DealBook Briefing: C.E.O.s Look Beyond Their Shareholders

August 20, 2019

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Doug McMillon, Walmart's C.E.O., at the company's annual shareholder meeting last year. Rick T. Wilking/Getty Images

Why C.E.O.s are rebelling against shareholder democracy

Shareholder democracy hasn’t worked, Andrew writes in his latest column. Exhibit A: Nearly 200 corporate leaders — including Tim Cook of Apple, Ginny Rometty of IBM and Jamie Dimon of JPMorgan Chase — declared yesterday that companies shouldn’t make shareholders their sole focus.

For half a century, companies were mostly run for all stakeholders, Andrew notes. (That’s how they’re still run in much of Europe.) The economist Milton Friedman helped change that by declaring that businesses should focus solely on profits.

“Layoffs increased, research and development budgets were cut, and pension programs were traded for 401(k)s” as a result, Andrew adds. “There was a rush of mergers driven by ‘cost savings’ that grabbed headlines while profits soared and dividends increased.”

“Americans mistrust companies,” writes Andrew, “to such an extent that the very idea of capitalism is now being debated on the political stage.” And populism has been embraced by both ends of the political spectrum, from President Trump to Senator Bernie Sanders.

Now, companies should think beyond shareholders, the Business Roundtable said yesterday, adding that they should also invest in their employees, protect the environment and deal fairly with suppliers. “We share a fundamental commitment to all of our stakeholders,” the group, which represents many of America’s biggest companies, said. “We commit to deliver value to all of them.”

“The shift comes at a moment of increasing distress in corporate America, as big companies face mounting global discontent over income inequality, harmful products and poor working conditions,” David Gelles and David Yaffe-Bellany of the NYT write.

And there’s reason to be skeptical. Not every member of the Business Roundtable signed on: Blackstone and G.E. were among the notable holdouts. And the WSJ editorial board dismissed the move as political spin that is unlikely to shield C.E.O.s from populist attacks.

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Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Jamie Condliffe in London.

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Larry Kudlow, the White House's top economic adviser. Evan Vucci/Associated Press

The White House is worried about a recession

President Trump continues to boast that the U.S. economy is “doing tremendously.” But in private, his economic advisers are preparing options to help prevent it from falling into a recession, Maggie Haberman, Jim Tankersley and Annie Karni of the NYT report.

Administration officials have explored cutting payroll taxes, which would immediately increase workers’ paychecks, and lowering capital gains taxes. They’ve also considered potentially reversing some of Mr. Trump’s tariffs.

White House officials dismissed a payroll tax cut — for the moment. “Cutting payroll taxes is not something that is under consideration at this time,” one told the NYT.

It’s also unclear if such cuts would get political traction in Congress, since the Democratic-led House would be unlikely to agree to the idea in an election year.

But “that the White House is even discussing ways to stimulate an economy that Mr. Trump on Monday called ‘very strong’ underscores a growing concern in the administration about slowing economic growth,” the NYT reports.

And Mr. Trump clearly worries about the economy, despite bragging about its current strength. He tweeted yesterday that the Fed should cut interest rates by at least one percentage point, “with perhaps some quantitative easing as well.”

Sundar Pichai of Google. J. Scott Applewhite/Associated Press

States are going after Big Tech, too

Attorneys general in more than a dozen states are preparing to begin an antitrust investigation into the tech giants, Steve Lohr of the NYT reports, citing unnamed sources.

• “The bipartisan group of attorneys general has not yet issued civilian subpoenas — known as civil investigative demands — to the companies. But state investigators plan to do so soon, though the precise timing is not yet set.”

• “The states can play a key role, often in concert with federal regulators and Congress, in building evidence and public support for major investigations.”

They would join high-profile investigations by the Justice Department, the F.T.C. and Congress that are focused on potential antitrust violations by big tech companies.

But don’t get carried away over how fast and fruitful these investigations might be.

• “Major antitrust investigations can take years, whether they result in legal action or not,” Mr. Lohr notes.

• And Joseph Simons, the chairman of the F.T.C., warned the FT that breaking up the big tech companies from companies they’ve acquired could be difficult if “they’re completely enmeshed.”

Huawei gets another reprieve

The U.S. will allow American companies to continue doing business with the Chinese tech giant for an additional 90 days, Alan Rappeport of the NYT reports.

• This is an extension of a three-month reprieve that was granted in May. American companies had complained that what amounted to a ban on buying goods from Huawei would be hard to comply with.

• The move is meant to give rural U.S. telecom companies more time to wean themselves off Huawei hardware.

• But the Commerce Department also said that it would add 46 Huawei affiliates to its roster of blacklisted companies — a sign that the Trump administration isn’t completely easing pressure on the Chinese company.

Huawei called the latest blacklisting “politically motivated,” adding that the “actions violate the basic principles of free market competition.” But it also said that the decision “won’t have a substantial impact” on its business.

A protest in Hong Kong in June. Social Media/Reuters

Facebook and Twitter fight Hong Kong disinformation

The social media companies said that they had identified and removed Chinese accounts from their platforms that were sowing divisive messages about the Hong Kong protests, Kate Conger of the NYT reports.

• The accounts “acted in a coordinated fashion to amplify messages and images that portrayed Hong Kong’s protesters as violent and extreme.”

• “Facebook said it eliminated seven pages, three Facebook Groups and five accounts,” while “Twitter deleted 936 accounts and said it would ban state-backed media from promoting tweets.”

• It is “the first time that the social media companies have had to take down accounts linked to disinformation in China.”

This signals “an escalation in the global disinformation wars,” Ms. Conger writes. China’s Communist Party hasn’t interacted much with Western social media because it tightly controls what its citizens see inside its so-called Great Firewall. But the Hong Kong situation shows that it is ready and willing to use Facebook and Twitter if necessary.

More: Hong Kong’s leader, Carrie Lam, said that the territory’s economy “is facing the risk of downturn.”

The Federal Reserve Board Building in Washington. Brendan McDermid/Reuters

The Fed chips away at banks’ meltdown defenses

The central bank is making changes to rules that it put in place after the 2008 financial crisis. It says they are meant to bring more efficiency — but critics say they could lead to disaster, according to Jeanna Smialek, Peter Eavis and Emily Flitter of the NYT.

• “Fed officials and others who support the changes, including big banks, say the Fed is engaging in what they call ‘tailoring’ — a regulatory correction that will bring greater efficiency to standards written in the heat of a meltdown.”

• “The changes, some put into place and others still under consideration, range from making it easier for big banks to pass the Fed’s annual ‘stress test’ of their financial health to allowing some to borrow more.”

• “The tinkering is being driven by Randal K. Quarles, the Fed’s vice chair for supervision, whom President Trump nominated in 2017.”

• “But some current and former Fed officials worry that the central bank and its fellow regulators are giving large banks, which are making big profits, an unnecessary gift that could leave the economy exposed in the next downturn.”

Reese Witherspoon and Jennifer Aniston Tony Avelar/Associated Press

Apple opens its wallet to compete in streaming

The tech giant is reportedly prepared to spend more than $6 billion on original content for its coming streaming service, the FT reports. It’s the price of admission in the contest for online video services.

The Apple TV Plus team was originally given $1 billion for content in its first year, the FT reports. That has ballooned as the company faces stiff competition.

Commissioned programs include “The Morning Show,” featuring Jennifer Aniston and Reese Witherspoon — which reportedly costs more per episode than “Game of Thrones” — and “See,” which features the action star Jason Momoa.

Apple is also paying creators earlier in the production process, the FT reports. Netflix tends to spread its content payments over several years.

Apple TV Plus is expected to launch by November, according to Bloomberg. The company is likely to start by offering a free trial as it builds up its library, and may charge $10 a month — more than Disney, but less than Netflix.

Revolving door

The acting director of the Bureau of Prisons, Hugh Hurwitz, was reassigned in the aftermath of Jeffrey Epstein’s suicide.

Bank of America has hired Jean Greene, a 20-year veteran of Lazard who worked on Anheuser-Busch InBev’s takeover of SABMiller, as a senior banker for industrial companies.

Bill Stasior, the former head of Apple’s Siri team, has joined Microsoft as a leader of an artificial intelligence group.

Baker McKenzie has poached Leif King, who led Skadden’s M.&A. practice in Silicon Valley. And Paul Hastings has hired Jonathan Ko, a top Skadden capital markets lawyer in Los Angeles.

KKR has started its first-ever analyst program for new college graduates.

The speed read

Deals

• The Hong Kong billionaire Victor Li agreed to buy Greene King, Britain’s biggest publicly traded pub operator, for 4.6 billion pounds, or $5.6 billion. (FT)

• Saudi Aramco has reportedly asked banks to submit formal proposals for underwriting roles for its long-awaited I.P.O. It is said to have picked Lazard and Moelis & Company as advisers. (Reuters, Bloomberg)

• One of Sotheby’s biggest shareholders, RWC Partners, has objected to the auction house’s proposed $3.7 billion sale to the French billionaire Patrick Drahi, two weeks ahead of an investor vote on the deal. (FT)

• Bayer agreed to sell its animal health care unit to Elanco for $7.6 billion. (WSJ)

Politics and policy

• President Trump has backpedaled on calls for stricter gun control after lobbying by gun rights advocates. Democratic leaders called it predictable and disappointing. (NYT, Politico)

• Mr. Trump has broken off his friendship with Tom Barrack amid an investigation into the financier’s work overseeing the 2017 inauguration fund. (Politico)

• Republicans and Democrats alike are increasingly in favor of a weaker dollar. (FT)

• Congress is moving to expand anti-bribery laws to allow charges against foreign officials who demand illegal payments. (DealBook)

Brexit

• Prime Minister Boris Johnson of Britain has pressed the E.U. to abandon the idea of a legal backstop at the border between Ireland and Northern Ireland, to no avail. (FT)

• British business groups criticized Mr. Johnson’s government for suggesting it would end free movement for E.U. nationals in Britain in the case of a no-deal Brexit. (FT)

Trade

• Japan allowed exports of a material used to make chips to South Korea for a second time this month, ahead of talks to defuse trade tensions between the two countries. (Reuters)

Tech

• Facebook’s coming news section will be run by journalists that it plans to hire, and not just algorithms. (NYT)

• Tech giants are getting ready to testify to the U.S. trade representative against France’s new tax on digital company revenues. Amazon, for its part, plans to pass the costs onto French sellers. (Business Insider, CNBC)

• WeWork claimed British tax breaks that were meant for its small-business tenants. (Bloomberg)

• Baidu reported a 62 percent drop in profits. (WSJ)

• Google reportedly stopped providing carriers with some data from Android phones over fears of scrutiny about data privacy. (Reuters)

Jeffrey Epstein

• Mr. Epstein wrote a will just two days before his death, placing about $578 million worth of assets in a trust. That could complicate matters for people suing his estate for damages. (Bloomberg)

• The man picked by Mr. Epstein to be the executor of his will says he won’t do it. (Bloomberg)

Best of the rest

• A federal judge dismissed a racketeering lawsuit against the consultancy McKinsey & Company. (NYT)

• Forget the yield curve: Slipping R.V. shipments are a sign of a weakening economy. (WSJ)

• Mark Halperin, the political author accused of multiple instances of sexual harassment, has faced a backlash against his newly announced book. (NYT)

• G.E. further rebutted a whistle-blower’s claims that it committed fraud. (WSJ)

• Does the Fed have too much on its plate? (WSJ)

Thanks for reading! We’ll see you tomorrow.

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