17 Apache (APA) 15 Hope, Alex 24 Moving Picture 24 Apple (AAPL) 15, 32 Hospira 32 Mozza Restaurant Group 68 S 38 Applied Materials (AMAT) 32 DEF HP (HPQ) 32 MSNBC (CMCSA) 75 S&P Global Platts (SPGI) 17 Antonio AppliedVR 34 Daewoo Shipbuilding & Marine HTC (2498:TT) 34 Murdock, David 31 Samsung (005930:KS) 34, 35 Villaraigosa Aruba (HPE) 32 Engineering 26 Musk, Elon 15 Sam’s Club (WMT) 76 Assad, Bashar 44 Danaher (DHR) 15 Sargent, William 24 Banc of California (BANC) 38 Danesh, Houman 34 IJ Sassoon, David 60 Barclays (BCS) 40 Darnall, Beth 34 Indrawati, Sri Mulyani 20 N Schneiderman, Eric 60 XYZ Bechdel, Alison 15 DeSaulnier, Mark 60 Industrial Light & Magic (DIS) 24 Nelson, Jonathan 32 Seabold, Jeffrey 38 Xi Jinping 17 Bin Salman, Mohammed 16, Deutsche Bank (DBK:GR) 40 Ivanov, Sergei 46 Netflix (NFLX) 66 SeaDragon 27 Yakunin, Vladimir 46 44 Dole Food 31 Ivanov, Viktor 46 Nielsen, Jim 29 Shawe, Philip 31 Yenbamroong, Kris 68 Bouchard, Andre 31 Double Negative (PRIF:IN) 24 John Burns Real Estate Night + Market 68 Smith, Lamar 60 Zhong, Walker 27 Bourdain, Anthony 68, 75 DuPont (DD) 31 Consulting 19 Nintendo (7974:JP) 15 Soboroff, Jacob 75 Zuckerberg, Mark 32, 72 Brewer, Rosalind 76 Durex 15 Johnson, Boris 10 Norris, Elwood 36 Brown, Jerry 29 Dyumin, Alexei 46 Elting, Elizabeth 31 Enbridge (ENB) 15 K O How to Contact Energy Maritime Associates 26 Kadyrov, Ramzan 10 Oaktree Capital Management 38 Bloomberg Businessweek Erdogan, Recep Tayyip 44 Kaya, Irfan 40 Obama, Barack 17, 60, 72 ExxonMobil (XOM) 60 Kazman, Sam 60 Oceania Natural 27 Editorial 212 617-8120 Ad Sales 212 617-2900 Facebook (FB) 32, 34, 72 Kickstarter 72 Fiat Chrysler (FCA:IM) 15 KLA-Tencor (KLAC) 35 Subscriptions 800 635-1200 Fidelity National Information Kudrin, Alexei 46 P Address 731 Lexington Ave., New York, NY 10022 Services (FIS) 41 Palisades Group 38 E-mail [email protected] 76 Formula One 15 L Paltrow, Gwyneth 68 Fax 212 617-9065 Subscription Service Foster, Norman 40 PayScale 32 PO Box 37528, Boone, IA 50037-0528 Rosalind Fox News (FOXA) 15 Lassman, Kent 60 Peabody Energy (PE51:GR) 60 Brewer Framestore 24 Lego 15 Perry, Rick 10 E-mail bwkcustserv@cdsfulfillment.com Frumhoff, Peter 60 Lieu, Ted 60 Pershing Square Holdings 15 Reprints/Permissions 800 290-5460 x100 or Capital Economics 19 Furness, Tom 34 Liberty Media (LMCA) 15 Plank, Kevin 15 [email protected] Carlson, Gretchen 15 LinkedIn (LNKD) 32 Putin, Vladimir 10, 17, 40, China Market Research Liu, Cixin 72 44, 46 Letters to the Editor can be sent by e-mail, fax, Group 27 G Liu, Ken 72 or regular mail. They should include address, Chipotle Mexican Gas Sayago 26 Lucas, George 24 phone number(s), and e-mail address if available. Grill (CMG) 15 Gavekal Dragonomics 17 Luparello, Steve 41 R Choi, Roy 68 Gazprom (OGZPY) 46 Luzhkov, Yuri 40 Randich, Steve 41 Connections with the subject of the letter should Cisco Systems (CSCO) 35 Geo Group (GEO) 23 Lynch, Loretta 60 Raymond, Lee 60 be disclosed, and we reserve the right to edit for

Clarke, Neil 72 Goldman, Duff 68 Lyster, Sue 24 Redshaw Advisors 29 sense, style, and space. MORRIS/BLOOMBERG PAUL DAVID VILLARAIGOSA: BENTHAM/BLOOMBERG; SARAH BREWER: BUSINESSWEEK; BLOOMBERG FOR ORLINKSY KATIE MAIN: Y O U V E R W LO O E R W SMALL BUSINESS MAVEN K

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©2016 Textron Aviation Inc. All rights reserved. Cessna, its logo, Citation, Citation Latitude, Citation Longitude and Citation Hemisphere are registered trademarks of Textron Innovations Inc., used by permission. It’s been a shirtless summer for Canadian Opening Prime Minister Justin Trudeau. In late July, in the Gatineau region of Quebec, he emerged from a cave, bare-chested, to Remarks surprise a vacationing family and posed for a series of selfies. A few days later, again shirtless, he photo-bombed a beach wedding in Tofino on the West Coast. Both events made the international press and Why Trudeau were shared, at a conservative estimate, several million times each. Since his elec- tion, barely a week has gone by without the prime minister going viral. Canadian Is Like Trump government is becoming an experiment By Stephen Marche in virocracy—rule through social media. There is a U.S. parallel, though he’s not in government yet: Donald Trump also uses social media to garner vast Both have exploited social media to win immense influence. influence. In the American presidential Trudeau’s innovation is to use it to govern campaign, the Republican candidate has relied on the mass exposure of his various feeds and accounts instead of tra- ditional advertising. But while his influ- ence over social media is immense, its actual effect on American politics has yet to be proven. Still, the power of the new media is unquestionable. Rick Perry has joined the next season of Dancing With the Stars because he’s realized that dumb celebrity provides more political clout than having run a state for 15 years. 10 Trudeau’s exploitation of social media is different from his American counterpart’s. Here’s a quick summary of his biggest hits since he became prime minister last October: He was photo- graphed hugging panda cubs, he gave a (possibly prepared) answer revealing his knowledge of quantum computing, he smiled while performing the peacock yoga pose on a conference table, and he went jogging with the president of Mexico in suggestively short shorts. There have been embarrassing viral flubs as well: a cringeworthy push-up video for the Invictus games, the time he put his hand on his wife’s bum at the Ottawa Press Gallery Dinner, and, infa- mously, Elbowgate, in which Trudeau “manhandled” a fellow MP (acciden- tally brushed might be a more accurate description) and apologized, in a dis- tressingly Canadian way, four times for it. These are hardly the long-running garbage fires of Trump, but traditionally, they would be gaffes. They don’t appear to have affected Trudeau adversely. Being a meme actually helps him. In Canada, this is even more surpris- ing than in the U.S., because a prime minister doesn’t need to maintain con- stant popularity. Trudeau’s parlia- mentary majority gives him complete

control of the legislature and judicial METZ JUSTIN BY ILLUSTRATION PHOTO appointments, and everything else economist had started sketching out pro- Virocracy—and its important—unlike a U.S. president, who posals, stopping himself at an option he dependence on has to help congressional allies win elec- considered politically unviable. “No,” tions every two years. Trudeau told him. “Don’t worry about experts—is both utopian So why does Trudeau do it if he the politics. That’s my job. You just tell me and undemocratic doesn’t need to? His opponents have what you think the right thing to do is.” claimed it’s simple vanity, a mania for His opponents, who’ve tried to paint attention, the Trudashian effect. But him as shallow and stupid, miss the American scenario. Trump has almost already, less than a year into his gov- point. He understands the division of 11 million Twitter followers to Hillary ernment, it’s obvious that condescen- labor: He’s the Face, so that the face- Clinton’s 8 million, and 22.7 million sion is misplaced. In his short tenure, less bureaucrats can do their jobs. His Facebook likes and followers to Clinton’s Trudeau has demonstrated the political task as prime minister is to create the 15 million. Meanwhile, Clinton has effectiveness of virocracy as a governing conditions under which what he consid- arguably the most comprehensive policy strategy—a way of overcoming criticism ers the best policies, crafted by experts, platform in the history of American pres- and skirting controversy by the sheer can be implemented. He possesses an idential campaigns. power of viral personality. odd combination of total narcissism and American progressives wish that Trudeau’s dominance of social media complete lack of ego. If I were his polit- Clinton were more entertaining; she has made him wildly popular. A poll in ical opponents, I’d fear him deeply. He herself acknowledges that weakness. For the middle of the summer claimed that can get things done with the Canadian Republicans, their crisis boils down to he would “win 80 percent of seats if people barely noticing, whether they one tantalizing question: What if Trump an election were held today.” And this like it or not. had real policies instead of just making during a period when Canada shed The shirtless episodes seem silly; America great again? No one truly knows 71,000 full-time jobs; the justice min- that’s just what Trudeau wants. His where he stands on Mexico, even though ister informed the Assembly of First achievements, which have received he made a huge social media splash with Nations that Canada wouldn’t be adopt- nowhere near the attention of his con- his unexpected visit on Aug. 31. Trump ing the United Nations Declaration on stant photo opportunities, are real, may yet pick up on Trudeau’s techniques. the Rights of Indigenous Peoples as and they’re substantial. In the first six But for now, because he can’t provide a it had repeatedly promised; and the months, he enacted massive child-care broader platform or a consistent one, the Atlantic provinces also lost their tradi- grants for the poor; reinstated the long- billionaire is devolving into a viral celeb- tional guaranteed appointment to the form census, which the previous gov- rity who’s hijacked politics rather than Supreme Court, a matter of importance ernment had canceled; and brought in a viral leader. to a country with intense regional differ- 25,000 Syrian refugees. Trudeau is beyond both Clinton and 11 ences. Each of these issues, in any other Trudeau’s viral politics is a tool Trump; he’s the next generation, using period of Canadian history, might have of global influence as well. Usually, virality to govern, not simply to win cam- led to serious political crises. Canada’s foreign policy amounts to sup- paigns. Politicians in other parts of the Here’s the foremost of Trudeau’s porting its allies in more or less irrele- world are experimenting with virality, too. lessons so far: If you can control the viral vant ways in various wars that aren’t of Ramzan Kadyrov of Chechnya uses social space, traditional politics don’t matter. its creation—an impotent and expensive media both to project a cuddly persona Virality provides one of the greatest polit- business. Trudeau’s viral politics is far and to issue stern warnings to toe the ical covers ever. While Trudeau was being more effective in promoting Canada’s official line. Vladimir Putin benefits from photographed with the pandas, Canada vision for the world. His greeting of state-sponsored “internet brigades” who quietly approved a sale of weapons to Syrian refugees may well define the troll critics of his regime. Boris Johnson Saudi Arabia that made it the second- image of Canada for decades. It showed could have been Britain’s first viral politi- biggest arms dealer in the Middle East. the world that there’s a way to respond cian if he’d espoused a policy that experts During Elbowgate, an assisted suicide law to Syrians that isn’t fearful. Trudeau’s could actually implement. was passed that should have been hugely skill at media manipulation is a legit- Trudeau’s innovation hasn’t yet controversial. Instead of discussing the imately significant national asset. His reached the U.S., but it will. For people medicalization of death, Canada’s public recent trip to China was a huge success: who trust technocrats, who believe in media were obsessed with how forcefully Chinese social media implored its audi- government, the new virocracy is some- the prime minister had brushed aside one ence to “lick the screen.” what utopian. But there’s something of his colleagues and whether he apolo- A traditional politician, in most of the intensely undemocratic about it as well. gized too much. world, is a policymaker who tries to give Issues aren’t debated as they once were. Trudeau’s virocracy is welded to exciting speeches; a viral politician is a Instead, there’s a froth of social media technocracy —this is his other impor- celebrity who knows enough to listen and beneath it, almost invisibly, the busi- tant innovation, and the key for anyone to policymakers. If recent history is any ness of government by experts. who wants to follow his lead. Recently, guide, both sides of that equation are The shirtless man emerging from at a party in Ottawa to celebrate Barack essential. You need the celebrity. You also the Quebec cave is eager to smile for Obama’s speech to Parliament, I hap- need the experts. Social media success the selfie. That way, you won’t look to pened to be talking to an economist and without conscious policy ultimately fails. see what’s behind him. Everyone on former adviser to conservative politicians, The 2016 U.S. election is a confronta- Facebook will love it.  a man who had twice voted for Stephen tion between viral celebrity and a policy Harper, Trudeau’s Conservative prede- wonk. The two sides of the Trudeau Stephen Marche is a columnist for Esquire cessor. Trudeau had come to see him to equation—virocracy and technocracy — magazine and the author most recently of seek his advice about pension plans. The couldn’t be more separate in the The Hunger of the Wolf. 12 View Bloomberg nonprofit Cloud Security Alliance. nonprofit CloudSecurity on theworldimpact economy could be devastating,” says the may beabletobreak now allpublic-key inuse.“The encryption by computers someestimates,quantum decades, Within two thing from to mobilephonesto cloud e-commerce computing. though, couldprobably make quick work of suchequations. can’t solve computers, inareasonable timeframe.Quantum largelems, such asfactoring integers, that normalcomputers used to protect information onlinerely onvery hard math prob- problem. To tools commonly the cryptographic abit, simplify focused onbreaking surging.Thatsuggests alooming codes,is ness andthegovernment, includingintelligence agencies lead to thedesignofstrong intelligence,speed advances imp inartificial can.Theycould fasterthancurrentplane traffic—far technology solve problems—say, optimization how to efficiently route air- great advantage Theycould anddrugdesigners. ofchemists puters couldsimulate how atomsandmoleculesbehave, tothe andmethodsneededtomakeon thematerials,designs, one. stillyears haveis off, scientists lately made alotofprogress computer quantum tional machinecould.Althoughafull-scale tosolveatomic interactions problems farfasterthanaconven- theory, quantum computers could take advantage ofoddsub- waysdynamics—in thatmay business. upendthetechnology level.the quantum Yet getting they’re betteratexploiting its still don’t exactly understand why matter behaves asitdoesat “common inapproaching almostuseless senseis it.” Scientists Carl sostrange Saganobserved, mechanics, is thatQuantum nightmarish security breaches indata advanceThat technological may leadto Quantum Computers? Is theWorld Ready for Researchers are already working on“quantum-resistant” As direAs asthatsounds, panicisn’t inorder justyet. ofevery-As aresult, theycould underminethesecurity Unsurprisingly, then,investment inthefieldfrom bigbusi- And thatcouldhave com- somestrikingbenefits.Quantum In incomputing. One ofthemostinteresting is applications er andlighter industrial materials. rove rove sensors, and German ChancellorAngelaGerman Merkel suffered a humiliating all withoffers to accepttheirfair share of genuine refugees.  effective jointcontrol oftheEU’s external borders, andabove withanew commitmentto with moraland materialsupport, work. Europe’s othergovernments ought to step forward byhoped tolead butitdidn’t example—a noblesentiment, hasbeenconspicuouslysuch support Merkel absent. doubtless Managing itrequires from commitment across theunion,and isn’t Therefugeeessential. Germany’s crisis problem alone. able andthatthere are indeedlimitstowhat do. Germany can clear now thatresources adequate tothetask willbemade avail- tobefaced.little ofthedifficulties Merkel hasenabledthe AfD forastrong humanitarianShe called response tothefloodof may itselfasapowerful beabouttoestablish force. political areabout 22percent. duenext Nationalelections year. TheAfD recently formedhard-right Alternative forGermany (AfD), with Merkel’s with30percent coalitionpartners, ofthevote, andthe CDU waspushed intothird Democrats, placebehindtheSocial WithUnion—they just19percent it. crushed ofthevote, the of 1.6 million,didn’t justdefeat Merkel’s Democratic Christian in theEuropean Union. butalsofromthinking notjustonherpart Germany’s by onrefugees, abacklash forhard againstherpolicy calls 4. onSept. driven Theresult, inherhomestate defeat electoral to arguethatshe’s deaftoherown people.Sheneedstomake in andNorth migrants fleeingconflict East, Syria, theMiddle Africa. SinceearlyAfrica. last year, Germany has taken inmore than a million.“ invaluable in this regard. invaluable inthis area that hasshown room for imp SiliconValleycooperation between andthe government, an would helplay thegroundwork for apromising new field. More also help. investment research Public inbasicquantum-science a long-term strategy for protecting them.Governments could years, orcommercial for reasons. legal Butwoefully few have should pay attention. Many have filesthat must bestored for agencies around theworld are well aware ofthe problem. algorithm. Although alotmore research needed,standards is for itsbrowserform ofsecurity that mightrebuff a quantum is amongothers, workingprogressGoogle, onanew inthe field. Somecompaniesclaimto haveencryption. made significant in herhomestate by ahard-right party The chancellor’s refugee policiesledtoadefeat Europe’s HelpNow Angela Merkel Needs In doing this, support fromIn doingthis, otherEUcountries willbe wasn’tShe certainly wrong towanthelp, butshe madetoo Merkel’s positiononrefugees wasbothbrave andrighteous: Voters inruralMecklenburg-West Yet stilladvisable. Businesses,inparticular, somevigilanceis Wir schaffen das ,” Merkel said.“We dothis.” can rovement oflate, could be ern Pomerania, atiny state To read Matthew index funds,goto Mihm onthehistory of ment andStephen infrastructure invest- Winkler onsmart Bloombergview.com partners partners

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A federal judge temporarily halted construction of a $3.8 8 billion pipeline in North Dakota afafterb violence broke out -16-16%% between American Indian protesters and private security Sguards.S The Standing Rock Sioux tribe had filed a temporary restraining order to stop construction near its drinking water. supply.

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September 12 — September 18, 2016

 They still can’t drive, but they’re chipping away at the dress code  “I just decided that society is changing, and I’m going to just try” For more than a decade, Bashayer “Cultural and social change is an that draws attention” or “resemble the al-Shehri covered her face with a black integral part of Vision 2030, which will clothing of infidels or men.” Yet com- veil in public, automatically donning be critical for increasing the role of ments in July from an official cleric 16 the niqab like all her female relatives in women in the economy,” says Monica suggest some measure of tolerance Saudi Arabia. Discarding it proved sur- Malik, chief economist at Abu Dhabi on the issue of color. As long as it isn’t prisingly simple. “I just decided that Commercial Bank. Saudi Vision 2030 is tight or sheer, “I don’t see anything society is changing, and I’m going to the official blueprint for reform. wrong” with an abaya that’s brown or just try to see, and it was so easy,” says From 2010 to 2015, the number any color that doesn’t draw attention, al-Shehri, 28, a pharmacy student from of working women in Saudi Arabia Sheik Abdullah al-Manea, a member the capital, Riyadh, who’s been study- jumped 50 percent, to more than of Saudi Arabia’s Council of Senior ing in Chicago and was home for a 830,000. As women head to jobs in Scholars, told the newspaper Okaz. break. “I didn’t really notice any differ- Riyadh and Jeddah, more are wearing The appearance of a few beige or ence of treatment of people and how white, green, purple, and floral abayas pink abayas in a sea of black may they perceive me.” that would have been considered shock- seem insignificant, but the changes in A small but growing number of Saudi ing five years ago. The shift has created women’s dress reflect a deeper shift women are pushing the boundaries of a cottage industry of Saudi women who in Saudi society, says Hala Aldosari, a a dress code that’s shrouded women sell unconventional robes, some in chic visiting scholar at the Arab Gulf States in this conservative Arab Gulf state in boutiques and others on Instagram. Institute in Washington. “Social net- black from head to toe. Travel and the That women see colored robes as a works carried debates in the last few internet have opened them to other breakthrough reflects the guarded pace years that influenced better awareness, customs and ideas, and young, edu- at which social freedoms are develop- particularly on women’s status and cul- cated urban women are setting trends. ing in Saudi Arabia, where clerics influ- tural influences,” Aldosari wrote in The change is incremental. Al-Shehri ence politics and preach to millions an e-mail. On a policy level, however, still wears a headscarf and drapes of followers on Twitter. The kingdom “women’s issues are not a high priority herself in a floor-length robe, tradition- remains the only country in the for the ruling family, as they still need ally black, called an abaya. The sight of world where women can’t drive, and to appease religious groups” that are uncovered faces and colored abayas in guardianship rules make them legal more conservative, she says. Riyadh are nevertheless gains for the dependents of male relatives for life, Although Deputy Crown Prince women of Saudi Arabia. meaning they can’t leave the country Mohammed bin Salman plans unprec- So are other developments. The gov- without permission. Of 24 goals set in edented economic moves such as ernment has imposed curbs this year Vision 2030, only one, to increase the selling shares in the state-owned oil on the ability of religious police to make number of women in the workforce, company, his goals for women are more arrests. Some analysts say the govern- pertains to women’s advancement. modest. Under Vision 2030, which he ment can’t carry out its reforms of the A fatwa, or edict, on the kingdom’s leads, the government wants to increase oil-dependent economy without loos- official website of religious rulings says women’s participation in the workforce

ening restrictions on half its population. abayas should not have “decoration to 30 percent, from 22 percent, over the VU ESHRAGHI/AGENCE ISABELLE IMAGES; SAMAD/AFP/GETTY JEWEL IMAGES; NURELDINE/AFP/GETTY FAYEZ TOP: FROM CLOCKWISE Builders are hard- pressed to find prime land at good prices 19

Indonesia’s finance minister goes after tax evaders 20

Morning prayer in Riyadh

Kariman Abuljadayel at the Olympics in Rio

At a news conference in April, Deputy 17 Crown Prince Mohammed said women Dr. Souad al-Jouani (left) with a student “must be effective and productive.” Asked if Saudi Arabia would allow next 14 years. That target is lower than Abdullah, who appointed women to women to drive—paying for drivers or the current level of 31 percent in Sudan. the consultative Shoura Council and taxis can devour half of a salary—he said The kingdom’s official religious lent his name to the kingdom’s first the government can’t force something authority says women are required co-educational university. He also society rejects. —Vivian Nereim, with to cover their face and hands, but ordered lingerie and makeup shops to Deema Almashabi many scholars say that injunction is employ only women, which increased The bottom line The oil crash may hasten Saudi rooted in culture, not scripture. And women’s employment and spared women’s liberation because they represent an even though the stereotypical image women the embarrassment of buying untapped pool of labor. of a Saudi woman is a swirl of black, intimate apparel from men. in parts of the kingdom’s south the What began as a generational shift traditional garb is floral dresses and accelerated after oil prices plunged, says straw hats. The notion of religious Paul Musgrave, an assistant professor requirement has nonetheless pre- of political science at the University of State Planning vailed in the popular perception. “I Massachusetts at Amherst. When King What’s ‘Supply-Side personally prefer to cover my face for Salman came to power in January 2015, religious reasons,” says Heba Ahmed, a the oil price rout had already cut into Reform’ in Chinese? MAC Cosmetics saleswoman in Riyadh. government revenue. Last year the “It is a traditional society, and I don’t kingdom recorded a budget deficit of  This version favors hands-on think that is a bad thing.” almost $100 billion. The government state control, not deregulation After four Saudi women competed in is phasing out energy subsidies and this year’s Summer Olympics with bare introducing a value-added tax, driving  “It is about the government faces, a hashtag popped up on Twitter up the cost of living. The old policies micromanaging the economy” saying they “don’t represent” Saudi aren’t affordable now, Musgrave says, Arabia. “We focused on women’s par- and pressure for women to work will To understand policymaking in China, ticipation, and we lost our respect for increase. Yet unless they’re able to pay attention to the buzz phrases. The our traditions,” one man posted. “commute, travel, access, and stay in country’s favorite economic slogan, Many of the changes embolden- jobs without a guardian’s permission,” “supply-side structural reform,” just got ing women in their fashion choices Aldosari says, “women will not join the its most international exposure so far, at were made possible by the late King workforce in any significant numbers.” the Group of 20 summit in Hangzhou. t Bloom store ak Notice Privacy s L of inform or If bwso.businessweek.com/r/bwo_o.asp IA 50036 2005LakewoodService: Drive Boone, Bloomberg Businessweek Customer c comp affi w If P va Occ may bepublished. are publishedthat count as weekly, except whencombinedissues Bloomberg Businessweek publishes a l and whenanadditionalspecial issue speci ne compre seriously To re www.businessweek.com/privacy. P If a use persons w ha aw .P. n n

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surged, roiling markets intheU.S. as thecountry’s steel exports have ofgrowingissue internationalcon cern severe industrialovercapacity, an for morecalled warned inMay ofexcessive debtand mentary. A said inJanuary inafront-page com- afford any delay,” the reform anurgentt is thatcanno task the fallof2014.) “Supply-side structural nomic growth, firstpropagated Xiin by referring toChina’s downshifting eco- “New Normal” wasanearlier slogan, forChina’sciple economicfuture. (The mediaasthenewest guidingprin- state since beenregularly heraldedinthe at theendoflastyear, has theslogan annual economicplanningmeeting it. tocurtail part, to encourage supply forthemost but, California atSanDiego. Thepointisn’t Chinese economy attheUniversity of Naughton,Barry anexpert onthe industries, often inefficient says panies, andsubsidizingfavored and a limitednumber of“zombie” com- cutting excess capacity, shuttering focusedon agrabbagofpolicies, is Xi’s and produce more, driving growth. hope thatcompanieswould invest cutting taxes andregulations inthe reform.”side structural tinue talk,”empty XisaidChinawould con- Modi. Callingfor“real action” and“no Narendraand IndianPrimeMinister Russian President VladimirPutin, address attendedby President Obama, 4openingXi JinpingsaidinaSept. must bemet,” ChinesePresident water zonewhere toughchallenges China’s reform “hasentered thedeep- globaleconomy,and asluggish Global EconomicsGlobal 2000 2015 steel production China crude tons Metric China must with especiallydeal nationallyFirst publicized atan No oneexpects themacroeconomic “supply-side reform” structural Faced withrising “vigorously supply- advancing ry second-pagery commenta 0 450m 900m supply-side reform. economy by freeing upthe had asitsgoal Reagan’s version in the1980s. nomic policies Reagan’s eco- inspired Ronald thatthe theory in Xi’s China— tion of textbook defini- People’s Daily protectionism supply side

AssetsSupervision State-Owned The coal, andother industries. targetssetting production insteel, Gavekal Dragonomics. TheNDRC is forChinaconsultant tor inBeijing says Andrew Batson,research direc- over theentirethe party economy, for stronger, control top-down by Beijing’s policy.” are doingagood jobimplementing Youoptics. have got tolooklike you Naughtonment, says. “A just lotofitis state- completewith avision ument, others withasix-part, 42-page doc- for makingtoys thansteel,outdid culture. betterknown Guangdong, tric vehicles agri- andeco-friendly breaks suchaselec- fornewindustries reductiontargets andtax capacity issued Shandonghavecoastal allrecently industrialrustbelt;andnortheastern ofChina’s part tion; Heilongjiang, ofChina’squarter steelproduc- total leader when Chinashuffles muchofitssenior that willhelpthemwinapromotion on board withthepolicy; theyhope 2017, vyingtoshow they’re they’re congress cominginthefallof party slogan. With aonce-every-five-years eager toappear enthusiastic aboutthe reductions.”drance tocapacity rest oftheeconomy. thehin- Sothat is which have aknock-on onthe effect taxi drivers—affected—restaurants, are alltheotherbusinessesthatare Platts inShanghai.“And thenthere says ofS&PGlobal SebastianLewis what otherjobsare there forthem?” employers. “For steelworkers, laid-off pay taxes, and,above all,are big tories thatowe banks, moneytolocal planner, inAugust. (NDRC),Commission China’s state National Development andReform remains huge, warnedthecapacity Yettons ofproduction. over- of itsplannedcut45 million govern easy. Inthefirstseven months,the was inHangzhou. president,European who Commission according toJean-Claude Juncker, the anditscauses,in thesteelsector sets upaway tomonitor thatChina”and Europe. crucial “Itis The policy shift reflects Xi’sThe policy desire Provincial bosses,however, are cadres are loathtoclosefac- Local But controlling supply isn’t ship. Hebei, hometoaboutone- supply-side plans,including ment achieved 48percent overcapacity

ILLUSTRATION BY 731 Global Economics and Administration Commission, Not a Lot to Build On which manages China’s largest state- Annual U.S. housing starts owned enterprises, announced a Share of builders rating the supply of local lots low or very low

200 billion-yuan ($30 billion) fund on 64% Aug. 18 to support company restruc- Onset of subprime turing and innovation. And the gov- mortgage crisis 1.8m ernment is ordering big companies, Record high in including steelmakers, to merge oper- March 2016 1.2m ations, in part to prepare for more 29% international competition. 0.6m “It is about the government micro- managing the economy, saying this 0 industry will produce this much and 1997 2015 will lay off this many people; it is very interventionist. It is not about the gov- LOT SUPPLY SURVEY ISSUED AT IRREGULAR INTERVALS. DATA: NATIONAL ASSOCIATION OF REALTORS, NATIONAL ASSOCIATION OF HOME BUILDERS ernment laying out general principles and letting the market sort it out,” Builders (NAHB) in May found that June, Burns’s company found. A fin- Batson says. “For economists who 64 percent of homebuilders reported ished lot includes access to utilities, are real liberals, they think it is terri- the supply of lots in their markets was compliance with all laws, and all the ble. They think it is all about central low or very low—the highest percent- necessary paperwork done. Values planning.” —Dexter Roberts age of reported lot shortages since the rose significantly more in markets data were first collected in 1997. such as Seattle (11 percent), the The bottom line President Xi is using the language of supply-side economics to explain and justify “The focus of homebuilders has San Francisco Bay Area (6 percent), more central planning of the economy. been on the multifamily sector and and Denver (7 percent). That matches more expensive single-family “It’s the biggest the NAHB survey, which homes,” Pointon says. “By headache you can found that 39 percent of definition, more expensive imagine. It takes homebuilders in the West a tremendous single-family homes require more amount of time and characterized lot supply as Shelter premium plots of land, which basically ingenuity “very low,” far more than 19 tend to be harder to come by.” to know how to those in other regions. U.S. Builders Want weave your way Low interest rates could also through the offices “There’s a guy right now. More of the Best Land be affecting landowners’ will- and get a permit and I brought him an amazing ingness to sell. Some may be get things done” offer on his property, and holding on to their property he thinks it’s going to be  But property owners are holding because they have to put their worth more next year,” out for higher prices assets somewhere, and there’s says Joe Coakley, a manager at Coakley  “There’s plenty of land … but it’s not much else out there to make a Development Group in Kirkland, all in outlying areas” return, Pointon says. Local develop- Wash. But when asked if he could put ers in Austin and Seattle say they can’t a Bloomberg reporter in touch with The pace of U.S. home construction think of a better time to sell, because the landowner, he refuses: “I don’t hasn’t picked up much from a their real estate markets are overheat- want to publish his name out there for year ago. One reason, says Capital ing. Yet some landowners there aren’t the world to see, because then I get Economics property economist selling, because they expect even 15 brokers calling this guy and pushing Matthew Pointon, is a shortage of better prices down the road. me out of the way.” land—not that enough land isn’t avail- “If you’re a land seller, you can This shortage doesn’t affect all the able, but rather that builders are probably get an all-time-high price marketable land. “There’s plenty of having a tough time finding prime land for your land today,” says land in the country, but it’s all in out- at prices they’re willing to pay. John Burns, chief execu- lying areas far from the job centers. Residential starts increased tive officer of John Burns So the demand to buy homes in those 2.1 percent in July, from the prior Real Estate Consulting in outlying areas is lower than usual month, for an annualized rate of Irvine, Calif. National fin- right now,” Burns says. “And the costs 1.2 million. A year ago, starts were ished lot values rose to build have risen.” Developers point at a 1.1 million annualized 2 percent year- to new environmental regulations, rate. A survey by over- understaffed local government offices, the National year and the painful process of obtaining Association as of building permits for raw land. of Home “It’s the biggest headache you can imagine,” Austin real estate investor Jerred Morris says of the permit process. “It takes a tremendous amount of time and 20   starts tohappen. starts the next fewmonthsasthatadjustment acceleratein pace ofhousingstarts as earningsrise.” He expects toseethe sumers, which theymay beabletodo through higherhomepricesontocon- says. “And you todothat, have topull they sellortake ahittotheirprofits,” he have toputupthepriceofhomes able land.“To going they’re to dothat, price theyare willingtoofferfordesir- ers are going the toneedincrease homebuild- that toboosthousingstarts, and get apermitandget thingsdone.” weave your way through theoffices also wantstoreduce thenumber of of thenation’s She collectors. tax turmoil, beyond thereach political during theircountry’s periods of that Indonesiansstashed overseas country. Now she’s returned toresume corporationsintheof thebiggest dodgers topay up, includingone togetpaign andtrying more tax embarking onananti World BankinWashington after more orlessdriven intoexile tothe minister, SriMulyani Indrawati, was Six years ago, Indonesia’s finance Chance Second A Reformer a Gets Tax Dodgers land at areasonable price. buildersareCoast, findingitmore difficulttobuy The bottom line EconomicsGlobal Indonesian companies submitted tax returnssubmitted tax and individualswho

to helpcollectunpaidtaxes Indrawati returns toJakarta Pointon of Capital Economics saysPointon Economics ofCapital to create fear” “I’m not comingbacktoIndonesia basically ingenuitybasically toknow how to 10.9 The numberof last year million IntheWest andontheWest —Alexandria Arnold than $300billion themoremate is what esti- officials tobringback effort graft. curtailing make anothergo at She’s ready to Widodo’s cabinet. President Joko timein tion, this her formerposi- corruption cam- She will lead theShe willlead Co-operation andDevelopment Co-operation forEconomic TheOrganisation out. owedof thetax found if they’re declare willneedtopay 200percent tion dategets closer. Thosewho don’t asthe expira- will rise rates amnesty paying their fairshare allalong.The for thoseIndonesianswho’ve been their assets,afarlower ratethan pay aslow asa2percent on tax Those who own upimmediately don’t program. jointheamnesty nationally,” awaits evaderswho tax aswell domestically asinter-action, office. to thetax submitted returns lastyear, according including com tered taxpayers andonly 10.9 million, people, only 30millionare regis- are off. OfIndonesia’s 255 million reach theirtargets, hesays. zeroingbegin inonthemiddleclassto get“the fatcats off,” might soofficials TheyknowJakarta. thatinthepast Advisory, in abusinessconsultant Van Zorge, who runsGordian Knot Indrawati’s return, says James analyst atEurasiaGroup inLondon. says Achmad Sukarsono, Indonesia record from andrespect investors,” SriMulyani,is who hasagreat track savior years. “The past two forJokowi less than5percent ineachofthe of 7percent by 2019, upfrom targeteconomic growth tohis annual planstoincrease to his ways, crucial roads, is andports tional fundsearmarked forrail- Spending thatmoneyandaddi- grace periodendsinMarch. lion rupiah($12.6 billion).The 165plan aimedatraising tril- by usinganambitiousamnesty increase overseas moneyand wants toget backthat reforms work time.Widodo this coverthe political tomake Jokowi, haspromised toprovide budget plan.” done immediately because ofour needstobeinitely someaction 54-year-old “Butdef- economist. to create fear,” says Indrawati, a not comingbacktoIndonesia an overhaul office.“I’m ofthetax cheatsandtakedomestic tax up Indrawati warnstha expires,After theamnesty allbets Indonesians are worried about Widodo, alsoknown as domestic tax revenuedomestic tax panies andindividuals, t “serious Indrawati Finance Minister Indrawati tohisplans. isessential needs money topay for infrastructure, and The bottom line Andrew Mayeda year. slowly,” she wrote postlast inablog deadlylike butkills Itis apoison. growthis thatbenefitsonly afew household.“Economic an academic cloutinIndonesia.Shegrew upinical traditionally wieldeconomicandpolit- differentcircles from thefamilies who 11 percent sincethen. IndexComposite gainingalmost June, withthebenchmark Jakarta lawthe amnesty wasapproved in ralliedafterstocks andthecurrency about 3.2percent Still, ofthetarget. only 5.3trillionrupiahin revenue, the amnesty, Indonesiacollected results: Inthefirsteight weeks of stay open onSaturdays andSundays. the linesandordered office to thetax tripled thenumber ofagents manning and couldn’t get through, soshe hotline15 times amnesty thetax called noncompliant topay up. generous the topersuade initseffort theplanasbeingtoo has criticized Indrawati, like Widodo, travels in haveHer efforts yet to show many Upon herreturn inJuly, Indrawati Bloomberg.com Edited by Christopher —Karlis Yudith Salna, Ho,and Indonesian President Widodo Power

BROOKS KRAFT/CORBIS/GETTY IMAGES

Why Stormtroopers, Mitsui O.S.K.’s wait for / Tarzan, and a wizard its ship to come in 26 Companies call London home 24 A Kiwi honey company Industries tries to sweeten its presence in China 27

September 12 — September 18, 2016

With overall violent crime rates falling nationally and fewer people getting sen- tenced to long stretches behind bars, private prison companies see a poten- tially catastrophic decline in demand for their services. Their response: diversify into everything from halfway houses to neighborhood check-in centers for drug offenders. Over the past three decades, entre- preneurs and investors piled into the private prison industry, convinced that the thorny job of incarcerating criminals could be a lucrative growth business. No longer. Curtailment of harsh mandatory-minimum sentences and other changes in criminal justice policies have combined to cut federal and state inmate head counts to 1.5 million as of yearend 2015. That’s down from 2.4 million in 2008, a 38 percent reduction. In recent weeks, the two publicly traded U.S. private prison opera- tors, Corrections Corp. of America 23 (CCA) and Geo Group, have felt the effects of a shrinking market. On Aug. 29, the U.S. Department of Homeland Security announced it would review whether to end its use of privately contracted facilities for detaining criminal aliens and other illegal immigrants. Just 11 days earlier, the U.S. Department of Justice said more definitively that it would begin phasing out private prisons. About half of the companies’ annual revenue “may be at risk” after the federal government announcements, according to an analysis by Bloomberg Intelligence. Both companies have major immigration detention con- tracts due to expire within the next eight months. Those deals alone have generated $520 million for Nashville- based CCA and $228 million for the smaller Geo, which is headquartered in Boca Raton, Fla. So far, state-issued private prison contracts appear to be more secure because state penal systems remain more crowded than their federal counterparts. Yet that hasn’t been Incarceration is falling, so private prisons try new businesses enough to reassure investors. Since the Justice Department announce- “We kind of read those tea leaves” and diversified ment on Aug. 18, shares of CCA and

PHOTO ILLUSTRATION BY 731; SOURCE: GETTY IMAGES (2) GETTY IMAGES SOURCE: 731; BY ILLUSTRATION PHOTO Geo have each sunk by more than 24 include rehabilitation opportunities. community- andmoretraditional prison like that are lesslike term facilities punitive, shorter- viders toofferless theywantlargecated private pro- and government customers have indi- populationshaveprison shrunk shift has beenjustified,headds,as development officer. Thestrategy tions, says Tony Grande,CCA’s chief the move toward correc- community six years ago planning andbegan much slower. ulation, andthedeclinehasbeen but stillfarlarger pop- thantheprison 7.8 percent from seven years earlier available. Thatnumber’s down end of2014, themostrecent figure ers onprobation orparole as of the rather thantraditionalimprisonment. employment-training programs, rehabilitative drug-treatment or for peoplesentencedto and day-reporting centers their probation orparole; ers who violatethetermsof oversee released offend- facilities,” sanctions which sentences; go theendoftheir near houses, where someinmates kinds ofinstitutions:halfway termrefers toseveralThat catchall form of“community corrections.” jail, butinsteadare overseen by some justice system aren’t or heldinprison Most peopleenmeshed inthe privately is Utah, held.) Centerville, Management &Training Corrections Corp. ofshare America price Red IstheNew Black Companies 6/1/2016 9/1/2016 Grande pointstoafootnotethe “We kindofread thosetealeaves” There were 4.7 millionadultoffend- Thus thedrive fordiversification. 30 percent. (Theirlargest rival, will phaseoutprivate Department says it saysDepartment it The Justice “intermediate prisons based operationsthat / Industries analysts theloss of The company tells contract revenue won’t besevere , basedin criminal —American —American “The incentive“The for ‘widen thenet’of‘widen ever-increasing companies isto Committee report Friends Service people under private prison levels of control.” $36 $24 $12 ‘halfway houses,’ across thecountry.” based residential reentry centers,or to operate“hundreds ofcommunity- continue topay private companies willemphasized thatthedepartment private Thenote prisons. scale towinddownPrisons itsuseoffull- theFederalinstructing Bureau of Aug. 18Justice memo Department tive to is forprivate companies prison Friends committee added,“theincen- amountoftime,”for theshortest the orsurveillance necessary of security corrections emphasizeof community punishmentsystem. ing thesizeandscope”ofcriminal undermine of publicly traded tion, warnedthatthebottom-linefocus justiceorganiza- a peaceandsocial Committee, FriendsService American In areport published inAugust, the community buyingupmom-and-pop contractors worried aboutthetrend toward larger about7,000serving offendersaday. about 60day-reporting facilities, 20 company says ithasmore than The Pablo Paez,saidviae-mail. president forcorporate “forseveraldirection years,” itsvice piece ofthemarket. ofaconsolidationthatbeginning sowhat’serties, going onnow the is prop- corrections most community many ofthemfamily-run, have owned Historically, operators, smalllocal will continue, CCAexecutives say. cutbacks. Growth by acquisition conference responding tothefederal analystsindustry inanAug. 19tele- executive, DamonHininger, told a short periodoftime,” CCA’s chief and have hadalotofgrowth here in use of private prisons says it willreview its Homeland Security Homeland Security “While the best practices inthe area“While thebestpractices Skeptics ofprivate say prisons they’re hasbeenmovingGeo inthesame residential reentry centersand the pipeline,Grandesays. Morein sixstates. dealsare in of5,000ties withatotal beds Today itowns 25 suchfacili- San Diego three years ago. correctionscommunity its firsthalfway housein through buying acquisitions, “We have really rampedup CCA hasdiversified into reformers’ goal of“shrink- corrections companies. corrections companies. corporations will the lowest level tions toprovide interven- tailoring relations, Digital MagicintheU.K.Digital Why Makes Hollywood Entertainment private operators prison todiversify. count hasfallen 38percent since2008, pushing The bottom line to change.” “Iftheneedschange,prisons. we have rehabilitative programs itrunsinits alreadyCCA is seekingtodothatwith recidivism country,” inthis hesays, and tions, we’ve got tofindaway to reduce levelsincreasing ofcontrol.” thenet’ofpeopleunderever-‘widen in 1997. Two years ago, itmadethe breaksduced tax forfilmproduction which employs more than300people. in charge ofproductionatILMLondon, the U.K.,” says SueLyster, theexecutive more interest now inmoving work to “There’sproduction toLondon. alot Hollywood studiostooutsource film Union hasmadeiteven cheaperfor the U.K. voted toleave theEuropean 10 percent drop inthepoundafter recently got anunexpected boost:The hub Itsstatus forfilm production. intoaglobal panies, turningLondon world’s com- five visual-effects biggest working on of programmers andgraphic of London’s are hundreds Sohodistrict decobuildingontheedgeInside anart effects foranew effects asitprepared artists totackle digital growing intothecity’s to tap bandof officeattheendof2014,London hoping ILMopenedthe Based inSanFrancisco, andnow ownedLucas by Walt Disney. companyeffects founded George by Industrial Light&Magic outpostof theLondon is hint thatthis Stormtrooper theonly masks is obvious of kidsplaying Vader inDarth and As you enter, alarge photograph spinoff filmdueoutinDecember.

industry shifted” “Over eight years, thewhole effects industry—Brexit ornot London istopsfor thevisual- Grande disagrees. “To reduce popula- The British government firstintro- The U.K. hasproduced three ofthe —Paul M.Barrett Rogue One Federal andstate inmate head Star Wars , the trilogy. , thevisual- Star Wars designers

DATA COMPILED BY BLOOMBERG; THE MARTIAN: COURTESY FRAMESTORE Companies/Industries

incentives more generous: Any film generating Oscar nomination buzz business. Eleven days later, it won an with at least 10 percent of its produc- for its work on Disney’s update of The Oscar for best visual effects forLife of Pi. tion in the U.K. gets a 25 percent cash Jungle Book, which filmed the Mowgli It was British author J.K. Rowling’s rebate on the amount it spends there, tale entirely in a computer-generated works that ignited London’s visual- capping out at 80 percent of a film’s world without any outdoor locations. effects industry. The eight Harry Potter budget. Brexit could make that deal Hollywood’s reliance on mega- films generated a steady stream of even sweeter. EU rules against state spectacles has made the green screen work for U.K. companies, allowing aid forced the government to cap tax central to today’s moviemaking. The them to expand. “Over eight years, credits at 80 percent. If the U.K. leaves top-10 box-office list of 2016 is dom- the whole industry shifted from the the single market, the government inated by films with heavy visual West Coast of the U.S. to London,” says could extend the break to 100 percent effects. Digital artists can do every- Tim Burke, the visual-effects super- of film production costs if it wants. thing from removing a crane from visor on Fantastic Beasts and Where Britain’s three leading visual- a sloppily filmed scene to designing to Find Them, a Potter spinoff that effects houses—Double Negative, a 10-shot action sequence that can will be released by Warner Bros. in Framestore, and Moving Picture— cost upwards of $10 million for visual November. All three of the big London are centered around Soho, London’s effects alone. effects houses are creating computer- cramped creative heartland. Together Computer-generated imagery generated creatures for the film. they employ more than 5,000 people accounts for about a third of the cost Before the Brexit-induced drop in globally and generate an estimated of the average $100 million-plus block- the pound, Canada had been stealing £250 million ($332 million) of annual buster, double what it was a decade work from the U.K. with even bigger revenue. U.K.-based production houses ago, according to William Sargent, tax breaks. Vancouver reduced its tax have won the last three Oscars for best co-founder of Framestore, London’s breaks in May, but studios can still get visual effects—for 2013’sGravity , 2014’s oldest visual-effects house. “The nature a mix of provincial, federal, and visual- Interstellar, and 2015’s Ex Machina. of filmmaking has changed over the effects credits covering 53 percent of Even before the pound’s recent past 5 to 10 years, and it’s accelerating labor costs if they shift work to the slide, London-based houses had as directors mix and match physical city. Montreal’s tax incentives are even amped up this summer’s biggest block- and digital,” Sargent says. “Our market more generous. busters. Double Negative, which won is growing, because the computer- Those benefits have led London’s an Oscar in 2011 for Inception and in generated component is going up.” visual-effects companies to set 25 2014 for Interstellar, labored over the Tax breaks have enabled British up Canadian offshoots. In 2013, wild Las Vegas car chase scene in the houses to undercut U.S. rivals on Framestore opened an office in latest Jason Bourne installment while price. As a result, many of the leading Montreal, where it now employs also reimagining the Enterprise in Star Hollywood visual-effects companies 350 people. The following year, Trek Beyond. Framestore perfected have struggled. In 2013, Rhythm & Double Negative sold itself to India’s the jungle and gorillas in The Legend of Hues Studios, based in Los Angeles, Prime Focus World to get the cash Tarzan. And Moving Picture is already filed for bankruptcy after 25 years in to expand to Vancouver, where it

Before After

For The Martian, Framestore turned Matt Damon’s performance before a studio green screen into a harrowing scene above the Red Planet 26 —Stephanie Baker asabargain.be lookingatLondon take years—Hollywood willlikely Brexit areality—which becomes could ates from Europe may Still,until not. work permits,while newgradu- pass askills andincometestforU.K. would easily artists visual-effects requirements Senior onEUcitizens. iftheU.K.the industry imposesvisa tohire tofeed juniortalent ability ILM’s Lyster worried is aboutthe a brake on work driftingto Canada, both intheU.K. andCanada.” stay competitive, we wantedtoexpand ofDoubleNegative. co-founder “To done inVancouver,” says Alex Hope, out onwork, because itwasbeing ing megafactory. Thatmeansthegas and dimmingthe appeal ofthefloat- has grown—lowering rates ship-leasing the number ofsmallercompetingships supplies ofonshore gashave and risen, Shipbuilding &MarineEngineering three years ago from terminal onland. the costofbuildinga of back intogaseousfuelatafraction complex tostore andtransformLNG tomers toquickly sailinacomplete its biggestsellingpoints,allowing cus- That heftwassupposed tobeoneof LNG topower allofSweden foraday. enough capable ofstoring fields and year,this longer is thanthree football uled fordelivery asearly astheendof ing liquid naturalgasterminal,sched- new 40 billionyen ($394 million)float- O.S.K. Lines Nobody willever accuseshipper Better Necessarily When BiggerIsn’t Shipping evenhouses more attractive toHollywood. drop hasmade London-based visual-effects The bottom line Companies

of anissuethatbecomes” biggerthevessel,“The themore dancecard onits has openspots A massive floatingLNGcomplex While thepound’s slump may put But sincethevessel wasordered has 450 staffers. “Wehas 450 staffers. were missing TheBritishpound’s post-Brexit ofnotthinkingbig.Its / Industries Daewoo billion-dollar gas billion-dollar Mitsui , tion unit, orFSRU,tion unit, onthewater. floatingstorage regasifica- so-called vessel willbebigger thanany other feet) ofLNG,MitsuiO.S.K.’s 345-meter 263,000 cubicmeters(862,861 cubic tostore And withthecapacity vessels in Asiaaren’t fully deployed. jobwherefor atemporary we can chances offinding work. “We’re looking the demand forLNGwillincrease confidentgrowingStill, Hashimoto is it forthefirst andahalf,”year hesays. even ifwetract can’t findahomefor with theship over its20-year con- ping line.“We stillmake can aprofit a spokesman fortheTokyo-based ship- of idlingthevessel, says Yuki Fujiwara, having itsitwithnobusiness.” deliverycheaper thantaking andjust says. Boggs “That’sstruction, still yard totake con- theirtime”finishing leave itintheshipyard, ortelltheship- couldlay “They itupand Associates. based consultingfirmEnergyMaritime ofSingapore- managingdirector Boggs, jobsforunitsofitssize,saysery David there’s deliv- littledemandforone-off asaregular LNGcarrier,also function in thedoor. Althoughthevessel could businesstogetshort-term somecash need tothinkaboutourbalancesheet.” Explains Hashimoto: “Weits start. utive who’s overseen since theproject the company’s seniormanagingexec- ing theship, says Takeshi Hashimoto, Uruguay toshare thecostofdevelop- Mitsui O.S.K. in lookingforapartner is the vessel. Andnow tofree upcash, have postponedthecountry’s needfor a change in theproject’s developers overruns and ontheenergyproject, delays,companies. Construction cost joint venture energy ofstate-owned forUruguay’scharter vessel’s firstconfirmedjob, a20-year complex may sitidleafterdelivery. 9/29/14 9/5/16 9/29/14 natural gas Asian liquefied Mitsui O.S.K. won’t thecost disclose For now, Mitsui O.S.K. scouting for is It willbemore thanayear before the Spot price index* $3 $9 $15 smaller LNG ity. Today, some to itsfullcapac- toworkstruggle job,porary itmay boat findsatem- with suchaneed.” and SouthAmerica are placesinAsia he says. “There deploy theship,” Gas Sayago Even ifthebig , a fees forFSRUs have fallenbecause of an economicslowdown.” ity, Brazil,gasdemand hasbeenhitby the largest market forFSRUs by capac- despite low LNGprices,” hesays. “In levels have“Utilization beenweak, an analyst atBloombergIntelligence. economic growth, says John Mathai, for someFSRUs hasbeenhitby weaker demand Lately in aDecemberreport. onshore facility, King&Spaldingsaid the costofdeveloping asimilar-size of million,aboutaquarter than $250 would costmore meter capacity A newFSRU witha170,000 cubic- than buildingaland-basedfacility.” allow you toaccessgasfarmore quickly LNG industry,” Bucklandsays. “FSRUs “It’s definitely thebrightestspotof in 2015, according toWood Mackenzie. metric tons,afterjumping44 percent 26 percent year,rise this million to29 of2016. 23 atthestart least 30FSRUs globally by 2018, upfrom sulting firm. He thereexpects willbeat Mackenzie, anenergyresearch andcon- for LNGshipping andtradeatWood Andrew analyst Buckland,principal saysplace toget decade, thefuelthis wouldn’t have theinfrastructure in thatEgypt predictions the units,despite ing LNGforthefirsttimelast using year theirconsumption. increase LNG pricesover years to the pasttwo advantage ofa60percent plunge in because countrieshave beentaking globally, butit’s recently beengrowing fewer dozen inoperation thantwo market small,with forthevessels is complex The withonestorage tank. he says. asingle basically oneis Each across multiple customersandusers, to simultaneously share theircapacity thatbecomes.”issue the bigger thevessel, themore ofan 100 percent capacity,” hesays, “and deploy FSRUs atanywhere near a question generally abouthow to 30 percent oftheircapacity. “There’s Asia are already usingnomore than that smallerFSRUs inSoutheast King &Spalding,who estimates inenergyatlawspecializing firm Nelson, aSingapore-based partner deploy,to efficiently says Richard Also clouding the outlook: Leasing Also cloudingthe outlook:Leasing But it’s stillanexpensive outlay. fromLNG imports FSRUs could import- started Egypt andPakistan These FSRUs have limitedpotential The ship’s sizewillmake itharder

*INDEX EXPRESSED IN U.S. DOLLARS PER MILLION BRITISH THERMAL UNITS; DATA: ENERGY MARKET CO. PHOTOGRAPH BY ANDREW MUSSON FOR BLOOMBERG BUSINESSWEEK; BEES: ANDREW’S HONEY; PROP STYLING: HEAVY SETTING is popular in cities such as Beijing and suchasBeijing popularincities is company’s clover honey. Thebrand the priceofasimilar amountofthe more thanninetimes 849 ($127), yuan of Comvita’s manuka honeysellfor company place owned by Chinesee-commerce to NewZealandandAustralia. Leptospermum scoparium madebyhoney is beesthatpollinate the manuka qualities, for itsantibacterial immune systems. Touted asasuperfood improve digestion andbolster their in Chinahave longeatenhoneyto for about60percent of itssales.People sumers clamoringformanuka honey in NewZealand,relies con- onChinese The company, honeybrand thebiggest growing appetite f doingreallyis well.” Group. “Anything that’s ofnatural sort Shanghai-based ChinaMarket Research says Shaun Rein, of managingdirector changingconsumerspending,”lution is fruit andlive ofpol- fear seafood.“The baby formula creams tofresh andfacial thatareimports considered safer, from scares have ledtoincreasedsalesfor pollution andseveral can’t:ucts peaceofmind.Worsening promise somethingmany prod- local demanding foreign brandsthat inmainlandChinaareConsumers More ThanHoney Catching SalesWith Health Foods terminal doesn’t have any work before 2018. floating for set LNGvessel delivery by yearend. The The bottom line with Kyunghee Park Kiyotaka andAngus Matsuda, Whitley, immense vessel. be arush togive work toMitsuiO.S.K.’s smaller ships are idle,there’s unlikely to LNG.Andif according CS toconsultant five ago,years toabout$120,000 aday, competition, down 20percent from

doing really well” “Anything that’s of natural sort is new tofoster products growth New Zealand’s looks Comvita to On Tmall, theonlinemarket- Comvita Alibaba is one beneficiary ofthe onebeneficiary is MitsuiO.S.K. hasa$394million —Chris Cooper, or all-naturalfoods. , two 250-gram jars 250-gram , two product-safety product-safety , aplantnative erate NZ$280 million; theother other bee-related willgen- products Scott Coulter. Salesofhoneyand by 2020, says ChiefExecutive Officer annual revenue, toNZ$400 million, market double willhelpComvita olive-leaf extracts forthesupplements and products, intooils,berry sify producer oils.Aplantodiver- offish stake in September,Last itboughta13percent an environmentally friendly country. tage ofNewZealand’s reputation as company tofindnewproducts. slowdown puttingpressure is onthe weakest performance since1990. The to grow about6.7 percent year, this its the Chineseeconomy, which ontrack is have suffered because ofaslowdown in in March 2015. Still,Comvita says sales NZ$153 millioninthe12monthsended profit ofNZ$10.2 millionandsalesof ended inJune. Thatcompares with millionforthe15of NZ$231 months NZ$18.5 million($13.7 million)onsales itshoneyonthemainland. to distribute a jointventure withaChinesepartner 5,growth. On Sept. Comvita announced Research, sothere’s alotofroom for director ofAuckland-based Trace saysless affluentcities, Andrew Zhu, Shanghai buthasn’t yet caught onin Comvita is lookingtotake advan- is Comvita The company reported earningsof SeaDragon , aNewZealand revenue, to$290million,by 2020. and new oils andextracts willhelpitdoubleits The bottom line Zealand.” manuka honey, thenitcomesfrom New consumerexpects thatifit’s“The spokesmanassociation John Rawcliffe, preserve itforuseby Kiwis only. Says totrademark trying thenameand is try’s beekeepers andhoneyproducers, which representsAssociation, thecoun- Unique Manuka Factor Honey expensive,” hesays. NewZealand’s fake manuka honeybecause it’s so based Comvita rival. “There’s alotof of counter honey hascreated anopeningfor the source oftheirfood.” ourcustomersto “about connecting market,” says. Coulter is Thestrategy endofthe produce atthehigh-quality lesterol levels. “Our to goal totry is healthymaintain eyesight andcho- saysComvita help can such products oral spray for20milliliters). (NZ$22.20 andolive-leaffor 180capsules) extract like supplements (NZ$74.26 bilberry NZ$120 million willcomefrom items Meanwhile, demandformanuka Oceania NaturalOceania Edited by James E. Ellis and Edited by JamesE. Dimitra Kessenides Bloomberg.com feiters, says Walker CEO Zhong, $127 —Bruce Einhorn —Bruce What two jarsof manuka honey Comvita honey says products fetch onAlibaba’s Tmall , asmallAuckland- 27 28

The FDA looks at the risks of body inks as reports of adverse reactions climb “Even the most reputable places can’t guarantee the safety of ink” Attacking Delaware’s mighty business court as antibusiness 31

Emily Pratt wasn’t impressed when never had a problem with it,” he says. Jason Recker, a 15-year-old from she heard about the U.S. Food and Scientists at the FDA’s National Peoria, has already done some Drug Administration probe into the Center for Toxicological Research in research. “You don’t see a lot of potentially harmful effects of tattoo Jefferson, Ark., are exploring several tattoos on lawyers and engineers and ink. She would have shrugged to show aspects of inks’ long-term effects, teachers,” he says, as he considers how little she cared, but she was a including how the chemicals metab- future careers. “I don’t think I’ll want bit sore from the tattoo machine that olize in the body. “Many pigments to get a tattoo when I’m old enough.” had been smacking away at her left used in tattoo inks are industrial- —Bradley Joseph Saacks forearm. This was her seventh inking: grade colors suitable for printers’ ink The bottom line While the FDA has so far refrained a wraparound bouquet of six roses in or automobile paint,” the agency says from regulating tattoo inks, some of its scientists shades of yellow and red rendered at on its website. Chemists have discov- are looking into pigments’ long-term effects. Embassy Tattoo in Washington, D.C. ered that some yellows break down Sitting in the tattoo parlor’s waiting when exposed to sunlight or certain room, which doubles as the recovery enzymes, though it hasn’t been area, the 22-year-old Pratt says, “The determined whether this is harmful. fact that I’m here says I’m not worried The FDA hasn’t said when its ink Climate about the side effects.” study will be done. Can California Save Its The FDA and other health experts Three in 10 Americans have at least are. “Even the most reputable places one tattoo, according to a Harris Poll Cap-and-Trade Plan? can’t guarantee the safety of ink,” released in February, up from 2 in 10 says Arisa Ortiz, a dermatologist and four years ago. The prevalence is Most carbon credits go unsold at assistant professor at the University highest among millennials (47 percent) auction, keeping CO2 prices low of California at San Diego. She’s co- and Gen Xers (36 percent). “Tattooing author of a 2011 article that cited has become mainstream,” says Diane “The program is about reducing researchers in Germany, Spain, and Pacom, a University of Ottawa sociolo- emissions, not raising revenue” 29 the U.S. who discovered potentially gist. “The millennials, they’re doing it as hazardous substances like mercury a statement of belonging to the system— In 2012, when California began its cap- and charcoal in some tattoo dyes. because everybody has tattoos now.” and-trade program, it was hailed as a Concerns have grown with the Would negative findings by the FDA model for the rest of the world. While explosion in body art’s popularity greatly dim tattooing’s allure? Lars Congress had failed to pass a similar and the availability of tools and inks Krutak, a tattoo history expert at system two years earlier, California online. In the U.S., the industry is the Smithsonian was going to demonstrate how a large, growing about 9 percent a year, which Institution’s industrialized economy could cut researcher IBISWorld forecasts will National Museum greenhouse gases while also raising make it a $1.1 billion business by 2020. $1.1 of Natural History, billions of dollars for clean energy In the U.S., the inks are regulated billion doesn’t believe projects. The idea was fairly straight- as cosmetic products. The FDA so. After all, mil- forward: By forcing oil refiners, power can screen them before they hit lions of Americans plants, and factories to buy permits the market, but it’s rarely done so, still smoke despite to emit greenhouse gases and then 2020 revenue according to its website, because of forecast for the the risks. But gradually shrinking the supply of “competing public-health priorities U.S. tattoo industry what the FDA those permits, the state could steadily and a previous lack of evidence of discovers, he raise the cost of carbon dioxide pollu- safety problems specifically associ- says, may lead to tion and compel businesses to lower ated with these pigments.” “better regulation, quality standards, their carbon footprint. The agency does investigate when labeling, and even the reclassification State officials initially set a minimum it receives complaints, and hundreds of tattooing ink itself.” price of $10 per metric ton of CO2. have been filed since 2004, compared Anna Felicity Friedman, a tattoo The California Air Resources Board, with only five from 1988 to 2003, with historian who estimates 50 percent which runs the auctions where compa- people reporting reactions includ- of her body is covered in ink, says nies bid on carbon permits, projected ing itching, scarring, or inflamed skin no matter what the FDA concludes, that prices could eventually reach even years after getting inked. One the U.S. “may be at a tipping point in $50 a ton. Instead, prices have traded reason could be the proliferation of tattoo popularity.” Young people she closer to $12 per ton, leading to far less do-it-yourself equipment and inexpen- knows “are consciously deciding to revenue than anticipated and raising sive dyes, says “Sailor” Bill Johnson, remain untattooed, either to be rebel- questions about what, if any, effect the vice president for the National Tattoo lious, since tattoos are no longer a program has had in lowering the state’s Association. “I’ve been using the same mark of rebellion, or to avoid being carbon emissions.

PHOTO ILLUSTRATION BY JUSTIN METZ; PHOTO: GETTY IMAGES PHOTO: METZ; JUSTIN BY ILLUSTRATION PHOTO product for nearly 40 years and have deemed a fashion victim.” In the last fiscal year, ended on Politics/Policy

June 30, California’s cap-and-trade California’s Cooling Carbon Market buy more solar and wind power. Those revenue fell about $600 million short Emissions allowances offered and sold other initiatives may also have undercut of the $2.4 billion that Democratic Emissions allowances offered but not sold the effectiveness of cap and trade. Governor Jerry Brown had forecast. Instead of spending money on carbon Demand for CO2 This year the shortfall looks to be permits has crashed as permits, some of the state’s biggest much larger. The latest cap-and-trade California’s cap-and- emitters are focusing on complying auction, held on Aug. 16, fetched just trade auctions face 100m with other mandates. Sacramento’s legal challenges $8 million for the state, with about municipal utility, for example, is buying two-thirds of the emission permits 75m more renewable energy and investing going unsold. That follows a May in energy conservation so it can comply auction where only 10 percent of the 50m with the Renewable Portfolio Standard permits were sold and only $10 million that Brown signed into law last year raised. Brown had hoped cap-and- 25m requiring utilities to get half their elec- trade revenue would hit $2 billion tricity from renewables by 2030. One this fiscal year, money he was count- 0 of the state’s largest utilities, Southern ing on to help fund his pet green Nov. Aug. California Edison, is doing the same 2014 2016 projects, specifically a $64 billion thing and says the RPS will drive future high-speed rail system. AUCTIONS HELD EVERY THREE MONTHS; emissions cuts and ultimately reduce its DATA: CALIFORNIA AIR RESOURCES BOARD One reason companies have stopped need to buy carbon permits at auction. buying carbon permits is that they may failure,” says California State Senator Alex Jackson, legal director of the soon become worthless. The California Jim Nielsen, a Republican. “It really is Natural Resources Defense Council’s Chamber of Commerce has challenged a poor way to fund programs. It’s just a California Climate Project, concedes the constitutionality of the auctions, big way to get money for government.” that cap-and-trade revenue is lower arguing in a lawsuit that cap and trade Brown is considering whether to put a than expected. “But let’s not lose amounts to an illegal tax. An appeals cap-and-trade measure on the ballot in sight of the fact that the program is court is expected to rule sometime in 2018 and let voters decide its fate. about reducing emissions, not raising 2017. In the meantime companies are Lawmakers have tightened revenue,” he says. “If emissions hedging their bets and buying futures California’s carbon emissions stan- are staying below the cap, then it is 30 contracts, which allow them to lock in dards, passing a bill on Aug. 24 that working as designed.” Greenhouse a price to purchase carbon permits at requires a cut to 40 percent below 1990 gas emissions from California’s a later date, while only paying about levels by 2030. The previous target was power sector are already 20 percent 10 percent of the cost upfront. “Why to reach 1990 levels by 2020. Those below their 1990 levels, but the would anybody bid into the auction stiffer emissions rules could breathe state’s overall emissions fell by just right now and pay hard cash?” asks Alex new life into cap and trade if it survives 1.5 percent from 2012 to 2014. Rau, a principal at the carbon-trading past 2020, says Bloomberg Intelligence California’s cap-and-trade program advisory group Climate Wedge. analyst Rob Barnett. “I think it is hardly the only one struggling with Even if cap and trade in California probably could increase demand survives the legal challenge, its future is for those permits, but that’s over unclear. There’s a debate over whether the long term,” he says. the state has the authority to operate California’s program is one of a the program beyond 2020. Despite his host of climate initiatives the state best efforts, Brown hasn’t persuaded put in place over the past decade, the legislature to renew including mandates that require it. “The cap-and-trade refiners to cut the carbon inten- Digits program has been a sity of their fuel and utilities to

The Pentagon wants to buy 642 new $85b missiles Projected cost of the U.S. Air Force program to develop and procure an inter- continental ballistic missile to replace the silo-based Minuteman III, in use since the 1970s. That’s up from a previous estimate of $62 billion. —Tony Capaccio FROM LEFT: LEE CORKRAN/GETTY IMAGES; JEFFERSON SIEGEL/GETTY IMAGES SIEGEL/GETTY JEFFERSON IMAGES; CORKRAN/GETTY LEE LEFT: FROM Politics/Policy low prices and weak demand. The Pro-Business chancery’s price of permits in the world’s largest Delaware. The Judge carbon market, covering the European group is blanket- Bouchard Union, is down 51 percent this year. ing the state with said he It’s not that carbon markets are inher- radio ads and lob- was open ently flawed. It’s that they’re not getting bying lawmakers to allow- a fair chance, says Louis Redshaw, who to curtail the court’s ing dissi- runs an emissions-trading company, power. The judge’s dent Viacom Redshaw Advisors in London. Instead of decision was “the most board members establishing strict emission ceilings and drastic option available” to force the com- allowing carbon markets to work, politi- for a profitable company, pany’s controlling cians set lax limits and buttress cap and says Chris Coffey, a man- shareholder, 93-year- trade with renewable energy subsidies aging director at New York’s old Sumner Redstone, to take and other environmental measures. “In Tusk Strategies, which was a mental exam. theory, carbon markets are the perfect hired to orchestrate the cam- The court’s defenders dismiss answer,” says Redshaw. “The problem is paign. “It’s like scheduling major critics as self-interested companies the implementation by the politicians.” surgery to cure a common cold.” wrapping themselves in an anticourt —Mark Chediak and Joe Ryan (Coffey is a former aide to Michael mantle. The detractors are “all flying Bloomberg, founder and majority the flag that Delaware isn’t as business- The bottom line California’s cap-and-trade program is being challenged in court, leading to a owner of Bloomberg LP, which owns friendly as it used to be,” says Lawrence lack of demand for the carbon permits it auctions. Bloomberg Businessweek.) Hamermesh, a Widener University pro- Coffey says about a dozen well-paid fessor who teaches Delaware corpo- TransPerfect executives have been rate law. “The reality is that they’re paying his fees and that “several all unhappy litigants who don’t have a hundreds of thousands of dollars” good basis for their argument.” Litigation have been spent on the campaign. The controversy poses a challenge Is Delaware’s Business The executives are fighting the sale to Delaware officials, who have long order because they’re worried about guarded their court’s business-friendly Court Antibusiness? private equity ownership taking over reputation, for good reason. More than 31 the company and demanding deep 1 million legal entities are incorporated staff cuts, Coffey says. That would be in Delaware, paying annual fees total- Critics say the judiciary has grown “destroying the meritocracy,” says ing more than $1 billion, which account too powerful Barnaby Wass, a vice president at for a fourth of the state’s budget. “It’s like scheduling major surgery TransPerfect and member of the PAC. Bouchard’s order isn’t the first time a to cure a common cold” The campaign is unprecedented in a U.S. judge has ordered a profitable busi- state long seen as friendly to business ness to be sold, says Robert Thompson, It was a classic love story turned soap interests. Yet the reaction marks the a Georgetown University law profes- opera. Two decades ago, Elizabeth latest attempt by corporations to push sor. “The usual response to one of these Elting and Philip Shawe founded a back against a court they’ve described orders would be to appeal the decision, translation-services company in their as overreaching and less sympathetic not to set up a lobbying campaign.” New York University dorm. They to business than it once was. In recent Changing corporate law in Delaware owned it 50-50 and eventually became years companies including Dole Food, isn’t easy. The legislature typically engaged but never married. By 2011 the DuPont, and Ancestry.com have crit- alters these statutes only on the rec- couple were fighting over who should icized the court and the state for not ommendation of the Delaware State run the Manhattan-based company, adopting pro-business measures, such Bar Association. That’s why William TransPerfect Global, and bickering as shifting legal fees to losing parties Chandler III, Bouchard’s predeces- about everything from taxes to payroll. and discouraging shareholder suits. sor as the chancery court’s chief Today, this story of love and business Last year, Dole’s chief executive judge, thinks the TransPerfect cam- gone bad is at the center of a debate officer, David Murdock, threatened to paign is a waste of time. “They’d have about whether Delaware’s mighty busi- cancel an agreement with Delaware to been better off flushing that money ness court—which has legal authority ship bananas and pineapples through down the toilet,” says Chandler, who over half of all U.S. public companies— the Port of Wilmington if the state didn’t retired in 2011 and is now a partner has grown too powerful. With the ex- crack down on shareholder suits similar at Wilson Sonsini Goodrich & Rosati. lovers unable to agree on buying each to one that Dole was facing, disput- —Jef Feeley and Katherine Greifeld other out, in May a Delaware chancery ing a company’s valuation of its shares. The bottom line Delaware’s business court, with judge, Andre Bouchard, ended their Ancestry.com and DuPont joined in legal authority over half of U.S. public companies, two-year legal battle and ordered the Murdock’s call for changes. Delaware is facing challenges from a grass-roots PAC. software company to be sold at auction. lawmakers fended off Murdock’s Within months, some TransPerfect demands, and the CEO agreed to pay Edited by Matthew Philips executives created a political action about $170 million to settle claims he and Cristina Lindblad committee called Citizens for a shortchanged investors. In July, the Bloomberg.com 32 took off hisbow tie for work before he 18 months looking and landedajob Peredo spent September 12—September 18,2016 could talk aboutsuperherocould talk movies, know onUrban Dictionary, soshe checkingwordsMSNBC, she didn’t Reddit,scanning Yelp, IMDb, and her five regularly suits.Shestarted sweaters orjackets over replaced skirts views, dresses with brightly colored group asold48.” is Gulp. are rightoutof college, andoneolder very diverse age people group—some hiring manager toldher, “We have a 50. Early inhersearch, she recalls,one job inSiliconValley, andshe wasover nesses. Suddenly she waslookingfora to busi- software customer service company thatpitches at She’d beenasuccessfulsalestrainer working—she justhadtoseem younger. Not because she didn’t plantokeep job lastfall,she putaway hersuits. After Andrea Rodriguez losther

So asRodriguez chasedmore inter- “If you’ve worked at alarge company Silicon Valley’s over-40s trylawsuits,classes, SugarCRM , aCupertino, Calif., marketing and We’re Not To “Inside, Ifeel like I’m 25 anddon’twant to slow down yet.” typical working age.typical At SiliconValley makes sensegiven of theboundaries says. “You’ll beviewed asanoutsider.” Music bring upJulie Andrews in and IMDbcomeinhandy. “Ifyou company events. That’s where Reddit inthebreakto socialize room orat than amom,she goes outofherway rather ing ofherasanoldersister think- colleagues thirtysomething another salestrainingjob. without apaycheck, Rodriguez got andafterfiveread theblog, months owned by Hewlett Packard Enterprise, Aruba Ahiringmanager ablog. at started Twitter, and andSnapchat, Pinterest, onLinkedIn,nections got herselfon Kardashians. con- 500 Shecollected Warriors, State the Golden andthe The medianU.S. worker 42,which is twenty- to andIn aneffort keep her for 10years … your skillsar , allconversation willstop,” she , awireless equipment maker makeovers—even surgery—to keep working The Soundof e six plaints of racial biasand9percentplaints ofracial Housing, 28percent more thancom- ofFairDepartment Employment and filed with theCalifornia crimination nies faced226complaintsof age dis- the Valley’s 150 techcompa- biggest quietly. From 2008through lastyear, “Younger peopleare justsmarter.” 22, when hetoldaStanford audience, summed uptheValley ethosatage lawyer. Mark Zuckerberg famously Welch, employment aSanFrancisco trustful oflongrésumés, says Michael 30 ( moreis likely tobe31( companies, themedianemployee gularly the Bay Area’s techcompaniesare sin- workers for younger, cheaperones,but tophaseoutolder industries try researcher ofother PayScale. Plenty LinkedIn generations behind” Not alltheolderworkers are going Google uninterested inandeven dis- ), oryounger, according to , Tesla ), 29 ( ), 29 Apple Facebook between contract Houston, jumping gigs, hasrunout gigs, ), of friendsinher network ,

PHOTOGRAPHS BY DAMIEN MALONEY FOR BLOOMBERG BUSINESSWEEK

o Hospitals test virtual A bug in Cisco gear reality as a painkiller proves fatal for a 34 hosting company 35

Innovation: Speakers that beam clearer sound 36

Rodriguez went all in on social media and was hired by someone who’d read her blog

Career counselor Withers advises clients to hang around office parking lots to get a feel for the style o Old for This 33

résumés that’s more than 10 years “If you bring up old, to use a professional photogra- Julie Andrews in The Sound of Music, pher for their LinkedIn headshots, all conversation and to hang out in the parking lots will stop. You’ll be of places where they’ll be interview- viewed as an outsider.” ing to see what the people there wear. Michael Peredo, a 55-year-old auto engineer dismissed from Mercedes- Benz in February 2015, says he had more than those of gender bias. Last Lawsuits tend to be expensive and trouble giving up his bow ties for month, former employees of the turn off prospective employers. Many T-shirts, as some he met at ProMatch old, combined Hewlett-Packard sued older tech workers are just going to suggested. “I feel like myself wearing spinoffsHP Enterprise and HP, alleg- greater lengths to seem younger as them,” he says. He spent 18 months ing they were targeted in a large wave they try to win over potential bosses out of work before landing a contract of layoffs because of their age. (One of younger than their kids. Besides the gig at Velodyne, writing software for the plaintiffs, an efficiency expert, had standard preinterview tricks—listing self-driving cars. Just before that inter- just earned HP’s highest performance only recent jobs on résumés, freshen- view, he took off his bow tie. rating; only 250 of its 50,000 employ- ing online profile photos—job seekers “If you’ve worked at a large company ees get that.) The plaintiffs are seeking are investing in retraining, creeping for 10 years and get laid off, chances are class-action status on behalf of workers on potential employers, and changing your skills are six generations behind,” 40 and older who were laid off and their appearances in all kinds of ways, says Jonathan Nelson, chief execu- replaced by younger employees. Next including plastic surgery. tive officer of the Valley social network year, Google is scheduled to face a trial At ProMatch, a state-funded job Hackers/Founders, which organizes in a suit alleging age bias in hiring. The counseling and networking program meetups for startup developers. “I plaintiffs declined to comment. HP and in Sunnyvale, Calif., Robert Withers know downsized engineers in their 40s Google deny the plaintiffs’ claims and advises his mostly middle-aged or and 50s who’ve retrained themselves to say they’ll defend against them. older clients to cut anything on their build mobile apps or do big data—and 34 ProMatch’s office work devicemaker atmedical 2010, butexcept forsome Materials job atchipmakingsupplier learn newcodinglanguages sincehis unlucky ones.He’s taken classesto Technology ful, asymmetrical haircutful, asymmetrical andwears Cynthia Houston, 54, hasayouth- a joboftencomesdown to In theValley, like mostplaces,landing pass foryounger may notbeenough. have enoughsaved forretirement.” love solving problems. AndIdon’t yet “I stillwanttowork intech,because I many peopleare intheir20s,” hesays. keep working where inanindustry so look asyoung aspossibleifyou wantto eyes.his “It’s tostay smart current and remove bagsanddark circles under had blepharoplasty, plasticsurgery to grayhis hairadark auburn. He also workingand hasstarted outanddyeing extensionconsoles) atalocal school, ded systems videogame (cellphones, sneakers embed- studies tointerviews, and button-downs, khakis, casual a chipmaker inSanJose, now wears fired in aftersevenJanuary at years house andfleeing.” cheaper,” hesays. “Cashing outthe toleaving areaciled this forsomeplace “I’ve muchtechnician. pretty recon- program tobecomeapharmaceutical atraining Schoenberger plans tostart the landwhere they’d hoped toretire. efits, savings,cash from and thesaleof now-exhausted unemployment ben- wifehavehe andhis on hadtosubsist Bob Schoenberger,Bob amongthe 61,is Even the mostaggressive attemptsto One 60-year-old engineer, software others who are wasoutsourced toAsiain Uber drivers.” contract contract networking. Applied Hospira , Shriners and at Harborview Burn Shriners andat Harborview has studiedVR. Inresearch done at whichdivision ofpainmedicine, ate professor atStanford Health Care’s says associ- Darnall,aclinical Beth to quiet the“harmalarm” ofpain, worldsvirtual willbeengagingenough ofthe thatthedistraction The ideais testingVRasapainreliever.pitals says, “so ithelpedwiththepain.” me from what theywere doing,” Duke at igloosandpenguins.“Itdistracted wherelandscape, she lobbedsnowballs SnowWorld Slipping iton,she wasimmersedin headset. the painkillers:avirtual-reality girl onanunusual treatment togo with in Galveston, Texas, the started doctors itself.”than theaccident recovery more painful wasactually as funitsounds,she says. “The awayscraped deadskin. That’s about physicians changed herbandages and induced coma,she hadtowatchwhile awoke fourdays laterfrom amedically burned athird ofherbody. Whenshe explosion coatedherinflamesthat was watchingitwithafriend,andthe June when thebonfire exploded. She Deona Duke hadn’t yet turned14 in Patients of aDose VR TryHospitals Giving Reality Virtual Silicon Valley jobsare restitution seeking or, more The bottom line and Robert Burnson aren’t around now.” someone Iknew,” she says. “Butthey job I’ve gotten untilnow wasthrough ral from “Every aformercolleague. gigwasatHP,recent contract arefer- companyservices managerher jobasaproject atcloud years sinceshe fortwo lost on contract but she’s beenunemployed orworking clothing recommended by herniece, often, goingtogreat younger. lengthstoseem

an effect onthehumanmind” areheadsets getting afresh look “Virtual reality undoubtedly reality has “Virtual With thepriceof hardware falling, Shriners is oneofafew U.S.Shriners is hos- At theShrinersHospitalforChildren , a game depicting an icy anicy , agamedepicting Olderworkers booted from VMware —Carol Hymowitz—Carol . Her most was acommercial flopbut got rave small supply Thedevice of videotapes. ers thatrelied tuneranda onaTV unveiled an$800 headsetforconsum- fessor known asthegodfather ofVR, Furness, anindustrialengineeringpro- agement datesto1993,when Tom control population,” Spiegel says. health outcomes,compared toa truly imp can like reality virtual rigorouslyunderstand how something trial.“Asclinical Iwantto ascientist, anew,about tobegin more stringent have yet tobeadequately studied.He’s Spiegel adds,butthereasons itworks patientshe’sthe 150-odd triediton, It worked for about 80percent of onthe human mind,”effect hesays. undoubtedly hasan reality “Virtual including abdominalandbackpain. ofpain, help alleviateothertypes says he’s seenhow VRheadsetscan research,services Brennan Spiegel, own. ofhis VR headset says. Oncedischarged, heplanstobuya not sittingaround thinkingaboutit,” he able towhittle thatdown, because I’m andI’ve been a lotofpainmedication, “Iwason predicament. mindoffhis his startup using theGear, madeby withsoftware roomhis quickly tofeellike came acell. He’sheart. kept alive by machines,and waiting forahelicoptertobringhim looking Cedars-Sinai’s landingpad, spent thepastmonthinaroom over- 54-year-old formertruckdriver, has Angeles.Sinai inLos Yarbrough, a Samsung Yarbrough, who’s beenusinga during VRuse. showed fewer painreceptors firing research, ofpatients’brains MRIscans Insomeofthe less discomfort. inSeattle,patientsreported Center medical VRequipmentmedical The virtual world’sThe virtual useinpainman- Cedars-Sinai’s ofhealth- director Yarbrough says acoupledays spent “I wasamazed,” says Ronald The cost of some $35 early, 1990s-era thousand AppliedVR Gear VRheadsetatCedars- Gear , hashelpedtake research labs. of for ahandful few takers, except $35,000 andfound cost asmuch as for medical use for medical equipment tailored patients. Early VR mollified young who foundit tists reviews from den- academic academic rove rove

FROM LEFT: PHOTOGRAPH BY DAMIEN MALONEY FOR BLOOMBERG BUSINESSWEEK; ILLUSTRATION BY SIMON ABRANOWICZ; COURTESY SAMSUNG; YOUTUBE Technology Digits As Samsung, Facebook, Sony, HTC, and others race to build a dom- inant VR system, the equipment is finally getting both good and afford- About three dozen able enough for more hospitals to test. of the devices were found to have Software makers like AppliedVR are batteries that caught supplying several hospitals with head- fire and exploded sets that play their games. Houman Danesh, director for integrative pain management at Mount Sinai Hospital in New York, says VR use has the $1b potential to become a relaxation tech- The potential cost of Samsung’s recall of all 2.5 million Note 7s shipped in the nique akin to yoga and hypnosis. Like phone’s first two weeks on sale, according to estimates compiled by Bloomberg Spiegel, though, he cautions that its effectiveness in treating chronic pain has yet to be proven or fully under- stood. And if its effects can be veri- fied, how long do they last? run by hosting company Peak Web, from McAfee in 2010, or of investment At Shriners in Galveston, Duke says went dark for 10 hours last October. company Knight Capital, which lost the painkilling effects ofSnowWorld , Two days later, Machine Zone fired $458 million in 30 minutes in 2012— made by researchers at the University Peak Web, citing multiple outages, and had to be sold months later—after of Washington, diminished over time and later sued. new software made erratic, auto- as she got bored. “For teenagers they Then came the countersuit. Peak Web mated stock market trades. should find, like, different games,” she argued in court filings that Machine Peak Web, founded in 2001, had says. “That game they were showing Zone was voiding its contract illegally, worked with companies including me seemed like it was for little kids.” because the software bug that caused MySpace, JDate, EHarmony, and Uber. —Ian King and Caroline Chen the game outages resided in faulty Under its $4 million-a-month contract network switches made by Cisco with Machine Zone, which began on The bottom line VR, used as a distraction tool for severely injured patients, seems to help relieve Systems, and according to Peak Web’s April 1, 2015, it had to keep Game of War 35 pain but needs more thorough testing. contract with Machine Zone, it wasn’t running with fewer than 27 minutes of liable. In December, Cisco publicly outages a year, court filings show. acknowledged the bug’s existence—too According to Machine Zone, the late to help Peak Web, which filed for hosting service couldn’t make it a bankruptcy protection in June, citing month without an outage lasting almost Software the loss of Machine Zone’s business as an hour. Another in August of that year Don’t Blame Me— the reason. The Machine Zone-Peak was traced to faulty cables and cooling Web trial is slated for March 2017. fans, according to the publisher. It Wasn’t My Code “Machine Zone wasn’t acting in Cisco’s networking equipment good faith,” says Steve Morrissey, a became a problem in September, says partner at law firm Susman Godfrey, a person familiar with Peak Web’s which is representing Peak Web. “They operations, who requested anonym- were trying to get out of the contract.” ity to discuss the litigation. The com- Machine Zone has disputed that asser- pany’s Nexus 3000 switches began to tion in court documents, but it declined fail after trying to improperly process to comment for this story. Cisco also a routine computer-to-computer declined to comment on the case, command, and because Cisco keeps its saying only that it tries to publish con- code private, Peak Web couldn’t figure firmed problems quickly. out why. The person familiar with the There’s buggy code in virtually situation says Cisco denied Peak Web’s A bankruptcy fight over a mobile every electronic system. But few com- requests for an emergency software game draws eyes to Cisco’s bugs panies ever talk about the cost of fix, and as more switches failed over “The entire network often has to dealing with bugs, for fear of being the next month, the hosting service’s go down in order to patch” associated with error-prone products. staffers couldn’t move quickly enough The trial, along with Peak Web’s bank- to keep critical systems online. Game of War: Fire Age, your typical ruptcy filings, promises a rare look at Finally, late in October, came the melange of swords and sorcery, has just how much or how little control a 10 hours of darkness. Three people been one of the top-grossing mobile company may have over its own oper- familiar with Peak Web’s opera- apps for three years, accounting for ations, depending on the software tions say the lengthy outage gave the hundreds of millions of dollars in that undergirds it. Think of the cor- company time to deduce that the revenue. So publisher Machine Zone porate computers around the world troublesome command was reducing was furious when the game’s servers, rendered useless by a faulty update the switches’ available memory and Technology

“It’s very intimate, like someone whispering in causing them to crash. The company your ear.” alerted Cisco. Machine Zone’s attor- Innovation neys wrote that Peak Web has “aggres- sively sought to place the blame elsewhere for its failures” and that it could have prevented the downtime. Sound Beams In December, Cisco confirmed to Peak Web that it had replicated the bug and issued a fix, according to e-mails filed Form and function Innovator Woody Norris HyperSound Clear speakers emit sound in a Age 77 as evidence in the lawsuit. controlled, narrow beam. Attached to TVs and Chief scientist at Turtle Networking equipment such as other electronics, the speakers are designed Beach, a 200-employee switches and routers, which carry the to improve clarity and speech intelligibility for audio equipment company world’s internet and corporate data those with hearing loss. in San Diego traffic, tend to be especially difficult to fix with a software patch, says John Origin Turtle Pescatore, director for emerging secu- 1. Beach came from a merger of Voyetra rity trends at the SANS Institute, an IT Focus While typical speakers Turtle Beach with training and research company. “The create audio waves that Norris’s company, Norris can be several feet long, Background entire network often has to go down Parametric Sound, previously founded HyperSounds emit ultrasonic in order to patch—very disruptive in which developed the Long Range Acoustic waves with lengths of about speaker technology. Device, which makes the best of times,” he says. In July, 2/15 of an inch. a sonic weapon used Southwest Airlines blamed a failed, by ship captains to aging router for an outage that can- ward off pirates. celed hundreds of flights. Cisco, the leader in the $42 billion business for corporate networking equipment, has had similar problems before. In one previously unreported 36 incident, in 2014, a glitch in a Cisco Typical speaker HyperSound Audible sound Invicta flash storage system corrupted audible sound ultrasound beam data and disabled the emergency- room computer systems at Chicago’s Mount Sinai Hospital for more than 2. 3. eight hours, says a person familiar with the incident. Cisco later froze ship- Beam The waves’ small size Conversion The ultrasonic means the speakers can waves carry an audio signal ments of Invicta equipment and dis- focus them in a particular that’s converted back into continued the product line. In another direction. “It’s like a flashlight sound, maintaining its unreported case, a Cisco server in beam, compared with light focused direction, when the from a bare bulb,” Norris says. wave hits air molecules. 2012 overheated inside a data center at chipmaking equipment manufac- turer KLA-Tencor, forcing the facility to close and costing the company more than $50 million, according to a person Other uses Turtle HyperSounds’ audio Beach also sells can be heard best familiar with the matter. sound-beaming by listeners Spokespeople for Mount Sinai and speakers to stores positioned in the KLA-Tencor didn’t respond to requests and museums that beam’s path could use displays for comment. While declining to speak that focus audio about specific incidents, Cisco spokes- directly in front man Nigel Glennie says that after the of them. company was notified of server failures at two customer sites in 2012, it posted Next Steps public notices about the “thermal Tests reviewed by the U.S. Food and Drug Administration, which has cleared event” and replaced the faulty devices. the $1,675 speakers for use as a hearing aid, showed the speakers improved Peak Web had its own thermal event: speech cognition among 10 adults with mild to severe hearing loss. Turtle Chapter 11. —Jordan Robertson Beach is mostly selling HyperSounds through health-care providers but has The bottom line Buggy software, particularly in begun putting them on retail shelves. In August, the FDA cleared an add- networking equipment, can leave companies with on feature designed to relieve symptoms of tinnitus. Norris’s next project few ways to fix underlying problems. is a speaker that can be integrated into a TV or computer screen, or a car dashboard, to focus sound on people in front of it. —Caroline Winter Edited by Jeff Muskus

Bloomberg.com BEACH TURTLE COURTESY 731; BY ILLUSTRATIONS LEFT: FROM October 24-25, 2016 Park Hyatt New York

Today’s leaders are facing unique challenges, from Brexit to the U.S. presidential election to global economic instability to technological change.

This October, Bloomberg’s The Year Ahead summit will convene global leaders to discuss the most important trends, risks, and opportunities that every executive will face in 2017—and how they can steer their companies toward growth and success.

Request an invitation: bloomberglive.com Proudly sponsored by: Speakers include: Mark Bertolini Chairman and CEO Aetna Paul Tudor Jones Co-Chairman and Chief Investment Offi cer Tudor Investment Corporation Andrew Liveris Co-Chairman and CEO Offi cial hotel partner: The Dow Chemical Company Anne-Marie Slaughter President and CEO New America Markets/ Finance

September 12 — September 18, 2016

Ten years ago, Steven Sugarman, a former Lehman Brothers investment adviser, co-wrote a book on how to avoid stock losses. One of its top tips: “Beware of companies run by family and friends.” Now, Sugarman is chief executive officer of the fastest-growing publicly traded U.S. bank—a lender raising some of the red flags from his book.Banc of California is paying $100 million for the naming rights on Los Angeles’s new soccer stadium, one of the richest prices in Major League Soccer. Sugarman’s brother is a minority inves- tor in the team, the new Los Angeles Football Club, marking the latest in a series of Banc of California deals involv- ing the CEO’s family and associates. Irvine-based Banc of California is a success story among small banks, many of which have struggled to regain their footing after the global financial crisis. Since 2010 its assets have soared 38 more than tenfold, to $10.2 billion as of midyear, fueled by acquisitions. Tip No. 4 in Sugarman’s book, The Forewarned Investor: “Beware of com- panies that go on buying binges.” At 41, Sugarman is the youngest CEO among the more than 100 U.S. banks with a market value exceeding $1 billion. The bank’s stock has deliv- ered the highest return to shareholders in that group—about 56 percent this year, on top of 32 percent in 2015. The bank has drawn big inves- tors, including Oaktree Capital Management, and counts former Los Angeles Mayor Antonio Villaraigosa as an adviser. And its market- beating returns have come despite misgiv- ings expressed over the years by one of the bank’s biggest shareholders, as well as community activists, over deals benefiting Sugarman’s family and board members. Institutional Shareholder Services, an adviser to investors, praises its auditing but gives the bank’s governance risk the worst grade on its scale. (Tip No. 7: “Listen to the skeptics.”) The bank details related-party trans- Banc of California has a history of related-party deals actions in regulatory filings, and they are vetted by its board. Sugarman says “It’s our backyard, it’s our hometown” such deals are inevitable, because the board and executive team are Built a presence in the Southeast and in New York construction Why Moscow keeps 40 lending adding skyscrapers Expanded with the help of acquisitions Can markets in the cloud prevent the next flash crash? 41

almost never more than “one to two Fastest-Growing U.S. Banks In 2013, Banc of California bought degrees of separation” from leaders Asset growth in the last five years the Palisades Group, a money in Southern California’s business com- manager. Jason Sugarman had started munity. “It’s our backyard, it’s our Banc of California 1,052% hometown, and the return on this BofI Holding 435% investment is something we’re pretty working for Palisades as a consultant Sterling Bancorp 341% excited about,” he says of the stadium a few months before the sale, even- Bank of the Ozarks 327% deal. Any time potential conflicts arise, tually earning more than $1.3 million PacWest Bancorp 310% the bank will “manage them, we’ll from the bank through 2015. The bank Texas Capital 254% make sure they’re done right, and we’ll sold Palisades to its management team Signature Bank 252% make sure there’s full disclosure.” earlier this year. Sugarman had this to say in his book: By mid-2014, some investors were “Disclosure does not cleanse the prob- DATA COMPILED BY BLOOMBERG expressing concern about Banc of lems associated with conflicts of inter- branches, and increased lending. California’s related-party deals with est. It simply alerts investors that there Along the way, it drew accolades for CS Financial and Palisades. Richard may be trouble down the road.” expanding in communities neglected Lashley, a principal at activist investor

A company spokesman says Grew in part by other banks. PL Capital, one of the bank’s largest Sugarman’s brother Jason—one through a But even the California shareholders, sent Sugarman a letter of more than two dozen inves- subsidiary that Reinvestment Coalition, which that June. “I understand that indepen- finances taxi tors in the Los Angeles Football medallions has praised such work, expressed dent members of the board reviewed Club—had no involvement in concerns in 2014 about the bank’s and approved them but the issue is not the stadium deal. Jason Sugarman related-party deals. It cited Banc of mooted by that form because the sub- didn’t respond to messages seeking California buying a business belong- stance, and taint, remains,” Lashley comment. Nor did Jason’s father-in- ing to a onetime board member, wrote. “Related-party transactions law, Hollywood executive Peter Guber, which helped him repay a debt to should be avoided going forward.” 39 a fellow owner who serves as LAFC’s Sugarman’s family, and its purchase Lashley didn’t respond to messages executive chairman. of another business that had recently seeking comment. The soccer club and its partners aim hired Sugarman’s brother. These con- The relationship with Oaktree, the to privately finance the $350 million nections are spelled out in the bank’s private equity firm run by Howard stadium. Banc of California’s periodic reports. Marks, required Banc of California to $100 million contribution, described The first deal began in December make additional disclosures to share- by people with knowledge of the deal, 2012, when the company hired a mort- holders. After the investment firm exceeds the lender’s combined profits gage business run by one of its board took a stake in November 2014, the for 2014 and 2015. The company has members, Jeffrey Seabold, to provide bank extended more than $50 million promised to pay it over 15 years. consulting and training for $100,000 in credit facilities to companies Such transactions, even when dis- a month. The following May, Seabold owned by Oaktree. In 2014 and 2015, closed, should serve as warning signs stepped down from the board and Oaktree also paid Palisades almost for investors when deciding whether joined the bank as a senior executive $10.5 million in management fees. to buy the stock, says William Black, under a contract that gave it an option The firm exited its stake in the bank a former regulator who’s now an eco- to buy his company, CS Financial. during this year’s second quarter, nomics and law professor at the Banc of California exercised theh raccodingr to a regulatory filing. University of Missouri at Kansas City. option several months later for nA nOaktree spokeswoman Sugarman, a former McKinsey con- $10 million. declined to comment. sultant with a degree from Yale Law At the time, Banc of Used copies of The School, left Lehman Brothers in California said Seabold was Forewarned Investor now 2005, helped start a hedge fund, and the majority owner and that sell for a penny on Amazon. wrote his book with a colleague. In Sugarman’s relatives held sIt warnings about compa- 2010 he was part of an investor group a minority stake. The bank niese run by families covered that injected $60 million into First later disclosed that Seabold ainstncesa when CEOs place their PacTrust Bancorp, helping it repay transferred all of the stock kin in senior posts Steven SSgugarman a government bailout. Two years he received in the sale to but also included later, Sugarman became CEO, and Sugarman’s sister-in-law for “repayrepay- relatrelateded- party transactions. The red the company was renamed Banc of ment of a certain debt” owed by CS flags described in the book don’t nec- California soon after. Financial to an entity she controlled. essarily mean something is amiss, it The bank’s balance sheet grew as The sister-in-law, Elizabeth Sugarman, said. “A company could be perfectly it completed acquisitions, expanded is Jason’s wife. She didn’t respond to sound and exhibit one or more of

PATRICK T. FALLON/BLOOMBERG T. PATRICK its securities investments, added an e-mail seeking comment. the traits listed,” Sugarman and his Markets/Finance

co-author wrote. However, “the when foreign tourists are expected to accumulation of danger signs should pour in for the world’s most-watched be taken by investors as an indica- sporting event. The 374-meter (1,227- tion of a heightened level of risk.” foot) Federation Tower, Europe’s tallest —Jennifer Surane, Zeke Faux, and building, will open by yearend. And two Dakin Campbell more skyscrapers in Europe’s top 10 are expected to go up by the first kickoff. The bottom line Banc of California has grown quickly while making transactions some think hit “The government hates that construc- too close to home. tion has dragged on for so long,” says Yulia Nikulicheva, head of strategic consulting at real estate brokerage JLL in Moscow. “Moscow City was always about prestige.” Real Estate Like his communist-era predecessors, Going Vertical Russian President Vladimir Putin has for a 2007 completion before the 2008 a penchant for the grandiose, backing financial crisis made matters worse. At the Kremlin initiatives such as the $50 billion The idea appeared buried for good Sochi Olympics and a 12-mile bridge in 2014, when Russia was slapped dubbed “the project of the century” with sanctions for annexing Crimea Despite soaring vacancies, to link Russia with the Crimean penin- and oil prices collapsed, undermin- Moscow pushes new towers sula annexed from Ukraine. Moscow ing the backbone of the Kremlin’s “The government hates that City, conceived by former Mayor Yuri resource-based economy. It was hoped construction has dragged on” Luzhkov as a global financial center, that foreign banks would want to will eventually have office space for anchor Moscow City. But Deutsche The three tallest skyscrapers in 150,000 workers and about 300,000 Bank, Royal Bank of Scotland, and Europe have all opened since 2013 on square meters (3.2 million square Barclays are all making cuts in Russia. a riverfront site 2.5 miles west of the feet) of apartments. The final price “Wherever possible, developers Kremlin. All that new glass-sheathed could reach $13 billion, according to switched to apartments or downsized 40 space hit the market just as the brokerage CBRE. the projects,” says Konstantin Losiukov, Russian economy tanked and vacan- Moscow authorities say they haven’t a director at brokerage Knight Frank cies for premium offices in the dis- pressured builders and that deci- in Moscow. “But anyone who started trict soared to more than 40 percent. sions regarding construction are being building before the recession was Today, with a recession stretching into made by developers. “The city has already committed.” its sixth quarter and office vacancies only created the foundations for inves- Now state-owned companies and across the city stuck at 20 percent, tors to finish their work,” says Sergei government agencies occupy almost the local government has a simple Kuznetsov, the capital’s chief archi- half the available office space in message for the builders still working tect. “It’s an iconic site, and we need to Moscow City. Oil pipeline monop- at the site: Keep going. finish it, so that it contributes to the city oly Transneft last year purchased The mayor’s office is pushing devel- rather than continues as a problem.” the 55-story Evolution Tower. And the opers to complete the skyline of Imagined as a glittering business mayor’s office and Russia’s second- Moscow City—a district similar to district that would rival the City in biggest bank, VTB Group, bought Paris’s La Défense or London’s Canary London, Moscow City faced setbacks buildings that account for a quarter Wharf—in time for the from the start. Construction delays of Moscow City’s floor space, accord- 2018 FIFA World Cup, shot holes in the original time table ing to Knight Frank. Those deals Digits helped bring down the vacancy spike of two years ago, when tenants were so scarce that a youth hostel took the 43rd floor of the Imperia Tower. Annual rents have plunged to $520 per sq m this year, from $830 in 2014, according to Knight Frank. Still, vacan- cies in Moscow City won’t fall below 10 percent before the end of the decade, JLL estimates. Eight percent is Swiss francs considered a healthy balance between 1,000 supply and demand. Renaissance Development, whose One insurer’s annual price to cover 1 million francs ($1.03 million) in physical cash against Neva Towers will be the final pieces theft or damage. Demand for such insurance has gone up since the Swiss central bank began imposing negative interest rates on some of lenders’ deposits, spurring them to pass charges of Moscow City when completed in on to cash-rich corporate and institutional clients. 2019, has scaled back its vision. The site

was originally planned for a Norman RUDAKOV/BLOOMBERG ANDREY Markets/Finance

Commission has asked exchanges to complaining about potential costs in a help create a massive repository of July letter to the SEC. The SEC has esti- stock and options trading data. mated CAT implementation costs for Tech giants Amazon.com and exchanges and broker-dealers could be Google are bidding to help provide about $2.4 billion. storage for the database through their The Investment Company Institute, cloud-computing services. Some Wall a trade group for fund managers, sent Street companies have been skepti- a letter last month cal of the system, known as the con- outlining its secu- solidated audit trail, or CAT. They’ve rity concerns. cited concerns about cost as well 90 “This treasure Moscow City as the security of the data, which percent trove of order and could include names and addresses for execution informa- 100 million customer accounts as well tion has tremen- Foster building taller than New York’s as trading records. Portion of Finra’s data dous commercial One World Trade Center. But after For tech companies, CAT could that’s been moved to value, and we are the company acquired the land in also be one of the biggest inroads yet the cloud via gravely concerned Amazon’s service 2013, it drew up a more modest pair of into the financial industry. “Their that cyber crimi- towers. Foster is no longer involved. involvement in this project I do think nals and others will The $1.2 billion project will include is a threat to the incumbents,” says seek to access and use it for their per- 60,000 sq m of office space, about a Jo Ann Barefoot, a former official at sonal gain to the detriment of funds and third of the amount in the original the Office of the Comptroller of the their shareholders,” wrote David Blass, plan, with a greater focus on residen- Currency who studies financial tech- general counsel for ICI. Bloomberg LP, tial use, according to Chief Executive nology as a senior fellow at Harvard. which owns Bloomberg Businessweek, Officer Irfan Kaya. “We took a six-month “If big tech firms can win more trust in has also written to the SEC criticizing breather at the end of 2014 to reassess,” Washington, that’s one of the biggest aspects of the plan. he says. “But we never considered challenges facing banks.” The CAT proposal specifies that pulling the plug. In development, it’s Right now the SEC has access to whoever wins the bid must ensure the use it or lose it.” —Jake Rudnitsky trading data, “but it’s labor-intensive security and confidentiality of the data 41 and time-consuming to aggregate,” and agree to use it only for appropriate The bottom line Even though 20 percent of Moscow office space is vacant, the government is says Steve Luparello, director of the surveillance and regulatory activities. pushing developers to top off new skyscrapers. SEC’s division of trading and markets. Spokesmen for the tech companies It often has to be cobbled together declined to comment. from different systems run by the Amazon and Google already hold exchanges and a Wall Street-funded cloud data for other companies, watchdog, the Financial Industry including their own rivals, without Fintech Regulatory Authority (Finra). With having access to it. Peeking at such Putting the Market’s CAT, regulators could see data from data would risk alienating clients in a a day’s orders by noon the follow- fast-growing and crucial business line— History in the Cloud ing day. Luparello says the SEC Amazon’s cloud-computing division expects the initial phase to be oper- delivered 56 percent of the company’s ational by the end of 2017. operating income in the second Amazon and Google vie to help Trading records could be stored quarter of 2016. build a huge archive for the SEC in a cloud—that is, offsite—where The SEC is expected to weigh in on It’s a “treasure trove of order and they would be encrypted and could the CAT plan in November, and the execution information” be accessed remotely by the SEC. exchanges will choose the winner by Financial technology company January. Steve Randich, Finra’s chief Trying to understand what causes flash Fidelity National Information information officer, says Wall Street crashes is no longer a challenge only Services has joined with Google to companies have been asking for infor- for financial regulators and Wall Street. vie for the CAT contract. Amazon mation on how Finra outsourced It’s a big deal in Silicon Valley, too. is working on a bid in conjunc- its data. He says the move cut costs On the afternoon of May 6, 2010, tion with Finra. The regulator has while bolstering security. “There U.S. stocks lost almost $1 trillion in already used Amazon to migrate is resistance,” Randich says, “but value within minutes, and then within 90 percent of its data, such as bro- it is fading.” —Benjamin Bain and minutes made up much of the loss. kerage transaction records, to the Elizabeth Dexheimer Years later the debate over how to cloud. A third contender is led by The bottom line The SEC is creating a database avoid a repeat of the so-called Crash Thesys Technologies. to help it look back at unusual market events. Two of 2:45 rages on. To make it easier to Lobbying over CAT has mounted, tech giants want a piece of that business. go back and find clues about poten- with the Securities Industry and tial future short circuits in the market, Financial Markets Association, which Edited by Pat Regnier and David Rocks the U.S. Securities and Exchange represents the biggest broker-dealers, Bloomberg.com DEBRIEF ‘We are ready to work with any

If someone says that they want to work

42

Photographs by Jeremy Liebman president.

Russian President Vladimir Putin on the future of Europe, why he’s bullish on Gazprom, and the coming U.S. election

with Russia, we’ll welcome it’ DEBRIEF

On Sept. 1, in the Siberian port city of Vladivostok, Russian You know, I don’t want to respond to your provocative ques- President Vladimir Putin discussed a wide array of issues tion, even though I understand that it could be interesting. with Bloomberg Editor-in-Chief John Micklethwait. The two- Come on—many, many times you’ve criticized Europe. hour interview ranged from islands disputed with Japan to I’ve been critical, but I’ll repeat: We hold 40 percent of the price of petroleum and the vicissitudes of Gazprom, our reserves in euros, and it’s not in our interest for the euro the immense state-owned enterprise that supplies natural zone to collapse. Although I don’t rule out that there could gas not only to his country but to much of Europe. Putin, be some decisions made that would consolidate a group the longest-ruling Russian leader since Leonid Brezhnev, of countries with equal levels of development and thereby, weighed in on the U.S. election, as well as his relationship with in my opinion, strengthening the euro. But there might be Turkey’s Recep Tayyip Erdogan and Syria’s Bashar al-Assad. some other interim decisions in order to preserve the current Here are excerpts from their conversation. number of euro zone members. We have criticized many things and believe that our part- John Micklethwait: There seems to be the beginnings of a ners have made more than a few mistakes, as probably we political deal with Japan where you might give up one of the have, too. Nobody is safe from these mistakes, but in regards Kuril Islands in exchange for greater economic cooperation. to the economy, I’ll say it again: In my opinion, the European Are you open to a deal of that sort? Commission and the leading economies of Europe are acting Vladimir Putin: We don’t trade in territories, although the pragmatically and are on the right track. problem of a peace treaty with Japan is, of course, a key one. Russia used to have $500 billion in reserves. It is now And we would very much like to find a solution to this problem down to $400 billion. You have this target to go back up to with our Japanese friends. We had a treaty signed in 1956, and, $500 billion. Should the central bank be buying more dollars surprisingly, it was ratified both by the Supreme Soviet of the to push the reserves back up? USSR and by the Japanese Parliament, but then the Japanese You and I know about the necessary amount of central bank side refused to adhere to it, and then the Soviet Union basically reserves, and the target is well-known. But for the general public, nullified all the agreements within this treaty. we can say that the point of the central bank’s gold and foreign- Several years ago, our Japanese colleagues asked us to currency reserves isn’t to finance the economy but to ensure return to a discussion of this topic. And we did, we met them foreign trade. And for that we need a level that’s sufficient to partway. … We’re not talking about some swap or sale, support foreign trade of a country the size of Russia for at least three months. But we have such a level that we’re not only able we’re talking to safeguard our foreign trade, but also stop working and live off the reserves for, at minimum, half a year, if not more. So that’s about finding a more than enough. From the viewpoint of safeguarding sta- bility of the economy and foreign trade, we absolutely have 44 solution where neither party would feel enough gold and foreign-currency reserves. And every- thing else—the buying and selling of currency—is related to the regulation of the domestic-currency market. How the central defeated or a loser. bank reacts to this, and whether it will lead to an increase in Do you expect the euro to survive? the reserves, is so far difficult to say. I hope so. I hope so because, first of all, we believe in the Almost two years ago you said that if crude oil fell below foundations of the European economy. We see that west $80 a barrel, there would be a collapse in oil production. Well, European leaders in general—there are disagreements, of the price is still below $50, and production hasn’t stopped. course, which is understandable, that we see, observe, analyze— Has your thinking changed on that at all? but they stick to very pragmatic approaches to resolving eco- Well, if I said that oil output would cease, then I was mis- nomic issues. We can’t say whether they’re right or wrong. It taken. … I said that new deposits probably wouldn’t be com- depends on your perspective. They don’t missioned at a certain oil price. Strictly misuse financial instruments or liquid- Less Bang speaking, that is what happened. ity. They primarily strive for structural Oil and gas rents* as a percentage of GDP 50% But perhaps even surprisingly, our changes. In fact, the same problems are oil and gas companies, mainly the oil no less acute in our economy, perhaps companies, are continuing to invest. In Russia even more so. I’m referring to a problem 40% the past year, the oil companies have that we can’t overcome, specifically the invested 1.5 trillion rubles [$23.3 billion], dominant role of the oil and gas sector in and if you take the state’s investment Russia and, as a result, our dependence 30% in the pipeline network and electricity on oil and gas revenue. But in Europe, sector, then the overall investment in without dependence on oil and gas, energy is 3.5 trillion rubles in the past 20% they’ve also needed structural reforms year. That’s quite significant. for a long time. I think that the leading By the way, we are the world’s leader Middle East and North Africa economies have taken a very pragmatic 10% in terms of natural gas exports, with a and intelligent approach to resolving global share of about 20 percent. In the the economic problems facing Europe. export of liquid hydrocarbons, we’re also World That’s why we hold about 40 percent of 0 among the leaders. We’ve been first in our reserves in euros. 1999 OECD member states 2014 liquid hydrocarbon exports. … On the You expect Europe to keep the existing whole, Gazprom is in great shape and membership? They’re not going to lose *RENTS ARE THE DIFFERENCE BETWEEN THE VALUE OF OIL AND GAS AT WORLD is increasing exports to its traditional PRICES AND TOTAL COSTS OF PRODUCTION; DATA: WORLD BANK another country like they lost Britain? partner countries. Would you still be in favor of a production freeze if the Saudis I would like to work with a person who can be accountable for and Deputy Crown Prince Mohammed bin Salman want that? decisions made and implement any agreements that we reach. He is a very energetic statesman, and we really have struck Surnames don’t matter at all. Of course, that person must enjoy up a friendly relationship. This is a man who knows what he the trust of the American people, so that they won’t just have wants and knows how to achieve his goals. But at the same the desire but also the reinforced political will to fulfill all those time, I consider him a very reliable partner with whom you can agreements. That’s why we never interfered, aren’t interfer- reach agreements and can be certain that those agreements ing, and don’t plan to interfere in domestic political processes. will be honored. Can I just push you on that? You’re really telling me that if But still, we weren’t the ones who rejected the idea of freez- you have a choice between a woman, whom you think may ing output levels. It was our Saudi partners who, at the last have been trying to get rid of you, and a man, who seems moment, changed their view and decided to take a pause in to have this great sort of affection for you, almost border- taking this decision. But I want to repeat: Our position hasn’t ing on the homoerotic, you’re not going to make a decision changed, and if Prince Salman and I speak about this, then I between those two? shall, of course, put forward our position again. We believe that You know, I essentially already answered your question. I’ll this is the right decision for world energy. That’s the first thing. reformulate it again, say it in different words. We are ready to The second thing is that everyone knows what the dispute was work with any president, but, of course—I also said this—to about. The dispute was that if production were to be frozen, the extent that the future administration is ready. If someone then everyone should do it, including Iran. But we understand says that they want to work with Russia, we’ll welcome it. And if that Iran is starting from a very low level, related to the well- someone, as you said—although it may be an inaccurate trans- known sanctions against this country. It would be unfair to leave lation—wants to get rid of us, that will be a completely differ- it at this sanctioned level. I think that from the viewpoint of eco- ent approach. But we will survive it, and it’s not clear who has nomic sense and logic, then it would be correct to find some more to lose with that approach. sort of compromise. I am confident that everyone understands But the thing is, I’ve repeatedly seen the anti-Russian card that. The issue isn’t economic, it’s political. played during domestic political campaigns in the States. I think Gazprom is worth less than a fifth of what it was 10 years that it’s a very shortsighted approach. At the same time, they ago, and it’s fallen from being among the top 10 companies send us all sorts of signals from all sides that actually things in the world to 198th. And you’ve had the same manager are just fine. … It seems to me that it doesn’t fully meet the level running it for 15 years, Alexei Miller. You’ve now given him of responsibility that lies on the shoulders of the U.S. I think another five-year contract. What I’m saying is, you’re not as that all this should be more dignified, calm, and more balanced. tough on businesspeople who are running the oil side as you As for the fact that someone is criticizing us, you know, crit- might be on other people. icism is leveled at us by Mr. Trump’s team as well. For example, Listen, Gazprom is clearly undervalued. This is an absolutely one of the members of his team said that we paid, that Russia 45 obvious fact. We have no plan to sell it yet. And this is because of allegedly paid money to the Clinton family via some foundations. the peculiarities of the Russian economy, the social sphere, and What’s that? Does that mean that we control the Clinton family? Russian energy. Gazprom is part of Russia’s power system. One It’s complete nonsense. I don’t even know where Bill spoke and of Gazprom’s functions is to ensure the country gets through through which funds. So both one side and the other are using the peak periods of autumn and winter, to supply Russia’s big it as a tool, using it as a tool in a domestic political struggle, and power companies. And it fulfills this function. that’s bad, in my opinion. Of course, there are issues and there are problems. We see The other accusation you’ve faced, or heard a lot, is people them. I know that Gazprom’s management is taking the nec- connected with Russia or backed by Russia were the people essary steps in order to resolve these issues and that it fights who hacked into the Democratic Party database. for its interests on world markets. Does it do it well? Poorly? No, I don’t know anything about that. You know how many That’s another question. hackers there are today, and they act so delicately and pre- Many criticize it, they say that it needed to be more flexi- cisely that they can leave their mark at the necessary time and ble, that it should have switched to a floating price depending place or even not their own mark, camouflaging their activity as on the current state of the economy, but the gas business is that of some other hackers from other territories or countries? very specific. It’s not even like trading oil. It’s a separate busi- It’s an extremely difficult thing to check, if it’s even possible to ness that’s linked to big investments in output and transpor- check. At any rate, we definitely don’t do this at the state level. tation, and this means that producing structures must be sure And then, listen, that they can sell at a certain price. I know you’re a generous man, but if you had a general who does it even matter had lost 80 percent of his army, you might not keep him as a general. Gazprom still has the export monopoly. You wouldn’t think of taking it away from them, given that performance, who hacked because it’s worse than other gas companies? Listen, that’s a different story. If we were talking about a general, then the general in this case has lost nothing, he’s sent troops into reserves, which can be called back at any moment this data from the campaign headquarters of and put to use. There is an American election on the way, and as you well Mrs. Clinton? know there’s a choice between Hillary Clinton and Donald Trump. Who would you rather have at the other end of the Is that really important? The important thing is the content telephone if there is a geopolitical situation—Donald Trump that was given to the public. There should be a discus- or Hillary Clinton? sion about this, and there’s no need to distract the public’s DEBRIEF

in its market value. “This absolutely doesn’t worry or bother us,” Putin says Putin Grooms a New of the market plunge. “We know what Gazprom is, what it’s worth, and what it Generation of Leaders will be worth in the coming years.” Putin put Miller, an associate from the 1990s The Russian president is removing old allies in St. Petersburg, in as chief executive and replacing them with young loyalists, likely officer in 2001. The new generation is steeped in ensuring his leadership will continue until 2024 the state-controlled system that Putin has built. While some of his contem- After 16 years in charge, Vladimir Putin become known for his repeated appeals poraries might have had the stature to is shaking up his team to cement his for more government aid. The remov- challenge the president in private, the control into the next decade. The als picked up this year, with longtime younger officials owe their entire careers 63-year-old leader is pushing aside some aide Viktor Ivanov, 66, removed in the to him. That bodes ill for the overhauls longtime allies and grooming young lieu- spring as head of the antidrug police. that could jump-start the economy— tenants—many of whom share his back- Sergei Ivanov (no relation), a 63-year-old loosening state control, stimulating ground in the security services and aren’t whose ties to Putin go back decades to private business, and cutting wasteful old enough to have worked under any the Soviet KGB, was dropped as Kremlin government spending. Putin has long other leader—to form a new generation chief of staff in August. resisted such steps in practice, despite of Kremlin leadership. One of them could “There’s almost no one left from embracing them in public statements. even become his successor one day. the original politburo,” says Olga Putin points to signs the worst of the In his interview with Bloomberg, Putin Kryshtanovskaya, a specialist on the recession is over. He also hints that state wouldn’t admit he’s planning to run for Kremlin elite at the Russian Academy oil major Rosneft might be allowed to bid another six-year term in 2018 (almost of Sciences. “The demands for effi- for a smaller rival in a planned privati- everyone in Moscow’s political estab- ciency are now higher. The survival of the zation auction, something pro-market lishment believes he will), but he made system is at stake,” says Alexei Makarkin, officials argue would only reinforce clear he’s settling in for the long haul. deputy head of the Center for Political government control. He’s already ordered top advisers to Technologies, a Moscow political consul- That’s the kind of decision that come up with a program for his next tancy. Putin’s “goal is to preserve his rule explains why many forecasters say the term. Key attributes for a potential suc- for the long term, relying on new people best Russia can hope for in the next 46 cessor when the time comes? “A young and new blood,” he says. few years is annual growth of about person” but a “mature person,” was as He’s been elevating younger officials, 1.5 percent, not enough to keep it in far as he would go. many who began their careers when he the top ranks of world powers. Former After two years of plunging oil prices was already president. The new Kremlin Finance Minister Alexei Kudrin, still a and economic pain that have barely chief of staff, Anton Vaino, 44, started out Putin adviser, warned last year that con- dented his popularity rating of more than as a low-level protocol official in 2002. tinued stagnation would shrink Russia’s 80 percent, Putin sees stability, not stag- Some ex-bodyguards have been installed share of world output to the lowest in nation. He sharply rejects the idea that as regional governors to give them a more than two decades, erasing the his bold moves outside Russia—like the chance to build political experience. gains made under Putin. military foray in Syria and the annexation One, Alexei Dyumin, 44, spent years For the moment, that doesn’t seem to of Crimea —are at odds with his reluc- at the president’s side ready to take a be a threat to his continued rule. While tance to make the changes at home bullet to save him. Now, some aides say poll ratings for his government and that even his advisers say are needed Putin and Dyumin have a special bond, the ruling party have dropped despite to get the economy back on track. “On that the president sees him as among the Kremlin’s tight control over critical the whole, we’re moving in the right direc- the most trusted and loyal, putting him media coverage and political debate, tion,” he says. on the political fast track soon after he Putin’s dominance remains unchallenged. The next decade will be harder in served a few months as deputy defense “Putin’s leadership is undisputed,” says many ways than Putin’s first, when minister. Asked about the promotions of Evgeny Minchenko, a Moscow political surging oil prices helped him almost Dyumin and other security service vet- consultant. With no signs of major health double the size of the economy, drive up erans, Putin says, “The most important problems or serious political threats, living standards, and centralize Kremlin thing is that the right person wants to Putin will be able “to stay in charge of control. Even before Western sanc- grow, is capable of growing, and wants the country for a long time,” he says. tions and falling crude prices knocked to serve the country. If he wants it, and Reelection in 2018 would mean Russia into recession last year, growth I can see that the person has potential, Putin breaks the postwar record for had begun to stall. then why not let him work?” years in power set by Soviet leader Now the pressure to stretch every Putin isn’t purging his entire inner Leonid Brezhnev—whose rule epito- kopeck has become intense. Putin, long circle just yet, of course. Several long- mized stagnation for many Russians— known for standing by his closest allies, time allies remain in top jobs, and at least and puts the issue of succession off until has begun pushing some old-timers out. one was recently promoted. Putin has the end of the next presidential term, in First to go was Vladimir Yakunin, 68, in nothing but praise for Alexei Miller, 54, 2024. —Ilya Arkhipov, Henry Meyer, and August 2015. As head of the national rail- who as head of state gas giant Gazprom Gregory L. White, with Torrey Clark and ways, the country’s largest employer, he’d has presided over an 80 percent drop Stepan Kravchenko attention from the essence of the problem by raising some in NATO? About 600 million, correct? There are 146 million side issues connected with the search for who did it. in Russia. Yes, we’re the biggest nuclear power. But And to be honest, I couldn’t even imagine that this sort of information is interesting to American society—specifically that the campaign headquarters worked in the interests of do you one of the candidates, in this case Mrs. Clinton, rather than equally for all of the Democratic Party candidates. It would simply not even occur to me that this could be interesting really think that we’re about to to anyone. Turkey recently sent troops into Syria, and you did not protest too loudly. Do you think Turkey has now moved conquer closer to your idea that the future of Syria has to involve President Assad staying in some way, or have you changed the Baltics your mind about President Erdogan? A little bit ago, you were complaining that you were stabbed in the back and using about the problems to do with the jet being shot down. First off, we’re operating on the basis that Turkey apol- ogized for the incident that took place and for the death of our people. It did it directly, without any reservations, and we value that. President Erdogan took this step. We see a nuclear weapons? clear interest on the part of Turkey’s president in restoring full-scale relations with Russia. What is this madness? That’s the first point, but by no means We have many common interests in the Black Sea region, the main point. and more globally and in the Middle East. We very much The main point is something completely different. We have expect that we’ll be able to establish a constructive dialogue. a very rich political experience, which consists of our being We have many big projects, including Turkish Stream [a pro- deeply convinced that you cannot do anything against the will posed gas pipeline from southern Russia across the Black of the people. Nothing against the will of the people can be Sea to Turkey] in the energy sector. done. And some of our partners don’t appear to understand this. We have a large project to build a nuclear power station When they remember Crimea, they try not to notice that the will on unique terms. They consist of several elements: We will of the people living in Crimea—where 70 percent of them are finance, own, and operate it. … This will be an economically ethnic Russians and the rest speak Russian as if it’s their native beneficial project for both sides. language—was to join Russia. They simply try not to see this. 47 In addition to everything else, as I already said, we have In one place, Kosovo, you can use the will of the people, but a mutual desire to come to an agreement about the region’s not here. This is all a political game. So, to give reassurances, I problems, including the Syrian one. I continue to believe that can say that Russia has pursued and plans to pursue an abso- nothing can be decided externally about the political regime lutely peaceful foreign policy directed toward cooperation. or a change of power. When I hear someone saying that As far as expanding our zone of influence is concerned, it some president must go, not domestically but externally, it took me nine hours to fly to Vladivostok from Moscow. This raises major questions for me. … I get this confidence from is a little less than from Moscow to New York, through all of the events of the last decade, specifically the attempts at Western Europe and the Atlantic Ocean. Do you think we need democratizing Iraq and attempts at democratizing Libya. to expand something? We see that in fact led to the collapse of the state and the Do you think Russia is getting easier to run or harder? growth of terrorism. Simpler than when? Compared to Ivan the Terrible’s time, It’s the same with Syria. When we hear Nicholas II’s, Brezhnev’s, Khrushchev’s? that Assad should go for some reason Energy-Dependent In your time. someone peripheral thinks so, I have a big Share of Russian federal revenue from oil and gas I think it’s more complicated because, question: What will it lead to? Will it be in 50% despite all the criticism of our Western line with international legal standards, and partners, our domestic democratic what will it lead to? Wouldn’t it be better process is developing. Significantly to be patient and facilitate changes to the 40% more parties are going to take part in structure of the society itself, to muster these elections than in previous years, this patience, allowing changes to the and this will obviously leave its mark on structure of the society, waiting for when 30% the course and result of the campaign. these changes happen naturally within There is a practical dimension. We now the country? see that the polling of our leading polit- 20% I think the root of Western distrust is the ical force—the United Russia party—slid idea that you want to expand Russian a little. … Clearly, it’s the start of a pro- influence, in some cases geographically. 10% active election campaign. And the large I think all sober-minded people who number of parties that are now taking really are involved in politics under- part in the election process, they are all stand that the idea of a Russian threat 0 on the television screens, in the media to, for example, the Baltics is com- ’06 ’15 and the papers. … They look great on the plete madness. Are we really about television, they criticize and pour to fight NATO? How many people live DATA: RUSSIAN FINANCE MINISTRY scorn on the representatives of DEBRIEF Changing of the Guard OUT IN

Vladimir Sergei Viktor Anton Vaino, 44 Alexei Dmitry Yakunin, 68 Ivanov, 63 Ivanov, 66 Started work Dyumin, 44 Mironov, 47 Former intelli- Former Soviet- Former Soviet-era in Kremlin in Putin bodyguard Former Soviet- gence officer and era KGB col- KGB colleague of Putin’s first term. promoted last era KGB officer close Putin friend league of Putin’s Putin’s was a top Replaced Sergei year to deputy served in intelli- since the 1990s. once seen as a Kremlin official Ivanov as head defense minister. gence until 2013. Removed in 2015 potential succes- from 2000-08. of presidential Made acting gov- Named acting as head of the sor. Ousted as Removed as administration. ernor of central governor of national railways. Kremlin chief of antidrug chief Tula region in central Yaroslavl staff in August. in April. February. region in July.

the ruling party. But they don’t say if they are ready to take whether the country is large or small. It’s a question of how you responsibility for taking some not very popular, but ultimately relate to the work, to what extent you feel responsible for it. necessary, decisions. Russia is also hard to govern. Russia is at the development Are you envious of the Chinese, who don’t have to go through stage of both its political system and the creation of these elections? a market-based economy. It’s a complicated process, There is a different political system in China, and it’s a dif- but very interesting. Russia, actually, is not just a large ferent country. I don’t think you’d like to see 1.5 billion people country, it’s a great country. I mean its traditions and its sense some sort of a disorder in their society and in their gov- cultural particularities. ernment. So let’s give the Chinese the right and the possibil- Yes, there are particularities and traditions in the political 48 ity to decide how to organize their country and their society. sphere. Why hide it? We all well know that we had an absolute Russia is a different country. We have different processes, a monarchy, and then almost immediately the communist period political system that’s at a different level of development. … It’s began. The base broadened a bit, but to a certain degree becoming more complex. In fact, that only makes me happy, the country’s leadership became even harsher. It was only in and I’d like for the system to become stronger so that we have the 1990s that we moved toward building a completely dif- a balance in our political system that would allow it to be always ferent system of domestic politics, a multiparty system, and in an effective state and aimed at development. that’s also a difficult, ambiguous process. You can’t skip over People might say there are two ways in which Russia is very steps of it. You need the public to get used to it so that they difficult to rule. One is it’s a very personal system, where felt their own responsibility when going to vote. So that they many people vote for you rather than for your party. And the don’t put their faith in populist decisions or reasoning, or one other reason is that Russia is still a fairly lawless place. You group of candidates that’s just bashing another group. The have things like the murder of politician public needs to carefully analyze what’s Boris Nemtsov, which I know you con- Ruble Down, But Not Out being proposed by the candidates. That demned and you have brought people Russian foreign reserves goes for elections to Parliament, and it in, but the mastermind is still being $600b goes for presidential elections. sought. Is Russia a very, very hard place You look around the world at the

to govern at the moment? $500b moment. There are so many countries Any country is hard to govern, believe that become dynasties—the Clintons, me. Do you think the U.S. is easy to the Bushes in America. You have chil- govern? Is it easy to solve what would $400b dren you’ve successfully kept out of seem to be simple tasks, such as, say, 0.03295 the public eye. Would you ever want Guantánamo? President Obama said $300b your daughters to go into politics? in his first term that he would close U.S. dollars I don’t think I have the right to wish Guantánamo, but it’s still open. Doesn’t per ruble something for them. They’re young but $200b he want to close it? Of course he does. already adults. They should determine I’m certain that he wants to. But a thou- their futures themselves. On the whole, sand things come up that don’t let him $100b to the extent I see it, they’ve already completely settle the matter. Speaking 0.01524 made those choices. They’re doing of which, that’s actually bad, but that’s 0 science and some other things that are another topic. 1/4/2013 8/5/2016 absolutely noble and needed by people. Any country is hard to govern, even a They feel needed, they get joy from their DATA: BLOOMBERG

very small country. It’s not a question of work, and that makes me very happy. (6) GETTY IMAGES

Cruising Through the Apocalypse Come aboard. Now that the Arctic ice is vanishing, let’s sail the once-impen

On Aug. 16, the Crystal Serenity set out from Seward, Alaska, carrying 1,700 passengers and crew, and escorted by a comparatively minuscule, 1,800- ton icebreaker. She circled west and north around the Alaska Peninsula and through the Bering Strait before heading east into the maze of straits and sounds that constitute the Northwest Passage. For centuries, explorers tried to estab- lish a sea route here between Europe and Asia. Many met with ruin. A few stranded sailors famously ate their boots—and each other. When the Crystal Serenity emerged free and clear of the maze on Sept. 5, there were no accounts of scurvy or cannibalism, only tales of bingeing on themed buffets and grum- bles from shutterbugs about the Arctic’s monotonous landscape. Operated by Crystal Cruises, the Serenity became on that day the first passenger liner to successfully ply the 50 Northwest Passage. As climate change melts Arctic sea ice twice as fast as models predicted, more and larger ships have made their way along these fatal shores. In 2013, the Nordic Orion was the first bulk cargo carrier to transit the Passage, hauling a load of coal. Rates on the Serenity started at around $22,000 per person. For that, passengers were anointed, by Slate, “the world’s worst people”—for venturing into a vul- nerable ecosystem in a diesel-burning, 69,000-ton behemoth. Canada’s National Post described the cruise as an “invasion” of indigenous communities. Britain’s Telegraph hinted at Titanic hubris, asking, Is this “the world’s most danger- ous cruise”? As for the Arctic villages the Serenity visited, they were, depending on whom you ask, either overwhelmed or over- joyed by the ship’s hordes of curious, wealthy strangers. The communities staged dances, hawked arts and crafts, and expressed hope that the Crystal Serenity reaches New York safely on Sept. 16. Assuming it does, Crystal Cruises plans to offer the route again next year, departing Anchorage on Aug. 15. Edie Rodriguez, the compa- ny’s chief executive officer, said that a few passengers have already rebooked. —Eva Holland  Photographs by Katie Orlinsky etrable Northwest Passage

51

After five days at sea, the ship dockedin Ulukhaktok in Northwest Territories, Canada. Crystal Cruises passengers on the shuttle to Nome, Alaska, for a visit. 52

Ventriloquist Mark Merchant and Jose Diego, the bald eagle, chat with cruisers outside one of the ship’s auditoriums. With no venue in Ulukhaktok large enough for 1,000 tourists, community members went aboard the Serenity to perform traditional dances in the main theater. They met with their fans afterward. 53

Poolside as the ship passes Canada’s Smoking Hills, where oil shale cliffs auto-ignite and have burned for centuries. 54 55

For Crystal Cruises’ Northwest Passage historic first, penthouse berths entw for $44,000 and up. “It was quite a home run all around,” CEO Rodriguez said. Calculating prices in the Hubert jewelry shop, one of the stores on board. 56

An Ulukhaktok elder welcoming committee. Because the Bering, Beaufort, and Chukchi seas freeze, there are few docks or wharves even where there are settlements. Visitors must be prepared for “wet landings” by Zodiac. 57

Sitting roughly 120 miles from the top of the world.

Scientists at the biggest U.S. oil company understood as early as anyone that fossil fuel emissions were heating up the earth’s atmosphere. Can it be found liable for misleading the public since?

By Paul M. Barrett and Matthew Philips Environmentalist Bill McKibben: Exxon “helped Last fall, ExxonMobil executives hurried along the organize the most consequential hushed, art-filled halls of the company’s Irving, Texas, headquarters, a 178-acre suburban complex lie in human history” some employees facetiously call “the Death Star,” to Stoked by 40 of the nation’s best-known environ- a series of emergency strategy meetings. The world’s mental and liberal social-justice groups—including the largest oil explorer by market value had been hit by Environmental Defense Fund, Sierra Club, and Natural a pair of multipart investigations by InsideClimate Resources Defense Council—the anti-Exxon animus only News and the Los Angeles Times. Both reported that as early as intensified. And if there wasn’t a coordi nated campaign before, the 1970s, the company understood more about climate change now there was: The groups all signed an Oct. 30 letter to Lynch than it had let on and had deliberately misled the public about it. also demanding a racketeering probe. (Lynch has since asked the One of Exxon’s senior scientists noted in 1977—11 years before a FBI to examine whether the federal government should under- NASA scientist sounded the alarm about global warming during take such an investigation.) The same day, Lieu and DeSaulnier congressional testimony—that “the most likely manner in which tried to interest the Securities and Exchange Commission in a mankind is influencing the global climate is through carbon fraud probe against Exxon, a request that’s pending. Five days dioxide release from the burning of fossil fuels.” later, on Nov. 4, New York Attorney General Eric Schneiderman The two exposés predictably sparked waves of inter- opened a formal investigation into whether Exxon had misled net outrage, some mainstream media moralizing, and the investors and regulators about climate change. Twitter hashtag #ExxonKnew. The Washington Post editorial “We cannot continue to allow the fossil fuel industry to page, for one, chided Exxon for “a discouraging example of treat our atmosphere like an open sewer or mislead the public corporate irresponsibility.” Bill McKibben, the founder of the about the impact they have on the health of our people and the health of our planet,” former Exxon scientist James Black (in 1977): “The most likely Vice President Al Gore said at a subsequent news conference organized by Schneiderman. manner in which mankind is Compelled by the New York AG’s subpoena, Exxon has so far influencing the global climate is turned over some 1 million pages of internal documents. through carbon dioxide release Hours after Schneiderman issued his subpoena, Exxon Chief from the burning of fossil fuels” Executive Officer Rex Tillerson 60 went on Fox Business Network. environmental group 350.org, which spearheaded protests “The charges are pretty unfounded, without any substance at against the Keystone XL pipeline, wrote an impassioned article all,” he said. “And they’re dealing with a period of time that in the Guardian accusing Exxon of having “helped organize happened decades ago, so there’s a lot I could say about it. I’m the most consequential lie in human history.” not sure how helpful it would be for me to talk about it.” These AR/REUTERS; (CLINTON) MELINA MARA/GETTY IMAGES MARA/GETTY MELINA (CLINTON) AR/REUTERS; Kenneth Cohen, then the company’s vice president for remarks themselves weren’t terribly helpful—certainly not to public and government affairs, convened near-daily meetings Tillerson’s company. to form a response. “We all sat around the table and said, ‘This McCarron and her colleagues can sound a tad overwrought feels very orchestrated,’ ” says Suzanne McCarron, who suc- when discussing all this. “The goal of the coordinated campaign ceeded Cohen when he retired at the end of last year. McCarron is to delegitimize the company by misrepresenting our history of still seems shocked that her company could come under sus- climate research,” she says. “Tackling the risk of climate change tained attack. “We wanted to know who’s behind this thing,” is going to take a lot of smart people, and we’ve got some of the she says. While Exxon tried to identify its new nemesis—made best minds in the business working on this challenge.” difficult, perhaps, by the release of the two reports being coin- A company that has 73,500 employees and reported cidental—the executives also decided to nitpick the journal- $269 billion in 2015 revenue would seem not to have much to ism and sent lobbyists to Capitol Hill to argue their side. That fear from a bunch of tree-huggers and a grandstanding state didn’t go so well. “I couldn’t get any journalist to actually eval- AG. And yet the #ExxonKnew backlash comes at a financially uate the coverage,” Exxon spokesman Alan Jeffers says, with perilous time for Big Oil. A glut-driven collapse in crude prices evident frustration. has rocked the entire industry. On July 29, Exxon announced The crisis might have died down, a week or two of bad PR second-quarter profit of $1.7 billion, its worst result in 17 years. and nothing more, but several politicians saw an opening. That followed a rocky spring when ferocious wildfires reduced On Oct. 14, four weeks after the firstInsideClimate report, production in the oil-sands region of western Canada. (The Democratic Representatives Ted Lieu and Mark DeSaulnier, frequency and intensity of such fires may be related to climate both from California, asked U.S. Attorney General Loretta Lynch change, Exxon’s Jeffers acknowledges, adding, “But we just to launch a federal racketeering investigation of Exxon. “It don’t know.”) occurred to me that this looks like what hap- pened with the tobacco companies a decade Democratic presidential candidate Hillary Clinton: ago,” Lieu says. Democratic presidential can- didate Hillary Clinton added her support for a “There’s a lot of Department of Justice inquiry. “There’s a lot of evidence that they [Exxon] misled people,” she evidence that they said two weeks later. [Exxon] misled people” CLOCKWISE FROM TOP LEFT: (MCKIBBEN) DAVID WOLFF-PATRICK/GETTY IMAGES; (TILLERSON) CHRIS RATCLIFFE/BLOOMBERG; (RAYMOND) MIKE SEG MIKE (RAYMOND) RATCLIFFE/BLOOMBERG; CHRIS (TILLERSON) IMAGES; WOLFF-PATRICK/GETTY DAVID (MCKIBBEN) LEFT: TOP FROM CLOCKWISE Exxon CEO Rex Tillerson: “The charges are pretty Most important, though, #ExxonKnew comes as climate change, after being on a legislative back unfounded, without any substance at all. burner, has gotten hot again. Signs of this include And they’re dealing with a period of time President Obama’s rejection last November of the Keystone pipeline from western Canada, the Paris that happened decades ago. … summit in December that produced an interna- I’m not sure how helpful it would be for tional agreement to lower greenhouse gas emis- me to talk about it” sions, and the U.S.-China plan, finalized on Sept. 3, committing the world’s two largest economies to implement general might have substantial success in bringing key internal the Paris accords. It’s too soon to say how much of a danger documents to light.” Schneiderman’s investigation poses to Exxon or if the corpo- Several more years passed before a passel of climate docu- ration will ever be charged billions of dollars for carbon pollu- ments surfaced, not courtesy of a prosecutor’s subpoena, but tion. But it can’t ignore the risk of the sort of litigation storm that as a result of journalistic digging: those reports in InsideClimate engulfed Big Tobacco in the 1990s. ExxonMobil doesn’t want to (21,000 words in length) and the Los Angeles Times. The two become the Philip Morris of climate liability. organizations reported that after accumulating climate knowl- edge for a decade or so, Exxon changed course beginning in #ExxonKnew has taken shape over the past year, but Peter the late 1980s, just as public debate over greenhouse gas emis- Frumhoff traces its roots to January 2007. That’s when the Union sions heated up. of Concerned Scientists, a Cambridge, Mass.-based nonprofit, By the 1990s, top Exxon executives were publicly raising published a 64-page report alleging that Exxon used the cigarette doubts about the sorts of findings the company’s own scientists industry’s tactics to “manufacture uncertainty on climate had made. In October 1997, Lee Raymond, then Exxon’s CEO, change.” Founded in 1969 by physicists worried about nuclear said in a speech in Beijing, “Let’s agree there’s a lot we really issues, the UCS has branched out over the years. Frumhoff, a don’t know about how climate will change in the 21st century 59-year-old Ph.D. ecologist, serves as its director for science and beyond.” Arguing against the 1997 Kyoto Protocol, an early and policy. He dresses in grad-school casual and seems highly attempt to forge an international agreement on emission reduc- amused by Exxon’s notion that he’s a central player in a con- tions, he added, “It is highly unlikely that the temperature in the spiracy against the company. For starters, Frumhoff is a snap middle of the next century will be significantly affected whether to track down and operates quite openly—violations of the con- policies are enacted now or 20 years from now.” spirator’s imperative to plot in secret. Working separately from InsideClimate, the Los Angeles Times The 2007 report, which Frumhoff oversaw, compared Exxon showed how Exxon incorporated climate change projections into to cigarette manufacturers that only five months earlier had its Arctic exploration plans in the 1990s while publicly under- been found liable by a U.S. district judge for violating the federal mining such projections. Racketeer Influenced and Corrupt Organizations Act (RICO). The overlapping investigative journalism efforts appeared 61 “ExxonMobil has underwritten the most sophisticated and suc- as delegations from countries around the world were getting cessful disinformation campaign since Big Tobacco misled the ready for the December climate talks in Paris. On the sidelines public about the incontrovertible scientific evidence linking of the Paris summit, McKibben, the author-activist, co-hosted smoking to lung cancer and heart disease,” the report asserted. a mock trial of Exxon in which he served as a prosecutor. “This With a relatively modest expenditure of $16 million from 1998 is not just some run-of-the-mill, usual corporate malfeasance,” to 2005, Exxon helped fund a network of some 40 advocacy McKibben said at the trial. “It’s hard to imagine a set of corpo- organizations that raised doubts about the growing scientific rate practices that could have done more damage.” Exxon, need- consensus that global warming is caused by carbon dioxide and less to say, was found guilty. other heat-trapping emissions, the UCS found. Exxon, Frumhoff says, is “sort of the poster child for combining a very large con- By its public-relations staff’s own admission, Exxon spent last tribution to the [climate] problem with an arrogant organiza- fall and winter in a largely reactive mode, scrambling to respond tional culture and a significant investment in disinformation to to each new revelation or congressional request for an investi- avoid regulation.” gation—and never succeeding in offering an alternative narra- The idea of “making oil the next tobacco” percolated quietly tive. “It was like playing whack-a-mole,” spokesman Jeffers says. for several years and reemerged in June 2012 in sunny La Jolla, Seeking to illustrate how InsideClimate “cherry-picked” evi- Calif., Frumhoff says. It was there that heco-convened a meeting dence, the company’s communications team pointed Bloomberg of scientists and lawyers who discussed not only the parallels Businessweek to a half-dozen alleged examples. One focused on between fossil fuels and cigarettes, but also the method used the site’s account of the late James Black, the Exxon scientist to wound tobacco: the amassing via litigation who told management in 1977 of the “general scientific agree- of internal corporate documents showing that ment” about man-made global warming. Exxon accused the cigarette companies concealed the hazards of publication of failing to include qualifications feathered into smoking. “Similar documents may well exist in Black’s work, such as his noting that “a number of assump- the vaults of the fossil fuel industry and their tions and uncertainties are involved in the predictions of the trade associations and front groups,” an online greenhouse effect.” ButInsideClimate did prominently note that report summarizing the La Jolla meeting stated. Black’s “presentations reflected uncertainty running through Even “a single sympathetic state attorney scientific circles about the details of climate change.” Exxon also accused the organization of erroneously asserting that Former Exxon CEO Lee Raymond (in 1997): “Let’s agree the company had “stopped” doing carbon research in the late 1980s. But InsideClimate had written, correctly, that the there’s a lot we really don’t know company “curtailed” its in-house research program during about how climate will change in the that period. (“Curtail” doesn’t mean “stop.”) Exxon has also accused InsideClimate and the Los Angeles 21st century and beyond” Times of having financial conflicts of inter- Representative Ted Lieu (D-Calif.): “It occurred to me that this est. The Times articles were researched and written in collaboration with an looks like what happened with the tobacco environmental- reporting project at Columbia University’s Graduate School companies a decade ago” of Journalism, and that program has taken substantial grants from environmentally oriented foun- about his Exxon investigation. At the news con- dations, such as those funded by the Rockefeller family. Despite ference, he sounded like he’d already decided to the source of their original wealth—in 1870, John D. Rockefeller take the company to court: With “morally vacant created Standard Oil, the corporate forerunner of Exxon—the forces” blocking climate action in Washington, Rockefeller charities in recent years have taken strong stands he said, states were obliged to devise “creative against the fossil fuel industry. The Rockefeller Family Fund gave ways to enforce laws being flouted by the fossil Columbia Journalism School $550,000 to help pay for its fossil fuel industry.” fuel reporting project but exercised no editorial control, says Lee Schneiderman also arranged for private brief- Wasserman, director of the fund. The Los Angeles Times initially ings for the visiting AGs. These closed-door sessions featured a failed to disclose the funding of the Columbia reporting project, talk on climate science by Frumhoff and a legal backgrounder though the newspaper eventually linked to the financial details by Matt Pawa, a private plaintiffs’ attorney who in 2013 won a online. Since 2013, the separate Rockefeller Brothers Fund has $236 million groundwater-pollution verdict against Exxon. The provided InsideClimate with $200,000 a year; that fund had no company’s public-affairs representatives see great significance say over what the website published, according to David Sassoon, in Pawa’s also having attended Frumhoff’s 2012 gathering in La InsideClimate’s founder and publisher. Jolla. “You see the same people showing up at planning meet- As its attacks on journalists fizzled, Exxon tried sending lob- ings over the years,” Jeffers says. Schneiderman says he doesn’t byists to dozens of congressional offices to counter #ExxonKnew know anything about the La Jolla session and that his office rou- on Capitol Hill. Lieu, the California Democrat seeking federal tinely consults with outside experts. investigations, is still shaking his head over a November visit from A more consequential aspect of the prosecutors’ conclave four Exxon emissaries. The lobbyists handed out a 10-page pre- was the announcement by the attorney general of the U.S. Virgin sentation titled Managing Climate Change Risks, which sought to Islands, Claude Walker, that his tiny Caribbean territory had underscore the company’s carbon-reduction bona fides. “It was launched a parallel investigation of Exxon. In theory, the Virgin a really surreal meeting,” Lieu says. The lobbyists “came in and Islands has ample reason to be anxious about climate change: said, ‘We believe in climate change and that it’s being caused Warming, rising ocean waters could swamp its homes and resorts by humans, and we support a carbon tax.’ I thought to myself, in coming decades. But in practice, the territory proved itself 62 Where is this coming from? Is this like some white-hat depart- inadequate to the task of confronting Exxon. ment that no one else at Exxon knows about?” In March the Virgin Islands issued a sprawling, loosely worded Lieu hadn’t been keeping up with the evolution of Exxon’s subpoena that demanded the company’s correspondence with

climate-related positions since Tillerson replaced the hard- scores of conservative and free-market organizations, includ- AGES nosed Raymond as CEO in 2006. In 2007, Exxon began cutting ing FreedomWorks, the Heartland Institute, and the Heritage off funding for some nonprofits that deny widely accepted Foundation. In a separate subpoena, it sought documents directly science on global warming. The company in 2009 for the first from the Competitive Enterprise Institute, a right-leaning group time endorsed a tax on carbon emissions, a stance vehemently that’s cast doubt on mainstream climate science and formerly opposed by Republicans in Congress and therefore dead on received financial support from Exxon. This focus on commu- arrival on Capitol Hill. At the Exxon annual meeting in Dallas in nication opened the door for Exxon’s New York law firm, Paul, May, the silver-haired Tillerson went out of his way to tell share- Weiss, Rifkind, Wharton & Garrison, to seek to kill the islands’ holders that “the risks of climate change are serious and they subpoenas on First Amendment grounds. Paul Weiss filed court do warrant thoughtful action.” papers in Texas on April 13 condemning the Virgin Islands’ Strictly speaking, though, #ExxonKnew isn’t a campaign attempt “to deter ExxonMobil from participating in ongoing aimed at what the company is saying or doing today. #ExxonKnew public deliberations about climate change.” (The more precisely focuses on discrepancies between past actions and past state- tailored New York subpoena didn’t explicitly name nonprofits ments. That historical inquiry, Lieu says, deserves the author- with which Exxon may have communicated.) ity and force of a government investigation. Exxon’s lobbyists Finally, Exxon had its counterpunch: that hostile outsid- didn’t change his mind. ers had attacked the company’s free-speech rights. There’s a reason Theodore Wells, the Paul Weiss partner who’s led Exxon executives say their view of #ExxonKnew as a conspiracy Exxon’s legal defense (and has represented such clients as Philip was confirmed by the gathering of 15 state attorneys general and Morris), is known as one of the craftiest people in his profes- Gore in New York on March 29. Schneiderman, the host, says sion. However unlikely the image of Exxon as victim, that’s he organized the event simply to educate fellow state officials how Wells decided to characterize his client—and it worked. On April 22, the Washington Post carried two opinion Exxon executive Suzanne McCarron: “The goal of pieces on the topic: a column by George Will head- lined “Scientific Silencers on the Left Are Trying the coordinated campaign is to Shut Down Climate Skepticism” and one by Sam Kazman and Kent Lassman, respectively to delegitimize the company general counsel and president of the Competitive Enterprise Institute, condemning “the environ- by misrepresenting our mental campaign that punishes free speech.” In history of climate research” the following days, dozens of similar broadsides IM PLATT/GETTY SPENCER (SCHNEIDERMAN) IMAGES; CLARK/GETTY BILL (SMITH) HARRER/BLOOMBERG; ANDREW (LIEU) LEFT: TOP FROM CLOCKWISE Representative Lamar Smith (R-Texas): “Unfortunately, were issued from the Wall Street Journal edito- rial page, Fox News, the Heritage Foundation, the attorneys general have refused and many others. Once again, politicians followed. In mid- to give the committee the information May, the House Committee on Science, to which it is entitled. What are they Space, & Technology began investigating what it called “a coordinated attempt to hiding and why?” deprive companies, nonprofit organizations, and scientists of with the situation. Schneiderman is investigating under the broad their First Amendment rights.” The only company the panel provisions of a 1921 state law called the Martin Act, arguably the mentioned by name was Exxon. Committee staff members and most potent securities-fraud statute in the country. Named for Exxon’s McCarron say that despite the company’s widespread sponsor Louis Martin, an otherwise-forgotten state assemblyman, lobbying of Congress, it didn’t ask the panel or its chairman, the law forbids “any fraud, deception, concealment, suppres- Lamar Smith (R-Texas), to begin the probe. First elected in sion, [or] false pretense.” Crucially, it doesn’t require a prose- 1986, Smith has received almost $685,000 in career campaign cutor to demonstrate that a defendant consciously intended to contributions from the oil and gas industry, according to the defraud investors or regulators. New York’s top court has inter- Center for Responsive Politics. By early July, the Virgin Islands preted it to cover “all deceitful practices contrary to the plain had turned tail and withdrawn its subpoenas of Exxon and the rules of common honesty.” Competitive Enterprise Institute. Trying to put the best spin Schneiderman doesn’t have a slam-dunk case. “The New York on his humiliating retreat, Virgin Islands AG Walker said via attorney general has a plausible theory, but he’ll need more e-mail that extricating itself from the sub- than the results of the journalistic investigations,” says Michael poena imbroglio will allow his office to “use Gerrard, a law professor at Columbia who directs the Sabin our limited resources to address the many Center for Climate Change Law. “It’s not enough to show that other issues that face the Virgin Islands Exxon had internal knowledge of climate change when exter- and its residents.” Wells didn’t respond to nal knowledge was widespread. The government would have to requests for comment. show that there were things that only Exxon knew and that were Schneiderman now finds himself under material to investors and that Exxon kept from investors. Such investigation, too. When the New York evidence might be there, but we don’t know yet.” AG’s office refused to cooperate with the One potential defense that Exxon is floating: Since the 1970s science committee, its scientists have published Smith issued subpoe- New York Attorney General Eric Schneiderman: “The First climate findings in more than nas to Schneiderman; 50 peer-reviewed articles. Massachusetts Attorney Amendment doesn’t give you What Exxon knew, the argu- 63 General Maura Healey, ment would go, the wider sci- who’d launched her entific world also knew. The own investigation of the right to commit fraud” company didn’t keep secrets Exxon; and eight nongovernmental organizations, including the the way the tobacco industry did. Rockefeller funds, the Union of Concerned Scientists, and 350. org. Few complicated securities- fraud cases go to trial; the risk of “Unfortunately, the attorneys general have refused to give the com- losing and the costs of extended litigation impel settlement. mittee the information to which it is entitled,” Smith told report- With those risks in mind, Exxon and New York may eventually ers on July 13. “What are they hiding and why?” look to a separate case resolved by Schneiderman’s office in November. The attorney general found after a two-year investi- Not a thing, according to Schneiderman, who says Smith’s gation that coal producer Peabody Energy provided incomplete inquiries evoke 1950s-era communist hunting by the House information to investors by saying in public reports that it Un-American Activities Committee: “They have no evidence of couldn’t “reasonably predict” the risks it faced from climate- any cabal, no evidence of any misconduct.” As for the science related regulations. St. Louis-based Peabody, which in April panel’s concern about Exxon’s First Amendment rights, declared bankruptcy amid a collapsing coal market, neither Schneiderman says the federal government’s successful RICO admitted nor denied wrongdoing and didn’t face pecuniary pun- case against the tobacco companies made “very clear that the ishment. The company did agree to provide more forthcoming First Amendment doesn’t give you the right to commit fraud.” disclosures to investors. If Schneiderman continues to resist the House commit- “It’s really too soon to tell” whether the Peabody settle- tee’s document demands, the confrontation could end up in ment provides a model for the Exxon case, Schneiderman court—a fight the New York official sounds eager to have. He’d says. He expects to amass evidence in the Exxon investigation have an excellent chance of winning, too. It’s unusual for a of “a much more sophisticated ongoing policy of deception” congres sional panel to interfere with a pending state investiga- than what his office found inside Peabody—wrongdoing that tion, says Senator Sheldon Whitehouse (D-R.I.), a former federal could warrant seeking substantial money damages. Exxon has pros ecutor who advocates putting Exxon under a microscope. kept that alleged policy in place through recent years, Smith “is trying to subvert the power of state government [and] Schneiderman says, pointing to a 2014 company report claim- do something he is not entitled to do under any kind of discov- ing that international efforts to reduce climate change wouldn’t ery rules,” Whitehouse says. More succinctly, Peter Shane, a oblige fossil fuel producers to leave enormous amounts of oil law professor at Ohio State University, says, “Congress has no in the ground untouched. authority over the conduct of state law enforcement.” Exxon denies any deception took place and isn’t ready to talk Exxon, for its part, has been cooperating with Schneiderman’s settlement, McCarron says. She calls Schneiderman’s comments subpoena because the company’s lawyers at Paul Weiss advised “an attack on the integrity of the company” and says Exxon their client that it had no choice, according to a person familiar “will pursue all available legal options to defend ourselves.”  Tran- scripts. The politics of democracy. Untangled.

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8:00 ALL IN THE FAMILY— KYeeqkNakal$ )1/* aLmf]k! Ni\hfbg`lahplln\aZl<;Ll x T Kevin Can WaitZg]Man With a Planlm^f_khfma^`^gnl!Zg] `^gbnl"h_mabllahp'PZm\a_hk ma^`n^lmZii^ZkZg\^h_LZffr =ZoblCk'%ieZrbg`abfl^e_%Zg]lmZr J _hkma^ÛgZel\^g^%pab\abllbfnemZ& g^hnlerlah\dbg`Zg]abeZkbhnl' 8:30 FREAKS AND GEEKS—“Looks Yf\:ggck$ *((( aLmf]k$F]lÛap! (Just be aware that doing so is legally questionable at best and not every episode is always available I^k^ggbZeer\bm^]Zlhg^h_ma^ and sometimes it’s just someone holding a camera up to a TV screen and recording it and that YouTube can [^lmlahpl^o^k\Zg\^e^]%Freaks always pull down copyrighted material and you’re arguably depriving people who actually made and GeeksblZelhZg^ZkerehhdZm the show you’re enjoying of any monetary gain for their labor.) mh]ZrllmZkl!CZf^l?kZg\h%L^ma Etc. Food HOLD THE SPRING ROLLS Is Kris Yenbamroong’s modern Thai ready for mass consumption? By Sheila Marikar

n a recent Saturday night, into my community and do this,” Shotland “The only good part was some dishes that dozens of young people packed says, explaining that young chefs don’t I added to the menu tasted good, but no Night + Market, a Thai res- always share Yenbamroong’s aspira- one wanted them,” he says. “They wanted taurant on West Hollywood’s tions. “I look at some contemporaries, the same thing they had been eating every Sunset Strip. Beer towers topped like Andy Ricker”—the chef of Pok Pok, Sunday night for 20 years”: spring rolls sticky laminate-wood tables. A a Thai standard-bearer and red curry, not Thai- O server with a man bun and a in Portland, Ore., which style beef jerky with bubblegum-pink apron rushed has outposts in New spicy chili dip. around with plastic plates. There may York and L.A.—“and I The space next to have been music; it was hard to tell over feel like that’s something Talésai opened up in all the shouted conversations. The cumu- Kris will do. The ques- 2010, and his family lative effect was more TGI Fridays than tion is, how quickly?” leased it, intending fine dining—a comparison Night + Market Yenbamroong grew to use it for private chef Kris Yenbamroong embraces. “We’re up at Talésai, the events. Yenbamroong definitely a party place, and I’ve always Americanized Thai began throwing boozy wanted to be that,” he says. “We get a restaurant his parents dinners there with crazy, fun, derelict kind of crowd.” opened on Sunset pals such as Thai artist With another Night + Market in Los Boulevard in 1982, Rirkrit Tiravanija. He Angeles’s trendy Silver Lake neighborhood the year he was born. made the jerky for them, 68 and a third slated to open in Venice this (Wolfgang Puck was a and something clicked. fall, Yenbamroong, 34, is presiding over regular.) From 13 to 17, “I realized, it seems like a mini-empire. Now he’s going for chef he lived in Bangkok and my friends are having a stardom, something few people hawking Chiang Rai, Thailand, lot of fun, I should do it “ethnic” cuisine have attained. In July he then returned to the U.S. to study film at for the public,” he says. He dubbed the signed with Lisa Shotland at Creative New York University. In 2008 his parents space Night + Market and began serving Artists Agency, whose clients include Roy called him back to California to help run dinner in November 2010—though “only Choi, L.A.’s Korean taco impresario, and the family business. He failed at first. four nights a week,” he says. “Another one Duff Goldman, the star of Food Network’s “I had no idea where the money came of my stupid ideas.” Ace of Cakes. Yenbamroong’s first cook- from,” he says. He discontinued lunch Yenbamroong’s menus shun fine- book is due out in a year. After that, who service and takeout—major sources of dining trends in favor of the kind of street knows? “Most people think, I want to go revenue—and blew cash on a renovation. food he loved in Thailand. He credits his Yenbamroong; dad with schooling him in business, but the Night + Market he’s had other mentors, including David in Silver Lake Rosoff, the former general manager of Mozza, an Italian restaurant group in L.A. His fans run the foodie gamut, from Gwyneth Paltrow to Anthony Bourdain. “I didn’t make the rounds in all these famous kitchens,” he says. “I’m with all these full- blown chef dudes, which I’m not.” In 2015, Night + Market took over the portion of the building originally used by Talésai. Yenbamroong used to pride himself on being small and subversive, but now going big is its own form of rebel- lion. “If I were to do a supper club and invite 10 people a night, that would be expected,” he says. “For me to come out of this totally different world and say, ‘I want to do a fast-casual restaurant’—that’s super transgressive. I’m not supposed to

be part of that club.”  BUSINESSWEEK BLOOMBERG FOR KULISEK ROB BY PHOTOGRAPHS Christy Gardner

“My victory is having my new battle buddy.” Christy was badly injured while serving overseas. With the right support, she has triumphed over limitations. Every year, DAV helps more than one million veterans of all generations in life-changing ways— connecting them to the health, disability, and fi nancial benefi ts they’ve earned. Support more victories for veterans. Go to DAV.org. Etc. Fashion Layer With a Blazer Throw On a Sweater On her A long, ribbed sweater is On him great for playing with texture Subdued, autumnal W3 high-rise and proportion; it pairs terrif- Frame Vinoodh stripes are a perfect way channel-seam ically under a tailored jacket $219; similar styles to say, “Despite my skinny on a cool day. Guys: Stick at frame-store.com rogue denim look, I know $185; 3x1.com with a classic button-down. what season it is.” Saturdays NYC shirt, Victoria Beckham $120; saturdaysnyc sweater, $1,585; .com. Canali jacket, victoriabeckham.com. $2,395; Canali, 625 J.Crew jacket, $348; Madison Ave., New jcrew.com. Report York. A.P.C. portfolio, shoes, $50; $325; apc.fr. John reportshoes.com Lobb shoes, $1,465; johnlobb.com

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of a full-scale invasion 400 years in the future. (Interstellar travel takes a while.) Scientists and statesmen undertake generation-spanning policy initiatives to prepare, leading to clever plot twists that unfold throughout the course of decades. By the time the reader gets to Death’s End, the love story between a brain in a jar and the beautiful astro- physicist the brain went to college with but never had the nerve to ask out will make total sense and be genuinely moving. Again, it’s complicated. Chinese fiction hasn’t made signifi- cant inroads with U.S. audiences, but that should change. Turkish writer and Nobel laureate Orhan Pamuk once said of China’s rising middle class, “I do not think we shall truly understand the people who have been part of this transformation until we have seen their private lives reflected in novels.” He was talking about Chinese versions of Jonathan Franzen, not Isaac Asimov, but we can ease into that. Don’t think that this trilogy doesn’t tackle serious stuff— IT CAME FROM topics it’s hard to believe the censors let Liu publish, such as brutal infighting 72 during the Cultural Revolution, followed by a Maoist purge in which a physicist CHINA! is murdered. Why you ought to make time for a 1,500-page Translators are working to bring American readers up to speed. Chinese sci-fi trilogy. By Aaron Rutkoff American novelist Ken Liu (no relation), a popular and award-winning sci-fi author, translated the first and third here was a moment recently who’ve spent a bit of time contemplating books in the series, creating engross- when the internet, parsing a what’s to come. The final volume, ing, nuanced prose. Around the time report from scientists at the Death’s End, arrives in the U.S. on The Three-Body Problem reached the Search for Extraterrestrial Sept. 20 ($26.99; Tor Books), but you U.S., Neil Clarke, editor of Clarkesworld, Intelligence Institute, thought should read the roughly 900 pages of an online sci-fi enthusiast magazine in we might have received our first the first two books first so it makes Stirling, N.J., began a Kickstarter cam- T interstellar transmission. The sense. Why, you might ask, should you paign that’s raised about $13,000 to pay hyperventilating headlines gave bother to read that many for the translation of nine way a few hours later to cold-water pages of Chinese sci-fi? other stories by Chinese explainers about why it probably wasn’t Especially when you AN ALIEN sci-fi authors, includ- the work of aliens—or a wrong number. probably haven’t perused ing Han Song, whose But let’s say it was a real message from much of the Western INVASION, acclaim almost matches 94 light-years away: Should we call variety lately? Given how 400YEARS IN Cixin Liu’s. back? Anyone who’s read China’s most many times we’ve seen Ken Liu has warned popular science fiction series, The the American imagina- THE MAKING English readers against Three-Body Trilogy, in which author tion destroy humanity— putting a neat definition Cixin Liu follows into the far future Independence Day, War of on what makes Chinese the consequences of a Chinese scien- the Worlds—isn’t it time we let somebody science fiction different from its U.S. tist who replied to such a signal, would else take a crack? The payoff is a grand— counterpart. There’s a lot of sci-fi in keep silent forever. and grim—speculation about the limits China, he says; asking what defines an The first translated volume, The of scientific progress. American sci-fi story would produce Three-Body Problem, reached the U.S. The trilogy’s plot defies easy sum- an equally unsatisfying answer. Still, in 2014 and wound up on the reading marization: In 1971 a disaffected sci- reading someone else’s dark dreams of lists of President Obama and Facebook entist makes contact with an alien the future has got to be good for us. For

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ROSALIND BREWER President and chief executive officer, Sam’s Club

At Spelman, early ’80s Education

“I got a lab coat! But there was no one to Cass Technical High School, Detroit, talk to in the lab. class of 1980 I’d bring my radio.” y, April, June, and August, by Bloomberg L.P. Periodicals postage paid at New York, N.Y., and at additional mailing and at N.Y., York, New paid at postage Periodicals L.P. Bloomberg by and August, April, June, y,

Spelman College, Atlanta, class of 1984

#12829 9898 GST L.P. as Bloomberg GST for Registered QST#1008327064. ga, ON L5T 2N1. E-mail: bwkcustserv@cdsfulfillment.com. 22. POSTMASTER: Send address changes to Bloomberg Businessweek, P.O. Box 37528, Boone, IA 50037-0528. Canada Post Publication Canada Post Boone, IA 50037-0528. 37528, Box Businessweek, P.O. changes to Bloomberg Send address 22. POSTMASTER: Work NUMBER 0414N68830 CPPAP PRINTED IN THE U.S.A. 290-5460 x100 or [email protected]. 800 at Group The YGS 0 298-9867 or e-mail: [email protected]. Subscriber Services: Call 800 635-1200 or log on to our website: http://www.business or log on to our website: Subscriber 635-1200 Services: Call 800 or e-mail: [email protected]. 0 298-9867 Experience With her “It’s a private, all-women’s husband, John, at the Blue college based in Christianity, Scholarship and you had to get to know Gala to benefit 1984–88 Spelman, 2010 yourself to survive in that Research technician, Kimberly-Clark competitive environment.” 1988–98 76 Market manager, director “Nonwovens are polymers for skin care, vice heated and pressurized president for nonwovens, Kimberly-Clark to make fabric. The 1998–2006 technology is similar for “Retail only has one cycle: Go. diapers, feminine care, President for manufacturing and I was out of breath the first six to adult incontinence, and operations, global nine months.” the sterilized clothes president, Kimberly-Clark

surgeons wear.” 2006–12 VP, senior VP, executive VP for Southeast in Januar one week except 4490 Published weekly, S Issue no. (ISSN 0007-7135) 18, 2016 12 – September September 900) (USPS 080 “I thought I’d be with Walmart operations, EVP for East business unit, no more than three years or so. Lo and Walmart Stores behold, I sort of fell in love.” 2012– Bloomberg Businessweek Bloomberg offices. Executive, Editorial, Circulation, and Advertising Offices: Bloomberg Businessweek, 731 Lexington Avenue, New York, NY 100 New Avenue, Lexington Businessweek, 731 Offices: Bloomberg Advertising and Editorial, Circulation, Executive, offices. Unit4, Mississau 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 2016 Copyright RT0001. Present Permissions: & General Reprints [email protected] at Center Clearance Copyright Permissions: Educational custserv/manage.htm. President and CEO, Sam’s Club

Speaking at the U.S. Chamber of Commerce, 2012 “Our e-commerce is growing, but a combination of being able At a Walmart to order online and pick up shareholders meeting, in-club is doing even better. 2012 In total, we’re at $58 billion in Life Lessons revenue, with 655 clubs e agile and ready to change every day.”

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“ and over 100,000 associates.” . 3 .” e sam 1. “Listen at all levels. Some of the best ideas come from those on the front lines.” 2. “Seek people who are willing to act and inspire others to do the Images (4) Getty Courtesy subject (4).

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