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Fortune USA - May 01, 2018

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MAY 2018 FORTUNE.COM
50 Leaders
who are
Stepping Up
why they
can’t
be ignored
and what
we can learn
from them
RARE
FORM
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in just 4.6 seconds.1,3 All this is complemented by cutting-edge technology with one of the largest Heads-Up Displays in
the industry.2 The LS 500 isn’t simply new. It’s the most evocative LS ever.
lexus.com/LS | #LexusLS
Options shown. 1. Ratings achieved using the required premium unleaded gasoline with an octane rating of 91 or higher. If premium fuel is not used, performance will decrease. 2. 2018 LS vs.
2017/2018 competitors. Information from manufacturers’ websites as of 8/4/2017. 3. Performance figures are for comparison only and were obtained with prototype vehicles by professional
drivers using special safety equipment and procedures. Do not attempt. ©2018 Lexus
PURE MOBILITY
As the automotive world moves toward fully connected and self-driving cars, it’s no surprise who’s driving
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M AY 1 , 2018
FEATURES
THE WORLD’S 50 GREATEST LEADERS
By JONATHAN CHEW,
ERIK A FRY, and the
FORTUNE staff
The Nick
Saban
Standard
By BRIAN O’KEEFE
By GEOFF COLVIN
For centuries, greater
size made companies
and nations more formidable. Now leaders
are learning the power
of a smaller scale.
BY VALENTINA Z ARYA
Fortune’s fifth annual
list of the thinkers,
speakers, and doers
who are stepping
up to meet the world’s
biggest challenges.
PAGE NO.
42
O N T H E C O V E R : C O L O R T E A R S B Y V V O E VA L E ( 2 ) , A N D H U D I E M M , B O T H F R O M I S T O C K / G E T T Y I M A G E S
Putting On
Pressure
for Parental
Leave
NUMBER 5
The
2018 List
VOLUME 177 ///
Introduction:
There’s
Strength in
Unbundling
Redemption
for Bitcoin’s
BiggestVillain
The University of
Alabama football
coach has done more
than just win. His success has influenced a
whole new generation
of competitors and
coaches.
Big employers are
expanding their paidleave benefits: One
reason: a savvy (and
relentless) coalition
of activists, investors,
and employees.
50
62
Retail
Reckoning
Breach of
Trust
By PHIL WAHBA
By KRISTEN BELLSTROM
and BETH KOWIT T
Private equity has
invested hugely in
the retail sector—
boosting some brands
and crushing others.
Here’s how these
investors are
remaking your mall.
For women, late-night
business meetings
require a leap of faith
that they’ll be treated
professionally. Two
execs say ex-Tronc
chair Michael Ferro
betrayed that trust.
76
88
BY JEN WIECZNER
He led the world’s biggest Bitcoin exchange
before a mysterious
heist made it go bust.
As clues emerge and
Bitcoin’s price surges,
Mark Karpelès is on
the hunt for answers.
PAGE NO.
68
3
F O R T U N E . C O M // M AY. 1 . 1 8
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*Guarantees are subject to the claims-paying ability of the issuing insurance company.
Fidelity Brokerage Services LLC, Member NYSE, SIPC. © 2016 FMR LLC. All rights reserved.
775226.3.0
CONTENTS
37
6 Unfailing Imagination
To move mountains and masses,
great leaders redefine what’s
possible. Here’s what you can
learn from them. By CLIFTON LEAF
b r ie f in g
9 Facebook Can’t Solve This
Problem Alone
Even Mark Zuckerberg says more
social media regulation is inevitable—but will new rules shore up
today’s giants or tear them apart?
By AARON PRESSMAN
12 Rage at Globalism Is Just
Beginning
Populist outcry has mostly been a
First World problem. It won’t stay
that way. By IAN BREMMER
focus
tech
21 A New Code of Conduct
What are the legal ramifications
of a self-driving car at fault? A
look into what happens when robots go awry. By KIRSTEN KOROSEC
24 Even Keel
BlockCypher CEO Catheryne
Nicholson finds opportunity
in a volatile industry.
Interview by LUCINDA SHEN
26 Your Next Home Could Be
3D-Printed
One Texas company wants to
make it possible to download and
print a livable structure.
By CHRIS MORRIS
inves t
33 Stock Buybacks: Party
Now, Regret It Later
Tax cuts are fueling a recordsetting boom in company share
repurchases. But recent buybacks
have left some investors feeling
burned. By RYAN DEROUSSEAU
passions
37 Aston Martin’s Next
Century
James Bond may have put it on
the map, but the British marque is
determined to stir, not be shaken.
BACK PAGE
last byte
By RACHEL KING
SE AN CONNERY WITH ASTON MARTIN: COURTESY OF EVERE T T COLLEC TION
29 Go on Green Light
Every entrepreneur has a “light
bulb moment.” Cole Zucker’s was
quite literal. Interview by DINAH ENG
By JACLYN TROP
13 The High Cost of High-End
Cocktails
You’re not imagining it, the price of
a good drink is going up.
14 The First Victims of a New
Trade War
U.S. farmers’ pain could be the tip
of the iceberg if trade tensions
escalate. By CHRIS MATTHEWS
venture
VOLUME 177 ///
fore word
NUMBER 5
DEPARTMENTS
24
100 Raise a Glass to Equities
When it comes to long-term
investing, the one asset class that
even fine wine can’t beat? Stocks.
Text by BRIAN O’KEEFE; graphic by
NICOLAS RAPP
16 Drug Prices Are Increasing
So is Big Pharma lobbying.
By JAY HANCOCK and
ELIZABETH LUCAS
BlockCypher CEO
Catheryne Nicholson
Fortune (ISSN 0015-8259) is published monthly by Time Inc., a wholly owned subsidiary of Meredith Corporation. Principal office: 225
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5
CATHERYNE NICHOLSON PHOTOGRAPHED BY WINNI WINTERMEYER
F O R T U N E . C O M // M AY. 1 . 1 8
FOREWORD
UNFAILING IMAGINATION
a household name. The
Bahamian-American physician and special adviser to the Carter Center
is one of the key individuals responsible for the eradication of smallpox—
a truly terrifying disease that in the 20th century alone killed as many
as 300 million people. Hopkins then turned his sights to eliminating
Guinea worm disease, a painful ailment that once plagued millions in
Africa and Asia. He’s now 76 years old and still focused on purging the
parasite-driven illness from the two countries, Ethiopia and Chad, where
transmission persists—a task to which he’s bringing both a mastery of
public health and a lifetime’s worth of understanding political intransigence and apathy.
The Guinea worm challenge is the kind of “impossible” mission tailormade for someone like Donald Hopkins, one of Fortune’s 2018 “World’s
50 Greatest Leaders” (please see page 42). But as the good doctor tells
Fortune’s Erika Fry, there is another infectious disease that’s even more
dangerous to humanity—and that’s the “failure of imagination.”
It’s an insight that, through a kaleidoscope of diferent achievements
and life experiences, resurfaces many times in this year’s list—our fifth
annual roster of imagination-embracing game changers, paradigm shifters, and unsung champions across multiple fields of endeavor. FDA commissioner Scott Gottlieb seemed to draw from a whole new regulatory
playbook when he recently proposed a policy shift that could eventually
reduce the amount of nicotine in cigarettes to the point where they were
no longer addictive. The notion is shockingly straightforward—and it
could save countless lives.
SpaceX’s Gwynne Shotwell has used such creative problem solving to
turn the Mars-eyed ambitions of her boss, Elon Musk, into actual Earthdeparting rocket ships. Balkrishna Doshi has reimagined architectural design for the masses, conceiving of homes for a community of tens of thousands of people that still feel lush with open spaces. Black Panther director
Ryan Coogler foresaw a cinematic world that broke Hollywood traditions
as it broke box-oice records too. Led by its imaginative CEO, Mary Barra,
GM quietly guided its electric Chevrolet Bolt EV into the market before
Tesla’s Model 3 could push its nonexistent start button. And Salesforce
boss Marc Beniof and actor/producer Reese Witherspoon each decided
that wanting pay parity for women and men wasn’t enough. So they just,
well, made it happen in their own domains—ofering a real-world lesson to
anyone who claims that such equity is too hard to accomplish.
Perhaps most remarkable is the collective imagination of students
BY ALL RIGHTS, DONALD HOPKINS SHOULD BE
6
F O R T U N E . C O M // M AY. 1 . 1 8
across the United States, who
dared to take on a challenge that
their parents, aunts, and uncles
had all but abandoned: stopping
the scourge of gun violence.
On a list like ours, it’s easy
to get lost in the politics—the
pinpointing of causes on a spectrum of left to right, blue to red,
black to white, male to female.
But that’s not the point of our
annual exercise. Whatever the
mission, we simply looked for
people who had proved to be
great at leading it.
As always, I hope you’ll write
and let us know which of our
choices you agree with—or
don’t. In the meantime, I believe we can all learn something
powerful from each of them.
Donald Hopkins was only 26
when he arrived in Sierra Leone
to begin inoculating millions
of people against the smallpox
virus. No disease had ever been
eradicated before—but Hopkins wasn’t fazed. “We were
young and naturally optimistic,”
he says.
That’s something that a good
leader never outgrows.
CLIFTON LEAF
Editor-in-Chief, Fortune
@CliftonLeaf
MAGIC APP IN MY HANDS, I FOLLOW YOU UNTIL THE END
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Restrict
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PAGE
1
THE
WORLD IN
7
B U C K E T: M I K E K E M P —T E T R A I M A G E S / G E T T Y I M A G E S
PAGES
Facebook Can’t
Solve This
Problem Alone
Even Mark Zuckerberg says more social media
regulation is inevitable—and desirable. But will new
rules shore up today’s giants, or tear them apart?
By Aaron Pressman
MARK ZUCKERBERG came to
Washington, D.C., to testify
before Congress for the first time, trading his
customary gray T-shirt for a snappy, hearingappropriate suit and armed with a litany of
well-rehearsed talking points.
Throughout two days of Q&A, the Facebook
CEO apologized repeatedly for the massive
misuse of 87 million users’ personal data.
Some lawmakers came of sounding like
bufoons, and the glib verdict rendered
Zuckerberg the winner. Wall Street certainly
TECHNOLOGY
9
PHOTO ILLUSTRATION BY TRES COMMAS
F O R T U N E . C O M // M AY. 1 . 1 8
of customer information, and one that is
prone to placing the
interests of data-hungry
advertisers above the
privacy concerns of
users.
How far will lawmakers go to reconcile those
competing interests?
On the more modest
end, there’s the Honest
Ads Act. The bill, supported by Zuckerberg, is
likely to pass, and it will
require Internet companies to divulge who
pays for every political
ad—just as TV and radio
stations must do now.
Zuckerberg also
voiced partial support for the European
Union’s new privacy
law that will require
Internet companies to
get airmative permission from users before
collecting many kinds of
data, including browsing
history. If users don’t opt
in, Facebook, Google,
and others won’t have
as much information
available for targeting
ads and might see less
revenue as a result.
Meanwhile, telecom companies have
long been lobbying for
broader limits on online
tracking, an approach
that appears likely to
gain more momentum.
Whatever the approach, analysts doubt
Washington will be able
to act quickly. And in
the meantime Facebook
is likely to curtail some
of its data collection
and ad targeting practices on its own. In late
March, the company
agreed to stop letting
advertisers combine
third-party data with
Facebook’s information
to select who would see
their ads. And Zuckerberg committed to putting 20,000 people on
the job of weeding out
ofensive or inappropriate content.
There’s disagreement
“theinternet
isgrowingin
importance
aroundthe
world…it
isinevitable
thatthere
willneed
tobesome
regulation.”
—Mark Zuckerberg
before Congress
during his moment
in the spotlight
10
F O R T U N E . C O M // M AY. 1 . 1 8
over what efect such
measures will have.
“These are persistent
costs,” says Brian Wieser
at Pivotal Research. “It’s
not a one-of thing and
then you go back to
normal.” But the recent
actions are unlikely to
fundamentally alter
the company’s business. “Look, Facebook
is a core part of people’s
mobile world,” says Rich
Greenfield at BTIG
Research. “There could
be more problematic
consequences down the
road. But will [the voluntary measures] have
a near-term impact on
users or revenue? I don’t
see it.”
Perhaps the greatest
current threat to Facebook is one that several
lawmakers mentioned
during the hearing: the
possibility of breaking
up the company and
forcing it to divest Instagram and WhatsApp.
“There’s usually a
preference for using
competition and market
forces in cases like this,”
says Maurice Stucke,
a law professor at the
University of Tennessee
and a former Justice
Department antitrust
lawyer. Regulation is
hard to enforce and
hasn’t worked in the
past, he notes, while a
breakup might “unite
both the liberals and
the conservatives.”
If that option remains on the table, it’s
safe to say this isn’t the
last time we’ll see Zuckerberg in a suit.
TOM WILLIAMS—CQ ROLL CALL/GE T T Y IMAGES
agreed, sending
Facebook’s stock up 6%
over the two days of
hearings.
But as Zuckerberg’s
testimony recedes into
memory, its ultimate
impact is just beginning
to be felt. The Cambridge Analytica afair
will likely be remembered as the beginning
of a larger reckoning.
As even Zuckerberg has
said, new regulation is
“inevitable.” The question now isn’t whether
today’s Internet giants
are impacted, it’s how
profoundly.
It’s not just Facebook’s $40 billion of
revenue that’s at risk.
Google collects as much
or more data about its
users, and Amazon,
Microsoft, and Verizon
(via its AOL and Yahoo
acquisitions) are also
vying for more online
advertising revenue. It’s
a business model that
relies on the harvesting
ANALYTICS
During the first 15 years of the century, Americans
flocked to cities. Today suburbs are the hot new
destination. According to Census data, the top 10
fastest-growing counties last year were in the
South and West of the U.S. The Dallas/Fort Worth
area added the most people, 146,000, three times
as many as New York. A few drivers of the trend:
More baby boomers are retiring in warm, lowdensity areas; high costs in cities keep would-be
residents away; and as millennials have kids, they’re
deciding that having a lawn might not be so bad.
Seeing Trends
in the Data
GOTOTHESUNBELT,
YOUNGMAN
POPULATION GROWTH
BY COUNTY, 2016–17
SHRINKING OR GROWING LESS THAN U.S. AVERAGE
Boise, Idaho
+2.8%
3
ONE OF THE TOP 10 FASTEST-GROWING
METROPOLITAN AREAS
GROWING FASTER THAN U.S. AVERAGE (0.72%)
Coeur d’Alene, Idaho
+2.9%
Bend, Ore.
+3.4%
PAGE
Greeley, Colo.
+3.5%
NEW YORK METRO AREA
Most populous metro area
20.3 MILLION
Seattle
Boston
Minneapolis
Salt Lake City
Chicago
San Francisco
St. Louis
Colorado Springs
Las Vegas
Los Angeles
Washington, D.C.
Denver
Nashville
Oklahoma City
Phoenix
Myrtle Beach, S.C.
+3.7%
Atlanta
St. George, Utah
+4.0%
TEXAS
The Villages, Fla.
+2.9%
Orlando
Provo, Utah
+2.7%
Lakeland, Fla.
+2.9%
Tampa
Austin
+2.7%
Anchorage
DALLAS METRO AREA
Largest numeric increase
+146,000
The top 10 counties with the
largest numeric growth are all
located in the South and the
West. Six of them were in Texas.
Honolulu
Miami
SOURCE: CENSUS BUREAU, YEAR ENDING JULY 1, 2017
THENEWFACEOFFRAUD
Last year, for the first time
in the 10 years that security
firm Kroll has been reporting
business risks, it found that
information theft had surpassed
physical theft—affecting 29% of
companies versus 27% for the
latter. Another milestone? Nearly
85% of businesses experienced
at least one incident of fraud last
year, the highest rate ever.
PAYINPERSPECTIVE
85%
80
75
70
INCIDENCE
OF FRAUD IN
SURVEYED
COMPANIES
65
60
55
2012
2017
SOURCE: KROLL
As the minimum-wage debate
rages in the U.S., one common
argument is that a blanket rule
would place undue burden on
rural businesses (since a dollar
goes a lot further in LaFayette,
Ga., than in Los Angeles). But
even so, what the minimum
wage buys on average in the
U.S. still lags that of many
other developed countries.
WEEKLY NATIONAL MINIMUM
WAGE ADJUSTED FOR
PURCHASING POWER
$450
GERMANY
$430
FRANCE
$404
IRELAND
$387
U.K.
TURKEY
U.S.
SPAIN
POLAND
PORTUGAL
$316
$313
$291
$278
$244
SOURCE: EUROSTAT, ASSUMING DOLLAR-TO-EURO EXCHANGE RATE AT $1.24
11
GRAPHICS BY NICOLAS RAPP
F O R T U N E . C O M // M AY. 1 . 1 8
PAGE
4
So far, populist outcry has mostly been a First
World problem. It won’t stay that way.
By Ian Bremmer
fear lost jobs
and wages. Citizens fear surging
waves of strangers who change the face and voice of
the country they know. They also fear terrorists and
criminals who kill for reasons no one can understand. They fear that the government cannot or will
not protect them.
Then, the call for help is answered. Donald Trump
tells an excited crowd that he will take them (back)
to the promised land. Champions of Brexit tell voters
they must reclaim control of Britain’s borders and
reject laws and rules forced on them by Europeans.
Populists in Italy, Germany, Poland, and Sweden
promise to protect patriots from outsiders.
These leaders, and wannabe leaders, have a gift for
drawing boundaries. They ofer a compelling vision
of separation, of a world that’s “us vs. them.” And
they know that unprecedented cross-border flows of
people and money have stoked anxiety to match.
But while the pathos has been concentrated in the
U.S. and Europe so far, there’s a larger crisis coming.
The storms creating turmoil in wealthy countries—
MOVEMENTS
WORKERS EVERYWHERE
Ian Bremmer is the
founder of Eurasia
Group. His new book
is Us vs. Them: The
Failure of Globalism.
12
F O R T U N E . C O M // M AY. 1 . 1 8
EDUCATION
TEACHINGKIDS
TOCODEIS
OVERRATED
IN AN AGE of widespread technological
disruption, it has
become fashionable
to say that everyone
should learn to code.
But there’s a
problem: Coders face
the same existential
crisis as any other
worker whose job is
threatened by tech.
We don’t teach today’s
teenagers how to drive
a car with a manual
transmission; with
autonomous vehicles,
we might not teach tomorrow’s teens how to
drive at all. The same
goes for programmers. Today’s artificial
intelligence software
is powerful enough to
create other A.I. software—which means it
won’t be long before
we replace coders with
code that codes.
The best lesson
from that coding boot
camp you signed up
for? It’s the same one
you’d learn in a liberal
arts college: How to
solve problems. We
surely won’t run out
of those.
—ANDREW NUSCA
T HE AT E R SE AT S : JOHN MOORE—GE T T Y IM A GE S; H A ND: A S L A N A L P H A N—IS T OC K / GE T T Y IM A GE S
Rage at Globalism
Is Just Beginning
including technological change in the
workplace and rising
income inequality—
are now crossing into
the developing world,
where governments
and institutions aren’t
ready. These countries
are especially vulnerable. They face an even
bigger gap between
rich and poor, and
their institutions and
social safety nets aren’t
as strong. They’re less
prepared for innovations like automation
that will make it harder for governments to
help people prepare
for the loss of familiar
jobs and the demands
of future ones.
How will governments respond? Some
will build walls—actual and virtual—that
separate people from
one another and government from citizens.
But those still hoping
to build open societies
will also adapt, remaking existing social contracts and redefining
what it means to be a
good global citizen.
PAGE
B A R T E N D E R : M E L I N A M A R A —T H E W A S H I N G T O N P O S T V I A G E T T Y I M A G E S ; S A N F R A N C I S C O : S P E N C E R L O W E L L
5
The High Cost of
High-End Cocktails
You’re not imagining it. The price of a good drink
is going up. By Rachel King
$15 to $20
was the going rate for an entrée at a
mid-range restaurant, and an above-average cocktail
cost a fraction of that. Today, however, patrons don’t
bat an eye at shelling out $16 for a single drink.
What’s happening? About a decade ago, the average price of a craft cocktail was about $10 at many
speakeasy-style dens, according to interviews with
bartenders across the country. (That’s just under $12
in inflation-adjusted dollars.) “When we first opened,
HIGHBALL
IT WASN’T LONG AGO that
YIMBYS
CALIFORNIANS
WANT TO
RETHINK THE
AMERICAN CITY
seven years ago, our
base cocktail price
was $9,” says Jamie
Boudreau, proprietor
at Canon, a James
Beard–nominated bar
in Seattle. “Now our
base cocktail price is
$14 and, quite frankly,
should be higher, but
I fear that our location may not bear it.”
Drinks at the Aviary, an acclaimed Chicago bar, start at $18,
while a sidecar—a
simple staple typically
made with cognac,
DECADES OF underbuilding in California have led to a housing crisis
so severe McKinsey estimates it
costs $140 billion in lost GDP every
year. Now, proposed legislation
aims to change that. One bill,
SB-827, would radically rezone
transit-rich areas (think San Fran-
triple sec, and lemon
juice—will cost you
$23 at Bemelmans
Bar in Manhattan.
Thad Vogler, owner
of Bar Agricole and
Trou Normand in San
Francisco, says he has
seen prices rise by
about 40% in the past
10 years. Oft-cited
reasons include rising
rents, drinks’ importance to restaurants’
bottom lines, and
a tight labor market. But “the main
factor is how much
the drink costs us to
make,” Vogler says.
“Many cocktails today
are being crafted by
master mixologists
using super-premium
spirits and fresh
ingredients,” explains
Frank Coleman of
the Distilled Spirits
Council. “It’s not your
grandfather’s oldfashioned.”
The true enabler
of price hikes? Great
expectations. The rise
of cocktail culture has
trained diners to want
better drinks. And if
they’re willing to pay
more, bartenders figure, why not let them?
cisco). Another, SB-828, would
allocate more land for residential
use. Tech CEOs, frustrated at high
rents for employees, are in favor.
Neighborhood associations?
Not so much. High-priced cities
around the country will be eyeing
the outcome. — ANNE VANDERMEY
13
F O R T U N E . C O M // M AY. 1 . 1 8
PAGE
6
TRADING DOWN
Some of the stocks whose prices
have fallen furthest in the six
weeks after Trump announced
tariffs against China on March 1.
Qualcomm, down 15.1%
Whirlpool, down 8.3%
3M, down 8.1%
A whopping 64% of
the chipmaker’s sales
come from China.
(A failed takeover bid
by Broadcom hasn’t
helped.)
Oh, the irony: Its stock
jumped after proposed
U.S. tariffs on washing
machines, but it relies
heavily on imported
steel.
China is the source
of about 10% of sales
for the maker of
Post-it notes, and
one of its fastestgrowing markets.
China says it will
place a 179% import
charge on U.S. sorghum
(shown here).
U.S. farmers’ pain could be the tip of the iceberg if
trade tensions escalate. By Chris Matthews
KEVIN SCOTT, a fourth-generation
North Dakota farmer, had high
hopes for the 2018 harvest. Then President Donald Trump threatened a 25% tarif on $50 billion
in goods imported from China as punishment for
intellectual-property theft. China quickly announced
a 25% tarif targeting U.S. products like feed grains.
BELLWETHERS
11,000
$90 billion
THE BIG TREND
$84.2
70
8,076
9,000
50
30
VALUE OF U.S.
VC DEALS
2013
2017
7,000
NUMBER
OF DEALS
CLOSED
2013
2017
SOURCE: PITCHBOOK
14
F O R T U N E . C O M // M AY. 1 . 1 8
WHAT
MEGAFUNDS
MEANFOR
TECH
and whiskey exports.
(See afected stocks,
above.)
To ease the pain
going forward, the
administration has
proposed greater
farming subsidies,
but Scott would prefer the two countries
agree to peace terms
instead. “Farmers,” he
says, “prefer to make
their living from the
market.”
IT’S THE NEWEST VENTURE CAPITAL CRAZE: multibillion-
dollar funds. VC leaders like General Catalyst, Battery
Ventures, Sequoia Capital, and others are building
war chests worth more than $1 billion. While megafunds aren’t new, the surge seems timed to compete
with SoftBank’s mammoth $100 billion Vision Fund.
The effect? Ample cash lets companies stay private
longer, and investors are plowing cash into fewer but
larger deals. Some fear the outcome for startups will
be a few “super haves” and even more have-nots.
—POLINA MARINOVA
SORGHUM: SONGSAK PANAME—GE T T Y IMAGES
The First Victims of
a New Trade War
The latest volley in
the simmering trade
war is hitting the
agricultural industry
particularly hard. The
price of soy, which
Scott grows, tanked
after China’s rebuttal
(it has since recovered). But agriculture
will be far from the
only industry impacted. China’s tax would
also squeeze U.S.
chemicals, aircraft,
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PAGE
7
ON SALE NEAR
YOU:YOUR
LOCALMALL
OPERATOR
AS MALL OPERATORS work frantically to reinvent
themselves in the Amazon era, the most successful are turning to economies of scale. Last
month, Brookfield Property Partners bought the
two-thirds it did not already own of GGP, the No. 2
U.S. mall operator, for $15 billion. Weeks earlier,
France’s Unibail-Rodamco said it would buy global player Westfield for $16 billion. And major mall
developers like Macerich and Taubman are facing
pressure from activist investors that could presage more megadeals in the future.— PHIL WAHBA
Drug Prices Are
Increasing. So Is Big
Pharma Lobbying
By Jay Hancock and Elizabeth Lucas
POLITICS
THE OUTLOOK was grim for Novo Nor-
disk at the end of 2016. As pressure
mounted over its rising insulin prices, investors
drove the stock down by a third, fearing that lawmakers would cap price tags and hurt profits.
So last year the company engaged in a timehonored response to public criticism. It gave
$405,000 in campaign contributions (double the
amount in 2015), according to data compiled by
Kaiser Health News. It also spent $3.2 million on
lobbying and mobilized 400 employees to contact
lawmakers. “We remain committed to being part of
the discussion,” a company spokeswoman said.
It’s not alone. In the face of drug-price scrutiny,
the pharmaceutical industry spent
$171 million on lobbying last year, the
highest since 2009’s
Obamacare negotiations, according to the
Center for Responsive
Politics. (Lobbying
spending overall has
remained flat.) It’s
diicult to gauge the
impact, of course, but
D.C. has not enacted
price controls in the
past year. Novo Nordisk’s stock, meanwhile, has recovered.
This article was
produced in partnership with Kaiser
Health News.
paydays
This year for the
first time, thanks
to Dodd-Frank,
companies are
disclosing what
their CEOs make
vs. their median
employees.
127:1
THE MEDIAN
overall CEOto-worker pay
ratio at S&P 500
companies.
5k:1
THE RATIO
Insulin used
for a NovoRapid
injection.
at toymaker
Mattel. It’s the
highest reported
at any company
so far, thanks to
a large seasonal
hourly staff.
930%
PAY INCREASE
for the average
CEO since 1978.
—GRACE DONNELLY
SOURCES: BLOOMBERG,
COMPANY REPORTS
16
F O R T U N E . C O M // M AY. 1 . 1 8
S H O P P E R S : D AV I D P A U L M O R R I S — B L O O M B E R G V I A G E T T Y I M A G E S ; I N S U L I N : C O U R T E S Y O F N O V O N O R D I S K
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What are the legal ramifications of a self-driving
car at fault? A look into what happens legally
after robots go awry. By Kirsten Korosec
THE FUTURE OF
A visualization (top photo) and the reality (bottom) of an autonomous vehicle encountering a school bus.
MARCH 18 CHANGED EVERYTHING —and
nothing—in
the frenzied and nascent world of autonomous
vehicles. That Sunday evening, in a Phoenix
suburb that has become a hub for testing
autonomous vehicle technology, an Uber selfdriving vehicle struck and killed pedestrian
Elaine Herzberg. The vehicle was in
autonomous mode at the time of the collision,
with a human test driver behind the wheel.
The incident is believed to be the first
death caused by a fully autonomous vehicle.
21
F O R T U N E . C O M // M AY. 1 . 1 8
It prompted Uber to halt autonomous
vehicle testing on public roads in four cities
and other companies to pause their own
public road tests. It also led Arizona Gov.
Doug Ducey, a proponent of autonomous
vehicle technology, to suspend Uber from
operating in the state. Advocacy groups called
for a national moratorium on self-driving tests.
A fatal self-driving car crash seemed
inevitable. Though the arrival of the robot
car promised a dramatic reduction in the
1.25 million road traic deaths that occur
around the globe each year, there was also the
sneaking suspicion that someday, for some
reason, a self-driving vehicle would cause a
collision—perhaps because of a string of bad
code, an unexpected equipment failure, or an
impossible decision. And then what? Who is
responsible, legally speaking, in a world where
machines make their own decisions?
“The short answer is, it depends,” says Jim
McPherson, a California attorney who studies
autonomous vehicles. “The longer answer is,
anyone who is responsible for causing harm.”
In the eyes of insurers, today’s self-driving
vehicles are treated no diferently than
conventional cars when they’re involved in
22
F O R T U N E . C O M // M AY. 1 . 1 8
An autonomous
Volvo SUV, owned
and operated by
Uber, lying on its
side in the road
after a collision in
Tempe, Ariz., on
March 24, 2017.
Whois
responsible
inaworld
where
machines
make
theirown
decisions?
a collision, according to Maureen Brown
of Munich Reinsurance America, a firm
that insures a number of companies testing
autonomous vehicles. And states that allow
companies to test self-driving vehicles
require them, as with human drivers, to have
insurance. Every autonomous Uber vehicle,
for example, is covered by commercial auto
liability insurance that covers bodily injury
(including death) and property damage. And
that coverage is in place regardless of whether
the car is in autonomous mode or not.
Still, expect changes. The rise of selfdriving cars will prompt us to adapt existing
frameworks for new operators. “Today when
you’re writing an auto insurance policy, it’s all
about the drivers,” says Robert Passmore, an
executive at the Property Casualty Insurers
Association of America. “What’s their driving
record and that kind of thing? As we get more
and more into where the system is driving, it’s
going to be increasingly about that system.”
Not to mention its track record. “It’s not
just being able to show what happened but
being able to show that the data should be
believed,” says Bryant Walker Smith, a law
professor at the University of South Carolina
who studies driverless car regulations. “And
then having the resources on all sides—that’s
government investigators, plaintifs, even
defendant companies—to be able to analyze
that data, understand it, and model it.”
The U.S. legal system has yet to be truly
tested by a self-driving car crash. Every
incident involving an autonomous vehicle in
the U.S. to date—and there have been few—
has been settled out of court. Just one proper
lawsuit has been filed so far, stemming from a
collision involving a self-driving car powered
by GM-owned Cruise Automation and a
motorcyclist in San Francisco. But even that
case appears destined for a settlement.
Expect that pattern to continue—after
all, no one wants to take the road not yet
traveled. Indeed, Uber reached a settlement
with Herzberg’s husband and daughter within
10 days of the incident, notes University of
Toledo law professor Agnieszka McPeak.
“That case settled pretty quickly because they
don’t want negative precedent,” she says. “As
soon as there’s a case that goes against them, it
opens up a Pandora’s box of liability.”
MARK BE ACH—FRESCO NEWS/REUTERS
TECH
FOCUS
Where
technology and
finance intersect.
FOCUS
BlockCypher supports Bitcoin,
Litecoin, Ethereum, and Dogecoin.
Do you believe one cryptocurrency
will reign supreme?
We’re still in the very first inning.
Bitcoin was the first cryptocurrency; it’s not going anywhere.
It is the king of the world against
which all other cryptocurrencies
are benchmarked. That doesn’t
mean other cryptocurrencies
won’t nip at Bitcoin’s heels. I do
think that a better cryptocurrency
will come along.
You are a woman in the blockchain
business at a time when many
industries are grappling with sexualharassment issues. And you’re a U.S.
Naval Academy graduate.
Q+A
EVEN KEEL
FORTUNE: A blockchain is a distributed public ledger technology
that powers cryptocurrencies like
Bitcoin. What role does BlockCypher
play in its development?
CATHERYNE NICHOLSON: Block-
Cypher is like Amazon Web
Services [AWS] for blockchain. We
build APIs, or application programming interfaces, for blockchain.
AWS made it easy for firms to just
call up Amazon and get their web
Catheryne Nicholson, CEO of
BlockCypher, finds opportunity
in a volatile industry.
Interview by Lucinda Shen
infrastructure going much faster.
We provide the same for blockchain. We build one application on
a blockchain, and it’s easily portable to others. A startup would have
to download the node, find peers,
and do all of these things before it
could begin to build a blockchain
application. Instead of spending six
to nine months doing that, it can
spend an hour using our APIs.
My time at the Naval Academy
was really defining, and not necessarily in the best way. It was a
boys’ club. Women were left to
either sink or swim. I was the only
woman in most of my aeronautical
engineering classes; they used to
mock my voice. In my first meeting with my academic adviser, he
told me it’d be the only time he
would meet with me because aero
was one of the toughest majors
and women weren’t smart enough
for it. I went on to become the only
person in my class to graduate as
an aeronautical engineer.
That experience set me up
really well for Silicon Valley. Particularly for startups, because you
have to have sharp elbows and
you can’t take no for an answer.
That’s also why I was adamant
about getting women investors.
Do you have plans to raise more
funds to scale the business faster?
We don’t need to. Plus there are
a lot of changes in blockchain. Is
what we do now going to be what
we’re doing a year from now? We’d
rather watch what goes on and be
able to pounce on where we think
blockchains are going to go.
24
F O R T U N E . C O M // M AY. 1 . 1 8
PHOTOGRAPH BY WINNI WINTERMEYER
MEET ICON, THE COMPANY
BEHIND THE FIRST
PERMITTED 3D-PRINTED
HOME IN THE U.S.
FOCUS
YOUR NEXT HOME
COULD BE 3D-PRINTED
The goal: Build a house
with less cost, less waste,
and in less time.
The first partner: New
Story, a Y Combinator–
backed nonprofit working
in the developing world.
The dream: Build on Mars
(paging Elon Musk). Icon
is investigating how to
3D-print space habitats.
YOU COULD ARGUE that 3D printers haven’t lived
TECH up to the hype. Delightful objets d’art with
seemingly impossible structures are fun but trivial.
Sure, the medical community has had success using the
technology to create artificial bones. And auto-industry
designers use additive manufacturing techniques to
rework the shape of a fender. But the notion of a 3D
printer on every person’s desktop hasn’t quite panned out.
Icon, a startup based in Austin, hopes to reignite
imagination around 3D printing by going bigger—
much bigger. With a proprietary machine it calls Vulcan,
Icon can generate entire homes. It erected its first
prototype, a 350-square-foot home, in Austin in March.
26
F O R T U N E . C O M // M AY. 1 . 1 8
The interior and exterior walls of the structure are
composed of a series of stacked concrete layers. Icon
says the result is stronger than cinder block—and crucially, far cheaper to build than one using conventional
methods. Icon says it can create a single-story dwelling
in 48 hours for $10,000 or less. A production version of
Vulcan promises to more than halve the time and cost.
The company’s next step is to build dozens of homes
in El Salvador, but the bigger business opportunity may
lie closer to home. Cofounder Jason Ballard says he
hopes to regularly build homes in the U.S. within
12 months. The projected price? About $125,000 for
1,500 square feet—less than half the national average.
COURTESY OF ICON
We’ve been using 3D printers to create everything from novel trinkets to rapid
design prototypes. But what about a house? One Texas company wants to
make it possible to download and print a livable structure. By Chris Morris
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FOCUS
GO ON
GREEN
LIGHT
Every entrepreneur
has a “light bulb
moment.” Cole Zucker’s
was quite literal.
After getting fired from his
job in New York, Cole Zucker
booked a one-way ticket
to Shanghai, in search of
adventure in a country where
he knew no one and spoke no
Chinese. After three years, he
became fluent in the language,
found a business partner, and
returned to the U.S. to start
Green Creative, a commercial
LED lighting company. Living
out of his car in San Francisco,
Zucker then went door-to-door
selling the new technology
out of a display suitcase.
Last year, Green Creative was
acquired by Harbour Group,
and its cofounder is still selling
its products to end users like
Walmart, Papa John’s, J. Crew,
and other retailers.
HO W I G O T S TA R T E D
Interview by Dinah Eng
and thought
I wanted to be a doctor, but I quickly realized that
wasn’t me. My grandfather was in the towel business and loved
talking about China and the World Trade Organization. In 2003 I
decided to do a semester abroad in Beijing, which made me realize
there were a lot of places to explore in the world.
After graduating from Franklin & Marshall College, I took a job
with Prudential Securities in New York as a fixed-income investment management trainee. I was the worst management trainee
in the history of the program and got fired after the first year. I
had about $3,000 in my bank account, so I bought a one-way ticket
to Shanghai, packed two dufel bags of clothes, and booked an
VENTURE
I HAD A MIDDLE-CL ASS JEWISH upbringing
29
PHOTOGRAPH BY BRAD WENNER
F O R T U N E . C O M // M AY. 1 . 1 8
VENTURE
FOCUS
eight-week stay in a hostel that cost $500.
I applied to accounting firms and finance
oices for a month, then, through my parents’
friends, got a call from Gary Gao, the owner of
Everbright Engineering, which had factories
that sold sustainable building materials to
multinational companies.
He thought it would be prestigious to have a
non-Chinese employee who spoke English, so
he hired me to expand sales inside China. I was
22 years old and started on 5,000 renminbi a
month, which was about $8,000 a year.
I didn’t speak any Chinese, so I’d memorize the Chinese dictionary on my subway
commute to work. On the weekends I’d talk
to everyone I could and teach them English
while they conversed with me in Chinese.
After a successful three years learning how
business was conducted in China, I was ready
to go home and start my own company.
It was 2009, and I’d read an article that
said in the next 10 years, LED lighting would
grow from 2% of the U.S. market to 80%.
That was my light bulb moment. I said, I’m
going to take LED and bring it to the U.S.
While in China I met Guillaume Vidal, a
Frenchman who also worked in lighting. We
hung out for a while, then didn’t see each
other for about six months. One night I came
home and accidentally sat down on the TV
remote. Guillaume was on the TV, talking on a
food channel, so I got back in touch with him,
and we started planning a business.
I wanted to move back to the U.S. He
wanted to stay in China. I wanted to do sales,
and he wanted to do R&D. Both of us spoke
Chinese fluently, so we found a supplier and
got a factory to give us a chance. I started to
pitch friends and family, but no one was
willing to invest.
I’d saved enough to put $100,000 into the
company, and I moved to San Francisco to
open up the U.S. market.
We ordered about $60,000 of inventory,
and I found a public storage space where you
paid only $1 for the first month. For the first
six months I’d register under one friend’s
name, change it to another name, and move
from one expiring storage locker to the next,
paying only $1 a month for the space.
I was getting rejected on sales calls so
often, I decided to create the demand myself.
Guillaume had a suitcase of display LED light
30
F O R T U N E . C O M // M AY. 1 . 1 8
bulbs made, and I walked into
businesses, telling people these
bulbs could make their store
look better and save them a ton
COLE ZUCKER,
of money.
COFOUNDER
Oice towers have a lot
GREEN CREATIVE
of lights, and the engineers
THE PRODUCT life cycle
get in at 4 a.m., so I would
of older light bulbs can
show up outside a parking
last 10 years. But LED
garage at 4:30 a.m. to approach
technology is changing
so quickly, the shelf life
the engineers while they were
is about a year.
having cofee and ask to show
When large lighting
my light bulbs. I’d screw the
companies build out
bulbs into the display sockets
a product line, they
have an international
and plug the suitcase into an
customer line, an
outlet for the demonstration.
R&D department, and
By the end of the first year
certification people. It
I had made $300,000 selling
takes 18 to 24 months
door-to-door. Lighting distribufor new products to
come out.
tors who had rejected us earlier
We built a speedboat
started hearing about me and
and develop products
said if I stopped selling directly
in six to eight months.
to their customers, they’d take
We hire people to do
R&D, certification, and
our products. That’s when I
marketing, and all three
knew we had broken through.
teams work together so
The second year, Guillaume
they all send material to
figured out how to build an
Energy Star while we’re
innovative range of LED lights
in development. When
the product is ready, it
that distributors loved. Sales
goes directly to market.
went to $2 million in the Bay
Area. My grandfather got me
an old Mazda 3, and to save
money, I’d hang clothes in the
back seat, sleep in the car overnight, and go to a gym to shave
and shower before starting to sell each day.
Sales continued to grow; we secured a $1.25 million loan and
$250,000 from an angel investor.
In 2013 we started hiring salespeople around the country and
became known as a tiny but innovative brand of LED light bulbs.
We now have about 5% of the LED commercial light bulb
market. Our customers are wholesalers who sell to end users like
Papa John’s, Foot Locker, Walmart, J. Crew, and other big retailers.
We’re known for making smaller light bulbs that create the most
amount of light for high-end retail stores.
About a year and a half ago we shifted the focus to lighting
fixtures, which was about 26% of our business last year. We
sold our business to Harbour Group a few months ago and
merged operations with ILP (Industrial Lighting Products),
which manufactures lighting fixtures. We’re projecting sales of
$150 million this year.
In the beginning, we didn’t even know how to do a balance sheet.
We were stupid, but we were willing to take a risk. It’s paid of.
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DEVELOPMENT
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speakers, and sponsors who made this event a resounding success.
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INVEST
FOCUS
STOCK BUYBACKS:
PARTY NOW,
REGRET IT LATER
Tax cuts are fueling a record-setting boom in company
share repurchases. But recent buybacks have left some
investors feeling burned. Here’s why. By Ryan Derousseau
into a bull market,
and it’s no secret that stocks are expensive. The
Shiller price/earnings ratio, which compares
companies’ share prices with their inflationadjusted 10-year earnings average, is at 31, well
above the historical median of 16—a sign that
future returns will be sluggish. Combine that
with simmering worries about trade wars and
inflation, and you get a climate in which fewer
investors are clicking the “buy” button.
Yet there’s one group purchasing company
shares with gusto: the companies themselves.
As the impact of new tax cuts circulates
through corporate balance sheets, businesses
are getting an infusion of cash, and much
of the windfall is going toward buying back
stock. J.P. Morgan estimates that repurchases
in 2018 will jump 51% from last year’s mark,
to $800 billion, which would be a singleyear record.
Historically, buyback announcements have
attracted investors like a plate of snickerdoodles does a kindergartner. Repurchases reduce
the number of shares outstanding, giving
each remaining shareholder a bigger share of
future earnings—and thus making price appreciation more likely.
That’s the theory, anyway. But for many
companies, it hasn’t quite worked out that way,
says Gregory Milano, CEO of financial consultancy Fortuna Advisors. Since 2011, Fortuna
has calculated a “buyback ROI,” or return on
investment, which tracks post-buyback stock
prices and other data points to measure the effectiveness of corporate repurchases. And over
the five years through 2017, the 353 companies
that spent significantly on buybacks underperformed the market on average. Their median
ROI was 13.8% annually, including dividends,
while the S&P 500’s return was 15.8%.
Why the meh results? Critics point to a
misallocation of capital: Money spent on buybacks is money that isn’t invested in projects
that fuel longer-term success. For his part,
Milano notes that the main factor in an efective buyback is simply good timing—and low
ROIs often signal that the company bought at
an expensive markup. Case in point: Chipotle,
which landed dead last on Fortuna’s list. The
company spent heavily on share repurchases
in the first quarter of 2016, at the height of the
fallout from its E. coli scare. But even then,
WE’RE MORE THAN NINE YEARS
33
ILLUSTRATION BY NAZARIO GRAZIANO
F O R T U N E . C O M // M AY. 1 . 1 8
the stock had a sky-high valuation, and
shares have fallen further in the interim, giving the company an ROI of minus 23%.
HOW TO CONFRONT THIS CONUNDRUM? With stocks
in general still trading so high, investors are
best of ignoring the short-term hype around
buyback announcements and instead taking
a closer look at companies on repurchasing
binges to see if their share prices have more
room to run. Here are three that fit the bill.
As part of a three-year, $1.2 billion
campaign, Foot Locker (FL, $46) bought back
$300 million worth of shares in the third
quarter of 2017. The company got them cheap,
because the stock was near the bottom of
a fall of more than 60%. The cause? Nike,
which accounts for about 65% of Foot Locker’s
inventory, had a number of underperforming
product lines in 2017. But analysts predict a
comeback for the retailer. “Foot Locker should
certainly benefit” from better-selling Nike
footwear and clothing lines hitting the market
this year, says Wedbush’s Christopher Svezia.
And it’s a savvy way for investors to tap Nike’s
growth, too, since its stock trades at a discount
of more than 40% to the athletic giant’s.
Boeing (BA, $327) has been feeling turbulence
from the tarif battle between President Trump
and China: About 25% of Boeing’s airplanes
go to Chinese buyers. But the benefits of
recent tax cuts may more than ofset any
trade damage. One vignette of the tax impact:
When developing the 787, Boeing wrote of
the expense at the then-prevailing 35% tax
rate; now that it’s selling the planes, it owes
tax of only 21% on the profits. Boeing recently
announced an $18 billion repurchase program,
and thanks to a thriving airplane market,
there’s a “buying environment” for the stock,
says Cowen analyst Cai von Rumohr.
Digital-memory specialist Micron Technology
(MU, $50) was one of Fortuna’s better buyback
ROI performers—and though its most recent
repurchasing campaign tailed of at the end
of 2016, it’s still worth a look. Its performance
has long been tied to Apple’s iPhone, which
uses its chips for short-term memory. But last
year, Micron began reaping more revenue
from cloud computing. And the arrival of
the faster wireless protocol known as 5G is
expected to create even more demand for its
products. “5G could move Micron out of the
NOTALL BUYERSARE WINNERS
When companies announce share repurchases,
outside investors often jump in, hoping for big gains.
But sometimes those hopes get dashed. “Buyback
ROI,” calculated by Fortuna Advisors, measures how
shareholders have fared post-buyback. Here are
the five best and worst performers for the five years
through 2017.
RETURN ON INVESTMENT
100%
5 BEST COMPANIES
5 WORST
NVIDIA
80
APPLIED MATERIALS
60
CONSTELLATION BRANDS
40
E*TRADE FINANCIAL
20
LAM RESEARCH
0
PERRIGO
CHIPOTLE
–20
TRIPADVISOR
–40
0
10
20
30
MACY’S
VIACOM
40
50
60
70
80%
BUYBACK AS A PERCENTAGE OF MARKET CAP
SOURCES: FORTUNA ADVISORS; S&P GLOBAL (ROI IS ANNUALIZED; MARKET CAP AS OF 12/31/17)
INVEST
companies
thathave
spent
significantly
onbuybacks
since2012
havetrailed
themarket.
Apple cycle,” says SIG analyst Mehdi Hosseini.
At today’s prices, investors may want to
simply stay out of the repurchasing game.
One company that has done the same: Charles
Schwab (SCHW, $51), which hasn’t done a
buyback since the Great Recession. As its
balance sheet recovered, Schwab reinvested
heavily in technology and in its consumer
bank, Schwab Bank—which has gone from
$49 billion in assets in 2010 to $199 billion
today. It now accounts for nearly half the
company’s revenue, and it generates income
more predictably than Schwab’s commissionheavy businesses, like its self-directed
brokerage, says Steven Chubak, an analyst at
Nomura Instinet. The financial sector paid out
$124 billion in repurchases in 2017, but Schwab
has no plans to join that parade this year.
34
F O R T U N E . C O M // M AY. 1 . 1 8
GRAPHIC BY NICOLAS RAPP
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TIME
WELL SPENT
COURTESY OF ASTON MARTIN
AUTO
ASTON MARTIN’S
NEXT CENTURY
James Bond may have put it on the map, but the British
marque is determined to stir, not be shaken. By Jaclyn Trop
Valkyrie, a carbon-fiber hypercar (above) limited to 150 vehicles,
will serve as the “halo car” for the Aston Martin brand.
WITH SEVEN BANKRUPTCIES in its first 100
years, you can forgive Aston Martin, the British bespoke carmaker, for wanting to focus on
its “Second Century.” That’s the name given to
its strategy promising a wholesale reinvention
of 007’s favored marque. With new leadership,
the storied luxury brand has been running
at breakneck speed, looking to launch seven
models in seven years, including electric cars
and its first-ever SUV.
“You’re going to see quite a lot of us this
year,” marketing chief Simon Sproule said in
March at the global launch for Vantage,
37
F O R T U N E . C O M // M AY. 1 . 1 8
PASSIONS
38
F O R T U N E . C O M // M AY. 1 . 1 8
Inside the raceinspired cockpit
of the Aston
Martin Valkyrie.
BONDANDBEYOND
The
Past
The DB5, built from 1963 to ’65,
starred in Goldfinger, alongside
SeanConnery as James Bond.
The
Present
The modern descendant
of Bond’s car, the DB11, starts
at $198,995.
The
Future
Valkyrie, a carbon-fiber
hypercar built with Red Bull
Racing, is coming in 2019.
That’s a tall order for a company
that takes more than 200 hours to
build one car (mass-produced cars
can be built in 20 hours or less).
But Aston Martin is committed
to continuing its tradition of handstitched leather seats, bespoke
paint jobs, and handmade engines,
even as it aims to roll out a succession of unorthodox vehicles, beginning with a limited production
run next year of its first batterypowered model, the RapidE sedan.
Starting in 2021, Aston Martin
will relaunch its Lagonda subbrand with a battery-powered
sedan and SUV designed to disrupt
Tesla’s dominance in the luxury
electric segment.
The Lagonda models will be
priced “north of the Tesla Model S,”
closer to Bentley and Rolls-Royce
territory, and will serve as “a place
for Tesla buyers to go if they want
to spend more money,” Sproule says.
But the true test of Aston
Martin’s ambition will be its DBX
SUV, set to arrive late next year.
The company is opening a factory
in Wales and pinning its hopes on
a new, more female customer base,
a challenge considering the luxury
SUV market has become crowded
with entrants, including the Bentley Bentayga, Lamborghini Urus,
and forthcoming Rolls-Royce
Cullinan. Says Sproule, “We’re last
and best dressed.”
COURTESY OF ASTON MARTIN (3); SE AN CONNERY WITH THE DB5: COURTESY OF EVERE T T COLLEC TION
Aston Martin’s $150,000
“entry-level” car and the second
model in its turnaround plan.
The brand hasn’t always been
a safe financial bet, but after a
record performance last year, the
carmaker is talking about an IPO,
a move that would test investors’
interest in British companies
ahead of Brexit next spring.
Owned by private equity groups
in Kuwait and Italy (Daimler AG
has a 5% stake), Aston Martin
reported 2017 revenues of $1.2 billion, up 48% vs. the prior year.
And cars sold surpassed 5,000 vehicles for the first time since 2008.
The jolt is due in part to the DB11
grand tourer, Aston Martin’s first
new nameplate in five years, which
also has helped lift the company’s
average selling price by 9%.
Spearheaded by CEO Andy
Palmer, who joined Aston Martin
in 2014 after a 23-year career at
Nissan, the Second Century plan
upends the company’s conservative approach to grand touring
cars in a bid to double global sales.
The new lineup, the arrival of
an SUV, and a technology-sharing
partnership with Daimler “make an
IPO more appealing than probably
any other time in Aston Martin’s
history,” says Karl Brauer, executive
publisher of Autotrader and Kelley
Blue Book. “The Brexit factor adds
a variable that might give potential
investors pause, but the brand’s
potential has never been greater.”
Following the DB11 and the Vantage, the third model to undergo
the Second Century treatment
will be a $300,000-plus replacement for the Vanquish Super GT,
followed by Valkyrie, a mid-engine
hypercar coming in 2019. “Valkyrie
is the start of a mid-engine dynasty,” Palmer says. “The reason
we’re doing it is to create a halo car,
but also to create DNA for a midengine sports-car range.”
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World’s
Greatest
Leaders
Head Writers
THOUGH IT SEEMS UNLIKELY, Tim Cook and Indira Jaising have something
ERIKA FRY,
JONATHAN CHEW,
AND MATT HEIMER
in common besides membership in Fortune’s 2018 ranking of the
World’s Greatest Leaders. Cook (No. 14) is the wealthy CEO of Apple,
the most valuable publicly traded company on earth; Jaising (No. 20)
is an Indian lawyer who cofounded an NGO called Lawyers Collective,
which promotes human rights issues. Yet they share this trait: Both
have multiplied their organizations’ effectiveness by harnessing the
power of unbundling. Following their example is a new imperative for
the best leaders.
Unbundling means disaggregating enterprises of all kinds, from the
smallest startups to entire nations. In business it can mean making
a company more valuable by splitting it up, as Hewlett-Packard did
and other companies (Honeywell, Pentair, DowDuPont) are doing. Or it
can mean increasing value by delegating functions once regarded as
necessary parts of the whole; Apple’s outsourcing of complex, hightech manufacturing, and the staggering capital requirements that go
with it, is a dramatic example.
Technology makes unbundling possible and often inevitable. For
centuries, greater size made companies, nations, and other enterprises more efficient and effective. Increasingly, it doesn’t. Outsourcing and coordinating manufacturing, distribution, research, and
nonemployee workers becomes easy and cheap in the digital era. The
most extreme example is the Chinese appliance maker Haier, which
is not so much a company as a platform that invites entrepreneurs to
become one of thousands of microenterprises within its ecosystem.
Crazy? Definitely not. Using this radically unbundled model, Haier has
Writers
KRISTEN BELLSTROM,
GEOFF COLVIN,
RACHEL KING, KIRSTEN
KOROSEC, BETH KOWITT,
ADAM LASHINSKY,
CLIFTON LEAF, ANNE
VANDERMEY, PHIL WAHBA,
JEN WIECZNER,
VALENTINA ZARYA,
AND CLAIRE ZILLMAN
Guest Contributors
BRIAN FINLAY, THE STIMSON
CENTER; PHYLLIS HEYDT,
OFFICE OF THE UN SPECIAL
ENVOY FOR HEALTH; RAJ
PANJABI, LAST MILE HEALTH;
JEFFREY SONNENFELD,
YALE SCHOOL OF
MANAGEMENT
43
ILLUSTRATION BY MIKE MCQUADE
F O R T U N E . C O M // M AY. 1 . 1 8
INTRO CONT.
become the world’s largest appliance brand.
I asked the architect of Haier’s model, chairman Zhang Ruimin (on our WGL list in 2014 and
2017), why more business leaders don’t follow his
example. “They’re afraid of giving up power,” he
replied. Nearly all their incentives encourage empire building. “Bigger firms pay more, way more,”
says Kevin Hallock, director of Cornell University’s
Institute for Compensation Studies. The same is
true among nonprofits and labor unions, he finds.
Why would any leader want to unbundle?
This year’s list puts an emphasis on leaders who
are navigating this challenge deftly. (That has
meant sidelining some perennially worthy figures,
from Pope Francis to Jeff Bezos; to see past
years’ lists, visit Fortune.com.) At companies, one
solution is to evaluate leaders on wealth creation
rather than size as conventionally measured.
Leaders of mission-driven nonprofits may face
fewer disincentives. Indira Jaising’s little NGO
punches far above its weight because it can outsource staff and infrastructure; the Internet lets
it communicate widely at low cost and enables
volunteers to pitch in from around the world.
The fiercest resisters of unbundling are national
leaders. They have little to gain and much to lose
by leading a smaller country. Yet they may have no
choice, eventually. Many services that once were
the province of governments—telecom, utilities,
even satellite launches—have become commoditized, available on the open market. Spain’s
Catalonians, for example, think they don’t need
Madrid, and they may well be right.
The unbundling trend is especially powerful
because it’s driven from the bottom up as well as
from the top down. Many people are eager to be free
of institutions. “The desire to be self-sustaining,
to be the boss, is a psychological reality,” says
Parag Khanna, a strategy consultant who sees
devolution as a powerful force in politics and the
economy. The entrepreneurialism lurking in many
souls can express itself more easily than ever.
Unbundling poses a quandary for leaders: Doing
what’s best for the people they lead may result in
leading fewer of them. But that fear reflects a toonarrow view of leadership, which arises not from
authority but from inspiration. On paper, Merck
CEO Kenneth Frazier (No. 5) leads 69,000 employees. But when he took what he called “a stand
against intolerance and extremism” after the violence in Charlottesville, Va., last summer, resigning from President Trump’s manufacturing council
to protest Trump’s equivocating comments on the
violence, he became a leader to millions.
The age of unbundling is disorienting. But leadership is what you make of it, as these 50 great
leaders teach us. — GEOFF COLVIN
44
F O R T U N E . C O M // M AY. 1 . 1 8
01
The
Students
M A R J OR Y S T ONE M A N D OU G L A S
A ND O T HE R S C HO OL S
SOMEHOW, EMMA GONZÁLEZ found the strength
to be silent. At a March 24 rally in Washington, D.C.—in front of a crowd larger than
any other that had assembled in the nation’s
capital—the 18-year-old Floridian spoke
passionately about the loss of 17 students and
teachers at Marjory Stoneman Douglas High
School, friends who would never joke or wave
or hang out after school again. Cara Loughran
would never. Chris Hixon would never. Luke
Hoyer would never, she intoned, releasing
each name into the air, one by one.
Then the young woman, who in just weeks
had become the face of a national movement,
ofered the only response the dead could make:
silence. As the crowd called out her name,
as they broke into restless applause, as they
chanted awkwardly to fill the void, she said
nothing. When an alarm rang, six minutes and
20 seconds after she’d walked onstage—the
same amount of time it took a broken young
man to murder 17 people with an AR-15—the
intrepid high school senior finished the powerful sermon she’d begun. “Fight for your lives
before it’s someone else’s job,” she said.
If 2018 becomes the year that the United
States finally begins to tackle its disease of gun
violence—an epidemic that steals nearly 100
American lives every day—it will be due not to
the good sense of elected oicials, but rather
to the courage, tenacity, and sheer eloquence
of students like Emma González. It will be
due to 11th-graders like Cameron Kasky, who
along with Stoneman Douglas classmates
Jaclyn Corin and Alex Wind launched the
KE VIN MA ZUR—GE T T Y IMAGES FOR MARCH FOR OUR LIVES
#NeverAgain crusade and helped plan the
historic March for Our Lives rally in Washington, which was mirrored by gatherings around
the world. It will be due to 11-year-olds like
Naomi Wadler, who reminded millions of people on that same day of something that should
never have needed a reminder: that young
African-Americans who die in such overwhelming numbers from gun violence aren’t
“simply statistics” but instead vibrant lives
“full of potential.” It will be due to 21-year-olds
like Columbia student Nza-Ari Khepra, who
cofounded two eforts to bring attention to
gun violence—Project Orange Tree and the
Wear Orange Campaign—which she hopes
will inspire other young people to engage in
a conversation about this scourge. (The idea
of wearing orange came about because it’s the
color hunters wear in the woods to protect
them from becoming targets themselves.)
“These kids are articulating so forcefully and
passionately the need for change, and it has
Emma González
and other
students at the
March for
Our Lives in
Washington, D.C.
A lot of people
feel a stigma that,
‘Oh, maybe I don’t
know enough.’
But literally every
single person can
get involved.”
NZA-ARI KHEPRA
Cofounder, Project
Orange Tree and Wear
Orange Campaign
sparked something well beyond just Marjory
Stoneman Douglas,” says Kristin Brown,
copresident of the Brady Campaign to Prevent
Gun Violence. “You see it across the country
with kids now wanting to get involved. And
I think they’ve really claimed their voice—
almost as a generation—around this issue.
This has become their cause, and I think it’s a
wonderful thing.”
On the legislative front, she says, the students have already driven substantive change.
New Jersey, Vermont, and, yes, Florida, have
passed various reforms to curb gun violence, says Brown, who has been fighting for
reforms such as national background checks
and limits on assault weapons since 1990. She
thinks we may now be near a tipping point:
“It has really caused an unprecedented number of bills to be introduced in many more
states than we would have even had on our
radar screen,” she says. “There’s something
real here.” —Clifton Leaf
45
F O R T U N E . C O M // M AY. 1 . 1 8
02
Cofounders,
Gates Foundation
The scourge of malaria
has a way of rising from
the mat just when science
seems to have knocked
it out. Fortunately, the disease has a tenacious foe
in the Bill & Melinda Gates
Foundation. As the global
rate of infection has crept
upward again in recent
years, the Gateses have
committed resources to
the Innovative Vector Control Consortium (IVCC), a
public-private partnership
devoted to developing
better insecticides. The
couple have also taken an
increasingly impassioned
stand for gender equity;
their foundation is now
a key partner in Aspect
Ventures, a fund focused
on combating sexual
discrimination in tech.
03
04
The #MeToo Movement
Activist Tarana Burke (center) began using the phrase “Me
Too” in 2006 to describe the pervasiveness of sexual abuse.
Today, there’s no single face or leader of the #MeToo movement—in large part because more people than ever know
that harassment in the workplace is universal. The women
who have come forward to tell their stories have ousted
powerful executives such as Harvey Weinstein, Steve Wynn,
and Michael Ferro (see “Breach of Trust”). The ensuing
reckoning is forcing leaders in every industry, not just
media and entertainment, to change their way of thinking.
The World’s 50
Greatest Leaders
The List
Top: Melinda and Bill
Gates (at left) meet
with participants
in a malaria vaccine
trial in Tanzania.
Left: Tarana Burke
(center) with
activists at a Take
Back the Workplace
rally in Los Angeles.
President,
South Korea
05
CEO, Merck
Moon Jae-in
Kenneth Frazier
Moon took office last
May under inauspicious
circumstances—his predecessor was impeached
for corruption. Yet Moon
speedily enacted reforms
aimed at creating a fairer
economy, such as boosting the minimum wage,
expanding health coverage, and addressing the
influence of the country’s
chaebol conglomerates.
Moon has been pivotal in
arranging talks between
President Trump and North
Korea’s Kim Jong-Un, a
possible prelude to interKorean reconciliation.
It’s easy to forget that
last May, after President
Trump’s tepid response
to a white nationalist
rally that turned violent,
outcry from the business
community was not immediate. Frazier took a risk
by becoming the first of
Trump’s advisers to speak
out and step down, enabling others to follow suit.
His success at Merck only
bolsters his credibility:
Since he took over in 2011,
the pharma giant has
made strides in treating
several cancers, while its
stock beat the S&P 500.
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Bill and
Melinda Gates
The World’s 50
Greatest Leaders
The List
We live in the most
polarized time,
I think, in history.
Gottlieb seems to
be an exception
to that rule. I can’t
think of any other
public policy
person who is
pretty much
universally liked.”
BRAD LONCAR
CEO, Loncar Investments, and a widely
followed voice
in biotech
06
Scott Gottlieb
IT’S HARD TO IMAGINE a federal agency that touches more of our lives—
and in more personal ways—than the Food and Drug Administration.
It reaches in through our medicine cabinets, regulating everything from
our morning pills to makeup—and through our kitchen cupboards,
ensuring the safety of most of what we ingest each day, even bottled
water. Its purview extends from pet food to microwave ovens to vaccines, pacemakers, and bedpans. And in the year since he has been FDA
commissioner, Scott Gottlieb has appeared to have had a direct hand
in all of it. Gottlieb, a physician and former VC who served as a deputy
commissioner in the administration of President George W. Bush, has
earned broad kudos from a constituency that is often beset by bitter
argument. He has pushed for creative ways to slow the skyrocketing
F D A C OMMIS S IONE R
rise of medicine prices (in part by making it
easier for generics to compete), helped speed
the development of digital health technologies
through clearer regulatory guidance, embraced
more eicient clinical trial designs, and aggressively tried to reduce cigarette smoking
and contain America’s raging opioid epidemic
through sharp policy moves. An avid (perhaps
even obsessive) tweeter, Gottlieb has gotten
credit for being transparent about FDA steps—
and, more important, for using his bully pulpit
without being a bully.
47
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08
07
Margrethe Vestager
C OMMIS S IONE R F OR C OMP E T I T ION , E UR OP E A N UNION
VESTAGER DIDN’T NEED the benefit of hindsight. Long before the outrage at
Facebook’s Cambridge Analytica scandal, and before “fake news” was
even a thing, the Danish-born EU commissioner was thoughtfully and
assiduously regulating Big Tech. Amazon, Google, and their ilk may be disruptive, they may even be changing the world, but Vestager—an iPhone
user who is active on Twitter—has treated the companies as subject to
the same rules as any other. She slapped Apple with a $14.5 billion tax bill
in 2016 after declaring its tax benefits in Ireland illegal—Tim Cook lost his
cool and called it “total political crap”—and fined Alphabet $2.7 billion for
antitrust violations in 2017. Politicians and regulators worldwide—from
India to Brazil to, yes, the U.S.—are now following her lead.
Companies must
ask themselves:
What role do
we play in the
community? How
are we managing
our impact on the
environment?
Are we adapting
to technological change? Our
clients—who are
your company’s
owners—are
asking you to demonstrate leadership and clarity.”
Larry Fink
As leader of the world’s
biggest asset manager,
overseeing $6.28 trillion,
Fink knows how to put his
money where his mouth
is. In his annual missive
to CEOs in January, the
BlackRock cofounder
called for each company
to not just perform financially “but also show
how it makes a positive
contribution to society.”
Fink’s mandate mirrors
the philosophy that has
lately driven BlackRock’s
strategy—which is that
shareholders will lose in
the long run if companies
ignore broader social
concerns today. A longtime advocate for tax
reform, Fink also warned
companies to figure out
what they’re going to do
with their tax windfalls
“to create long-term
value”—before activist
investors force their
hand. But the most
potent example of how
BlackRock is practicing
its principles came after
February’s school shooting in Parkland, Fla. Not
only did BlackRock seek
answers on violence prevention measures by gun
retailers and manufacturers it owns—several
of which subsequently
changed their policies—
but in April it unveiled
new funds that allow
investors to divest from
those stocks entirely. As
Fink told CEOs, “Society
is demanding that companies, both public and
private, serve a social
purpose.”
FINK: MARCO GROB
The World’s 50
Greatest Leaders
The List
CEO, BlackRock
LARRY FINK
CEO, BlackRock,
in his 2018 letter
to fellow CEOs
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10
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The World’s 50
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09
Gen. Joseph Dunford Chairman, Joint Chiefs of Staff
President Trump’s national security staff has endured unusually high turnover—which
makes Dunford’s continuity at the Joint Chiefs of Staff all the more important. The
career Marine previously served as commander of U.S. forces in Afghanistan; that
experience makes him a valuable resource for a President eager to project strength
without entangling U.S. forces too deeply in commitments abroad. Dunford has also
helped shape sharp-turn directives from the White House into pragmatic policy—
including, recently, converting a mandate to get the military more involved in providing
security on the Mexican border into a strategic deployment of National Guard troops.
Vice Premier,
China
Liu He
President Xi Jinping
faces two extremely
high-stakes economic
challenges: guiding the
country’s evolution from
an industrial economy
to a consumer one and
avoiding a trade war with
the U.S. He’ll rely heavily
on Liu, a confidant who
boasts connections
in the international
financial community that
Xi lacks. Diplomats and
traders already see Liu’s
influence in the deftly
conciliatory language
China has adopted in recent tariff disputes with
the White House.
Above left: Gen.
Joseph Dunford
(in glasses) with
troops at Fort
Greely in Alaska.
Below: GM CEO
Mary Barra at a
Detroit auto show
this January.
11
Mary Barra
CEO, General Motors
No woman on earth
runs a bigger company,
in revenue terms, than
Barra. And in an era
in which automotive
startups capture all the
headlines, 109-year-old
GM has quietly, reliably
been producing crowdpleasing, mass-market,
all-electric cars. GM beat
Tesla’s Model 3 to market
with the Chevrolet Bolt
EV—and has been selling
it steadily since then.
Barra has revamped
GM’s corporate culture
following a scandal
involving fatal ignition
defects, and is racing
into the future with
major acquisitions in
autonomous driving.
Coming up next year?
A Chevy Bolt without a
steering wheel.
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12
Nick Saban
F O O T B A L L C O A C H , UNI V E R S I T Y OF A L A B A M A
NICK SABAN KNOWS what he’s doing isn’t normal.
The University of Alabama football coach is
well aware that it’s anything but typical for
one school to thoroughly dominate a major
sport the way his Crimson Tide has ruled
college football over the past decade. More to
the point, he knows that it’s well outside the
bounds of ordinary to expect 18- to 22-yearolds to win national championships—and then
work even harder to get better. “To me it takes
a completely diferent mindset to stay successful as opposed to what you have to do to
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build something to be successful,” says Saban.
“All of us are sort of geared toward, if we have
success, we’re supposed to be rewarded for it,
not necessarily that we have to continue to do
things even better than we did before.”
It’s the Friday before his team’s first scrimmage of spring practice, and Saban, 66, is
sitting, legs crossed, in a plush chair in his
wood-paneled oice in Tuscaloosa, Ala., a
collection of championship rings spread out
on the cofee table in front of him. Clad in a
black pullover sweater, gray slacks, and black
loafers, the coach is in a reflective mood. But
his trademark intensity begins to show as
he warms to the subject: Being a champion
means, well, being diferent.
“I mean, it’s like you make an A on a test
and you say, ‘I can take it easy for two weeks
and make a C on the next test and have a B
average.’ That’s normal,” he says. “It’s special
for somebody to make an A on the test and say,
‘I’m going to try to make the highest grade ever
in the class.’ That’s not normal. But yet, that’s
what you have to try to promote from a mindset
standpoint to the people in your organization.”
The most recent exam Saban aced was the
2017 season—and it was perhaps his greatest
triumph yet. The year kicked of with Alabama
ranked No. 1. But as the season unfolded,
Saban’s team sufered an epidemic of injuries—
with starters missing a total of 54 games—and
a crushing defeat to archrival Auburn that
could have cost the Tide a shot at the College Football Playof. Given a second chance,
Alabama snatched another title in thrilling
fashion. Shortly after midnight, minutes into
Jan. 9, Alabama’s quarterback, 19-year-old
freshman Tua Tagovailoa, stunned the football
world when—facing 2nd-and-26 in overtime of
the championship game against Georgia—he
threw a game-winning, 41-yard laser beam of
a touchdown pass to give the Tide a 26–23 victory. Adding to the drama was the fact that at
halftime Saban had made a tough call to bench
the quarterback who led the team to the title
game, Jalen Hurts, in favor of Tagovailoa—a
calculated gamble that worked.
The victory gave Saban his fifth national
championship in nine years at Alabama. Add
an earlier title he won at LSU in 2003, and his
six rings match Alabama legend Paul “Bear”
Bryant for the most football championships by
a college coach in the so-called poll era, dating
The World’s 50
Greatest Leaders
The List
There are no signs
around here that
say, ‘We want to
win the national
championship.’
There are signs
that say, ‘We
want you to be
a champion’…
I think what
people respond
to best is when
you can make it
about them.”
NICK SABAN
back to 1936. And he’s won with stunning
consistency: Under Saban, Alabama has been
ranked No. 1 in 72 of the past 153 Associated
Press weekly polls. If imitation is truly flattery,
then Saban is much praised: Four of Alabama’s
Southeastern Conference rivals—Georgia,
South Carolina, Tennessee, and Texas A&M—
now employ former Saban assistant coaches as
head coach. (Saban has never yet lost a game to
one of his disciples.)
“It’s remarkable the run that Alabama has
been on, and the common thread in all of
it is the head coach: Nick Saban,” says Phil
Savage, the author of 4th and Goal Every
Day: Alabama’s Relentless Pursuit of Perfection. Now the lead radio analyst for Crimson
Tide football games, Savage met Saban when
they joined the staf of the Cleveland Browns
in 1991. “I mean, he’s had several diferent
coaching stafs now in Tuscaloosa. He’s had
diferent quarterbacks. He’s had diferent defensive star players. And he does an amazing
job of setting the tone from the top down.”
The system that Saban has developed over
the years to achieve such success is known as
the Process—a methodical, eicient approach
to organizational management. In 2012, five
seasons and two national championships
into his tenure, I wrote about Saban and his
Process for Fortune in a piece called “Leader
of the Crimson Tide.” (This is the point in the
story where I need to disclose that I’m both
an Alabama alumnus and a lifelong fan of the
team.) At the time, Saban was facing a new
challenge. After impressive turnaround jobs at
Michigan State and LSU—and leaving aside
a disappointing two-year run with the NFL’s
Miami Dolphins—Saban’s quick success at
Alabama had cemented his reputation as a
master rebuilder of college football programs.
The question was, Could he sustain success in
one place over a long period? Three additional
titles later (plus a couple of near misses), the
answer is a resounding yes.
I returned to campus this spring in search
of Saban’s secret: How has he managed to
navigate the sports version of what Clayton
Christensen famously dubbed the “Innovator’s
Dilemma”—the fact that success makes it hard
to keep the edge you need to win in the future?
Sure, it helps to be at a traditional football powerhouse with a seemingly unlimited
budget and resources (Exhibit A: Alabama’s
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F O R T U N E . C O M // M AY. 1 . 1 8
Football coach,
University of Alabama
Nick Saban
pristine, 36,000-square-foot weight room).
But the most powerful explanation is this:
Saban has always been relentlessly committed
to self-disruption. His Process may look rigid
from the outside, but it relies on constant
analysis of what’s working, or not, and an
aggressive embrace of new methods when
necessary. “I hate it when somebody says,
‘That’s the way we’ve always done it.’ It drives
me absolutely up a wall,” says Saban.
The coach’s willingness to constantly evolve
can be seen both on and of the field. As college football has moved to spread ofenses
in recent years, for instance, Saban changed
both his ofensive approach (faster pace, more
use of spacing) and defensive recruiting (to
target quicker, more agile athletes).
Saban is also open to using technology to
gain an edge. A few years ago Alabama began
using a GPS system from a company called
Catapult to track the performance and workload of its players. Comparing, say, a player’s
top speed or acceleration in practice with his
past performance can help determine if he’s
getting worn down late in the season. After
Alabama lost to Clemson in the final minute
of last year’s championship game, Saban felt
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F O R T U N E . C O M // M AY. 1 . 1 8
Saban (in red
windbreaker)
accepts the national
championship trophy
after Alabama’s
26–23 victory over
Georgia in January. It
was Saban’s fifth title
at Alabama and the
sixth of his career.
his team was tired. So before this year’s playof, he asked head trainer Jef Allen to crunch
the GPS numbers. The data showed that,
indeed, the Tide had seen a drop-of in overall
performance against Clemson. Saban studied
the results and decided to adjust his traditionally rigorous postseason practice routine
to keep the players fresher. This year, it was
Alabama that won on the last play.
One thing that hasn’t changed is the time
and efort Saban puts into understanding his
players. He studies the psychological profile
of every one for clues on how to connect with
and coach them. “Some people would look at
it like it’s a pain in the ass, you know? But I
don’t,” says Saban. “I enjoy seeing if I can get
somebody to respond, even if they’re a little
bit abnormal and abstract in how they view
the world. Well, how can I reach this person to
get them to do things that are going to benefit
them, but also benefit the organization?”
How much longer can Saban keep pushing
past normal? At the parade in January to celebrate the most recent title, Saban concluded his
speech with three words: “We’re not finished…”
Behind him, the players shouted in unison:
“Yet!” That might be a clue. —Brian O’Keefe
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13
President,
France
14
CEO, Apple
Emmanuel Macron
Tim Cook
France’s 2017 elections
left Macron’s newly
minted La République
en Marche Party with
a steamroller-strong
parliamentary majority.
With his victory, Macron,
40, supplanted Germany’s
Angela Merkel as Europe’s
strongest bulwark against
xenophobic populism.
Now, his legacy will
hinge on whether he can
reform France’s sclerotic
economy. So far he has
trimmed wealth taxes
and made it easier for
employers to hire and fire
workers—earning praise
and protest in return.
Think of Cook’s job as a
$900 billion balancing act.
After nearly seven years
as CEO, he has proved
to be far more than a
transitional figurehead
after Steve Jobs. Cook
has maintained Apple as a
cash-generating machine
without sacrificing innovation. He engages gingerly
with China’s rightschallenged government,
even as he leads Apple’s
pro-privacy crusade.
Should Apple ever be worth
$1 trillion, his place in the
leadership pantheon will
be forever secure.
17
Executive director,
PL+US
Katie Bethell
So far in 2018, a phalanx
of huge employers—
including Walmart,
Starbucks, and CVS—has
expanded paid familyleave benefits, strengthening the financial safety
net for some 2.8 million
blue-collar workers. Most
companies cited tax cuts
and a strong economy as
their motivators, but activists saw another force
at work: the grass-roots
organizing of 38-year-old
Bethell and PL+US, the
nonprofit she founded in
2016. For more, see “Putting On the Pressure for
Parental Leave.”
15
The World’s 50
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Athlete
16
CEO, Engie
Serena Williams
Isabelle Kocher
Williams spent much of
2017 off the court while
pregnant with her first
child. But a break from
tennis didn’t stop her from
leading. After complications with her pregnancy,
she focused a spotlight on
women’s health issues—
including the fact that
maternal mortality rates
for African-Americans
are three times as high
as those for white women.
In just two years, Kocher
has pulled Engie, the
energy giant formerly
known as GDF Suez, into
the future. The legacy oil
and gas company now
focuses on renewables
and decarbonization; it
has sold $15 billion worth
of “dirty” assets and reinvested in cleaner ones.
Kocher, the only woman
CEO among France’s
CAC 40 companies,
recently boosted Engie’s
dividend and reported its
return to profitability after
a two-year absence.
18
Ryan Coogler
Film director
This is the year that
catapulted Coogler from
Sundance sweetheart to
box-office boss, thanks
to the triumphant success of Black Panther.
The superhero pic is the
33rd film in U.S. history
to surpass $1 billion in
sales—and the first with
a predominantly black
cast to do so. (It’s also
the highest-grossing
film ever directed by
an African-American.)
Coogler helped persuade
studio execs to embrace
a movie whose Afrocentric story and aesthetic
departed from formulas,
proving that there’s
not just an appetite
for diverse storytelling—there’s a hunger for
it. (Read our Q&A with
Coogler at Fortune.com.)
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F O R T U N E . C O M // M AY. 1 . 1 8
CEO, Tencent
Huateng “Pony” Ma
Superlatives attach
themselves to Pony Ma
and Tencent, the Chinese
technology juggernaut the
46-year-old entrepreneur
cofounded and leads as
CEO. Ma is China’s richest
man, with a net worth
north of $40 billion. His
company’s valuation
hovers near the half-atrillion-dollar mark. And
Tencent’s WeChat messaging service recently
crossed the 1-billionaccount threshold,
cementing its role as the
electronic thread that
stitches together the
fabric of digital China. So
central is WeChat to how
Chinese people communicate that many believe
it has become a more
important ingredient to
a smartphone than its
operating system—enabling Tencent to occupy
a powerful commercial
and technological position
without having to physically make phones.
A soft-spoken
engineer, Ma is less well
known in the West than
the outspoken formerEnglish-teacher leader of
Alibaba, Jack Ma, who is
no relation. Yet Pony Ma’s
influence has begun to
be felt as much globally
as it already is in China.
Tencent has been on an
investment tear, pumping
billions of dollars into
the likes of Snapchat
owner Snap, Tesla, and
countless startups.
Closer to home, WeChat
Pay—money zapped via
WeChat—vies with Alibaba
for payment dominance
in a smartphone-crazed
country.
The World’s 50
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We can show
other companies
how they can
be a platform
for change, that
it doesn’t just
have to be about
shareholders.
It can be about
stakeholders.”
MARC BENIOFF
CEO, Salesforce,
describing its approach
to social causes
20
Founder, Lawyers
Collective
Indira Jaising
When the poorest in India
need a voice, they find
one in Jaising, a lawyer
who has dedicated her
life to battling injustice.
Jaising has fought on
behalf of victims of the
1984 Bhopal gas disaster,
helped Syrian Christian
women in India win property rights equal to their
male counterparts’, and
helped draft India’s first
domestic violence law. Her
work has recently led her
to Myanmar, where she
was appointed by the UN
to lead an investigation
into the persecution of
Rohingya Muslims.
21
Marc Benioff
C E O , S A L E S F OR C E
SOME LEADERS ARE SUI GENERIS. Benioff, the quirky, opinionated,
visionary, and demanding founder and CEO of Salesforce, is
one of them. The corporate world hasn’t quite seen the likes
of him before. He pushes product with zany zeal: Parties, rock
bands, animatronic mascots, and candy emblazoned with his
company’s logo all are part of his repertoire. So are his causes:
gender parity in compensation, progressive politics, mindful
work environments, corporate philanthropy, and a sense of
companywide family, or “Ohana.” None of this would matter
if Benioff didn’t also have a knack for repeatedly leading his
company to its next act. He saw early on that business software
buyers would use online programs rather than storing them
in their own data centers. He experimented with social tools
aimed at consumers and quickly realized businesses would
use them too. And most recently Benioff recognized—and has
invested aggressively in—artificial intelligence as the next
critical business tool.
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The Gymnasts
and Their Allies
When the sentencing trial
of Larry Nassar began,
few people knew the
former USA Gymnastics
doctor’s name, much less
the details of his crimes.
Then, the young women
he sexually assaulted—
more than 150 of them—
told their stories. Their
seven days of harrowing
testimony shook the world
of sports and beyond.
Nassar was sentenced
to up to 175 years in
prison. The president of
Michigan State University,
Nassar’s former employer,
resigned, as did the board
of USA Gymnastics and the
CEO of the U.S. Olympic
Committee. As Olympian
Aly Raisman said, “We are
here, we have our voices,
and we are not going
anywhere.”
23
Chief sustainability
officer, Walmart
Kathleen
McLaughlin
McLaughlin is responsible
for ensuring that Walmart,
the world’s largest company, meets its ambitious
environmental goals.
Those include deriving
half its energy needs from
renewable sources by
2025; reducing the chemical footprint of products
like household cleaners;
and getting suppliers to
cut their greenhouse-gas
emissions. The benefits
extend beyond Walmart’s
walls: The retail giant’s
clout has prompted many
rivals to follow suit.
Aly Raisman confronts former USA Gymnastics doctor and convicted
abuser Larry Nassar at his sentencing hearing in January.
24
Mukesh Ambani
25
Chairman and managing director,
Reliance Industries
In less than two years, India’s richest man
has brought mobile data to the masses—
and completely upended the country’s
telecom market. Since Ambani, chief of
the $47 billion conglomerate Reliance
Industries, launched Jio—the first mobile
network in the world to be entirely IPbased—in September 2016, the company
has signed up a staggering 168 million
subscribers. The secret? Offering dirtcheap data and free calls (and plowing
billions of dollars into the infrastructure
that transmits them). The effect, dubbed
“Jio-fication,” has driven India’s higherprice carriers to drop costs (if not run them
out of business), and it fueled a 1,100%
rise in India’s monthly data consumption.
The World’s 50
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Former mayor,
Oklahoma City
Mick Cornett
If you’re a fiscally conservative mayor in a fiscally
conservative city, how
do you persuade voters
to pay more for public
works? Cornett proposed
tying new spending to
small sales taxes—and
requiring that the taxes
expire once the projects
were paid for. During his
14-year tenure, his socalled MAPS plans helped
Oklahoma City pay for
school revitalization, public transit, and downtown
improvements. Cornett
left office in April on a high
note and is seeking the
GOP nod for governor.
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Physician,
the Carter Center
27
Donald Hopkins
Many people, former U.S.
President Jimmy Carter
among them, consider
Hopkins a hero. It’s easy
to see why: As a young
public-health worker, the
soft-spoken BahamianAmerican doctor was
instrumental in the global
effort to eradicate smallpox. He stopped its prolific
spread in Sierra Leone in
less than two years—a
then-unthinkable feat of
eliminating a contagious
disease from the planet.
Then, in 1980, he resolved
to rid the world of Guinea
worm disease (GWD), an
awful but entirely preventable condition that
annually afflicted 3.5 million people in Asia and
Africa. GWD is usually not
fatal, but it is painful and
debilitating, the sort of
scourge that strikes entire
villages and, for months at
a time, can bring school,
commerce, and farming
to a halt.
Hopkins, who is 76 and
still at it—human transmission of GWD has been
stopped in all but two
countries, Chad and Ethiopia—says his biggest foe
has been “failure of imagination.” Early on, people
didn’t think the disease
could be eradicated; others argued going after a
non-killer like GWD was a
waste of time and money.
Thanks to Hopkins, whose
data-driven playbook
involves educating communities and motivating
(and sometimes shaming)
political leaders, GWD will
likely be the second disease ever, after smallpox,
to disappear from the
planet.
Oprah Winfrey
CEO, OWN
Media mogul. Philanthropist. Actress. Is there
anything Oprah can’t do?
It turns out many fans
hope to see the former talk
show host add “U.S. President” to her résumé, after
her powerful speech—
heavily inspired by the
#MeToo movement—at
the Golden Globes in January. Winfrey, 64, has since
denied interest in running,
but she continues to
spotlight social causes as
a frequent correspondent
on CBS’s 60 Minutes. She
has also doubled down on
healthy-living advocacy as
a shareholder and board
member at Weight Watchers; though she sold 25%
of her shares in March—
reportedly at eight to nine
times what she paid for
them—she has said she
plans to stick around.
28
Mayor,
New Orleans
29
Prime Minister,
New Zealand
30
Environmentalist,
China
Mitch Landrieu
Jacinda Ardern
Ma Jun
The bloodshed surrounding efforts to remove a
Confederate statue in
Virginia last year obscured
a more hopeful achievement in New Orleans,
where Landrieu led a successful effort to take down
four such monuments—
persevering through a
two-year legal battle even
after city business leaders
got cold feet. Another
legacy for Landrieu, whose
term ends in May: NOLA
for Life, a mentorship program that advocates say
has helped bring about a
sharp reduction in gangrelated homicides.
When Ardern, 37, became New Zealand’s
Prime Minister in October, she ushered
in a new perspective in more ways than
one. The world’s youngest female head
of government says her country, gripped
by immigration and housing crises, will
be the first to rely on social, cultural, and
environmental well-being metrics, in
addition to GDP, as measures of progress.
Ardern, who is expecting a baby in June,
is also normalizing the idea of a pregnant
woman leading a nation. “I’m pregnant,”
she says, “not incapacitated.”
This winter, Beijing’s blue
skies made headlines.
The notoriously smoggy
Chinese capital is making headway against air
pollution; progress has
been measured in other
Chinese cities too. Much
credit goes to advocates
like Ma, a journalistturned-activist who called
attention to ecological
threats and forced political leaders to take them
seriously. His nonprofit
Institute of Public and Environmental Affairs continues to wield influence,
with reports that call out
corporate polluters.
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F O R T U N E . C O M // M AY. 1 . 1 8
ILLUSTRATION BY HELLOVON
H O P K I N S : C O U R T E S Y O F T H E C A R T E R C E N T E R ; L A N D R I E U : W I L L I A M W I D M E R — R E D U X ; A R D E R N : P H I L W A LT E R — G E T T Y I M A G E S ; M A : G I L L E S S A B R I E — B L O O M B E R G V I A G E T T Y I M A G E S
26
32
President, Gbowee
Peace Foundation
33
CEO, JPMorgan
Chase
31
The World’s 50
Greatest Leaders
The List
West Virginia
Teachers
G B O W E E : P A B L O M A R T I N — E P A / R E X / S H U T T E R S T O C K ; D I M O N : B E N B A K E R ; W.VA . T E A C H E R S : S C O T T H E I N S — B L O O M B E R G V I A G E T T Y I M A G E S
FOR YEARS, IT HAS BEEN universally acknowledged
that American public school teachers are woefully underpaid—and considered a given that
it has to be that way. Late last year, thousands
of West Virginia teachers rose up and said,
“Enough,” mobilizing on Facebook and defying
their union to strike for fairer pay and higher
standards. (They did it thoughtfully; while not
teaching, they made sure students who qualified for free at-school meals got fed.) After
nine days, West Virginia’s legislature granted
them their first raise in four years. The teachers touched off a movement now playing out
nationwide, inspiring educators in Kentucky,
Oklahoma, and Arizona to follow their lead.
West Virginia
public school
teachers hold
a “55 United”
sign—a reference
to the number
of districts
taking part in
their strike—
inside the state
capitol building in
Charleston.
Leymah Gbowee
Jamie Dimon
I remember attending a
dinner at which Leymah
honored a dozen young
Liberian women—many
from rural areas where
few educational opportunities exist—whom her
foundation had supported
with college scholarships.
With her indelible impact
on girls and young women,
Leymah reminds us that
change starts by investing
deeply in and working
directly with communities. The global fight for
equity is stronger with her
leadership. —Raj Panjabi,
CEO, Last Mile Health
After years of beating the
tax-reform drum, Dimon
celebrated the inclusion
of several of his proposals in the new tax bill by
passing along some of
the savings. Less than a
month after President
Trump signed the overhaul
into law, JPMorgan Chase
announced it would spend
$20 billion over five years
to increase wages and
lower health insurance
deductibles for employees, while also hiring
as many as 4,000 more
to staff 400 new Chase
branches.
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F O R T U N E . C O M // M AY. 1 . 1 8
President, Paul
Quinn College
36
Michael Sorrell
In 2007, when Sorrell
started as president of
Paul Quinn, a historically
black college in Dallas,
the institution was on the
brink of being shut down.
Founded in 1872 at the
height of Reconstruction, the school was
losing students, and the
campus, which housed
15 abandoned buildings,
was “closer to a garbage
dump than a grocery
store,” Sorrell says.
Sorrell quickly
set about challenging perceptions, both
external and internal,
by giving Paul Quinn a
bigger vision of itself.
Under his leadership, the
football field was turned
into a farm. He solicited
the school’s first-ever
seven-figure gift from
a donor and used it to
raze that campus blight,
and he emphasized the
recruitment of students
from out of state to
expand what’s now
a 500-plus-member
student body.
He also took aim at
problems that ail all of
higher education—the
cost, and the disconnect with what comes
after. Paul Quinn is now
a federally recognized
work college; students
get jobs with area companies, helping them to
pay tuition and prepare
for life postgraduation.
Sorrell, who calls this
the “new urban college
model,” now plans to
open Paul Quinn campuses nationwide.
CEO, Grupo Bimbo
Daniel Servitje
Montull
Grupo Bimbo, the world’s
biggest baker, makes
Sara Lee cakes, Thomas’s
English muffins, and many
McDonald’s buns. It’s one
of the biggest employers in Mexico and several
other emerging markets.
Servitje, a Stanford MBA
grad, has prioritized
keeping Bimbo’s products
within a low-income family’s budget. He has also
made it greener; in April,
Bimbo struck a deal to
buy wind-power credits to
offset all the energy used
in its U.S. operations.
37
35
Undersecretary
general for disarmament, United Nations
Izumi Nakamitsu
Reese Witherspoon
A C T OR / P R ODUC E R
WITHERSPOON, 42, HAS ESTABLISHED herself as a bona fide
mogul with a string of production successes on the
silver screen (Wild, Gone Girl). She’s also an integral
player in the current golden age of TV with the acclaimed HBO miniseries Big Little Lies, now filming its
second season. That’s not the only way in which she
has upended what has traditionally been a boys’ club:
Witherspoon, along with costar Nicole Kidman, will
earn approximately $1 million per episode for season
two, and HBO bosses recently acknowledged that
Witherspoon’s voice and role in the Time’s Up movement motivated them to address gender pay gaps
across the network. Witherspoon has also established
herself as a social media maven, reaching millions of
followers with a millennial-friendly book club and a
Southern-inspired clothing line, Draper James. She
recently inked a deal with Apple to produce and star in
an as-yet-untitled series about backstage drama at a
morning talk show.
Nakamitsu is responsible for managing global
threats posed by weapons
of mass destruction,
conventional weapons,
and nuclear proliferation.
She has a reputation for
clearheaded pragmatism,
proven in previous UN
roles involving refugees
and crisis response. Her
diplomatic skills have
been tested by the use
of chemical weapons in
Syria, but her quiet activism has helped prevent
runaway conflict across
the region. —Brian Finlay,
CEO, the Stimson Center
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ILLUSTRATION BY JACK HUGHES
S E R V I TJ E : S U S A N A G O N Z A L E Z— B L O O M B E R G V I A G E T T Y I M A G E S ; S O R R E L L : C O U R T E S Y O F M I C H A E L S O R R E L L ; N A K A M I T S U : A P / R E X / S H U T T E R S T O C K
34
38
Founder, Rawabi
40
M A S R I : A M I T S H A B I — L A I F / R E D U X ; G I C H A G A : C O U R T E S Y O F A N G E L A N YA M B U R A G I C H A G A ; K E L L E R : C O U R T E S Y O F G O D W E L L A N D R E W C H A N ; S H O T W E L L : C O U R T E S Y O F S P A C E X
Bashar Masri
CEO, Financing
Alliance for Health
Angela Nyambura
Gichaga
Little is clear about the future of a Palestinian state,
but Masri, a West Bank–
born entrepreneur, built a
vision for it in Rawabi—the
territories’ first-ever
planned city, built for and
by Palestinians. The newly
completed hillside city
now has 4,000 residents,
a tech hub, and amenities
like a luxury mall and a
15,000-person amphitheater. And in a place where
private sector investment
is limited, it has become
the West Bank’s largest
private job creator—and a
symbol of possibility.
39
Leila de Lima
Gichaga is tackling a
daunting question: How
should African countries
finance health care for the
poorest and most remote
populations? Gichaga is a
physician, economist, and
consultant. At the Financing Alliance for Health,
she’s also a bridge-builder,
persuading donors to
expand financing for community health while working with African ministries
to make the most of those
resources. —Phyllis Heydt,
Office of the UN Special
Envoy for Health
Senator, Philippines
President Rodrigo Duterte’s hard-line policies against drug dealers are polarizing globally, but in the Philippines they’ve faced little dissent. De Lima,
who headed a committee investigating hundreds of extrajudicial killings
under Duterte’s leadership, has been a noble exception. Last February she
was arrested and jailed for as-yet-untried crimes, but imprisonment hasn’t
stopped the firebrand from continuing to speak out publicly.
41
Evangelical
minister/author,
Redeemer City to City
Timothy Keller
A self-described “orthodox” Christian, Keller
spent 28 years building a
megachurch in what many
believers see as hostile
territory: Manhattan.
At Redeemer Presbyterian and in several books,
Keller shaped a vision
of Evangelicalism that
de-emphasizes politics
and stresses care for the
poor, personal sacrifice,
and inclusiveness across
ethnicity and class. His
next act: training pastors
to serve urban flocks
through the Redeemer
City to City initiative.
The World’s 50
Greatest Leaders
The List
42
Right: Gwynne
Shotwell, SpaceX’s
president and COO,
inside SpaceX’s
mission control
station in Hawthorne, Calif.
Gwynne Shotwell
President and chief operating officer, SpaceX
Shotwell was employee No. 11 in 2002 when she joined SpaceX, a company founded to
lower the cost of space travel and enable the colonization of other planets. Today, SpaceX
has grown to more than 6,000 employees and contracts valued at $12 billion. Shotwell
runs day-to-day operations and customer relationships, but her official title might as
well be rainmaker. She takes CEO Elon Musk’s seemingly outlandish ideas (and idealistic timelines) and makes them happen: Achievements include the successful launch in
February of SpaceX’s powerful, reusable Falcon Heavy rocket. Next up: a project to deliver
high-bandwidth Internet via satellites; and the BFR, a next-generation rocket designed to
whisk crew and cargo to Mars and reach any city on Earth in under an hour.
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F O R T U N E . C O M // M AY. 1 . 1 8
CEO, DSM
Feike Sijbesma
Kelly Chibale
It was founded in 1902 as
Dutch State Mines, but
Sijbesma says DSM now
stands for “Do Something Meaningful.” Over
the past decade, he has
overhauled DSM to focus
on businesses that better
the lives of people or the
planet. That includes
producing micronutrients
that help the World Food
Programme feed 80 million people a year. As
cochair of groups such as
the Carbon Pricing Leadership Coalition, Sijbesma
has proved particularly
effective at rallying fellow
executives.
In much of Africa, the
infrastructure to support
scientific research is
sorely lacking. But Chibale
is working to change that.
The Zambian chemist has
built H3D, Africa’s first
integrated drug discovery
center, at the University
of Cape Town. His team
now includes more than
90 researchers; they work
out of state-of-the-art
facilities thanks to partnerships with the Gates
Foundation, Novartis, and
South Africa’s government. H3D already has a
potential drug for malaria
in human trials.
46
The World’s 50
Greatest Leaders
The List
43
Balkrishna Doshi
A R C HI T E C T, INDI A
THIS YEAR’S PRITZKER PRIZE, architecture’s highest honor, went
to India’s Doshi, who has spent the bulk of his 70-year career championing accessible housing, earning the moniker
“the architect for the poor.” His designs include the Aranya
low-cost housing project in Indore, a labyrinth of homes
and courtyards that provide around 80,000 residents
with a balance of open spaces and communal living, and
the mixed-income Life Insurance Corporation Housing in
Ahmedabad, where several generations of a family can occupy levels of the same building. Underlying all his work is
the ideal that all economic classes deserve good housing.
Scientist,
South Africa
45
The fact that
[Feike Sijbesma]
was able to get all
these companies
committed to taking responsibility
for their energy
use was really an
achievement.”
Group executive
chairman, Banco
Santander
Ana Botín
Botín had big shoes to fill,
not to mention whisperings of nepotism to dispel,
when she took over Banco
Santander, the eurozone’s
second-largest bank, after
the sudden death of her
father in 2014. The shoes
fit fine: Since then, she has
steered the bank to higher
profits and capital ratios.
And her takeover last
year of Popular—a failing
Spanish bank whose
assets gave Santander a
home-market edge—for a
price of just one euro may
be her company’s best
deal ever.
CHRISTIANA FIGUERES
Former UN
climate chief
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ILLUSTRATION BY PAUL RYDING
S I J B E S M A : Q I L A I S H E N — B L O O M B E R G V I A G E T T Y I M A G E S ; C H I B A L E : M I C H A E L H A M M O N D — C O M M U N I C A T I O N S & M A R K E T I N G D E P T. O F U C T; B O T Í N : J U A N M A N U E L S E R R A N O A R C E — G E T T Y I M A G E S
44
47
Journalist, PEN
Honduras
M E Z A : C O U R T E S Y O F C R E A T I V E M O R N I N G S T E G U C I G A L P A ; K A M I L : E D W R AY— G E T T Y I M A G E S ; G U T M A N N : C O R E Y P E R R I N E — G E T T Y I M A G E S ; B A S T I A N : S C O T T A R E M A N — C O U R T E S Y O F D E LT A
Dina Meza
Honduras has a homicide
rate that’s six times the
global average. Yet danger
hasn’t deterred Meza,
founder and editor of
online news site Pasos
de Animal Grande, from
covering its crime and
corruption. The site shone
a light on the assassination of activist Berta
Cáceres and provided
authoritative coverage of
2017’s volatile elections.
Meza also started PEN
Honduras, an organization
that supports journalists
at risk in a country where
murders of reporters are
tragically frequent.
48
The World’s 50
Greatest Leaders
The List
Dina Meza is a
giant because she
has such a strong
commitment to
the cause [of
human rights].”
SUSI BASCON
Director,
Peace Brigades
International U.K.
Below: Amy Gutmann
celebrates a big
win by Penn’s men’s
basketball team.
49
Amy
Gutmann
President, University
of Pennsylvania
A first-generation
college-goer herself,
Gutmann has steadily
increased their ranks on
Penn’s campus. When she
took office in 2004,
1 in 20 students were
first-generation and lowincome, today it’s 1 in 7,
and she’s a vocal backer
of international students
and immigrants on
campus. Her fundraising
has been blockbuster too,
enabling Penn to offer the
largest all-grant financial
aid program in the
country. Her reforms have
helped secure her contract extension through
2022, which would make
her the longest-serving
president in the university’s history.
Mayor, Bandung,
Indonesia
50
CEO,
Delta Air Lines
Ridwan Kamil
Ed Bastian
When Kamil became mayor of Bandung in
2013, the city of 2.5 million was struggling
with pollution, traffic congestion, and
stifling red tape. Kamil, a former architect,
turned to technology: Over 400 software
applications have been created to improve
efficiency and sidestep bureaucracy—one
program helps smaller enterprises register themselves online instead of in person.
Kamil also built up Bandung’s Command
Center, where data from closed-circuit
TV helps the city respond more quickly to
problems like traffic jams and potholes.
He’s now running for governor of West
Java, a key post in Indonesian politics.
Several companies
changed their policies in
reaction to the shootings
at a high school in Parkland, Fla., in February; only
Delta Air Lines saw almost
immediate economic
retaliation. Days after
Delta rescinded a discount
it had offered to National
Rifle Association members, Georgia legislators
scrapped a jet-fuel tax
exemption that could have
provided Delta, which is
headquartered in Atlanta,
with a $40 million annual
tax break. Lawmakers
accused the airline of attacking conservatives and
even the Second Amendment itself.
In a letter to employees
explaining the decision,
CEO Ed Bastian argued
that the airline wasn’t
taking sides in the guncontrol debate. It ended
the discount, he made
clear, to eliminate any
implied endorsement of
the NRA, a group whose
public statements in the
wake of the shootings
had gone far outside the
bounds of civil debate.
“Our decision was not
made for economic gain,
and our values are not for
sale,” Bastian wrote. “We
are in the process of a
review to end group discounts for any group of a
politically divisive nature.”
It wasn’t the kind of ringing statement that rallies
a generation of activists—
but it was a template for
well-reasoned business
leadership in a fragmented world.
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FEEDBACK LETTERS@FORTUNE.COM
F O R T U N E . C O M // M AY. 1 . 1 8
Putting On
the Pressure
for Parental
Leave
WALMART AND A WAVE OF OTHER BIG EMPLOYERS
HAVE EXPANDED PAID-LEAVE BENEFITS FOR
BLUE-COLLAR PARENTS THIS YEAR. ONE REASON
FOR THEIR GENEROSITY: A RELENTLESS AND SAVVY
CAMPAIGN BY A BEHIND-THE-SCENES COALITION OF
ACTIVISTS, INVESTORS, AND THEIR OWN EMPLOYEES.
By Valentina Zarya
she’s a terrible
public speaker. “Oh, my goodness,
it’s like being on the chopping
block!” says Davis, an associate at
Walmart’s New Bern, N.C., store. It took hours
of practice, encouragement from coworkers,
and “determination,” she says, to get her ready
to address 15,000 people at the University of
Arkansas’s Bud Walton Arena last June.
The occasion was Walmart’s annual investors’ meeting, which traditionally draws a
huge crowd to the retailer’s Bentonville, Ark.,
headquarters. Few in the audience had bluecollar jobs like Davis’s; she spends her workdays tracking inventory and stocking shelves.
Still, as a shareholder, Davis, who goes by Cat,
had a right to speak. She’s also a mother of two,
and she had come to deliver a petition—signed
by more than 100,000 associates—to urge
Walmart to give workers like her the same
family-leave benefits that executives get.
She made the same ask in the arena in a
three-minute speech. Full-time associates who
became mothers got six- to eight-weeks’ leave
at 50% to 60% pay—not much to live on for
people whose jobs typically paid $10 to $15 an
hour. On the other hand, “Walmart’s female executives receive 10 weeks of paid family leave”
at full salary, she explained to the audience in
her warm Carolina drawl. “Let’s do the same for
AROLYN DAVIS INSISTS
C
THE MESSENGER
At last year’s
Walmart shareholders’ meeting, store worker
Carolyn “Cat”
Davis delivered
a plea for better
paid leave—and a
petition signed by
more than 100,000
employees.
our hourly associates—women and men.”
A thousand miles from New Bern, Mary Pat
Tift, a 30-year Walmart veteran in Kenosha,
Wis., had similar concerns on her mind. Tift
says the company has strayed from its roots:
“They used to be very pro-associate and very
pro-family, and they’ve totally gotten away
from that.” Paid leave wasn’t the only problem.
Store managers used to schedule around the
needs of families, she says. Then scheduling
became automated and “customer first”—making it diicult for new parents to control when
they would be home with their kids.
In protest, Tift last December filed a shareholder resolution calling on Walmart to evaluate the risks inherent in providing unequal
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F O R T U N E . C O M // M AY. 1 . 1 8
PHOTOGRAPH BY JEREMY M. LANGE
The World’s 50
Greatest Leaders
The List
In the U.S., Paid
Leave Is a Privilege
Only 13% of
American privatesector employees
have access to
paid family leave
through work—and
executives are far
more likely than
blue-collar workers
to get the perk.
COVERAGE BY
WAGE QUARTILE
6%
Lowest-paid
workers
12%
Second pay quartile
paid leave. The mother and grandmother
admits she isn’t fluent in lawyer-speak—“It’s
a lot of legal mumbo jumbo,” Tift says of her
own filing, which labor activists coached her
on—but she understands that shareholder
protests get attention when employee complaints might not.
In January, Walmart triumphantly and
unexpectedly announced a new parentalleave policy: 10 paid weeks for all full-time
birth mothers, and six weeks at full pay for
other new parents. Seemingly overnight,
Walmart—America’s largest private employer,
with 1.5 million U.S. associates—became the
vanguard for family leave for blue-collar workers. “The timing was a little bit uncanny,” says
15%
Third pay quartile
22%
Highest-paid
workers
SOURCES: BCG, BUREAU
OF LABOR STATISTICS
Tift, dryly. And other service-economy giants
quickly fell in line: In the first few months of
2018, Starbucks, Lowe’s, CVS, TJX, Dollar
General, Chipotle, and Gap all bolstered paidleave policies for hourly employees.
For these workers and their advocates, these
changes were monumental—extending to
hourly-wage earners a benefit associated with
the economic elite. Between them, the companies involved employ about 2.8 million people.
And unlike the male-dominated tech companies that made a splash in Silicon Valley’s recent paid-leave arms race, their rank-and-file
workers are predominantly female—Walmart’s
workforce, for example, is 55% women. That
matters because women still shoulder most
child-rearing and caregiving duties in the U.S.,
making the lack of paid leave an impediment
to their financial security and careers—and a
major contributor to the gender pay gap.
An important swath of corporate America
has reached a tipping point on family leave
seemingly overnight. But beneath the veneer
of press releases is a years-long, dedicated effort—led by investors, coordinated by activists,
and implemented by employees themselves.
One of that campaign’s major catalysts is Paid
Leave for the United States (PL+US), a twoyear-old nonprofit that uses grass-roots tactics
and savvy collaboration with shareholders to
help workers win better benefits. Over the past
year, PL+US has been organizing hourly workers at retailers including Walmart, Starbucks,
Target, and Walgreens—as well as advising
white-collar employees at companies ranging
from Lyft to JPMorgan Chase. Says PL+US
founder and executive director Katie Bethell
(No. 17 on this year’s World’s Greatest Leaders
list): “We are organizing a cubicle army.”
The change at Walmart, a retail bellwether,
is the kind of victory this army craves. Since
March 2017, PL+US had been working with
OUR Walmart, a program of the Organization
United for Respect—a nonprofit that coordinates employee activism at the company. It
was OUR Walmart that coached Cat Davis
and Mary Pat Tift, and PL+US that connected
Tift with investors who helped her draw up
her shareholder resolution. Eddie Iny, OUR
Walmart’s campaigns director, says the combination of PL+US’s expertise with employee
activism was “the total package” that pushed
family leave forward on the company’s agenda.
Other factors are motivating these benefit
changes, of course, from a tight labor market
to the windfall created by recent tax cuts.
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F O R T U N E . C O M // M AY. 1 . 1 8
Executives at the companies generally downplay or dismiss the influence of employee activism in their decision-making. Jackie Telfair,
Walmart’s senior vice president in charge of
employee benefits, says the company had been
looking at the paid-leave issue “for a long time
but hadn’t been able to fully commit until tax
reform allowed us to make investments.” Tift’s
proposal, she says, influenced management
“no more than hearing from other associates.”
But activists like Bethell believe their work has
been crucial, channeling workers’ frustrations
to nudge employers to act faster. And there’s
frustration to harness on every rung of the
economic ladder: When it comes to meager
family leave, Bethell says, “I have yet to meet a
person who’s given birth who’s not pissed of.”
industrialized
country without a paid-leave
policy at the national level. The
federal Family and Medical Leave
Act, passed 25 years ago, provides for only 12
weeks of unpaid leave (and only for employees
at larger companies with longer tenure). There
are family-leave laws in force in four states—a
fifth, Washington, will have one in January
2019—and a handful of cities, but as of March
2017 only 13% of private-sector workers could
get paid time of through their employers,
The World’s 50
Greatest Leaders
The List
HE U.S. IS THE ONLY
T
THE CONNECTOR
Under Bethell’s
leadership, PL+US
helps employee
activists team up
with shareholders,
while meeting with
(and sometimes
publicly calling
out) management.
“We are organizing
a cubicle army,”
she says.
according to the Bureau of Labor Statistics.
Not having paid leave “fundamentally harms
women’s economic potential,” Sen. Kirsten
Gillibrand (D-N.Y.) tells Fortune. Gillibrand is
cosponsor of the FAMILY Act, a bill that would
establish federally mandated paid leave. “Every
time she has a family event, a woman has the
decision to make: whether to quit her job.” But
while the push for a legislative solution is moving slowly at best, family-leave advocates see
encouraging signs on the corporate front. The
experiences of companies with more generous
policies suggest that the advantages might outweigh the associated expenses. A 2017 study
by consulting firm BCG, for example, found
evidence that paid-leave policies were helping
companies boost employee retention, reduce
turnover costs, and diversify their leadership.
Economic factors are also swinging in
employees’ favor. When Walmart broadened
its family-leave policies, CEO Doug McMillon
cited the recently passed corporate tax cut as
their primary driver. But Walmart also faces
pressure from both historically low unemployment and changing human resources needs,
says Craig Rowley, a senior client partner at
HR consultancy Korn Ferry who specializes in
retail. As jobs, thanks to automation, become
less about stocking shelves and more about
high-touch customer service, Walmart needs
associates that it can train and retain. Turnover of those skilled employees is becoming
a greater concern—hence the better benefits.
(The company also recently raised its minimum starting wage to $11 per hour, from $9.)
Still, it’s striking that a company famous
for its low-cost modus operandi was the first
in its cohort to introduce a gold-plated leave
benefit. And that’s where PL+US’s fingerprints
are visible. If employees are the troops in Katie
Bethell’s “cubicle army,” PL+US is the general:
arming, strategizing, and boosting morale.
When it partners with employee groups, it
helps them identify workers who are willing
to speak up and provides them with research,
toolkits, template policy proposals, and coaching on how to approach management.
Influencing the benefits policy at Walmart
was about playing a longer game, says Bethell.
One of her goals is to change public perception
about what constitutes comprehensive family
leave. “When I started PL+US, I was looking at
lists of best places to work for moms—and they
were providing six weeks of paid leave,” Bethell
recalls. In the European Union, 14 weeks is
the bare minimum; most countries mandate
64
F O R T U N E . C O M // M AY. 1 . 1 8
PHOTOGRAPH BY BRAD WENNER
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never met
Niko Walker know him as “Niko
from Starbucks.” He was a
barista in Los Angeles (he has
since quit to go to school) and a vocal public
advocate for the company, which supported
him through and helped pay for his gender
transition. That’s why Walker was particularly
surprised to learn last year that, if he were to
have children, he would get no paid parental
leave. At the time, birth and adoptive mothers
at Starbucks stores received six weeks of fully
paid leave—but fathers were left out.
What happened next is a case study in
PL+US’s multipronged approach. In June, the
group published Left Out, a report that called
out companies, including Starbucks, for having inequitable leave policies; publications like
the Washington Post and Slate ran with the
VEN PEOPLE WHO HAVE
E
66
F O R T U N E . C O M // M AY. 1 . 1 8
I have yet to meet
a person who’s
given birth who’s
not pissed off.”
KATIE BETHELL
Founder and
executive director,
PL+US
SHERYL
SANDBERG:
PAID LEAVE
‘IS NOT A
TRADEOFF’
story. The nonprofit also reached out to Starbucks employees; later in the summer, PL+US
flew Walker and other workers to Starbucks’
Seattle headquarters to talk about family leave
with executives. The new wrinkle came in
September—when the Zevin investor group
filed what it says is the first-ever shareholder
proposal related to paid leave.
The SEC prohibits bringing up “ordinary
business” in a shareholder proposal, and
simply insisting that a company provide
certain benefits would stray into that territory.
So the Zevin resolution requested that the
cofee giant “evaluate the risk of employment
discrimination that may result from Starbucks’
approach to paid family leave.” The investors
argued that Starbucks’ policy could be construed as discriminatory to male and LGBTQ
workers, exposing the company to lawsuits,
harming the brand, and hurting shareholders.
SILICON VALLEY IS OFTEN DESCRIBED as a hostile
place for women. Yet tech companies are leading the charge when it comes to progressive
family-leave policies. Facebook—which offers
four months of paid leave to all employees—is a
leader in this regard, thanks in no small part to
Sheryl Sandberg. The chief operating officer and
Lean In author has emerged as a vocal proponent
of a federal paid-leave policy. Valentina Zarya
spoke with Sandberg about how to get the rest
of corporate America to follow Facebook’s lead.
Edited excerpts follow; see more at Fortune.com.
FORTUNE: You’ve
spoken up about paid
leave and the need for
a federal policy. What
are you and Facebook
doing to keep rolling
that ball forward?
SANDBERG: I’m
personally supporting
the FAMILY Act [see
main text] and there’s
a lot of good activity at
state levels that gets
people the coverage
they need. But in this
environment where
[paid-leave] bills are
not passing, business
leaders need to take
the steps we can take.
It’s not enough to
have the policies, you
have to use them. I’m
LUISA DÖRR
more. “I was like, ‘We are never going to win if
the expectations are so, so low.’ ” That made it
particularly sweet when Walmart birth moms
won a 10-week benefit.
Bethell, 38, honed her organizing skills at
Change.org and MomsRising.org, where she
mobilized voters behind paid-leave laws in
New Jersey and Washington, D.C., as well as
the federal Lilly Ledbetter Fair Pay Act, which
prohibits gender-based wage discrimination.
“She has the characteristic that’s shared by
great entrepreneurs, which is that she has this
radical vision of how the world can be diferent,” says Swati Mylavarapu, founder of investment fund Incite Ventures and a PL+US board
member. Bethell’s current “radical vision”?
Paid family leave for all working Americans.
PL+US has a valuable ally in pursuit of
that goal: a group of activist investment funds
with nearly $7 billion under management
collectively, led by Zevin Asset Management,
a Boston-based fund whose founder is known
for leading campaigns for divestment from
apartheid-era South Africa. This summer, the
Zevin group launched a campaign to persuade
four major employers to change their familyleave policies: Yum Brands, CVS, Starbucks,
and Walmart. The last two were especially
strategic choices, designed to pressure other
employers to follow suit, says Pat Miguel Tomaino, Zevin’s director of socially responsible
investing. Walmart provided a floor (“No one
wants to be below Walmart,” Tomaino says),
and Starbucks was an aspirational ceiling—
a company whose reputation for generous
benefits would push rivals to match it.
The concerns Zevin raised aren’t unwarranted: In the past year alone, JPMorgan
Chase and Estée Lauder have been embroiled
in legal battles over whether their paltry
paternity-leave policies are discriminatory.
The Zevin group had little leverage: They
owned only a tiny fraction of the roughly
$80 billion worth of Starbucks shares outstanding. But Eleanor Bloxham, CEO of the
Value Alliance and Corporate Governance
Alliance, an organization that helps boards of
directors improve corporate practices, points
out that resolutions from smaller players can
become a major nuisance if they receive media
attention. “At that point, it’s not about small
investor and large corporation—it’s about
public perception.” And PL+US, which by then
had put out four widely shared reports about
the inadequacy of corporate family-leave policies, had shown it had the power to magnify
The World’s 50
Greatest Leaders
The List
that perception. (Walmart’s Telfair says she
didn’t know what PL+US was a year ago.
She does now, thanks to questions from and
reporting by the media.)
Starbucks made a move before things
escalated. The company announced in January
that, going forward, parents of both genders
would receive six weeks of paid parental leave.
Ron Crawford, Starbucks’ vice president of
global benefits, tells Fortune that the new policy had been in the works for over a year before
Zevin’s resolution was filed, and he says the
proposal had no impact on decision-making.
He does say, however, that the changes were
the result of “always listening to our partners,”
Starbucks lingo for workers—and PL+US, of
course, had helped those partners’ voices reach
higher up the chain of command.
T’S TYPICAL, says
Bloxham, the
corporate governance expert, for
management not to acknowledge
activists’ roles in policy changes.
But on issues of gender equity, she adds,
activist shareholders “have made a huge
diference in the way companies operate.” One
prominent example: In 2015, Arjuna Capital,
a small asset management firm, filed proposals with nine top tech companies, urging
them to analyze and publicize their gender
pay gaps. Intel was the first to do so; seven
others, including Apple, Amazon, Google, and
Facebook, quickly followed suit. Arjuna
wasn’t credited in press releases, but activists
felt the timing was hardly coincidental. The
bigger takeaway, says Arjuna managing
partner Natasha Lamb: Once one firm adopts
an employee-friendly standard, “investors are
more likely to see it as a competition issue,”
and the dominoes start to fall.
Advocates see the Walmart and Starbucks
actions as the beginning of an even bigger
domino efect in family-leave benefits—regardless of who gets credit for pushing over
the first tiles. Zevin is currently coordinating an investor statement urging laggards to
update their policies. The statement, which
will go public in May, had the signature of
17 investment firms with combined assets of
over $130 billion as of mid-April. Simultaneously, PL+US will launch “America’s Favorite
Brands,” a campaign calling out companies
whose paid-leave policies are worse than
Walmart’s. PL+US’s Bethell expects the
rabble-rousing to bring more good news. “We
have wind at our backs,” she says.
I
really proud that Mark
[Zuckerberg] took paternity leave. He sets
the right example. One
thing we need to fight
is the idea that this is
a female issue. This is
an issue for families,
and if we want mothers and fathers to be
equal in the household,
we need to start out
equal.
The vast majority of
Americans—87%—
don’t have access
to any form of leave.
What’s the best way
to get corporate
America on board?
You want to do the
right thing because
it’s the right thing,
but if businesses understand that it’s also
the smart thing for
them, they will do it. If
you take care of your
employees when they
most need it, they are
most loyal—and having great employees
is most critical to
success.
This is not a
tradeoff between your
business goals and
your goals of taking
care of your people.
You take care of your
people? You meet
your business goals.
And I think we need
to make sure that
people aren’t making
tradeoffs between
taking care of their
personal responsibilities and professional
responsibilities.
A lot of organizing
around paid family
leave has happened
on Facebook. The
company’s role in
politics has been
taking a lot of heat
lately. Do you still see
Facebook as a viable
tool for activism?
I think it’s a critical tool to organize
around issues. A
bunch of the Parkland
March [for Our Lives]
was just organized
on Facebook. Some
of Black Lives Matter
was organized on
Facebook. Facebook
is a critical way that
people communicate,
and we’re really proud
of the role Facebook plays in social
mobilization.
Because of the controversy surrounding
data analytics firm
Cambridge Analytica’s misuse of information, people may
be wary of continuing
to use the platform
as before. What
should users know
about the future of
Facebook as a tool to
push policy changes
forward?
The specific use
case that allowed
Cambridge Analytica
was shut down in
2015. We’ve taken
a lot of steps since
then to shut down
other possible use
cases for data to be
misused. People continue to use Facebook
because Facebook
continues to be a way
to reach out and connect with people.
67
FEEDBACK LETTERS@FORTUNE.COM
F O R T U N E . C O M // M AY. 1 . 1 8
Mark Karpelès in Tokyo’s
Shinjuku district. The former
Mt. Gox CEO, who once felt
safe leaving his laptop on a
park bench, refused to set
down his bag for fear of theft.
68
F O R T U N E . C O M // M AY. 1 . 1 8
WHERE TECHNOLOGY AND FINANCE INTERSECT
THE SURPRISING
REDEMPTIONOF
bitcoin’s
biggest
villain
HE LED THE WORLD’S BIGGEST BITCOIN EXCHANGE
BEFORE A MYSTERIOUS HEIST MADE IT GO BUST. AS
NEW CLUES EMERGE AND BITCOIN’S PRICE SURGES,
MARK KARPELÈS IS ON THE HUNT FOR ANSWERS
BY JEN WIECZNER
PHOTOGRAPHS BY
ERIC RECHSTEINER
the history of Mt. Gox came without so
much as a beep. Mark Karpelès, the CEO of what until recently had been
the world’s biggest Bitcoin exchange, was finally alone, save for his tabby
cat, in his palatial penthouse with a panoramic view of Tokyo. It was the
evening of March 7, 2014, and Karpelès had barely slept in the week since
Mt. Gox had sought bankruptcy protection, announcing that 850,000 of
its Bitcoins, worth some $473 million at the time—and representing 7%
of all Bitcoins then in existence—had somehow disappeared. With protesters and camera crews swarming in front
of Mt. Gox’s oice and the price of Bitcoin in
accent still strong after nearly nine years in
free fall, the usually unflappable Frenchman
Japan. “But now this is also the main reason
why we are stuck fighting.”
had been confined to a self-imposed house
To many, the belated revelation seemed too
arrest, subsisting on the buttery pastries he
good to be true—making the unemotional
liked to bake and reading the hate mail that
programmer-turned-mogul look even guiltier.
Was he just coughing up his go-bag in an atflooded in from all corners of the Internet—
tempt to wiggle out of trouble? Soon, they had
most of it accusing him of stealing the money
even more reason to suspect him: Leaked tradhimself. Today the Mt. Gox hack remains the
ing records suggested that what could only be
worst disaster in Bitcoin’s short history.
an internal Mt. Gox account—widely known
HE MOMENT THAT WOULD CHANGE
It wasn’t until his lawyers had gone home for the day that Karpelès could retreat to his computer, and that’s when he noticed
the shocking number on his screen. Following his company’s
collapse, he’d spent days methodically double-checking Mt. Gox’s
old digital wallets, where the secret alphanumeric keys for accessing Bitcoins are stored. One after another—a dozen so far—the
wallets had come up empty. But this time, when the blockchainscanning program finished running after six hours, it had silently
served up an unexpected result: He’d found 200,000 Bitcoins,
stashed away in an archived file in the cloud—apparently forgotten and untouched for three years.
In a series of conversations with Fortune, Karpelès shared for
the first time the full details of what he says really happened in the
final days of Mt. Gox—including his account of how he stumbled
on the 200,000 Bitcoins.
The surprise discovery would turn out to be, to this day, the
only hope Mt. Gox customers have of getting their money back.
It’s been proved that the other 650,000 missing Bitcoins were
stolen—we now know, by various hackers. But Karpelès continues
to be one of the most infamous figures in cryptocurrency. And
his legal fate is uncertain, even as new evidence has emerged that
largely exonerates him.
Ironically, today Karpelès doesn’t view the retrieval of the
200,000 Bitcoins as a lucky break. They’ve become such a subject
of contention, in fact, that he wonders whether it might have been
better if they’d remained lost. “At the time, I felt finding these was
a good thing for everyone,” recalls Karpelès, now 32, his French
70
F O R T U N E . C O M // M AY. 1 . 1 8
today as the “Willy bot”—was artificially inflating its account balance and using the money
to buy Bitcoins. When Mt. Gox ran low on
Bitcoins, Willy helped make up the shortfall.
Sometimes its trades went the other way, selling borrowed Bitcoins to generate cash. Critics
speculate that it was a fraudulent, if failed,
exercise to keep Mt. Gox afloat.
That suspicious activity by the Willy bot led
to Karpelès’s arrest in August 2015 on charges
of manipulating electronic data; he admitted
in court last summer to running what he called
the “obligation exchange” but disputes doing
anything illegal. After spending almost a year
in jail, Karpelès is currently on trial in Tokyo,
facing criminal allegations such as embezzlement and breach of trust, unrelated to the
missing Bitcoins.
But it was an unforeseen twist that today is causing Karpelès the greatest angst.
Between the time Mt. Gox shut down and
when it entered liquidation in April 2014, the
price of Bitcoin had plummeted more than
20% to $483. It would be over two and a half
years before Bitcoin would regain its previous high—long enough that many Mt. Gox
victims didn’t even bother filing a claim for
what they considered an insignificant sum.
Then early last year, Bitcoin finally broke
its old record. By late May, it was trading at
nearly $2,200, making Mt. Gox’s remaining
Bitcoins—202,185 to be exact—worth more
than everything it owed in claims. When the
Bitcoin price peaked at $20,000 in December,
the value of Mt. Gox’s assets (by then including Bitcoin derivatives such as Bitcoin Cash)
ballooned to $4.4 billion—nearly 10 times the
amount Mt. Gox said it lost in the first place.
“The fact that you have a bankruptcy where
the only asset that it owns goes up by 5,000%,
that’s pretty unprecedented,” says Daniel Kelman, a lawyer and Mt. Gox creditor who spent
a year in Tokyo working on the case.
After months studying Japan’s bankruptcy
code while in solitary confinement, Karpelès
knew there was a wrinkle: Under the law,
most of that excess would return to shareholders of Mt. Gox, of which he held 88%. At
current prices, the windfall would make him
a billionaire. It would also mean an interminable nightmare of lawsuits and threats that
Karpelès—who is also in personal bankruptcy—is desperate to avoid. He says he’d
happily give the money back if it came to him,
but the estimated 60% tax triggered in the
process would be catastrophic.
“I never expected to get anything out of
this,” Karpelès tells me when we meet in
Tokyo in March. “It would bring more trouble
than anything.”
We’re on the second floor of a Japanese
café, in a stufy meeting room that Karpelès
says is not much bigger than his jail cell. Deprived of a computer behind bars, he passed
time by measuring the room using the length
of his notebook. (After his release, Karpelès
sent friends a chart of the 70 pounds he’d lost
while detained.) It’s the first day in Tokyo that
finally feels like spring, cherry blossoms in
bloom, but he has holed up here in the café because it’s roughly equidistant from the oices of
his various lawyers, as well as the bankruptcy
trustee, whom he meets with regularly out of
a sense of “duty” to his former customers. He’s
been so busy, he says, he didn’t have time to
shave that morning.
Karpelès took control of Mt. Gox—the
name is an acronym for Magic: The Gathering Online eXchange, after the trading card
game that inspired the original site—in 2011
Kim Nilsson,
the software
from founder Jed McCaleb. Employees don’t
engineer who
remember Karpelès ever seeming fazed about
cracked the
anything: He took meetings from a vibrating
Mt. Gox case,
standing on
massage chair and churned out combs using
the street
a 3D printer he’d bought for the oice. His
near Shinjuku
hallmark reply to questions: “Should be fine.”
Station in
Tokyo.
But he’s lately developed a sense of gallows
humor uncharacteristic of his Mt. Gox days.
Even if he wanted to buy Bitcoin today, he doubts he could find an
exchange that would take his money, he laughs, and notes that it’s
been a few months since he’s received any death threats—“a new
record.” He turns serious, though, when he recounts the sleepless
nights in February 2014 when he says he first discovered that all
of Mt. Gox’s Bitcoins were missing. “I think this really is the worst
experience for anyone to have in life,” he says. Still, he’s not sure he
71
F O R T U N E . C O M // M AY. 1 . 1 8
could have done the job better. “If I knew at the time what I know
today, I would have done things diferently, of course,” he says with
a practiced tone. “But based on the information I had at the time,
and the situation at the time, I still think that I’ve done the best I
could do with what I had.”
The question of what Karpelès knew, and when, though, remains
more of a mystery than even who stole the coins. Bitcoin’s public
ledger, or blockchain, allows anyone to trace the path of transactions, showing the wallets where Mt. Gox’s Bitcoins went. But the
same blockchain analysis, multiple experts have confirmed, has also
revealed an unsettling fact: By mid-2013, Mt. Gox had already lost
all its Bitcoins—eight months before it admitted so publicly.
The timing of this insolvency, analysis shows, coincided with
the Willy bot kicking into high gear—perhaps providing a hint as
to Karpelès’s true motivations. “I feel that this is a reaction to this
revelation that okay, all the money is gone,” says Michael Gronager,
CEO of Chainalysis, which was hired by the Mt. Gox bankruptcy
trustee to investigate the Bitcoins’ disappearance. Yet it’s also why he
doesn’t believe Karpelès was planning to run away with the 200,000
Bitcoins. “I think that had he found them before he went bankrupt,
he would never have gone bankrupt,” says Gronager. Rather, he says,
Karpelès would have used the hoard to cover his losses.
withdrawals in 2014, a customer named Kolin Burges hopped a flight from London
to Tokyo. For more than two weeks, until Mt. Gox declared bankruptcy, he kept vigil outside the exchange’s
headquarters, holding a sign reading, “MTGOX WHERE IS OUR
MONEY?” Other protesters soon joined him, demonstrating the
frustration of Mt. Gox customers worldwide.
Kim Nilsson was just as vexed, but standing
in the snow wasn’t his style. A modest Swedish
software engineer with a goatee and a quiet
voice, Nilsson, who also owned Bitcoins at Mt.
Gox, had never before worked on blockchain
technology. But he had a reputation for getting
to the bottom of the toughest software bugs;
in his of-time, he’d been known to beat all the
levels of Super Mario Bros. 2 in an afternoon
sitting. And that’s how he approached Mt. Gox:
“It was basically just the world’s biggest puzzle
at the time—like whoever solves this, imagine
the recognition.”
He teamed up with some other Mt. Gox
Alexander
customers to launch WizSec, a blockchain seVinnik (center),
curity firm dedicated to cracking the case. But
the Russian
accused of
while the company quickly dissolved, Nilsson
laundering at
stayed on the case in secret, teaching himself
least 80% of
blockchain analysis and painstakingly tracMt. Gox’s stolen
ing the money stolen from Mt. Gox. Although
Bitcoins.
Nilsson started of investigating Karpelès’s role
HEN MT. GOX FROZE BITCOIN
72
F O R T U N E . C O M // M AY. 1 . 1 8
in the theft, he soon realized the CEO was just
as eager as he was to know what happened. At
a time when Karpelès needed friends most, the
WizSec team scored an invite to his apartment by ofering to bring the Frenchman the
ingredients he needed to bake his famous apple
quiche. Soon, Karpelès was feeding Nilsson
internal Mt. Gox data that could help solve the
case. “I wish I had stolen the money, because
then I could just give it back,” Karpelès told
them at the time.
Over the next four years, Nilsson estimates
he spent a year-and-a-half ’s worth of full-time
hours pursuing the Mt. Gox hackers. He’s
never been paid for his work; his 12.7 Bitcoin
claim at Mt. Gox makes him one of its smallest creditors. To J. Maurice, who helped found
WizSec but left the company early on and was
not involved in the investigation, Nilsson’s
efort epitomizes the virtues of Bitcoin—a decentralized system free of government control,
which relies instead on individual users to
sustain it. “Kim is humble, he doesn’t brag, he
doesn’t even want to get rich. He’s just working hard on something for years as his passion
project,” Maurice says. “That’s what Bitcoin is.”
By early 2016, Nilsson had a suspect. As he
tracked the stolen funds, he saw that, of the
650,000 Bitcoins reported stolen from Mt.
Gox, 630,000 had gone straight into wallets
controlled by the same person. That person
also had an account at Mt. Gox, associated with
the username WME. Then Nilsson stumbled
across an old post in an online Bitcoin forum
in which someone with the handle WME had
thrown a tantrum, complaining that another
cryptocurrency exchange had frozen his funds.
“Give [me] my CLEAN MONEY!” read the
post. In the process, WME dropped clues
that he owned some of the Bitcoin wallets in
question. But the big break came when the
same user posted a letter from his lawyer, his
first and last name visible for the whole world
to see. Nilsson, as he routinely did with his
findings, dashed of an email to Gary Alford,
a special agent with the IRS in New York who
has helped catch cybercriminals.
Then one scorching day last July, police
stormed a beach in Greece to arrest a Russian citizen vacationing with his family. U.S.
federal prosecutors charged Alexander Vinnik, a 38-year-old IT
specialist, with laundering 530,000 of the stolen Mt. Gox Bitcoins
through his WME wallets and other accounts. They also accused
him of helping to run the exchange BTC-e, whose primary purpose
was allegedly to launder money. It is plausible, investigators say,
that BTC-e was founded specifically to launder funds stolen from
Mt. Gox. Blockchain analysis shows that the hack that devastated
Mt. Gox began in autumn 2011, around the time BTC-e started up.
Keys to Mt. Gox’s “hot wallet”—its online Bitcoin repository—were
stolen and copied, compromising the exchange’s deposit addresses.
So for the next two years, in nine out of 10 instances, coins were
being stolen as soon as they came in, says Chainalysis’ Gronager,
who is also a creditor: “It meant that you had a hole in the bottom
of the well, and someone was just draining money.”
Karpelès claims he never noticed because the hackers stole small
amounts at a time, and the balances generally seemed to move upward. “Bitcoin didn’t exactly decrease,” he says. “It’s just that they
didn’t increase as much as they should.”
Nilsson, who believes he has convincingly linked Vinnik to at
least 100,000 more Mt. Gox Bitcoins than the feds allege, still
doesn’t know whether he helped the government’s investigation or
going,going,gone…wayup
The price of Bitcoin topped $2,000 in May 2017
after a two-year bear market following Mt.
Gox’s bankruptcy, making Mt. Gox’s remaining
Bitcoins worth more than everything it owed
in claims from the heist. Today its $2 billion in
assets are worth several times the sum it lost.
March 2018
The trustee says he has sold
more than $400 million worth
of the estate’s Bitcoins and
Bitcoin Cash since Dec. 2017.
$12 billion
10
VALUE OF MT. GOX’S REMAINING ASSETS
8
VALUE OF THE 650,000 MISSING Bitcoins
$6 billion
December 2017
Bitcoin price peaks
at about $20,000.
August 2017
A hard fork in
the Bitcoin
blockchain
creates Bitcoin
Cash, dropping
202,185 of the
new cryptocurrency—one for
each Bitcoin
—into the Mt.
Gox estate.
November 2017
Major creditors
petition the
Tokyo District
Court for a civil
rehabilitation of
Mt. Gox to avoid
bankruptcy
proceedings.
A L E X A N D R O S AV R A M I D I S — R E U T E R S
4
2
February 2014
Mt. Gox says 850,000 of
its Bitcoins have
“disappeared.” (A week
later, it finds 200,000 in
an old wallet.)
September 2015
Mark Karpelès is
charged with
data manipulation and
embezzlement.
July
2016
Karpelès
released
from jail.
January 2017
U.S. government agrees
to release about $2.6
million it had previously
seized from Mt. Gox to
the bankruptcy estate.
July 2017
Karpelès’s
criminal
trial begins
in Tokyo.
0
2016
May 2016
The Mt. Gox trustee approves claims totaling
about $430 million. But the estate only holds just
over $100 million in assets, including Bitcoins
worth $90 million and $15 million in cash.
2017
May 2017
Bitcoin price rises above
$2,000, making Mt. Gox’s
Bitcoin assets worth more than
the amount it owes in claims.
2018
September 2017
The Mt. Gox trustee confirms that under Japanese
bankruptcy law, the estate’s surplus assets (after
creditor liabilities), now $550 million, would return
to Mt. Gox shareholders—largely to Karpelès.
NOTE: MT. GOX REMAINING ASSETS INCLUDE BOTH BITCOIN AND CASH. AFTER AUGUST 1, 2017, THE VALUE OF MT. GOX’S ASSETS ALSO INCLUDES BITCOIN CASH.
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F O R T U N E . C O M // M AY. 1 . 1 8
simply confirmed its conclusions. With Vinnik fighting extradition
from Greece and five outstanding defendants whose names remain
redacted in the U.S. indictment, the IRS won’t comment on the
“active and ongoing” investigation. But Kathryn Haun, a former
federal prosecutor who signed of on the indictment, says Vinnik’s use of Bitcoin helps clearly connect him to the crime: “At first
blush what seemed unsolvable turned out to be traceable through
the use of digital currency.”
For Karpelès, Vinnik’s arrest reinforced a long-held theory: that
Russian Bitcoin exchange administrators were behind a series of
denial-of-service and other cyberattacks that hit Mt. Gox in 2011.
Says Karpelès, “What he did, Mt. Gox is a victim of this, which means
that all creditors are victims of this, and I am too a victim of this.”
Vinnik, who has denied the charges, has not been charged with
stealing from Mt. Gox. But the magnitude and duration of his involvement points to some familiarity with the thieves whose profits
he was allegedly laundering: “I assume at least he knows where to
send the check,” says Nilsson.
Still, there’s an ironic punch line to the case: Because the stolen
Bitcoins were sold right away, allegedly by Vinnik and long before
Mt. Gox disclosed the hack, victims lost much more, in dollar
value, than the hackers ever made—which, according to Chainalysis, was only about $20 million.
And as soon as the Bitcoins were converted to cash, the blockchain
trail was broken. That means that even if authorities seize Bitcoins
from the suspects, there won’t be anything to prove they’re from Mt.
Gox. Sean Hays, a creditor in Arizona who says his 338 Bitcoin claim
would be “life-changing,” adds, “I’ll be glad to have part of it back, but
I think there will always be the hunt for where’s the rest?”
But for Burges, the key question that inspired his protest has
finally been answered. “We know where the coins went, and we
won’t get them back,” he says. “As far as I’m concerned, it’s solved.”
OR ALMOST FOUR YEARS, Josh Jones assumed he’d eventually re-
ceive his rightful portion of his nearly 44,000 Bitcoins locked
inside Mt. Gox. By mid-2017, Bitcoin’s price was soaring, and
Mt. Gox had enough to pay out the $430 million it owed in
claims several times over. Then last September, Mt. Gox trustee Nobuaki Kobayashi, a top restructuring lawyer also representing Takata
in the airbag-maker’s bankruptcy, broke the news: Under Japanese
bankruptcy law, the value of creditors’ claims were capped at what
they were worth back in 2014: $483 per Bitcoin. “That’s just crazy,”
says Jones, who held most of the coins on behalf of his clients at Bitcoin Builder, the service he built to facilitate arbitrage trading at Mt.
Gox in its final weeks. “That can’t be how it’s going to work out.”
But while there was little Jones could do back home in Santa
Monica, another major creditor took it upon himself to ensure the
Bitcoins would be fully divvied up among Mt. Gox victims. Richard
Folsom, an American who worked for Bain & Co. in Tokyo before
founding one of the first private equity shops in Japan, hired the
biggest Japanese law firm and came up with a plan: What if Mt.
74
F O R T U N E . C O M // M AY. 1 . 1 8
Gox wasn’t technically bankrupt anymore?
Their petition for “civil rehabilitation” of Mt.
Gox, filed in November, is now pending before
the Tokyo District Court; an outside examiner
recommended in its favor in February. Shin Fukuoka, the partner at Nishimura & Asahi leading the efort, is confident it will be approved,
as early as the end of April. “We think that the
court has suicient understanding about the
problems in the case of proceeding with bankruptcy,” Fukuoka says.
Those problems, of course, include the fact
that the majority of Mt. Gox’s assets would
otherwise accrue to Mark Karpelès. “Such
an outcome would be a travesty,” says Jesse
Powell, CEO of Kraken, the San Francisco–
based Bitcoin exchange appointed to help
investigate and distribute Mt. Gox claims (and
himself a substantial creditor).
If Fukuoka’s plan works, it would be the first
time in Japan that a business “abolished” in
bankruptcy was rehabilitated, he says: “These
are very unique circumstances.” In a traditional civil rehabilitation, once the court gives
the green light, it typically takes six months
for the plan to be finalized—meaning optimistically, creditors could begin to get paid,
preferably in Bitcoins, as soon as late this year.
Fukuoka says he’s also considering mandating
P R O T E S T E R : T O R U H A N A I — R E U T E R S ; P R E S S C O N F E R E N C E : J I J I P R E S S /A F P / G E T T Y I M A G E S
further investigation into the stolen Bitcoins
as part of the rehab plan, in hopes more will
be recovered. (A $75 million lawsuit from
CoinLab that has held up the bankruptcy
process could be sidestepped by setting aside
a legal reserve fund in the meantime, he
adds.) It would be an extraordinary outcome
for creditors like Thomas Braziel, managing
partner of New York–based hedge fund B.E.
Capital Management, who has bought up
$1 million worth of claims at 80¢ on the dollar,
believing he will turn a profit no matter what.
“Of course, if the rehabilitation happens, it’s a
bonanza, and you make eight, nine, 10 times
your money,” Braziel says.
That would be a relief to Mt. Gox’s disgraced
CEO, who says he’s had enough of the cryptocurrency business to last a lifetime: “The only
thing I’m touching related to cryptocurrency is
how to solve this bankruptcy. Nothing more,”
says Karpelès. Besides, he has lost faith in the
initial promise of digital money: “Bitcoin right
now is, I believe, doomed.”
Since his release from jail two summers
ago, Karpelès has been moving apartments
every few months out of concerns for his own
safety. During three months of all-day interrogations while detained, he refused to confess
to the accusations Japanese authorities threw
at him—including, at one point, that he was
Satoshi Nakamoto, Bitcoin’s mysterious
founder. Still, despite what he feels is a weak
case against him, he thinks the odds are he’ll
be found guilty, at least during this first trial;
Japan, which has a more than 99% conviction
rate, is also one of a few countries that allows
prosecutors to appeal an acquittal twice. In
a year or two, he could be sent back behind
bars. “After I came out, I felt like in a kind of
dream, like I didn’t feel things were real,” he
says, over a slice of cake with cream and cherries. “Even today I’m not sure yet.”
Karpelès, though, is not on trial for what
even his sympathizers fault him for the most:
lying about Mt. Gox’s insolvency. “When
Mt. Gox didn’t have any of the coins, he was
getting new deposits from other customers
to pay of other people—kind of like a Bernie
Madof,” says Kelman, the lawyer.
For now, Karpelès, who’s never been to
the United States (and isn’t allowed to leave
Japan while on trial), is leveraging his mastery
From left:
Kolin Burges,
of Japanese and the country’s formal busia cryptocurness customs. The arrest of Vinnik has made
rency trader,
it easier to find work, he says, by lifting some
protesting
the loss of Mt.
blame from Karpelès. Even so, the taint of Mt.
Gox’s Bitcoins.
Gox follows him. “He is unhirable,” says Mike
Mark Karpelès
Kayamori, the CEO of Japanese cryptocur(second
from right)
rency exchange Quoine.
announcing
Yet earlier this year, Mark Karpelès landed
Mt. Gox’s
a big new job: chief technology oicer at Lonbankruptcy in
don Trust Media, a Denver-based corporation
2014.
that runs the largest virtual private network
(VPN) service in the world. It has recently
been expanding into cryptocurrency-related ventures. “I am more
than willing to give a second chance to Mark in this fight’s critical
hour,” says Andrew Lee, cofounder and chairman of London Trust
Media, who also briefly ran Mt. Gox’s U.S. operations.
Even if Mt. Gox’s rehabilitation succeeds, the company is unlikely to take another voyage. Still, that hasn’t stopped Karpelès
from dreaming up schemes to get back the missing 650,000 Bitcoins. Even if the original coins can’t be retrieved, perhaps Mt. Gox
could be revived long enough to generate revenue to finally make
creditors whole; Karpelès also says he’s found one exchange that
seems interested in pledging some of its own profits to victims.
But others, such as Kraken’s Powell, say the hole is simply too
deep to fill. Besides, even if Mt. Gox did reopen, who would want
to trade there? Adds Burges, the Mt. Gox protester, “It’s like having
another ship called the Titanic.” For him, closure means letting the
rest of the Bitcoins go down with the ship.
75
FEEDBACK LETTERS@FORTUNE.COM
F O R T U N E . C O M // M AY. 1 . 1 8
RETAIL
76
F O R T U N E . C O M // M AY. 1 . 1 8
By PHIL WAHBA
Private equity has
invested hugely in
the retail sector—
boosting some
brands and crushing
others. Here’s how
these investors are
remaking your mall.
caught his attention. Boston
was enduring a particularly brutal winter in 2013 when Ryan
Cotton began to notice a trend on his daily walk to work near
Copley Square: the suddenly growing number of sharp-looking
parkas with a logo showing a polar cap surrounded by flaming
red maple leaves.
Craning his neck for a closer look one day, Cotton, a managing director overseeing investments in consumer brands at the
private equity firm Bain Capital, was intrigued all the more by
the reference on the logo to an “Arctic Program.” What was this
brand, he wondered?
As fate would have it, the Canadian investment bank
Canaccord Genuity got in touch with Cotton soon after in search
of financing for a client—a small, Toronto-based winter-wear
manufacturer called Canada Goose that was growing fast and
had ambitions to go global. Cotton quickly recognized it as the
company behind the parkas with the cool patches. He flew to
Toronto for a dinner meeting with Canada Goose CEO Dani
Reiss at a trendy restaurant called North 44. Months later, Bain
took a 70% stake in Canada Goose.
Canada Goose possessed the two key attributes Cotton looks
for when investing in retail: a strong brand identity and a unique
niche. Parkas had long been seen as functional rather than
fashionable, but Canada Goose managed to make them hip while
retaining high performance. Founded by Reiss’s Polish immigrant grandfather in 1957 to produce snowmobile suits, Canada
Goose established its reputation by outfitting explorers to Mount
Everest and the South Pole. Then celebrity fans like actor Daniel
Craig and model Kate Upton gave it cachet. “You don’t go to Antarctica, but since Canada Goose outfits people who do, the brand
has credibility,” says Cotton.
The investment has been both a grand slam for Bain and a
transformative deal for Canada Goose. Since Canada Goose went
public just over a year ago, listing its shares on the Toronto Stock
Exchange and New York Stock Exchange, the company’s share
price has more than doubled—giving it a market value of some
$3.5 billion. In the nine months ended Dec. 31, Canada Goose’s
revenues rose 32.2%, to $370 million, while merchandise profit
margins shot up 5.5 percentage points, to 57.8%. Bain, which still
owns 44% of Canada Goose’s shares, is well positioned to add to
its returns if the hot streak continues. And for Canada Goose, the
dream of selling its $1,000 parkas to high-end consumers globally
has been realized.
If this happy tale reads like an exception to the rule—to some
extent, it is.
In most stories about retail these days, private equity is
depicted as the bad guy—dooming operators by piling on debt.
And not without reason. Buyout firms have been behind many of
the industry’s biggest bankruptcies. In fact, 10 of the 14 biggest
retail bankruptcies since 2012—as measured by liabilities at the
time of Chapter 11 filing—were buyout-backed chains. Topping
that list is the $7.9 billion filing, in September, of Toys “R” Us
(which Bain owned as part of a consortium that included KKR
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F O R T U N E . C O M // M AY. 1 . 1 8
and Vornado Realty Trust). But the roster of
buyout busts includes a host of familiar brands
such as another Bain investment, Gymboree
($1.4 billion filing), as well as Sports Authority
($1.5 billion), Payless ShoeSource ($1 billion),
and Nine West Holdings ($1.4 billion).
More carnage is on the way. In March,
Moody’s said it expected a wave of new
retail defaults this year, with a surge in debt
maturities coming due in 2019 and 2020 and
rates on the rise. The credit rating agency’s
current watch list of 18 retailers deemed
“distressed”—with a debt rating of Caa1 or
worse—includes PE-owned names such as
J. Crew, Guitar Center, and Neiman Marcus.
The retail reckoning continues.
But as the example of Canada Goose shows,
private equity investors can ofer retailers a
huge boost when things go right. PE firms
have helped speed up the evolution of dozens
of companies in ways that now seem to be
helping them stay competitive in the muchchanged, Amazon-disrupted landscape.
The bottom line: When you go to your local
shopping center, there’s a good chance that the
finance whizzes of private equity have had a
hand in the empty spaces left by defunct retailers, as well as in the ones that are surviving and
thriving. Here’s how they’re reshaping the mall.
THE CL ASSIC PL AYBOOK for private equity is to buy
a company using an ample dose of borrowed
money, then unlock value either by getting
more eicient operationally or selling of units,
or both. Typically, the PE investors will look to
unload the company after three to five years via
a public ofering (with the proceeds often used
to pay down debt) or a sale. The debt involved
acts as a lever that boosts returns when things
go well, but it can be an albatross when things
are going south. The borrowing can also
help finance the large management fees and
dividends that often represent a big chunk of a
buyout firm’s returns.
An unsentimental view of this debtpowered approach is that it merely hastens
the demise of chains that are doomed to fail.
Such was probably the case for some of the
recent retail bankruptcies. “Many of them
would have gone out of business anyway,” says
Erik Gordon, a professor at the University of
Michigan’s business school and faculty adviser
to the university’s venture capital fund.
Indeed, the retail fails in recent years have
been disproportionately concentrated among
mall-based apparel chains, such as Wet Seal,
American Apparel, and Aéropostale, in a
P R E V I O U S S P R E A D : H A N N A H M C K AY— R E U T E R S
I
IT WAS THE DISTINCTIVE PATCH that
re tail reckoning
Shoppers browsing Canada Goose’s
signature parkas at the
brand’s flagship store
in Manhattan. Its iconic
logo (below) has become
ubiquitous in major
urban markets.
sector in which few companies are thriving,
or retailers that were slow to build an online
presence, like Sports Authority or outdoorgear purveyor Gander Mountain.
The sheer number of struggling retailers linked to private equity today, however,
reflects a burst of optimism about retail in the
PE industry more than a decade ago. Between
2006 and 2008—before the global financial
crisis tanked the markets and e-commerce
hit critical mass—private equity firms sat
on record amounts of money pumped in by
gigantic investors like pension funds and
wealthy individuals. So they went shopping.
The rationale was that buyout firms could
make a mint by getting retailers leaner—and
that soaring real estate prices limited the risk.
Chains could always sell well-located stores to
raise cash if needed. The result was a historic
retail buyout boom: In 2006 and 2007, PE
firms made $108 billion worth of acquisitions
involving 300 U.S. retailers of various sizes,
according to Dealogic. That’s 10 times the dollar value of PE retail acquisitions made in any
other two-year period since the 2001 reces-
“PE is good
in that it
can bring
capital
and make
tough
decisions,”
says one
retail
expert.
sion. A decade later, the 2016–17 combined
deal volume was a mere $13 billion.
A handful of major successes emerged from
the cascade of deals in the mid-aughts. Case
in point: the $6.9 billion, KKR-led acquisition
in 2007 of Dollar General, now the biggest
U.S. chain by store count. Dollar General went
public again two years later with a hugely successful 2009 ofering, and now has a market
cap of $26 billion. But a disproportionate
number of retailers ended up languishing in
PE firms’ portfolios for years.
What went wrong? For all their financial
savvy, back in 2006 the big private equity
firms proved no better than the retailers
themselves in anticipating major changes that
would roil retail.
Probably the single biggest disruptive factor
has been the consumer’s unexpectedly rapid
embrace of e-commerce—taking customers
out of stores and forcing retailers who want to
survive to ramp up spending on technology.
E-commerce generated 13% of total retail
sales in 2017, up from 7.9% just five years
earlier, according to Department of Commerce
79
PHOTOGRAPH BY ALEXANDRA SCIMECCA
F O R T U N E . C O M // M AY. 1 . 1 8
re tail reckoning
data, and 3.2% in 2007. Remove groceries
from the equation, and the percentage of
online retail sales is much higher. At Neiman
Marcus, for instance, e-commerce accounted
for fully 34% of sales last quarter.
The seemingly unstoppable ascent of Amazon has forced retailers to deploy better apps,
build new state-of-the-art distribution facilities, and reconfigure stores so they can serve
as nodes in a distribution network. The move
online has simultaneously increased expenses
and slashed profit margins across the industry.
That in turn has piled on extra pressure for
retailers in private equity portfolios. Carrying
a ton of debt while trying to fundamentally
revamp your business is a precarious balancing act. “If you don’t have money to invest
online, invest in your store, invest in your
people, invest in price, you’re in deep trouble,”
says Charlie O’Shea, a senior Moody’s analyst.
The imperative to make their numbers has
led many retailers to play it safe, focusing on
sure bets and cost savings. That in turn has
led to poor service and a lack of merchandise
distinctiveness at many struggling chains. All
of which is a formula for failure. As Joel Bines,
cohead of AlixPartners’ retail practice, puts it:
“When it’s not about the customer anymore,
you’re dead.”
I
IT ’S EASY TO SCAPEGOAT private
equity for
retail’s woes. But it’s important to remember
that some of the most successful retailers of
the past few years are, or were, owned by PE
firms and came out much better for it. That
group includes the aforementioned Dollar
General; discounter Burlington Stores; and
At Home, a big-box retailer thriving in one of
retail’s hottest areas—home goods.
What do these successful chains have in
common? They’re in corners of the retail
world that have thus far remained relatively
impervious to Amazon. The “of-price”
segment—as represented by the Ross Stores
and Marshalls of the world—barely gets 1% of
sales online, but it has been physical retail’s
biggest success story for the past decade.
Dollar stores, meanwhile, have thrived thanks
to their bargain-basement prices and their
proximity to shoppers.
Having an Amazon bufer is huge. But successful retailers in 2018, says Bain’s Cotton,
must also convey with absolute clarity to the
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F O R T U N E . C O M // M AY. 1 . 1 8
THREE
PRIVATE
EQUITY
RETAIL
FAILS
Three of the four
biggest retail
bankruptcies
in the past five
years, ranked
by liabilities at
time of filing,
had PE owners.
TOYS “R” US
Size of
bankruptcy:
$7.9 billion
Taken private:
2005
Bankruptcy
filing:
Sept. 2017
Private equity
owners:
Bain Capital,
KKR, Vornado
SPORTS
AUTHORITY
Size of
bankruptcy:
$1.5 billion
Taken private:
2006
Bankruptcy
filing:
March 2016
Private equity
owner:
Leonard Green
Partners
NINE WEST
HOLDINGS
Size of
bankruptcy:
$1.4 billion
Taken private:
2014
Bankruptcy
filing:
April 2018
Private equity
owner:
Sycamore
Partners
consumer what value they ofer.
That’s one area where private equity can
help because the buyout firms bring expertise
galore. Bain, for example, has in-house experts
focused on everything from optimizing supplychain operations to choosing store locations.
And the same is true of its big rivals: Cerberus
has an in-house management consulting unit
called Cerberus Operations and Advisory Co.,
KKR has a similar group named Capstone,
and L Catterton’s unit is known as Vault. These
organizations are packed with operational
experts, including more than a few former
retail executives, as well as investment
bankers and management consultants.
When things are going right for a retailer,
these SWAT teams can add huge value.
Leading up to Dollar General’s 2009 IPO, for
example, KKR installed a management team
that included a former drugstore CEO and a
Starbucks senior exec. And profits soared after
the company, under KKR’s guidance, added
more private-label products with their higher
margins, stripped out duplicative items, and
expanded into new geographic markets.
Another example is Restoration Hardware. PE firm L Catterton took it private for
$175 million in 2008 with other investors,
pushing it to build up its e-commerce capacity and to pull out of dozens of faltering malls.
The markets rewarded the firm richly: Restoration Hardware returned to the stock market
in 2012 with a $520 million valuation. Not
bad for four years’ work.
Then there’s Burlington Stores, formerly
known as Burlington Coat Factory and one
of Bain’s biggest home runs ever. Under the
guidance of Bain’s experts, Burlington became
much more eicient in buying in-season
merchandise from vendors, helping it better
compete with T.J. Maxx and inflicting further
pain on department stores.
Private equity investors can bring a ruthlessly objective point of view to evaluating
what’s working—and what’s not. “PE is good in
that it can bring capital and make tough decisions like dropping business lines and closing
stores,” says Anand Raghuraman, a partner
at EY. Many PE deals don’t hinge on a big
turnaround: Firms will often target a company
that’s just below No. 1 in its category—like,
say, BJ’s Wholesale Club, which ranks below
Costco and Sam’s Club—but also doesn’t
require an expensive overhaul. In that kind of
scenario, a bit of fine-tuning can make all the
diference.
WHEN BAIN MADE its
investment in Canada
Goose, Cotton knew that his firm needed to
tread carefully. The last thing he wanted to
do was mess with the company’s successful
formula. Plus, Cotton had pledged to Canada
Goose CEO Reiss that the firm would respect
his company’s values.
And while Reiss was eager to see what he
could do with Bain’s capital and support, the
CEO had sought reassurances that he’d stay in
control of the company founded by his grandfather. Remaining a Made-in-Canada brand,
too, was a sine qua non condition for a deal.
Both Canada Goose and Bain wanted to avoid
exhausting the brand or, worse yet, cheapening it. “It was really important to me that they
believe in our core beliefs,” says Reiss.
But both sides saw the potential for Bain
to kick-start Goose’s growth. Once the deal
was inked, the PE firm deployed more than a
dozen of its battle-hardened retail veterans to
help guide the company. Bain’s team helped
Canada Goose navigate the supply-chain challenges of meeting booming demand and keeping its wholesale clients happy. While matters
such as selecting the right locations for Canada
Goose stand-alone stores might have been a
prosaic consideration for a more established
chain, it was a crucial and an unfamiliar exercise for the family-run business—and one for
which Bain was able to ofer expertise.
Bain pushed Canada Goose to connect
with customers more directly. In 2014, Canada
Goose’s closest rival, Moncler, got 80% of
sales from its own stores or website, which are
more profitable avenues. In contrast, Canada
Goose sold virtually all of its merchandise via
wholesalers like high-end department stores
Barneys New York and Saks Fifth Avenue. That
is down to 64% of sales so far this fiscal year,
thanks to Bain’s push for better e-commerce
and Canada Goose stores, and a big reason that
Canada Goose’s profit margins are way up.
The Bain team also helped the company
pull back on items that were less profitable,
narrowed the coat assortment to ones that are
quicker to make, and expanded the Canada
Goose assortment, notably adding knitwear,
like $650 sweaters. “Their problem wasn’t
knowing what they could do but what they
should do,” says Cotton, who sits on Canada
Goose’s board. And while Canada Goose
prices are high, above those of say, the North
Face, they are below those of Moncler, whose
focus is more on fashion than function compared with Canada Goose.
THREE
PE-BACKED
RETAIL
SUCCESS
STORIES
Private equity
has had some
big wins in retail
over the past
decade, with
Dollar General
leading the way.
DOLLAR
GENERAL
Value when
taken private
in 2007:
$6.9 billion
Value at IPO
in 2009:
$7.2 billion
Recent market
value:
$26 billion
Private equity
owner:
KKR
BURLINGTON
STORES
Value when
taken private
in 2006:
$2.1 billion
Value at IPO
in 2013:
$1.8 billion
Recent market
value:
$9.34 billion
Private equity
owner:
Bain Capital
RESTORATION
HARDWARE
Value when
taken private in
2008:
$175 million
Value at IPO
in 2012:
$520 million
Recent market
value:
$1.9 billion
Private equity
owner:
L Catterton
no one should
expect another feverish private equity
surge into retail. And indeed so far in 2018,
according to Dealogic data, private equity
acquisitions of retailers are below even the
anemic pace of 2016 and 2017, and are more
on par with levels last seen in the early 2000s.
Retailers of all stripes still have to convince
investors that they can now hold their own
online. “The e-commerce shakeout is not done
yet, and unless there is an easy win in terms
of quick fixes that improve margins, PE will
avoid retail,” says Wharton finance professor
David Wessels.
The IPO market, meanwhile, has cooled
to retail brands, so only the most promising
companies can squeeze through. In the past
couple of years, that group has included
Canada Goose, Floor & Decor, and At Home,
which have all soared since going public.
Shares of much-hyped fashion brand J. Jill,
by contrast, have swooned post-IPO—as
if to remind investors of retail’s ongoing
perils. “The IPOs that are working are by the
retailers that aren’t going to get Amazoned,”
says Kathleen Smith, principal of IPO ETF
manager Renaissance Capital.
As PE pulls back, retail market dynamics are
shifting. There are plenty of retailers that might
prosper with relatively minor fixes, and that
could benefit from the guidance a buyout firm
can ofer. But the days of $7 billion megadeals,
like Sycamore’s buyout of Staples last year,
are over—at least for now, say private equity
executives. Instead, expect more strategic
acquisitions of retailers by other retailers.
(Think Walmart buying Jet.com and Bonobos,
or Coach parent Tapestry buying Kate Spade.)
At the same time, there will almost certainly be
salvageable companies in PE portfolios that are
allowed to die as firms look to cut their losses
and move on.
Private equity won’t abandon the retail
sector, agree industry observers. It will just
be more cautious going forward. “There’s
a right and a wrong side to history,” says
Bain’s Cotton. “What we’re living through
at the moment is the most tumultuous and
transformative period ever [for retail].” That
means more risk in retail for companies
unable to really stand out from the
competition and outflank rivals. Then again,
it also means more opportunities.
DESPITE SOME SUCCESS STORIES,
D
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By
KRISTEN
BELLSTROM
and
BETH
KOWITT
The Muse CEO
and cofounder
Kathryn Minshew
was trying to
secure funding
from Michael
Ferro when, she
says, he tried to
kiss her in 2013.
88
F O R T U N E . C O M // M AY. 1 . 1 8
breach
of
trust
For women, taking part in the world of late-night dinners
and after-work drinks—where so much of business
really gets done—can be risky. It requires a leap of faith
that they’ll be treated professionally, not pressured for sex.
Investor and former Tronc chairman Michael Ferro
betrayed that covenant, say these executives.
89
PHOTOGRAPH BY REBECCA GREENFIELD
F O R T U N E . C O M // M AY. 1 . 1 8
KATHRYN MINSHEW felt like a weight had
finally lifted. It was September 2013, and after
months of back and forth, Michael Ferro,
then chairman of investment firm Wrapports,
had at last signed a term sheet promising
her career-advice startup, The Muse, the
$750,000 infusion of capital it needed to
make it past the end of the year. Now, at
Ferro’s suggestion, the two were headed to
what he described as his company’s corporate
apartment in downtown Chicago for an
evening of takeout and a discussion of how The
Muse might go on to land a much bigger round
of funding. • But once they stepped into the
apartment, Ferro seemed to forget about their
plans to strategize. He poured two glasses of
bourbon and, giving one to Minshew, put his
hand on the back of her head and pulled her
face in for a kiss, she says. Although the move
was forceful enough that she couldn’t pull
away, she says she was able to turn her head so
that Ferro’s lips landed on her cheek.
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F O R T U N E . C O M // M AY. 1 . 1 8
“I stopped thinking in complete thoughts.
My whole body felt like ice,” recalls Minshew.
“I suddenly realized that I was alone in this
apartment with him and that it might not be
very easy to leave.”
Less than three years later, in Las Vegas
during the 2016 Consumer Electronics Show,
Hagan Kappler says she found herself in
a similar position—at a private dinner in
Ferro’s Aria hotel suite under the pretense of
doing business. Kappler, then an executive at
manufacturing giant Ingersoll Rand, thought
she was there to talk thermostats with Ferro,
who had recently sold his health care startup
to IBM. Instead, Kappler says, he repeatedly
wrapped his arms around her from behind.
She told him he was in her space and that she
didn’t like it. Then he did it again, this time
groping her breast.
Kappler, who was nine weeks pregnant at
the time, says she was plagued by nightmares
and had trouble concentrating. She started
working from home. “I just saw myself diferently, so I felt for sure everybody else did too,”
Kappler says.
Both women say they were drawn to these
late-night meetings by the promise of doing
C H R I S G O O D N E Y— B L O O M B E R G / G E T T Y I M A G E S
Former Tronc
chairman Michael
Ferro during
a Bloomberg
Television interview in 2016.
BREACH OF TRUST
business—further investment and connections for Minshew; a
potential partnership and possibly even a lucrative job for Kappler. After these encounters, both described being frightened and
taken by surprise, as well as fearing that their business ventures
were in jeopardy.
Minshew and Kappler, who spoke to Fortune about their experiences on the record for the first time, encountered Ferro through
his work as an investor and dealmaker. But his sphere of influence
and power grew over the past couple of years after he became
the nonexecutive chairman and largest shareholder of Tronc, the
publishing powerhouse that includes iconic titles like the Chicago
Tribune, the New York Daily News, and the Baltimore Sun.
Fortune reached out to Ferro in March with the details of both
women’s accounts. A few days later, as Fortune was preparing
to publish a version of this story online, he announced that he
was retiring from the board of directors of Tronc and that CEO
Justin Dearborn would succeed him as chairman. Ferro will still
be paid $5 million a year by Tronc through Dec. 31, 2020, to
serve as a consultant. In mid-April, Ferro entered into an agreement to sell all of his 9.1 million shares of Tronc to McCormick
Media at a price of $23 per share, or a total of $209 million.
Through a spokesman, Ferro declined to be interviewed. And
he did not address or dispute any of the specific allegations made
by Minshew and Kappler or others in this story.
Ferro’s spokesman provided this statement to Fortune: “Over
more than 20 years of leading public companies and other enterprises, Michael Ferro has never had a claim filed against him nor
a settlement made on his behalf. Your on-the-record allegations
appear to involve private conduct with private individuals who
were not employees of Tronc or any other company he ran. As
recently announced, Mr. Ferro has retired back to private life
after leading a financial turnaround of Tronc as the nonexecutive
chairman. There will, therefore, be no other comment.”
B
OTH MINSHEW ’S AND K APPLER’S stories
unfold where so
much of business and dealmaking takes place: that
murky area outside the nine-to-five that includes latenight dinners and after-work drinks. It is an arena that
is more diicult to navigate, more complicated, and has fewer
rules—and one that, for decades, largely excluded women.
These venues and networks are gradually becoming more inclusive, but while women are now venturing into the rooms where
alliances are struck and negotiations are done, that doesn’t mean
they stand on equal ground. Women who infiltrate the old boys’
network must often weigh a set of questions that would never
occur to their male counterparts: How do I respond to that sug-
gestive remark? Could he think this is a date?
Does this man really believe in my business—
or does he just want to have sex with me?
To reject this treacherous terrain closes
women of from what really drives the world
of business—connections, mentorship, capital.
Yet to enter it opens them up to the possibility
of unwanted attention, harassment, and even
assault. There is inherent risk no matter the
decision. This was the calculation that Minshew and Kappler faced. Both ended up with
their confidence rocked, doubting themselves
and their judgment. The common element—
their experiences with Michael Ferro.
A serial entrepreneur, Ferro made the bulk
of his fortune on a pair of digital startups—
Click Commerce (sold in 2006 for $292 million to Illinois Tool Works) and Merge Healthcare (sold to IBM for $1 billion in 2015). He
has used the proceeds to fund two investment
vehicles that have backed an array of businesses—including the 2011 purchase of the
Chicago Sun-Times, the beginning of Ferro’s
aspirations to create a media empire. In 2016,
he purchased his stake in the Tribune Company and renamed it Tronc, which he grew
into a $1.52-billion-in-revenue operation.
The accusations against Ferro, 51, emerge
at a tumultuous period for Tronc—and at
a moment when the #MeToo movement is
reshaping corporate culture. In February,
Tronc agreed to sell the Los Angeles Times
and other California titles for $500 million
to health care tycoon Patrick Soon-Shiong,
who will also assume $90 million in pension
liabilities. The deal came amid a backlash
from the newsroom over Tronc’s eforts to
install new management and quell the paper’s
unionization eforts. In January, Los Angeles
Times CEO and publisher Ross Levinsohn
took a voluntary unpaid leave after NPR
reported that he had been a defendant in two
sexual-harassment lawsuits and had fostered
“frat house” behavior at previous workplaces.
(Levinsohn called the allegations “lies” in a
call with NPR’s CEO and has since been given
a new job at Tronc after it said an investiga-
I didn’t think this could ever happen to someone like me.
I don’t think people who know me would assume something like this would happen to me,” says Hagan Kappler.
91
F O R T U N E . C O M // M AY. 1 . 1 8
BREACH OF TRUST
tion cleared him of wrongdoing.) Only a few weeks later, two
New York Daily News top editors—whose tenure predated
Tronc’s 2017 acquisition of the paper—were fired over multiple
accusations of sexual harassment.
Allegations of questionable behavior by Ferro come as little
surprise to some who previously worked with him in his media
ventures. Fortune spoke with nine former stafers at the magazines Splash and Grid, who were employed by the Sun-Times
publications during Ferro’s ownership of the paper. (Ferro ceded
control of the Sun-Times in 2016.) These former employees
say Ferro was heavily involved with both magazines, and the
encounters they describe with him suggest an uncomfortable
workplace for women.
Ferro would regularly make sexual comments about women’s
clothing and appearances, the former employees say, telling female stafers they looked “hot” or that he liked it when they wore
short skirts. He once grabbed the bottom of a woman’s leg to
more closely examine what he described as her “sexy” high heels.
And he hired young women as his assistants—dubbed “Ferro’s
Angels” by some employees.
Matt Present, the former editor of Grid, says Ferro instructed
him to stop assigning the satire column in the back of the
magazine to female writers because Ferro didn’t think women
were funny. “He operates under the assumption that women are
meant to be looked at, that boys will be boys,” says Present.
Ferro saw his profile rise nationally after he took over as chairman of Tronc in 2016. But in his home city of Chicago, he has
long been a force: a mainstay of the startup community, a media
gatekeeper, and a regular on the benefit circuit. He has cultivated
an image as a player—in every sense of the word. His startup
Click occupied the same space in the Palmolive Building that
once housed Playboy Enterprises, with Ferro holding court in
Hugh Hefner’s old oice. Ferro’s mostly male birthday parties are
an annual fixture of the Chicago gossip pages, drawing boldface
names including Abbott Laboratories CEO Miles White, former
Wrigley CEO Bill “Beau” Wrigley, and Mayor Rahm Emanuel.
Crain’s Chicago Business has reported that actress Jenny
McCarthy, a Chicago-area native whom Ferro made a Sun-Times
columnist, once showed up to sing him happy birthday.
Minshew has told her story twice previously in the media without mentioning Ferro. This is the first time she has named him
publicly. Fortune talked to four people close to Minshew, whom she
told in the immediate aftermath of her encounter, and reviewed
emails in which she relayed the story to investors. In the case of
Kappler, Fortune spoke to 12 people to whom she has described
her experience with Ferro, including her manager at the time.
Minshew and Kappler have never met, but both voiced similar
reasons for wanting to come forward with
their stories now. “A big piece of it was the
realization that people who do this never
just do this once,” Minshew says, “and every
time it happens to a new person, I could have
prevented that.”
Kappler says she’s committed to helping
women so they don’t have to experience what
she went through. “I didn’t think this could
ever happen to someone like me,” she says. “I
don’t think people who know me would assume something like this would happen to me.”
HE MUSE IS NOW an established company, with 50 million annual users
and a fundraising total of nearly
$30 million. But in 2012, it was just
another young startup that was trying, and
often failing, to raise relatively small amounts
of capital. What Minshew, then 26 years
old, really wanted was to be treated—and
funded—like a serious entrepreneur.
Michael Ferro, whom she first encountered
at a conference in July of that year, seemed
to ofer just that. Weeks after their chance
meeting, Ferro agreed to join the company’s
$1.2 million seed round, which also included
Great Oaks Venture Capital, Gordon Crawford,
and former Hearst Magazines president Cathie
Black. He invested $100,000, making him one
of The Muse’s largest funders. Minshew, who is
based in New York City, says she began making
an efort to meet with Ferro whenever she was
in Chicago and, at his suggestion, appeared in
several of his publications.
In May 2013, she and Ferro met for lunch
while she was in town. Minshew presented
him with her current quandary: She was
unsatisfied with the funding ofers she had
received while attempting to raise a Series A,
but she also didn’t want to be acquired. She
says Ferro had a solution. Wrapports would
invest additional seed money in the company,
setting it up to put together a bigger, splashier
round later. “I was like, ‘Oh, my God, that
would be perfect,’ ” she recalls. “In my mind, it
T
Ferro operates under the assumption that women are
meant to be looked at, that boys will be boys,” says the
former editor of Ferro’s now-defunct Grid magazine.
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F O R T U N E . C O M // M AY. 1 . 1 8
was like, This guy really seems to believe in me.”
But the deal, which Ferro was running through Wrapports—
one of the two investment firms he’s founded—dragged. Minshew
grew increasingly frustrated as the summer months slipped by, all
too aware that her company was on track to run out of funding by
the end of the year. Finally, Wrapports signed the term sheet, and
on Sept. 18, 2013, Minshew flew to Chicago to work out the final
details. After the meeting, she called her cofounder, Alexandra
Cavoulacos, triumphant: “We’re all set. The deal’s going through.”
Deal done, Minshew says Ferro proposed a plan for the
evening: She should join him for drinks with a group of his
friends at a nearby restaurant—“He very much made it clear that
these are big-money guys, power players”—and then the two of
them would go to his company’s corporate apartment, where
they would order dinner and, as Minshew describes it, “really
jam—just get into the business.” Ferro also told Minshew that
the apartment would be empty that night and invited her to
stay there, knowing that The Muse was in startup mode, saving
money wherever it could.
Walking into the apartment building, Minshew remembers
feeling the first pangs of uncertainty. “I thought, Oh, man, this
looks weird. I’m 27, and I’m with this guy.” But she reminded
herself that she had met his wife, that he knew she was in a relationship—and that he had just bet $750,000 on her skill as an
entrepreneur. “It’s not weird, it just looks weird,” she told herself.
“It’s fine. It’s fine.”
But when they entered the apartment, she says, it quickly
became clear to her that it was not, in fact, fine. Minshew recalls
looking out at the city skyline through the floor-to-ceiling windows when Ferro approached her bearing the glasses of bourbon. That’s when she says he forcefully placed his hand on the
back of her head and tried to kiss her.
“My whole world froze,” she says of that moment. “I felt fear—
partially for my physical safety, but mostly the fear that if I didn’t
handle this encounter exactly perfectly, it would ruin this deal
that was so important to the business.”
Minshew pulled away, saying, “I’m a one-man-at-a-time kind
of girl.” She recalls Ferro stepping back and taking a seat. She says
he looked her up and down, saying: “I’m glad I didn’t take you to
a restaurant, because people would think we’re sleeping together,
and we’re not. I’d much rather actually be having sex with you
and have no one know it.” But he didn’t try to touch her again.
According to Minshew, Ferro seemed to lose interest in the
face of her rejection. He told her that one of the men she’d met
at drinks earlier, a prominent Chicago investor, was downstairs
and would like to have dinner with her and talk more about The
Muse. She jumped at the chance to get out of the apartment.
After dinner, she returned to the now vacant apartment and
once again called her cofounder, this time with very diferent
news: “The deal that was totally on? I don’t know if it’s on.”
Worried that the apartment might be bugged or that there
could be a hidden camera, she told Cavoulacos that something
bad had happened but didn’t share the full details until she was
back in New York the following afternoon. That night, she says,
she slept in her clothes.
Fortune spoke to Cavoulacos, who confirms
the account. We also talked with three other
people Minshew told about the encounter in
the days and weeks following her trip to Chicago and reviewed emails in which she told at
least 13 of the company’s early investors about
an incident with a lead investor who made
“extremely inappropriate verbal and physical
advances.” In one email, Minshew followed
up, naming Ferro.
Back in New York, she spent a couple of
days in a fog, “completely disassociated from
myself.” But with her business in peril, there
was no time to fully process what had happened—instead, she and Cavoulacos had to
address what were for The Muse a pair of
urgent and existential questions: Was Ferro’s
money still on the table, and if so, would they
need to take it? The cofounders spent hours
gaming out possible scenarios, including one
in which Minshew gave up her apartment and
moved onto her cofounder’s couch. “We made
a list of our employees in the order that we
would have to let them go,” Minshew says.
They decided to “slow roll” the Wrapports
deal and scramble to see if they could find
funding elsewhere. Despite the fact that there
was a signed term sheet on the line, Wrapports did not appear to object, doing little to
move the agreement forward. Minshew and
Cavoulacos were able to find replacement
investors, raising $750,000 in less than two
months. The deal Minshew had flown to
Chicago to close quietly evaporated.
In April 2015, The Muse was preparing for
its next round of funding, which required the
founders to get sign-ofs from their largest
seed investors—including Wrapports. (Wrapports remains an investor in The Muse today.)
Cavoulacos made the call, with Minshew in
the room. Ferro took the opportunity to raise
the specter of the previous deal. “He was like,
‘Yeah, weren’t we going to invest more?’ ” recalls
Minshew. “ ‘Why didn’t that ever happen?’ ”
Hagan Kappler was supposed to make her debut in Fortune.
The Williams alumna with
an MBA from the University of
Virginia’s Darden School had the kind of
résumé headhunters yearn for: McKinsey,
Starbucks, Goldman Sachs, United Technologies. At the age of 37, she was already an
executive at Ingersoll Rand, a $14.2 billion
T
HIS IS NOT HOW
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F O R T U N E . C O M // M AY. 1 . 1 8
BREACH OF TRUST
global manufacturing multinational.
But then she met Michael Ferro, and for a long time after that,
her life would feel like it had been divided into two—the Hagan
Kappler before the night of Jan. 5, 2016, and the one the day after.
The following is Kappler’s account of her interactions with
Ferro between September 2015 and January 2016. She recounted the events to her husband, brother, father, and manager
in the immediate aftermath of each encounter with Ferro—all of
whom spoke to Fortune. She also told at least five close friends,
a lawyer, her obstetrician, and a therapist about what she says
happened in that Las Vegas hotel suite in varying degrees of
detail. All of them also spoke to Fortune.
Kappler first encountered Ferro in September 2015. Ingersoll
Rand had tasked Kappler with creating a digital strategy, and
her brother, who had interacted with Ferro, suggested they connect. Ferro had just agreed to sell his health care startup Merge
to IBM for $1 billion and appeared to have good ideas in the
realm of what Kappler was trying to build for her company. She
asked for a meeting and flew out to Chicago to see Ferro.
Over the course of that initial two-hour meeting in the Chicago Sun-Times building, Kappler says Ferro talked about topics
ranging from strippers and prostitutes to his beliefs that women
in technology have to get ahead by using their looks and sexuality. He mixed compliments with criticisms, telling her she was
attractive but that she also needed a makeover. She says he asked
that she send him her résumé, and told her that she should
always include her photo.
But during the meeting, Ferro also had real ideas and leads
for Kappler—the most promising being a partnership between
Ingersoll Rand and IBM that he said he could broker. Kappler
says Ferro also raised the possibility of hiring her himself, and at
the end of the meeting, he told her that the discussion had been
his way of interviewing her to be either his personal chief of staf
or the CEO of his private equity firm Merrick Ventures—roles
that would come with big salaries. He said he liked her looks, as
well as her credentials, and that she was buttoned up, something
that would help give his operation more credibility.
The next day, Kappler reported back to her then manager,
Dion Persson, telling him that she didn’t know it was possible
to be both so flattered and insulted at the same time. Persson
remembers telling her that Ferro didn’t seem like the type of guy
you want to work with. “She kind of realized that,” he says, “but
he was ofering so much that it became very important to her.”
The interaction with Ferro left a mark on Kappler—she remembers thinking it was one of the most influential meetings of
her career. “I’d been in these very safe, nice companies, protective
wonderful places, and suddenly I’m thinking, I didn’t know that
women are supposed to …” she trails of. “It sounds ridiculous, but
I thought maybe there was something to that.” She ended up sending Ferro her résumé—professional headshot included.
Kappler and Ferro exchanged a few emails and phone calls
after that initial meeting, and she invited him to be a judge at an
innovation competition she was organizing for Ingersoll Rand’s
leadership conference. On Dec. 21, 2015, she flew to Chicago to
meet with Ferro again, this time bringing along Persson—Kappler
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F O R T U N E . C O M // M AY. 1 . 1 8
had wanted someone else from Ingersoll Rand
to make sure Ferro would be appropriate for
the conference.
Ferro started this meeting by saying that his
wife had asked why he was going into the office the week of Christmas. Kappler and Persson say he recounted that he had told his wife
that obviously it was because he was having an
afair with Kappler. Persson told Fortune that
some of the references Ferro made during the
meeting, including that one, made him cringe.
“I saw some of these signs, and I didn’t stop it,”
Persson says, “and I still feel horrible about it.”
But again Ferro shared some compelling
ideas, including creating a separate entity that
partnered IBM’s Watson with Ingersoll Rand’s
thermostat business. Persson suggested that
Kappler run it, and Ferro said in that case
she would need a makeover. In a follow-up
phone call with Kappler the next night, Ferro
joked that he had done a good job not sexually
harassing her too much in front of her boss.
On a later call, they planned to meet up at the
Consumer Electronics Show; Kappler would
gather data on the thermostat market and
together they would flesh out the business
idea. “He told me to remember it was Vegas
and dress like it,” Kappler recalls.
On Jan. 5, 2016, the day she was scheduled
to arrive in Las Vegas, Kappler says Ferro
called her at about 6:30 p.m. and asked where
she was. Her flight was delayed, and she
suggested that they meet another time. Ferro
pushed back, saying he had come to Vegas
that day specifically to meet with her and he
didn’t want to delay it. Kappler texted him
when her plane was about 10 minutes away
from wheels-up. She says he texted back that
she was about two rounds of drinks behind
him. They exchanged a few text messages
after she landed—Kappler asking if it was too
late to meet; Ferro telling her he was in the
high-roller room and that they should have a
late dinner in his suite.
According to Kappler, Ferro called her six
times after that, asking where she was and
when she would be there. “I kept saying I think
it’s too late, and he kept insisting he wanted to
meet that night,” she says. On the way there,
she remembers thinking it didn’t feel right but
decided she’d be able to power through it.
She arrived at the Aria at around
10:30 p.m., and Ferro met her to head up
to his suite. Kappler says Ferro dimmed the
lights when they arrived and insisted she
Hagan Kappler,
who is pregnant with her
fourth child, was
developing a
digital strategy
for Ingersoll
Rand when Ferro
groped her in his
Las Vegas hotel
suite, she says.
There are some acts of misogyny and harassment that are
just as much about reminding women what they can and
can’t do than they are about sex,” says Kathryn Minshew.
have a drink with him since he’d been waiting for her for a long
time. Kappler did not want to tell him that she was nine weeks
pregnant, so she pretended to sip a glass of red wine that he
poured her from the minibar.
Kappler started to relay some of the details of the thermostat market, and Ferro asked a few questions but didn’t really
engage. He commented on her outfit and asked her if she had
ever done anything bad—she told him no and tried to get the
conversation back to business. That’s when he first came up
behind Kappler, who was sitting at the bar, and put his arms
around her, she says. She squirmed away, and he started rubbing her shoulders. According to Kappler, he soon tried to wrap
his arms around her again, and this time after she wriggled free,
he held on to her hand.
Kappler again tried to get the conversation back on track. She
says Ferro asked when they would be done talking about business
so they could start having some fun. She told him she had come
to work and that she hated being away from her family. Kappler
says Ferro tried to embrace her again, this time
from the side, and asked why she was being
shy. She told him he was in her space and that
she didn’t like it.
At that point, room service arrived, and
not knowing what else to do, Kappler got up
from her chair. She poured herself a glass of
water from the bar, and then suddenly Ferro
was behind her again. She says he put his
arms around her, and then his hand was on
her breast. She remembers saying that now
they had a witness—referring to the man from
room service who was setting up the table.
Kappler says Ferro told her that no one sees
anything in Vegas.
She walked away, and at this point, she
believes it sunk in for Ferro that she was not
going to acquiesce. He started ignoring her
96
F O R T U N E . C O M // M AY. 1 . 1 8
PHOTOGRAPH BY REBECCA GREENFIELD
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Spark your insights, fuel your wisdom, and empower your leadership experience today.
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BREACH OF TRUST
and playing poker on his phone. According to Kappler, Ferro
told her that his friends down in the high-roller room had asked
if he was going to come back and that he had told them, “Why
would I play poker when I can poke her?”
They sat down to eat, and over dinner Ferro made a point to
say he had been helping Kappler and hadn’t asked for anything
in return. He added, she says, that he’d ordered her a nice dinner
and the nicest bottle of wine on the menu. Kappler remembers
trying to keep it light and play the role of the protégé. Kappler
says Ferro told her that she didn’t need to sleep with people, but
she did need to flirt and “suck dick” to advance. In the moment,
she didn’t feel like she could get up and leave. “I felt obligated to
have this dinner with him,” she says. “He had made that comment that he had never asked for anything from me.”
At around midnight, Ferro said he had to get up early the next
morning and was going to have to kick her out. Kappler says he
told her that he hoped she’d be out and drunk later in the week
and to call him. After she left, she remembers thinking she would
never tell anyone about what had happened in that hotel suite.
But the next morning in the shower, she couldn’t stop crying.
She texted Persson and told him Ferro couldn’t go to the leadership conference. Persson wrote back that it was no problem
and that he hoped she was all right. “I just knew something had
happened,” Persson says. Kappler walked around CES in a daze,
afraid that she was going to bump into Ferro.
The day she got back to the oice, she cried when she told
Persson what had happened. “I could barely spit it out,” she says.
In the days after, they strategized about what to do. (An Ingersoll Rand spokeswoman said in a statement to Fortune, “Sexual
misconduct of any kind is inconsistent with our policies and
company values. We take it seriously.”)
Persson wrote a letter to Ferro, disinviting him to the conference and cutting of ties. Ferro immediately sent Kappler a text
and left her a voicemail, telling her he had gotten a strange letter
from her boss and asking if everything was okay. Persson then
followed up with another letter, this time telling Ferro never to
contact Kappler again. He never did.
still vividly
recalls the shame and humiliation she felt leaving
the Chicago apartment. “Those feelings have not
completely stopped,” she admits. The experience led
her to doubt herself and question her judgment. For a time, it also
compromised her ability to form trusting business relationships
with certain types of men. She tends to be cautious about
attending small, private gatherings—despite knowing that that’s
where important networking and dealmaking often get done.
Kappler can relate; when she attends conferences she now heads
straight back to her room rather than socialize at happy hours.
Minshew says talking about her experience with other women
helped—and revealed just how many women have a similar
story. Yet at the time, she didn’t feel that publicly naming
Ferro was a real option. “Four years ago, I felt like I would
completely be closed out of any venture capital if investors saw
M
ORE THAN FOUR YEARS L ATER, Minshew
me as someone who named names.”
She’s coming forward now because she
believes that’s beginning to change. Says
Minshew, “Do I think the venture community
now is fully embracing this? No. But there is
a substantial minority of investors who are
genuinely committed to resolving the issue,
and some of them are powerful enough that
they’re starting to have real impact.”
Kappler really struggled after her encounter
with Ferro. She says she had nightmares the
weekend after she returned from Las Vegas
and at one point woke up terrified of her husband. She spent most of the weekend in bed
and couldn’t help with her two little kids. She
started working from home, ashamed of her
pregnant belly. She did not want to be seen as a
sexual person.
“It just changed everything for me,” she
says. Like Minshew, she felt shame. “If I
had been watching this movie and seeing
this woman being treated like this, I would
have been like, ‘Get out of that oice. Don’t
call him back,’ ” she says. “I felt like it was
my fault.”
Therapy helped Kappler, and so did time.
She moved up the ranks at work and recently
accepted a job to run digital innovation at a
new company. She’s now pregnant with her
fourth child. “I just felt like I was unprepared
for the situation, and now I’m prepared,” she
says. “I’m stronger now.”
Kappler met with a lawyer a week after the
Las Vegas meeting to discuss her options—the
point when she started documenting her encounters with Ferro in detail—but she worried
about the ramifications for her career and
family of speaking out. Now she also fears that
staying silent will put other women at risk.
And yet she does not want this to be all she is
known for in her career, she says.
Minshew thinks that Ferro did what he did
simply because he could. “And I couldn’t really
do anything about it,” she says. “There are some
acts of misogyny and harassment that are just
as much about reminding women what they
can and can’t do than they are about sex.”
To her it felt incredibly cavalier. “Like he
didn’t even care so much about me or about the
situation,” says Minshew. “He was just going
to see if I would have sex with him. But it was
my company, and the fate of 14 employees or
so was hanging in the balance, as well as my
career to some extent. And to him it was just
worth a pass.”
98
F O R T U N E . C O M // M AY. 1 . 1 8
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2.0%
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DIAMONDS
100
F O R T U N E . C O M // M AY. 1 . 1 8
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CREDIT SUISSE GLOBAL INVESTMENT RETURNS YEARBOOK 2018
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