April 14 April 20, 2014 | businessweek.

com
Bill Grosss case for Bill Gross
p48
Data centers, those spooky, nondescript
industrial buildings full of server stacks,
are what make Web communication and
e-commerce possible. As activity and reli-
ance on the Internet continue to grow, and
dependable data centers become key to a
functioning Web, managers increasingly
rely on advanced infrastructure manage-
ment (DCIM) software to keep them run-
ning smoothly.
Data center managers used to walk
around with a clipboard taking notes, and
use spreadsheets to make decisions,
says Domenic Alcaro, Vice President, Data
Center Software Solutions for Schneider
Electric, the France-based multinational
thats leveraging its energy management
expertise to develop software solutions for
segments including data centers.
But as data centers grow in complexity,
the older ways of doing things are wasteful.
Its why we need software that manages
information about a data centers assets,
resource use and operation status, through-
out its life cycle.
The growth in spending on DCIM
software is an indicator of the markets
rapid expansion. While DCIM software
sales generated $245 million in revenue
in 2010, 451 Research, an organization
the monitors IT business and innovation,
forecasts year-over-year compound growth
of 39 percent, raising revenue to $1.3
billion by 2015.
Founded in 1836, Schneider Electric
has long been a leader in developing
building management systems (BMS),
integrated energy management solutions
and highly sophisticated measuring tools to
monitor power and energy use.
The companys products are already
being used to manage many distinct
operations, including energy use, in data
centers. But now Schneider has developed
StruxureWare, a platform of integrated,
plug-and-play software applications that
collects information from all key assets in a
data centerincluding racks, rows, rooms
and its mechanical and electrical sys-
temsinto a single dashboad from which
to control all its mission-critical systems.
Alcaro explains that StruxureWare
bundles together three of Schneider Electrics
legacy business components: the companys
building management software (BMS); its
power and energy measuring sensors and
tools; and its legacy white space DCIM
software that monitors server and other IT
equipment performance. (This DCIM com-
ponent takes its moniker from the white tile
platforms on which IT equipment is placed).
Schneider Electric has a breadth of
experience in all these areas and, with
StruxureWare, weve brought them together
in an integrated, holistic way that allows us
to maximize the value of all of them for the
customer, Alcaro says.
StruxureWare collects information not
only from the physical infrastructure of the
data center, and the power and cooling
components, but from the IT components,
as wellthe servers, networking equip-
ment, storage, and so on. It then applies
analytics to all that information to give data
center managers complete visibility into
their IT and facilities operations, displayed
in an easy-to-read graphic interface, so they
can make the best operational decisions.
StruxureWare for data centers can sim-
plify operational processes, and show data
center managers where they can cut costs
and make better use of both their physical
plants and their IT infrastructure. And since
it also has the ability to detect potential
faults before they happen, StruxureWare
allows for a proactive management ap-
proach, and provides capabilities such as
planning and forecasting, as well as control
features that can be used to automate
many decision-making processes.
Data center managers can use Struxure-
Ware for recommendations as to what to do,
but, depending on their willingness to cede
control, they can also allow the software to
apply the information to make decisions and
changes automatically, Alcaro adds.
Since it uses open protocols, Struxure-
Ware connects seamlessly with whatever
other systems a company uses.
The aim is to make it easy for users
to have accurate and actionable data to
conserve resources and optimize perfor-
mance, Alcaro says. With StruxureWare,
GDWD FHQWHUV FDQ EH PRUH UHOLDEOH HIFLHQW
productive and safe. John OMahony
Schneider Electrics StruxureWare unites all mission-critical
systems on a single platform
>
Maximizing
the Value of
Data Centers
ADVERTISEMENT
StruxureWare collects infor-
mation not only from the IT
white space, but from the
physical infrastructure of
the data center as well,
including its power, cooling
and security components
We drive data center efficiency.
Rack-to-row-to-room-to-building architecture lowers cost.
Improving both efficiency and system uptime requires a second look at
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traditional IT white space and facilities to improve interoperability, deliver
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In fact, its the foundation of our Business-wise, Future-driven

data centers.
2014 Schneider Electric. All Rights Reserved. Schneider Electric, APC, Square D, InRow, EcoBreeze, StruxureWare, and Business-wise, Future-driven are trademarks owned by
Schneider Electric Industries SAS or its affiliated companies. All other trademarks are property of their respective owners. www.schneider-electric.com t 998-1158241_GMA-US_Note3
Our innovative data center physical infrastructure
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Its not a way to live,
to keep your baby
inside with an air
lter running
p24
This new paradigm is being
and giving. The old paradigm
is getting and having. There is
nothing to get. We have to get
out of the getting concept
p54
It doesnt take
a genius to say
India can be
the largest friend
of the Japanese
p16
Its been like a near-death experience,
an emotional blow. Whenever I read
the newspaper, I say to myself,
At least my wife loves mep48
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Opening Remarks A global tax on the superrich? Maybe its not such a crazy idea 10
Bloomberg View The U.S.s next move in Afghanistan Bobby Jindals Obamacare xes 12
Global Economics
Falling bond yields are usually a sign of strength. In Europe, they could mean deation 14
Low-level ies, elite tigerstheyre all getting caught up in Xis anticorruption dragnet 15
A Modi victory would strengthen Indias ties with Japan 16
Millennials sufered disproportionately from the recessionnot glad tidings for consumer spending 17
Correlations: If you buy cigs in a high-tax state, you might be blowing smuggled smoke 18
Companies/Industries
Forget convertibles. Today, Thelma and Louise would drive an SUV 21
Abu Dhabis Etihad Airways spent lavishly, and perhaps not wisely, on its network of carriers 22
An unwelcome corporate perk in China 24
Peeps arent just for Easter anymore 24
Briefs: Toyota, back in the recall ditch; P&G swears of pet food 25
Politics/Policy
John Robertss canny campaign to move the Supreme Court to the right 27
Thousands of fed-up New Yorkers quit the city for Austin. Seriously 29
So many new Medicaid patients, so few doctors who will treat them 30
Where all that Medicare money goes 30
Americans loathe taxes. So why do they pay them so faithfully? 31
Technology
Storage service Dropbox expands to beat back well-funded rivals 32
For Intrade, fantasy sports games ofer a rst step back into betting 34
Charlie Rose talks with Twitter co-founder Biz Stone 35
Many U.S. retailers probably wont meet a deadline meant to reduce credit card fraud 36
Innovation: A way to use plastic at vending machines built for cash 37
Markets/Finance
The SEC is taking its time coming up with rules for speed traders 39
In a sizzling market, collectors give long-slighted artists a second look 40
Coca-Cola buys a stake in a cofee companyand short sellers get burned 41
Running for New York State Assembly, ex-Wall Streeter Gus Christensen sounds more like an Occupier 42
Bid/Ask: Mallinckrodt buys Questor; anyone want a Hearst mansion? 43
Features
Soul Searcher El-Erians exit at Pimco forces co-founder Bill Gross to reconsider everything 48
Goddess for Congress Marianne Williamson envisions winning Americas richest district 54
Samsungs War Deaths at a chipmaking plant afect South Koreas corporate-is-king mentality 60
Etc.
With her shoe line, Sarah Jessica Parker targets women who cant aford Louboutins 67
Marketing: Peets teams up with Razorsh to satisfy your java x online 70
Ask a Billionaire: James Dyson hates to re anyone 70
Travel: Attention, rst- and business-class passengersairlines are upgrading the art of pampering 71
Menswear: Leather jackets that work with a stylish ofce wardrobe 72
The Critic: Hollywood hopes Heaven is for real, and also a blockbuster 74
What I Wear to Work: Cara Turano, in male-dominated IT, isnt one of the boys 75
How Did I Get Here: You can have it all, says moviemaker Jane Rosenthal, but you cant have it all at the same time 76
April 14 April 20, 2014
I love Bill Gross. There isnt a bad
photo of him. Every single one is great.
Indiana Gross.
This picture will never leave me.
Its seared itself into my retinas.
Everywhere I look, all I see is a
squatting fund manager.
Perplexed, confused, unwound,
uncertain unusable.
Oh, the humanity. But we have
to remember this is a story about
bond management.
Can we do a Bill Gross
cover every week?
How the cover gets made
Cover
Trail
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Platform
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Social
learn more at microsoftcloud.com
The cloud that
helps win the race.
The winning edge can boil down to nanoseconds. Data can be as
important as the driver. Powered by Microsoft Dynamics, Azure and
Oce 865, LoLus F! 1eam analyzes and shares daLa rom over Lwo
hundred sensors that measure everything from engine fatigue to
torque and vibration. Working in sync with the right information,
the team from the factory to the garage to the track can make the
calls that make the difference between winning and losing.
This cloud gives teams an edge. This is the Microsoft Cloud.
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K
Dyson 70
Dyson, James 70
E
EasyJet(EZJ:LN) 22
EBay(EBAY) 68
Eccles, Nigel 34
Edwards, John 56
Eich, Brendan 25
Einhorn, David 41
Eisner, Michael 76
El-Erian, Mohamed 50
Emirates 22
Energen(EGN) 43
Etihad Airways 22, 71
Euromonitor International 24
Europay 36
Evercore Partners(EVR) 42
F
Facebook(FB) 35, 56
Fairchild Semiconductor(FCS)
62
FanDuel 34
Fenton, Peter 35
Fidelity Investments 32
Finkel, Ben 35
First Data(KKR) 36
Ford Motor(F) 21
Frank Mohn 43
G
Gap(GPS) 68
Gates Global(GGI) 43
Gefen, David 56
General Electric(GE) 32
General Motors(GM) 21
Gold, Kym 56
Goldman Sachs(GS) 15, 32, 42
Google(GOOG) 32
Grace Hill Media 74
Granholm, Jennifer 56
Grantham Mayo Van Otterloo
50
Greuel, Wendy 56
Grupo
Modelo(GMODELOC:MM) 25
C
Cage, Nicolas 74
Calzolari, Pier Paolo 40
Cathay Pacic(293:HK) 71
CBS(CBS) 76
Cher 56
Christensen, Gus 42
Christian Louboutin 68
Christies 40
Chrysler(F:IM) 21
Citrix 32
Clinton, Hillary 56
Coburn, Tom 12
Coca-Cola(KO) 41
Colony Capital 42
Colorado West
Otolaryngologists 30
Constellation Brands(STZ/B) 25
Crowe, Russell 74
CVS Caremark(CVS) 25
D
Darwin Airline 22
De Niro, Robert 76
Dean, Howard 56
DeltaAir Lines (DAL) 71
Deutsche Bank(DB) 32
Deutsche Lufthansa(LHA:GR)
22
Diageo(DGE:LN) 25
Ding, Xueliang 15
DirecTV(DTV) 25
Dorsey, Jack 35
DraftKings 34
Draghi, Mario 14
Dropbox 32
Index
People/Companies
A
Abdullah, Abdullah 12
Abe, Shinzo 16
Advanced Micro
Devices(AMD) 62
Aer Lingus Group(AERL:ID) 22
Air Berlin(AB1:GR) 22
Air France-KLM(AF:FP) 22
Air Serbia 22
Air Seychelles 22
Alcoa(AA) 25
Aldo 68
Alfa Laval (ALFA:SS) 43
Alitalia 22
Allianz(ALV:GR) 50
AmericanAirlines (AAL) 71
Anheuser-Busch InBev(BUD) 25
APCO Worldwide 24
Apple(AAPL) 24, 32
Aronofsky, Darren 74
Associates for International
Research 24
Audi(NSU:GR) 21
Avalere Health 30
B
Baker, Akbar Al 22
Bale, Christian 74
Balls, Andrew 50
Bank of America(BAC) 32
Beckham, David 25
Bernstein, Ron 34
Birchbox 71
BlackRock(BLK) 32
Blackstone Group(BX) 43
Bloomeld, Bill 56
BMW(BMW:GR) 21
Boesky, Marianne 40
Bonami, Francesco 40
Bouygues(EN:FP) 43
Box 32
Boxer, Barbara 56
Buchanan, Pat 27
Burpo, Todd 74
Burr, Richard 12
Burwick, David 70
Bush, George W. 16, 27
Bynes, Amanda 68
Gu Junshan 15
Gulf Air 22
H
Halston 68
Hatch, Orrin 12
Hewlett-Packard(HPQ) 62
Hodge, Douglas 50
Hogan, James 22
Holcim(HOLN:VX) 43
Holder, Eric 39
Hollande, Franois 14
Honda Motor(HMC) 16
Houston, Drew 32
HSBC(HSBC) 14
Hwang Sang-ki 60
I
IAG(IAG:LN) 22
Ignited 70
IHS(IHS) 21
Intel(INTC) 62
Intrade 34
IRI 24
Ivascyn, Daniel 50
J
J.Crew 68
Jacobs, Jay 50
Jaguar(TTM) 21
Jaswa, Sujay 32
Jelly 35
Jet Airways India(JETIN:IN) 22
JetBlue(JBLU) 71
Jindal, Bobby 12
JLS Consulting 22
Johnson, Eric 70
Jones, Paul Tudor 34
JPMorgan Chase(JPM) 32, 42
Jurlique 71
Just Born 24
K
Karzai, Hamid 12
Kase Capital Management 41
Katzenberg, Jefrey 56, 76
Kaufman, Ted 39
Kelley, Brian 41
Keurig(GMCR) 41, 70
KeyBanc Capital
Markets(KEY) 41
Khan, Chaka 56
Kim Sun-beom 62
Kingsley, Ben 74
Kinnear, Greg 74
KPMG 24
Kroger(KR) 36
L
L.K. Bennett 68
Laclede Group 43
Lafarge(LG:FP) 43
Latam(LAN:CI) 71
Lee Kun-hee 62
Lee Mi-kyung 62
Lewis, Michael 39
Lieu, Ted 56
Luxembourg & Dayan 40
M
Macklemus, George 68
Macys(M) 68
Madison Square
Garden(MSG) 76
Maisonneuve, Virginie 50
Malin + Goetz 71
Mallinckrodt(MNK) 43
Manolo Blahnik 68
Marbury, Stephon 68
Mars 25
MasterCard(MA) 36
Menne, Simone 22
Microsoft(MSFT) 32, 34, 75
Middleton, Kate 68
Miller, Matt 56
Mitsubishi Motors(7211:JP) 16
Modi, Narendra 16
Moss, Kate 68
Mozilla 25
Murdoch, Lachlan 34
NOP
National Semiconductor(NSM)
62
Neiman Marcus 36
Nestl(NESN:VX) 24
News Corp.(NWSA) 34
Nine West 68
Nissan Motor(7201:JP) 16
Nordstrom(JWN) 68
Numericable(NUM:FP) 43
Obama, Barack 12, 56
OConnor, Sandra Day 27
OLeary, Michael 22
Pace Gallery 40
Pacic Mutual Life Insurance 50
Panasonic(6752:JP) 16, 24
Paramount(VIA) 74
Park Chul-min 62
Parker, Sarah Jessica 68
Patel, Paresh 37
PayRange 37
Peets Cofee & Tea 70
Peugeot(UG:FP) 21
Pope Francis 74
Porsche(PAH3:GR) 21
Procter & Gamble(PG) 25
QRS
Qantas Airways(QAN:AU) 22,
71
Qatar Airways 22
Questcor
Pharmaceuticals(QCOR) 43
Ranbaxy
Laboratories(RBXY:IN) 43
Raysse, Martial 40
Razorsh(PUB:FP) 70
Redn 29
Renault(RNO:FP) 21
Rice, Condoleezza 32
RiceHadleyGates 32
Roberts, John 27
Rosenthal, Jane 76
Ryanair Holdings(RYA:ID) 22
Saban, Haim 56
Samsung
Electronics(005930:KS) 60
Scalia, Antonin 27
Schapiro, Mary 39
Schneiderman, Eric 39
Scorsese, Martin 76
Scott, Ridley 74
Seidner, Marc 50
Servais, Alain 40
7-Eleven(3382:JP) 36
Shallman, John 56
SHI International 75
Simpson, Jessica 68
Singh, Manmohan 16
SJP 68
Sony(SNE) 74
Sothebys (BID) 40
Spies, Jonathan 40
Spotify 32
Standard & Poors(MHFI) 41
Starbucks(SBUX) 41
Stein, Kara 39
Stein, Pete 70
Stifel Financial(SF) 41
Stone, Biz 35
Streisand, Barbra 56
Sun Pharmaceutical
Industries(SUNP:IN) 43
Suzuki Motor(7269:JP) 16
Symantec 32
TUV
Target(TGT) 36
Tata Consultancy
Services(TCS:IN) 16
Taulia 32
Thomas, Clarence 27
Thompson, Bill 50
Tilson, Whitney 41
Toms 70
Topshop 68
Toyota Motor(TM) 16, 21, 25
Tribeca Enterprises 76
Trippi, Joe 56
Turano, Cara 75
Twitter(TWTR) 35, 56
Tyler, Steven 56
Under Armour (UA) 32
UniCredit(UCG:IM) 14
United(UAL) 71
UnitedHealth Group(UNH) 30
Vanguard Group 39
VendScreen 37
Vincent, Lynn 74
Virgin America 71
Virgin Australia
Holdings(VAH:AU) 22
Visa(V) 36
Vivendi(VIV:FP) 43
Volkswagen(VOW:GR) 21
WXZ
Wal-Mart Stores(WMT) 36
Walt Disney(DIS) 76
Ward, Meredith 40
Warren, Elizabeth 42
Waxman, Henry 56
White, Mary Jo 39
Williams, Evan 35
Williamson, Marianne 54
Winfrey, Oprah 56
Woodside, Dennis 32
Xi Jinping 15
Xu Zhiyong 15
Zara(ITX:SM) 68
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ULY S S E - NAR DI N. COM
F o r a c a t a l o g c a l l : 5 6 1 9 8 8 8 6 0 0 o r
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An
Immodest
Proposal
By Peter Coy
Thomas Piketty wants
a global tax on capital
that would hit the
0.01 Percent hard and
ease wealth inequality
bonds, that represent a fnancial interest
in those assets. In his terminology, capital
is essentially the same as wealth. So taxing
capital is taking a chunk of rich peoples
money. His tax would start small but rise
to as high as 5 percent to 10 percent annu-
ally for fortunes in the billions. The pro-
ceeds in Pikettys view should not fund
an expansion of government: The states
great leap forward has already taken
place: there will be no second leapnot
like the frst one, in any event, he writes.
It doesnt take a Ph.D. to see that
Pikettys tax is a far stretchor in his
words, utopian. Today most countries
tax the income produced by wealth
dividends, rents, capital gainsbut they
dont go after the wealth itself. Doing so
smacks of confscation, which was widely
practiced in the French Revolution but
not the American one. Even if Congress
did pass a wealth tax, the IRS would have
trouble collecting because the wealthy
might transfer title to their assets abroad.
Piketty recognizes that, which is why he
insists that the tax be global. But getting
every tax haven on earth to tax equally
and to share data is highly unlikely.
Bill Gates washes his own dishes, as we
learned this year from his Ask Me Anything
session on Reddit, but hes certainly not
trying to save money. The worlds richest
person is doing everything in his power to
decrease his fortune. He stopped working
for a living. He sold most of his stake in
Microsoft. And hes poured $28 billion
so far into the family foundation, which
is fghting AIDS, polio, tuberculosis, and
hunger. Despite all that, Gatess pile keeps
getting higher. His wealth as of April 8
totaled $79 billion, according to the
Bloomberg Billionaires Index. Thats up
$16 billion in just the past two years.
Gates is just the most extreme example
of the polarization of wealth in the U.S.
The top hundredth of 1 percent of U.S. tax-
payersthats 16,000 peoplehave a com-
bined net worth of $6 trillion. Thats as
much as the bottom two-thirds of the pop-
ulation. Meanwhile, a quarter of American
families say they have no money in a
checking or savings account to cover an
emergency, according to Bankrate.com.
The growth of inequality can some-
times feel as inexorable as the subterra-
nean shifting of tectonic plates. It may
be driven by powerful forces, but ulti-
mately its a choice, not a fact of nature.
What allows Gates to keep getting richer
in spite of himself is a web of human-
designed institutions and practices, from
the tax system to patent law. So the ques-
tion is not whether society can reduce
inequality, but whether it wants to. If
the answer to that is yes, the next ques-
tion is how.
Thomas Piketty, a 42-year-old profes-
sor at the Paris School of Economics, has
scored a surprise publishing hit, Capital
in the Twenty-First Century, that pro-
poses an unusual, possibly impractical,
yet intriguing response to what he calls
the central contradiction of capitalism:
the tendency of wealth to grow faster
than the gross domestic product, creat-
ing inequality that undermines democ-
racy and social justice.
In a review last year, World Bank econ-
omist Branko Milanovic wrote that we
are in the presence of one of the water-
shed books in economic thinking. In
March, New York Times columnist Paul
Krugman wrote that Pikettys 685-page
tome will be the most important eco-
nomics book of the yearand maybe of
the decade.
Most of the coverage of Pikettys book
has focused on his diagnosis, but the
most interesting part is the cure. He pro-
poses a global tax on capitalby which he
means real assets such as land, natural
resources, houses, ofce buildings, facto-
ries, machines, software, and patents, as
well as pieces of paper, such as stocks and
10
Owners of assets such as
empty lots might be more
likely to put them to good
use if capital were taxed
tax capital, he says, it helps clarify the
reasons why you would. For example,
some of the greatest fortunes are built at
least in part on monopoly power. If the
government doesnt bust up monopo-
lies, Stiglitz says, it can achieve similar
results by taxing away their rentsi.e.,
excess profts.
Piketty isnt willing to concede that
his wealth tax is dead on arrival. In an
e-mail exchange, he said, First theres
a lot countries can do on their own. It
would be very easy in the U.S. to turn
the property tax into a progressive tax on
net worth. In efect, we would be reduc-
ing the property tax on people with little
net wealth (because of large debt) and
raising it on people with high fnancial
wealth. He added: I understand that
many people dont want this to happen,
just like many people did not want the
progressive income tax to happen around
1900-1910; but it did happen. As for
capital fight, he said tax havens could
be punished. If the U.S. (a quarter of
world GDP) and the EU (another quarter
of world GDP) want this to happen, then
this can happen. Again, this is political,
not technical.
Political currents are fowing Pikettys
way. With the approach of the 2015 dead-
line for accomplishment of the United
Nations Millennium Development Goals,
such as halving extreme poverty and
reducing child mortality, some activists
are pressing for a post-2015 agenda that
shifts the focus from reducing poverty
to reducing inequality. As inequali-
ties widen, the social fabric of our soci-
eties is both stretched and strained,
UN Secretary General Ban Ki-moon pro-
claimed in February on the World Day of
Social Justice. Without taking a position on
the post-2015 agenda, he added, There is
nothing inevitable about inequality.
A little inequality promotes growth
by encouraging people to work hard and
advance themselves, but the world has an
embarrassment of riches on that score.
The poor are demotivated while energetic
entrepreneurs are becoming complacent
rentiers who live of their wealth, Piketty
says. Money tends to reproduce itself,
he writes. The past devours the future.
Is there an undercurrent of envy in the
campaign against extremes of wealth? No
doubt, and thats unfortunate. The correct
case for a global tax on capital is positive,
not negative. Its about rejuvenation. <
Spain has a wealth tax of up to
2.5 percent of assets but keeps trying to
repeal it. France also has a solidarity tax
on wealth, but it causes more capital fight
than the government earns in revenue,
according to tax expert Eric Pichet of
Kedge Business School in Marseille and
Bordeaux, France. This is typically a
French utopia (as you probably know,
we are the unquestionable leaders in this
feld), Pichet wrote in an e-mail.
Boston University economist Laurence
Kotlikof prefers a tax on consumption,
which he says efectively shrinks great for-
tunes by decreasing the value of what each
dollar or euro can buy. Of Pikettys plan,
Joel Slemrod, a University of Michigan tax
economist, says: Im the kind of person
who doesnt spend too much time on
policy proposals that have zero chance of
happening, and I think this is one of those.
Still, Pikettys global tax has fea-
tures that make it worth pondering as a
thought experiment if nothing else. For
one thing, it gets the incentives right. If
a global tax on capital were imposed,
owners of valuable assets such as empty
lots might be more likely to put them to
good use, or sell them to someone who
could, to cover the tax bill. (American
writer Henry George had the same idea
in the 19th century with his famous single
tax on land, designed to reward develop-
ment but not speculation.) For another, a
wealth tax captures resources that other
taxes miss. The income tax doesnt cover
unrealized capital gains, which represent
the bulk of the wealth of people such as
Gates, Warren Bufett, and Carlos Slim.
Stanford University economist Ronald
McKinnon wrote a 2012 Wall Street Journal
op-ed called The Conservative Case for a
Wealth Tax. (He now says his tax would
be lower than Pikettys, and flat, not
rising with wealth.)
Early in his career, Joseph Stiglitz,
the Nobel prize-winning economist at
Columbia University, wrote a much cited
paper concluding that if certain economic
conditions existed, then there would be
no justifcation for taxing capital. I ask
him about that paper. He says the con-
ditions he identifed dont exist in the
real worldwhich is why hes sympa-
thetic to Pikettys ideas. By clarifying
the conditions under which you wouldnt
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Louisiana Governor Bobby Jindal has ofered an alternative to
Obamacare. His blueprint follows a plan initiated by Republican
Senators Richard Burr, Tom Coburn, and Orrin Hatch in January.
More such GOP proposals are expected to emerge.
Why, four years after the Afordable Care Act was passed,
are Republicans now ofering alternatives? It may be thanks to
enrollment on the state and federal insurance exchanges, which
has rooted the law more frmly into the U.S. health-care system:
Its suddenly harder for opponents to denigrate it without sug-
gesting what would be better.
More proposals from conservatives are to be welcomed. This
is not because they could be used to upend the lawit makes no
sense to start over from scratchbut because they may contain
strategies to improve on the Afordable Care Act. Jindals plan
includes two excellent ideas. The frst is to let nurse practitioners
and other medical professionals practice to the full extent of their
abilities. This makes sense because it would drive down costs.
He also proposes ending the exemption from taxes for health-
care benefts provided by employers, an accident of history that
encourages higher consumption of health care and makes it more
expensive. Obamacare will tax high-cost plans starting in 2018;
Jindal wants to scrap the exclusion altogether, replacing it with
a tax deduction for all health insurance.
That would be a far-reaching change: It could signal the end
to the widespread practice of obtaining insurance at work. The
status quo, on the other hand, is peculiarly unfair. Americans with
employer insurance get the beneft of a tax break while those who
buy policies on their own do not.
A good idea from Burr and company is to automatically
enroll in health-insurance plans Americans who are eligible for
premium tax credits. At frst glance, 7.1 million people signing up
for exchange-based coverage might suggest that auto-enrollment
is a solution to a problem that no longer exists. But with more
than 30 million Americans projected to lack insurance even with
Obamacare, theres more to be done. <
A Better Future
For Afghanistan
The GOP Really Can
Improve Obamacare
The U.S. should cement a security
deal with the next Afghan leader
Governor Bobby Jindal has smart
ideas to rene the health-care law
The outcome of Afghanistans elections on April 5 remains unclear,
but we do know three things. First, turnout was high. Second,
despite dire threats, the Taliban did not disrupt the vote. And
fnally, President Hamid Karzais days in ofce are numbered.
Inconclusive as those facts may seem, theyre already enough
to present President Obama with an opportunity. He can help
Afghanistan by acting quickly to clarify the U.S.s plans beyond the
end of this year, his deadline for withdrawing all combat troops.
Despite some reports of fraud, the election is a huge step
forward for Afghan democracy. More than 7 million ballots have
been tallied, representing about 60 percent of Afghanistans eli-
gible voters. Thats almost double the rate in the last such vote in
2009, which saw Karzai reelected in a contest marred by reports
of ballot stufng. This time, candidates also sought to lure voters
across tribal and ethnic lines. For instance, Abdullah Abdullah,
the former foreign minister and a leading candidate, is identifed
with the Tajiks, but he has a Hazara and a Pashtun on his ticket.
The Talibans threat to target all workers, activists, callers,
security apparatuses, and ofces was hollow. High-profle
attacks on foreigners and ministry buildings in Kabul were few;
in rural areas, the disruption was localized. The Taliban are smart
enough to know that killing ordinary Afghan voters wouldnt
broaden their support. Yet they did scare of many foreign election
observers who would otherwise have been in placea success that
could matter if complaints about fraud grow to where the losers
decide to reject the results. A preliminary tally will be released
on April 24; a runof between the top two candidates is likely.
Afghanistans friends will have to walk a thin line between
warning candidates and power brokers about blatant ballot stuf-
ing and accepting that a certain amount of fraud is inevitable in
a country where 21 million voting cards were issued for roughly
12 million eligible voters. The incoming Afghan government
mustnt be delegitimized at the outset.
Obama has rightly congratulated Afghanistans voters on their
bravery. He should now reassure them of U.S. fnancial and mil-
itary support. For the last year, he and Karzai have been caught
To read Lanhee
Chen on Medicare
and Chandrahas
Choudhury on Indias
election, go to

Bloomberg.com/view
up in a spat over the Bilateral Security Agreement. Karzai has
refused to sign, and Obama has refused to commit to a residual
training and counterterrorism force of 8,000 to 12,000 U.S. troops
unless he does.
All three leading candidates have said theyll sign the security
agreement, but the ultimate winner may not take ofce until Sep-
tember. Obama should deliver Afghanistan and the U.S. from this
impasse by taking the candidates at their word and committing
to the residual U.S. force. Failing to do so would create uncer-
tainty, which the Taliban can exploit and may turn Afghanistan
into a base for terrorist attacks. Karzais departure marks the frst
peaceful transition of presidential power in Afghan history. Its
time for a reset in the U.S.-Afghan relationship.
12
April 14 April 20, 2014
The Good News in Europe
May Not Be So Good
Low bond yields, often considered a sign of strength, could be a harbinger of deation
The euro zone faces a creeping danger
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News fash: Spain is now able to
borrow almost as cheaply as the U.S.
Yes, Spain, a nation with 26 percent
unemployment, red ink in the national
budget, and an economy that has
shrunk in 17 of the last 23 quarters, has
fve-year government bond yields of
just over 1.7 percent. Italys borrow-
ing cost is only un po pi elevato. Even
Portugal has a government bond yield
merely a percentage point higher than
that of the U.S.
Now for the asterisk, because things
are never simple in Europe. Its unques-
tionably good that the peripheral
nations of Europe have stepped back
from the brink of default, embolden-
ing investors to accept lower yields on
their government bonds. The problem
is that the very austerity measures that
lessened the risk of default may have
contributed to a new danger in Europe:
defation. To use a metaphor from
Greece, whose government borrow-
ing costs have also plunged, Europe
managed to steer clear of the rocks of
Scylla only to head for the whirlpool
of Charybdis.
Past a certain point, falling interest
rates go from being helpful to a little
scary. An extremely low interest rate
can signal that investors have no faith
in a countrys ability to grow on its
own and that they expect central banks
to keep ofcial rates superlow for a
long time to gin up economic activity.
One thing that continues to depress
European economies is fscal policy:
the combination of spending cuts
14
Correlations: Smokes,
smuggling, and
taxes 18
Japan will cheer if Modi
is elected Indias next
prime minister 16
Millennials fall
into a housing
trap 17
and tax increases that helped govern-
ments prove they were serious about
balancing budgets and winning back
investors confdence.
The debate over whether Europes
austerity was too harsh may never be
settled, but its clear that the euro zone
as a whole hasnt been able to climb
out of its rut. Its infation rate slowed to
0.5 percent in March, the lowest level
in more than four years. Thats well
below the European Central Banks
infation goal of just below 2 percent.
In Japan, cycles of economywide price
declines known as defation have been
endemic since 1990. When prices fall,
debt burdens become heavier, and com-
panies and consumers are afraid to
borrow. Low interest rates on govern-
ment bonds dont help. The euro zone
faces a creeping danger: the risk that
allowing infation to run so far below
the ECBs own defnition of price sta-
bility for so long will eventually topple
the monetary union into outright
defation, wrote Janet Henry, chief
European economist of HSBC, in a note
to clients on April 7.
In France, fve-year government bor-
rowing costs are 0.9 percent, which is
well into dangerous territory. French
President Franois Hollande is trying
to get permission from the European
Union to slow the countrys defcit-
reduction efort, which he believes is
partly responsible for Frances eco-
nomic weakness. The country hasnt
had growth of 1 percent or better since
2011. He dispatched two ministers to
seek the support of their German coun-
terparts on April 7.
Interest rates fall when the demand
for funding is weak because of a big
output gap, the slack between what the
economy is capable of producing and
what its actually putting out, says Angel
Ubide, a senior fellow at the Peterson
Institute for International Economics in
Washington. Believers in austerity argue
that stabilizing government fnances
will give businesses the confdence to
expand, shrinking that output gap,
but its a painful process, says Mauro
Guilln, director of the Lauder Institute
at the University of Pennsylvania in
Philadelphia. Speaking mainly of Spain,
he says: Of course the austerity mea-
sures will eventually work, but its going
to take them a long time.
Speculation
is a big factor in
the latest decline
in bond yields
in Spain, Italy,
Portugal, and
Greece. Bond prices
rose another notchand yields
fellafter ECB President Mario Draghi
said on April 3 that the central bank was
considering unconventional, i.e., more
extreme, measures to stimulate growth
and stave of defation. He said the
banks Governing Council was unani-
mous on exploring tools including pur-
chases of debt, a European echo of the
Federal Reserves quantitative easing
(QE) program.
But quantitative easing wouldnt be
as easy for Draghi to carry out as it has
been for the Fed. The ECBs founding
treaty prohibits it from fnancing gov-
ernments, which is essentially what a
central bank does when it buys govern-
ment bonds. Even if it got around that
rule, the ECB would have to make polit-
ically fraught decisions about which
countries bonds to buy. To avoid that
issue, it might instead buy private debt
securities such as mortgage-backed
bonds. If you think the ECB is about
to launch a meaningful QE operation,
youll be disappointed, wrote Erik
Nielsen, UniCredits chief global econo-
mist, in a client note on April 6.
Graft
Chinas Xi Pursues
The Tigers and the Flies
The anticorruption drive nabs top
ofcials and army generals
Xi is telling everybody else, You
better behave
Chinese President Xi Jinpings anticor-
ruption campaign has lasted longer,
gone deeper, and struck higher than
many analysts and academics had
expected. Xi has been so zealous that
since late last year retired Communist
Party leaders including ex-President
Jiang Zemin have cautioned him to
take a more measured pace and not be
too harsh, say Ding Xueliang, a profes-
sor of social science at the Hong Kong
University of Science & Technology, and
Willy Lam, an expert on elite politics at
the Chinese University of Hong Kong.
Xi is cracking down on the army
and the police at the same time, some-
thing no leader has done before, says
Ding. Gu Junshan, a lieutenant general
in charge of logistics for the Peoples
Liberation Army (PLA), has been
charged with bribery, embezzlement,
and abuse of power, the ofcial Xinhua
News Agency reported on March 31. He
will be tried in military court.
Chinas former top cop and secu-
rity czar Zhou Yongkang is under
If the ECB succeeded in its mission
to stimulate the European economy,
interest rates would go up, not down.
Stronger growth would increase the
demand for loans, and infation would
pick up, both of which would raise the
rates lenders and bond buyers demand
to let go of their money. So when inter-
est rates fall, its a sign that investors
expect the ECB to do a lot more to get
growth goingand, at least initially, to
fail. That, in a nutshell, is why the news
fash out of Madrid is not entirely good
news. Peter Coy, Craig Stirling, and
Mark Deen
The bottom line Inflation in Europe rose
0.5 percent in March, the slowest rate in four
years and a warning sign of possible deflation.
Yields on Five-Year Government Bonds
4/2010 4/2014
U.S.
Portugal
Yields on Portugals
five-year bonds peaked
at 17.5 percent in
January 2012 as
investors feared
default.
0%
10%
15%
5%
20%
Spain
Italy
Yields on
Portuguese, Italian,
and Spanish debt
are approaching
those of U.S.
Treasuries.
An extremely low
interest rate can
signal that
investors have no
faith in a countrys
ability to grow on
its own
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investigation for corruption, say Ding
and Lam. When asked at a March 2
press conference whether Zhou was
under suspicion, a government spokes-
man avoided a direct answer, saying,
Anyone who violates the partys disci-
pline and the state law will be seriously
investigated and punished, no matter
who he is or how high ranking he is.
He added what seems to be a veiled
confrmation: I can only say so much
so far. You know what Im saying.
More than 180,000 party ofcials
were punished for cor-
ruption and abuse
of power last year,
according to the
Central Commission
for Discipline
Inspection, the partys
watchdog. While
most were low-level
ofcialsor fies, as
Xi has put itthey also
included senior party
memberstigers, in Xis words.
Thirty-one senior ofcials were inves-
tigated by the commission last year:
Eight had their graft cases handed over
to prosecutors. The remaining 23 are
still being investigated.
Petty corruption has become
common, while some higher-level of-
cials have acquired fortunes through
questionable means. Gu, the general
who faces trial, had dozens of apart-
ments in Beijing and a villa resembling
the Forbidden City in his hometown of
Puyang. He stocked the villa with pricey
maotai liquor, a solid gold wash basin,
and a gold statue of Mao Zedong, the
fnance magazine Caixin reported. The
trust of the people toward the elite is at
one of its lowest levels in history, says
Fred Hu, chairman of Beijing-based
Primavera Capital Group and former
China head of Goldman Sachs.
Xi has turned to old methods, includ-
ing Mao-era practices of self-criticism,
to stop the rot. Xi has an acute con-
sciousness that whether it was the Qing
dynasty or the Kuomintang [Nationalist
Party], the end of these reigns came
with huge servings of corruption, says
Orville Schell, director of the Center on
U.S.-China Relations at the Asia Society.
On April 2 more than a dozen generals
pledged their support to Xi in the army
newspaper. That hasnt happened since
the 1989 protests at Tiananmen Square
brought the loyalty of some army units
into question, says Ding. But pledges
of fealty dont solve the problem. In
1998, then-Party Secretary Jiang forced
the military to divest its businesses so
the generals could focus on building a
professional army. With their compa-
nies gone, many in the armed forces
turned to corruption. Control over land
that can be monetized through luxury
construction, plus the selling of mili-
tary ranks, have generated income for
well-connected ofcers. Today you
have to buy your position within the
military, says Jean-Pierre Cabestan,
director for government and interna-
tional studies at Hong Kong Baptist
University. That, of course, diverts the
PLA from its main mission, which is to
be ready for war.
Xis campaign is taking down his
rivals, a tactic found throughout Chinese
history. Former security boss Zhou,
once a member of the elite Standing
Committee, joined ousted princeling Bo
Xilai in opposing Xis 2012 promotion
to top leader and has won Enemy No. 1
status, says Lam. Xi is telling everybody
else, You better behave. I have moun-
tains of evidence against all of you.
Xi considers the cleanup a party
matter, so activists seeking more trans-
parency in government are being
silenced. The most prominent transpar-
ency advocate, Xu Zhiyong, a lawyer,
was recently sentenced to four years
in prison for gathering crowds to
disturb social order. On April 8, two
more activists went on trial on the same
charge. They defnitely dont want any
checks and balances on the power of
the party, says Lam. Dexter Roberts
The bottom line More than 180,000 ofcials in
China, including senior party members, were
punished for corruption last year.
240k
Future annual auto
production for
Honda in India,
double the level
today
Xi has an acute
consciousness that
whether it was the
Qing dynasty or
the Kuomintang,
the end of these
reigns came with
huge servings of
corruption.
Orville Schell,
Asia Society
Diplomacy
India Under Modi Could
Be Japans Best Friend
Indians welcome Japanese
products and want closer ties
The Japanese are extremely
apprehensive about China
The results of national elections in
India, expected to be announced on
May 12, could mean good news for
Japan and not such good news for
China. Narendra Modi , the leader of the
Hindu nationalist opposition party, has
long been a
favorite of Japanese
Prime Minister
Shinzo Abe , who
would like to
foster military
and economic ties
with India. Modi,
the front-runner
in the contest to
be Indias prime
minister, and
Abe also share an antagonism for
China. Modi has criticized the govern-
ment of Prime Minister Manmohan
Singh for being too accommodating
toward China and has pledged to
take a tougher line on issues such as
the border dispute between the two
countries that has festered for decades.
Abe has clashed with China in
a dispute over the ownership of
several islands in the East China Sea.
When it comes to the Chinese, the
Japanese are extremely apprehen-
sive, says P.K. Ghosh, senior fellow at
the Observer Research Foundation, a
New Delhi think tank. It doesnt take
a genius to say India can be the largest
friend of the Japanese.
Abe has long treated Modi as a
kindred spirit. Even after the George
W. Bush administration put Modi on
a travel blacklist for his alleged role in
the 2002 riots that killed about 1,100
people, mostly Muslims, in Gujarat
state, Abe welcomed Modi to Japan.
The Indian politician, who was exon-
erated by the Indian courts, visited in
2007 during Abes frst term as prime
minister and then again when Abe
was opposition leader in 2012. Japan
has worked very hard to improve
relations with India, says retired
Indian General Vinod Saighal, author
of Revitalising Indian Democracy. With
a Modi victory, he says, relations
will get a boost, certainly.
A tremendous upswing in secu-
rity cooperation has already occurred
between Japan and India, accord-
ing to Ghosh. This year Japan will join
in naval exercises with India and the
U.S., and top defense and foreign min-
istry ofcials from Tokyo and New
Delhi will start talks on closer ties.
Negotiations are under way for Japan
to sell amphibious aircraft to India.
Japan also may sell India equipment for
its nuclear power plants something
it had long been reluctant to do since
India has refused to sign the nuclear
nonproliferation treaty.
16
Global Economics
Suzuki Motor in January announced
plans to spend 50 billion yen on a new
factory in Gujarat that can produce
100,000 cars a year. A month later,
Honda Motor opened its second
Indian factory in the state of Rajasthan,
doubling its capacity to 240,000 vehi-
cles annually, says Jnaneswar Sen,
senior vice president for sales and mar-
keting for Hondas India business.
Although most of the investment fows
from Japan to India, some Indian com-
panies are building their Japanese busi-
ness. Tata Consultancy Services, the
largest Indian IT outsourcer, has a small
Japanese presence that its expand-
ing through agreements with Nissan
Motor and Mitsubishi Motors to
provide Japanese companies with soft-
ware services. TCS now has about 70
employees in India learning Japanese.
Building a business in Japan will take
time, because Japanese companies tra-
ditionally havent outsourced to India.
Still, its a market that has huge poten-
tial, says TCS Chief Executive Ofcer
Natarjan Chandrasekaran.
There are limits to how close Japan
and India will likely get. Even Modi
wont want to risk fueling Chinese
paranoia about an India-Japan-U.S. alli-
ance. We have to live with China,
says analyst Ghosh. You can choose
your friends, but you cant choose
your neighbors. Bruce Einhorn and
Bhuma Shrivastava
The bottom line The Japanese government
hopes to foster greater defense and economic
ties with India, in part to keep China at bay.
Recovery
Millennials Still Feel the
Recessions Bite
Low home values keep the young
from accumulating wealth
Expecting a white-picket fence,
two kids and $100,000 in equity
The damage from the collapse of the
U.S. housing market wasnt evenly
distributed. Just ask Jason and Jessica
Alinen. The couple, who live near
Seattle, declared bankruptcy in 2011
when the value of their house
In a country in need of decent
roads, more power plants, and other
basic infrastructure, Japanese gen-
erosity plays a crucial role. The
Japan International Cooperation
Agency helped fund the Delhi Metro,
Indias biggest subway system. Last
September, JICA agreed to lend India,
the largest recipient of Japans foreign
aid, an additional 71 billion yen
($696 million) for the next phase of the
Mumbai subway.
In China, companies such as Toyota
and Panasonic must worry about a
repeat of the anti-Japanese violence
that erupted in 2012 as the dispute over
the islands, called Senkaku by Japan
and Diaoyu by China, heated up. In
India, no strong anti-Japanese move-
ment exists, and companies are opti-
mistic about gaining ground with Indian
consumers. Panasonic has increased its
market share of air conditioners in India,
from 1.5 percent in 2010 to 15 percent,
says Manish Sharma, managing direc-
tor of Panasonic India. The company
had revenue in India of $1.65 billion in
the fscal year ended March 2013and
it wants to more than double that to
$3.6 billion in 2015.
A supporter dons
a mask of the
Hindu nationalist
candidate
Global Economics
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2.00
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1.34
1.25
1.18
1.15
1.03
1.00
0.98
0.87
0.84
0.80
0.79
0.68
0.64
0.62
0.60
0.60
0.57
0.57
0.55
0.44
0.43
0.37
0.36
0.30
0.17
Correlations
Taxes and Smuggling
Edited by Christopher Power
Businessweek.com/global-economics
By Mark Glassman
GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: MACKINAC CENTER FOR PUBLIC POLICY AND THE TAX FOUNDATION
dropped to less than $200,000 from
the $349,000 they paid right before the
slump. We thought wed have a white-
picket fence, two kids, two dogs, and
$100,000 in equity, says Jason, 33.
For households headed by someone 40
years old or younger, wealth adjusted
for infation remains on average
30 percent below 2007 levels, according
to research published in February by
the Federal Reserve Bank of St. Louis.
In normal times younger households
spend a greater share of their income
on furnishings and cars than their older
counterparts. Today the young are
spending more cautiously. These
changes going on with individual
balance sheets could have impacts
on the whole economy, says William
Emmons, who wrote the St. Louis Fed
study with Bryan Noeth. Maybe this is
one of the reasons that its been so hard
to understand this weak recovery.
Young families were more exposed to
the slump because homes represented
a larger share of their wealth, accord-
ing to Emmons and Noeth. Today the
average value of housing on young fam-
ilies balance sheets remains about 35
percent below its 2007 level. Many young
Americans have deleveraged so much
that their debt declined 23.7 percent
from 2007 to 2013, Emmons says.
Outstanding education debt, however,
has climbed to $1.2 trillion, more than
total credit card debt. Tight credit stan-
dards and student-loan debt have had
a dampening efect on the entry-level
buyer, said Martin Connor, chief fnan-
cial ofcer at homebuilder Toll Brothers,
during a presentation on March 3.
Homeownership rates for 35- to 44-year-
olds dropped 6.3 percentage points, to
60.9 percent, from 2007 to 2013.
The fact that younger households
wealth levels are down, that theyre
less likely to own homes, that theyre
not even comfortable setting up their
own households as renters, that has
consequences, says Richard Fry, a
researcher at Pew Charitable Trusts.
Since fewer young people own homes,
fewer are benefting from the rebound
in prices. I am concerned that the
decline in homeownership is secluding
millennials from building wealth.
Jeanna Smialek
The bottom line Homeownership rates for
those aged 35 to 44 have fallen 6.3 percentage
points, to 60.9 percent, from 2007 to 2013.
A study by the Mackinac Center for Public Policy examines how varying
state cigarette taxes encourage smuggling.
60% 40% 20% 20%
Iowa
Utah
Ark.
Ariz.
N.J.
Mich.
Ohio
N.M.
Kan.
S.D.
Ill.
La.
Neb.
Wash.
Colo.
Conn.
Pa.
Wis.
Mass.
Mont.
Calif.
Ore.
Minn.
R.I.
Me.
Md.
Tex.
Miss.
Okla.
Fla.
Nev.
W.Va.
Del.
Ind.
Va.
Ga.
Vt.
Idaho
Ky.
N.D.
Wyo.
Ala.
S.C.
N.H.
Mo.
Tenn.
iAlaska and Hawaii were omitted from this
study since it only examines smuggling across
contiguous states.
iSome state taxes have changed since 2012.
North Carolina, with its high smuggling rate, is the
mathematical baseline for estimating contraband
in other states and is omitted from the list.
New York State has the
highest excise tax, and
New York City taxes
cigarettes
an additional $1.50
per pack
From 2006 to 2012,
Texass cigarette
tax rate climbed
244 percent, while its
smuggling rate more
than doubled
Smuggled
out
Smuggled
in
State tax
per pack
(USD)
Smuggled cigarettes
share of all cigarettes
consumed in 2012
Most smuggling
out of West Virginia
was for personal
consumption, not
for larger sales
N.Y.
$1.01
Additional federal tax per
pack paid in all states
Global Economics
18
Everything is helping kids get it.
When every fossil and lesson plan connects, education gets a lot brighter.
The Internet of Everything is changing everything. Is your network ready?
cisco.com/tomorrowstartshere
April 14 April 20, 2014
Briefs: More recalls for
Toyota; P&G pet-food
brands go to Mars 25
Etihads ock of
ailing airlines takes
on Emirates 22
Pollution is costing
multinationals in
China 24
Peeps: Theyre
not just for Easter
anymore 24
G
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T
Y

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M
A
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E
S
;
D
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A
:
I
H
S
Convertibles, such as the Ford
Thunderbird in the 1991 flm Thelma &
Louise, have epitomized the promise
of freedom thats long fueled the pop-
ularity of the automobile. From James
Deans Porsche 550 Spyder to Steve
McQueens Jaguar XKSS, ragtops
have been associated with rebels of all
stripes. Nowadays, however, a sport-
utility vehicle with a big sunroof is more
likely to be the object of desire as wind-
in-your-hair motoring becomes pass.
Worldwide sales of convertibles
have plunged 44 percent from their
2004 peak, to 465,800 cars last year
just 0.7 percent of all cars globally
while SUV deliveries have more than
doubled, to 15.4 million, according to
data from researcher IHS. Buyers in the
U.S. and Europe, the biggest convert-
ible markets, are opting for more prag-
matic vehicles as the automobile wanes
as a symbol of social status. And con-
sumers in fast-growing markets such as
China and Indiawhich increasingly are
dictating the strategies of automakers
prefer the enclosed
comfort of SUVs
and sedans as a
barrier to smog
and a bufer from
crowded streets.
Most convert-
ibles are not really
used for open-top
driving but rather
for giving the
impression of being
somewhat wild-at-heart and sporty,
says Christoph Strmer, lead analyst for
PricewaterhouseCooperss Autofacts
forecasting service. This image has
now been taken by SUVs. Convertibles
will stay around as a high-end niche,
but fashionistas will keep moving on.
The fading allure of convertibles has
prompted carmakers to drop many
open-air models. Volkswagen will
permanently park its Eos hardtop con-
vertible in coming months, according to
people familiar with the plans who were
not authorized to disclose them. The
German automaker also doesnt intend
to build the top-down BlueSport concept
car that it unveiled in 2009 because
of the fading appeal of convertibles,
according to those people. Chryslers
dramatic makeover of its 200 midsize
sedan for 2015 wont have an open-air
version, unlike the current generation.
Peugeot, the second-largest car-
maker in recession-scarred Europe,
has said it wont renew the convertible
308 CC and 207 CC models when pro-
duction of the current models stops
next year. Frances Renault halted
Ill Pass
Convertible
Production
2004 2013
800k
600k
400k
Convertibles, long a symbol of fun and freedom, are going the way of the Model T
Ragtops pegged drivers as wild-at-heart and sporty. This image has now been taken by SUVs
21
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;
B
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C
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;
G
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B
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M
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T
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C
O
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A
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;
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V
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C
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Airlines
Will Etihads Flock
Of Also-Rans Fly?
The Gulf airline has spent big to
build a network of ailing carriers
No airline is doing what theyre
doing...because of the risks
From Serbia to the Seychelles, Etihad
Airways Chief Executive Ofcer James
Hogan has been greeted as a savior for
his willingness to bail out cash-strapped
airlines. Since 2011 the Australian has
arranged stakes in seven carriers, from
Aer Lingus Group on Europes western
fringe to Virgin Australia Holdings on
the shores of the Pacifc, to help funnel
passenger trafc through Etihads desert
hub in Abu Dhabi. His next rescue
may be the boldest yet: Italys Alitalia,
dogged by bloated payrolls, state med-
dling, and chronic losses.
making the Wind convertible last year
and is also winding down the ragtop
version of its Megane compact. Even
Toyota Motor, the worlds top-selling
automaker, has only one current con-
vertible, a Lexus.
There used to be a convertible
version of every bestseller in Europe;
now, you can barely fnd one, says
Piero Agnello, who owns a shop near
Milan that sells baby supplies and
who previously cruised through Italy
in an open-top Peugeot. The feeling
of driving a convertible was great
exhilaration, freedom. But with the
crisis still going on, you dont even con-
sider buying a convertible car. You look
for roomy cars for your family.
Autos were generally open to the ele-
ments until the 1920s, when closed vehi-
cles became popular. The shift was
cemented in the 1930s, when General
Motors began promoting its steel
turret top as a safety feature. The
role of pure convertibles was
further diluted with the debut
of the sunroof in the 1960s.
When it comes to the image
of the auto as an object of
desire, its always been the con-
vertible, says John Heitmann,
president of the Society of
Automotive Historians and a
professor at the University of
Dayton. But, he says, young
people dont see the auto mobile
as a route to freedom. Nowadays, elec-
tronics more often play that role.
Emerging markets have much
diferent issues to contend with,
making convertibles impractical and
unappealing to many buyers. When
you visualize driving a convertible, you
think of open roads and pleasant driving
conditions; in India, you have neither,
says Deepesh Rathore, the New Delhi-
based director of Emerging Markets
Automotive Advisors. In cities youre
mostly stuck in trafc, and if youre in a
convertible, youll be inhaling exhaust
fumes. Plus, you dont want to fnd your-
self next to a bus where someone may
throw something into your car.
Similar concerns afect drivers in
China, the worlds largest car market,
where cities are seeking to reduce pol-
lution levels that in recent years have
lead to occasional warnings for resi-
dents to remain indoors. Carmakers on
the mainland are boosting production
of the next big thing: SUVs.
Still, the convertible wont com-
pletely go the way of the Model T. For
icons such as Ford Motors Mustang,
a convertible is an integral part of the
package. And the decadence of open-
air driving is crucial to the image
of luxury brands, which are adding
new ragtops. BMW will introduce
the $73,425 M4 convertible later this
month at the New York International
Auto Show, and Audi last month
began rolling out a convertible version
of its A3 compact. During the past
two decades, Mercedes-Benz parent
Daimler has increased its oferings in
the category to fve models, including
the $208,000 SLS roadster, from three.
Our family of convertibles is essen-
tial to the fascination of the Mercedes-
Benz brand, says Ola Kllenius, the
marques sales chief. For mainstream
brands, though, much of the thrill is
already gone. Chris Reiter
The bottom line Sales of convertibles have
fallen 44 percent globally since their 2004
peak. SUV sales have doubled during that time.
Marilyn Monroe and playwright husband Arthur
Miller tool around town with the top down James
Dean and the Little Bastard, his Porsche 550 Spyder
Sonny Bono and wife Cher had his-and-her
Mustang convertibles Thelma and Louises road trip
in a 1966 Thunderbird epitomized the ragtops sense
of freedom in the 1990s Televisions Miami Vice
captured 1980s cool, as did the shows many con-
vertibles In the lm Grease, Olivia Newton-John
and John Travolta found love in the front seat of a
1948 Ford convertible For Dr. Dre and Snoop Dogg,
nothing is more bling than a convertible lowrider
1
2
3
4
5
6
7
22
Open Road
Hogans investment in a clutch
of ailing airlines over which he has
limited managerial control comes a
decade after a similar strategy led to
the collapse of Swissair. Leading
airlines now favor global alli-
ances of independent carriers.
What sets state-controlled Etihad
apart is funding from an oil-rich
government eager to match the
growth of Qatar Airways and
Emirates, the No.1 international
airline, which is based less than
100 miles away in Dubai. Swiss, back
in the day, also acquired a lot of ailing
carriers, Deutsche Lufthansa Chief
Financial Ofcer Simone Menne said at
an event last October. But Etihad has
much deeper pockets.
Hogan says his investments in airlines
that serve minor markets or are over-
shadowed by major carriers in bigger
ones will lift Etihads passenger tally
and secure economies of scale needed
to make his ragtag empire proftable.
This is a long-term play, says Hogan,
who became CEO in 2006 after running
Gulf Air. This isnt for 12 months; this
is for the next 20, 30, 40 years.
Founded in 2003, 18 years after
Emirates and nine after Qatar Airways,
Etihad needed something more than
organic growth to gain global scale,
says Hogan. His frst move was to take
a 2.99 percent holding in Air Berlin
in 2011, increasing that to 29 percent
months later. He has since added stakes
in Air Seychelles, Aer Lingus, Virgin
Australia, Air Serbiaformerly Jat
Airwaysand Jet Airways India, and is
seeking regulatory approval to invest in
Swiss regional carrier Darwin Airline.
Hogan this month said Etihad is negoti-
ating the next stage of its deal with Air
Berlin after the German carrier said it
needs to improve its liquidity.
Investing in perennially unproftable
Alitalia, where losses have exceeded
1.1 billion ($1.5 billion) in fve years,
may be a tougher challenge. While
the Rome-based carrier is No. 1 in
Europes third-largest outbound,
cross-border travel market, its under
siege from low-cost operators led by
Ryanair Holdings and EasyJet on
short-haul routes.
Hogans critics draw compar-
isons to Swissairs hodgepodge
of stakes in carriers such as
Belgiums Sabena, which led to
the Swiss airlines collapse with
debts of almost 17 billion francs
($19 billion) in October 2001. At
Mideast rival Qatar Airways, CEO Akbar
Al Baker said in a March interview that
he doesnt favor investments in bits and
pieces, having turned down umpteen
airlines, including Alitalia, which was
made available several times, and
recent Etihad purchases Air Seychelles
and Air Serbia.
Asked if Etihad might lift its holding
in Aer Lingus, Ryanair CEO Michael
OLeary said the Persian Gulf carrier has
bought a lot of rubbish, and increasing
their stake in Aer Lingus is consistent
with that. Ryanair is the biggest inves-
tor in Aer Lingus, which OLeary says
faces collapse without a full takeover.
Hogans strategy is partly a response
to legal curbs that generally limit
full airline mergers to national and
regional deals such as those that saw
the emergence of three major carri-
ers in the U.S. and Air France-KLM
and IAG, owner of British Airways and
Spains Iberia, in Europe.
Top carriers have largely avoided
minority holdings in favor of boosting
connections and trafc via global alli-
ances such as the British Airways-led
Oneworld, which Qatar Airways joined
last year. Airlines have also embraced
joint- venture agreements, which
require antitrust immunity and let car-
riers operate as single entities in key
markets such as the trans-Atlantic and
trans-Pacifc, sharing revenue and costs
and combining timetables. Emirates did
just that with a 2012 bilateral pact with
Australias Qantas Airways.
Hogan says he opted for his minor-
ity stake strategy after the three global
groupsStar Alliance, SkyTeam, and
Oneworldproved resistant to admit-
ting Gulf carriers that were
building megahubs and wide-
body feets to capture the
most lucrative travelers. The
alliances didnt want to talk
to us, he says. We felt that
knocking on the door was a
waste of our time.
For Etihad, which has 103 routes,
its so-called equity partnerships have
helped deliver a wider network of
400 destinations. Hogan says thats
smarter than buying 200 more planes
to add to the 95 already in the feet (as
of early 2014) and 200 on order. The
impact on Etihads earnings is harder to
quantify. The carrier reported that net
income surged 48 percent last year, to
$62 million, without disclosing the con-
tribution from minority holdings. Hogan
says the equity alliance would rank as
the worlds No.8 airline by revenue were
it a single carrier, and partners helped
deliver $820 million of Etihads sales in
2013, or a ffth of the total. Yet that fgure
includes the impact of code-share deals
with almost 50 other airlines and not
merely the minority holdings.
Of the eight carriers in which
Etihad holds stakes or is evaluat-
ing for investment, just two make
money. Aer Lingus posted net income
of 34.1 million for 2013, a 0.6 percent
gain, and Air Seychelles earned
$1 million in fscal 2012. While Hogan
has said Air Serbia and Darwin should
become proftable this year, that leaves
Air Berlin, Jet Airways, and Virgin
Australiathe three biggest carriers in
which Etihad has stakes by passenger
numbersstill losing cash.
Mumbai-based Jet sufered a loss of
$250 million in the nine months through
December, while Virgin Australia had a
loss of A$84 million ($78 million) in the
six months ended Dec. 31 as it battles
Qantas for market share. Air Berlin
ran up more than 600 million in net
losses in the fve years to 2012 and prob-
ably had a 175 million loss in 2013,
according to analysts estimates. The
German carrier, to which Etihad paid
$350 million for the equity stake and
plane loans plus 184.4 million for a fre-
quent fyer program, halted earnings
releases last month.
John Strickland, director of London-
based JLS Consulting, says Hogans
This is a long-term
play. This isnt for
12 months; this
is for the next 20,
30, 40 years.
Etihad CEO
James Hogan
Duel in the Desert
11.5m
39.4m
537
1,731
89
197
13.5k
47.7k
Passengers Aircraft
Cargo handled
(thousand tons) Employees
Emirates
Etihad
DATA: COMPANY REPORTS. ETIHAD 2013; EMIRATES 2012/2013
23
Companies/Industries
24
Candy
Peeps Break Out of
The Easter Basket
Bite-size marshmallow treats will
be sold year-round
The chick is our Mickey Mouse,
our Apple icon
Like the Easter Bunny, Peeps hop into
our life each spring, only to disappear
a few weeks later. Although they have a
shelf life of about two years, many of the
marsh mallow chicks and rabbits never
get eaten. About a third of the 2 billion
Peeps made annually are used in craft
projects or other pursuits, according
to manufacturer Just Born. In a sec-
ond-grade class in Nevada recently,
Peeps inspired poetry: Yellow, sticky,
small, bumpy, stupendous peeps peeps
peeps! (The lesson was adjectives.)
Now their stupendousness may have
plan to redirect passengers via
Abu Dhabi makes sense but that such
diverse investments require absolute
homogeneity in management, product,
and fnancial position. I understand
the logic, he says. But no other airline
is doing what theyre doing to this
scale, and thats because of the risks
attached. Deena Kamel Yousef and
Christopher Jasper
The bottom line Abu Dhabis Etihad Airways
has stakes in seven ailing carriers. Next up:
Alitalia, which has lost $1.5 billion since 2008.
The Classic
Ofered only during
Easter.
The Newbie
Created in 2014.
Ofered year-round.
Workplace
For Expats in China:
Smog Perks
As pollution deters recruits, some
businesses have to pay up
Reverting to 1980s and 1990s
hardship packages in hazy cities
As a thick smog hung over Beijing last
year, Stephanie Giambruno and her
husband decided it was time for her
and their two girls to return to the U.S.
Giambrunos husband stayed in China
for his job as general manager of a
global technology company. He now
Skypes with the family twice a day, she
says, and his employer lets him travel
to Florida once a month to see them.
While its hard to be apart, Giambruno
says Beijings record air pollution left
them no choice. Its not a way to live,
to keep your baby inside with an air
flter running, she says.
As bad air chokes Chinese cities, some
expatriates are leaving families in their
home countries, the latest sign of pollu-
tions rising cost to the more than half
a million foreigners working in China
and the multinationals seeking to retain
them. Smog in Beijing exceeded gov-
ernment pollution standards most days
last year, and environment ministry sta-
tistics show that 71 of 74 Chinese cities
failed to meet air quality standards.
The World Health Organization said in
March that air pollution contributed to
7 million deaths worldwide in 2012, with
40 percent of those occurring in the
Asia-Pacifc region dominated by China.
We are seeing some companies
reverting to 1980s and 1990s hardship
packages for executive-level candidates
in cities that are hard hit with pollution,
wrote Angie Eagan, managing director
for China at recruitment frm MRIC, in
an e-mail. These packages are shaped
around executives leaving their families
in their home country and receiving an
allowance for frequent home trips.
In a statement, Panasonic says its
considering increasing a living allow-
ance for overseas workers in China by
an undisclosed amount based on envi-
ronmental factors, including air pollu-
tion. But many companies are reluctant
to add to the 5 percent to 10 percent
premium they already pay expats in
China, preferring to compensate them
through perks such as more time of,
paid trips to get away, or covering the
cost of insulating homes against bad air,
says Fred Schlomann, managing direc-
tor at human resources advisory frm
Associates for International Research.
A third of member companies of
the European Union Chamber of
Commerce in China say air pollution
has added to stafng costs as expats
make demands such as better air fl-
tration, health care, or pay, according
to Ioana Kraft, general manager of the
group. Two-thirds identify air quality as
the top challenge in attracting foreign
talent. And about 48 percent of respon-
dents to a 2014 survey by the American
Chamber of Commerces Beijing and
Northeast China chapters cited dif-
fculty recruiting or retaining senior
executives in China due to pollution.
James McGregor, Greater China chair-
man of consultant APCO Worldwide, is
moving to Shanghai in May after 25 years
in Beijing, partly because of the air. To
provide a clean workplace, his frm
installed air flters every 25 feet in their
Beijing ofce, about a dozen devices
for 30 staf members. Even so, employ-
ees take more time of because of illness
than 18 months ago. There are a lot of
sick days, and sometimes our ofce in
Beijing sounds like tuberculosis wards,
McGregor says. He says the frm is able to
retain staf because it hires locally and
has only a few longtime expats.
Pollution is making it hard for
Nestl to draw both foreign and
Chinese talent to Beijing, says Greater
China Chairman Roland Decorvet.
Others adopt coping strategies:
Simon Gleave, Beijing-based
partner in charge of KPMGs
Asia-Pacifc fnancial-services
practice, spent $4,000 for a per-
sonal air quality monitor and $15,000
for air flters around his house. He also
bought an indoor virtual-reality cycling
system for days when the air is too bad
for him to ride outside.
Companies are still able to attract
expats, because knowledge of the China
market is becoming crucial to career
advancement in many industries. Says
Robert Parkinson, a U.K. native who
owns a 40-person executive search frm
in Beijing and just spent more than
$6,000 on two purifers for his ofce:
You have to take China as a whole meal;
its part of the experience. Liza Lin
and Natasha Khan
The bottom line Forty percent of the 7 million
annual deaths attributed to air pollution
worldwide occur in the Asia-Pacic region.
Peeps Show
40%
smaller
Companies/Industries
an even longer shelf life. On May 1,
Just Born will introduce Peeps Minis
bagged, bite-size versions of the confec-
tion in new favors that will be made and
sold all year. Theres no reason why
Peeps cant be a strong everyday brand,
says Just Born spokesman Matthew Pye.
Even though the chick is known for
Easter, its our Mickey Mouse, our Apple
icon. Were certainly going to lever-
age it, he says. The new Peepsabout
40 percent smaller than the traditional
critters, in strawberry creme, chocolate
creme, and sour watermelon favors
will retain what Pye describes as their
key selling points: cute and quirky.
Just Born ran consumer focus groups
in 2013, and the responses favored
extending the season beyond Easter,
which accounts for about 75 percent
of annual sales. The brand could
beneft from a year-round presence,
says Matthew Hudak, an analyst at
Euromonitor International, who esti-
mates his own Peeps consump-
tion at maybe one, during
Easter. Euromonitor estimates
U.S. sales of Peeps at about
$63 million for each of the last
two years. Its stuck where it
is now, so expanding makes
sense, Hudak says.
This isnt the frst attempt to
broaden Peeps appeal. Last summer,
Just Born added lemonade- and bubble
gum- favored chicks. Seasonal vari-
eties, such as Halloween Peeps, have
been around for more than 20 years but
havent been widely embraced, says Pye.
Just Born, based in Bethlehem, Pa.,
is the 11th-biggest U.S. candy maker. Its
bestseller, Mike and Ike jelly candies, has
double the sales of Peeps, according to
Euromonitor. The company also makes
Hot Tamales. They have just three
main brands getting them into that spot,
which is incredible, says Sally Lyons
Wyatt, a snacks expert at researcher IRI,
who says eating Peeps is an Easter tradi-
tion in her family.
But Peeps has the greatest brand
awareness. Three Peeps & Company
stores, selling Just Borns complete line,
have opened in the U.S. since 2009. As
we look into the future...its quite possi-
ble the Peeps brand will eclipse Mike and
Ike, says Pye. Venessa Wong
The bottom line The maker of Peeps is looking
to boost the candies annual sales of about
$63 million by throwing away the calendar.
Briefs
Another 6.4 Million Dents
E
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:
B
L
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B
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By Kyle Stock
Edited by James E. Ellis
Businessweek.com/companies-and-industries
q Toyota Motor, the worlds No.1 carmaker,
recalled 6.4 million vehicles and issued a big
mea culpa that once again dents its reputation
for quality. The warning is over five minor flaws
found in 27 models. But it comes on the heels of
a 2012 recall of 7.4 million vehicles and Toyotas
agreement last month to pay $1.2 million to settle
a U.S. criminal probe into its handling of a fatal
acceleration problem. Procter & Gamble
agreed to sell three pet-food brands to Mars. The candymaker,
which already owns Pedigree
and Whiskas, is snapping up
Iams, Eukanuba, and Natura
for $2.9 billion in cash. P&G
wants to focus on core prod-
ucts such as laundry detergent.
Alcoa projected that global aluminum demand will exceed
production this year for the first time in almost a decade, as
airplane makers and car companies use more of the lightweight
metal to raise fuel efficiency. Alcoa has been losing money on its
raw aluminum business, but its expanding its capacity to make
finished products at existing factories. DirecTV agreed
to pay slightly more to carry the Weather Channel, ending a
three-month blackout of the channel. With 20 million subscrib-
ers, DirecTV represents about one-fifth of the Weather
Channels audience. As part of the deal,
the channel will include more local updates
and trim its weekday reality programming.
Corona continues to be intoxicating
for Constellation Brands. Better known for
its wines, Constellation said fourth-quarter
profit almost doubled on U.S. demand for
Mexican beers. Last year the company
bought the rights to distribute Grupo Modelo
beers from Anheuser-Busch InBev.
The amount CVS
Caremark agreed to
pay to settle SEC
charges that it
articially boosted its
reported earnings in
two quarters of 2009.
CEO
Wisdom
I want to be held
accountable for what
I do as CEO.
Brendan Eich, former
CEO of Mozilla who
resigned over criticism
that he had backed an
initiative to ban
same-sex marriage
Diageo has hired retired
soccer star David
Beckham to pitch a new
brand of Scotch dubbed
Haig Club. Beckhams
challenge: to win over
beer drinkers and young
women.
$20m
25
Companies/Industries
WORK DOESNT STOP
JUST BECAUSE THE
BATTERY DOES.
Just because you remembered to bring your phone doesnt mean you
remembered to charge it. Thats why weve put a USB port at every
seat on every long-haul international ight, so it can stay powered for
the whole trip. Because when it comes to power, why let a little thing
like 30,000 feet stand in the way?
DELTA.COM
USB cords not included.
April 14 April 20, 2014
Guess which country
has the most obedient
taxpayers 31
Why young New
Yorkers are trading
bagels for barbecue 29
Doctors shun patients
who pay with
Medicaid 30
While racking
up billions from
Medicare 30
John Robertss subtle, incremental plan to move the Supreme Court to the right
His approach has at times confounded conservatives, who accused him of tortured reasoning
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For those who follow the Supreme
Court, psychoanalyzing Chief Justice
John Roberts is irresistible. His mild
manner and measured tone bafe
observers who expect bombast from
conservative jurists. He refrains from
Antonin Scalias rhetorical theatrics
and Clarence Thomass enthusiasm
for overturning precedent. He most
notably shied away from a potentially
explosive political confrontation in
June 2012, casting the decisive vote to
uphold the Afordable Care Act. That
earned Roberts a barrage of invective
from conservatives. In a pair of cases a
year later, he whipsawed liberals whod
fantasized about a rift on the courts
right by curbing voting rights and afr-
mative action. His latest majority
opinion, in a 5-4 decision announced
on April 2 that ended decades-old
restrictions on campaign contributions,
provides fresh fodder for scrutiny. It
also hints at the plans of a chief justice
who, at 59, could remain in his power-
ful post for 20 years or longer.
In the April 2 decision, Roberts argued
that Watergate-era limits on how much
money individuals can spread around
each election year, intended to thwart
corruption, interfered with free speech.
Money in politics may at times seem
repugnant to some, he wrote, but
so, too, does much of what the First
Amendment vigorously protects. If the
First Amendment protects fag burning,
funeral protests, and Nazi parades
despite the profound ofense such spec-
tacles causeit surely protects political
campaign speech despite popular oppo-
sition. With that concise declaration,
Roberts diminished the federal govern-
ments power and increased wealthy
individuals infuence over elections.
Within hours of the ruling, fundraisers
were on the phones hitting up previously
maxed-out donors for more cash.
A Department of Justice lawyer
during the Reagan administration and
a judge on the federal appeals court
in Washington, Roberts ascended to
the chief justices chair by accident.
President George W. Bush chose him in
mid-2005 to replace the retiring Sandra
Day OConnor. When then-Chief Justice
William Rehnquist died two months
later, Bush switched an already-vetted
Roberts to the Rehnquist slot. Roberts
delivered a self-assured performance at
his Senate confrmation hearings and
took ofce in September 2005.
The chief justice goes out of his way
to project a conciliatory image. I do
think the rule of law is threatened by a
steady term-by-term focus on 5-4 deci-
sions, he told Jefrey Rosen, a law
Chief Strategist
27
professor at George Washington
University, in a July 2006 interview pub-
lished in the Atlantic. The court was
ripe for a refocus on functioning as an
institution, Roberts added, because
if it doesnt, its going to lose its credi-
bility. Six years later, Rosen refected
on the interview. Roberts saw the pro-
motion of consensus in service of the
courts long-term interests as the great-
est test of a successful chief justice, he
wrote in the New Republic.
Roberts has not passed this test. With
a handful of exceptions, the 5-4 split in
ideologically signifcant cases remains
persistent and profound. His steward-
ship over the last nine terms suggests
he is less focused on consensus building
than on leading an incremental, tacti-
cally savvy shift to the right.
The chief justice confused a lot of
people in 2012 when he was the only
conservative on the court to join
the four liberal justices in voting to
uphold Obamacare. In his syndicated
column, Pat Buchanan accused him of
employing tortured reasoning in the
service of being seen among the cog-
nitive elite (apparently an insult in
Buchanans mind). The National Review
charged that Roberts had done vio-
lence to the U.S. Constitution. In con-
trast, Linda Greenhouse, then a New
York Times Supreme Court correspon-
dent and a leading voice of the liberal
cognitive elite, praised Roberts for
demonstrating evolution as a jurist.
Greenhouse, who now teaches at Yale
Law School, described in positive
terms Robertss refusal to ally himself
with what she called the breathtaking
radicalism of the other four conserva-
tive justices.
It turned out that both sides read
too much into Robertss performance
in the case. He exercised canny states-
manship to avoid a clash over Obamas
signature legislationthe sort of show-
down that could have stirred a backlash
against the court. Roberts accom-
plished this with subtle lawyering. He
said Congress lacked authority under
the Constitutions Commerce Clause to
impose the laws insurance mandate
but then rescued the law by declar-
ing it passed muster as a form of tax-
ation. Robertss quirky defnition
of the mandate as a tax likely wont
have lasting jurisprudential impact.
His narrow reading of the Commerce
Clause, on the other hand, could well
resurface in other cases as a potent tool
to undercut regulatory statutes. What
many saw as a conservative defeat thus
in the long run might be the opposite.
In 2013, Roberts returned to a more
straightforward position as leader of
the conservative wing in rulings limit-
ing the reach of voting-rights protec-
tions and afrmative action in higher
education. Now it was conservatives
who praised his rigor and liberals
who shook their heads. Greenhouse
declared that the real John Roberts
had revealed himself. She described
his majority opinion in the voting-
rights case as demonstrating a sweep-
ing disregard of history, precedent,
and constitutional textstartling for
its naked activism. A less fraught way
of describing the same decision is that
the conservative justices compelled
Congress to revisit the half-century-old
Voting Rights Act and justify continued
federal oversight of historically segre-
gationist Southern states.
This months campaign-fnance ruling
marks another step in Robertss cali-
brated campaign to assert conservative
priorities via the court. Building on the
2010 ruling in Citizens United, which
struck down limits on independent cam-
paign spending by corporations and
unions, his opinion fnds that the only
legitimate basis for constraining cam-
paign cash is to prevent outright green-
backs-in-the-briefcase bribery. Yet
Roberts chose not to follow this line of
reasoning to its logical conclusion: He
declined a call by Justice Thomas in a
concurring opinion to throw out the
entirety of existing campaign-fnance
law. That task, the politically astute chief
justice implied, can await another day.
Robertss approach sometimes
annoys the most combustible of the con-
servatives, Justice Scalia. When the chief
justice adopted a similarly incremental-
ist strategy in a 2007 campaign-fnance
case, Scalia derided the approach as
faux judicial restraint, or even judi-
cial obfuscation.
Step by step, the chief justice makes
his mark. In cases yet to be decided
this term, his guiding hand will likely
be evident in disputes over religious
invocations before legislative sessions,
state constitutional amendments to
ban afrmative action, and medical
clinic bufer zones to deter anti-
abortion demonstrators from pressur-
ing women not to seek the procedure.
Obamacare is back on the docket, too,
GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: U.S. CENSUS
BUREAU; TRULIA; AUSTIN RANKINGS EXCLUDE MOVES WITHIN TEXAS
Roberts conrmed
as chief justice
Court upholds
Obamacare
Population The Flight to Second-Tier Cities
New U.S. Census numbers show that from 2010 to 2013 hundreds of thousands
of Americans left major metropolitan areas. Karen Weise
3/1985 7/2013
Judging the Justices
100%
0%
25%
50%
75%
Unfavorable view
Favorable view of the Supreme Court
DATA: PEW RESEARCH CENTER
Lost population to other areas Gained 0-2.5% Gained >2.5%
28
Politics/Policy
2013 population
2010-13 population change from domestic migration
Percent change
in a narrower religious-liberty challenge
to the requirement that employers pro-
viding health insurance make contra-
ception coverage available. By early
July its likely that conservatives once
again will be counting their victories,
as they will be for some time to come,
unless a Democratic president has the
opportunity to make appointments that
deny Chief Justice Roberts his majority.
Paul M. Barrett
The bottom line Justice Roberts has shown
a conservative activism in cases on religion,
racial discrimination, and campaign nance.
Demographics
Austin Is the
New Brooklyn
Americans are eeing big cities
for smaller, and cheaper, ones
We just couldnt gure out how
to make it work in New York
When Jeni Putalavage-Ross started
dating the man whos now her
husband, they were forever schlep-
ping between her one-bedroom apart-
ment on Manhattans Lower East
Side and his ffth-foor walk-up on the
Upper West Side. Every date had to
be an overnighter, she says. I felt like
a pack mule. They wanted to buy a
place together, but even stretching their
budget to $700,000 they could aford
only a two-bedroom in the far reaches
of Brooklyn. We started talking about
marriage and kids, and we just couldnt
fgure out how to make it work in New
York, she says. In 2009 they gave up and
ditched the East Coast for Austin, Tex.
There are 92,812 Americans with
a similar story. Thats the number of
people who moved to Austin from
other parts of the U.S. from 2010 to
2013, according to the U.S. Census
Bureau. Most are refugees from large
cities including New York, Los Angeles,
and Chicago.
At the peak of the housing bubble in
2006, almost half a million people fed
the countrys 50 largest metro areas in
search of less expensive places to live,
many settling in distant suburbs. Then
the recession put the brakes on all kinds
of migration. Census data released
in March reveal that as Americans
start moving around again, cities are
seeing a diferent kind of urban fight.
This time, hundreds of thousands of
Americans who enjoy city living are
abandoning major population centers
not for suburbs but for more afordable,
second-tier metropolitan areas.
Over the past three years, only three
of the nations largest citiesDallas,
Houston, and Atlantawere among
the 20 fastest-growing metro areas of a
million or more people. Austin topped
the list, followed by San Antonio,
which lured 68,961 out-of-towners, and
Raleigh, N.C., drawing 41,495. Compare
that with New York, which lost 362,359
residents, and Chicago, which saw an
exodus of 172,378. When the economy
gets going a little more full steam and
these young people can aford to get a
mortgage and buy a house, those fows
will even be stronger, says William
Frey, a demographer at the Brookings
Institution in Washington. An April anal-
ysis by the real estate website Redfn
found that just 12 percent of homes for
sale in Los Angeles were afordable on
two middle-class incomes. In Raleigh,
more than half were.
The Census data show that fracking
boomtowns in North Dakota and retire-
ment enclaves in Florida have experi-
enced some of the largest growth in the
nation by percentage, but the number
of people moving to Austin and other
fast-growing cities far outpaces them.
Frey says large cities wont necessarily
miss the residents whove left, because
new people are always moving in to
take their place: The March Census
report found that despite the outward
migration, metro New Yorks popula-
tion is at a record high of 19.9 million.
At the same time, midsize cities
inheriting thousands of new citizens are
beginning to feel the efects, with trafc
jams, crowded classrooms, and higher
rents. This month, Redfn reported
that the housing markets in the Census
datas hot cities have become the tight-
est in the country. In Austin, almost
22 percent of homes sell within three
days. This population growth is driving
housing demand, and buyers are feeling
the crunch in 2014, Redfn said.
Metros that attracted residents from other areas
Austin, Tex. 1,883,051 92,812 5.4%
Raleigh, N.C. 1,214,516 41,495 3.7%
San Antonio 2,277,550 68,961 3.2%
Denver 2,697,476 75,101 2.9%
Charlotte 2,335,358 58,320 2.6%
Nashville 1,757,912 43,637 2.6%
Oklahoma City 1,319,677 32,209 2.6%
Orlando 2,267,846 48,618 2.3%
Houston 6,313,158 124,548 2.1%
Dallas-Fort Worth 6,810,913 134,325 2.1%
Metros that lost residents to other areas
New York 19,949,502 -362,359 -1.9%
Chicago 9,537,289 -172,378 -1.8%
Detroit 4,294,983 -69,075 -1.6%
Hartford 1,215,211 -18,917 -1.6%
Cleveland 2,064,725 -31,857 -1.5%
Los Angeles 13,131,431 -145,709 -1.1%
Rochester, N.Y. 1,083,278 -12,215 -1.1%
Providence 1,604,291 -18,024 -1.1%
Virginia Beach, Va. 1,707,369 -18,879 -1.1%
Memphis 1,341,746 -14,506 -1.1%
#2 Los Angeles
#12 Santa Ana, Calif.
#9 Riverside, Calif.
#5 San Diego
#13 Denver
#11 San Jose
Austin is stealing from:
A middle-class family can aford:
#7 Naples, Fla.
#1 Chicago
#10 Washington, D.C.
Austin, Tex.
14%
of homes for
sale in the San
Francisco area
25%
in the
New York
area
50%
in the
Austin
area
55%
in the
Denver
area
57%
in the
San Antonio
area
#8 Atlanta
#6 Tampa
#4 Phoenix
West
Coast
#14 Oklahoma City
#3 New York
From Here
to There
#15 Philadelphia
East
Coast
29
Politics/Policy
Edited by Weston Kosova
Businessweek.com/politics-and-policy
Obamacare
Losing Patience, and
Patients, With Medicaid
Millions of new enrollees may have
trouble nding doctors to see them
What they pay doesnt even come
close to covering expenses
Sonya Lott hadnt seen a doctor for at
least 10 years when she signed up for
Washington States Medicaid program
in January and got a checkup at a com-
munity clinic in Yakima, 140 miles south-
east of Seattle. Tests revealed severe
high blood pressure and heart problems.
Lott, whos been staying with friends
and family since losing her job at a hotel
last May, went on medication and has
returned about every two weeks. With
the health problems that theyre fnding
Since moving to Austin, Putalavage-
Ross has had a daughter and is pregnant
with twins. She recently asked her real
estate agent about looking for a more
suitable home. She told us unless we
wanted to triple our budget or move
really far out of town, that we should just
make do with where we are, Putalavage-
Ross says. It was kind of like shed never
left New York. Karen Weise
The bottom line Census data reveal a big
migration from New York and Chicago to
smaller cities such as Raleigh and San Antonio.
that I have, I dont think Id be living too
much longer without care, she says.
Lott didnt qualify for Medicaid
until this year, when Washington
and 25 other states widened eligibil-
ity under the Afordable Care Act. As a
result, the Congressional Budget Ofce
estimates that about 8 million people
will join the government health insur-
ance program for the poor in 2014.
By the end of February, more than
3 million had signed up.
Thats good news for patients such
as Lott and for nonproft clinics like the
one in Yakima that often treat people
who previously had no way to pay. The
efect on the rest of the health-care
system is less certain. Most doctors in
private practice lose money on Medicaid
patients, because the program pays
less than commercial health plans or
Medicare, the federal insurance program
for Americans over 65. Many physi-
cians already dont accept Medicaid,
and millions of new enrollees clamor-
ing for appointments will strain those
who do. There are concerns, as there
have been for quite some time, about
making sure there are enough providers
to meet the needs, says Rachel Garfeld,
senior researcher at the Kaiser Family
Foundation, a health policy group.
Medicaid covered about 16.4 million
Americans in 2012, according to U.S.
Census data, at a cost of $421 billion.
States are required to provide Medicaid
coverage to people with disabilities and
pregnant women,
among others.
Under Obamacare,
they can expand the program to
people previously ineligible, includ-
ing childless adults who earn as much
as $15,000 a year. Ten states accounted
for 80 percent of the Medicaid growth,
an analysis by consulting frm Avalere
Health concluded, with California,
Oregon, Washington, Florida, and
Colorado adding the most.
About 46 percent of physicians accept
Medicaid, according to a 15-city survey
last year by stafng frm Merritt Hawkins.
Thats down about 10 percent from four
years before. To encourage primary-
care doctors to take Medicaid patients,
the Afordable Care Act has temporar-
ily increased the programs payments
to doctors, matching Medicares higher
rates through 2014. But the boost doesnt
apply to specialists such as cardiologists
and oncologists. What they pay doesnt
even come close to covering expenses,
says Pat Howery, the administrator at
Colorado West Otolaryngologists,
an ear, nose, and throat clinic in Grand
Junction. For a basic ofce visit, Howery
says, UnitedHealth Group pays $119
and Medicare $73; Medicaid comes in at
$52. You cant make this up in volume,
he says. In January the clinic began limit-
ing each doctor to two Medicaid appoint-
ments a day.
In rural Yakima County, where one in
fve people live below the poverty line,
some specialists are already overloaded
with Medicaid patients. The question
is, at what point will they start saying
no? says Rhonda Hauf, chief operat-
ing ofcer of Yakima Neighborhood
Health Services. The clinic refers
several patients a week to specialists
outside the county because they cant
get appointments locally, she says.
If more doctors stop accepting
Medicaid, the burden of treating the
rising number of patients who depend
on it will fall on nonproft clinics and
hospitals that see whoever comes in the
emergency room doors. For them, even
paltry Medicaid payments are a step up
from treating patients with no insur-
ance. When youre in a high-poverty
area like this, says Anita Monoian, chief
executive ofcer of the Yakima clinic,
the mere fact that youre going to get
paid something has a lot more appeal.
John Tozzi
The bottom line Obamacare is expected to
add 8 million people to Medicaid this year, but
many doctors will lose money treating them.
Health Care What Doctors Make From Medicare
Physicians collected $77 billion from Medicare in 2012. A massive database,
released by the federal government on April 9, reveals payments to more than
800,000 doctors and shows where that money went. In all, the document details
89 kinds of care. Here are the 10 that cost Medicare the most. John Tozzi
DATA: MEDICARE
Total Medicare Average
payments payment
Type of treatment (in billions) per patient
1. Internal medicine $8.7 $271.00
2. Ophthalmology $5.6 $431.36
3. Cardiology $5.0 $200.31
4. Ambulance services supplier $4.9 $721.60
5. Clinical laboratory $4.8 $183.96
6. Family practice $4.4 $211.50
7. Diagnostic radiology $3.4 $61.94
8. Hematology/oncology $2.7 $986.54
9. Ambulatory surgical center $2.4 $708.91
10. Dermatology $2.2 $299.92

Medicare pays a lot
for ambulances
Drugs to treat
cancer and eye disease
are among the most
expensive
These 10
types of care
totaled
$44b
or
57%
of all Medicare
payments
to physicians
in 2012
Spreadsheet
30
Politics/Policy
The American Way to Pay
DATA: IRS, U.S. DEPARTMENT OF THE TREASURY, BLANK AND LEVIN 2010, KONRAD AND QARI 2012, BUEHN AND SCHNEIDER 2012, CANNARI AND DALESSIO 2007, MCGEE ET AL. 2011.
By Richard Rubin and Dorothy Gambrell
31
Politics/Policy
Can Dropbox Avoid Getting
Lost in the Clouds?
In November 2012, Drew Houston,
co-founder and chief executive ofcer
of Dropbox, dragged his employees
to an ofsite at San Franciscos Yerba
Buena Center for the Arts. His purpose
was to scare them, and his anxiety
seemed real. On an overhead screen,
he displayed a black-and-white photo
of a building jutting out over a sea wall,
threatening to topple onto the rocks
below. Are we this beautiful house
The popular storage service adds apps to fend of Box, Google, and Apple
There are a million ways to shout from the rooftops but, amazingly, no good ways to share privately
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April 14 April 20, 2014
sitting on top of a clif? he asked. He
then outlined a plan to expand the
companys products and keep compet-
itors in the nascent feld of cloud ser-
vices at bay. Within Dropbox, the plan
became known as Chapter 2.
Dropbox, which provides Web-based
storage used by 275 million people to
keep their documents, photos, and
videos, is one of the most celebrated
startups in Silicon Valley. Investors
have poured more than $600 million
into the seven-year-old company. An
initial public ofering beckons and
will almost certainly mean billions for
Houston and millions for many of his
650 employees.
That said, Houstons anxiety at the
ofsite was prescient. The company now
has to prove that it can compete with a
fearsome set of rivals who also promise
users access to their stored data from
32
Innovation: Cashless
sales at old-school
vending machines 37
Why U.S. retailers are
slow to shift to safer
credit card scanners 36
Charlie Rose talks with
Twitters Biz Stone 35
Intrade returns to
its roots with
Tradesports 34
any phone, tablet, or PC. Box, which
recently fled for an IPO, specializes in
serving the corporate market and giving
security-obsessed IT managers the
kind of control they demand. Google,
Apple, and Microsoft have unveiled
similarand freetools. Although
they charge heavy users for storage,
some charge a lot less than Dropbox.
Last month, Google cut the price of its
Google Drive service by 60 percent,
to $1.99 for 100 gigabytes of space.
Dropbox charges $9.99 for the same
amount and doesnt have other prod-
ucts to cushion it in a price war. (Steve
Jobs tried to buy Dropbox in 2009,
arguing that its service was a feature,
not a product, Houston says.)
The Dropbox CEO argues that even
though other services are cheaper, no
other company is as adept at keeping
fles synced across multiple devices.
Without divulging internal numbers,
he says customers are staying put
and subscriptions continue to rise.
On April 9, Dropbox announced
Chapter 2, a set of new products that
will help customers access and share
their virtual valuables. The company
introduced a photo app and e-mail
client that feature less public ways
to store memories than the big con-
sumer Web companies that are also
Dropbox competitors. There are a
million ways to shout from the roof-
tops but, amazingly, no good ways to
share privately, Houston says.
The photo app is called Carousel,
a nod to the episode of Mad Men in
which Don Draper
pitches Kodak exec-
utives on their
iconic slide projec-
tor. The app, which
works on iOS and
Android devices,
indexes photos
stored on Dropbox
and lets users cycle
through them
quickly and send
images to friends
and family, who
can then easily add
them to their col-
lections. Photos of
weddings and grad-
uations, Houston
points out, are often
spread over the devices and hard drives
of multiple guests.
Dropbox is also rolling out Mailbox,
an e-mail iPhone app developed by
a 13-employee startup the company
bought last year, to Android devices
and desktops. Look over the average
persons shoulder at Starbucks and
what are you going to see? An in-box
with 37,000 unread messages, Houston
says. Mailbox prioritizes e-mails and
stores important attachments online
with a users other fles. It gets smarter
as it goes along, asking users to decide
whether it should route subsequent
e-mail from a certain source straight to
the trash, for example.
Executives at Dropbox say theyll
introduce other apps in the coming
months. Among their ideas are cal-
endars, contacts, and to-do lists that
are tailored to mobile phones and
connected to a customers Dropbox
account. The idea is to allow users to
quickly personalize a phone with their
preferences and fles. You should set
up Dropbox on your device, and that
device should become yoursyour
contacts, your apps, and apps that talk
to your data, says Aditya Agarwal,
vice president for engineering at
Dropbox. The company says its con-
stantly on the lookout
for mobile software
startups to acquire.
As it develops prod-
ucts, Dropbox is also
trying to bolster its
management. After
a months-long search, the company
recently added a chief operating ofcer,
former Google executive and Motorola
CEO Dennis Woodside. Its also added a
prominent fourth member to its board
of directors Condoleezza Rice. The
former secretary of states consulting
frm, RiceHadleyGates, has been advis-
ing Dropbox on management issues
for the past year. Now shell help the
company think about international
expansion, privacy, and other issues.
As a country we are having a great
national conversation and debate about
exactly how to manage privacy con-
cerns, Rice says. I look forward to
helping Dropbox navigate it.
To gird itself for battle with its deep-
pocketed rivals, Dropbox last month
opened a $500 million credit line from
JPMorgan Chase, Goldman Sachs,
Deutsche Bank, Bank of America,
and other banks. That follows a high-
profle investment round last fall of up
to $450 million, led by BlackRock and
Fidelity Investments, that valued the
company at $10 billion. We want to
make absolutely sure we have every-
thing we need to win this market,
says newly appointed Dropbox Chief
Financial Ofcer Sujay Jaswa.
The extra cash will help the company
with another challenge: selling to busi-
nesses. That means winning over IT
managers wary of malware coming in
and proprietary data fowing out. At
the same time it unveiled Carousel,
Dropbox introduced software that can
monitor employee fle- sharing and
Look over the
average persons
shoulder at
Starbucks and
what are you going
to see? An in-box
with 37,000
unread messages
Drew Houston
Sujay Jaswa Dennis Woodside
33
E-Commerce
Intrades Latest
Gamble: Sports
After running afoul of the CFTC, it
steps back into the game
Sports are always going to be the
best laboratory
Intrade was riding high on Election Day
2012, as its user base called the presi-
dential vote in every state but Florida.
Less than three weeks later, the popular
online prediction market fell of a clif.
The U.S. Commodity Futures Trading
Commission (CFTC) sued Intrade,
claiming its exchange illegally enabled
speculation in gold, currencies, and the
probabilities of acts of war. Customers
vanished, and within months Intrade
could no longer cover its bets. The
site shut down in March 2013.
A year later, co-founder Ron
Bernstein has put his shingle back up,
but the lettering is diferent. In lieu of
the political betting that made Intrade
famous, he has restructured around a
website called Tradesports.com that
lets speculators buy and sell positions
on sporting events. Although its
separate from the dormant Intrade,
Tradesports is built on the old sites
technology and its staf includes several
Intrade veterans. (Bernstein says the
Intrade trading platform may return at
some point.) For now, hes running a
private Tradesports test period, begun
on April 7, and plans to formally launch
the site soon. Sports are always going
to be the best laboratory for

prediction
markets, Bernstein says. All those
things now are just recorded and data-
mined and discussed.
As with Intrade, Tradesports sells
shares linked to event outcomes that
can be sold at a proft or loss as they
fuctuate during real-world games.
It takes advantage of a 2006 U.S. law
designed to exempt fantasy sports
leagues from prohibitions on gambling.
Fantasy sites are considered games of
skill that users can wager on as long
as the bets are more complex than a
teams win or loss. Tradesports cus-
tomers cant bet on whether the San
Antonio Spurs will beat the Minnesota
Timberwolves, but they can buy shares
in a Spurs victory tied to a wager on
how many rebounds Tim Duncan will
pull down. Each outcome has a point
value, and the bettor with the highest
point total wins the games pot, minus
the sites per-player cut.
Tradesports faces competition from
existing fantasy sports sites, which
pitch their markets as places to fnd the
thrills of gambling without the legal
risks. The leading site, FanDuel, has
raised $18 million in venture capital
and says it became proftable late last
year. It expects to pay out $400 million
in prizes in 2014. Another competitor,
DraftKings, has raised $35 million
and says it will pay out more than
$200 million this year. Although each
site claims an advantage based on Web
or contest design, the main asset is a
large existing audience.
Intrades early and prominent inves-
tors, such as Wall Street legend Paul
Tudor Jones and News Corp.s Lachlan
Murdoch, are long gone. But Bernstein
raised new funding last year and says
he has enough capital to run the site for
at least 18 months. Hes trying to stock
the Tradesports pond partly through
e-mail blasts to Intrades 200,000 or so
past customers. Hes also hoping the
new site will, like Intrade, attract non-
gamblers; at its peak, the old site had
an audience fve times its trading pool.
Many visitors came to Intrade simply
as a way to track likely presidential
primary results or stock market anxiet-
ies, says Dave Rothschild, an economist
at Microsoft Research.
Tradesports marks a return to
Intrades roots. A stock market for
sports was the original idea when
Bernstein joined Intrades group of
founders in 1999. To help design the
exchange, he moved with them to
gambling-friendly Ireland and served
remotely wipe sensitive data. The
company began dabbling in the busi-
ness-to-business market in 2011 with
a product called Dropbox for Teams,
and its been testing the new features
for a year. There are 70,000 businesses
paying to use Dropbox, including
National Geographic, streaming-music
service Spotify, and apparel maker
Under Armour, according to a person
close to the company who wasnt
authorized to discuss it publicly.
Building a service with industrial-
strength security isnt cheap. Box is
losing $14 million a month, according
to its recent prospectus, the biggest
expense being a massive sales force
dedicated to making corporate
customers comfortable with its cloud
storage products. Dropbox will need
to beef up its comparatively small sales
team; until now, it has depended in
large part on the grass-roots enthu-
siasm of its consumer user base to
smuggle it inside company frewalls.
Dropbox isnt quite there yet in
places where IT is more concerned
about security and specifc controls
and auditing, says Frank Gillett, an
analyst at Forrester Research. One of
the strategic questions is whether they
ever want to have those more restric-
tive approaches or whether, as Apple
believes, doing so fundamentally
damages your customer experience
and focus on the individual.
Many corporations forbid the use
of Dropbox. Security software maker
Symantec posts online instructions on
how clients can block Dropbox. A 2012
report by Citrix, which provides a com-
peting product, found Dropbox to be
one of the most blacklisted applications
by com panies. Even businesses that use
Dropbox often do so with caution. Its
extremely convenient to share market-
ing materials, says Markus Ament,
chief product ofcer of fve-year-old
cloud company Taulia. We try to avoid
using Dropbox for sensitive data. Right
now, were not taking any chances.
Houston says
Dropbox is just
starting to build
enterprise-grade
versions of its soft-
ware with addi-
tional sharing and
security settings.
Thriving in the con-
sumer scrum, he
says, positions the
company well for
a move into the business market. Its
not that complicated, but getting there
takes one step at a time, he says. Well
get a Spotify before we get a GE. Last
year he notched an investment from
Pearl Jam, one of his favorite bands,
after he met its members backstage at
a concert in Los Angeles and they told
him they used Dropbox to share demo
tracks. Pulling up an image of the signed
contract on his phone, he says, This
is the most roundabout way to get
an autograph from Eddie Vedder.
Brad Stone and Ari Levy
The bottom line Dropbox is rolling out
photo-sharing and e-mail services and is trying
to compete with Box for business users.
$450m
Investment round
in Dropbox begun
last fall, led by
BlackRock and
Fidelity
34
Technology
Biz Stone
Charlie Rose talks to
The Twitter co-founder discusses the companys eureka
moment, its vulnerability, and his latest startup
Watch Charlie Rose on Bloomberg TV Weeknights at 8 p.m. and 10 p.m. ET
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Tell me a bit about Jelly, your new
search startup.
Jelly is an idea I had with my co-founder,
Ben Finkel, a friend of mine. Ben and
I realized that in the past 15 years, no
one has completely reimagined the
way we get answers to our queries, our
questions. Its a completely diferent
landscape now. Were all mobile. Were
all social. So we designed a better way
to ask a question.
Whats Twitters biggest
opportunityand
its biggest threat?
The biggest opportunity for
Twitter today is growth. If
youre thinking of Twitter as a
timeless company of enduring
valueif youre thinking in
terms of decades, the way Jef
Bezos doesyouve got to look
at Twitter as having just gotten
started. The biggest threat
to Twitter seems to be itself.
As one of our board members,
Peter Fenton, likes to say in a
class we co-teach every year
at Stanford, Twitter shot itself
in every major organ and still
managed to succeed. The
company is on to something.
Its proven that its of value
to the world. Now its just a
matter of executing.
Its a completely diferent
landscape now. Were all mobile.
Were all social. So we designed
a better way to ask a question
Explain how its diferent.
Youve heard of six degrees of separation? Recent
white papers say its really just four because of social
networks and mobile phones. What Jelly does is it
uses photos, locations, maps, and most importantly,
people from all your social networks meshed together
into one big network. It goes out not just one degree
but two degrees of separation. Your query is going to
real people. And they either know the answer or they
can forward it to someone in their
social network. This is where the
strength of weak ties comes in.
What are the relative strengths
of you and your Twitter co-founders,
Evan Williams and Jack Dorsey?
My relationship to Ev and my
relationship to Jack are similar in that
Im kind of in the clouds.
Im always throwing things
out there, talking crazy,
and theyre two of the few
people in the world who,
if I say, Lets assume for
a minute theres no such
thing as gravity, will say,
Go on. Im in the clouds.
Theyre grounded. And
when we brainstorm, we
usually settle somewhere
in the middle.
What did Evan do?
We wouldnt have been able to
do it without Evan. Evans the
one who bankrolled the whole
thing. Beyond money, Jack
said we should add audio to it,
because we were trying to do
the podcasting company.
Evan was like, Ha, ha. No way!
35
So whose idea was Twitter?
Thats a muddle. I always like to say it was Jacks idea.
First of all it was Evans idea that everyone just admit that
Odeo [a podcasting service] wasnt doing so great. So
I said to Jack, Lets do something fast and easy. And I
threw out a few quick things. He said, I want to do just
updates. We walked over to his computer, and he showed
me AOL Instant Messenger, which in 2005 or 06 we were
still using. And you could set little status updates there.
It was meant to be why you werent online. He pointed
out how some people were just writing, Having a sucky
day or Listening to the White Stripes. He said, Isnt it
interesting that I can just glance at this and have an idea
of what my friends are up to? I said, I love it. Ill design it.
I made up the follow button and all the other things that
now have become standard.
OK, now explain that.
You and your friends generally
know the same sort of stuf.
But then youve got that one
acquaintance, that lawyer,
say, who brings a whole new
circle of expertise. So the
queries jump into these new
arenas, and within a minute
you get back answers from
people. You see how youre
connected to that person.
A real answer from a real
person. Youre not retrieving
a document thats already
published. Youre getting a
recommendation. When we
launched Jelly, in the rst
24 hours we had twice the
accounts created in Twitters
rst year. And thats because
of Twitter and Facebook.
Word of mouth used to be
word of mouth, you know?
Now its all digitalpeople
instantly telling each other.
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Technology
Data Security
Why U.S. Retailers
Are Still Vulnerable
Businesses are behind schedule in
upgrading card payment systems
We want to activate early if there
are any problems or bugs
After last years massive security
breaches at Target and Neiman
Marcus, data security pros urged U.S.
retailers to upgrade their credit and
debit card technology to reduce fraud.
Companies have been slow to embrace
the more secure payment systems
that have been widely used in Europe
and Asia for years, mostly because of
the expense and a lack of synchroniza-
tion among retailers, credit card pro-
viders, and banks.
Many companies are behind schedule
in updating their systems to comply with
a chip-based smart card standard known
as EMV (for Europay-MasterCard-Visa,
the companies that first backed the
technology). Credit card networks
have set an October 2015 deadline for
most U.S. merchants to upgrade their
payment systems. EMV is considered
more secure because its harder to copy
account numbers and security codes
from chips than from the magnetic
strips on most cards used in the U.S.
EMV cards create a unique code for
each trans action, making them more
difficult to hack or counterfeit than
striped cards.
Merchant Warehouse, which pro-
cesses credit and debit card trans-
actions for 80,000 U.S. merchants,
projects that only about 60 percent of
its clients locations will be ready to
accept chip-based cards by the dead-
line. Richard Crone, chief executive
officer of payments advisory firm Crone
Consulting, says more than half of U.S.
merchants will miss the cutoff.
One reason for the delay is the
upgrades high cost$500 to $1,000
per payment terminal, according to
researcher Javelin Strategy & Research,
a division of Greenwich Associates.
Retailers are also concerned that the
switch will slow checkout times and
that it remains unclear how the EMV
software will work with debit cards. It
is not a question of just turning it on,
says Margaret Chabris, a spokeswoman
for 7-Eleven. EMV specifications are
still being finalized.
Still, some big retailers, including
Wal-Mart Stores, Kroger, and Target,
have pushed ahead with the upgrade.
Wal-Mart started updating its payment
as chief executive ofcer when
Intrade went live in 2001. Bernstein left
the company in 2003 to return to New
Jersey, where he made a living trading
gold and sugar futures.
Under CEO John Delaney, Intrade
pushed further into legal gray areas.
In 2005 the company ran afoul of the
CFTC, which complained that it was
essentially running an unregulated
commodity futures market. Intrade
paid a $150,000 fne and agreed to stop
ofering certain kinds of bets, a rela-
tively light punishment that the govern-
ment said refected the com panys
cooperative attitude. The CFTCs 2012
complaint remains pending. Intrade
has denied the governments allega-
tions; the commission didnt respond
to a request for comment.
Delaney died while climbing Mount
Everest in 2011. A report Intrades
outside auditors prepared for the
Irish government raised concerns
about payments the company made to
Delaneys personal accounts. The sit-
uation prompted Bernstein to return
to Intrade. Confdentiality agreements
limit what he can discuss, but he says
signifcant monies were returned by
the Delaney family to the company.
He says the com panys problems are
behind it.
Legal questions notwithstanding,
the prospects for a new daily fantasy
sports company dont necessarily look
bright. Smaller competitors are folding
while incumbents attract more players
and investment capital. Nigel Eccles,
the co-founder of FanDuel, says sites
such as his and DraftKings have an
almost insurmountable head start. We
saw the early stage, we saw the explo-
sion, and now were seeing the consoli-
dation, he says.
At the same time, the leading sports
sites were largely founded by and for
poker industry veterans. Theyre now
ratcheting up marketing eforts to
appeal to more casual fantasy players.
Bernstein says Tradesports has the
clearest path toward buildingor in
his case, rebuildinga general- interest
betting site that can take action on
everything from midterm elections to
the Oscars. I like sports, love sports,
he says. But I think the opportunities
are there for this to be about anything.
Joshua Brustein
The bottom line With Tradesports, Intrade
is wagering it can handle entrenched sports-
focused rivals and the CFTC.
1999
Intrade is founded
2001
The companys website,
Intrade.com, goes live
from Dublin
2003
Ron Bernstein, Intrades
CEO and co-founder,
leaves the company to
return to New Jersey
2005
The Commodity Futures
Trading Commission
nes Intrade for
operating an unregulated
futures market
May 2011
Intrade CEO John
Delaney dies while
climbing Mount Everest
November 2012
Intrades markets
correctly predict
the outcome of the
presidential election
in 49 states
November 2012
The CFTC les a suit
against the company,
alleging unlicensed
commodities trading
March 2013
Intrade shuts down its
site, citing potential
nancial irregularities
April 2014
Bernstein opens
Tradesports
Adaptation
Consumers will have to
be trained to use chip
cards, and that could
slow down store lines.
Price tag
Chip cards arent
cheap and require the
installation of expensive
new payment terminals
in stores.
Security
The chips are harder for
hackers to copy.
Data
A unique transaction
code is generated each
time the card is used.

Benets

Pitfalls
Intrade Takes
Another Shot
EMV cards, known by
their gold, squarish
symbols, are inserted
into a card payment
terminal, where they
stay securely until the
transaction is complete.
Smarter Cards
36
Edited by Jef Muskus & Dimitra Kessenides
Businessweek.com/technology

Innovation
PayRange
Next Steps
PayRange began taking online orders for its hardware on March 19. Patel is
trying to raise about $2 million to expand its sales team, rene the iOS app, and
add an Android version. For now, hes pitching to vending machine operators at
trade shows. Although widespread use of PayRange may have to wait until more
consumers demand a mobile payment option, I do think there is a market for it,
says Automatic Merchandiser editor Emily Refermat. Olga Kharif
Market About
93 percent of
workplace vending
machines are
cash-only, according
to Automatic
Merchandiser
magazine.
2.
Payment Using the app,
the customer swipes the
phones screen to approve a
purchase, then chooses an
item using the keypad on
the vending machine, which
spits out the product.
Innovator Paresh Patel
Age 39
Founder of year-old startup
PayRange in Portland, Ore.
Form and function
To boost sales at vending machines among
consumers who rely largely on credit cards,
PayRanges USB-size Bluetooth-enabled device
can retrofit a cash-operated machine to accept
payments via the companys smartphone app.
Background Patel
has more than
two decades of
experience building
vending machine
networks. Last
year, he says, new
investors with a
diferent vision
pushed him out of
VendScreen, his
touchscreen startup.
Funding Patel
and his family
have invested
about $350,000
in his 10-employee
company.
1.
Setup The PayRange device
plugs into a port in the
back of a vending machine.
A decal on the machine
tells customers that it works
with the downloadable
smartphone app, where they
can store credit card data.
Cost Operators pay
$49 per vending
machine, cheaper
than the installation
of most card readers,
and a 4 percent
transaction fee.
terminals in U.S. stores eight years ago.
The company says it has progressed
slowly because of a lack of industry
support, despite the clear benefits.
We saw the fact that it was being
implemented in the U.K. and many
other countries around the globe; we
saw the fraud decrease once this solu-
tion was implemented, says Mike
Cook, assistant treasurer at Wal-Mart.
All of Wal-Marts 4,838 U.S. stores
(including Sams Clubs) have the chip-
based hardware in place. Of those,
1,000 have turned it on. By yearend,
Wal-Mart says, the new payment termi-
nals will be running in all of the com-
panys U.S. locations. We want to
activate early if there are any problems
or bugs to be worked out, Cook says.
For terminals to provide added secu-
rity, customers must have chip-enabled
cards. Part of the reason we havent
pushed faster is therere just no cards
out there for acceptance, Cook says.
Today, with about 1 billion cards in
use in the U.S., just 20 million chip
cards have been issued, according to
Smart Card Alliance. Only 20 percent
to 30 percent of U.S. card holders will
have the new cards by the deadline,
says Nick Holland, an analyst at Javelin.
The new cards can cost up to $2
each, compared with pennies for the
magnetic-stripe models. Weve got
10 million cards in inventory out in
the field, says Mark Putman, a senior
vice president for First Data, which
offers prepaid card services. At $2, we
are probably looking at a $20 million
investment, which I am going to defer
for as long as possible.
Retailers are willing to do their part
to improve security, the National Retail
Federation says, but banks and card
companies also have a responsibility
to update their systems. That includes
making and issuing chip-enabled cards.
The price for not complying could be
high. Credit card companies have said
most retailers and banks will be liable for
some fraudulent in-store trans actions if
they dont have the new system. Even
so, merchants arent crazy about this
migration to EMV, and many of them
are fighting it tooth and nail, says Julie
Conroy, an analyst at Aite Group.
Olga Kharif and Bianca Vzquez Toness
The bottom line U.S. retailers and banks could
be liable for fraudulent transactions if they dont
adopt a new, more secure payment system.
Technology
37
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Bid/Ask: Drugmaker
Mallinckrodt acquires
Questcor 43
The art worlds
forgotten talents are
having a moment 40
Keurig Green
Mountain burns its
short sellers 41
A Wall Street bankers
liberal second act 42
The SEC is taking its time studying the market before issuing rules to curb speed traders
I think you really do want to do a soup-to-nuts review
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Slow Cop, Fast Beat
When Mary Jo White appeared before
the Senate in March 2013 seeking con-
frmation as chair of the Securities
and Exchange Commission, she told
law makers that understanding high-
frequency tradings impact on the stock
market would be a very, very high pri-
ority. She spoke about the sense of
urgency the SEC needed to bring to
the issue so that appropriate regula-
tory responses can be made. More than
a year later, lawmakers, investors, and
SEC commissioners are still waiting to
see what that response will be.
The controversy over high-frequency
trading (HFT) kicked into high gear
with the publication of Michael Lewiss
Flash Boys on March 31. Lewis argues
that the $23 trillion U.S. stock market is
rigged in favor of speed traders, who he
says prey on slower investors by getting
early access to non public information.
The book and the media attention it has
received have revived and magnifed
concerns that have circulated for years.
The FBI had already been probing poten-
tial criminal activity associated with
HFT. On April 4, U.S. Attorney General
Eric Holder said the Justice Department
is investigating whether HFT violates
insider trading laws. So is New York
Attorney General Eric Schneiderman. In
a March 31 interview on Bloomberg TV,
Schneiderman urged the SEC to speed
up its review of HFT and quickly issue
new regulations.
Yet White is in no rush. The SEC chief
says her agency will make sure any rule
changes are supported by data as it
conducts a survey of the entire market,
rather than focusing specifcally on
speed traders. I think you really do
want to do a soup-to-nuts review, says
White, who stresses that any study will
begin with the presumption that the
markets are not rigged.
Whites go-slow approach has the
backing of some market participants
who fear that premature attempts at
reform may do more harm than good.
Included in that camp are some of the
investors that HFTs critics say are being
taken advantage of the most. One crit-
icism of speed traders is that they use
sophisticated trading algorithms to
detect the moves of big institutional
investors and then jump in front of their
large orders. Speed traders can then
proft from buying and then quickly
selling a stock for a slightly higher price
to the bigger, slower investor. Yet Joe
Brennan, global head of equity invest-
ing at Vanguard Group, the worlds
largest mutual fund company, says the
majority of high- frequency traders
play within the rules and even knit
together the fragmented market by
ensuring that prices stay in line with
each other across diferent trading
venues. That makes the markets more
efcient and lowers trading costs for
many participants, he says. This is not
to say there arent bad actors, he adds,
who unfairly tax the system.
The trick for regulators is fnding ways
to prevent abuses without blocking
high-speed frms that actually beneft
investors. And that will take more time,
according to White. If there are changes
that should be made, we will make
them, she says. We are taking a very
data-driven, disciplined approach.
The problem is that the SEC doesnt
have all the data it needs. In 2012 the
agency spent $2.5 million on a surveil-
lance system named Midas (Market
Information Data Analytics System)
that collects information from all 13
public exchanges in the U.S. This essen-
tially gives the SEC the same view of
39
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Art
A Burgeoning Demand
For Forgotten Artists
As prices rise, dealers and
collectors seek undervalued pieces
There is a lot of material to work
with, and you know what to expect
French artist Martial Raysse hadnt
had a solo U.S. show for more than
four decades when his pop paintings
of neon-faced beauties went up at
the Luxembourg & Dayan gallery in
New York last May. To reintroduce the
78-year-old painter to the American
market, the gallery produced a hard-
cover catalog and few in the artist, his
wife, and an assistant for the opening. It
hosted a brunch for more than 60 jour-
nalists and held a dinner for 30 collec-
tors and curators at Caf Boulud (one
Michelin star). Of the 32 works on view,
only a few pieces were for sale. They all
soldgoing for $500,000 to $2 million.
Surging prices for postwar and
contemporary art are inspiring dealers,
collectors, and galleries to rediscover
long- overlooked artists whose work
is afordable and critically acclaimed.
Its a function of a global market,
says Wendy Cromwell, board president
of the Association of Professional Art
Advisors in New
York. Dealers have
to have new mate-
rial all the time.
Worldwide
art sales rose
8 percent in 2013,
to 47.4 billion
($65.5 billion),
approaching their
prefnancial-crisis
high, according to
the European Fine Art Foundation. The
Artnet C50 Index, which combines sales
data from 50 top contemporary and
postwar artists, advanced 434 percent
from the beginning of 2003 through last
year, beating gold, fne wine, and stocks.
Last November, Francis Bacons
Three Studies of Lucian Freud became
the most expensive artwork ever sold
at auction, fetching $142.4 million at
Christies in New York. The next day,
Andy Warhols Silver Car Crash (Double
Disaster) sold for $105.4 million at
Sothebys. People feel priced out,
says John Good, Christies international
director for postwar and contempo-
rary art. They know that at one point
works by these artists cost a lot less and
are looking for parallels in the market of
things that are undervalued.
As prices for pieces by emerging
artists hit hundreds of thousands of
dollars, some collectors view the work
of obscure but once-recognized artists
as a safer investment. New buyers who
have doubts about young artists feel
more comfortable with an artist who has
a place, even a small one, in art history,
says Belgian collector Alain Servais. For
galleries, a forgotten talent can become
a reliable source of revenue if his studio
or estate has a large inventory. There is
a lot of material to work with, and you
know what to expect, says Francesco
Bonami, an Italian critic and curator.
Dealers who fnd such artists can be
seen as heroes who correct history.
American modernist Charles
Biederman (1906-2004), whose work
was inspired by Piet Mondrian and
the Russian Constructivists, is getting
noticed after years of near-obscurity.
the market that many speed traders
have. It doesnt, however, give it a
picture of the whole market. Only about
70 percent of trades happen on public
exchanges; the rest take place ofine,
either inside large wholesale brokerages
that match buy and sell orders inter-
nally or in private trading venues called
dark pools. To see that activity, the SEC
needs a much more powerful system
that can track the life of every stock
quote, order, and trade, including when
the transactions occur, the brokers
involved, and the customers on whose
behalf they are acting.
In 2010, Whites predecessor, Mary
Schapiro, approved a project to build
such a system to funnel terabytes of
information every day into one massive
feed that regulators could monitor.
Called the consolidated audit trail
(CAT), the system would allow the SEC
to conduct detailed forensic analy-
sis and weed out abuses. The contract
for the huge project, which will cost
more than $1 billion, still hasnt been
awarded. The SEC estimates that CAT
wont be fnished until 2016.
The SEC took its frst deep dive into
HFT in January 2010, before many other
enforcement agencies had waded into
the debate. As part of a broad review
of market structure, it examined how
brokers route the electronic orders of
speed traders and questioned whether
that put other investors at a disadvan-
tage. The report elicited more than
400 comment letters from banks,
exchanges, retail brokerages, and large
institutional investment frms.
Critics of HFT were encouraged. We
were very hopeful that something sub-
stantative was going to get done, says
Jef Connaughton, then chief of staf to
Ted Kaufman, a Delaware Democrat
who, within months of joining the
Senate in 2009, began railing about
how speed traders were threatening
the stability of the stock market. Then,
on May 6, 2010, the fash crash sent the
Dow Jones industrial average down 600
points in fve minutes. The SEC, along
with the Commodity Futures Trading
Commission, the main U.S. derivatives
regulator, spent the next four months
trying to fgure out what had caused
the crash. By the time they issued a
report in September, the regulators had
a bigger task on their desks: the 848-
page Dodd-Frank fnancial reform law
that needed to be implemented. Speed
traders could wait.
The SEC still hasnt introduced
many rules aimed specifcally at
high- frequency traders. Some commis-
sioners are getting restless. The per-
ception for many is that the markets
arent fair for the average investor,
says Republican Commissioner Daniel
Gallagher, who has repeatedly called for
the agency to review its trading rules
since 2012. Even if thats not supported
by the facts, that perception is a reality
that we need to address as soon as pos-
sible. Speaking to reporters on April 8,
Democratic Commissioner Kara Stein
said the SEC needs new rules to keep
pace with the changing market: A lot of
our rules were written for people and
not necessarily for computers.
Such calls are unlikely to sway
White from her deliberate approach.
I think shes proceeding exactly as she
should, says Republican Harvey Pitt,
who served as chairman of the SEC
from 2001 to 2003. The mere existence
of high- frequency trading does not by
itself indicate a violation of the law.
One of the things that gets drilled into
people at the SEC is that the power to
investigate is the power to destroy.
Dave Michaels, Matthew Philips,
and Silla Brush
The bottom line The SEC needs a multibillion-
dollar data system to determine if speed traders
are doing more harm than good.
434%
Rise in value
of 50 top
contemporary and
postwar artists
since 2003
40
Markets/Finance
Recent auctions
A New York show
Luxembourg & Dayan
Raysse got his rst solo
show in the U.S. in more
than four decades last
May. The works on sale
were priced between
$500,000 and $2 million.
Broken Painting, 1964
Snack, 1964
$6.6 million
2011
Last year in Capri
(exotic title), 1962
Centre Georges Pompidou
The museum will present its rst Raysse
retrospective, encompassing more
than 200 works, next month.
He worked in New York in the 1930s,
did a brief stint in Paris, and then in the
early 40s moved to Red Wing, Minn.,
where he spent the rest of his life,
unrepresented by a New York gallery
for almost 40 years.
He wouldnt often lend his works
to exhibitions, says Jonathan Spies of
New Yorks Menconi & Schoelkopf
Fine Art. The gallery devoted a booth
to Biederman at a November art fair in
New York and has sold his paintings to
four major museums in the past two
years. Younger collectors are discov-
ering his colorful biomorphic paint-
ings and three-dimensional reliefs, says
Meredith Ward, a Manhattan dealer
whos been selling Biederman since
1998. Prices have more than doubled
since then, she says, and now range
from $15,000 for works on paper to
more than $200,000 for a relief.
Dealers and collectors, looking
outside the U.S. for works from the
second half of the 20th century, have
reinvigorated demand for many artists
work. More than two years passed
between dealer Marianne Boeskys frst
visit to Pier Paolo Calzolaris home in
Fossombrone, Italy, and his 2012 exhi-
bition at her gallery in New Yorks
Chelsea district. She gained the reclu-
sive artists trust, collaborated with
Pace Gallery, and placed pieces
with her clients on the boards of the
Guggenheim and the Whitney. They
got excited and spread the word,
Boesky says.
When Calzolari, 70, an original
member of Italys postwar Arte Povera
movement (trans-
lated as poor art
because its practi-
tioners used ordi-
nary materials),
returned to New
York after more than
20 years, the show
was a hit. Most of
the available works,
priced from $160,000 to
$1.3 million, sold.
Artists disappear for
various reasons, includ-
ing shifting tastes. Some
die young without inter-
national dealers ever pro-
moting them. Others opt
to live in isolation. And there are those
who simply run out of good ideas and fail
to fulfll their early promise, something
that becomes clear when their work
is reexamined, says Bonami, the critic
and curator. Its like music, he says.
Theres a minor opera by Mozart that
hasnt been performed in 50 years. You
listen to it and you realize its a minor
opera. Thats why it hasnt been per-
formed for so long. Katya Kazakina
The bottom line Buyers priced out of the
$65.5 billion art market are investing in
forgotten postwar and contemporary works.
$1.1 million
2007
$2.3 million
2008
Investing
Keurig Throws Cold
Water on Short Sellers
A deal with Coca-Cola has helped
reverse the companys fortunes
Youre taking a $4 pound of cofee
and turning it into a $20 product
For investors in Green Mountain Cofee
Roasters, the events of Oct. 17, 2011,
left a bitter taste. Thats the day David
Einhorna hedge fund billionaire
famous for snifng out the rot in a com-
panys balance sheet publicly ripped
into the maker of single-serve cofee
machines and the pods that go in them.
Speaking to a group of money managers,
Einhorn said there were questionable
business practices, lax fnancial controls,
and troubling stock sales by insiders. The
company denied all of the allegations.
Within a month, wagers that the stock
would decline surged 85 percent, giving
the company an enduring status as one
of the most shorted stocks on the Nasdaq
exchange. (Shorting is when an investor
sells borrowed shares, intending to buy
them back later at a lower price.)
Now, more than two years later,
the companywhich changed its
name to Keurig Green Mountain on
March 10seems to have beaten the
shorts. On Feb. 5, Coca-Cola announced
it was buying a 10 percent stake, for
$1.25 billion, and collabo rating with
Keurig on machines
for the home that
will dispense single
servings of name-
brand sodas and
other cold bever-
ages. Keurig stock
shot up 26 percent
the next day. The
number of shares
being shorted fell
73 percent from
Short interest,
as percentage
of oat
Auction record for
the artist
Keurig haters
4/2013 4/2014
30%
15%
0%
Martial Raysse
A founding member of
Frances New Realism
movement, Raysse was
well known in the 1960s
and had shows in New
York and Los Angeles.
He is most famous for
collages based on iconic
Old Master paintings
and pop-art works that incorporate neon and found
objects. After four decades during which he didnt
show in the U.S., the artist is enjoying renewed
interest from American collectors.
Second
Life
And another in Paris
I said goodbye to
America a long
time ago. This
kind of recognition
is sweet.
Martial Raysse
41
Markets/Finance
Markets/Finance
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I believed much
more than I do now
in the power, in
the neutral
goodness, of
unfettered
free markets.
Gus
Christensen
December through March, according
to Markit, a fnancial data frm.
Analysts scrambled to recalibrate their
assessment of the company. We believe
the deal transforms GMCR from a con-
troversial single-serve cofee company
to a global beverage growth company
and should put to rest many of the alle-
gations of fraud and accounting miscon-
duct, Akshay Jagdale, an analyst with
KeyBanc Capital Markets, wrote in a
report after the deal was announced.
Short sellers who continued betting
against the stock felt more pain on
March 14, when Keurig renegoti-
ated its contract with Starbucks. The
Seattle-based companys blends are no
longer the only premium cofee brands
available for Keurigs K-Cup brewing
machines. The same day, Standard &
Poors added the company to its fagship
500-stock index; its been the third-best-
performing listing since the start of the
year, with a return of 34.1 percent, while
the broader index has been fat.
Analysts are still split on the compa-
nys long-term fortunes. Of the 17 tracked
by Bloomberg, only 8 rate the stock a
buy. Since its K-Cup patents expired in
2012, the company has seen cheaper,
of-label pods take a 14 percent market
share. Keurig will roll out a version 2.0
of its brewing machine this fall that uses
bar code scanners to verify that pods
are properly licensed. Mark Astrachan,
a Stifel Financial analyst, called the new
machines an attempt to reclose the
system, though he noted it could take
as long as four years for the upgraded
models to outnumber the old ones.
Keurigs move into the cold drinks
market, expected to kick of in 2015, runs
the risk of distracting the company from
its core business, says Dan Cox. An early
Green Mountain employee, hes pres-
ident of Cofee Enterprises, an indus-
try consultant. Their entire focus right
now is on cold, and yet theyre making
all their money on hot, Cox says.
Remember, youre taking a $4 pound of
cofee and turning it into a $20 product.
Thats pretty nice. So how about you
dont screw that up? Keurig declined
to make Chief Executive Ofcer Brian
Kelley available for an interview.
Some high-profle money managers
are sticking to their bearish wagers.
Einhorn told investors on Oct. 15 that
his hedge fund had added to its short
position; through a spokesman, he
declined to comment on the current
status of the investment. Another out-
spoken short, Whitney Tilson, the
founder of hedge fund Kase Capital
Management, wrote in an e-mail: I
am shorting it because I think the
companys top- and bottom-line growth
will continue to decline (and may even
begin to shrink) as generic K-Cup com-
petitors continue to take market share
and cut prices. Nick Summers
The bottom line Short bets against Keurig
Green Mountains stock fell 73 percent from
December through March.
at New Yorks Yale Club on Feb. 27
for the Lenox Hill Democratic Clubs
annual dinner. Reactionary forces
are strong, said Christensen, who is
gearing up to run for a seat in the New
York State Assembly, a job that pays
$79,500 a year. But the progressive
side is stronger. And both time and
right are on our side.
Christensen, 42, is using money he
made during two decades working
in fnance to challenge some princi-
ples many of his former colleagues
hold dear. During his dinner speech,
the onetime JPMorgan Chase deriv-
atives trader and former Goldman
Sachs banker mocked the Ayn Rand
novels that fnanciers adore, put his
minimum-wage goal at $15 an hour,
and praised Massachusetts Democratic
Senator Elizabeth Warrens eforts to
curb the banks that once employed
him. Christensen advocates stronger
rights for workers and women, tougher
regulation, and afordable housing. He
also supports increasing taxes on the
rich. He came out of Wall Street with
a slightly diferent, or maybe radically
diferent, point of view than a lot of
other members of the fnancial com-
munity, he says. I may be an idealist
whose hopes and dreams are crashed
on the rocks of reality in short order.
The fedgling politician grew up
in the Park Slope neighborhood of
Brooklyn, the son of tax lawyers. His
mother worked for Citibank,
and his father represented
philanthropist and socialite
Brooke Astor. After graduating
from Yale in 1994, Christensen
joined JPMorgans training
program and stayed at the
bank until 2000. Armed with
an MBA from the Wharton
School, he took a job in 2003
at Goldman, where he advised
Colony Capital on the pur-
chase of casinos in Mississippi
and New Jersey. One thing
he learned, he says, is that
casinos are often not the
great engines of local eco-
nomic redevelopment that
they were sold as. He left
two years later
for Evercore
Partners, the
boutique invest-
ment bank, where
he was a manag-
ing director. His
clients included
Politics
A Wall Street Rebel
Runs for State Office
The ex-Evercore managing director
wants the rich to pay more taxes
I saw something else I wanted to
do more than being a banker
If Gus Christensen looks like an
investment banker, its because he was
one until four months ago. A hand-
shake reveals a monogram on a shirt
sleeve, an Omega watch, and lapis cuf
links he got during a business trip to
Chile. One clue to his new line of work
is the donkey-patterned tie he wore
to address a crowd from Manhattans
Upper East Side, who had gathered
42
Bid/Ask
B
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B
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G
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By Evan Applegate
Edited by Cristina Lindblad & Dimitra Kessenides
Businessweek.com/markets-and-nance
$23b
$23b
$5.4b
$3.2b
$2.2b
$1.3b
$135m
Numericable wins Vivendis French mobile unit. Vivendi
cited fewer regulatory obstacles as its reason for choosing
Numericables bid over that of Bouygues.
Cement giants Holcim and Lafarge merge. After
selling assets to appease regulators, the combined
company will be the worlds largest cement maker.
Blackstone Group purchases Gates Global of Denver.
The buyout rms largest acquisition in seven years will add
industrial hoses and belts to its portfolio.
Sun Pharmaceutical Industries buys a peer. The Indian
drugmaker bought Daiichi Sankyos controlling stake in the
troubled Ranbaxy Laboratories.
Alfa Laval acquires Frank Mohn. The Swedish
engineering company bought the industrial pumpmaker
to benet from increased spending on ofshore oil drilling.
Energen sells a natural gas unit to pay down debt. The
energy holding company sold Alabama Gas to Laclede
Group, another Southern gas utility.
William Randolph Hearsts mansion goes on sale.
The 6-acre estate in Beverly Hills is the priciest
listing in California.
Mallinckrodt acquires Questcor Pharmaceuticals. Mallinckrodt will
add Acthar Gel, Questcors $28,000-per-vial immune system drug, to its
cabinet of specialty medicines. Questcor, based in Anaheim, Calif., will
relocate to Ireland and benet from a 10-percentage-point reduction in
its tax rate. That lure has per suaded other U.S. drugmakers including
Mallinckrodtto switch their registration to the Emerald Isle.
$5.6b
General Motors and the OCharleys
chain of restaurants.
Christensen caught the political bug
while volunteering on the campaign
of Julian Schreibman, a Yale classmate
who ran for Congress from upstate
New York in 2012. For the frst time in
my life, since I stopped wanting to be
an astronaut at the age of 15 or 16, I saw
something else I wanted to do more
than being a banker, Christensen says.
Schreibman lost to an incumbent,
a fate Christensen will avoid. Micah
Kellner, the Democrat who represents
the district that stretches from 61st to
92nd streets east of Third Avenue in
Manhattan, isnt running for reelec-
tion. In mid-January, Christensen dis-
closed campaign contributions of
$145,000 on top of a $250,000 loan he
made to his nascent campaign.
Earlier this year the New York Daily
News reported that Christensen spent
more than $2,600 on Lenox Hill dues
for about 150 people to help him win
the clubs presidency. I didnt come
in of the street and, quote, buy this
club, he says. Yet Christensen admits
that he picked up the tab for friends and
former colleagues to counter moves
that the other side had made to control
the nominating procedures for the
club presidency. As it happens, the
clubs former leader, David Menegon,
is contesting the same assembly seat
Christensen has his eye on.
Heading a club that endorses candi-
dates and works to gather signatures
could help Christensens campaign,
while adding a political role to his
rsum. Cementing his Democratic
credentials is vital to his ambitions,
given that until 2007 he was registered
to vote Republican. The former banker
acknowledges he once saw himself as
a fscal conservative: I believed much
more than I do now in the power, in
the neutral goodness, of unfettered
free markets.
His father, Henry Christensen III,
the head of McDermott Will & Emerys
private- client practice in New York,
says a number of his clients have
told Gus theyre delighted hes
running. Many follow up, however,
by asking, Why are you running as a
Democrat? Max Abelson
The bottom line Former banker Gus
Christensen is seeking a seat on the New York
State Assembly, a job that pays $79,500 a year.
43
Markets/Finance
D
iverted from the economic
fast track for several years
now, India is conducting na-
tional elections to determine
its near and perhaps distant
future. The current prime minister and
members of Parliament have helc ofhce
for the entire hveyear term that is consti-
tutionally allowed, succumbing of late to
policy paralysis, as critics have called it.
Further slowing the Indian ship of state is
a long-overdue anticorruption movement
that has taken to the streets during this
governments reign. Politicians currently
in power will soon be emboldened by a
fresh mandate or swept out in favor of
new blood.
The elections take place in staggered
balloting over a seven-week period due to
conclude on May 12. With a high turnout
rate expected, Indias vast electorate of 815
million people will choose candidates to
hll 543 seats in Parliament272 of which
must be amassed to form a new govern-
ment. Of the multitudes voting, fully 100
million will be appearing at the polls for the
hrst time. The entire process is billec as
the largest act of participatory democracy
in world history. Come July, just weeks
after the new government is seated, an
initial budget must be produced and the
rough outlines of major policy for 2014
and beyond made public. Legally requiring
the new budget so soon is Indias way to
force a fast start from the newly elected.
A jolt of energy and new momentum are
the tonic for what ails India, according to
Ron Somers, President of the U.S.-India
Business Council (USIBC).
Strictly by the spectacle of such an
enormous turnout of voters, India will
draw the worlds attention and quite likely
its admiration, says Somers, who believes
that India will enjoy a particularly stark
contrast between its jubilant but orderly
succession of power and the miseries oc-
curring in the Middle East and the former
Soviet bloc. These national elections are
the chance for young, energized Indians
to seek better governance and more
transparency, and to move past the era of
baksheesh, observes Somers, using the
old term for bureaucratic activity built on
patronage and bribery. He has seen Indias
rising technocratic class become impatient
to move beyond caste, cronyism and other
remnants of the transition to self-rule. Not
only is Indias democracy young, its cur-
rent wave of voters is, as well: Nearly half
of those 815 million are uncer age 35.
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S1
Upcoming elections in the
worlds largest democracy
present the opportunity to
shed old baggage and pump
new life into its economy
Indias Youth
Movement
New jobs needed for the young
The need for job creation throughout the
country is urgent, according to Somers, who
feels certain the newly elected Parliament
and prime minister will make it a priority.
Whats needed is a return to 9 percent GDP
growth rates, or higher, he explains. The
younger end of the electorate is entrepre-
neurial, they are eager and their political
support depends on employment expansion
at the rate of at least 1.5 million new jobs
a month. Two-way trade between the U.S.
and India was at $25 billion seven years
ago, and within a half-decade it had risen
above $100 billion, so there is precedent for
rapid ramping up of foreign investment.
India does have an intensely articulated
theoretical framework for the path it intends
to follow. Statec eloquently in a 2007 essay
by the late worldwide management expert
C.K. Prahalad, the framework became
the impetus for ncia_75. That organiza-
tion, supported by the Confederation of
Indian Industry, serves as a think tank, data
clearinghouse, moral compass and rooting
section for the nation India seeks to become
by 2022, its 75th year of incepencence.
As described by Rajan Navani, one of
its boarc members, ncia_75 exemplihes
the countrys twin strands of idealism and
pragmatism. Dedicated to democratic rule
and one-person-one-vote governance, India
must move towarc efhciency anc urgency at
every turn, he says. Lets commit ourselves
to skill 500 million unskilled Indian citizens
in a compact time frame, Navani adds,
referencing the original vows of ncia_75
Founcation. "Let's hnc millions more who
are skilled and upskill them to a higher level
of achievement and contribution.
Setting the future in motion now
The span of years until that 75th anniver-
sary is short, and infrastructure projects
that might follow in the wake of the
Delhi-Mumbai Industrial Corridor Project, a
920-mile road to the future through Indias
countryside, have to be set in motion if
the seconc half of this cecace is to fulhll
expectations. The country needs to put $1
trillion into infrastructure over the next hve
years, says Somers.
Rajan Navani notes that some of Indias
progress comes faster than a Westerner could
imagine, because entire stages of moderniza-
tion can beanc basically must beskippec
over. For example, with its cumbersome
physical infrastructure, much of India slept
through the era of landline telephones. Today,
10 million cellphones a month are being
registered in India. Distribution of Web-based
content is another stage with a leapfrog
potential; Indian consumers never knew a pe-
riod of no-charge dissemination. One of our
Jetline Group companies, Mereedhun Digital
Media, is able to collect small sums on mo-
bile and Internet content that is in extremely
high demand, whether it is about Bollywood,
cricket, celebrities, weather or astrology,
Navani says. Indian consumers dont have
a negative association with paying one rupee
a day, which is a tiny sum to them anyway,
but it adds up very fast when the market is
hundreds of millions of people.
/nother economic engine that cananc
by all rights shoulccrive postelection
India is tourism. At present, no entity repre-
sents the allure of India as a place to visit,
for pleasure or business, better than the Taj
0roup of Hotels. For a variety of reasons
including the importance of hospitality in
the ncian mincsetthe Taj 0roup seems
to transcend the brand dilution so widely
bemoaned by marketers in this era of social
media and other digital din.
According to the BrandAsset Valuator
for India report released in February by
advertising giant Young & Rubicam, the Taj
Group of Hotels emerged as the frontrunner
in the so-called breakaway brand category.
(This annual survey, Indias largest study of
consumer sentiment with respect to brands,
polled over 10,000 consumers across 16
cities anc coverec 1,400plus brancs in
myriad categories.) Its a testament to the
way the Taj Group creates a sense of human
connection within grand and unique physi-
cal spaces. Or, for that matter, in contempo-
rary accomodations and meeting facilities
in Taj-branded hotels like Vivanta by Taj and
The Gateway Hotels.
The company shows a Janus-like capac-
ity to highlight both the old and the ever-new
in the ncia that surrouncs itmeanwhile ex-
tending its brand power globally. In Sri Lanka,
across the Palk Strait from Indias southern
tip, Taj Hotels now welcomes visitors to a
new and resplendent asset, the Taj Samudra,
in Colombo. Long on entertainment and
shopping opportunities, the Taj Samudra is
loaded with state-of-the-art infrastructure for
dynamic business gatherings and important
events of all types. Its purpose is to host the
investment class and technology vendors
who will play such a vital role in the next
phase of national development; these sectors
range all the way from hnance to telecom
and from IT to entertainment. Traditions
of luxury at this hotel are evidenced by the
mere fact that the 143yearolc Colombo
Club, the most exclusive club in Sri Lanka,
has relocated from their legacy headquarters
known as the Crystal Building to a new space
within Taj Samudras sumptuous North Wing.
In return, the clubs Crystal Building is now
repurposed as the hotels banquet annex.
There are many ways in which India wel-
comes visitors, foreign businesspeople and
investors intent on productive partnerships.
The year 2014 is ncia's moment to celebrate
its democratic and entrepreneurial nature,
rise to new levels of capitalist efhciency anc
resume its ascent to prominence in Asia and
worldwide. David Gould
Two-way trade
between the U.S.
and India was
at $25 billion
seven years ago,
and within a
half-decade it
had risen above
$100 billion
2
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G
here is no one who talks
quite like Bill Gross, the
co- founder of Pimco. He
is perhaps the most infu-
ential fnancial manager of
the past two decades, yet
his stories involve an equal
mix of whimsy and sheep-
ishness, with fragments of
Joni Mitchell songs, Howdy
Doody vignettes, and references to classic
American diner food ofered in the sing-
song voice of a Dr. Seuss character. But its
his tendency to speak about himself in the
third person that takes the most getting
used to. Our Gross has not been a happy
camper for the last two months, he says
one morning in late March, sighing deeply.
But an unhappy captain still has to steer
the ship through the rocks.
His long limbs are folded into a swivel
chair inside Pimcos Newport Beach
(Calif.) ofces, from which he oversees
one of the largest investment frms in the
world, with nearly $2 trillion belonging to
pension funds, endowments, and pretty
much anyone with a retirement account.
Hes in navy suit trousers and shirtsleeves,
his eyes are misty blue, and he sports a
thick head of silvery haira mane ft for
Mufasa. Its been like a near-death expe-
rience, an emotional blow, he continues.
His nervous press handler sits a few chairs
away, unsure what might come out of his
bosss mouth next. Whenever I read the
newspaper, Gross says, I say to myself,
At least my wife loves me.
Grosss world was severely shaken in
January, when Mohamed El-Erian, his
deputy and chosen successor, announced
that he was leaving the company. Gross
was deeply, openly hurt: All of his care-
fully constructed plans for the future of
Pimcothe company he started in 1971, his
babywere thrown into disarray; the day-
to-day running of the frm, which El-Erian
had done much of in his role as chief exec-
utive ofcer, was left with gaping holes;
and Gross himself was forced onto an
uncomfortable path of self-analysis after a
series of articles portrayed him as a tyrant
whose erratic behavior had driven El-
Erian away. It was as if he became aware,
for the frst time, and at age 69, of the pos-
sibility that the qualities found in success-
ful tradersa fxation on numbers and the
markets, impatience, the desire to win no
matter whatare not necessarily the same
ones that make for a beloved boss. Gross
is an autocrat, a dictator, is how Gross
describes the way hes been depicted, un-
fairly, he might add. He then swerves into
the only known mashup of bond trading
and Gertrude Stein: Gross is a Gross is
a Gross.
All this upheaval occurred amid a dif-
fcult market for bond investing, which
is Grosss gift and obsession, and the
thing for which Pimco is famous. With
an interest rate increase expected in the
near futurewhich could lower the value
of existing bondsand the stock market
shooting up to new records every other
day, many people have chosen to move
their money out of bonds and into other
things. In addition to serving as Pimcos
chief investment ofcer, a title he previ-
ously shared with El-Erian, Gross manages
the $232 billion Total Return Fund, the
largest bond fund in the world, which
occupies much of his time during stock
market hours. The fund has had some
bumps, losing 1.9 percent in 2013, its frst
negative year since 1999, and over the last
fve years it has slipped to the middle of
the rankings. Overall, investors withdrew
more than $40 billion from Total Return
last year and another $8 billion so far
this year. Still, Pimcosand Grosss
performance over a longer timeframe
is one of the strongest in the industry.
Whatever the image that his latest per-
sonality tribulations have projected in
the wake of El-Erians departure, wrote
Morningstar analyst Eric Jacobson in a
March 18 report, there remains good
reason to believe he can persevere and
his success persist.
According to Gross, El-Erian never
fully explained his decision to leave,
saying only: Im not the man to lead
the company forward. During a period
of weeks, as the news of his impending
depar ture fltered through the company,
this remained the only explanation he
ofered. Grosss reaction to it has been
so visceral, and so personal, one cant
help but imagine a father losing a son.
Now, every time El-Erians name comes
up, Grosss voice becomes strained.
I begged, as much as a man in my
position can beg, Gross says. I didnt
get on my knees, butDont leave. What
are you doing? Dont! And at some point it
was, All right, already. El-Erian in sisted
that he didnt have another job lined up.
He declined to comment for this article.
It was bad for everybody, Gross says.
We said, What are we going to do now?
So, I started to think about the things that
he didIm not hopping on a plane and
going to Abu Dhabi and going to Munich
and London, Im too old for that stuf!
Whos going to do that? You cant leave,
youre the CEO who travels around the
world and represents Pimco! So were still
getting used to that. He inhales. Then
the aftermathI never expected that.
That was the press furor, which began
as speculation about how Pimco would
survive without El-Erians steady presence
and built to a long articlethe crusher,
T
Gross saysin the Feb. 24 Wall Street
Journal that suggested he and El- Erian had
argued bitterly and others at Pimco were
so intimidated by their patri arch that they
were afraid to speak their minds. Sudden-
ly one of the most unexciting companies
in the world, a place populated by egg-
heads who begin their workdays in the
middle of the night, was embroiled in
public scandal. Reading about himself,
Gross says he thought, Is this the person
I am and have been?
People have diferent impressions
of themselves, and where reality lies is
somewhere in between. And maybe I
hadnt been forced to be in between. I
always thought of myself as being part of
a family and sharing and, yes, leading,
but not forcing people to do anything.
And so it was almost like a meta physical
few months where I was, like, is this
me? Gross says. Sort of like the cater-
pillar in Alice in Wonderlandinstead of
who are you, who am I? Thats been the
most upsetting part. Are they right? Or
am I right?
Gross cherishes routine, and his has been
much the same since he and two part-
ners started Pimco as a unit of Pacifc
Mutual Life Insurance. Most days begin
at 4:30 a.m., when he wakes up, makes
cofee, feeds treats to his cats, and peeks
at the market monitors in the library adja-
cent to his bedroom. He lives in a magnif-
icent villa overlooking the ocean with his
wife, Sue, and most mornings he kisses
her goodbye without waking her up. He
eats two scrambled eggs and prepares
a to-go box of Special K with blueber-
ries, which he consumes as he drives
himself to work along the Pacifc Coast
Highway in a black Mercedes, controlling
51
the steering wheel with his knees.
He collects a Starbucks black eye (its
got two shots of whatever they shoot it
with), makes his way to his U-shaped desk
in the center of Pimcos trading foor, and
activates his seven monitors: 7- and 10-year
Treasury futures, sovereign credit-default
swap spreads, corporate bonds, stocks,
cash Treasury bonds, and e-mail. A paper
printout of the $470 billion worth of port-
folios Gross personally oversees sits on
the sill behind his desk in a massive red
binder, waiting to be thumbed through.
By this time its around 5:30 a.m., an
hour before the stock market opens, and
Pimcos ofces are flling up. Theres a big
empty space next to Grosss spot on the
trading foor where El-Erians desk used to
beone gets the sense that people go out
of their way to walk around it, as if avoid-
ing the chalk outline of a murder victim
on the sidewalk.
When you ask people who know Gross
and the company he built to describe its
atmosphere, intense comes up a lot.
Sometimes the words used are much
stronger. Virginie Maisonneuve, the frms
new head of equities, calls it a refreshingly
direct culture, one where people are busy
and generally get straight to the point, skip-
ping over the chitchat and niceties, some-
thing she says she appreciates. Everything
seems to suggest that Bill is extremely hard
to work withhes an emotional guy, hes
very competitive and tough-minded, says
Bill Thompson, who was CEO of Pimco for
15 years and remains Grosss close friend.
I think thats all true. But anyone whos
any good as a trader in the markets has got
to have some pretty unusual skills. Theres
nothing new about that. Thats what it
takes, and hes got it big time.
In my personal experience, hes
exceedingly polite, hes very humble, self-
efacing, adds Morningstars Jacobson. I
take all such things with a grain of salt. Hes
widely known to have a temper.
Gross knows that hes stubborn and
not necessarily the most sociable creature,
which is why at 9 a.m. every day he visits
the gym at the Marriott hotel next door,
where yoga has been replaced by a stress-
relieving hour or so on a stationary bike.
I would admit Im an introvert. I dont
know why introverts have to apologize, he
declares, banging the table. But it is true
its hard for me to come in at 5:30 a.m. and
be into the bond market. And I dont go
around enough and say, Hi, Sally. Hi, Joe,
how you doing? And thats because thats
who I am. I wish I was diferent.
It was just this sort of personality tic
that El-Erian, 55, balanced out, serving
as the soft power to Grosss sometimes-
brittle one. He was skilled at dealing with
employees and clients, allowing Gross to
focus on what he liked and was good at,
trading and making money. El- Erian went
on TV, seemingly daily, wrote newspaper
editorials, and few around the world, a
roving ambassador with a trans-Atlantic
accent. He was also one of the few people
in the ofce with the stature to challenge
Gross on matters ranging from investments
to hiring to the future movement of inter-
est rates. He played a very valuable role
as a counterweight to Bill himself, not only
just in the Investment Committee but in the
organization, Jacob son says. Because of
his person ality, Mohamed was able to do a
lot of managing of people in ways that Bill
didnt want to, and to this day probably
doesnt care to. By all accounts, it was, at
least until a few months ago, a close rela-
tionship flled with trust.
El-Erian joined Pimco in 1999 after
15 years as an economist with the Inter-
national Monetary Fund and a brief
period at Salomon Brothers in London.
Pimco recruited him to manage its
emerging-markets portfolio, where he
became known for selling off Pimcos
Argen tinian bonds two years before the
country defaulted. In 2006, El- Erian broke
up with Gross for the frst time when he left
to take a job running Harvards $29 billion
endowment. Gross says he ofered to make
him the chief investment ofcer, Grosss
own title, to persuade him not to go, but
El-Erian was committed.
He wasnt happy at Harvard, though,
and left after less than two years. El-
Erian sidestepped the carnage of the
fnan cial crisis with fortuitous timing: In
the fall of 2007, he suggested to Pimco
CEO Thompson that he might like to
return. Thompson and Gross were so
excited to have him back, they granted
his request to be CEO and anointed him
co-chief investment ofcer alongside
Gross. Thompson was thinking of retir-
ing anyway to focus on his charitable
activities and growing litter of grand-
kids, and the arrangement seemed
52
to resolve some prickly succession issues.
Things were good for a while.
Mohamed and I, we sort of settled in
like a married couple, Gross says. El-
Erian kept even more extreme hours
than Gross did, sleeping from 9 p.m. until
1 a.m., spending time on his op-eds and
other prolifc media output, and hitting
the ofce around 4:30 or 5 a.m. He and
Gross corresponded all daymainly by
e-mail, even though they sat next to each
other, because Gross doesnt like to be
inter rupted. When he wasnt traveling,
El-Erian would move at about 9 a.m. from
the trading foor to his ofce in the execu-
tive wing to tackle his management duties.
According to former colleagues, El- Erian
regularly referred to a list his daughter
had made of all the recitals and other mile-
stones hed missed.
When clients would come inand they
are our most important consideration
theyd come to see the trading room, but it
was obviously to see us, Gross says. Wed
jointly greet clients, andMohamed, what
do you think? Bill what do you think?
We would act as a team. They also social-
ized, sometimes having dinner together
in nearby Laguna Beach with their wives,
who became friends.
As an economist with a Ph.D. from
Oxford, El-Erian fit in with Pimcos
quasi-academic environment, in which
those making investment decisions are
expected to debate the Fed funds rate and
defend their stock and bond posi tions at
the daily Investment Committee meeting.
This typically takes place from noon to
2 p.m., four days a week; Gross and El-
Erian formerly presided from one end of
a long conference table like star professors
at a grad school seminar. The pair earned
considerably more than actual academics,
though: The New York Times says El-Erian
made close to $100 million in 2011, while
Gross took home twice that, according to
the Wall Street Journal.
It was at the noon meetings that the
companys concept of the New Normal
economy, which posits a future of low-or-
nonexistent economic growth for most
of the world outside of Asia and Brazil,
was born. If you are a child of the bull
market, its time to grow up and become
a chastened adult, Gross wrote in an
investment letter in September 2009,
announcing the new outlook. Its pre-
mature to award the 21st century to the
Chinese as opposed to the United States,
but if the last six months have been any
example, China is sort of lookin like
Muhammad Ali standing over Sonny
Liston in 1964 yelling, Get up, you big
ugly bear! Gross and El-Erian often per-
formed a routine for investors, with each
one insisting that the other deserved credit
for the New Normal idea, which quickly
became part of global policy discussions.
One infuence El-Erian brought from
Harvard was an interest in pushing the
company into new areasto transform
it from a bond shop into a more well-
rounded frm with funds specializing in
stocks, commodities, and hedge fund-like
options. Mohamed would have had an
intellectual phrase for it, Gross says, but
instead of global bonds and burgers, we
needed a Cheesecake Factory menu. The
company adopted a new marketing line:
Your Global Investment Authority.
In the months before El-Erian revealed
his plans to leave, he and Gross had
entered a complicated process of fguring
out which new global investment areas
they should move into and fnding or pro-
moting people to take charge of them. The
two men had philosophical diferences
about how aggressively to do this, however,
according to Gross and others familiar with
the frm. It wasnt all a smoothie, so to
speak. There were some chunks of ice
cream in the milkshake in terms of how
to do it, Gross says. Mohamed, coming
from the IMF, was always a big meeting
guy, the more at the table the better. I was
always the-smaller-the-better because that
prevents the consensual mush.
They went back and forth over the
details and eventually agreed to create a
layer of deputy chief investment ofcers to
head up each new specialty, even as they
disagreed about how many deputies there
should be. It was during these months that
tension between the two festered, with
arguments becoming increasingly fre-
quent. Gross at one point told El- Erian,
according to the Wall Street Journal, I
have a 41-year track record of investing
excellence. What do you have? Gross
remembers saying this but says he cant
remember what precipitated it.
In a version of events that some cast
as revisionist, Gross supporters suggest
there was confict over the performance
of the Global Multi-Asset Fund, which was
El- Erians responsibility. The fund was
tiny compared with Pimcos overall size,
at below $2 billion in assets, but it had a
difcult year in 2013 in particular, losing
8 percent and looking even worse when
compared with similar funds. At the same
time, the frms move into stock invest-
ing was dragging and was less proftable
than hoped for.
When El-Erian resigned, his plan to
broaden the company had to be exe cuted
without him, just as it was getting started.
Phones would soon ring, with investors,
employees, and reporters all wanting
to know what Pimco would do without
Mohamed. In the back of everyones mind,
of course, was the fact that Gross, hale and
energetic as he is, will soon be 70. In spite
of all the talented investors working there,
Pimco still seemed overly dependent on
its founder. With the departure of El-Erian
and a handful of lower-profle executives
in recent years, there were legitimate con-
cerns about whether Gross was adequately
planning ahead and could keep happy the
few people he trusted enough to hang the
companys future on.
On March 27, Pimcos Investment Commit-
tee gathered as usual in a spacious, win-
dowed conference room. Gross slipped
53
into a seat along one side of the table,
where a handful of boyish hedge fund
man agers were discussing their strate-
gies with several of the deputy chief in-
vestment officers. As the hedge fund
guys spoke in their language of hedging
and volatility and market wizardry, Gross
rested his chin in his hand, scrunched
up his face and watched carefully. Mai-
sonneuve and Pimcos Euro pean expert,
Andrew Balls, were on video conference
from London. Gross occasionally inter-
jected, usually with a question about
why they were doing a particular trade
or what the Sharpe ratio was for a posi-
tion, referring to a measure of risk- adjusted
performance. Gross knows the world is
changing, and the person he had been
counting on to help him fgure it out
El- Erianis missing.
Scribbled on a whiteboard at one end
of the room were some questions that
must weigh on the mind of anyone whose
fortune is tied to the American economy:
Can the US economy achieve 5-6%
nominal GDP growth sustainably? it read.
A) Yes, in the next 6-12 months. B) Yes, in
the next 3-5 years. C) No, the New Normal
GDP growth rate is 3.5%-4.5%. D) Double
dip recession, debt defation, fnancial
crisis. The meeting ended with a spirited
debate about whether it was possible to
know how soon interest rates would go up.
You wouldnt have seen that a few
months ago, Gross says afterward. The
willingness of everyone to jump in. This
to me is, like, man, this is really good. He
nibbles at a turkey sandwich. The chal-
lenge of this new structure is making sure
that the risk vs. return is being ade quately
adjusted for, without being the boss. But
I ultimately am responsible.
In the aftermath of El-Erians depar-
ture, Allianz, the German insurance
company which has owned a majority of
Pimco since 2000, felt that Pimco had to
make its plans public quickly. Over the
course of two to three days in January,
Gross met with Pimcos executive com-
mittee, which voted to elect a new CEO,
Douglas Hodge, and president, Jay Jacobs.
Plans were also made to name three
deputy chief investment ofcers: Daniel
Ivascyn, who made his name investing
in mortgage bonds; Europe expert Balls;
and Marc Seidner, a generalist who had
most re cently been running the equities
business. Seidner in particular was set
to play a signifcant role, taking on some
of El- Erians noninvestment responsibil-
ities. But hours before the new appoint-
ments were to be announced, along with
the news of El-Erians departure, Seidner
quit, too. Gross was stunned.
Marc, you willingly participated in
determining [Pimcos] future while you
knew you were leaving? Gross said to him,
according to Grosss version of events.
You asked me, Seidner replied. He
added that he had just made the decision.
Gross says he was enraged. I might
have used the F-word, he adds. Seidner,
who took a job at Grantham Mayo Van
Otterloo in Boston, declined to comment.
Gross, meanwhile, had to scramble
to replenish the deputy chief investment
ofcer roster, which had just dropped
from three to two. He met with Ivascyn
and Balls and came up with a list of four
others to add: Maisonneuve, the frms
new equities chief; Mihir Worah, a physics
Ph.D. who oversees commodities; Mark
Kiesel, the head of Pimcos corporate
invest ments; and Scott Mather, a global
bond specialist. They tinkered with the
makeup of the Investment Committee,
and Gross asked his new deputy CIOs to
run the daily meetings, something he says
he found exhausting.
After the announcements were made,
including the news that El-Erian would
retain a consulting role with Allianz, Pimco
started an aggressive campaign to intro-
duce its new star money managers, taking
out newspaper ads and calling investors.
At the same time, Gross says, he noticed
that daily Investment Committee meet-
ings became more relaxed, with more
people freely voicing their opinions. He
says now that, as twin pillars, he and
El-Erian might have been too dominant,
too intimidating.
Gross says theres one caveat. Con-
sultants and clients ask this, and its a
wise question. So, that sounds good. You
have a happy family of deputies and what-
ever, but, they go, will you have a happy
client? Gross says. And by that they
mean, will it produce results? Because, Im
sure they want us to be happy and joyful
and have good lives, but their primary
concern is that theyre happy, which I think
has always been our focusyou be happy
frst, and well worry about our happiness
second. Its proved to be true with me: A
happy wife is a happy life.
It will likely take at least a couple of
years to know. Gross is hopeful, but even
he has his doubts. Its not always nec-
essarily a productive process to have
everyone leave the meeting with smiles
on their faces. Maybe there should be a
grain of sand in the oyster to produce the
pearl, maybe there should be some con-
fict, he says. So thats the challenge
for me, as CIO. To recognize that some
people thought I was autocratic, to recog-
nize that. To recognize that this new atmo-
sphere is fresh and exciting to me, as well
as to them, but alsothat the task of a CIO
and a leader is like a captain on a ship: to
combine all of the people on board into a
cohesive unit that produces results.
Gross served in the Navy during
Vietnam, and he cant help referring
to what he learned there about making
quick decisions and not bothering about
whether others understand or agree.
We want to have a fghting team that
sinks the other navy ships, as opposed
to a fghting team thats happy and has
to man the lifeboats, he says. Thats the
danger in thisits not all love and kisses
and cheesecake dessert. <
WITH AND WITHOUT EL-ERIAN
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
DATA: COMPILED BY BLOOMBERG; MORNINGSTAR
El-Erian joins
Pimco in 1999
Leaves to be
CEO of Harvard
Management
Co. in 2006
Pimco Total Return Fund net asset value per share
Returns to
Pimco in 2007
Resigns from
Pimco in
January 2014
December 2010:
Clients pull money for
the rst time in two
years amid a sellof in
Treasuries
The fund drops
5 percent between
May 2 and
Sept. 13, 2013
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$10.50
S P I R I T U A L A DV I S E R T O H O L LY WO O D
AND BEST- SEL L I NG SEL F- HEL P AUTHOR
MARI ANNE WI LLI AMSON WANTS TO REP-
RESENT AMERI CA S WEALTHI EST DI STRI CT
T H E
GODDESS
T I C K E T
B Y K A R L T A R O G R E E N F E L D
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I
n the sanctuary above an herbal tonic
bar, before a seated Buddha and a pair
of mandalas, 48 volunteers for con-
gressional candidate Marianne Wil-
liamson close their eyes and meditate as
Annelise Balfour, the manager and head
facilitator of the Source Spiritual Center,
intones a welcome prayer. Marianne,
shesWhoa! Shes the s---. Im so grate-
ful for her. We thank you, God, for more
gratitude, more adventure, more trans-
formation. Now I ask all of you, drop your
story of the past. Only now do you have
the power to transform your world. Visu-
alize gardens growing and dolphins swim-
ming and any dream you care to dream of
a government that responds to its people.
When she fnishes, a few of those gath-
ered, echoing how Williamson ends her
own talks, add, And so it is.
Williamson, 61, is the best-selling author
of 13 books on spirituality and a renowned
New Age guru, although she hates that
term. She wants to channel some of her
220,000 Twitter followers and 456,000
Facebook likesand millions of readers
into a constituency that will vote for her.
Shes out to replace Democratic Repre-
sentative Henry Waxman, whos retiring
after 20 terms, in Californias 33rd U.S. con-
gressional district. Encompassing Beverly
Hills, Bel Air, Brentwood, Pacifc Palisades,
Malibu, Santa Monica, and Venice, the 33rd
then curves around to include the equally
tony enclaves of Hermosa Beach and the
Palos Verdes peninsula. The district has
the highest per capita income, $60,000 per
year, and the highest median home value,
$911,000, of any district in the country.
Its rich, white, and liberal; Barack Obama
carried more than 60 percent of the vote
in both his races, and the district gave mil-
lions to his campaign. The 33rd is home to
donors such as Jefrey Katzenberg and Haim
Saban and a host of other liberal billion-
aires. Whoever controls the 33rd becomes
a power broker: Almost every Democratic
candidate with national aspi rations stops
in to tap the ATM.
To win Waxmans seat, Williamson
must frst make it into this falls general
election; to qualify for that, under the
states open electoral system, she must
fnish frst or second in a June 3 primary.
Running as an independent, William-
son benefts from a fragmented feld of 17
announced candidates with no clear front-
runner. High-profle establishment Demo-
crats in the race include State Senator Ted
Lieu and former Los Angeles City Control-
ler and mayoral candidate Wendy Greuel,
both of whom will attempt to appeal to the
33rds traditional Democratic base of former
Waxman supporters. There is no similarly
positioned Republican candidate, though
in 2012, businessman Bill Bloomfeld, an
independent, spent $7 million, much of it
his own money, in an unsuccessful attempt
to take Waxmans seat. If any district in
America might embrace Williamson, its
the 33rd.
She has only recently moved into the
district herself but was always a good
ft among wealthy Westsiders. Driving
around in a white Toyota Prius, shes
proven herself a formidable fundraiser,
tapping into her unique base, a combina-
tion of Hollywood insiders and spiritual
seekers, to raise more than $1 million to
date. At a recent event, Steven Tyler and
Chaka Khan performed at a $5,200-per-
person private concert at the Malibu
estate of True Religion Apparel co-founder
Kym Gold. The average day on the hus-
tings will fnd Williamson driving from
Beverly Hills to Hermosa Beach, giving her
impassioned stump speech, an eloquent
refresher on U.S. history that attempts
to situate her candidacy in the context
of the abolitionist, sufragette, and civil
rights movements before broaching three
central issues: getting money out of pol-
itics, ending mass incarceration, and
forcing food companies to state on labels
whether their products include ingredi-
ents from genetically modifed organisms.
Political movements have often
arisen in California, from Ronald Rea-
gans staunch conservatism and Howard
Jarviss tax-cut revolution to the Black
Panther Party, and it could be that Wil-
liamson represents the start of a sort of
anti-GMO Tea Party of the Left. Former
Ohio Representative and frequent pres-
idential candidate Dennis Kucinich has
heralded her as a new type of politician,
one who is truly outside the system.
Former Minnesota Governor Jesse Ventura
has endorsed her campaign and her call
to end a legalized system of corruption
and bribery. Those endorsements may
not confrm a movement, but her popu-
larity appears symptomatic of a deep dis-
satisfaction among wealthy Los Angelenos
and millennials who are disappointed with
Obamas centrist compromises. Williamson,
a frequent speaker at Occupy Wall Street
rallies, appeals to the thousands of people
who protested the banks but have little to
show for it. And while persuading some of
the wealthiest people in the U.S. to accept
tighter fnancial regulations and higher
taxes might seem like a tough sell, in Cal-
ifornias 33rd shes just as likely to lose by
alienating the vegan vote. Indeed, William-
son hesitates a long time before admit-
ting that she occasionally enjoys a steak.
Thats the most dangerous ques-
tion youve asked me, she says.
And since the campaign began,
Ive been craving red meat.
Williamson lives in a luxury apartment
in Brentwood with a Chinese apothecary
cabinet in the corner. She dresses the part
of a Westside professional woman, in black
dresses and Louboutin heels. Shes a wisp
of a woman, skinny with sharp features,
piercing eyes, and drawn cheeks. Part of
her appeal has always been that her elo-
quent, well- reasoned discoursemany of
her talks have nothing to do with her New
Age teachingsspool from such a slight
person in such a low, drawling voice. You
have to lean in to hear her. I didnt realize
that running as an independent would be
perceived as a threat to the Democrats,
Williamson says, snacking on olives and
almonds. Im a lifelong Democrat. But
[the campaign] has made me a pariah to
the Democratic establishment.
In her 1990s heyday, Williamson was the
spiritual adviser to numerous Hollywood
heavyweights, including David Geffen,
Barbra Streisand, and Cher. She ofciated at
Elizabeth Taylors wedding to Larry Forten-
sky at Michael Jacksons Neverland Valley
Ranch; huddled with Hillary Clinton in the
White House; and was named one of the
50 most infuential baby boomers by News-
week. Her 1992 book, A Return to Love, spent
38 weeks on the New York Times bestseller
list after Oprah Winfrey bought 1,000 copies
and had Williamson on her show. Oprah told
her audience that since reading the book she
had experienced 157 miracles.
That appearance was the high point
of a journey that began in a middle-class
Houston suburb where Williamson was one
of three siblings. Her late father, a Russian
migr born Sam Vishnevtsky, changed his
name to Williamson. Sam, an immigration
lawyer, was a socialist who took his children
to Italy, Japan, Russia, and even Vietnam
at the height of the confict there to show
them the evils of war. He still speaks to
me somehow, she says. Hes my moral
compass. Because of him I have this funda-
mental belief that justice matters.
Williamson attended Pomona College
for a few semesters before dropping out
to open a New Age bookshop and sing
DATA: U.S. CENSUS, LOS ANGELES TIMES
Beverly Hills
$96,312
Santa Monica
$69,013
Rolling Hills Estates
$145,628
Manhattan Beach
$136,481
Topanga
$120,319 Brentwood
$112,927
Bel Air
$207,938
Malibu
$138,215
Median household incomes in Californias
33rd U.S. congressional district
THE DEMOCRATS ATM
56
cabaret. Along the way, she divorced
after a three-month marriage and had a
nervous breakdown. It was a period she
has described as drugs and men. In
A Return to Love, she writes, Every door
marked no by conventional standards
seemed to hold the key to some lascivi-
ous pleasure I had to have.
In the late 1970s, Williamson encoun-
tered A Course in Miracles, a 1,200-page
multivolume book that some claim is the
work of Jesus Christ. Supposedly dic tated
in the late 60s by Christ to Helen Schuc-
man, a professor of psychology at Colum-
bia University, it has since sold more than
2.5 million copies and been embraced by
Eckhart Tolle, Robert Schuller, and others.
But it was Williamson who would become
perhaps its foremost interpreter.
Among other things, A Course in
Miracles ofers a program in total forgive-
ness. Its teachings difer from conven-
tional Christianity in that it says the phys-
ical world, all that we see, is man-made
rather than created by God; anything that
is wrong or evil in the physical world is
the mental creation of human beings and
therefore an illusion. The only path to
seeing past this ghastly dream state is for-
giveness, what the course calls atonement.
In this sense, the course shares more with
Buddhism than conventional Christianity,
and many Christians vehemently reject
it as apo stasy. For Williamson, the book
remains the basis of her worldview, though
as a politician on the stump, she seldom
mentions it.
By the early 90s, Williamson had a
daughter (India Emmaline, whose father
Williamson refuses to identify or discuss,
now 23 and studying in England) and had
become a doyenne of the Los Angeles gay
community. She founded the Los Angeles
Center for Living, a charity which served
primarily AIDS patients, and then Project
Angel Food, a nonprofit that delivers
meals to housebound AIDS patients.
As she sought to expand her programs
nationally and became famous as a guru
to the stars, the frst waves of critical
press, including a 1991 Vanity Fair profle,
caused Williamson to retreat from being
a self-professed bitch for God.
She moved, frst to Montecito, near
Santa Barbara, and then to Detroit, where
she served as pastor of the Renaissance
Unity Interfaith Spiritual Fellowship in
Warren, Mich. Then-Michigan Governor
Jennifer Granholm, who was often in the
pews, recalls Williamson as someone who
follows through on her commitments.
She stunned me with how many volun-
teers for mentors for foster kids she could
come up with. After fve years, though,
she left the church amid controversy
over her attempt to change the churchs
parent denomination and backlash over
her focus on progressive political issues.
After a stop back in Houston to sit at
her mothers bedside as she was dying
from cancer, Williamson returned to Los
Angeles in 2007 and lectured weekly to
standing-room-only audiences. She calls
her period of wandering in Detroit and
Houston a self-imposed exile. But I real-
ized that living a meaningful life is not a
popularity contest.
Throughout her exile, she continued
speaking and writing bestsellers. In her
1997 book, Healing the Soul of America,
a political primer Williamson frequently
echoes in her current campaign, she out-
lined what she saw as Americas illness:
We have allowed an unholy alliance of
governmentthe new monarchyand cor-
porate infuencethe new aristocracyto
take control of events in a way that would
have made our Founders shudder.
Part of what the course teaches is
that each person has a particular role
to play, and that through atonement,
one can find ones special function
in this world. Williamsons special func-
tion, she now says, is to serve in Congress.
Williamsons campaign events are well-
attended, and she believes the key to
winning this eclectic district is turning out
those independent voters who would nor-
mally skip the primary. (Twenty percent
of voters in the 33rd register as indepen-
dent.) But to do that she needs to do more
than speak at spiritual centers; she needs a
ground operation and a media team. Her
campaign has demonstrated an ability to
raise money, says political consultant Rick
Taylor. But you also have to know how to
spend it. So far, she is not getting a great
deal for her money. The irony of a can-
didate who has vowed to get money out
of politics raising more money than her
opponents is not lost on Williamson. Until
its out, its in, she says.
Its difcult to see where she is spend-
ing her money, besides pouring thousands
into high-priced consultants such as Joe
Trippi, campaign manager for the pres-
idential runs of Howard Dean and John
Edwards, and John Shallman, who steered
rival Greuels unsuccessful 2013 mayoral
bid. Considering the fundraising head start
she has over her opponents, she has yet
to establish her name throughout the dis-
trict as well as she might.
Williamson and those around herat
present she has neither a campaign manager,
having gone through several, nor a fnance
directorare sometimes at odds as to how
to convert the vegans, Buddhists, and
skateboarders who turn up at her events
into primary voters. At times the campaign
can look, sound, and smell more like Ken
Keseys bus than a congressional race. At the
Source Spiritual Center event, Williamsons
then-political feld director, Michael Gomez
Daly, took the stage to begin the process of
converting her spiritual acolytes into
political operatives. Immediately, an
S O C I A L ME D I U M
Steven Tyler
Dennis Kucinich
Moby
Donna Karan
RuPaul
David Hockney
Ofciating the
Elizabeth Taylor-Larry
Fortensky wedding
57
58
earnest woman with dreadlocks shot her
hand up and asked, Whats canvassing?
There has been no independent polling
of the district, yet Williamsons internal
poll shows she is running close to the Dem-
ocratic front-runners, close enough, her
advisers say, to sneak into the runof. In
any other district, Im a little unsure, says
Gomez Daly. But in this district, she has
a real chance. (Nevertheless, Gomez Daly
has left the campaign, he says, because
it has sufered since campaign manager
David Keith departed.)
It gets tiring, Williamson says just
before taking the podium one recent evening
in Santa Monica. Im not sure I knew it
would be this tiring. Shes not whining,
though. Abraham Lincoln went through
12 generals before he got Ulysses S. Grant.
He had never done a Civil War before. Well,
Ive never done a political campaign.
State Senator Lieu, 45, perhaps the stron-
gest mainstream Democratic candidate
in the race, is running a decidedly more
methodical operation, lining up endorse-
ments, opening his campaign ofces, revving
up his ground game. His headquarters are
in Torrance, perhaps the most middle class
of the 33rds many communities. He is a Tai-
wanese immigrant who grew up in Cleve-
land and at tended Stanford University and
Georgetown Law. He served in the Air Force
at nearby Los Angeles Air Force Base and
retired as a lieutenant colonel. Also a life-
long Democrat, Lieu has won the endorse-
ment of the national Democratic Party. For
each of Williamsons pet issuesmoney
in politics, food labelinghe points to his
own, specifc achievements in Californias
state legislature. He is as progressive as she
is, favoring higher taxes on the ultrarich,
and fercely pro-environment. He also
knows district and local political power
brokers, having won a state senate district
that overlaps with 86 percent of the 33rd
congressional district after serving two
terms as a state representative.
And I do eat red meat, he jokes. A
little. The June 3 primary will be a low
voter turnout, more informed voter, and
I win that race, says Lieu.
Williamson rails against mainstream
politicians, yet in terms of policy, there is
little to distinguish her from Democratic
opponents such as Lieu. Greuel is another
proudly liberal candidate, and a former
DreamWorks executive, who has spent
years fghting for environmental causes
and to bring light-rail to L.A.s Westside.
Another candidate, radio host Matt Miller,
is also liberal.
Williamson tends to stay at such a high
altitude in her oratory that one wonders if
she will have any patience for actually gov-
erning or the even more prosaic business
of listening to constituents and responding
to local micro-issues. Lieu says, Its easy to
say you are for X, or against X, without
having to listen to arguments from
powerful interests or having to stand
up to powerful interests.
As for how shell stand up
to special interests once in
ofce, she cannot say, exactly.
But much of her stump speech is about
how shes just diferentthat her spiri-
tual background and authenticity give
her special powers that will allow her to
retain her purity. To reduce the infuence
of political donations, Williamson supports
a constitutional amendment to regulate
campaign fnancing. Shes also for Demo-
cratic Senator Barbara Boxers bill requir-
ing labeling of GM foods, though she com-
plains the bill doesnt go far enough. Shed
like to see pesticides taxedthere is no
sales tax on pesticides in most statesand
subsidies to large agribusinesses curtailed.
The main theme of this campaign is
how the spiritual movement should never
have been separated from the political nar-
rative, Williamson says. Back in the 60s,
they were one. Sex, drugs, and rock n roll
was only part of the day. We read Ram Dass
and Alan Watts in the morning and in the
afternoon went to the protest. It was all
one big gestalt.Then it split: The spir-
itual types took the West Coast and the
political types the East. Now the higher
consciousness community includes a lot of
apolitical people prejudiced against those
who bring politics into the mix. A lot of my
traditional audience does not appreciate
my foray into politics.
For the time being, these disafected
voters, millennials, and New Agers are pro-
viding her with ener getic crowds. At a recent
fundraiser in Venice, the hostess, Veronica
Gabrielle La Barrie, stands in her living
room, next to a table heaving with seven
types of salsa, and introduces Williamson.
The old paradigm is no longer going to
serve us. It is based on man-made rules and
ideassurvival programming, sur vival of the
fttestand it is over, La Barrie, a spiritual
adviser, says. This new paradigm is being
and giving. The old paradigm is getting and
having. There is nothing to get. We have to
get out of the getting concept.
A cynic could be forgiven for thinking
that Williamson will win, even if she doesnt
make it past June. Running for ofce makes
her relevant anew , propelling her into the
cable-news cycle, where the nonstop con-
versation revolves around politics. She
knows that a politician-guru can get more
bookings than a mere spiritual adviser.
If thats the end game, Williamson is still
bracing for the campaign ahead. I fully
expect humiliation, she says. I fully expect
embarrassment. But here I am. <
What Williamsons donors say they do for a living
Astrologers
Ministers
Filmmakers
Casting directors
Lawyers
Bartenders
Social workers
Teachers
HR
Students
Marketing
Researchers
Optometrists
Healers
Doulas
Speech pathologists
Wellness consultants
Engineers
IT
Data analysts
Scientists
Management
Therapists
Designers
Artists
Fashion
Photographers
Government workers
Legal assistants
Talent agents
Directors
Manifesting mentors
Seminar producers
Actors
Producers
Consultants
Publishers
Writers
Retired
None
Accountants & bookkeepers
Mothers
Investors
Trustees
Coaches & planners
Business owners & entrepreneurs
Logistics
Bankers
Homemakers
Communications specialists
Yoga teachers
Spiritual authors & teachers
Business executives
Children of God
Labor relations
Library staf
Womens empowerment
Landscape designers
Life coaches
Nurses
Interior designers
Restaurateurs
Doctors
Sales
Advocates
Farmers
Spiritually inspired
visionaries
A ST R OL OGE R S , AC C OU N TA N T S ,
AND CHI LDREN OF GOD
DATA: FEDERAL ELECTION COMMISSION
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Samsungs
War at Home
What the company did
when workers started dying
By Cam Simpson
Just inside his single-story home, built of concrete blocks and coated
in turquoise paint, Hwang Sang-ki, a 58-year-old Korean taxi driver,
sits on a foor mat. Hes clasping a small handbag, once bright white
and now dull after years on a shelf. He pulls out a snapshot of
13 smiling young women, all co-workers at Samsung Electronics,
of-duty and posing in three rows, each embracing or leaning into
the other. The leaves of a tree behind them are turning golden in
the autumn chill.
Here, says Hwang, pointing to two women in the center of the
group. Both had the same job at the same semiconductor factory,
on the same line, standing side by side at the same workstation,
dipping computer chips into the same vat of chemicals. Both got
a particularly aggressive form of the blood cancer known as acute
myeloid leukemia. One was his daughter, Yu-mi. In South Korea, only
about 3 out of every 100,000 people die of leukemia. They worked
together, and they died, says Hwang. The snapshot is among a few
private memories Hwang keeps of his late daughter.
The story of the two women, and dozens of Samsung workers
with leukemia and other rare cancers, is now a very public one in
South Korea. In February and March, Koreans could see two movies
depicting the seven-year battle led by the Hwangs and other families
against Koreas biggest and most infuential corporation.
Another Promise, released in February, tells the story of a thinly
veiled Hwang and his daughter, who went to work at a Samsung
semiconductor plant in 2003, when she was 18, and died at 22.
60
Hwang Yu-mi at home, a few
months before her death from
leukemia on March 6, 2007
61
Hwang, who has deep smile wrinkles
radiating from the sides of his brown eyes
and a buzz cut of salt-and-pepper hair, is
portrayed by Park Chul-min, a 47-year-
old actor with 70 flm roles in his career.
His character in Another Promise battles
with the fictitiously named company
Jinsung. The Korea Herald called the movie
a meaningful achievement in Korean
cinema, as well as for Korean democracy,
not so much because of its quality but
because of how it was made. Without
a major studio backer, the director and
producer raised almost 15 percent of the
$2 million budget from hundreds of indi-
viduals via crowdsourcing and more than
half from about 100 small investors. Its
the frst Korean flm produced this way.
Empire of Shame, a documentary, hit
theaters on March 6. Three years in the
making, it was shot with intimate access
to Hwang and other families of Samsung
workers. It focuses on the broader move-
ment Hwang launched to illuminate the
use of carcinogens in electronics facto-
ries, especially semiconductor plants.
Since he began, activists have discovered
58 cases of leukemia and other blood-
related cancers across several Samsung
plants. Samsung declined to discuss
specifc cases for this article, saying in a
statement that it spent about $88 million
in 2011 on the maintenance and improve-
ment of its safety- related infrastructure.
The main goal for the movement is to
wrest compensation for cancer-stricken
workers from a Korean government
insurance fund. People such as Hwang and
the flmmakers are pushing a conversa-
tion into mainstream Korean culture about
some of the costs of the countrys mirac-
ulous economic rise, which happened in
large part on the shoulders of Samsung
and the rest of the technology industry,
global symbols of pride for many Koreans.
Its driving a reexamination of trade-ofs
in South Koreas past, when the founda-
tion for todays prosperity was built by an
authoritarian govern-
ment working hand
in hand with domes-
tic corporate partners
who were given great
power in exchange for
rapid growth.

About 20 miles south
of Seoul, inside a
fenced and secured
c ompound, t he
Giheung semiconduc-
tor factory rises near
the wooded shores
of a man-made reser-
voir. The factory is a wide white box
sprouting smokestacks and curled
tubes from its roof, with Samsungs
familiar blue-and-white logo across its
front. Built in 1984, the plant was the
leading semiconductor factory in the
country at a time when chips accounted for
about 80 percent of all revenue at Samsung
Electronics. Giheungs assembly lines were
a prestigious place to work.
Many Koreans revere Samsung. In
part thats because its success mirrors
their own climb from a war that divided a
country, killed millions, and left millions
more destitute. In 1961, eight years after
the Korean War ended in a stalemate,
South Koreas per capita gross domestic
product was $92, less than that of Sudan,
Sierra Leone, or the Democratic Republic
of Congo. By last year, South Koreans had
the worlds 15th-largest economy. Almost
24 percent of GDP came from the revenue
of the Samsung Group, a conglomerate
made up of dozens of businesses includ-
ing a life insurance company, a heavy-
construction company, the worlds
second-biggest shipbuilder, and of course
Samsung Electronics.
Yu-mis parents couldnt aford to send
her to university, so a recruitment notice
from the Giheung factory caught her eye
in 2003 when it appeared at her high
school in the northeastern port city of
Sokcho, along the Sea of Japan. Samsung
wanted young women from the top third
of Yu-mis graduating class. She met the
initial criteria: decent grades, solid atten-
dance, and no record as a troublemaker.
She also passed a required medical exam.
She had an interview, and she told me
she was accepted, her father says. I was
very happy, because Samsung is one of
the best companies in Korea.
One morning in October 2003, Yu-mi
and her parents climbed into Hwangs
taxi and drove to Sokchos bus terminal.
Other young women from her class hired
by Samsung were boarding the same bus
for Giheung, about three hours west.
Teachers and parents gathered for a send-
of, their cheers and waves masking their
nerves. It was the frst time that Yu-mi
left home, Hwang says.
Behind Giheungs gates, the women
lived four to a unit in high-rise dormitories.
The white concrete towers are unadorned,
except for some mauve trim and Korean
script on each buildings side spelling out
the fowering shrub its named for. Hwang
says his daughter lived in Lilac. The almost
identical Forsythia is next door. No visitors
were allowed, not even family. After a few
weeks of training the women went to work.
Yu-mi was assigned to Line 3, according
to court documents. She covered herself
head to toe each day in a white cleanroom
suit, gloves, and cloth masknot so much
to protect herself but to maintain a dust-
free environment for the semiconductors.
Her line produced the Samsung logic or
system chips that drive gadgets, rather
than the ones that store data. Yu-mis frst
job involved a process known as difu-
sion. Her second was in wet etching
on the same line.
Throughout her eight-hour shifts, Yu-mi
was exposed to a battery of potentially
dangerous chemicals, fumes, and ionizing
radiation, a panel of Korean court judges D
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Hwang Sang-ki (center) confronted
by Samsung security
109
Number of mobile units per 100
people in Korea
84m
Number of smartphones Samsung
shipped worldwide in the fourth
quarter of 2013
$1.198t
Korean GDP
$81.5b
Samsung assets
The Republic of Samsung
62
later found. One of her co-workers in wet
etching, Lee Suk-young, had developed
skin irritations that required her to get
regular medical treatment.
Other than describing her fatigue,
Yu-mi didnt complain to her parents,
unt i l she phoned home l ate i n
October 2005, saying she felt nauseous,
dizzy, and she was vomiting, her father
says. One of the other workers brought
Yu-mi to a Samsung infirmary in the
Giheung compound, where personnel
drew and tested her blood. They told
Yu-mi something was wrong, something
they couldnt deal with. She was admitted
urgently to the closest major hospital. Her
father and mother got into his taxi and
headed out to see her.
The doctor told Hwang his daughter
had acute myeloid leukemia and asked for
permission to start treating her immedi-
ately. I thought I was blinded. I felt dark-
ness and hopelessness, he says. He knew
little of leukemia but did know the disease
often could be fatal. Yu-mi was inconsol-
able, her mother says, even though the
doctor gave her good odds for a recovery.
The 20-year-old started chemotherapy
right away. She lost her hair and was nau-
seous and constantly exhausted. She was
hospitalized for about a month before
Hwang drove her back to Sokcho, where
she took up residence in her old room.
The family drove across the
country twice a week for treat-
ments and exams, and Yu-mi
was hospitalized again in the
summer of 2006. Thats when
she heard that her co-worker
on the same bay of Giheungs Line 3, Lee
Suk-young, the woman with the skin ir-
ritation, shared the same disease. Lee,
a mother of two, including a newborn,
was diagnosed on July 13 of that year. She
died fve weeks later.
After Lees sudden death, questions
swirled in Hwangs mind. He started
asking Yu-mi details about her work,
especially the chemical chip baths. Hwang
didnt know it then, but acute myeloid
leukemia had been proven by scientists to
be one of the cancers most clearly caused
by exposure to carcinogens.
Samsung executives from Giheungs
human resources department kept in
regular contact with Hwang to check
on Yu-mis condition, and the company
had been depositing money in her bank
account to help with her care, including
the equivalent of about $18,000 before
a bone marrow transplant, Hwang says.
Then Hwang told them he wanted to fle
a workers compensation claim with the
government to help cover Yu-mis ongoing
care. At that point, Hwang says, every-
thing changed: Samsung turned hostile.
Despite the reliance on cleanrooms, semi-
conductor manufacturing has never been
a particularly clean business. Chipmakers
have been using extremely hazardous
chemicals since the early days of Silicon
Valley. Santa Clara County, Calif., had
more Superfund sites than any county
in the U.S. following a wave of designa-
tions in the 1990s and 2000s, including
those left behind by industry pioneers
such as Intel, Hewlett-Packard, Fairchild
Semiconductor, Advanced Micro Devices,
and National Semiconductor.
As the impact of chemicals dispersed
into the Valleys environment caused
concern, alarm bells also sounded over
the far greater concentrations workers
potentially faced inside the plants.
Chemicals used to make semiconductors,
or byproducts created from the complex
manufacturing processes involved in
putting circuits onto and into silicon
wafers, include known and likely human
carcinogens such as benzene, trichloro-
ethylene, ethylene oxide, Arsine gas, and
arsenic trioxide. The chemical cocktails,
often used as chip baths, and a lack of
ventilation intended to reduce the dust
inside semiconductor plants fell under
increasing scrutinyjust as semiconductor
manufacturing was departing California
and the rest of the U.S. for the lower-wage
shores of Asia.
Industry-backed research and other
studies have suggested there was no
statistically significant connection
between semiconductor production and
cancers among workers. Other research
suggested there was, yielding an epide-
miological tug of war familiar to almost
any debate where science weighs on high-
stakes questions of liability.
Hwang knew nothing of the semi-
conductor industrys toxic legacy. Hes
uneducated and from a humble back-
ground in a culture shaped by Confucian
values of subordination to authority and
the good of the group. All of this put him
at a severe disadvantage when dealing
with executives from a company such as
Samsung. In January 2007, a few months
after Lees death, Yu-mi had relapsed and
was confned to her bedroom when four
Samsung executives from Giheung came
to Sokcho. Hwang, who had insisted he
would fle for workers com-
pensation despite objec-
tions from Samsung, met
Workers families stage a protest at
Samsungs Seoul headquarters in 2013
Still from Empire of Shame, a documen-
tary about eforts by Hwang and others to
get compensation for Samsung workers
63
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them at a cafe a couple of minutes from
his home. He was unprepared for the
reception he got.
They didnt ask me about Yu-mis con-
dition, Hwang says. The four of them
were raising their voices against me.
The executives, Hwang says, insisted his
daughters disease has no relationship
with Samsung, so Why are you blaming
Samsung? He says he spent much of
the 20-minute meeting in tearsI was
upset, I was really upset. Hwang left the
cafe, making the short walk home. Once
there, he tried to avoid Yu-mi, knowing
he couldnt hide his feelings. Samsung
declined to comment on its executives
interactions with Hwang.
Yu-mis health declined, and Hwang
put his desire to fle a compensation claim
out of his mind. The family renewed its
trips back and forth across the country
for treatment. After one such day at the
hospital, on March 6, 2007, Yu-mi lay down
across the back seat of her fathers cab as
they began the drive back to Sokcho. As
they got closer to home, Yu-mi said, Its
very hot. So I opened the windows, just a
little, Hwang says. But after a little while,
she said, Im cold, so I closed them. Not
long after, his wife looked over her shoul-
der and cried out. I pulled my car to the
side. I got out and opened her door, and
she wasnt breathing, and her eyes were
rolled back. I could see her eyes had gone
white. Yu-mis mother was crying. Then
she closed Yu-mis eyes with her hand. I
was at a loss. I didnt know what to do.
Then, after a while, I realized I was stand-
ing alone on the highway.
He called family and a few friends and,
arriving in Sokcho, went straight to a
funeral parlor. Yu-mis visitation would
be that night, as is the Korean custom.
Executives from Samsungs Giheung
plant came, Hwang says, including the
four men hed met with at the cafe. At
one point, Hwang stepped out for a
breath of sea air. He says the senior-
most Samsung executive followed.
He told me, After the funeral, I will
make sure there is compensation,
Hwang says. I didnt say a word.
About a week later, Samsung exec-
utives came back, telling Hwang over
a sashimi dinner that the company
wouldnt compensate the family. They
had changed their attitude, he says,
because they again insisted her cancer
wasnt connected to her job. Hwang got
up and left the restaurant. He didnt
believe there was a chance two healthy
young womenpartners at the same
workstationcould die from the same
rare disease without family histories and
without some connection to their work.
He suspected there were others but had
no way of knowing.
Hwang went to the ofce of the Korean
Workers Compensation and Welfare
Service, known as KCOMWEL, and flled
out an application on June 1, 2007. Like
similar government programs in the U.S.,
Korean employers pay into a fund; any
compensation for accidents or illness-
es is paid by the government, not the
company. Benefts are modest, covering
medical bills, lost wages, and funeral
expenses. Theres no need to demon-
strate employer negligence.
Since Yu-mis death, Hwang had been
calling or visiting just about everyone
he thought might help him investi-
gate whether others among the 19,000
production workers at Giheung were
sick. He tried government officials,
political parties, activists, civil society
groups, journalists, and more. He found
some sympathy but never much help
understanding what had happened
to Yu-mi, if there were other cases, or
what kind of chemicals she was exposed
to, all of which he might need to fle an
approvable claim with KCOMWEL. No
one would listen, he says. Then a local
journalist introduced him to a 30-year-old
labor activist named Lee Jong-ran.
She had heard about semiconductor
work causing miscarriages, but nothing
about cancer. She put together a proposal
and raised a small amount of money from
about 20 organizations, forming a group
called Banolim. She was the only employee.
Families and others volunteered.
For his part, Hwang began showing up
at Samsungs gates wearing a sandwich
board featuring a giant photograph of his
daughter, bald and wasted by her disease,
as he passed out leafets asking people to
come forward. A few did. Soon families
staged small demonstrations. Dribbles
of press attention followed. More fami-
lies emerged.
In May 2009, KCOMWEL rejected
Hwangs claim, almost two years after he
fled it. The agency also rejected three
others organized by Banolim, including
a claim from Lee Suk-youngs widower.
Government health and safety ofcials
had conducted an epidemiological study
of six semiconductor plants. According
to court records, they said that although
they found elevated levels of leukemia
and statistically signifcant increases of
non-Hodgkins lymphoma among female
workers, the overall increases among
them were not statistically signifcant
enough to prove causation within the
semiconductor industry. They did not
make their raw data public.
By speaking to workers and their
families, Banolim discovered the 58 cases
of leukemia. They also found other
related diseases and scores of other
cancer cases, including breast cancer and
brain tumors. A group of Korean univer-
sity scientists and researchers, conduct-
ing a study for a peer-reviewed medical
journal, would later use these cases to
focus exclusively on workers who they
could prove were involved directly in semi-
conductor productionsolely at Giheung.
They narrowed further to those diagnosed
within about a three-year window. They
looked only at a group of related cancers
proven to have strong causation by, or
contributions from, chemicals and radia-
tionleukemia and non-Hodgkins lympho-
ma. Samsung declined to comment specif-
ically on the study.
Within the window they drew at
A Samsung press conference in 2011,
with experts from the U.S. who con-
ducted a chip plant safety investigation
64
Giheung, the scientists and researchers
found 17 production workers with such
diseases. Eleven of them were young
women, average age 26.5. Because the
company didnt cooperate, the group
didnt have employee turnover or other
data needed to prove a causal relation-
ship. They said what they did fnd was
cause for serious concern.
Hwang and the other families were forced
to turn to South Koreas court system to
appeal the governments denial of benefts.
Thats how the Korean system works. But
after fling suit, the families discovered
the defense of the agencys decision was
being paid for not just by the government
but also by Samsung. The company for-
mally intervened in the case on the side
of KCOMWELa rare move, even though
Samsung would not be responsible for any
beneft paymentsand put lawyers from
one of the nations top frms on the case.
In 2010, the Korean Broadcasting
System (KBS), the largest of South Koreas
four major television networks, aired a
piece about the controversy on its version
of 60 Minutes, after which more cases
emerged. Banolim alleges that Samsung
representatives were secretly approach-
ing families and ofering to pay them if
they withdrew their compensation claims,
cut of contact with the group, and main-
tained public silence. These would not
have been akin to lawsuit settlement
ofers, because there werent lawsuits
against Samsung; there were only gov-
ernment insurance claims. The company
denied making such ofers.
Now that Samsung was challenging
families directly in court, some decided
they would fght the company. On Dec. 15,
2010, a Samsung executive from Giheung
returned to Sokcho and visited Hwang at
home. I think we will be able to pay you
the money that you will be satisfed with,
the executive told him. But please dont
tell anyone about this. It places us in a
very bad situation.
Hwang asked, So youre saying that
you will just pay us, and thats it?
Im just hoping, the executive
replied, that you wouldnt say anything
against Samsung. Right now I think there
is a very high chance that you wont be
able to get the occupational health insur-
ance anyway.
Working with KBS, Hwang had secretly
recorded the conversation, which the
network aired in 2011. Others on the broad-
cast reported similar ofers, including
the family of Park Ji-yeon, a 23-year-
old woman who died of leukemia in
March 2010. Her mother said they got
about $330,000 from Samsung, deposited
in their bank account on the day of her
daughters funeral. She also said that
company representatives told us not to
meet members of the labor union and to
withdraw our lawsuit. Samsung declined
to comment on the recording or payments
to Park Ji-yeon.
Hwangs appeal was consolidated
with that of Lee Suk-youngs widower
and three other families and heard by a
three-judge panel of the Seoul Adminis-
trative Court in May 2011. A month later,
the presiding judge read out its verdict
and opinion in open court. He ruled in
favor of Hwang and Lees widower and
ordered the government compensation
fund to pay them.
The panel rejected the appeals of
the other three families, detailing case
evidence and their reasoning for each
workers specifc job, highlighting chemi-
cals used, potential radiation exposures,
ventilation systems, and other processes
in place at Giheung and plants where the
others worked. (They found other produc-
tion lines were more modernized and safer
than Giheung, especially before 2009,
and that, for two male workers, there
was a lack of compelling evidence about
increased incidences among men.)
Within three weeks of the ruling,
Samsung held a press conference with an
American consulting frm it had hired,
Environ, announcing the consultants had
found no statistically signifcant correla-
tions between workers exposures and
leukemia. KCOMWEL ofcials appealed
the courts order awarding benefts to the
families of the two women.
Banolim has about 40 cases pending
today, either before KCOMWEL or in
court, and the eyes of Koreans are on
them more than ever. Even before this
new attention, the workers compensation
board had started easing its resistance,
awarding benefts in a couple of high-
profle cases. Late last year the courts did
the same for another worker, with judges
saying studies at Samsung chip factories
were fawed and failed to account fully for
health hazards. The governments appeal
of Hwangs ruling is pending. More than
seven years after Yu-mi died, hes still
waiting for a decision.
Samsung says employees are its great-
est asset and that its goal is to create a
workplace culture that accepts nothing
less than an unwavering and relentless
commitment to upholding best practic-
es in process safety management. It also
says it was the frst semiconductor maker
to develop real-time chemical monitor-
ing, which it implemented in 2007, and
that it has improved air quality monitor-
ing in plants. While we are deeply sad-
dened by the loss of former members of
the Samsung family and are concerned
about those battling illness, we would like
to reiterate that independent research
has not found a correlation between em-
ployee illness and workplace environ-
ment, the company says. It also says its
giving fnancial support to families, but
it will not say how much.
Lee Mi-kyung, who has been a
member of the South Korean National
Assembly for 18 years, has been an ally
to Hwang and the other Samsung fami-
lies. Sitting down between votes at the
members cafeteria just outside the
bodys chamber, she says Samsung has
been so infuential in politics, the press,
and even the law that many of her coun-
trymen call their land the Republic of
Samsung. She says things are changing
as Korean corporate power continues
to be checked gradually across society.
She mentions the 2008 corruption in-
vestigation into Samsung for allegedly
maintaining a slush fund to bribe judges,
prosecutors, and politicians. Prosecu-
tors said they did not fnd evidence of
bribery, but they charged and convicted
Samsung Electronics Chairman Lee Kun-
hee with tax evasion. He paid a fne of
roughly $100 million and received a sus-
pended prison sentence.
Samsung posted one of the most inter-
esting public statements about Another
Promise on one of its Korean blogs. The
posting was attributed by the company to
a senior executive, Kim Sun-beom, and is
the closest thing to an ofcially sanctioned
reaction. Kim says in the post that he was
confronted by his own daughter, who was
brought to tears when she saw the movie
with friends. She had always been proud
of her fathers job with Samsung.
As a father, I understand [Hwangs]
loss, and partially it is the companys fault
that we left him to fght for seven years,
he wrote. However, a movie is a movie.
It is not right to distort the truth. Having
worked at Giheung himself, Kim also
wrote, I know how hard the company
and the workers try to provide a safe
environment, so I do not doubt the safety
of my workplace. < With Heesu Lee
Im just hoping that you wouldnt
say anything against Samsung,
the executive told Hwang
65
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67
MEN CAN WEAR LEATHER
THE
WOMAN
WHO LIVED IN A
SHOE
After years of unsuccessful deals with
fashion brands, Sarah Jessica Parker creates
a footwear line of her own. By Amanda Fitzsimons
Photographs by Thomas Prior
The shoes in
Parkers new line range
from $195 to $485
FIRST-CLASS
FRILLS
BUY
COFFEE ONLINE
SO MANY RELIGIOUS
MOVIES
68
DESIGNS AFFORDABLE
LINE, BITTEN
2007
Trendy clothes for cash-
strapped families;
ends when retailer
Steve & Barrys
goes bankrupt
S
arah Jessica Parker, the woman who
introduced Manolo Blahnik and
Christian Louboutin to the mall-
shopping masses, would rather not
buy new shoes. Theyve gotten a little
more involved in the past 10 years, she
says from her home ofce in New York. They have a lot more
stuf stuck on them now. The irony of this statement isnt lost
on the 49-year-old actress, who, as Sex and the Citys Carrie
Bradshaw, popularized the idea that every wardrobe needs
expensive pumps. As Carrie once famously said: Men I may
not know, but shoes? Shoes I know.
Even so, as premium shoe prices crept upstyles at upscale
department stores average $750and simple designs got harder
to find, Parker saw an
opportunity to use her
brand for goodand
proft. Shoes seemed like
the most natural connec-
tion because of the role
I played on a show for so
long, Parker says. And I
thought, How could
I ask someone else to
spend their hard-earned
dollars on something that
I myself might not wear
every day? I wanted a
beautiful, well-made shoe
that was still afordable,
that would last forever in
your closet.
I n Febr uar y she
introduced SJP, a line
of womens shoes, plus
three handbag styles and
a trench coat. The collection is full of pretty pastel suede pumps,
summery T-strap sandals, and other options with ladylike names
that reference the classic style of Maud Frizon, a 1940s fashion
designer, and Etta James. No heel in the 25-piece collection is
higher than 4 inches, and many are half that. But the most sen-
sible thing is their cost: Pairs range from $195 to $485, placing
them above Aldo or Nine West but below all the designers who
became household names thanks to Sex and the City.
Theres defnitely space for a line of shoes at this level,
says Marshal Cohen, a retail analyst at NDP Group, which tracks
consumer spending. His company found that retail sales of
fashion footwear in the U.S. grew 4 percent in 2013, to
$41.5 billion, with womens shoes making up 57 percent of that.
Part of this can be attributed to the increasing cost of high-
end goods in general; a survey by market-research frm Euro-
monitor International found that the average price of luxury
goods rose 13 percent in 2013. Some analysts wonder whether
four-fgure price tags are masking lower unit sales. SJPs price
point efectively avoids that problem. Plus, Cohen says, theres
a certain kind of woman who cant aford designer but doesnt
want cheap heels, either.
Parker has tried making money of this customer several
times since she became televisions most famous fashion icon.
In 2004, after working as a Gap spokes model, she created her
most successful retail products to date, two fragrances: Lovely
and its follow-up, Covet, which are still being sold. Her record
has been downhill from
there. In 2007 she joined
a roster that included
C-list actress Amanda
Bynes and basket ball
player Stephon Marbury
to help design a collec-
tion for discount sports-
wear chai n Steve &
Barrys. Parker consulted
on a line of dowdy capri
pants and cotton sun-
dresses, sold under the
name Bitten, that was
so democratically priced
that a New York Times
headline once asked,
Is Thi s the Worl ds
Cheapest Dress? It was
$8.95. Bitten went bust a
year and a half later when
Steve & Barrys declared
bankruptcy. Parker shrugs of the failure, saying it was a
casualty of the bad economy.
In 2010 the actress was named president and chief creative
ofcer of Halston Heritage, an ofshoot of the Studio 54-era
fashion house aimed at younger customers. The appointment
was hyped as a comeback for her and the troubled Halston
label. It didnt work: Parker exited suddenly two years later
amid reports that she didnt get along with the companys
board. Halston was like a boyfriend who everyone tells you
to stay away from because hell treat you badly, Parker says.
(Shes clearly picked up some conversational tics from years
of doing Carries voice-overs.) But you dont
Etc. Fashion
FASHIONS
VICTIM
APPEARS IN GAP CAMPAIGN
2004
Signs a deal valued at
$38 million; gets replaced
by 17-year-old singer
Joss Stone in 2005
SIGNS DEAL WITH
GARNIER NUTRISSE
2003
The lucrative hair-care
contract continues
SEX AND THE
CITY ENDS
2004
A taste for couture,
cupcakes, and stilettos
lingersand then
there are the two flms
LAUNCHES PERFUME(S)
2005
Her frst scent, Lovely,
is followed by six more
in four years
BECOMES PRESIDENT
OF HALSTON HERITAGE
2010
After spats with the board,
leaves with a $3 million
settlement in 2011
INTRODUCES SJP
2014
The midprice line
of shoes is selling out
at Nordstrom
Sarah Jessica Parkers
spotty history of
business ventures
B
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F
T
:
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L
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M
Y

(
2
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;
G
E
T
T
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(
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;
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O
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T
U
B
E

(
2
)
69
with some help). I had worn every shoe
under the sun, she says. I know how
they ft. I know how they feel. I know
the pitch of the shoe.
The duo also decided on an exclusive
partnership with one retail account,
Nordstrom, which is displaying the
pairs near Marc by Marc Jacobs heels.
That strategy cuts down on infrastruc-
ture costs, and the department store is
helping subsidize marketing by promot-
ing the brand in tandem with a 10-store
tour Parkers doing. Women in their
twenties and thirties have
waited up to three hours to
meet the actress. Meanwhile,
shoppers have been paying
as much as double the retail
price on EBay to get sold-
out sizes and colors . Within
one week of the launch,
Nordstrom had to re order
nine styles. Scott Meden,
executive vice president of
the stores shoe division,
says hes surprised by the
over whelming response.
Parker, who named
the label SJP because, she
says, she had to name it
something, is thrilled, if a
little conficted. When she
appeared on the Tonight
Show Starring Jimmy Fallon
on Feb . 18 to promote the
shoes, she was quick to point
out that she hadnt worn
them that night because she
didnt want to exploit the opportunity. Does she feel guilty
about putting her initials on a pair of $485 black booties? Prices
elsewhere may have marched much higher, but one particu-
lar Sex and the City quote comes to mind: Four hundred and
eighty fve dollarsfor a pair of shoes? a friend asks Carrie.
Thats insane! <
listen because you think you can change him. It was a relatively
clean breakupthe New York Post reported that she received a
$3 million settle ment in exchange for her stake in the company
and the early termination of her contract.
While Parker struggled to fnd her fashion footing, a number
of other celebrities had success with co-branded style enter-
prises. In 2007, Kate Mosss collection for English retailer
Topshop lifted the chains sales 10 percent, to 1.86 billion
($3.08 billion). Jessica Simpsons line of $60 shoes, sold primar-
ily at Macys, was credited in 2011 with turning the lapsed star
into a momentary billionaire. Simpsons
is a licensing deal, an arrangement
Parker says shes also been ofered but
turned down because she wants to be
more creatively involved. I would lie
in bed at night, she says, and wonder,
What was the hesitation?
About a year ago, she decided to
focus on footwear and called George
Macklemus, chief executive ofcer of
Manolo Blahnik, to float the idea
of working together. I was afraid hed
hang up on me, Parker says. (The two
are longtime friends; she has a habit
of self-deprecation.) He didnt, telling
her instead to come to his office at
8 a.m. the next day. Who wouldnt
jump at an opportunity like that?
Macklemus says. When you say Sarah
Jessica Parker, the next thing on the tip
of your tongue is shoes. Parker felt
comfortable with the deal in a way she
hadnt with others. This
was diferent in that it was
a partnership, she says.
I wasnt a hired hand; I
wasnt licensing my name
to someone.
Mackl emus , whos
working on this project
separat el y f rom hi s
Manolo day job, told
Parker he saw a quality
and price gap between
fast-fashion foot wear
(Zaras will run you $99)
and the designer shoes
they knock off. [SJP]
shoes are not for the
woman who can necessar-
ily aford the Louboutins
or the Jimmy Choos, he
says, omitting his own
empl oyer. Thi s i s a
woman who works hard for her money and wants an invest-
ment piece. That customer didnt have many options before
SJPJ.Crew and U.K. import L.K. Bennett, worn by Kate
Middleton, are two of the only brands in this middle range.
To maintain quality, Parker and Macklemus skipped facto-
ries in Asia because, according to the latter, they dont give
you that new shoe smell. When they found a factory in Italy
that had a low enough cost, he says, it was a real accomplish-
ment. Parker says she designed the line herself (presumably
Etc.
THERES A
CERTAIN TYPE OF
WOMAN WHO CANT
AFFORD DESIGNER
BUT DOESNT WANT
CHEAP HEELS
The Beekman grosgrain clutches
($245) are like little pieces of candy,
Parker says. The T-strap pump
($355), ofered in purple, nude, and
black, is named Carrie in a
nod to her stylish character.

P
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70
Its been quite a long time since
Ive fred somebody, thankfully.
Its terrifying. It took me six
months to pluck up the courage
to fre the frst person.
And it still takes me an awful lot
of courage to do it, cause its
such a heart-rending thing to
do. Its deeply shocking
and disparaging for the person
youre doing it to. So what I
usually say is: Its not working
out, is it? Its not your fault.
Its just that it doesnt work with
what were doing. And most of
the time, thats the truth.
Etc.
A
d execs have long relied on truck-
loads of coffee to stoke their
creativity. Now one agency is
counting on a java company,
Bay Area-based Peets Cofee &
Tea, to help reinvent the indus-
trys jittery business model. Last
month, Peets hired Razorfsh,
a global digital agency, to revamp its
e-commerce business. But instead of
working for a fee, Razorfsh is earning
a share of the proft from the rejiggered
sitewhen and if it rises. Were all in,
says Pete Stein, Razorfshs global chief
executive ofcer. None of our costs are
paid for if profts dont go up.
The relationship between the cost
of advertising and the resulting impact
on revenue has always been tenuous.
In recent years, as media
buyers stopped paying the
hefty commissions that once
sustained Madison Avenue,
ad agencies have had to
adjust by charging fees for
billable hours, and profit
margins have shriveled.
This fnancial pressure
is forcing executives to
consider new strategies,
says Eric Johnson, founder and CEO of
the agency Ignited. As a result, its not
uncommon to see agencies introduc-
ing proprietary mobile apps or invest-
ing in early-stage startups. All of us
have dabbled in diferent ways of trying
to have compensation better aligned
with results, he saysfor example, by
negotiating bonuses tied directly to the
performance of the clients product. This
is just a more direct and clever way for an
agency to share in the risk and upside.
Before committing to this compensa-
tion structure, Razorfsh researched the
industry, Stein says, and concluded that
online sales of consumable goods of all
types are going to really spike in the
next fve years. Internet sales of cofee,
tea, and hot chocolate in U.S. homes and
ofces reached $12.5 billion in 2013, up
from $9.7 billion in 2011, according to
StudyLogic, a market-research company.
Last year the categorys sales rose at
almost twice the rate online as at tradi-
tional retail outlets. StudyLogic Executive
Vice President Samuel Nahmias attri-
butes the growth to the rising demand
for single-cup servings like the ones used
in Keurig and Nespresso machines.
Peets started its e-commerce division
in the late 1990s and is well positioned
to grow, as a result of the decision last
June to jump into the single-cup game.
(A company spokesperson declined
to say how much annual revenue the
Internet division generates, or whether
its proftable.) This category is just
beginning, and obviously theres a lot
of growth, David Burwick, president
and CEO of Peets, told Bloomberg TV
i n September. Today, vi si tors to
peets.com can purchase
a range of products, from
bags of Arabian Mocha-
Java to single servings of
French Roast, along with
tins of exotic teas and a
variety of Peets-branded
mugs, baseball hats, and
cycling jerseys.
Stein says that in the
long term, Razorfsh will
likely build an entirely new e-commerce
platform for Peets. In the meantime, the
agency has already identifed several
short-term fixessuch as improving
Peets paid-search resultsthat Stein says
will boost performance.
Itll only get easier as delivery services
get faster and consumers feel safer enter-
ing payment information into their mobile
devices. Were seeing that in China
today, Stein says. We think thats a pre-
cursor to whats going to happen here.
Hes not the only one. Recently, Tomsthe
socially conscious shoe brandannounced
it was getting into the cofee business, in
part by starting an online subscription
cofee club that will compete directly with
Peets. Expect more inter lopers to follow.
Its not often that businesses can fnd a
market that combines two of the worlds
most powerful addictions, cofee and the
Internet, in one place. <
NONE OF OUR
COSTS ARE PAID
FOR IF PROFITS
DONT GO UP
COFFEE DATE
An advertising agency tries to proft from
the bold future of online java sales. By Felix Gillette
Marketing
D
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K
ASK A
BILLIONAIRE
James Dyson
Founder and chief engineer, Dyson
Net worth: $4.4 billion
WHATS THE
BEST WAY
TO FIRE
SOMEONE?
Dyson was
knighted by
Queen Elizabeth II
in 2006 for his
contributions to
business
Submit your questions on Twitter with
the hashtag #askabillionaire.
71
Etc. Travel
TIME FOR AN
UPGRADE
Airlines are getting fancy in the war to woo business- and frst-class passengers, who make up just
15 percent of long-haul purchases but account for almost a quarter of revenue. Here are the newest ways
carriers are fghting to win your expense account. By Maridel Reyes
UNITED
The airline started a
transportation service
in Chicago and Houston last year
using Mercedes-Benz sedans
to chaufeur passengers across the
tarmac to their connecting fights.
It was created for those
with tight connections but is also
helpful when the gate is on
the other side of the airport.
The program expanded to Newark
in the beginning of 2014,
and more cities will be added
throughout the year.
LATAM
Recently merged South
American carriers LAN and
TAM announced in March
that a uniform cabin design,
inspired by wood from the Amazon,
will make its debut in 2015.
This year, a sommelier selected
30 regional varietals to pair
with six distinct business-class
menus. The bottles were chosen
with air travel in mind, because
high altitude and cabin
pressure change passengers
taste perceptions.
DELTA
The company began
serving meals from Danny
Meyers Blue Smoke barbecue
restaurants last year on
its New York-to-London fights.
To make frst class seem
more hotel-like, theres moisturizer
by Malin + Goetz and Westin
Heavenly in-fight comforters and
lumbar-support pillows
for international fights longer
than 12 hours.
ETIHAD
Last year the Middle Eastern
carrier launched a sensory-based
sleep program developed with
the American Center for Psychiatry
and Neurology in Abu Dhabi.
Top guests are given gray sleep suits
and lay their heads on temperature-
regulating, sustainable Coco-Mat
mattresses and bedding. First class
ofers hot chocolate, herbal
tea, malt drinks, pillow mist, and a
selection of bergamot-scented
Le Labo toiletries.
JETBLUE
Coming in June, Mint
business class will include the
longest and widest lie-fat
seats on a domestic airlinewith
adjustable frmness and a
massage function. A new cabin
confguration will allow four guests
to enclose their seats behind
doors for privacy. Other perks
include Birchbox kits with a selection
of beauty and grooming products
and a tapas-style menu by New
Yorks Saxon + Parole restaurant.
QANTAS
The airline is expanding
the Chaufeur Drive program
available in Australia and
the U.S., which takes reservations
from passengers to be picked
up by a luxury vehicle and
driven to their departing fight.
When travelers land at their
destination, another chaufeur
will take them anywhere,
no questions asked.
CATHAY PACIFIC
The Hong Kong chain
recently unveiled amenity
kits for business-class
travelers with products from
Jurlique, an Australian
natural skin-care brand, packed
in a pouch created by French
designer Agns B. Cathay also
installed hand-painted sculptural
pieces made of copper and
steel by artists Maria Lobo and
Linda Leviton in frst class.
AMERICAN
Flights on new routes
between New York and California
stand out among those of the
other four transcontinental carriers
Delta, United, Virgin America,
and JetBlueas the only ones that
ofer three classes of service,
with fully lie-fat frst- and business-
class seats. Before takeof, premium-
class travelers may reserve
meals such as pumpkin-seed-
encrusted chicken with
brown butter sauce, while frst-
class passengers can borrow
Bose noise-canceling headsets.
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74
Etc.
H
eaven Is for Real, out on April 16,
tells the fact-based tale of a cute
young boy who returned from
near death with visions of the
hereafter. Predictably afterlifey,
it already has a built-in audi-
ence: A book of the same name,
written by pastor Todd Burpo
(played by Greg Kinnear in the film)
and conservative writer Lynn Vincent,
spent months on bestseller lists in 2010
and 2011. Its the top nonfction paper-
back right now.
The movie is the latest in this years
unprecedented lineup of mainstream
religious flms. The frst of these, Son of
God, a re-edit of last years hit History
Channel miniseries The Bible, had a
strong opening weekend of $25 million
in late February. A reboot of the Left
Behind Christian sci-fi novels, star-
ring Nicolas Cage, opens in October.
Two more Biblical epics, Ridley Scotts
Exodus, with Christian Bale as Moses, and
Mary, Mother of Christ, with Ben Kingsley
as King Herod, will come by Christmas.
Currently in theaters is Noah, with
Russell Crowe as the title character. He
and director Darren Aronofsky traveled
to meet with Pope Francis last month,
hoping to beneft from the same pro-
motional magic that John Paul II gave to
2004s The Passion of the Christ. That flm
grossed more than $370 million domes-
tically. (Without the Vaticans blessing,
Noah has made $72 million since its
release on March 28.)
Passion was a unique blockbuster, but
it demonstrated the power of faith-based
institutions as engines of flm promotion.
Church leaders encouraged congregants
to see the movie, often organizing group
trips, giving away tickets, and hosting
prayer sessions in theaters. Hollywood
doesnt get faith-based audiences, but
they do know theres a market for these
stories, says David Poland, editor of Movie
City News. Only 13 percent of Americans
are frequent moviegoers, seeing a flm at
least once a month, he says. If you can
reach Christians, youre getting through
to an audience beyond the usual people.
Selling these viewers on Hollywood
isnt so easy. If theres a Christian radio
show listened to by 3 million people, we
cant just make a phone call and take out
an ad, says Rich Peluso, senior vice pres-
ident of Afrm Films, a Sony division
that distributes religious flms, includ-
ing Heaven Is for Real. A team member
fies into their town, meets with the
board, shows them the flm, and then
we spend several weeks building a
plan. Now, multiply that by the hun-
dreds of faith-based ministries and orga-
nizations in the country.
It doesnt always work. Theres a
lot of resistance among the faith-based
audience, says Rebecca Cusey, manag-
ing editor of Patheos, a religion website.
People dont want to be taken advan-
tage of, and theyre not going to run out
to see a movie just because it has a char-
acter who loves Jesus. Studios often hire
faith-oriented marketing firms to get
through to pastors of large churches or
prominent radio hosts. To help sell Noah,
Paramount used Grace Hill Media, which
also worked to get congregants interested
in the Superman movie Man of Steel.
Because of Heaven Is for Reals book
sales, the movie is more likely to succeed.
Plus, its tailor-made for Sunday sermons
the movies title isnt Is Heaven for Real?
You can guess how the story ends (spoiler
alert: not hell), and it gets there with all
the emoting and middle-Americana you
might expect. Todd is not just a pastor,
hes also a garage-door repairman, a
volunteer frefghter, and a high school
wrestling coach. (Hes heavily in debt,
as well, because: America.) The camera
constantly hovers over verdant Nebraska
farmlanda stylistic nod, perhaps, to the
message that heaven isnt just for real, its
also everywhere.
Its pretty stuf, but the movie works
best when sensitively exploring a devout
community torn apart by the great
unknown. When Todd frst starts to talk
about his sons visions, even the church
board thinks hes lost it. Belief, the movie
suggests, isnt easy. Neither, it turns out,
are ticket sales. <
RULE
BREAKERS
In a few short
hours,
Learn how to lead
a big biz!
Next step: Get a job.
The simplest
rule is
Avoid all gimmicky
books.
Broke it already.
Fracking changed
the world.
There, now youve
read this long
book.
Go back to The
Voice.
BUSINESS
BOOK HAIKU
PRAYING FOR A HIT
Heaven Is for Real hopes to win over
fnicky Christian audiences. By Bilge Ebiri
The Critic
P
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Etc. What I Wear to Work
Interview by Arianne Cohen
CARA
TURANO
36, districts sales manager,
SHI International, Atlanta
Are monograms
important?
Theyre the corporate
equalizer. It puts me on a
level feld. Its one thing
to sit across the table
from a man in his fancy
shirt; its another to have
your own on. Ninety-
fve percent of my mono-
grams are hot pink.
Whats SHI?
Were a contact for IT
procurementsoftware
and hardware needs.
We sell product youve
heard of, like Microsoft
software licenses. Were
a $5 billion company and
the largest woman-
and minority-owned
company in the U.S.
When do you run?
I get up at 4:30 a.m. and
run six days a week.
Ive run 13 marathons.
I didnt know what to
do with my runners
bling, so all the trophies
and awards are lined up
above my desk.
Tom James makes
ofce calls?
Shell take measurements
by text message. They
come back with a fairly
custom-tailored suit.
What do you usually order?
I have all the basics: gray, navy,
and black. And I was, like, this is
fun, but wheres the purple, the
snaps, the cool collars? So I work
with a tailor there who adds
that stuf. Pants are tailored so
I can wear 3-inch heels.
Whats your style?
Female power. I work
in a male-dominated
industry, so I need an
outft that allows me
to be taken seriously.
But Im 5 feet 4 inches
and 108 pounds, and
I run marathons, so I
cant shop of the rack.
So what did you do?
One day, a woman from
Tom James, the clothier,
was in my ofce and said,
I dont understand why
your pants are falling of.
I walked away with three
suits and fve shirts that ft
better than anything.
ROCKPORT
TOM JAMES
TOM JAMES
76
1973-74
Page, Rhode Island
House of Representatives
1975-77
Production assistant,
NFL Today, CBS Sports
1979-86
Director of
motion pictures for
television, CBS
1987-89
Vice president of
production, Walt Disney
1989-
PRESENT
Co-founder with
Robert De Niro, Tribeca
Productions
1999-2010
Produces the Analyze
This and Meet the Parents
franchises
2002
Holds the frst Tribeca
Film Festival
2006
Expands internationally
with Rome Film Fest
2014
Madison Square
Garden buys a 50 percent
stake in the company,
now called Tribeca
Enterprises
1. Having the right work-life balance is important, especially when youre a parent. 2. You can have it all, but you cant have it all at the same time. 3.
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class of 1974
New York University,
class of 1977
Etc. How Did I Get Here?
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JANE ROSENTHAL
Movie producer, co-founder of Tribeca Enterprises
WORK
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It was a time of a lot of
corruptionI worked with a lot
of people who subsequently
served prison terms. I thought,
Maybe theres a better way to
change the world.
In my interview, the head of the
sports department said to me, So
what do you know about sports?
I said, What do you want to know
about sports? That was the end
of the interview. I got the job.
I did over 70
made-for-TV
movies, from one
on the frst test-tube
baby to Gideons
Trumpet, starring
Henry Fonda. Works with Martin
Scorsese on The Color of
Money; he later introduces
her to De Niro
Even in his most serious
performancesTaxi Driver,
sayBobs got a sense of
humor. The timing felt right
to really explore that.
This month the Tribeca Film
Festival will show 89 feature flms
and 58 shorts culled from more
than 6,100 submissions
Working for Jefrey
Katzenberg and Michael
Eisner was like being in
the Marines.
I cant tell you how many
nights Id go home and
cry over the fact that I was
working around the clock. It
felt like The Loneliness of the
Long Distance Runner.
We wanted to do something to
get people back downtown after
9/11. But were flmmakers, not
steelworkers or frefghters. So we
started a festival.
Fonda in
Gideons Trumpet
From left: Michael Bloomberg, Nelson Mandela, De Niro,
and Hugh Grant at the inaugural Tribeca Film Festival
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