November 28 December 4, 2016 | bloomberg.

com

p36
Why didnt I tell
him to his face,
immediately,
that this was
misogynist,
racist, and
1

unprofessional?
He was my
direct superior p42

For any other Putins a celebrity. Donalds Im seeing people

a celebrity.Hes thinking, That smile now, clients of mine,
purpose than guys a big dog. Id rather be
where I didnt even know
paperwork, I consider friends with him than one of these
weaklings like Jeb Bush. Thats just they had teeth. Everyone
myself an American the way he thinks I talk to is happy
p25 p50 p32
 Cover
Trail
November 28 December 4, 2016
How the cover gets made

Opening Remarks Trumps trajectory may follow those of other elected autocrats 6 The story is about the Colonial
Pipeline, specifically the implications
Bloomberg View Dont bully central banks The trouble with the president-elects ISIS plan 8 of accidents like the explosion in
Alabama.
Movers Weed floats on the NYSE Cooling Swiss watches and a warming North Pole 11
The implications are generally good,
right? Fire provides warmth, and
Global Economics Lord knows it gets chilly this time of
year. Trees just take up valuable
Modi tries to drain the swamp 12 space, so its a quick and easy way
to clear some land. And the oil
The World Banks chief economist attacks the profession 13 industry is stable to the point of
Europe braces for the next tremors from Italy 14 being boring. This at least shakes
things up a bit.
Factories from everywhere set up shop in Russia 15
Have you purposefully avoided
Charlie Rose talks to Sebastian Mallaby about his Alan Greenspan bio 16 reading the story?

Companies/Industries Im just trying to stay positive.

Take 350 designers with no one in chargeand presto!another sale for Zara 18

To speed up food recalls, Walmart taps blockchain 20

In China, a spoonful of sugar makes the Champagne go down 21

Politics/Policy
Even if Donald Trump wanted to give up his business interests, it wouldnt be easy 22

Obama-era regulators race for the finish line 24

Sizing up the impact if 740,000 Dreamers leave their jobs 25

2
Technology
If Elon builds it, the crazies will come 27

Karhoo was said to have $250 million in the bank. It didnt 28

IBM tries to be the ghostbusters of corporate hacking 29

Chewy (no, not that one) adds an occasional oil painting to its online pet supplies 30

Innovation: A hybrid walker/wheelchair to put activity back into aging 31

Markets/Finance
Hillary who? Wall Street and Donald are BFFs now 32

John Paulsons bet on Fannie and Freddie suddenly looks really smart 33

London closes a door on Europe and opens one to the Chinese 34

Features
Alabama Shakes What happens when Americas biggest pipeline explodes 36

Memo to HR: Compliance videos dont stop sexual harassment 42

COVER AND COVER TRAIL: PHOTO ILLUSTRATION BY JUSTIN METZ

King of K Street Paul Manafort never really went away 50

Etc.
How brands became obsessed with the color pink 55

Drinks: Eight cocktails for winter nights 58

Workplace: Skirt Club attracts women who want to network (and see where the night takes them) 60

Astrology: December provides an opportunity to rethink long-term goals 61

The Critic: Miss Sloane has a lot to like, but can audiences stomach more politics? 62

What I Wear to Work: The global brand leader for W Hotels isnt content with just one bracelet 63

How Did I Get Here? Daniel Lubetzky didnt like his snacking options. Now we have Kind bars 64
 Index
People/Companies

Grillo, Beppe 14 Netflix(NFLX) 44 SolarCity 27

Gucci(KER:FP) 56 News Corp.(NWSA) 25 Sony Pictures

36
Nike(NKE) 22 Entertainment(SNE) 29

Protecting
H Nordstrom(JWN)
Northrop Grumman(NOC)
44
24
Space Exploration
Technologies 27
the river H&M(HMB:SS) 18 Novartis(NVS) 11 Steinhafel, Gregg 29
Hayes, Tom 11 NPD Group 20 Stone, Roger 51
HR Learning Center 44 NYSE(ICE) 11 Symantec(SYMC) 11
HSBC(HSBC) 12

O
I Obama, Barack 22, 24, 25, 38
IBISWorld 44 Oblong Industries 29
IBM(IBM) 20, 29 Off-White 56
Ikea 15 Opimas 32
Inditex 18 Ortega, Amancio 18
Industrial & Commercial Bank
of China(601398:CH)
Ingham, Anthony
Inkling
34
63
44
P
Pantone Color Institute 56
49
Clarence
Innovative Industrial Pascal, Amy 29 Thomas
Properties(IIPR) 11 Paul, Rand 24
Inspired eLearning 44 Paulson & Co. 33
Ishag, Daniel
Isla, Pablo
28
18
Paulson, John
Pence, Mike
33
33, 51 T
Perera, Jonathan 62 T. Rowe Price 30

J Pershing Square Capital

Management 33
Target(TGT)
Tesla(TSLA)
11, 29
27
Jaitley, Arun 12 Thomas, Clarence 49

BUTLER: PHOTOGRAPH BY CHRISTOPHER GREGORY FOR BLOOMBERG BUSINESSWEEK; CHASTAIN: STEVE GRANITZ/GETTY IMAGES; THOMAS: COLLECTION OF THE SUPREME COURT OF THE UNITED STATES
Petco 30
J.Crew 56 PetSmart 30 Trump, Donald 6, 8, 11, 14,
Jefferies Group(LUK) 34 Pigalle 56 16, 24, 25, 32, 38, 49, 51
Johnson, Abigail 11 Pope Francis 11 Trump, Ivanka 22
Johnson, Edward 11 Prescott, Edward 13 Trump, Melania 56
JPMorgan Chase(JPM) 32, 44 Primark(ABF:LN) 18 Trump Organization 22
Provost, Joe 29 21st Century Fox(FOXA) 44

K Putin, Vladimir 6, 8, 14, 51 Twitter(TWTR)

Tyson Foods(TSN)
6
11
Kaczynski, Jaroslaw 6
QRS
4
Kind
Kinder Morgan(KMI)
64
38 Qatar Investment Authority 34
UVW
Kissinger, Henry 16 Quest Integrity 27 U+I Group(UAI:LN) 34
KKR(KKR) 11, 38 Renaissance Capital 15 Uber 28
Klinsmann, Jurgen 11 Rentmeester, Marlien 56 UBS(UBS) 18, 22
Knopf 56 Renzi, Matteo 14 Vadon, Mark 30
Koch, Charles 25 Rokk Solutions 27 Visa(V) 20

A Bush, Jeb
Butler, David
51
38
Cruz, Ted
Cuomo, Andrew
51
11
Koch, David
Koch Industries
25
38
Romer, Paul
Rove, Karl
13
51
Volkswagen(VOW:GR) 15
Vornado Realty Trust(VNO) 22
ABP London 34 CVS(CVS) 11 Kushner Companies 22 Sabra Dipping 11 W Hotels 63
Abramoff, Jack 62
C Kushner, Jared 6, 22 Samsung (005930:KS) 15 Walmart Stores(WMT) 11, 20
ABX Air(ATSG) 11
DEF Sargent, Thomas 13 Walt Disney(DIS) 56
Ackman, William
Acne Studios
33
56
Calsonic Kansei(7248:JP)
Carlson, Gretchen
11
49 Danler, Stephanie 56 L Savills(SVS:LN)
Scaramucci, Anthony
34
32
Wax, Gavin
Wells Fargo(WFC)
27
33
ADP(ADP) 29 Carter, Jimmy 22 Day, Michael 30 L.E. Bell Construction 38 Schumer, Chuck 32 West, Kanye 11
Agricultural Bank of Century Properties DCI Group 33 Le Creuset 56 Schwarzenegger, Arnold 44 Wheeler, Tom 24
China(601288:CH) 34 Group(CPG:PM) 22 Deal, Nathan 38 LeJeune, Genevive 60 Select Medical(SEM) 31 Willingham, Anthony Lee 38
Ailes, Roger 44, 49 Chanel 56 Deripaska, Oleg 51 LifeLock(LOCK) 11 Selexys Pharmaceuticals 11 Wine Intelligence 21
Al-Assad, Bashar 8 Chastain, Jessica 62 Deutsche Bank(DB) 22 Lockheed Martin(LMT) 27 Sessions, Jeff 22, 51
Alibaba(BABA)
Amazon.com(AMZN) 11, 20, 30
21 Cheers
Cheney, Dick
21
51
Development Specialists
Dole, Bob
32
51
Lubetzky, Daniel
Lucas, Robert Jr.
64
13
Shell Pipeline(RDS/A)
Shinawatra, Thaksin
38
6 XYZ
American Airlines(AAL) 38 Chevron(CVX) 44 Domaine Chandon (Ningxia) LVMH Mot Hennessy-Louis Shinawatra, Yingluck 6 Xi Jinping 21
American Apparel 18 Mot Hennessy (MC:FP) 21 Vuitton(MC:FP) 21 Singh, Porush 12 Yanukovych, Viktor 51
American Continental Group 33 Dr Pepper Snapple(DPS) 11 Lyons, Jenna 56 Skillsoft 44 Yellen, Janet 8, 16
Amoruso, Sophia 56 Duterte, Rodrigo 6 Smith, Donnie 11 YouTube(GOOG) 30
Antonio, Jose E.B.
Apple(AAPL)
22
44
Emtrain
Erdogan, Recep Tayyip
44
6 M Socit Gnrale(GLE:FP) 18 Zulily(QVCA) 30

Arena, Bruce 11 Eurasian Development Bank 15 MacInnis, Matt 44

Axelrod, David 51 Euromonitor International 21 Madden, John 62
EuropaCorp(ECP:FP) 62 Maduro, Nicols 6

B 62 Exokinetics
Facebook(FB)
31
11
Mallaby, Sebastian
Manafort, Paul
16
51 How to Contact
Bai Brands
Bank of America(BAC)
11
12
Jessica
Chastain
Fannie Mae
Farley, Richard
33
32
Marenzi, Octavio 32
Marriott International(MAR) 25
Bloomberg Businessweek
Bank of China(601988:CH) 34 Fawcett, Chris 31 Mars 15
Editorial 212 617-8120 Ad Sales 212 617-2900
Bannon, Steve 6, 32 Chewy.com 30 Fidelity Investments 11 Mastercard(MA) 12, 20
Barclays(BCS) 34 China Construction Firtash, Dmitry 51 Masueger, Claudia 21 Subscriptions 800 635-1200
Barrack, Tom 51 Bank(601939:CH) 34 Founders Fund 31 May, Theresa 8 Address 731 Lexington Ave., New York, NY 10022
Bell, Larry 38 China Investment Corp. 34 Fox News(FOXA) 44, 49 McCain, John 51 E-mail bwreader@bloomberg.net
Berkowitz, Bruce 33 Chipotle Mexican Grill(CMG) 20 Freddie Mac 33 McCarthy, Gina 24 Fax 212 617-9065 Subscription Service
Berlusconi, Silvio 6, 14 Citic Group 34 McCarthy, Kevin 24 PO Box 37528, Boone, IA 50037-0528
Bernanke, Ben
BHP Billiton(BHP)
16
20
Citigroup(C)
Clinton, Bill
34
22, 49 G McKibben, Bill
Merkel, Angela
38
11
E-mail bwkcustserv@cdsfulfillment.com
Black, Charlie 51 Clinton, Hillary 32, 51, 56 Gap(GPS) 18 Mnuchin, Steven 32 Reprints/Permissions 800 290-5460 x100 or
BlackRock(BLK) 30 Coca-Cola(KO) 21 Gates, Bill 18 Modi, Narendra 12 businessweekreprints@theygsgroup.com
Blankfein, Lloyd 32 Cohen, Ryan 30 General Electric(GE) 11 ModSquad 28
Boeing(BA) 25, 27 CoinDesk 20 Glossier 56 Moodys(MCO) 38 Letters to the Editor can be sent by e-mail, fax,
Brandt, Bill Jr. 32 Colonial Pipeline 38 Goldman Sachs(GS) 30, 32, 44 Musk, Elon 27 or regular mail. They should include address,
Breitbart News 6 Colony Capital(CLNY) 51 Google(GOOG) 44
phone number(s), and e-mail address if available.
Brookfield Property
Partners(BPY) 34
Comey, James
Common Projects
51
56
Gramm, Phil
Greenland
51
N Connections with the subject of the letter should
Brown, Garrett 31 Correa, Rafael 6 Holdings(600606:CH) 34 Nasdaq(NDAQ) 20 be disclosed, and we reserve the right to edit for
Bush, George H.W. 51 Credit Suisse(CS) 34 Greenspan, Alan 16 NBC(CMCSA) 32 sense, style, and space.
 Opening
Remarks
In the wake of Donald Trumps
stunning electoral victory, many
American political analysts are arguing
that his presidency has virtually no
precedent in U.S. history, and so its
impossible to know how he might govern.
However, Trump isnt without pre
cedent in modern democracy if you
look for examples outside America. To
be sure, some of his populist mantras
echo those of the increasingly power
ful European hardright parties. But
most of the hardright parties in Europe
havent yet won control of a govern
ment. Instead, its better to study the
slew of elected autocracies that have
taken over developing nations during
the past decadeand touched richer
6 countries such as Italy, Hungary, and
Poland. According to the monitoring
By Joshua Kurlantzick group Freedom House, democracy has
been on the decline worldwide since
the late 2000s, with the rise of elected
autocratslegitimately elected leaders
who then undermine democratic insti
tutions and culturea major reason
for freedoms ebb. These elected auto
crats include people on the left of the
spectrum, such as former Thai Prime
Minister Thaksin Shinawatra, Philippine
President Rodrigo Duter te, and
Ecuadorean President Rafael Correa,
as well as rightleaning leaders such
as former Italian Prime Minister Silvio
Berlusconi and Jaroslaw Kaczynski, who
dominates Polands current ruling Law
and Justice Party.
Many of these elected autocrats
had little or no government experi
ence before winning national elections.
Like Trump, theyve built personality
cults greater than exist in most farright
European parties. Most won elections
as much on the power of their own cha
risma as on any set of coherent policy
ideas. (Leaders such as Berlusconi,
For the templates of his Duterte, and now Trump took advan
tage of complex political systems and
presidency, look to the multicandidate races, often winning
experience of Thailand, with less than 50 percent of the popular
the Philippines, and Italy vote.) Theyre indeed deeply devoted
to themselves and their
images, making their administrations
reliant on their own personal influence.
And in office, they usually conform
less to policy orthodoxies than poli
ticians with traditional backgrounds.
Duterte, for instance, has mixed a
leftist economic policy, which includes
rural development and land reform,
with a harsh and conservative antidrug
crackdown.
What else do the elected autocrats
have in common? They usually win
elections in part by dominating the
media, sometimes by buying media
outlets or having allies who do so. In
office, they further undermine the
traditional media, using alternative
forms of communication and aggres
sively stoking public antagonism at
elites to blunt the power of reporting
on their administrations. Berlusconi
and Thaksin used their riches to pur
chase major media outletsthe former
had taken control of much of Italian
private television by the time he was
first elected in 1994or had their
friends buy up important newspapers.
Berlusconi reveled in attacking the few
Italian newspapers (along with many
foreign publications) that criticized
him, apparently believing his approach
won him more supporters than it cost
him. He sued the Economist for libel,
and for almost a decade his posturing
against the Italian media seemed to be
popular. In Russia, Vladimir Putin has
used his network of business connec
tions to virtually control the broadcast
media and ensure favorable coverage.
Trump seems likely to take the same
approach to the media, even if he will
not buy networks and sites. His senior
strategist, Steve Bannon, previously
ran Breitbart News; his successors there
could well turn the site into a kind of
state media for President Trump. He has
openly mused about deploying libel laws
more aggressively, while demonizing the
mainstream press at nearly every cam
paign rally. It wouldnt be unthinkable
for Trump allies, perhaps even family
members, to purchase a major television
network or set up a new one essentially
dedicated to promoting the president.
Trump, meanwhile, could continue
using Twitter to delegitimize
the mainstream media,
mix fiction with fact
to confuse the
public, and
promote him
selfa strategy he
seems to be pursuing
since his election.
In office, elected auto
crats try to slowly suffocate
the civil service, military bureau
crac y, and other government
networks that are supposed to be
apolitical and which normally provide
continuity across presidential adminis
trations. They substitute clientelism for
professionalism. Thaksin, who first took
office in 2001, purged the esteemed
Thai civil service and replaced many
senior officials with his allies, while
also seeding the police and armed
forces with family members and close
friends. (Thaksin was deposed by a
coup in 2006. ProThaksin parties came
back and won multiple elections, before
another coup in 2014.) In Venezuela,
late President Hugo Chvez took
similar measures with the civil service
and staterun companies, while in Italy
Berlusconi repeatedly attacked the judi
cial system and oversaw the passage of
multiple laws designed to shield himself
and his empire from criminal pros
ecution. Its not hard to imagine that,
as president, Trump would vocally
attack judges who decided against his
administration or try to stack the U.S.
Department of Justice with allies whose
primary qualification is loyalty.
The personalization of
power is at the heart of
the elected autocrats
successand failure
That said, elected autocrats extreme
personalization of power is often their
downfall. By surrounding themselves
with unqualified family members and
sycophants, they make graft much
more likely. Berlusconi notoriously
appointed former showgirls and other
cronies to high office. Despite his efforts
to revamp the legal system to protect
himself, he was ultimately convicted
of tax fraud. Trumps childrenand his
soninlaw, Jared Kushnerare expected
to be extremely influential, while at
the same time having power over his
businesses (page 22). David Frum of
the Atlantic, a former speechwriter for
George W. Bush, has already suggested
that the Trump administration could
be the least ethical in U.S. history.
Trump, Frum wrote on Twitter,
will enable systematic looting &
disable oversight.
Because of their person
alization of power, elected
au to c rat s a l s o o f te n
have difficulty building
lasting movements
beyond themselves.
Most struggle to
name successors,
in part because
theyre so fearful of delegating power.
Chvez died in 2013 and left his party to
a weak successor, beleaguered current
President Nicols Maduro. Facing cor
ruption charges, Thaksin fled Thailand
in 2008, leaving his party to his younger
sister, Yingluck. Although she won an
election in 2011, in part because Thaksin
openly backed her, she proved an inef
fective political operator and was beset
by scandal and street protests before
being deposed in a May 2014 coup. And
Putin seems unable to imagine a future
Russia without himself, leaving a void
when and if he finally exits the scene.
As the elected autocrats age, in fact,
they also need to make greater and
greater efforts to stoke their cults of per
sonality. In recent years, Putin has over
seen the rewriting of Russian history
and the construction of monuments
across Russia designed to bolster his
personality cult and distract Russians
from worrying about what will happen
when hes no longer around. In Turkey,
President Recep Tayyip Erdogan has
overseen the construction of a lavish,
Ottomanesque palace for himself.
The cults of personality that elected
autocrats have created often dont
survive them. Ultimately, when they
exit politics, their countries struggle 7
to return to normal. After serving as
prime minister, Berlusconi left Italy
with slower growth and far weaker
legal institutions. The country hasnt
yet recovered from the nine years he
spent in office. <BW>
Kurlantzick is author of the forthcoming
A Great Place to Have a War: America
in Laos and the Birth of a Military CIA.
 Bloomberg
View
Its Wrong to Bully
Central Banks
Disagreements are part of the way things
workintimidation is not
The long-cherished principle of independence for central banks
8 seems to be under attack around the world. That principle is
worth defending: U.S. President-elect Donald Trump, for one,
went too far in his repeated criticism of Federal Reserve Chair
Janet Yellen. At the same time, central banks cant expect to
be above criticism or beyond politics.
The case for leaving the banks alone to conduct monetary
policy rests on three points. First, a government that controls a
central bank might be tempted to finance unaffordable budget
deficits by printing money. (See Zimbabwe.) Second, to provide
economic stability, a steady hand on the monetary controls is
required, and that demands some insulation from day-to-day
politics. (Would anybody want to put Congress in charge of
interest rates?) Third, monetary policy done right is a techni-
cal thing, like running a utility. Its basically apolitical.
The first two reasons remain as persuasive as ever. The third,
however, was always suspectand never more so than now.
Monetary policy isnt purely technical. It has real-world conse-
quences. Changes in interest rates hurt some and help others.
And central banks sometimes have to decide how quickly to
curb inflationwith a short, sharp recession, say, or with gentler
pressure applied for longer. Such decisions are hardly apolitical.
That should be obvious to anyone whos been paying attention
to Fed policy for the past decade. Resorting to unconventional
measures was necessary after the recent recession. The central
banks were right to adopt these methodsgovernments failed
to use fiscal policy effectively, leaving the Fed and its counter-
parts no choice.
Independence isnt all or nothing. Central banks are already
politically accountable in various ways. They have operating
mandates; Fed governors are appointed by the president and
confirmed by the Senate; Congress hears testimony and asks
questions. In effect, a balance has been struck. Is this now in
jeopardy? Does it cross a line when a politicianespecially a
To read Justin Fox
on the jobs boom in
Dallas and Albert Hunt
on election myths
that need to die, go to
Bloombergview.com
finance minister or a head of governmentdirectly criticizes
the central banks decisions?
It depends. A government can criticize a central banks
choices without disputing that those choices are the banks to
make. Thats sufficient independence to deliver the essential
benefits of noninflationary public finance and stable financial
conditions. The line would be crossed, though, if a govern-
ment said, Do as we tell you, or else.
Disagreement is OK. Intimidation is not. In the U.K., Theresa
Mays comments on the Bank of England have fallen well short
of that line. Trumps interventions are more worrying. Hes
accused Yellen of failing to do her joband intimidation, after
all, is how he likes to do business. He needs to learn that the
Fed is one institution he shouldnt try to bully.
Trumps Too-Tidy Plan
To Defeat Islamic State
His in-and-out military solution will not be quick,
and may leave the area in greater chaos
Donald Trump has frequently spoken of having a foolproof
plan for a total victory over Islamic State, but hes refused
to divulge it. He has hinted, however, that he intends to fight
the group in Syria by sending in a significant number of U.S.
forces, quickly wiping out the terrorists, then bringing the
troops home. Hes also told the Pentagon that it will have
30 days from his inauguration to send him a proposal and
said the fight to retake the Iraqi city of Mosul from the ter-
rorists was a disaster.
The problem is that this tidy plan ignores the multitude of
players in the war: the Syrian regime, Hezbollah, Russia, Turkey,
Iran, Iraq, Kurds backed by the U.S., Syrian Arab rebels, and
terrorist groups including the al-Nusra Front, an al-Qaeda ally.
The Kurds have proved far and away the most effective
fighting force on the U.S. side, and Trump has to find a way
of supporting them without inciting a military response from
Turkey, which fears the establishment of a Kurdish state across
its southern border. Sending in more U.S. forces is probably
necessary, but moving tens of thousands of combat troops and
their support personnel and equipment would take weeks or
months. A coordination plan with Russia and Syria would be
essential. As for Mosul, theres no changing a war plan that
has shown consistent progress.
Trump has made much of his negotiating skills and his
relationship with Vladimir Putin. This would be the time to put
both to the test. Putin and Syrian President Bashar al-Assad may
be keen to work out a deal in which the U.S. eliminates Islamic
ILLUSTRATION BY TOMI UM
State and then leaves the scene entirely. Unlike the current
administration, Trump seems uninterested in the longer project
of resolving the Syrian political conflict. This would leave the
people there to a miserable fate, and create the potential for
chaos that could give rise to an Islamic State successor. <BW>
 German

Movers
Chancellor
Angela Merkel,
The Dow Jones industrial average rose to
whos been in a record high as energy companies benefited
By Kyle Stock
office since from an oil rally and investors anticipated Trump
2005, said she tax cuts.
2000
Abigail Johnson will succeed would seek a
her father, Edward, as chairman fourth term.
of Fidelity Investments after he Merkel expects
retires. 1750
Dr Pepper Snapple Shes next years The Harry Potter
agreed to spend already campaign to be prequel Fantastic

$1.7b replaced Beasts has a magical

her toughest U.S. debut
him as CEO 1500
to buy Bai Brands,
which makes a line
at the firm,
49 percent
of which is
yet. Germany
doesnt have
1/2016 11/2016
$75m
of healthy drinks, term limits Symantec acquires
including still under General Electric
family on its LifeLock, adding
coconut sold its Connecticut identity protection to its
water and ownership. top job. headquarters for security technology

$31.5m
antioxidant-
infused
fruit drinks.
Just seven
Weed hits the NYSE. Innovative to Sacred Heart
Pope Francis extended
indefinitely the power
$2.3b
Industrial Properties aims to raise University. GE is Novartis buys Selexys
years old, of priests to forgive
$175 million during its IPO to become moving its C-suite Pharmaceuticals,
Bai expects the first public to Boston for abortion, which is known for treating
$425 million real estate lower taxes and a considered a grave sin sickle-cell disease
in sales next

$665m
investment $145 million incentive
year. in the Catholic
trust focused package, among
on the $7 billion other things. Church.
marijuana Typically, Facebook staffs up to
industry. The fill its new London office
bishops were
500
company will use
$30 million of the only
the proceeds to officials to
buy a New York KKR buys auto parts
Ups grant such
warehouse for maker Calsonic Kansei
absolution.
$4.5b
growing weed.

11

$25m
The expected number
of (very grumpy) U.S.
air travelers during
Downs Thanksgiving week
rose 2.5 percent
Store-branded
aloe vera gel 27.3m
sold at Walmart,
ILLUSTRATIONS BY OSCAR BOLTON GREEN; MERKEL: KRISZTIAN BOCSI/BLOOMBERG; FRANCIS: LISA MAREE WILLIAMS/GETTY IMAGES

Pilots for cargo carrier

Rapper Kanye Target, and ABX Air went on strike
West was at a tricky time for
hospitalized for CVS showed no
Amazon.com, a major
exhaustion after President-elect Donald Trump paid $25 million to settle fraud charges evidence of aloe client
against Trump University. Some 7,000 students will share the settlement,

250
canceling his concert vera, according
tour. He lost which is subject to court approval; plaintiffs attorneys waived their fees.
to a lab hired
$30m
in potential ticket Tyson Foods CEO Donnie
by Bloomberg News.
Meanwhile, the U.S. market
Swiss watch exports
plunged more in
sales for the for aloe products grew October than they have
21 remaining shows.
Smith, a 36-year veteran, in seven years
11 percent this year, to
16%
will step down on Dec. 31
Temperatures at $146 million.
and will be replaced by President the North Pole are
Tom Hayes, whos been at Tyson for
29 years. Smith will collect a golden
parachute worth at least $24 million.
36F warmer than
Sabra Dipping
recalled
A fat flock helped bring
turkey prices down
this year

U.S. Soccer
dismissed Jurgen
The announcement resulted
almost immediately in the
normal, delaying
the formation of
pack ice as winter
57 varieties of its
11%
Klinsmann as coach company losing about one- approaches. hummus after it
of the mens national fifth of its market value. found listeria at one
team, after the squad of its plants.
lost two World Cup
qualifying matches.
It replaced him with
Bruce Arena, a Major
League Soccer coach
If there is a move to deport
who held the position
from 1998 to 2006. immigrants, then I say start with me.
New York Governor Andrew Cuomo, announcing a new state police unit dedicated to
investigating hate crimes
 Queueing up to

Global deposit and exchange

discontinued currency
at a bank on Nov. 17

Economics
November 28 December 4, 2016

12

Indias Cash-Canceling Experiment

Modi is installing an almost cashless system that will expand banks deposits
We are sitting almost idle. There are no buyers
India Prime Minister Narendra Modi the Reserve Bank of India said in a money going untaxed, Indian gov-
stunned the country on Nov. 8 by statement. Members of the public are ernments have had difficulty funding
announcing that 500-rupee ($7.30) and requested not to panic. infrastructure projects and other
1,000-rupee notes, which account for Modis action is aimed squarely at public spending.
more than 85 percent of the money the cash-driven shadow economy, Tax officials will get reports on cash
supply, would cease to be legal tender which accounts for about 25 percent deposits in excess of 250,000 rupees
immediately. The announcement of gross domestic product. Fewer and compare those deposits with
set off days of turmoil as millions of than 5 percent of all Indians file income disclosures. The authorities
Indians tried to swap their suddenly tax returns. Many shop owners use can demand a tax payment and
worthless old notes for hard-to-find cash for their transactions and dont impose a penalty equal to 200 percent
new notes of 500 and 2,000 rupees or declare their income. Wealthy Indians of the tax owed. The government
older ones in smaller denominations. often avoid taxes by paying cash for estimates that as much as 5 trillion
On Nov. 17 the central bank tried, with property and jewelry. Those busi- out of 15 trillion rupees will remain
little effect, to reassure the nation nesses are where black money is unredeemed as tax evaders unwilling
that the situation was under control. hidden, says Capital Economics to risk detection accept large losses.
There is sufficient supply of notes, economist Shilan Shah. With so much As cash disappears, so does

economic activity. For three decades,
Ashok Kumar has been a trader at
Azadpur Mandi, Delhis largest fruit
and vegetable market, where much
of the buying and selling involves
the now-banned notes. Since Modis
announcement, Kumar says, cash
transactions have nearly stopped.
We are sitting almost idle, he says.
There are no buyers.
On Highway 24 between New Delhi
and the town of Dadri, gas stations are
empty and trucks stranded. Drivers
spend their days playing cards, unable
to operate their vehicles because
transport company owners cant get
the cash to buy fuel or pay the drivers
their 100-rupee daily food allowance.
Theres no work, says Sundar Singh,
a 38-year-old truck driver from Aligarh,
a city about 90 miles southeast of
Delhi. I cant even charge my cell
phone, he says, because he doesnt
have any change. To ease some of the
pain, the Finance Ministry on Nov. 21
said farmers could use old 500-rupee
notes to buy seeds for winter-sown
crops from state-owned stores.
Modi has been trying to follow
through on promises to attack the
shadow economy since he took office
in 2014, with mixed results. An offer
of amnesty for repatriated funds last
year led to declarations of only about
25 billion rupees in tax20 rupees
per person. A separate amnesty
that ended in September prompted
the declaration of 652.5 billion
rupeesabout 0.5 percent of GDP, or
500 rupees per capita.
Modi is risking a temporary
FROM LEFT: EPA/ALAMY; GURPREET SINGH/HINDUSTAN TIMES/GETTY IMAGES
economic setback from demonetiza-
tion. Until the Nov. 8 announcement,
GDP was on track to increase
7.7 percent this year, and the govern-
ment had achieved some important
goals in its drive to improve business
conditions. HSBC said in a Nov. 16
report that the economy could lose
0.7 to 1 percentage point of growth
over a year. Its going to be very
disruptive, says Diksha Gera, an
analyst with Bloomberg Intelligence in
Singapore, who expects consumers to
postpone spending on big-ticket items
such as refrigerators
and washing machines,
as well as discretionary purchases like
expensive apparel. All of that will def-
initely take a hit, she says.
Gera says the pain may be short-
lived. The attack on underground
money will increase bank deposits
by as much as 2 percent of GDP,
according to Bank of America Merrill
Lynch. Deposits swelled by 5.1 tril-
lion rupees from Nov. 10 to Nov. 18.
Because banks are getting a surge
in deposits, Finance Minister Arun
Jaitley said on Nov. 18, theyre
better positioned to spur economic
growth by making more loans.
Modis currency reform may also
lead to an increase in the use of elec-
tronic payment systems. The prime
ministers action is a critical step in
positioning India to be a leader in the
global cashless and digital economy,
Porush Singh, Mastercards president
for South Asia, said in a statement.
In addition to legislative victories
such as the approval of long-delayed
tax reform and a new bankruptcy
law, Modi this year eased restric-
tions on foreign investment in indus-
tries like pharmaceuticals, aviation,
and defense. Unlike the previous gov-
ernment, his administration has been
free of major scandals. The prime
minister has been lucky, too: Thanks
to low global oil prices, inflationary
pressure has subsided, and after two
years of drought, better rainfall this
year has helped farmers. The central
bank has cut the benchmark interest
rate to its lowest point in five years.
Modi said on Nov. 13 that the gov-
ernment will take more steps to
curb tax evasion, including pur-
chases of property investors make in
the name of a third party. There are
5.1t
Increase in rupee deposits at Indian banks
from Nov. 10 to Nov. 18
An Italian referendum Charlie Rose talks with
may foretell Europes Greenspan biographer
future 14 Sebastian Mallaby 16
Cheap labor. Cheap
ruble. Russias the
place for factories 15
plenty more targets for his campaign
against the underground economy.
I dont think it will stop here, says
Capital Economics Shah. Bruce
Einhorn, with Vrishti Beniwal, Archana
Chaudhary, and Pratik Parija
The bottom line Modi is trying to end tax evasion
and impose a tax-compliant, above-board
economy at all levels.
Economic Theory
How Rational Are
Rational Expectations?
The World Banks chief economist
questions a macroeconomic pillar
Assume A, assume Bblah blah
blahand soP is true
Paul Romer hadnt planned to trash 13
macroeconomics as a math-obsessed
pseudoscience. Or infuriate countless
colleagues. It just sort of happened.
In the months before taking over
as the World Banks chief economist
in October, Romer set out to write a
paper to celebrate advances in the
understanding of what drives eco-
nomic growth. He soon lost heart.
Global growth has been disappointing
over the past few years, and economic
models havent answered a core ques-
tion of the past cycle: Why has pro-
ductivity stalled?
He found the mathematical models
used by most macroeconomists
unrealistic. Romers paper, The Trouble
With Macroeconomics, landed like a
grenade among his peers. For more
than three decades, macroeconomics
has gone backwards, it begins. For
20 pages, he critiques the state of
his profession, accusing a cohort of
economists of being more interested
in preserving reputations than testing
their theories against reality, more
committed to friends than facts. In
between, he offers a wicked parody of
a modern macro argument: Assume
A, assume B...blah blah blah...and so
we have proven that P is true.
Romer targets one of the basic
 Global Economics
tenets of mainstream economics, the
theory of rational expectationsthe
idea that consumers and businesses on
average correctly predict the future and
make rational choices. He thinks thats
not only wrong but also may result in
the misguided conclusion that govern-
ment action cant fix big problems.
That debate goes back at least to
John Maynard Keynes, who thought
policymakers needed to take bolder
action to fix the deep shortfall in
demand that was prolonging the Great
Depression. By the 1970s, Keyness
ideas were mainstreambut the pol-
icies they spawned failed to prevent
that decades high unemployment and
inflation. Economists came up with the
theories of rational expectations and
the real business cycle.
They argued that Keynesian models
didnt account for how consumers
and businesses change their behavior
to take account of policy shifts. For
example, the government can spend
more, putting cash in consumers
pockets. But those same consumers, the
theory goes, can see far into the future
14 and wont be fooled: Theyll figure out
that taxes will have to rise to pay for the
handouts. So they hang on to their cash
and render those policies less effective.
The problem with that worldview,
says Romer, is that it rules out policy
or people as agents of change, leaving
planners with the unrealistic conclusion
that the economy can be moved along
only by external shocks. Economists,
he writes, should be asking, What kind
of things influence what people do?
What actually leads to an improvement
in productivity in a factory?
One reason hes ruffled feathers is
that he names names. Romer is partic-
ularly critical of a trio of Nobel prize
winners: Robert Lucas Jr., Thomas
Sargent, and Edward Prescott, the
intellectual architects of rational
expectations. Sargent says he hasnt
read the paper but suggests that Romer
may be out of touch with the ways
rational-expectations economists have
adapted their models to reflect how
people actually behave. Lucas and
Prescott didnt comment.
Allies of the three have been more
outspoken and point out that Romer
doesnt offer a new framework to
replace the one he says has failed.
Burning down the edifice, and saying
well figure out what well build on its
foundations later, just does not seem
like a constructive way to proceed, says
V.V. Chari, an economics professor at
the University of Minnesota. Romers
heard that line before. He bristles:
Im saying, The car is broken. And
everyones saying, Romers a terrible
guy, because he couldnt fix the car.
Andrew Mayeda and Craig Torres
The bottom line The World Banks chief economist
blasts the state of modern macroeconomic theory
for straying from science and rigorous testing.
Politics
A Petri Dish of
Populist Dissent
Italys Dec. 4 vote hints at the
outcome of ballots across Europe
The country is a breeding ground
for democratic crises
To get a sense of Europes politi-
cal weather, take a look at Italy: For
the past century, its served as a
barometer of the continents mood.
In the 1920s, Mussolinis fascism pre-
saged Hitler and the Nazis. In the
70s, Italys extreme left- and right-
wing terrorist movements her-
alded armed groups in the rest of
Europe. Curious about the future of
a country run by a media-savvy bil-
lionaire with hair issues? Check out
how Silvio Berlusconi destroyed tra-
ditional parties with TV slogans,
anti-Establishment rhetoric, and
garish displays of wealth.
Thats why Europe will closely
watch a Dec. 4 referendum
over arcane details of Italian
parliamentary procedure.
The ballot could indicate
whether the populism
sweeping the world (think
Brexit and Trump) is
still ascendant or poised
to abate. Italy is like
a seismograph, says
Marc Lazar, a professor
at Sciences Po University
in Paris. It registers tiny
political tremors that then
spread to Europe and the
rest of the world as bigger
shocks.
Prime Minister Matteo Renzi has
staked his future on the vote, a consti-
tutional reform aimed at shrinking the
senate to make Italy more governable.
He says the referendum would hit the
old guard of Italian politics thats para-
lyzed the country for decades, cutting
the number of senators from 315 to 100,
eliminating their ability to bring down
the government with no-confidence
votes, and reining in their power to
block legislation. Although Renzi swept
into office in 2014 as a fresh face pledg-
ing to make difficult choices, hes now
considered part of the Establishment,
so many voters see the referendum
as a chance to drain the swamp,
Italian-style. And hes threatened to
quit if its rejected, so the ballot has
become more of a plebiscite on Renzi
himself than on the new senate rules.
This government was born to enact
reforms, says Lorenzo Guerini, dep-
uty-secretary of Renzis Democratic
Party. If Italians reject the most impor-
tant changes, well have to deal with
the consequences.
Austria, France, the Netherlands,
and Germany face presidential or par-
liamentary elections in the coming
year, and Spain is expecting a referen-
dum on independence for the region of
Catalonia. As governments and main-
stream parties struggle to counter the
virulent denunciations by insurgents
on everything from poor economic
growth to the influx of immigrants,
theres a big chance of further gains by
nationalists and populists. Next year
gives me the shivers, Marco Buti, the
European Commissions
Berlusconi
Renzi
Grillo

director general for economic and
financial affairs, said in a Nov. 17
speech in Rome.
While Berlusconi, who served as
prime minister three times from 1994
to 2011, was undeniably populist,
the trend gathered strength in 2009
with the emergence of the Five Star
Movement. The nonparty, led by a
former TV comedian named Beppe
Grillo, created a system of online
voting for its leaders and united an
unlikely mix of disgruntled voters
from all sides of the political spec-
trum. In fiery speeches peppered
with expletives, Grillo and his surro-
gates give a voice to individuals with
gripes ranging from unemployment
and the euro to the dangers of climate
change and the need for better rela-
PHOTO ILLUSTRATION BY 731: PHOTOS: AP PHOTO (1); GETTY IMAGES (2); DATA: MINISTRY OF ENERGY OF THE RUSSIAN FEDERATION
tions with Vladimir Putins Russia.
Five Star has surged to win City Hall in
Rome and Turin and is neck and neck
with Renzis party as the biggest force
in Italian politics. The movement sees
the referendum as a way to bump
Renzi entirely from the stage, forcing
new elections that could give it a shot
at forming a national government.
With parliamentary rules that grant
seats in the legislature to parties with
as little as 3 percent of the vote, Italy
has become a petri dish for disruptive
trends. That provides insurgents with a
megaphone to air their grievancesand
has given the country 63 governments
since World War II. While constitu-
tionalists argue the proposed reforms
would curtail checks and balances
designed to prevent the advent of a per-
ilously strong leader like Mussolini,
Renzi says the referendum will make
Italy more stable. In the meantime, hes
taking a page from Five Stars playbook
by amping up his own populist rheto-
ric, railing against the bureaucrats and
budget rules of the European
Union, and giving other national
leaders the cold shoulder.
That could well be
a harbinger of things
to come across
Europe, says
Giovanni
Orsina, a pro-
fessor of gov-
ernment at
Romes Luiss-
Guido Carli
University.
Italys
fragility makes it a breeding ground
for democratic crises, he says. Its
weak institutions mean new move-
ments arent quelled or drowned
out as quickly as they might be else-
where. Alessandra Migliaccio and
John Follain
The bottom line Europe is watching Italy, a
barometer of political trends, as Austria, France, the
Netherlands, and Germany brace for elections.
Labor Costs
For Manufacturers,
Russia Is Now a Bargain
The rubles collapse has dragged
salaries below levels in China
The nation may become the
regions factory
Coming soon to a store near you: Made-
in-Russia washing machines, sofas,
chewing gum, and possibly much more.
The combination of the countrys
worst currency crisis since 1998 and
a slide in real wages has resulted in
salaries that have become broadly
competitive with Chinas for the first
time since the czarist era ended a
century ago, according to investment
bank Renaissance Capital. Companies
including South Koreas Samsung
Electronics, Swedens Ikea, and
Mars of the U.S. are taking advantage
of the cheaper labor costs to increase
exports from their Russian factories.
Russian suppliers are competitive
today mainly because of the currency
situation, says Magnus Benon, head
of purchasing operations for Ikea in
Russia, which has started exporting
upholstery products to Scandinavia
and metal beds to China. I dont think
this is temporary, he says. Ikea has
five factories in Russia, including a
$62 million facility in the Novgorod
region that came online in September.
At $558 last year, the average
monthly salary in Russia has dropped
almost 30 percent since 2011, taking
it close to incomes in other ex-Soviet
republics such as Kazakhstan, accord-
ing to the Higher School of Economics,
a university in Moscow. Most of the
decline has hinged on the ruble,
which is down almost 40 percent in
Global Economics
the past two years against the dollar.
With wages rising across much of
Eastern Europe, Russia looks increas-
ingly appealing to multinationals
searching for a manufacturing hub
from which they can supply the entire
continent. In September, Samsung
started shipping washing machines
from its Kaluga factory to 20 European
countries. That same month, Mars-
owned Wrigley inaugurated a
$7.7 million facility in St. Petersburg,
where it produces Juicy Fruit chewing
gum, some of it for export. It wont
be an exaggeration to say that Russia
may become the regions factory,
says Yaroslav Lissovolik, the Moscow-
based chief economist at the Eurasian
Development Bank, whose members
are Armenia, Belarus, Kazakhstan,
Kyrgyzstan, Russia, and Tajikistan.
While industrial output is gradually
rebounding, most Russian manufac-
turers arent in a position to exploit the
opportunity provided by a weaker cur-
rency and falling wages. For firms to
capitalize on their current relative price
advantage in international markets,
they would need to expand and change 15
their output capacity and invest in both
their products and production pro-
cesses, said the World Bank in an April
report on Russias export competi-
tiveness. Natalia
Russias Kostyukovich, a
industrial output spokeswoman
for Volkswagens
0.6% 0.4% Russian unit,
-3.4% says the compa-
nys locally pro-
duced vehicles
arent yet globally
competitive.
2014 2015 2016 Time and
investment are
PROJECTED
necessary for exports of Russian-
manufactured products to become a
trend, says Oleg Kouzmin, a former
central bank adviser whos now chief
economist for Russia at Renaissance
in Moscow. But there are grounds for
Russia to carve out a niche in exports
to Europe. Olga Tanas and Ilya
Khrennikov, with Andrey Lemeshko
The bottom line The average salary in Russia has
dropped almost 30 percent since 2011, spurring
some multinationals to boost manufacturing there.
Edited by Christopher Power, Matthew
Philips, and Cristina Lindblad
Bloomberg.com
 If you ask the smartest people, how do

Charlie Rose talks to...

they rate Greenspans Fed tenure?
The standard line is that his inflation
policyhis interest rateswas great,
because inflation was very stable. But

Sebastian Mallaby
the way he messed up was on financial
regulations, and thats why we had the
subprime crisis. Because Ive looked into
the politics of that regulation, I actually
The author of The Man Who Knew, a new book on Alan Greenspan, think regulation in Washington is almost
discusses the former Fed chairmans role in the financial crisis impossible to get right. So Im less critical
of Greenspan on the regulatory side,
but Im therefore more critical on the
Youve made the argument that Greenspans personality affected his decisions monetary side. If regulation isnt going
at the Fed, an idea Ben Bernanke has taken issue with. to stop the bubble, then you need to use
The notion that his psychological makeup has no relationship to his policy
decisions isnt very plausible. There was a paradox that Greenspan was extremely interest rates, too.
persuasive when it comes to one-on-one situations but was shy and diffident in
groups. He was frightened of going directly at people with a disagreement. But to
prick a bubble, you had to be able to take on public opinion. You had to say, Your Did he relish his position in Washington?
401(k) is worth more than it should be. He didnt want to do that. His reputation He essentially established central bank status and
imprisoned him. He was the maestro. The crisis was baked in by the time he left. independence by fighting back against the politicians.
I think he did relish it, though sometimes he disguised
that because he was shy. Hed go to a party, and hed
seem ill at ease. People would say, Why did he come?
Greenspan would leak stuff In the 70s, theyd go to earnest conferences and
discuss productivity. At the end, all the economists

to the press to discredit would go to the bar except for one, because thered be
a limousine outside with Barbara Walters inside, waiting
for him to go to dinner.
adversaries. He learned all the
dark arts of politics pretty early on

16

Will Donald Trump and Janet

Yellen be able to coexist?
Trumps economic program,
There are other Greenspan books. insofar as we have details,
What prompted you to do this one?
I wanted to write a big sweep is very inflationary. He wants
history of modern finance. He joined to expand demand by having
the Nixon campaign in the late 60s, a tax cut, spending on
when the dollar didnt fluctuate
because it was tied to gold. Interest infrastructure. And he wants
rates didnt move much because to restrict supply by having
they were capped. There were Why did he join Nixon? zero immigrants, by disrupting
no derivatives. Over the next four He was brought in by
decades, we created the modern an Ayn Rand friend, a trade deals. And all of this
system, and the person closest to Libertarian who said, at a time when the economy
the center of it was Greenspan. We want to persuade is pretty hot, 2.9 percent
Nixon to abolish the
draft. That was his first political document, not growth in the last quarter. The
economics at all. And he got into the campaign. Fed was going to raise rates
I found all the memos he wrote to Nixon in 67, before the election. Its going
68. They were in Pat Buchanans basement. He
was Nixons speechwriter. When I read them, to have to raise extra because
you see the man going from giving advice on of Trump. The president-
economic policy.... By the end, hes talking about elect wont like that, and hell
messaging, spin, polling analysis. He was the
guy who aggregated all the local polls, put them come after the Fed. Yellen will
through his computer at work, and came back with have to learn to defend her
advice on how you tweak the Nixon message. He institution
COURTESY COUNCIL ON FOREIGN RELATIONS

later joined the Ford White House, and he would
have these fights with Henry Kissinger, master of
bureaucratic intrigue, but he lost when he was up
against Greenspan. Greenspan would leak stuff to
the press to discredit adversaries. Hed sneak in
at the weekend to rewrite the presidents speech
because some adversary had written it. He
learned all the dark arts of politics pretty early on.
Watch Charlie Rose on Bloomberg TV Weeknights at 7 p.m. and 10 p.m. ET
What did you learn about his ties to Ayn
Rand as you wrote The Man Who Knew?
in the way
A lot of people read books like Atlas Shrugged Greenspan did in
when theyre 19 or 20. Greenspan was doing the early 90s.
this in his 30s and 40s, and he gave this long
series of speeches when he basically was Ayn
Rands chief economist. I found them in the
basement of a Rand fanatic living in the woods
in Virginia. He had the 300-page transcript
of Greenspans speeches. And in those
speeches it says, The creation of the Federal
Reserve was an historic disaster. You couldnt
make up the irony.
 Companies/ Zara designers at work
in Arteixo, Spain

Industries
November 28 December 4, 2016

Deep inside a sprawling glass-and-

cement edifice the size of an airplane
hangar in the Spanish town of Arteixo,
10 designers swarm around a model
dressed in cropped gray trousers and a
double-breasted navy blazer. Sweaters,
shirts, and suits are spread out on the
white-tile floor, while seamstresses in
white labcoats stitch prototypes nearby.
Its classic, but its new at the same
time, says a woman from China. Im
not sure about the bold patterns, coun-
ters a British woman, dressed in white
sneakers and a flowing skirt. Others nod
their assent or express doubt.
This international tribe of thirty-
somethings is a big part of the success
of Zara, the brand that over the past
four decades has grown from a single
store in the Spanish city of La Corua
into the biggest fashion retailer on
earth. As the team debates whether the
collection is too plain or too daring, it
becomes clear no one is in charge. Juan
18 Mendivil, a menswear buyer, fields
opinions, but the decision doesnt
rest with him, and everyone has a say.
They finally agree on solid colors and
traditional cuts for Europe and bold
patterns for China, where sales data

ILLUSTRATION BY CAROLINE DAVID; COURTESY INDITEX (2); *REVENUE FOR FISCAL YEAR THAT MOST CLOSELY ALIGNS WITH CALENDAR YEAR;
indicate such styles are popular.
Unlike rivals such as Gap, H&M, and
Primark, Zara has no chief designer,
and theres little discernible hierarchy.
Its 350 designers are given unparalleled
independence in approving products
and campaigns, shipping fresh styles
to stores twice a week. Guided by daily
data feeds showing whats selling and
whats stalling, the teams develop
fashions for the coming weeks. Every
morning, staff in Arteixo divine whats
popular by monitoring sales figures
and thousands of comments from cus-
tomers, store managers, and country
directors in cities as far-flung as Taipei,
Moscow, and New York.
Zaras culture isnt as easily copied
as the latest fashion trends, and that
partly explains why Inditex, its parent
company, is a breakaway success while
DATA COMPILED BY BLOOMBERG

most global clothing retailers are strug-

gling. American Apparel filed for
The worlds biggest fashion retailer is thriving as rivals falter bankruptcy in November for a second
time, sales have fallen at Gap stores,
Everyoneis trying to replicate its design prowess and profit is down at H&M. In con-
trast, Inditex powered ahead with an

11 percent rise in revenue in the first
half of the year. There isnt a magic
formula, says Pablo Isla, Inditexs
chairman and chief executive officer.
There are no stars. We are able to
react to data during the season, but
in the end, what we offer our custom-
ers is fashion, and theres a human
element to that.
Controlled by Spanish billionaire
Amancio Ortega, who this year briefly
surpassed Bill Gates to become the
worlds richest man before falling
back to second place, Inditex posted
20.9 billion ($22.2 billion) in sales last
year, from 7,100 stores in 93 countries.
Other Inditex brands such as Bershka,
Massimo Dutti, and Pull & Bear are
growing, but Zara still accounts for
two-thirds of sales. Ortega hired Isla,
a bespectacled former Banco Popular
Espaol executive, as CEO in 2005,
but he hasnt retired. At 80, he still
comes to work most days, often sitting
in the Zara womens department,
where his 32-year-old daughter Marta
works on the commercial team after a
stint at Bershka. While he can some-
times be seen walking his dog Pepe in
the town square of nearby La Corua,
Ortega remains one of the worlds
most secretive billionaires, leaving Isla
to oversee Inditex.
One concern for Zara is managing
its growth, says Andy Hughes, a retail
analyst at UBS. With Inditexs sales
almost doubling since 2009, Isla is
adding stores at a slower pace, concen-
trating instead on a smaller number
of flagship locations and its online
business. Another concern is that
rivals might figure out how to match
Its blockchain vs.
E. coli at Walmart 20
A sweet fix for a
Champagne problem
in China 21
Just as important is the way Inditex
pulls ideas from consumers, Isla
says, rather than designing collections
months in advance and pushing
goods on shoppers with ads. While
analysts say H&M spends as much
as 4 percent of sales on advertising,
Inditex has virtually no ad budget apart
from social media marketing. Since
2010, the data on what customers
want has been augmented with infor-
mation from online sales. Those are
fueled by twice-weekly releases of new
designs on Zaras website, highlighted
with photos from rapid-fire shoots in
Zaras quick Arteixo. On a
turnarounds. rainy November
Everyone in day, buyers,
the industry is analysts, and
trying to repli- commercial man-
cate its design agers sift through
prowess, information on
Hughes says. computers in a
No one could space the size of
match Inditex, 22 football fields, 19
but the gap engaging in a
might close. lively exchange
Isla rejects of ideas with
the fast-fashion label for Zara, saying designers. Without the design, there
it doesnt reflect the time and detail would be nothing, Isla says, sitting at
that goes into designing each garment. a pale-wood conference table in the
And he says analysts place too much companys minimalist headquarters.
emphasis on Inditexs much-vaunted Its not a formula.
supply chain, a network of factories This means the designers are con-
in Spain, Portugal, and Morocco that stantly tinkering. When military
produces 60 percent of its merchan- jackets turned out to be big sellers this
dise. With production nearby, Inditex autumn, the commercial team asked
can quickly switch gears if weather or the designers to keep tweaking them
fashion trends change, getting designs with new fabrics and cuts. In May, a
into stores in as little as two or three blue-and-white collarless womens
weeks, while rivals orders slowly coat for 69.99 (about $102 at the
make their way across the ocean on time) generated so much buzz that two
container ships. fans created an Instagram account
@thatcoatto document the craze. But
instead of churning out more identical
Fast Fashion, Speedy Growth coats, design teams came up with dif-
Change in annual revenue* since 2004 ferent fabrics and prints using a similar
240% cut, ranging in price from $69 to $189.
The root of Inditexs success is its pre-
180% dominantly short lead time, which
Zara gives a greater level of newness to its
120% collections, says Anne Critchlow, a
retail analyst at Socit Gnrale.
H&M
60% About two-thirds of Inditexs prod-
ucts are generated under short lead
Gap 0% times, vs. 20 percent for most retail-
2004 2015 ers, she says. Small production
 Companies/Industries
runs mean Zara can test designs
in various markets without build-
ing up unwanted stock that it might
need to unload at a deep discount.
That gives Inditex among the lowest
yearend inventories in the industry,
says Richard Hyman, an independent
analyst in London. This is a business
that really breaks the rules, Hyman
says. They dont really have seasons
in the way a normal fashion retailer
would. Stephanie Baker
The bottom line A unique management formula
may be why Inditexs revenue growthup 11 percent
in the first half of 2016far outpaces its rivals.
Retailing
Blockchain May Help
Walmart Stop Bad Food
The technology behind bitcoin
could speed recalls
Thats the difference between
20 days and minutes
Mention blockchain, and many people
think of bitcoin, the digital currency
that relies on blockchains database
technology to track transactions and
provide a secure alternative to con-
ventional money. Walmart Stores,
however, is using blockchains ability
to catalog huge amounts of behind-the-
scenes data for a meat-and-potatoes
purpose: identifying and removing food
thats been recalled.
Like most merchants, the worlds
largest retailer occasion-
ally struggles to deal
with tainted food.
When a customer
becomes ill, it can
take days to iden-
tify the product,
shipment, and responsible vendor. co-produced by IBM, Walmart in
Using a blockchain database, Walmart, October started tracking two prod-
using a single receipt, will be able to ucts via the database: a packaged
obtain crucial data, including suppli- produce item in the U.S. (it wont
ers, details on how and where If theres an issue say which one) and pork in
the food was grown, and who with an outbreak of China. The test involves thou-
inspected it. The database E. coli, this gives sands of packages shipped to
them an ability to
can give retailers more gran- immediately find multiple stores.
ular information, not just on where it came from. A blockchain is a distrib-
the pallet but on each individ- Marshal Cohen, uted ledger in which compa-
NPD Group
ual package. If theres an issue nies doing business with each
with an outbreak of E. coli, this othersuch as growers, dis-
gives them an ability to imme- tributors, and retailerscan
diately find where it came from, says record transactions securely. The data-
Marshal Cohen, an analyst at researcher bases strength lies in its resistance to
NPD Group. Thats the difference tampering; its difficult if not impossible
between days and minutes. to reverse a transaction or change an
Its also the difference between entry. A blockchain database can also
pulling a few tainted packages in a hold much more data than what retail-
handful of locations and yanking all ers get today, providing tools for more
the spinach from hundreds of stores, detailed analysis.
according to Frank Yiannas, vice presi- That could help Walmart deliver
dent for food safety at Walmart. With food to stores faster, reducing spoil-
blockchain, you can do strategic remov- age and waste. Cutting costs is crit-
als and let consumers and companies ical for all retailers. Last year, retail
have confidence, he says. We believe sales rose only 2.1 percent, the small-
that enhanced traceability is good for est gain since 2009, according to the
other aspects of the food systems. We Retail Industry Leaders Association.
hope you could capture other impor- Traditional offline merchants also con-
tant attributes that would inform deci- tinue to be pressured by Amazon.com
sions around food flows, and even get and its efficient supply chain.
more efficient at it. If the test is successful, Walmart
More than 1,000 outbreaks of food- will expand it to multiple food items
borne illnesses are investigated by state in both countries, Yiannis says. So
and local health departments each far things are flowing smoothly and
year, according to the U.S. Centers for as expected.
Disease Control and Prevention. The Walmart has been at the forefront of
CDC estimates that 48 million people new technologies before. More than
are afflicted annually, with 128,000 a decade ago, it was an early adopter
hospitalized and 3,000 dying. An out- of wireless radio-frequency identifica-
break can cripple a businessChipotle tion tags, requiring big suppliers to put
Mexican Grill has suffered a year of them on shipping crates and pallets to
falling sales after several such events. help it better manage inventory across
Using blockchain technology its supply chain. The retail giant began
installing chip-card readers at U.S.
checkout counters 10 years before the
deadline mandated by credit-card net-
works such as Visa and Mastercard.
ILLUSTRATION BY KRIS MUKAI; DATA: EUROMONITOR INTERNATIONAL
This summer, it took Walmart Pay
nationwide, becoming one of the first
large retailers to introduce its own
mobile-payment service. Its also
expanding a service that lets consum-
ers order groceries online and then go
to a store for pickup.
Blockchain, a technology that came
on the scene only in 2009, is already
being widely tested in the finan-
cial, health-care, and natural-resource
industries. Companies such as IBM,
Nasdaq, and BHP Billiton have

deployed or are planning to deploy it to
run their businesses more efficiently.
Fourteen of the top 30 banks are
testing blockchain to see if it can be of
use in their businesses, according to
CoinDesk, an industry researcher.
In October the Walmart Food
Safety Collaboration Center opened
in Beijing. Through the Center, the
retailer is collaborating with IBM and
Tsinghua University to use blockchain
to improve the way food is tracked,
transported, and sold to consum-
ers in China, where food safety is a
hot-button issue. If Walmart adopts
blockchain to track food worldwide,
it could become one of the largest
deployments of the technology to date.
They are setting the new standards
in terms of how technology can be
implemented to solve a problem thats
been with us for ages, says Paul Chang,
an expert on the global supply chain at
IBM. Olga Kharif
The bottom line Each year, about 48 million
Americans contract foodborne illnesses. Walmart is
testing blockchain to address the problem.
Wine
For Chandon in China, a
Kick From Champagne?
The French vintner is making and
bottling the bubbly locally
People in China would add Coca-
Cola to make it drinkable
At first glance, the bottle might look
like a fine Champagne from LVMH
Mot Hennessy-Louis Vuitton, the
French maker of wine, spirits, and
other luxury goods. Gold wrapping
covers the pressurized cork, and the
label bears the description Mthode
Traditionnelle. The telling details
are in the fine print. This sparkling
wine is made by Domaine Chandon
(Ningxia) Mot Hennessy, a partner-
ship between the winemaker and the
local government of Ningxia, a small
region in north central China.
LVMH, like other wine and spirits
makers, is counting on China to
become a major growth market.
After more than doubling its vineyard
capacity since 2000, China has more
land for growing grapes than France.
Chinas wine market this year will be
worth 153.8 billion yuan ($22.3 billion),
according to Euromonitor Inter-
national. Since 2014 the joint venture
has been producing a bubbly mix
of chardonnay and pinot noir from
locally grown grapes at its winery in
Ningxia. To win over Chinese drinkers,
the company is tweaking its traditional
formula, says Davide Marcovitch,
global president of LVMH subsid-
iary Chandon, which makes sparkling
wines in Argentina, China, and other
countries. We are innovating for con-
sumers who dont like the traditional
taste of Chandon, he says.
Sparkling wine typically isnt sweet
enough for local tastes, says Claudia
Masueger, founder and chief executive
officer of Cheers, a chain of wine stores
throughout China. People would often
add Coca-Cola to make it drinkable,
she says. Now younger, affluent con-
sumers willing to try different varieties
of wine are buying it.
Sparkling wine consumption in
China is less than 1 percent that of non-
bubbly wine. In the U.S., the figure is
about 5 percent, and in Japan, France,
and Britain its about 10 percent, says
Chuan Zhou, research director with
Wine Intelligence, a market-research
and consulting firm in London.
Theres still a long way to go to per- served on the rocks.
suade Chinese to try it, he says.
Traditionally, the bottles Chinese
consumers did buy were mostly given
as gifts, to curry favor with govern-
ment officialsthe price tag mattered,
not the wine itself. But a crackdown
on graft by President Xi Jinpings gov-
ernment has curtailed such gift giving.
Sales of sparkling wine in China will
be 8 percent lower this year than they
were in 2014, Euromonitor says.
Chandon is trying to raise the profile
of its Ningxia wines by offering tast-
ings at supermarkets, organizing pro-
motions at restaurants, and opening
its winery to tourists. Early in 2017
the company will introduce Chandon
Me, a sweeter bubbly made specif-
ically for the Chinese market. (The
name is a play on the Mandarin word
for honey.) Were trying to balance
the taste, says David Tung, manag-
ing director of Chandon China. The
winemaker, which will produce white
and ros versions of Chandon Me, also
plans to open a store on Alibabas
Companies/Industries
online Tmall marketplace next year.
The company hopes Chinese con-
sumers will pay as much as 200 yuan for
a bottle of Chandon Me. To make them
appreciate sparkling wine as it is today
will take 20 to 25 years, Marcovitch
says. Chandon Me will try to create a
market now. Ma Huiqin, a marketing
expert and professor at the College
of Horticulture at China Agricultural
University, says if the brand is well-
known and the price is right, theres
a very good chance of success.
Jim Boyce, a Beijing-based wine pro-
moter and the founder of the Grape
Wall of China blog, agrees the time
might be right for Chandon. We are
seeing a fundamental change in the
market, says Boyce, who featured
16 sparkling wines in a Beijing tasting
competition last
Wine sales December. The
in China rise of the taste-
180% based consumer is
Growth really going to have
since 10
Sparkling an impact on spar-
90% kling wine sales.
To win over con-
Still
sumers in other 21
0% Asian markets,
2010 2015 Chandon plans in
2017 to start selling
a fruity sparkling wine in Japan and
a sparkling wine in India meant to be
In the first half of 2016, revenue for
LVMHs wine and spirits group, which
includes Chandon and Hennessy
cognac, grew 7 percent from the year
before, to 2.1 billion ($2.2 billion),
better than the groups overall revenue
growth of 3 percent. Wine and spirits
profit grew 17 percent, to 565 million,
LVMH announced on July 26.
Marcovitch dismisses Champagne
purists who scoff at the changes
Chandon is making to appeal to new
customers. We have to break the par-
adigm that sparkling wine has to be
drunk in crystal only and chilled, he
says. If you are in a hot climate and
you put ice cubes in your sparkling
wine, its really much more pleasant.
Bruce Einhorn
The bottom line To tap into the huge potential for
sales growth in China, French vintners are breaking
tradition to make sweeter sparkling wines.
Edited by James E. Ellis and
Dimitra Kessenides
Bloomberg.com
 Politics/
Policy
November 28 December 4, 2016

22

It might be tough for Trump to divest his businesses, even if he wanted to (he doesnt)
Trump the brand is very closely intertwined with Trump the man
PHOTO ILLUSTRATION BY 731; PHOTOS: GETTY IMAGES (2)

Late on Nov. 21, President-elect Donald
Trump tweeted: Prior to the elec-
tion it was well known that I have inter-
ests in properties all over the world.
Only the crooked media makes this a
big deal! He may have been referring
to stories, since denied, about whether
he used a post-election phone call
with Argentinas president to discuss a
planned Trump-branded development
in Buenos Aires. Or photos of Trump
taking time off from vetting cabinet
members to meet with his Indian busi-
ness partners. Maybe it was the photo
of his daughter Ivanka Trump sitting in
on his Nov. 17 meeting with Japanese
Prime Minister Shinzo Abe.
Trumps businesses, which give him
an estimated net worth of $3 billion,
are far-flung. He owes debts to foreign
lenders, including Deutsche Bank and
UBS. Hes associated with companies
battling with federal regulatory
agencies, whose heads he will appoint.
He has ties to real estate concerns in
several countries, including Azerbaijan,
the Philippines, and Turkey.
Among the conflict-of-interest ques-
tions swirling around his global busi-
ness interests, the $150 million Trump
Tower at Century City in Manilas
financial district stands out. Century
Properties Group, the Manila

company behind the tower, paid as
much as $5 million to use the Trump
name in a licensing agreement, accord-
ing to the personal financial disclosure
Trump filed with the Federal Election
Commission in May. Trump has at least
10 similar deals around the world, each
of which might complicate his adminis-
trations international diplomacy. But in
Manila, theres an extra connection: In
October, Century Properties chief exec-
utive and controlling stakeholder, Jose
E.B. Antonio, was appointed to serve
as a special government envoy to the
U.S. for Philippine President Rodrigo
Duterte, who has vowed to expel
American troops from his country and
is drawing closer to China.
Antonio told Bloomberg News that he
visited Trump Tower in New York days
after the U.S. election; he didnt speak
to the president-elect but says he saw
Trump talking with potential appoin-
tees. Trump spokeswoman Hope Hicks
says: They did not meet. Antonio sees
no conflict between his public role and
Centurys private partnership. My role
is to enlarge the relationship between
the two countries, he says. Of his busi-
ness tie to Trump, he adds: I guess it
would be an asset.
The president-elect could resolve
real and apparent conflicts by liquidat-
ing all of the assets associated with the
Trump Organizationincluding his
golf courses, hotels, licensing arrange-
ments, and office towers in Manhattan
and San Francisco. Since his Nov. 8 elec-
tion, Trump has shown no inclination to
divest himself of his business interests.
He plans to hand management over to
his eldest three childrenDonald Jr.,
Ivanka, and Ericwhile hes in office.
Even if Trump wanted to divest, it
wouldnt be easy. Many of his assets
are in real estate, rather than in
simple stocks or bonds, while others
depend on his involvement for their
value. Trump the brand is very
closely intertwined with Trump the
man, says Harold Vogel, an expert on
entertainment-industry finance.
Trumps international conflicts
largely stem from his licensing deals
with international developers. The
structure of these arrangements,
under which he lends his name to
owner-developers on the premise that
it will help them sell condos and hotel
rooms at higher prices, isnt public.
With other assets, Trump might not be
in a position to get top dollar. The profit-
ability of his golf course portfolio12 in
the U.S., two in Scotland, and one in
Ireland, and two more planned in the
United Arab Emiratesis mostly secret.
The three European courses file annual
reports that are publicly available, and
all three are money-losers.
Trump holds a 60-year concession to
run a federal government building on
Washingtons Pennsylvania Avenue as
the Trump International Hotel, which
opened in October. Under the arrange-
ment, he shouldered about $200 million
in renovation costs and pays $3 million
a year in rent to the General Services
Administration.
According to the
$5 million
Washington Post,
foreign diplo-
mats are already
piling into the
hotel to curry
Maximum amount paid favor with a Trump
to Trump by a Manila
developer who is now
administration.
a special U.S. envoy Trump owes
for the Philippines Deutsche Bank,
his largest lender,
about $300 million in loans against the
hotel and his Doral resort in Florida.
Deutsche Bank is in settlement talks
with the U.S. Department of Justice over
its lending practices leading up to the
2008 financial crisis. Trump has said
he will appoint Alabama Republican
Senator Jeff Sessions to be attorney
general; Sessions hasnt indicated
whether hed recuse himself from the
Deutsche Bank case or others involv-
ing business partners of his boss.
Christopher Jackson, a spokesman for
Sessions, declined to comment.
One of Trumps most valuable assets
is a 30 percent stake in two office
towersone in Manhattan, one in San
Franciscovalued by Bloomberg at
$590 million. Both are majority-owned
and managed by the publicly traded
Vornado Realty Trust. Trumps
name isnt on either one. Cathy
Creswell, director of investor rela-
tions at Vornado, didnt return calls for
comment. By remaining involved in the
Federal agencies
race to write
new rules 24
Will Trump be
a nightmare for
Dreamers? 25
Vornado partnership, he remains indi-
rectly exposed to its debtors for those
towers, including the Bank of China.
Some of Trumps other assets, like
his Manhattan leaseholds for 40 Wall
Street, an office tower, and the build-
ing at 6 East 57th Street, which houses
a 90,000-square-foot Niketown store,
would be relatively easy to part with,
says Joshua Stein, a New York real
estate lawyer. Trump hasnt said
whether hell put his liquid assets
stocks, bonds, and funds totaling about
$170 million as of his May disclosure
into a blind trust. Both Bill Clinton and
George W. Bush did just that. Jimmy
Carter appointed an independent
trustee to oversee his Georgia peanut
business when he became president.
Amanda Miller, a vice president of mar-
keting for the Trump Organization,
declined to comment.
Even without selling his businesses,
there are ways the president-elect could
wall himself off from his financial inter- 23
ests, says Norm Eisen, a visiting fellow
at the Brookings Institution who previ-
ously served as the Obama administra-
tions ethics czar. Trump could appoint
an independent chief executive officer,
institute a list of Trump Organization
executives he wont talk to, and remove
his children from leadership roles
there. No matter how complicated it
may be to unwind his involvement in
these assets, it is going to be infinitely
more complicated for him and the U.S.
and the world if he doesnt, Eisen says.
There have already been compli-
cations. Trump has agreed to pay
$25 million to settle claims that his
defunct Trump University cheated stu-
dents. And the Trump Foundation
admitted in an IRS filing to a self-dealing
transaction with Trump. IRS rules gen-
erally prohibit such transactions.
Rather than taking steps to reduce
his conflicts, Trump has rejected the
idea that they pose any problems. His
daughter Ivanka joined his call with
Argentine President Mauricio Macri;
her brother Eric took selfies with one
of his Argentine business partners
on election night. Ivankas husband,
Jared Kushner, who has his own real
estate interests through the privately
owned Kushner Cos., has been
 Politics/Policy
advising Trump. During his cam- government enters new regulations
paign, Trump thumbed his nose a into the public record, include a U.S.
little bit at our extreme sensitivity, Department of the Interior rule crack-
says the lawyer Stein. I would expect ing down on methane emissions from
him to thumb his nose at conflict-of- oil wells and measures aimed at helping
interest concerns, too. Caleb Melby highly skilled immigrant workers get
and Stephanie Baker, with Ben Brody and green cards. On the horizon: limits
Ben Bartenstein on the use of hydrofluorocarbons,
leak detection requirements for oil
The bottom line Trumps business arrangements
are unprecedented for an incoming president, and wells, and quotas for boosting biofuel
hes shown no sign of wanting to divest. use in gasoline. Were running, not
walking, through the finish line of
President Obamas presidency, U.S.
Environmental Protection Agency
Administrator Gina McCarthy told
Transition staff in a post-election e-mail.
The later a regulation is released by
A Rush to Regulate an outgoing administration, the easier it
Before Inauguration is for the next president to kill it. Thats
partly because of the Congressional
Review Act, a 1996 measure to deter
Agencies are trying to lock in
so-called midnight rule-making. The
policies Republicans dont like
act enables lawmakers to pass resolu-
Once you have a rule on the tions voiding regulations entered into
books, its harder to undo the Federal Register in the last 60 days
of a legislative session.
At federal agencies across Washington, Presidents can also yank rules that
regulators are scrambling to finalize havent yet taken effect. That ability to
24 rules before President Obama leaves put on hold and essentially withdraw
the White House. In the two weeks rules by the previous administration is
following the Nov. 8 election, the much, much more efficient than repeal-
administration finished reviews of ing rules, says Amit Narang, regulatory
nine economically significant rules, policy advocate for Public Citizen, a
compared with eight during all of nonprofit Washington watchdog group.
September. Recent entries in the Once you have a rule on the books, its
Federal Register, where the harder to undo.
Digits
$1.1b
Total paid to Northrop Grumman from 2011 through 2015 for the upkeep of spy planes
known as JSTARS, even as maintenance costs increased and the planes combat capability
declined, according to a Nov. 1 audit by the Pentagons Office of the Inspector General
Its expected that immediately after
Donald Trump is sworn in, his admin-
istration will place a moratorium on
new regulations and pull back any
others that are on their way to the
Federal Register but havent yet been
published, says Susan Dudley, direc-
tor of the Regulatory Studies Center
at George Washington University.
The Trump administration could also
delay the effective date of rules that
have been published but havent gone
into effect, giving appointees time to
get confirmed, review the rules, and
possibly undo them.
Thats what the Obama admin-
istration did on Jan. 20, 2009. Top
Republicans have already threatened
to invoke their power to toss rules
they dislike within 60 legislative days
of their enactment on a simple major-
ity vote. Senator Rand Paul (R-Ky.)
said after Trumps victory that legisla-
tors would repeal at least a half-dozen
regulations in the week after the new
Congress convenes in January.
House Majority Leader Kevin
McCarthy (R-Calif.) joined 21 commit-
tee chairmen in warning agencies that
they would take a dim view of any
policymaking in the Obama adminis-
trations waning months. We write to
caution you against finalizing pending
rules or regulations in the administra-
tions last days, they wrote in a Nov. 15
letter to agency and department heads.
Should you ignore this counsel,
please be aware that we will work with
our colleagues to ensure that Congress
scrutinizes your actionsand, if appro-
priate, overturns them.
Some agencies appear to be heeding
that warning. After senior Republicans
asked Federal Communications
Commission Chairman Tom Wheeler to
put the brakes on nearly all new regula-
tions and actions, the agency canceled
a planned vote on the rates charged for
data lines used by businesses.
Others say theres really no good
reason for agencies to hold back.
Theres a pretty significant chance
that any one midnight regulation wont
be overturned by the next administra-
tion, so whats the incentive to hold
COURTESY NORTHROP GRUMMAN
them? says Sam Batkins, director
of regulatory policy at the American
Action Forum, a think tank that favors
smaller government. If youre just
playing the odds, obviously you should
publish them.
 80 percent of
immediately eligible
immigrants from
Politics/Policy
Mexico have applied,
a greater share than
Birth countries of undocumented from any other country
South Korea 9k
immigrants registered for DACA Honduras 17k
El Salvador 27k Ecuador 6k

Mexico All other

580k 62k

AS OF JUNE 2016. DATA: U.S. CITIZENSHIP AND IMMIGRATION SERVICES, MIGRATION POLICY INSTITUTE
Guatemala 19k Colombia 6k
Peru 9k Brazil 7k

Environmentalists are embracing stand-in program, implemented by also include Michael Bloomberg, major-
that reasoning and lobbying the Obama executive action. DACA applies to ity owner of Bloomberg Businessweek
administration to go big and bold by people who were born after June 1981; publisher Bloomberg LP.)
creating national monuments and arrived in the U.S. under the age of 16; Immigration advocacy groups are
imposing clean-air rules before they havent been convicted of felonies or advising people against filing first-
hand over authority. Weve told the significant misdemeanors; and are in time applications for DACA. People
White House and Interior Department school, have a high school diploma or in the program are required to give
on everythingwhether its offshore GED, or have served in the military. their addresses, making it easier for
drilling or national monumentsto be Now 34, Belmonte has lived in the immigration authorities to find par-
as ambitious as possible, says Athan U.S. since he was 7. His mother brought ticipants. If Trump just cancels DACA,
Manuel, director of lands protection him from Mexico on a tourist visa, and we create a terrible situation for them
for the Sierra Club. We might as well they stayed after it ran out. Theres a lot of where they are now exposed
ask for the moon. Jennifer A. Dlouhy Unable to take out loans, he concern that a to deportation, says Daniel
put himself through college guy who says hes Garza, executive director of
The bottom line Republicans are threatening to going to focus on
undo last-minute Obama regulations in the new by working in restaurants and criminals is going the Libre Initiative, a Latino
Congress, but federal agencies are pushing ahead. warehouses. He graduated in to upend the lives outreach group backed by
2008 with a degree in industrial ofDreamers on the conservative billionaires
Day One
engineering but couldnt find Charles and David Koch.
a company willing to sponsor Anti-immigration groups 25
him for a visa. So he spent the say Trump should keep his
Immigration next four years working minimum wage promises. Whats inhumane is to set
jobs that he could get without one. After up a contradictory system where you
Immigrants Prepare qualifying for DACA, Belmonte was have a sign on the border that says,
For Life After Obama able to land work that made use of his Keep out, and then below it you have
college degree, first in tech support and a sign that says, Come on in, and if
then as a quality engineer. you can get over the fence, the honey
Trump has said hell cancel
Its not clear whether Trump would pot of benefits are all yours, and help
undocumented workers permits
let workers such as Belmonte keep wanted, says Bob Dane, executive
Take them out of the workforce, existing work permits until they expire director of the nonprofit Federation for
thats a problem for business or revoke them immediately if he American Immigration Reform, which
cancels DACA. Theres a lot of concern advocates restricting immigration.
Gabe Belmonte showed up to his Silicon that a guy who says hes going to focus While talking to lawyers about
Valley engineering job the day after the on criminals is going to upend the lives whether theres a route for him to get
election in a state of shock. He hadnt of Dreamers on Day One, says Frank a visa, Belmonte is making plans in
slept, couldnt eat, and was struggling Sharry, executive director of the immi- case he gets deported. Hes paying off
to ward off panic. Co-workers com- grant advocacy group Americas Voice. his credit cards, talking to his room-
mented on how distraught he looked, Canceling DACA and preventing ben- mate about finding someone to sublet,
Belmonte recalls: Initially, I just said, eficiaries from working would erase at and arranging for his U.S.-born son to
Yeah, the election was kind of rough. least $433 billion in U.S. gross domes- stay with his grandparents. For any
The truth is hes one of more than tic product over the next decade, other purpose than paperwork, I con-
740,000 undocumented immigrants according to an analysis from the non- sider myself an American, he says.
shielded from deportation and autho- profit, left-leaning Center for American Having that peace of mind that DACA
rized to work under President Obamas Progress. If you take hundreds of thou- has broughtthats going to be lost.
2012 Deferred Action for Childhood sands of best candidates and take them And so you go back to being fearful.
Arrivals program (DACA), which Donald out of the workforce, thats a problem Josh Eidelson
Trump has pledged to eliminate. DACA for business, says Jeremy Robbins,
The bottom line More than 740,000 people
is available to young immigrants known executive director of New American are qualified for work permits through an Obama
as Dreamers, after the congressional Economy, a business-backed immi- program that Trump may cancel.
Dream Act. That immigration reform gration reform group whose co-chairs
bill has repeatedly failed to pass but include leaders of Boeing, Marriott Edited by Allison Hoffman
formed the cornerstone of Obamas International, and News Corp. (Backers Bloomberg.com

November 28 December 4, 2016
Are business rivals behind online attacks on Elon Musk?
Critics say the Tesla CEO gets subsidy after subsidy he doesnt need
On Sept. 2 the conservative web maga-
zine the Federalist published an article
titled Elon Musk Continues to Blow
Up Taxpayer Money With Falcon 9.
The author was identified as Shepard
Stewart. Two days earlier, the Stewart
byline appeared on a piece on the
Libertarian Republic website called
Heres How Elon Musk Stole $5 Billion
in Taxpayer Dollars. Two days before
that, the Liberty Conservative site
PHOTO ILLUSTRATION BY 731; PHOTOS: GETTY IMAGES (2)
carried a Stewart article headlined
Elon Musk: Faux Free Marketeer and
National Disgrace.
Funny thing, though: Shepard
Stewart isnt a real person. Definitely
a fake, says Gavin Wax, editor-in-chief
of the Liberty Conservative. A chagrined
Wax says the Stewart character went
totally dark on us after we published
him. Wax discovered that a photo-
graph Stewart uses online appears
to be an altered version of a former
Twitter executives LinkedIn headshot.
Musk attracts an unusually large
and varied number of shrouded online
attacks, including phony op-ed pieces,
websites with shadowy backers, and
individuals who hide behind aliases.
These are tools used by those who
dont have facts on their side, says
Sarah OBrien, a spokeswoman for
Tesla, the electric car maker Musk
co-founded and runs.
The Liberty Conservative has taken
down its Stewart article, as has the
Libertarian Republic. The Federalist site
still has its piece up. Editors with the
latter two didnt respond to e-mails and
phone calls seeking comment.
Musk inspires strong admiration and
criticism for his industry-disrupting
companies: Tesla; SolarCity, a solar
panel installer he co-founded; and
A perk-hailing CEO Amazon just isnt this
crashes his ride- nice 30
sharing startup 28
IBM wants to be Giving a lift to aging
the Q for corporate with a walker/
cyberdefense 29 wheelchair 31
27
Space Exploration Technologies,
better known as SpaceX, a rocket
company he founded and heads. On
Nov. 17 shareholders approved Teslas
$2 billion acquisition of SolarCity.
These diverse business interests
mean Musk has numerous rivals. It
seems like hes got a lot of people who
dont like him, says Brian Walsh,
a partner with Rokk Solutions, a
Washington, D.C., communications
firm. Walsh ticks off coal companies
and utilities uneasy about SolarCity
and automakers and dealers concerned
about Tesla. This spring, Walshs firm
worked for United Launch Alliance,
a joint venture of Boeing and Lockheed
Martin, and helped persuade Congress
to let ULA buy Russian-made rocket
engines, over SpaceXs objections.
During the lobbying fight, a website
called Who Is Elon Musk? maintained
 Technology
a steady drumbeat of criticism of
SpaceX, as well as Musks other com-
panies. A video on the site, titled
American Swindler: The Elon Musk Story,
accuses him of lining the pockets of
Democratic and Republican politicians
with millions of dollars in donations.
(Musk has given about $515,000 to poli-
ticians and political groups since 2003,
according to the Center for Responsive
Politics, a nonprofit research group.)
Thats not us, Walsh says of the to undermine the electric car compa-
website. I dont know who it is. A nys push for cleaner transportation,
United Launch spokeswoman says,
It would be inappropriate for ULA to
comment on a site not related to our
company or industry. The site iden-
tifies its sponsor as the Center for
Business and Responsible Government,
a nonpartisan organization dedicated
to highlighting cronyism and its effects
on American taxpayers and policy. But
theres no trace of the center anywhere
online or in the brick-and-mortar world.
A similar website called Stop Elon
From Failing Again lists its sponsor
as a conservative advocacy group
called Citizens for the Republic. Diana
28 Banister, a PR executive who serves
as CFTRs executive director, says the
site singles out Musk because he is the
epitome of a businessman who gets
subsidy after subsidy he doesnt need.
Its impossible to tell whos ultimately
paying for CFTRs campaign against
Musk, as the organization is a so-called
501(c)(4) social welfare group, which
under federal law doesnt have to dis-
close its supporters. Banister says con-
tributors to CFTR are small donors,
mostly and nothing competitive
with Musk. Asked whether oil compa-
nies antagonistic toward Tesla might be
behind the website, Banister says: We
reached out to them [for donations],
but they havent responded.
One online antagonist allegedly tried
the bizarre approach of impersonat-
ing Musk in pursuit of inside informa-
tion about Tesla. On Aug. 3, Teslas
chief financial officer, Jason Wheeler,
received an e-mail from ElonTesla@
yahoo.com requesting more detailed
nonpublic data than had been released
People tell me I
shouldnt talk about the
fake rockets because it
makes me sound crazy
earlier that day when the company dis-
closed its second-quarter results. After
some digital sleuthing, Tesla filed suit
in September in California state court
against Todd Katz, a longtime online
critic of Teslas financial management
who admits to using the aliases Elon
Madoff and Enron Musk. Katz worked
as CFO for Quest Integrity, an oil
industry service company. He was part
of an effort by the fossil fuel business
Tesla alleged.
Without admitting or denying hed
sent the e-mail, Katz, whos left his
job at Quest, said in court papers
that Teslas suit should be dismissed
because the message in question was
too goofy to be believed. In counter-
claims, Katz accused Tesla of unlawfully
hacking his Twitter account to publicly
embarrass and silence him, and dis-
courage other critics.
Another online critic of Teslas, who
posts under the name Keef Leech and
Keef Wivaneff (with-an-f), is actually
Australian Keith Leech, a retired com-
puter engineer who says hes a bit of
an obsessive. Hes spent more than a
year collecting photos of crashed Teslas
from junkyards that he says show evi-
dence of a defective suspension system.
He says hes filed about 100 complaints
based on the photos with the National
Highway Traffic Safety Administration.
On the Tesla Bears Club, a site for short
sellers, Leech has posted a Tesla Hall
of Shame compiling his NHTSA com-
plaints. He says he recently bought
Tesla puts, another way to bet on a com-
panys stock dropping. Leech says hes
never driven a Tesla.
On June 8, an auto site called
the Daily Kanban reported on the
suspension complaints, igniting
broader coverage. On June 10, NHTSA
said it was conducting a routine
review and to date hadnt identi- the London-based company shut
fied any safety issue with Tesla suspen-
sions. Musk said on Twitter that most
of the NHTSA complaints were fraud-
ulent and that one or more people
sought to create the false impression of
a safety issue. Teslas stock dropped
7 percent on June 9 and June 10.
Spokesman Bryan Thomas says NHTSA
doesnt have anything new to say about
the Model S suspensions.
Leech, who continues to file Tesla
complaints, also insists that SpaceXs
success in landing rockets back on
earth is a hoax, videos of the land-
ings notwithstanding. People tell me
Ishouldnt talk about the fake rockets,
he says, because it makes me sound
crazy. Paul M. Barrett
The bottom line Elon Musk attracts a wide array of
real and fake online antagonists criticizing his work
on electric cars, rockets, and solar panels.
Startups
A Would-Be Uber Rivals
Ride to Nowhere
Karhoos funding was exaggerated
while the CEO spent lavishly
I truly wish things had turned out
very differently
At ride-hailing startup Karhoo, the
unusual expenses started small,
relatively speaking. Vet bills, clothes,
a pair of designer shoes. Finance
staffers flagged the charges, but
spending became more ostenta-
tious: custom-branded Cuban cigars,
first-class flights, a massive Vegas
bacchanal. Nobody at Karhoo could do
much about it. The culprit was Chief
Executive Officer Daniel Ishag.
Ishags spending, described by five
former employees and others famil-
iar with Karhoos finances, came
to an abrupt end on Nov. 8, when
down. It owed $30 million to cred-
itors, employees, property manag-
ers, and other contractors, one of the
people says. About 200 workers lost
their jobs. It was a shocking collapse,
even by the Icarus-like standards of
tech startups, because last year the
Financial Times reported Karhoo had
ILLUSTRATION BY 731
raised $250 million, and the company
said it planned to bring in more than
$1 billion. Based on those numbers,
Karhoo seemed to have as good a shot

Karhoos app compiled a network of
drivers from taxi and other car services
as anyone to take on the likes of Uber
in Europe.
In fact, two-year-old Karhoo had
raised only $39 million as of September
and couldnt sustain its efforts to grab
market share from Uber, according
to internal documents shared with
Bloomberg Businessweek. That was
news to at least two former employees,
who were told in job interviews that
the $250 million figure was accurate.
Potential business partners heard the
same, according to a former employee
who attended a pitch meeting.
I deeply regret the impact and
inconvenience recent events have
caused you all, Ishag wrote in an e-mail
to employees after the shutdown. I
truly wish things had turned out very
differently. He didnt respond to
requests for comment for this story, but
he told the Times of London any per-
sonal expenses were repaid and Karhoo
didnt repeat the false funding number
to employees or business partners.
Employees say they were largely
unaware of the companys dire position
until a recent Friday, when managers
at its headquarters said they couldnt
cover payroll. There was no severance,
and people werent paid for the previ-
ous months work.
Earlier this year, what now look like
warning signs could be dismissed as
the travails of a young startup. The
launch of Karhoos app, which com-
piled a network of drivers from taxi and
other car services, was delayed from
January to May. Quickly, though, it
topped 300,000 downloads, and Ishag
spent heavily to expand. By the time
the app launched, Karhoo had offices
in Singapore, Tel Aviv, and New York. It
also rented two New York apartments,
one of which cost $12,000 a month,
says a person familiar with the matter.
If the real estate wasnt cheap,
neither was Karhoos aggressive dis-
counting. Because of a bug in the app,
promo codes offering free rides could
be used repeatedly. People on social
media said they took more than 100 free
trips. In October about 70 percent of
Karhoo bookings used promo codes,
internal documents show.
Bugs hit Karhoo at almost every level
of the app. Its payment-processing
system lacked basic fraud protections,
such as verifying a users address or
requiring an e-mail address to set up
an account, so at one point, more than
90 percent of passengers credit card
payments were being rejected, say
three people familiar with the systems.
Customer service was such a problem
that Karhoo had to hire ModSquad,
an outside contractor, to handle
it. ModSquad has sued Karhoo for
$500,000 in unpaid bills. Karhoo and
ModSquad are due in New Yorks
federal district court on Dec. 8. Taxi
companies are also seeking payment.
ModSquads attorney, Erik Anderson,
declined to comment on the litigation.
Ishag, whod previously co-founded
an online ad network and run a waste
management company, said in a July
interview with the online publication
Startup that he conceived of Karhoo
while in California, then developed a
prototype in India.
Employees say Ishag was more inter-
ested in pitching Karhoo to investors
than in keeping the app working prop-
erly. He also charged the company
$6,000 for his pugs vet bills, flew first
class, stayed in top hotels, and brought
exotic dancers to the Las Vegas party he
threw during a tech conference, say two
people familiar with his expenses.
Paul Cooper, the administrator man-
aging Karhoos bankruptcy, says hell
look into possible misuse of corpo-
rate funds. In the Startup interview,
Ishag discussed the challenges of a tech
venture. It takes a toll, he said. It
takes a toll on the people around you.
Adam Satariano and David Hellier
The bottom line Karhoo, a ride-hailing company
that said it raised $250 million last year, shut down
on Nov. 8, owing creditors about $30 million.
Cybersecurity
Training Companies
To Handle a Hack
IBMs cyber range borrows tactics
from military simulations
We dont want to scare the crap
out of people
Despite billions of dollars invested
in antihacking technology over the
past 10 years, companies appear to
have little idea of how to respond to a
cyber attack. When Target was hacked
during the busy 2013 Christmas season,
The company paid
$100m
to buy Resilient
Technology
IBMs security acquisitions
2016 2013
Resilient Network Fiberlink
Systems Secure mobile
Incident response management
2014 Trusteer
Advanced fraud
Lighthouse Security protection
Group
Cloud-enabled identity 2011
management
Q1 Labs
CrossIdeas Security intelligence
Identity governance
DATA: IBM, BLOOMBERG
investigators found the company had
missed early warnings that might have
prevented the loss of data belonging to
70 million customers. When the news
came out, lawsuits were filed, and Chief
Executive Officer Gregg From 2002 to 2010,
Steinhafel resigned. IBMs security arm
Sony Pictures bought 12 additional
companies
Entertainments fum-
bling response a year later to North
Korean hackers turned a bad situation
into a terrible one, costing Amy Pascal,
one of the most powerful women in
Hollywood, her job as co-chairman.
IBM, which has spent five years 29
buying companies to make itself
the third-largest cybersecurity pro-
vider globally, wants to train corpo-
rate security teams, CEOs, and PR
departments to handle those kinds of
crises. Shortly after Election Day, the
company unveiled a facility that com-
bines gaming techniques and millions
of dollars of sophisticated hardware
to re-create scenarios like Targets
and Sonys in white-knuckle, stock-
plunging detail.
The idea is borrowed from the
Pentagon, which uses a similar
approach to train soldiers for cyber-
war. Instead of the pressure of combat,
the facility at IBMs security division
headquarters on the Charles River in
Cambridge, Mass., wants to re-create
a postbreach pressure cooker that can
move rapidly from a regulatory investi-
gation to a call from the FBI to whatever
else the ranges multimedia producers
can conjure. We dont want to scare
the crap out of people, says Caleb
Barlow, vice president of IBM Security.
We do want people to feel a little of the
adrenaline burst and the pressure.
By the time IBMs cyber range is
fully operational in January, it will
offer 12 training programs. Think of
them as plays, Barlow says, with
 Technology
settings, acts, and an unusually wide
range of actors, including general
counsels, marketing teams, and
C-suite executives.
The staging area is a bit like a flight
simulator built for two dozen. Theater-
quality video panels cover the front
wall, and the ceiling is studded with the
same sensors that allowed Tom Cruise
to manipulate data with his hands in
the movie Minority Report. (The ceiling
array, made by Oblong Industries in Los
Angeles, is the most expensive thing in
the room.) Racks of servers located a
floor below simulate the data stream of
a full-size corporate network.
During a recent afternoon demo, the
training program began with a phishing
e-mail sent to a fictitious HR rep. The
hackers made off with a cache of data
before the IT crew could isolate the
source of the breach. Then an insider
leaked news of the breach, and the
pressure mounted.
The U.S. Securities
$200 million
and Exchange
Commission ini-
tiated an inves-
30 tigation. More
pressure.
IBM spending on its As the afternoon
cyber range and teams wore on, events
for intel and incident spun out of control.
response
The security team
discovered that the
hackers hadnt just stolen information,
theyd also altered the companys finan-
cial data shortly before its quarterly
earnings report. Uh-oh.
All this realism doesnt come
without risks. The range is designed
to test out some of the most virulent
malware, so the whole thing is air-
gapped, which means its not con-
nected to the real internet. Instead,
developers collected data from
thousands of web pages to create a
miniature, self-contained internet.
Like many of the ranges features,
that idea came from Joe Provost, the
projects threat modeling and simula-
tion architect and a former employee
of the National Security Agency.
Days after hackers took some of the
worlds most popular websites offline
in October with a botnet of infected
home routers, TVs, and other internet-
connected devices, Provost figured
out how to replicate the attack so he
could add it to one of the ranges sce-
narios. In the simulations, he also
plays the main bad guy.
The facility is expen-
sive, and IBM wouldnt say
exactly how much it costs
to run. Barlow says the
company had spent a com-
bined $200 million on the
range and the development
of cyber intelligence and
incident response teams
for on-site investigations of
major hacks. He may be ret-
icent to break out spend-
ing on the facility, because theres no
guarantee the investment will pay off.
IBM says its not planning to charge
people who come in for the training ses-
sions; its more of a marketing tool, an
effort to convince companies theres
enough value in IBMs various cyberse-
curity technologies to make them worth
buying. This is in some ways a grand
experiment, Barlow says.
Roland Cloutier, chief security officer
of payroll-services provider ADP, says
that based on what he knows of the
gaps in traditional cybersecurity train-
ing, IBMs plan should work. What IBM
has been able to do is take two very dif-
ferent processes and combine them
into a single training, he says. One
is technology-basedI have an attack
going on, and I have to stop it. But then
you have crisis management, which is
about leadership in tough situations.
Thats a whole different skill set.
Michael Riley
The bottom line IBM has built a cybersecurity
training center to test corporate readiness. Now it
has to persuade customers to buy its gear.
E-Commerce
Pet Food That Comes
With an Oil Painting
Startup Chewy has quietly built a
gigantic thoughtfulness machine
We keep profiles, we take notes.
We know their pets names
Theres customer service, and then
theres Chewy.com. After registering
online, each of the pet supply start-
ups 3 million customers gets a hand-
written thank-you card in the mail.
Theyre also entered into a lottery to
receive a surprise giftan oil paint-
ing of their pet, one of 700 made
each week by one of Chewys 200
full-time portrait artists. We have
an aggressive approach to customer
acquisition and retention, says Chief
Executive Officer Ryan Cohen. Hes
understating it.
About 460 of Chewys 3,000 employ-
ees are customer service reps trained in
pet care. At a 24-hour, 30,000-square-
foot call center in Dania Beach, Fla.,
they can tell buyers which gluten-free
food best suits a dachshunds irritable
bowel syndrome and which poultry-
flavored toothpaste will temper a cats
halitosis. Theyll remember you, too.
We keep profiles, we take notes,
Cohen says. We know their pets
names. Each year, Chewy sends more
than 1 million handwritten holiday
cards to its customers, wishing the pet
parents a happy and slobbery season.
Since buying out every stamp at the
local post office in 2014, the company
has begun preordering its postage.
Cohen and co-founder Michael
Day are betting that this unusual
dose of thoughtfulness will help their
company grab a bigger share of the
$62 billion U.S. pet supplies market
from the likes of Amazon.com,
PetSmart, and Petco. Five-year-
old Chewy says its on track to take
in $880 million in revenue this year
and expects to top $1.5 billion in 2017,
though it isnt yet profitable. Petco
and PetSmart bring in about $4 billion
FROM LEFT: COURTESY CHEWY (1); COURTESY ZEEN (3)
and $7 billion a year, respectively;
Amazon doesnt break out its revenue
from pet supplies.
Cohen, 31, started an internet mar-
keting company with Day, 33, after
graduating from high school. They
used their profits to start an online
jewelry company, which morphed
into a pet supply site after Cohen real-
ized how much he enjoyed shopping
 Technology

for his teacup poodle, Tylee.

We wanted to create a more
convenient way to shop,
he says. We also didnt
Innovation
want to lose the authentic-
ity that comes with your
local pet store. A crew of
40 uses three soundstages
Walker-Chair
to produce pet-care tuto- Form and function Innovators Garrett Brown and Chris Fawcett
rials for the companys The Zeen is a four-wheel, height-changing, Ages 74 and 58
YouTube channel. hybrid walker/wheelchair designed to help Chief executive officer and chief technology
Chewy has raised people sit, stand, and walk without another officer of Exokinetics, a five-person
persons help.
$236 million from inves- Philadelphia startup that began this summer
tors including BlackRock and New
Horizon, the venture arm of mutual
fund T. Rowe Price. Billionaire 1.
e-commerce veteran Mark Vadon, Origin Brown, the
Chewys chairman, says hes the Standing The user sits on Oscar-winning
reason the company largely kept itself the seat and fastens the inventor of the
seat belt, then leans forward Steadicam, started
out of the press for its first five years. slightly to be lifted from a working on a more
I advised Ryan and Michael to lay seated position to a saddle- active wheelchair
low, he says. Its better to avoid com- supported standing one. alternative in 2012,
Leaning back slightly shifts it when his fathers
petition. Two people familiar with back to a sitting position. health was in decline.
the startups finances say Goldman
Sachs is helping it prepare for an
initial public offering next year.
Cohen says he isnt concerned
about the Amazon threat hanging
over his and every e-commerce busi- 31
ness. Chewys auto-ship subscription Price Brown says
program works a bit like Amazons he aims to charge
Dash Button, setting customers up to $2,000 to $3,000.
regularly reorder such staples as pet
food and kitty litter. The bigger ques- Funding Exokinetics
tion: If Chewy cant turn a profit now, says that by yearend
with $880 million in revenue, when it will close a
$2 million investment
can it? Its not so much that there are from Select Medical,
barriers to entry, says Vadon, who which runs hospitals 2.
took his online baby supply company and other facilities,
and venture firm
Zulily public in 2013. There are barri- Founders Fund.
ers to doing it well at scale. We dont normally
Chewy wont say how much it partner with
device makers,
spends on portraits and other perks. but this could be
Cohen acknowledges the overhead revolutionary, says
is high but says its worth it. People Select President and
CEO David Chernow. Walking To walk, the user
want that great customer experi- pushes the armrests all
ence that we specialize in, he says. the way forward or back to
By early 2018 the company plans unlock the wheels and lock
the seat at the desired height.
to add three 600,000-square-foot The users hands are then left
warehouses in the U.S., doubling its free to work, carry things, or
current footprint. Making sure we perform household activities.
can maintain what weve built is the
focus now, Cohen says. Well find a Next Steps
way. We are going to be No.1, or we Exokinetics is starting supervised tests in U.S. retirement homes and
will die trying. Olivia Zaleski rehab centers. Brown says the team will decide next year whether to seek
approval for the Zeen as a medical device. Either way, the product could be
The bottom line Chewy is on track for
$880 million in annual revenue but hasnt been on sale by 2018 or sooner, he says. Once older people go from walker to
able to make its model profitable. the wheelchair, theres such a huge decline, says Liron Sinvani, director for
geriatric services at Hofstra Northwell School of Medicine in Manhasset, N.Y.
Edited by Jeff Muskus This really has the potential to improve quality of life. Nick Leiber
Bloomberg.com
 Markets/
Finance
November 28 December 4, 2016
Five Stages of Trump Grief
2. Acceptance
32
1. Shock
Donald Trump once made Wall Streeters anxious. Theyre past it
You can probably cut back on the legal team and compliance
Talking about the election result, a
former Goldman Sachs executives
emotions veer from grief over Hillary
Clintons loss to enthusiasm for the
coming Donald Trump administration
in the course of a single phone
call. Speaking on the condition of
anonymity, he notes that what Trump
does and says might hurt Muslims,
immigrants, and women. But he says
he accepts Trumps win and perks up
as he discusses the rise in bank stocks.
Before Nov. 8, Wall Street was
fairly comfortable with the status
quo represented by Clinton, and like
most Americans it didnt see much
chance of Trump winning anyway.
But the Street has adjusted its attitude
quickly, according to interviews
with a dozen executives. People in
the financial-services industry are
anticipating the money to be made if
Trump follows through on promises
to dismantle regulations in the 2010
4. Richer
3. Elation
Dodd-Frank Act, spur infrastructure
development, and give jumbo tax cuts
to the richest 1 percent.
Wall Street consultant Octavio
Marenzi learned something about
his clients grins. Im seeing people
smile now, clients of mine, where I
didnt even know they had teeth,
says Marenzi, co-founder of Opimas,
whose clients include some of the
biggest banks. Everyone I talk to
is happy.
It didnt hurt that financial stocks
popped, with Goldman Sachs
gaining 15 percent in the week after
the election and JPMorgan Chase
not far behind. Some turnarounds
clocked in at less than an hour.
Bill Brandt Jr., president of bank-
ruptcy consulting firm Development
Specialists and a friend of the
Clintons, spent about 20 minutes
in a state of devastation. And then
I moved on, he says. Im in the
5. M
restructuring industry, and Im going
to get a tax cut. What a double-good
thing, he adds. Its all good for me.
On the campaign trail, Trump some-
times painted financiers as greedy
criminals. Im not going to let Wall
Street get away with murder, he
said at a January rally in Iowa. Wall
Street has caused tremendous prob-
lems for us. An ad he aired at the end
of his campaign showed Goldman
Sachs Chief Executive Officer Lloyd
Blankfeins face as the candidate said
in a voice-over that a corrupt global
power machine was robbing the U.S.
But by the Friday after the elec-
tion, Trumps transition team included
Goldman Sachs veterans Steven
Mnuchin, the campaigns finance
chairman and a front-runner for
Treasury secretary; fund manager
Anthony Scaramucci; and Steve
Bannon, Trumps chief strategist.
Regulatory overreach probably
More Richerer
peaked, says Robert McTamaney, a
former Goldman Sachs partner who
helped run its equities trading business
in Asia until 2011 and now manages his
own money. Its going to come off the
boil, and you can probably cut back on
the legal team and compliance.
Wall Street isnt all glee, and not
just because short-term boosts from
deregulation, tax cuts, and higher
interest rates can fade. Despite
Republican control of Congress,
Dodd-Frank may be difficult to roll
back with Senate filibuster rules.
Incoming Senate Minority Leader
Chuck Schumer said on NBCs Meet the
Press on Nov. 20 that he has enough
votes from both sides of the aisle to
block a Dodd-Frank repeal.
The Republican platform called for
reinstating the Glass-Steagall Acts wall
between commercial and investment
banking, set up after the 1929 stock
market crash helped trigger the Great
Depression. Thats hard to square with
Trumps promise to place a moratorium
on new regulations. The officials who
write them have been rushing to finish
sweeping limits on Wall Street pay, the
last major unfinished piece of Dodd-
Frank. The compensation rule is meant
to rein in risk across the industry by
forcing executives to wait longer to
cash out bonuses.
Two traders who work for banks
say theyre mostly optimistic. But
they also worry that no matter what
Trump does, theres no going back
to the fat old days. Markets in recent
years have become much more trans-
parent, with more transaction prices
now reported publicly, increasing
competitive pressure on banks. Thats
unlikely to change.
Clinton supporter Richard Farley,
chairman of the leveraged finance
group at Kramer Levin Naftalis &
Frankel, says hes surprised at how
slow some people have been to pivot.
There is a lot of hysteria, unfounded
hysteria, he says. This is not the
ILLUSTRATION BY CAROLINE DAVID
ideal occupant of the White House.
Nonetheless, were going to have a
functioning government, most likely,
with less regulation. The thought
cheers him.
Excitement for the treats the next
China is building a
better financial hub. On
the River Thames 34
president might bestow on Wall Street now being sent to the U.S. Treasury
reminds Brandt, the bankruptcy will go to shareholders instead.
consultant, of what he felt when he left Thats what Paulson and several
a meeting in Florida two decades ago other prominent hedge fund managers
with President Bill Clinton and then- have been espousing. Theyve spent
Senator John Kerry. They turned and years building a presence in Congress
said, Were going to repeal Glass- and the surrounding ecosystem of
Steagall, Brandt recalls. And I said, advocacy and influence.
Im all for it, because itll make me Even after Trumps pledge to drain
rich. And it did. Max Abelson and the swamp of Washington, polit-
Dakin Campbell ical donors and lobbyists for
some of the nations wealthi-
The bottom line Bankers see tax cuts, lighter
regulation, and more government spending ahead. est industries were linked
Those matter more to them than Trumps rhetoric. to the transition team.
Vice President-elect Mike
Pence has since prom-
ised to remove them. My
hunch is that every hedge
Mortgages fund has somebody in
Washington by now, or will
John Paulsons Long soon, says Timothy LaPira,
Bet on Trump Pays Off an associate professor who
researches lobbying at James
Madison University.
The campaign donor has a stake
Fannie Mae and 33
in Fannie Mae and Freddie Mac
Freddie Mac buy mort-
Lobbying for a fix that restores gages from lenders
the rights of shareholders and package them into
securities. They were
John Paulson went long on Donald created by Congress
Trump when much of Wall Street went and had long enjoyed
short. Now hes reaping the rewards of an implicit govern-
Trumps victory. ment guarantee but
Paulson made billions of dollars in were run as inde-
the late 2000s with a contrarian bet on pendent, publicly
credit-default swaps and other invest- traded businesses
ments that rose in value when the U.S. before the takeover
housing market crashed. Since then the in 2008. The feds
hedge fund managers company has spent $187.5 billion
been lobbying actively in Washington. on the bailout.
Much of its efforts are directed at The Obama
shaping the future of Fannie Mae and administra-
Freddie Mac, the companies at the tion eventually
heart of the nations mortgage market, changed the terms
which were taken over by the govern- of the bailout, so
ment during the financial crisis. the government
Paulsona political donor and eco- received most
nomic adviser to the president-elect of the com-
has invested through his funds in panies profits,
Fannie Mae and Freddie Mac. Once and its more than
virtually worthless, the stocks of the recouped the
two companies have soared more bailout costs.
than 80 percent since Election Day. Shareholders
Trump hasnt said what hell do with have been
the companies, but investors are seeking redress
betting his arrival at the White House in court ever
will mean some of the profits that are sinceand
 Markets/Finance
A Trump Bump
Fannie Mae stock price
Freddie Mac stock price
Election Day
9/12/2016 11/21/2016
DATA COMPILED BY BLOOMBERG
also working furiously to change the
policy, allowing the companies to keep
more of their earnings for the benefit
of shareholders.
The move to sweep up all profits
violated the rights of thousands
of shareholders across America,
Paulsons company, Paulson & Co.,
says in an e-mailed statement. It says
the governments action violated
the law that enabled the takeover of
Fannie Mae and Freddie Mac, which
many shareholders say requires the
government to allow the companies to
34 rebuild capital and eventually reenter
the private market. This action should
be reversed, the statement says, and
we look forward to an outcome that
restores the rights of shareholders in
these companies.
There are lots of ways to encourage
that outcome. One is a direct track to
influential politicians. Through the
third quarter of this year, Paulson
& Co. has spent $270,000 lobbying
Congress, according to the Center for
Responsive Politics, more than triple
its 2007 outlay. Much of the money
went to American Continental Group.
An ACG lobbyist helped run the 2016
Republican convention.
According to public filings, Paulson
is also part of a group calling itself the
Informal Coalition on Housing Finance
Reform, along with three other money
managers. This year the group has
spent $180,000 lobbying through the
third quarter, up from $10,000 in 2015.
Late last year, DCI Group, a public-
relations firm thats helped organize
Fannie Mae and Freddie Mac share-
holders, was also added to the coalition.
Paulson, who was named as an
economic adviser to the Trump
campaign, cumulatively gave more
than $330,000 this year to Trumps
presidential effort, the Republican
National Committee, and the National
Republican Congressional Committee,
$3.40 according to the Center for
Responsive Politics. The financiers
$2.90 connection with the president-elect
predates Trumps campaign for the
$2.40 White House. In 2012, Trump bought
the Doral Golf Resort & Spa in Florida
$1.90 from Paulson and other investors.
There are also academics, non-
$1.40 profits, and think tanks that have lined
up behind Fannie Mae and Freddie
Mac shareholder positions. They
rarely disclose who, if anyone, theyre
getting funding from or collaborat-
ing with, meaning that any particular
investors involvement is unknown.
In September, Yale lecturer Logan
Beirne and National Consumers
League Executive Director Sally
Greenberg made the case for saving the
companies by invoking the not obvi-
ously related scandal at Wells Fargo.
Their separate op-edspublished on
successive days in American Banker
and the Hill, using sometimes iden-
tical languageargued that it would
be risky to leave the plumbing of
Americas mortgage system solely in
the hands of banks. Their alternative is
to allow Fannie Mae and Freddie Mac
to become strong companies again by
allowing them to retain more of their
earnings and recapitalize.
Greenberg told Bloomberg the text
came from talking points circulated
by a progressive advocacy group.
Raben Group, a lobbying firm, says
it helped place her article in the Hill;
its spokesman, Jamal Simmons, says
theres nothing unusual in the same
messaging documents being shared
among diverse groups working toward
a common goal. The Hill took down
Greenbergs op-ed after her response
to Bloomberg. Beirne says hed worked
with a conservative think tank and had
no contact with either the progressive
group or with Raben.
Then there are apparently grass-
roots movements of small inves-
tors pushing for outcomes that favor
themand also benefit those with a
larger stake. DCI, the PR firm, has
been actively organizing such an
effort in the case of Fannie Mae and
Freddie Mac, as it did during the
Puerto Rican debt crisis.
Sometimes, big-investor money
supports existing advocacy groups.
Nonprofits have made the case for
Fannie Mae and Freddie Mac on the
grounds the agencies help provide
affordable housing for ethnic minor-
ities and low-income groups. The
Leadership Conference on Civil and
Human Rights has built a coalition
to back recapitalization of the two
companies. It says its received more
than $300,000 in donations from
DCI, which is a regular donor to a
range of nonprofits. Paulsons char-
itable foundation gave $25,000 to
an affiliated group, the Leadership
Conference Education Fund.
Paulson isnt the only investor
suddenly doing well by Fannie Mae
and Freddie Mac investments. Mutual
fund manager Bruce Berkowitz, who
said in a CNBC interview in September
he would support Trump, saw his
Fairholme Fund gain 12 percent
between Election Day and Nov. 21,
driven by gains in preferred shares
of the two companies. Hedge fund
manager William Ackman of Pershing
Square Capital Management is
the biggest holder of Fannie Mae
common shares. At a conference
in New York, he said he woke up on
Nov. 9 extremely bullish on the
president-elect. Joe Light
The bottom line A spike in stock prices of
government-run Fannie Mae and Freddie Mac
shows investors see Trump as friendly to them.
Real Estate
Chinese Investors Hear
London Calling
Since the Brexit vote, rents are
down, and some see bargains
The capital is still a great magnet
for companies from Asia
With Britain trying to hammer out the
terms of its exit from the European
Union, is this the best time to start
building a new financial district in
London? China thinks so.
Four of the countrys biggest banks
this month agreed to finance the first
stage of a 1.7 billion ($2.1 billion)
transformation of an old East End
dock into a hub for Asian businesses.
In total, Chinese companies are
on track to invest a record 4 billion

in London property this year.
The Brexit vote in June threatens
to diminish Londons status as
Europes financial hub, because banks
based there may lose the passport-
ing rights that allow them to easily
do business everywhere in Europes
single market. In July office values in
the City of London fell the most in at
least seven years on concerns that
vacancy rates could rise and rents fall
if companies move workers abroad.
International businesses may shift as
many as 100,000 jobs out of London
within two years of the U.K. officially
starting the EU exit process, according
to Jefferies Group analyst Mike Prew.
Chinese investors are looking at it
from a different perspective. Theyve
been bingeing on foreign properties
around the world, driven by high prices
and dwindling investment opportuni-
ties in commercial property at home.
And Brexit has depressed the value of
the pound against the yuan, making
U.K. property look cheaper. Were
now getting inquiries from inves-
tors who have sat on the sidelines for
years, says Rasheed Hassan, a director
of cross-border investment at Savills.
The long-term payoff still depends
on London remaining a vibrant busi-
ness center. Chinese investors are
betting that the U.K. will do well in the
Brexit talks, and if it doesnt, compa-
nies will still choose London as their
base, says Michael Marx, former chief
executive officer of developer U+I
Group. London didnt become the
financial capital of the world
Royal Albert Dock
RENDERINGS: COURTESY ABP LONDON; COURTESY GREENLAND HOLDINGS
overnight, and it certainly wont lose
that status so quickly.
The project at the Royal Albert
Dock, near London City Airport, is
being developed by ABP London with
investment company Citic Group and
has reservations for 13 of the 20build-
ings in the first phase. Bank of China,
Agricultural Bank
of China, Industrial Spire London
& Commercial
Bank of China, and
China Construction
Bank are lending to the
development.
ABP maintains that the
drop in both London rents
and the pounds value
could attract expanding
companies from China
and other parts of Asia
looking for bargains. We
have seen no drop-off in
interest since the vote; in
fact, it has increased, says ABP spokes-
man Neil Robinson in an interview at
the site, where workmen prepare the
ground for construction.
Whatever happens with the EU, for
those doing business in Europe the
city still has the advantage of location,
location, location. London is still a
great magnet for companies from Asia
which already have trading agree-
ments with the EU and can still trade
irrespective of the trade deal that the
U.K. eventually gets, says Robinson.
Chinese money is also flowing into
residential real estate. In Canary
Wharf, where banks including
Markets/Finance
Barclays, Citigroup, and Credit Suisse
are scaling down office space and
workers, Shanghai-based Greenland
Holdings is developing Spire London,
set to be Europes tallest residential
building upon completion in 2020. At
least seven prospective buyers signed
up immediately after the project
was unveiled in Beijing and paid the
10,000-yuan ($1,450)
deposit to secure a slot
when local subscriptions
officially start.
History shows that
starting a London finan-
cial district can be a
rough ride. Canary
Wharf, built as a second
financial center along
what had once been
East Londons busy
docks, was taken over
by creditors in 1992,
after Paul Reichmanns
Olympic & York Developments said
it couldnt pay interest on its loans.
Songbird Estates, the owner of most
of the district, was forced in 2009
to sell shares to investors including 35
China Investment Corp. to repay a
loan as the economic crisis hit. Last
year, Songbird was purchased by the
Qatar Investment Authority and
Brookfield Property Partners.
If you assume the exchange
rate between the renminbi and the
pound goes back to where it was,
therell be a currency gain on top
of any property returns, but theres
no guarantee that will happen,
says Colin Lizieri, a professor of
real estate at Cambridge University.
Rents or capital values could fall
over time if there are oversupply
issues or dwindling demand.
Too much supply is already a risk.
Theres a lot coming onto the market,
adding to the mix of the Brexit shock,
says Jefferiess Prew. His firm is
anticipating rents falling 8 percent to
10 percent over the next 24 months,
with a downside risk of as much
as 20percent if the market goes the
way of 2001 and 2002, when the tech
bubble burst. Bloomberg News
The bottom line Chinese banks are developing
commercial and residential properties in Europes
financial hub, but the payoff is unclear.
Edited by Pat Regnier
Bloomberg.com
 AA PIPIPPEELLININEE
36

As protests heat up, two accidents in Alabama ha

By Christopher Leonard
 David Butler,
Riverkeeper for
the Cahaba, down-
stream from a Colonial
Pipeline explosion site

RUNS THROUGH I T
37

RUNS THROUGH IT
ve shown how fragile Americas energy system is
Photographs by Christopher Gregory
 ON
Halloween afternoon, nine men arrived
at a wooded ridgeline in rural Alabama.
They parked their vehicles next to a gravel
road, forming a loose circle of pickup
trucks, a semi, and an earth-moving track
hoe. A driver turned on the track hoe and
drove it down into a long stretch of grass
that ran along a hillsidethe right of way
for the Colonial Pipeline, the largest gas-
oline pipeline in the U.S. Beneath the
ground, a 3-foot-wide steel tube carried
roughly 1.4 million barrels of gasoline
each day to 50 million Americans in cities
up and down the Eastern Seaboard.
The men were there to conduct
repairs. Just over a month before, the
pipeline had sprung a leak, forcing a shut-
down that caused gasoline reserves on the
East Coast to fall from 64 million barrels
to 55.5 million, the biggest one-week drop
in U.S. history. Prices spiked at the pump in many cities from
Atlanta to Jersey City. The leak had been fixed temporarily
with a bypass, and now the crew was excavating about 5 miles
from the original rupture to rebuild the stretch that had failed.
They worked for a local contractor, L.E. Bell Construction,
that the pipelines owner, Colonial Pipeline Co., had hired
many times over the years.
Among the team was Anthony Lee Willingham, a 48-year-
old track hoe operator whod been with L.E. Bell for almost
30 years. He was familiar enough with the routine procedures
of pipeline repair to have built a kind of muscle memory. If
38 he was at the wheelthe company hasnt confirmed thishe the millions of gallons
would have known to operate the track hoe blade slowly, delib-
erately, without applying too much pressure. But somehow
the blade struck steel, and the fuel ignited.
At that moment, not far down the gravel road, a farmer
named Douglas Wright was at home playing with his grand-
daughter. The explosion shook the house to its foundations.
Wright looked outside and saw a column of flame rising hun-
dreds of feet in the air. Black smoke billowed into the blue
sky. He told his wife to take their granddaughter and drive
as fast as possible, then he headed toward the fire, think-
ing to check on some elderly neighbors. As he got closer to
the site, he heard screams. Wright arrived to find some of
the workers on the ground, severely burned, as their unin-
jured colleagues tried frantically to move them away from
the flames. The track hoe was charred. The semi was oblit-
erated, and the pickup trucks were on fire. Amid the wreck-
age was the body of Willingham. Authorities were unable to
collect his remains until the next day.
Aftershocks quickly shuddered up the spine of Americas
energy system. When gasoline traders realized that East Coast
reserves were once again threatened, they started bidding up
the price of fuel. In a matter of hours, the cost of a gasoline
futures contract for December shot up 15 percent, the highest
jump since the financial crisis in late 2008. Merchants scram-
bled to secure supplies from tankers carrying imported fuel,
causing the cost of cargo freight from the Atlantic to surge
more than a third, to about $17 per metric ton, according to
data compiled by Bloomberg.
The chaos revealed something millions of Americans had
long been able to ignore: They depend on a single pipeline
to deliver the gasoline that fuels their everyday lives. And
that pipeline is operated by a single, little-known company
with an increasingly troubled safety record. Built in 1962, the
Colonial was the largest private-sector infrastructure project
of its time. Roughly half of all refined fuel products used in
cities from Georgia to New Jersey run through its 5,500 miles,
which branch out from oil refineries in Texas and on the Gulf
Coast to gas stations in Americas most populated corridor. In
1999, Colonial Pipeline paid a fine of $7 millionthe biggest
ever at the timefor a massive spill in South Carolina. Four
years later, it was fined $34 million, a new record, for spill-
ing 1.45 million gallons of oil in five states.
At the same time, Colonial has benefited from an increas-
ingly dense regulatory environment for pipeline construc-
tion, which has helped protect it from competition and
make it something of a piggy bank for its owners, to whom
the company returns annual dividends that typically total
about $300 million. Colonials pipeline consistently runs at
100 percent capacity, leaving gasoline refiners and fuel mer-
chants, who pay transport rates in a manner akin to a toll
road, vying for space. The
company, headquartered
in Alpharetta, a suburb
of Atlanta, is privately
held by a consortium of
investors. The largest is
Koch Industries, with a
28 percent stake; others
include the private equity
firm KKR, Shell Pipeline,
a n d S o u t h K o r e a s
National Pension Service.
Tight capacity and
of new oil supplies pro-
duced by the U.S. shale
boom have made some
operators and indus-
trial customers eager to
build additional pipe-
lines. Companies that rely
on the Colonial, includ-
ing American Airlines, First responders at the
are among those press- Oct. 31 explosion
ing for expansion. But
although pipeline operators maintain that moving fuel under-
ground is cheaper and safer than moving it by rail, barge,
or truck, resistance to more construction has grown fierce,
and not just in liberal communities. In addition to ongoing
protests by Native American and environmental activists over
the Dakota Access Pipeline in North Dakota, some deeply con-
servative Southern counties have opposed projects as well.
Minutes after the explosion in Alabama, David Butlers cell
phone started ringing. Butler is a local leader of Riverkeepers,
an alliance of activists who protect watersheds and rivers
COURTESY ALABASTER FIRE DEPARTMENT/REUTERS
around the country. As Riverkeeper for the Cahaba, which
snakes between the sites of the Colonial gas leak in September
and the explosion in October, he counts among his respon-
sibilities testing for pollution and responding to reports of
sewer leaks. Colonial had also enlisted him to help monitor
for pollution from its line and with cleanup after spills. That
afternoon, Butler and his wife, who live about 20 miles from
the blast, were preparing to take their kids trick-or-treating.
His daughter was going to be Little Red Riding Hood, his son
the Big Bad Wolf.
 The first calls were from neighbors, asking if he knew what
had happened. Then Colonial got in touch and confirmed
that the fire had begun with an explosion. The implications
were dire: Hundreds of thousands of gallons of fuel could be
pouring into nearby creeks and rivers, imperiling the Cahabas
173 species of fish and mussels, 14 of which are listed as threat-
ened or endangered. The waterway is also home to the rare
Cahaba river lily, which attracts thousands of tourists after it
blooms each May. (Local drinking water supplies were safe,
since theyre drawn from a river farther away.)
That evening, Butler arrived at the improvised command
center Colonial had set up at a community building in the
town of Pelham. After being cleared by security, he entered
a large, gymnasium-like room where a disaster response
team was working on a plan to contain the fire and assess
the damage. Butler might have seemed out of place amid the
fire department staff, pipeline personnel, and officials from
the Environmental Protection Agency and other government
bodies. With his dark beard, wiry frame, and casual cloth-
inghe often wears jeans and a yellow Riverkeeper T-shirt
he typically looks like hes just finished a long hike. He also
has the metabolism of a hummingbird, frequently fueling
himself with Powerade and miniature chocolate-chip cookies.
That first night, Butler worked with Colonial employees
and environmental contractors until roughly 3 a.m. to draw
a map that showed where gasoline might be leaking into the
Cahaba. One point of concern was a creek near the explo-
sion that fed into the river. This small stretch of water is the
isolated habitat of the oblong rocksnail, a species thought to
be extinct until a small population was found in 2011. Butler
and Colonial decided that in the morning they would test
strategic points along the waterways for the presence of fuel.
As they worked that night, the fire was spreading along
the hillside to nearby forested land. Alabama was in the
middle of an historic drought, which had left the forest floor
covered with dry tinder. About 31 acres of land were engulfed
Damage costs for
Colonial Pipeline
accidents In September, more
than 300,000 gallons
of gasoline leaked
in Alabama; the next
month the pipeline
exploded
GRAPHIC BY BLOOMBERG BUSINESSWEEK. DATA: ENERGY INFORMATION ADMINISTRATION,
2006 2011
Linden, N.J.
PIPELINE AND HAZARDOUS MATERIALS SAFETY ADMINISTRATION
Nashville, Tenn.
Birmingham, Ala.
Atlanta
Colonial Pipeline
Houston
Oct. 31 explosion Sept. 9 leak
overnight. Butler considered it a stroke of luck that the fire
wasnt encroaching on the suburban communities dotting the
highways between the explosion and Helena, a town 21 miles
south of Birmingham. Colonial had moved swiftly to shut
off the flow of gasoline in the pipe, leaving it to burn itself
out as firefighting crews doused the edges of the blaze and
built earthen berms to contain the fountain of ignited fuel.
When Butler arrived in the morning to start collecting water
samples, the fire was largely contained, but it remained about
20 feet high.
As he went from site to site, the early indications looked
promising: no oily sheen on the water, no odor of gas. He did,
however, notice a somber air among the pipeline employ-
ees and contractors. They seemed almost embarrassed, he
thought. Colonial had been having a very bad year in Alabama.
The company had already reported five leaks from its pipeline
in 2016, one less in 10 months than it had had in the previous
five years. In late January, the Colonial had discharged about
126 gallons of fuel into nearby wilderness. Several smaller
spills followed, culminating in the big leak in September, when
309,540 gallons of gasoline poured out of the line, filling local
ponds and forcing the shutdown.
Records from the federal Pipeline and Hazardous Materials
Safety Administration (PHMSA) show that nationally, the
number of reported pipeline accidents has been creeping
up every year since 2012, from 573 that year to 715 in 2015.
The number of reported accidents along the Colonial has also
been climbing (though not in a straight line), from 12 in 2011
to 27 in 2015. Their cost, too, has been increasing. Last year,
incidents involving the Colonial led to $18.1 million in property
damage and cleanup outlays, the highest total by far over the
preceding decade. This year, the figure had already reached 39
$75.6 million before the accident on Oct. 31.
Colonial refused to comment on what caused the
September leak or why accidents are up sharply in Alabama
this year. Malesia Dunn, a spokeswoman for Colonial, said that
the company is looking into the causes of both major incidents
and cant comment until the investigation is further along.
The PHMSA has yet to determine the cause of the September
$80m and October incidents and wouldnt comment either.
Butler had worked with Colonial to contain the September
leak. As bad as it was, he said, it could have been far worse. It
had been discovered only by chance, by a state inspector who
$40m
smelled gas fumes while doing unrelated work in the area. And
because of the drought, the nearby ponds were low, which
allowed them to become catchments for the spill. Had they
been full, the gasoline might have flowed into the Cahaba.
$0
2016 Dunn wouldnt discuss why the company failed to discover
the September leak, but she stressed that it has an extensive
detection system in place. The system includes pressure-
monitoring equipment and flyover inspections, as well as
training for local officials about Colonials operations, which
lets them know who to call if they see something, she wrote
in a statement. She added that a flyover inspection two days
Norfolk, Va. before hadnt spotted the leak.
After the September spill was contained, Butler said, he
had jokingly told Colonial employees, I hope I never see you
again. Now, as they once again raced to keep the Cahaba
River safe from a gas spill, it wasnt like, Hey, great to see
you, he said. Its like, Here we are again.
250 mi. Accidents like the ones on the Colonial have galvanized oppo-
sition to pipeline construction across the country. In
North Dakota, protesters have built huge encampments
 and blocked roads to halt construction of the Dakota Access
Pipeline, a $4 billion project that would take crude oil from
fracking wells in North Dakota to refineries and gasoline con-
sumers in Illinois. Members of the Standing Rock Sioux Tribe
argue that the pipelines proposed route runs too close to
the Missouri River, the source of their drinking water. On
Nov. 15, hundreds of marchers closed down streets near the
White House, while other rallies took place from Los Angeles
to New York.
The Colonials history suggests their fears are justified. The
leak in South Carolina for which Colonial Pipeline paid its
1999 fine, for example, sent roughly 1 million gallons of diesel
fuel into a local waterway, contaminating a 23-mile stretch of
river and killing an estimated 35,000 fish, along with beavers,
muskrats, and turtles. In settling with the U.S. Department of
Justice, Colonial pleaded guilty to criminal neglect.
Over the past three decades, incidents like these, and the
resistance theyve spawned, have led to a much tighter reg-
ulatory environment for pipeline builders. Roger Williams, a
pipeline developer from Wichita, said that in the mid-1980s
he oversaw a project that laid 1,300 miles of pipe from Texas
to California, crossing several states and a mountain range
for good measure. At 85, hes now vice president for opera-
tions on the 178-mile Pilgrim Pipeline project, which would
serve cities in New Jersey and New York. His team has spent
millions just to get to the beginning of the permitting process,
including money to hire herpetologists and other wildlife
experts to examine the ecological impact of the new line.
After more than three years of groundwork, Williams said,
we dont have one single permit yet. In the meantime, the
company has had to shut down a branch office in New York
40 and lay off its staff. They protect everything up there except
human beings, he said.
New pipelines are being thwarted in the South, too. In
May, Georgias Republican governor, Nathan Deal, signed
a moratorium on pipeline permits following intense public
opposition to a proposal by Kinder Morgan for a 360-mile
pipeline called the Palmetto. The line would have branched
off from the companys Plantation Pipe Line, tracing a route
through Georgia, South Carolina, and Florida, and serving
cities with limited or no pipeline service, such as Savannah
and Jacksonville. Opposition arose almost immediately, led in
part by Tonya Bonitatibus, the Riverkeeper for the Savannah
River. The Palmetto was to be buried beneath miles of marshy
terrain that runs alongside sensitive riverswetlands that
serve, Bonitatibus said, as the rivers liver and lungs, by
letting pollutants settle out into sediment in the shallow,
slow-moving water.
While some of the anti-Palmetto movements concerns
were environmental, their activism took on a conservative
bent. Most of the resistance focused on Kinder Morgans
authority to use eminent domain to take property from land-
owners who wouldnt cut a deal with the company, a power
granted to pipeline companies by a New Deal-era law intended
to spur infrastructure development. They were incredi-
bly arrogant the entire time, Bonitatibus said. There was
absolutely no way that Kinder Morgan should have access to
eminent domain.
Allen Fore, a spokesman for Kinder Morgan, said that on
a typical pipeline project the company uses eminent domain
sparingly, invoking it for fewer than 5 percent of landowners.
He added that the company had also been prepared to push
ahead with Palmetto without eminent domain. But the activ-
ists message carried the day, and Deal passed his moratorium
with the backing of conservative state legislators. Even with
financing and a customer base locked in, the regulatory uncer-
tainty was too great for Kinder Morgan to carry on. That, at
the end of the day, was the problem of Palmettowhere you
have a regulatory environment that shifts, Fore said. The
playing field is not only altered, its basically shut down.
In the days after the Alabama explosion, as Butler collected
water samples, employees from Colonial and L.E. Bell raced to
get gasoline flowing again. The lessons of the September shut-
down were fresh in their minds. They knew that oil traders
and wholesalers would be counting the minutes until the
pipeline reopened.
The gravel road to the accident site was guarded by a rotat-
ing shift of Shelby County sheriff s deputies, who checked
credentials and kept strangers and reporters away. Traffic
was almost nonstop. Heavy trucks with the L.E. Bell logo
came and went, along with vehicles from specialists and con-
struction companies from around the Southeast. The men
and women driving looked stoic, ignoring reporters as they
passed by the entrance. At the site, workers prepared new
sections of pipeline while fire crews sprayed smoldering tree
stumps to prevent reignition. In the predawn hours of Nov. 4,
four days after the blaze erupted, it finally burned out com-
pletely. The next day, the new section of pipeline was tested
and prepared for use.
Employees of L.E. Bell appeared shellshocked in the days
after the explosion. Word of Willinghams death had spread
quickly, and four of his co-workers were being treated at a
burn unit in downtown Birmingham. Trays of food and gallons
of coffee were sent to provision family members as they held
vigil. Those who knew Willingham seemed mystified by the
accident, none more so than Jeremy Slaton, his next-door
neighbor and close friend. The two often shot rifles together
on a grassy hillside near their homes. Slaton recalled that
Willingham could hit a target from several hundred yards
away. Willingham was a steady hand and a competent worker,
he said, which made him doubt that a simple mistaken swipe
of the track hoe blade had been entirely to blame. It would
take tremendous, tremendous force to put a back hoe, or
a track hoe, tooth through a piece of pipe, he said. Im
thinking theres something elsesomething was hidden that
caused this.
Shortly after the accident, Colonial released a statement
saying that a track hoe had struck the pipeline, but the
company didnt confirm that Willingham had been driving
or otherwise elaborate. The company and the National
Transportation Safety Board are both investigating the acci-
dent, but neither would comment on their investigations or
on the circumstances of the explosion.
Larry Bell, the owner and operator of L.E. Bell
Construction, declined to discuss the explosion in detail
because of the legal troubles surrounding it. He would say
only that it was a freak accident. He said, it had nothing
to do with unsafe pipeline or workmanship. Im not a betting
man, but youd win money on that.
Bell lives on a large complex that also serves as his compa-
nys headquarters, on a winding country road near Heflin, an
hour or so east of Birmingham. On the left as visitors enter is
a giant warehouse and open lot. Next to that is a small office
building, where visitors are greeted by a caged parrot. A sign
taped to the front door shows a pile of cash below the caption,
This is the money you couldve saved if you hadnt voted for
Obama. To the right of the office is a palatial house. The mix
 the company agreed to improve safety
practices as part of its settlement with
federal regulators.
This years incidents appear to
be affecting the companys bottom
line. In 2015, according to Moodys,
Colonial spent $163 million on capital
investments, which includes mea-
sures for system reliability. This
year the figure is almost double that,
roughly $300 million. Thats about the
same amount the company has been
returning to its shareholders in div-
idends in recent years, but Moodys
notes that Colonial will reduce the
payouts this year because of the
accidents. Koch Industries declined
to comment.

Its possible that the presidency

of Donald Trump will change
the regulatory environment for
pipelines, clearing the way for the
Dakota Access to be completed and
for the construction of the Keystone
XL and other lines. But its unclear
how much impact even a deter-
mined White House could have,
given that most pipeline battles are
fought at the lower levels of govern-
ment. Moreover, g asoline supply
crunches wont likely persuade the 41
environmental groups that pressured
President Obama to kill Keystone XL
and are now protesting the Dakota
Access to back down from their objec-
tions. My worries about infrastruc-
ture fragility tend more towards,
Buck Creek, a tributary of the Cahaba that runs through the town of Helena say, the effects of rapid sea level rise
on the nations coastal cities, wrote
of home and business, Bell said, was a country boys way of author and activist Bill McKibben, co-founder of the nonprofit
doing stuff. He was quick to point out that he and his wife 350. org, in an e-mail.
were born poor and had been raised in a nearby small town. Environmentalists fight, he pointed out, is about more
We didnt have no rich aunts or rich uncles or daddies than preventing leaksits a way to curb the construction of
but we had some good ones, he said. infrastructure that supports the oil and gas industry. The
Bell dropped out of high school to work as a laborer on the imperative need is to wean the world fast off fossil fuelsthis
Colonial in the early 1960s. He remembered when the pipe- is the hottest year our planet has ever recorded, with record-
line ran its first gallons to fuel. His company now employs low polar ice for the date, with massive droughts and floods,
about 500 people, who help maintain the aging Colonial and McKibben wrote. When we build new fossil fuel infrastruc-
other pipelines like it across the country. Colonial Pipeline, ture we condemn the nation to another 40 or 50 years locked
he said, goes extremely overboard to make sure everything into the current way of doing business.
is done right and everything is safe. He described pipelines For now, at least, the risks of climate change, water contam-
as a necessity of modern life. If we lined up trucks to trans- ination, and species loss remain the trade-off for driving our
port our product from Louisiana and Texas to the East Coast, cars and heating our homes. By Sunday, Nov. 6, the Colonial
we wouldnt have any room on the interstate to run our cars, was up and running again. Gas prices had barely been dis-
he said. Anything we do has got risk to it. Theres nothing rupted, leaving some 50 million people to forget once again
that man makes that does not have a risk to it. what an important role a single tube of steel and the company
Dunn, Colonials spokeswoman, wouldnt say what specific that owns it play in their daily lives.
actions the company will take to boost reliability. When inci- Butlers water tests from the accident site came back neg-
dents do occur, we investigate and determine the cause along- ative for gasoline. It was great news for him and the oblong
side government regulators, and take corrective actions based rocksnail, but he wasnt celebrating. Instead, he was nervous
on lessons learned to minimize the likelihood of similar events that the next call from Colonial would be coming soon enough.
happening again in the future. We are doing the same here, The risk was always hanging out there, he said. Its sort of
she wrote in an e-mail. After each previous major accident, a guillotine. <BW>
I mean
is ther
anti-m
42

trainin
n,
re
Sexual harassment is alive and well
in the American workplace.
Were all clicking through
video compliance courses.
Somethings not working
By Claire Suddath

murder
43

ng?
 Nine women talk the Massachusetts attorney generals
about on-the-job office filed separate complaints. The
diner settled without admitting to any
harassment wrongdoing. Billiel and at least nine
other women will share a settlement of
Marie Billiel, 27 between $112,000 and $200,000.]
Boston Receiving a settlement doesnt nec-
It started pretty quickly, within the essarily feel good. The diner closed. I
first two weeks that I was working at the still had friends who worked there, and
diner. One of the cooks
standing in a room full of 300people,
and an elected official came up behind
me, grabbed me, and then put his hand
between my legs. A colleague saw it
happen. He pulled me into the hallway
and said, If you dont tell your boss,
I will. So I did. Having someone else
seeit validated my story. The man
couldnt claim I was flirting with him or it
didnt happen.

I
grabbed my wrist and
tried to pull me into the
walk-in freezer where
there arent any cameras,
because he wanted to
kiss me. I said no. I pulled
away, went back out. I
was 18 and didnt know
how to deal with it.
We were whistled at
all the time. Some girls
were oinked at. They
would watch pornogra-
phy on their cell phones
and then try to show it to
us. I was kissed without
my consent. There were
other women there who
got straight-up groped. If
I resisted their advances,
they would retaliate by
44 forgetting to make my racial, ethnic, or religious discrimination. We by no
food or burning my orders
or making other peoples
orders first. My tip goes
down because of that.
There was one point
where I was in a walk-in
freezer with a cook who
was consistently trying to
get me to go out with him.
One of the other cooks
shut the door on us and
turned the lights out as
this man was approach-
ing me and asking if he
could bite me. [It] was
less than fiveminutes,
but at the time it feels like
an eternity.
I told one of my man-
agers. She passed it
along to the owner, and
nothing was done. I heard
the reason was because
theyd heard that I had already been
sexual with him, which is not the word
they used. That was untrue, but they
decided they werent going to inter-
vene based on something theyd heard
through the grapevine.
[After Billiel left the diner and, in
2014, blogged about her experiences,
the American Civil Liberties Union and
I know the elected
official was talked to. I
f you run a company in California, you have to take wouldve liked to see him
state-mandated anti-harassment training every two banned from our meet-
years. This October, Matt MacInnis, founder of a ings, but he wasnt. One
digital distribution business called Inkling, clicked time he caught me after a
through two hours worth of slides about inappro- meeting and said, I was
priate touching and sexual comments in an online out of line, I was drink-
course produced by an HR services company. As he ing, and I know thats no
answered multiple-choice questions to prove hed paid atten- excuse, but Im sorry.
tion, a thought occurred to him: This is a farce. MacInnis That was three years
couldnt see how an online training course would keep an ago. I still see him, but its
a--hole from still being an a--hole, as he puts it. There is better now.
a laudable goal, but the way we address sexual harassment I actually wrote the
now, the whole system is flawed, he says. I mean, is there sexual-harassment
anti-murder training? policy for our organiza-
The Equal Employment Opportunity Commission tions meetings after that.
(EEOC), which by law must investigate all federal harass- We didnt have a formal
ment claims before they can proceed in court, received one. Imean, its 2016 for
13,000 sexual-harassment complaints last year (16 percent Gods sake.
of them from men), outpacing the number it received for *For the women who
asked to remain anony
means think thats the extent of the harassment, says mous, we have verified
Peggy Mastroianni, the organizations legal counsel. She their names, place of
estimates that as many as 90 percent of people who expe- employment at the time
rience sexually inappropriate behavior at work never of the incident, and the
take formal action. Many who do are contractually obli- names of the alleged
gated to litigate through private arbitration, which the harassers.
EEOC cant track. But decades of surveys show that harass-
ment remains prevalent: In a 1981 Harvard Business Review Alexandra
survey, 60 percent of women said theyd been eyed up and Marchuk, 30
down by male co-workers; last year the EEOC reported Jacksonville, Fla.
that somewhere from 50 percent to 75 percent of women I worked at Faruqi
have experienced sexual comments or touches that made & Faruqi my second
them feel uneasy at work. summer of law school.
For more than three decades, U.S. companies and insti- They offered me a job
tutions have addressed such behavior through corporate when I graduated in 2011.
policies and awareness programs, although theres little Its a small civil litigation
evidence theyre effective. Compliance training makes up a firm in New York. The
sizable portion of what market-research company IBISWorld two founders are brother
estimates is a $4 billion HR software market. In California, and sister, but the part-
which has the most robust training requirements of any ners are mostly men.
There were some female
attorneys and of course
women paralegals and
Im not any less traumatized; Im not any receptionists. Midway through that
less assaulted. [first] summer, Juan Monteverde was
hired. He specializes in intervening in
Anonymous, 32* mergers on behalf of shareholders,
Washington, D.C. saying the disclosures youre making
I work for a political group. We do are insufficient. Hewas really good at
a lot of networking events. When you his job, sort of therainmaker.
get people out of an office setting, they Juan had said some weird things
change. This one time I was at an event, to me when I worked there over the
summer. Once wed been out at dinner, putting myself in a dangerous position. quickly, forcefully, and painfully had
and he joked in front of other people that And I still had to do the actual work. sex with her. In his own court filing,
I should give him a blow job for picking up I had this plan to wait until I got Monteverde disputed her account.]
the check. I didnt know until right before some experience and then jump ship. I actually went to work for two days
I started that Id be working directly I was trying to strike this balance after that, but the second night I was like,
for him. I was hesitant, but I also had dont complain so you dont get fired. I cant do this. I called my mom, and she
$250,000 in student loan debt and was In December [2011], Id been there drove into the city and picked me up.
really happy to have a job. three months, and we were at the firms I filed a lawsuit. I had gotten a full-
On my third day at work, wed just holiday party. I started talking to Juan time job in Omaha before I filed, and Im
come back from a court still with that company.
hearing and were having They let me deal with it in
a drink at a bar when the best kind of way. So
Juan started kissing me. state, companies spend hundreds of millions of dollars on on that front, I was OK.
He asked me to go have courses every year. About 80 percent of companies offer some But I didnt think it would
sex with him. I was like, form of training, although only three statesConnecticut be covered so closely
What? No. He started and Maine, in addition to Californiarequire them to do so. by law blogs or followed
making comments all the (Thirteen more states order training for at least some gov- by the law community.
time. Hed touch me in the ernment employees.) They use all sorts of courses, produced There are details in there
elevator when I couldnt by dozens of companies, from the cut-and-dried to risible that, when you Google
get away. He kept inviting theatrical re-creations. meI mean, bloodstains
me out on his boat. Hed Skillsoft makes compliance videos covering everything on the carpet. One of my
comment about my body from data privacy to environmental sustainability for about close friends thought
in front of other people at 7,000 companies; it leans heavily on hired actors who dem- to e-mail every single
the firm, asking me to go onstrate legal definitions in generic corporate scenes. HR person in her firm about
to hearings with him so I Learning Center advertises one of its courses with a picture it. It was entertainment
could be eye candy for of a man and a woman making out on top of a filing cabinet. for a lot of people.
the judge. Inspired eLearning, which MacInnis used at Inkling, starts The firm denied it.
A few weeks into this, one of its videos with the words charges of sexual and other [Monteverde said the
one of the female part- forms of harassment can land your company in court, fol- relationship was consen-
ners took me out to lowed by a picture of a frightened gray-haired man on what sual.] They countersued
dinner, and I told her what appears to be a witness stand. Emtrain, which creates online me for $15 million, claim-
was going on. I got the courses and runs in-person events for companies such as ing I was obsessed with 45
sense later that she talked Chevron, Netflix, and Nordstrom, urges employees to men- him. The lies they told
to people about him, but tally color-code their commentsgreen is respectful, red is dont even make sense.
nothing was done. So I offensiveand to call out their co-workers with gentle warn- They said I hadnt been
just...I dont know. It went ings such as thats a little orange. eligible for a bonus. Well,
on and on. We did a case Early versions of these programs first cropped up in the I kept my offer letter, and
involving a company 1980s, but the their use didnt pick up until two U.S. Supreme it says Im eligible for a
called BJs Wholesale, Court decisions in 1998 clarified when companies can be held bonus. They claimed Id
and hed joke in front of liable for harassment. In the cases, which considered whats e-mailed the lawsuit to
another attorney about known as hostile work environment harassment (frequent Juan and his wife and the
how much he liked getting sexualized comments or touches), as opposed to the quid firms clients. But it turned
BJs. Sometimes it wasnt pro quo variety (the classic sleep with me or youre fired), out that the IP address
even sexual. Hed just do the court decided that a company will be held liable when a where the e-mail came
things like make me work boss harasses a subordinate unless it can prove that it takes from was within Faruqi,
all weekend on some- steps to prevent and address such behavior. after Id already quit. They
thing that wasnt neces- Catchall policies that disavowed harassment quickly ended up dropping the
sary; or hed threaten to became the norm. Pick any major institution today, and countersuit.
fire me knowing I had all youll find one: We do not tolerate harassment or inappro- I was deposed for a
this student debt; or he priate conduct, JPMorgan Chases official code of conduct full day. All of the named
said hed chip in on my reads. Apple is committed to a workplace free of defendants got to sit in
rent if I let him sleep over harassment. In addition to the standard prohibitory the room and look at me
at myapartment. as I did it. They had a psy-
I dreaded going into chologist evaluate me. It
the office. I had to police was a three-hour session
everything I said and did and what I about yearend bonuses, and he said he in the library of an attorneys law firm,
wore. I remember one time I was visiting wouldnt recommend me for one. Wed and he asked a lot of questions about
home, and my mom took me shopping at been drinking, and he said we should go my hobbies. It seemed to bother every-
Brooks Brothers. There was a pencil skirt back to the office, and I agreed. Thats one that I had gone hiking on a vacation
she wanted me to buy, but I said, No, when hewe... once during all of this. They asked a lot of
Juan would comment on it. I paid atten- (cries) questions about how I paid for the vaca-
tion to when other people left for the day [In a lawsuit Marchuk later filed tion. They decided not to use the psy-
so I wasnt alone. It took an incredible against Monteverde and the firm, she chologist in the trial, so I dont know what
amount of energy to make sure I wasnt said that back in the empty office, he the point of that was.
 The trial went on for weeks and was invited me to sushi for dinner. He said was like, Am I overreacting? Is this guy
insanely stressful. I read discovery from it would be a big group of co-workers. crossing the line? I wasnt sure. My
some of my friends, and what they said When I got to the restaurant, though, supervisor said, Absolutely he is. He
about me in e-mails and Gchats behind there was nobody else there. I ate should not be sending you flowers and
my back. By the time the jury had their dinner to be polite, but then I went home, asking you out when you tell him not
verdict, so much had been argued that because it was weird. to. He said hed talk to him. That was it.
I didnt know what to expect. [Marchuk He started e-mailing me multiple mes- Everything stopped.
lost under federal and New York state sages a day. He sent me flowers. Hed I learned later from my supervisor
harassment law, but won under New say things like, A friend of mine is a pilot that theyd had other issues with him.
York Citys human-rights Two other women com-
law and was awarded plained about him after I
$140,000. In a post- did. I know they take this
decision interview with language, Google urges its employees to be excellent to stuff very seriously there,
the Above the Law each other. Goldman Sachs says it does not tolerate any and Ive always felt very
blog, a juror explained form of discrimination prohibited by law. Despite the recent safe. But he still works
that the jury didnt outpouring of harassment complaints regarding former Fox at the studio. Hes had
believe Monteverdes News Chairman Roger Ailes, the policy at the networks promotions.
sexual advances were parent company, 21st Century Fox, says that unwelcome DreamWorks declined
entirely unwelcome, that sexual advances [or]verbal or physical conduct of a sexual to comment.
Marchuks private e-mails nature arent allowed, and people should feel free to report
contained contradic- any harassment they see or experience. Anonymous, 32
tory messages about These policies often go hand in hand with the train- San Diego
how she felt about the ing courses, which typically cover the legal definition of The first firm I worked
law firm, and that the firm harassment and what kind of behavior can get people into for after law school, I was
had dutifully recorded trouble. Maine and Connecticut passed their laws requiring a junior associate. The
what Marchuk told the training in 1992, in direct response to the Supreme Court head of paralegal was
female partner about confirmation hearings for Clarence Thomas. California fol- a guy who was about
Monteverdes actions.] lowed suit in 2004 after 16 women accused then-Governor 20 years older than me.
The decision was dis- Arnold Schwarzenegger of harassment. (With your back- Because Im an attor-
appointing but well within ground, you probably ought to sign it, Sarah Reyes, the ney, I was above him. He
the range of anything that state assemblywoman who introduced the bill, said about took great issue with this.
46 could have happened. Schwarzenegger at the time.) But according to employment Hed say things to me like,
You just dont know. Its attorneys, HR managers, and the companies that design the Why are you always such
just a bunch of strangers courses, their goal isnt to stop harassmentits to guard a b----? Why are you a
who get to judge whether against lawsuits. hard ass? It was offen-
or not you deserved it. Youre building a defense in the event of an incident, sive and all, but it was just
In a statement, Faruqi passing liability from the organization to the individual, talk. I just thought he had
& Faruqi founding partner says Eugene Van Biert, vice president for global compliance something in his craw
Lubna Faruqi says the solutions at Skillsoft. His company offers different levels about a woman of color
law firm takes the safety of training; he says most of its clients pick the basic online being his superior.
and wellbeing of our course that employees click through to learn the legal dos One day he came into
team members very seri and donts. They want to generate a record so they can my office, closed the
ously. We have policies say theyve done it, then they want to move on, he says. door, and grabbed me. It
and procedures regard Skillsofts most comprehensive program includes a way for was so sudden I was like,
ing employment issues, people to report harassment theyve experienced in the What is going on? He
including but not limited past, but Van Biert says fewer than 20 percent of his clients got me in this bear hug.
to, harassment and dis choose the service. Hes a much bigger guy
crimination in the work Despite its popularity, theres little research on this kind than me, and I couldnt
place. We considered of training. Last year the EEOC established a task force move. He started shoving
Ms. Marchuks com to investigate workplace harassment and concluded that his hands up my shirt. I
plaint to be without much of the training done over the last 30 years has not told him to stop it right
merit and vigorously worked as a prevention tool. The commission could find now, or Ill scream. The
defended ourselves in walls were thin, and I
New York federal court. knew all I had to do was
Monteverde didnt make noise, and someone
respond to a request for comment. and could fly us to Catalina Island for the could come in. He stopped.
weekend, or Do you want to go on a I didnt say anything to anyone about
Anonymous, 41 hot air balloon ride in the desert? It was it. The owner of the firm wasnt very good
Los Angeles never, Hey, lets get coffee. I turned him at dealing with conflict. If I had reported
I started at DreamWorks around the down, but he would just keep asking. And it, Im pretty sure I would have gotten
winter holidays, so there were a lot of asking. And asking. fired. Theyd come up with an excuse.
parties. Thats where I met him. Hed stop I stopped being polite and started flat This was in 2010 or so, and legal jobs
by my office, send me e-mails asking out telling him no. That made him esca- were really scarce. Instead, I just made
if I wanted to have lunch. One night he late. I eventually told my supervisor and sure other people were always around.
Pretty soon after that, we moved to team. I was also the only woman. regret for not standing up for myself in
another office, and I shared office space When I was still new to the role, we the moment. Did my nervous laughter
with someone, so I was rarely alone. had a week of team-bonding events egg him on or give him implicit consent
Even so, I still felt on edge. Its a hard planned. This was the first time Id spent to keep going? Why didnt I tell him to
feeling to describe, because once its extended time with my manager. He his face, immediately, that this was
there, its always present. It was a harsh made a number of highly inappropri- misogynist, racist, and unprofessional?
transition into the real world. It goes ate comments to me in professional and He was my direct superior.
against everything I believe, but honestly after-work events: comparing women At work, I couldnt focus. I lost my
the best way to deal with that is to just from different Asian countries, telling me motivation. I was enraged at him for
blow it off. making these comments
and angry at myself for
Magdalena Zylinska, 45 not being stronger. I
Elmwood Park, Ill. only three studies, the most recent of which is 15 years old, struggled withwhether
In one of the houses that evaluated training programs over time at companies. or not I should report
I used to clean, the man These training companies are making buttloads of money my manager to HR, or if
was always taking his off these courses, but what little information we have on I should keep my head
clothes off. He expected them raises serious questions about their efficacy, says down and let it go. I was
us to clean while he Vicki Magley, an organizational psychology professor at scared that I was blowing
was working naked. the University of Connecticut who co-authored two of the things out of proportion.
Sometimes he would ask studies. Theres other academic research, Magley says, but it He was well-respected
if you wanted to touch usually deals with fictional programs designed by research- on the team, and I was
him. I didnt know whether ers rather than actual courses that companies might use. concerned about what
to run or stay and work In her experience, compliance courses help employees might happen to our team
or what. I had a mort- understand the definition of sexual harassment, but dont if he was disciplined or
gage. I had a kid. I needed change peoples behavior. I have absolutely no faith that even fired. What would
the money. At the time I any kind of an online course is going to do anything to stop happen if his wife found
was undocumented. So harassment, she says. out, and Iruined their
I stayed, but I made sure The companies that design the coursesand the HR marriage? I couldnt make
that when I cleaned his departments that implement themalso have trouble mea- sense of why I contin-
house, there was always suring their impact. I kind of dont have any answers, says ued to feel such empathy
someone with me. Id tell Phyllis Hartman, an HR consultant whos been working on amidst my anger. It took
them, If I scream, you just anti-harassment training for 25 years. You just sort of do it me two to three weeks, 47
run and call the police. and hope itll be better. Emtrains chief executive officer, but ultimately I decided to
When I left [his house], I Janine Yancey, says her company plans to publish a report report his behavior to HR.
tried to think about some- demonstrating how its services decrease harassment com- HR set up an inter-
thing else, not about the plaints, but it hasnt released any results yet. As a researcher, view with me so I could
problems. But the first Magley once teamed up with a company to evaluate its anti- recount what hap-
couple of years, it was harassment training but had to discontinue her study after pened. They asked for
really, really bad. Youd the company got nervous about legal liability should she the names of people who
be working, and hes find it didnt work. The attorneys from this company came might have witnessed the
nowhere around, and you in and said, We are not finding out that information. They events, as well as spe-
go to the basement to do pulled out of the study because they didnt want to know, cific times and locations.
laundry, and hes there on she says. If we could ask companies, Have you had fewer I cried. It was humiliation
the treadmill, naked. HR complaints after taking our training? says Felix Odigie, all over again. From there,
After three years or so, Inspired eLearnings CEO, and gather that kind of intel, they worked on corrob-
I just told him, you either it would be gold. But I dont know what company would orating my story with
look for somebody else or provide that information. I asked the head of my own HR the witnesses I provided
Im going to call the police. department if theyd be comfortable with that, and she and also talked to my
He stopped. I guess he looked at me like I had two heads. manager to get his side
kind of respected me for Focusing on the legal limits of harassment can make these of the story. Afterward,
saying something. I still courses culturally tone-deaf. Last year an internal inves- they provided me with a
clean for him, and some- tigation by the University of California at Berkeley found summary of their findings,
times he asks, Can I get a vague statement that
naked? Im like, No. disciplinary action was
To protect Zylinska, taken and that it should
who still works for theclient, we didnt that every guy goes through an Asian never happen again, and assurances
contact the homeowner for verification. fetish, asking me to sit on his lap (I didnt), that Google had a no-retaliation policy
telling me about his sex life during a one- in effect, so I should be protected in my
Julia, 28 on-one meeting, and asking me to touch own career. They also checked in to see
San Francisco the flesh of his palm as a way of describ- how I was feeling after everything.
I had recently switched teams at ing why he had developed a strong sex I dont know the specifics of how
Google and had received a new manager drive at an early age. I responded with Google reprimanded him, but I know
as a result. I was in my early 20s and nervous laughter and by changing the that he was given additional sexual-
wasthe most junior member on our topic. In retrospect, I still feel shame and harassment training. He apologized
 to me for his actions and promised was the illegal workerswho were great, but I really loved that job. I love working
not to do them again. He remained my by the way, always respectful. I think if outside. Its hard as a woman to get
manager for another year but was very they hadnt been illegal, they probably someone to hire you to do manual labor.
careful to only act professionally. Hes wouldve said something. But around I applied at a few other stables, but they
still at Google today. certain people hed act normal. I used to didnt look twice at me. Also, part of me
On the whole, I felt like Google and like to build fences with this one man in was like, maybe Im being too sensitive.
the HR department were on my side. his 50s, because when I was with him, Now its so clear to me thats not at all
They took my concerns seriously. But H. wouldnt say anything when he came the case, but at the time I thought, well,
it took a long time to rebuild my self- by. I dont know if it was because he was maybe the problem was me.
confidence. Later when I didnt even think
I was promoted, I won- about reporting him. It
dered if I deserved the just wasnt an option. Hes
promotion or if it was that a renowned astronomy professor, Geoff Marcy, had for probably not even going
given to me out of guilt. more than a decade repeatedly groped female students who to remember a lot of the
Google declined to worked in his lab. (Marcy referred Bloomberg Businessweek instances that caused me
comment. We reached to his lawyer, who did not respond.) And yet the schools so much stress, because
out to the manager for online anti-harassment training course included a hypothet- to him it was another day
comment but didnt ical scenario that was almost the opposite of what the uni- at work.
receive a response. versity was dealing with. The course described a fictional
female student who is attracted to her dissertation advisor, Cynthia Brzak, 64
Anonymous, 34 Dr. Randy Risktaker, and for months has repeatedly asked Geneva
Missoula, Mont. him out on dates. Instead of discouraging a relationship, I started working at
For two years start- Berkeleys training course noted that legally, Randy Risktaker the United Nations in
ing in 2002, I worked a could date the student as long as he first stopped being her 1979. In December 2003,
summer job at a horse adviser. I have to tell you, that is not a problem most of us I was in a meeting with
farm. I was doing things encounter as professors, says Michael Eisen, a biology pro- six men, including Ruud
like setting up jumps fessor at Berkeley who took the course. Lubbers, the UNs high
[and] putting holes in the Sindy Warren, an employment attorney whose firm, commissioner for ref-
ground for fence posts. I Warren & Associates, investigates workplace harassment, says ugees, who used to be
worked with farm labor- the best courses go beyond the law. If you draw lines around prime minister of the
ers who were all illegal. behavior thats just illegal, youre missing the broader point. Netherlands. When I got
48 They were an all-male Lots of things are not illegal, but theyre not respectful or up to leave, two men
crew. Hispanic. The guy appropriate, she says. But shes quick to point out that com- on my side of the table
who hired me, who paid pliance training is better than no training at all. The EEOCs stepped back to let me
mein cash, by the way task force doesnt want to do away with it either; it recom- pass in front of them, but
was this older, 50-year- mends that companies supplement training with initiatives Mr. Lubbers grabbed me
old guy named H. He is that emphasize broader topics such as civility and respect. from behind, pulled me
also sort of related to me: MacInnis says he tries to do that at Inkling. Because his against him, and shoved
H. is married to my dads company has only 150 employees, he often meets one-on-one his groin into me. I was in
first wife. with people and asks about their concerns. Not long ago, for shock. When I got out of
One of the first inci- instance, he had lunch with a recent college graduate, and the room and by the ele-
dents I remember was they wound up talking about the gender wage gap most of vators, the director of
when we were washing the time because it was on her mind. The idea is that more human resources said,
off fencing for the nuanced engagement will create the kind of environment Oh, Cynthia, I saw what
steeplechase course. I where, if its necessary, people can bring it up, he says. the high commissioner
was wearing Carhartt Even so, in the seven years since he founded his tried to do!
pants and a white T-shirt. company, MacInnis has dealt with a few internal harass- At a follow-up meeting
H. came around to check ment cases. I have friends who are CEOs whove dealt to what wed been talking
on what we were doing. with way more gnarly stuff than I have, he says. Id like about, I was waiting for
He made this comment: to say Im lucky, but usually theres some sort of observ- the elevators to go up to
I should require you to able behavior that you can see before it rises to the level the office, and the direc-
wear white shirts and of something really serious. <BW> tor of human resources
always be wet while comes up to me laughing
youre working. and says, Cynthia, what
Every time I ran are you going to do if Mr.
into him after that, thered be a little older, or English-speaking, or what. My Lubbers tries it again? He makes like
comment about the size of my breasts primary way of dealing with the situation to grab me again, and Im ducking out of
or how he needed to hug me, because was to avoid him. Hes out of shape and his way. I said, Why didnt you protect
itd make his day better. As hed hug smokes a lot, and I knew if I was build- me...or at least say something? Youre
me, hed say, I love feeling you press ing a fence in a field somewhere, I was the director of human resources! As the
up against me. Its so gross to talk safer because he wouldnt bother to go elevator doors closed, he replied, So?
about it even now. out there. For two whole months I didnt do any-
Sometimes he said this stuff in front I worked there the next summer, thing. I never told my best friends, my
of other people, but most of the time it too. I know youre going to ask why, family, nobody. You have to realize, Id
been there 24 years. We
have code of conduct
Why do so many
training, we played the women wait to
game, mouthing the polit- come forward?
ically correct stuff. But
I knew what the culture
was really like.
Six-thousand staff
members chose me to
speak with manage-
ment about personnel
matters. [Brzak was staff In October, Donald Trumps senior campaign It was this fake placeholder smile that they
council representative.] If adviser, A.J. Delgado, told MSNBC that the plastered on their face, says Woodzicka, a
I didnt say Enough! who women accusing the now president-elect of professor at Washington and Lee University,
would? So a few months past assault and harassment couldnt pos- and then just left there for the duration of
later, I reported it. An sibly be telling the truth because these the job interview.
internal investigation ver- allegations are decades old. If some- Its like they were literally grinning and
ified everything and rec- body actually did thatany reasonable bearing it, LaFrance says. In a follow-up
ommended Mr.Lubbers woman would have come forward and said study published in 2004, the psycholo-
be reprimanded. But something. The same why-didnt-you- gists showed footage of the womens inter-
Kofi Annan, who was say-something-earlier question has been views to men and women and found that
secretary-general at the asked during almost every headline-making menwere more likely to misread the smiles
time, decided not to do sexual-harassment scandal. Earlier this year as genuine.
anything. I wasnt allowed it was lobbed at former Fox News anchor Woodzicka and LaFrance studied only
to see the report; it was Gretchen Carlson when she complained in-the-moment reactions, however. After
mailed to me anony- about her then-boss, Roger Ailes. Paula the incidents, Fitzgerald explains, rational
mously six months later. Jones got it in 1994 about Bill Clinton. considerations about whether and how to
In 2006, I sued. But UN Veiled character attacks aside, many respond come into play. A woman whos
employees have diplo- women do, quite reasonably, assume been harassed might consider who did
matic immunity. I took they would come forward immediately if it and how important that person is to
my case to U.S. District they were in that situation, says Louise the company. Will she be believed? Can
Court in New York, Fitzgerald, professor emerita of psychol- sheafford to lose her job or burn a profes- 49
which upheld the immu- ogy at the University of Illinois at Urbana- sional bridge?
nity. I appealed. In 2010 Champaign, who specializes in the Quitting is often not an option for people
we petitioned the U.S. psychological effects of harassment. But living paycheck to paycheck. But Fitzgerald
Supreme Court to decide thats not what happens, she says. says highly paid women with prestigious
if the diplomatic immunity In a landmark study published in 2001 careers also put up with harassment,
was even constitutional. in the Journal of Social Issues, psycholo- because the higher you go up the employ-
They declined to hear the gists Julie Woodzicka and Marianne ment ladder, the more difficult it is to find a
case. So that was it. LaFrance interviewed 197 women about job to replace the one youre leaving.
When I sued, it made what they would do if they were con- During Anita Hills testimony before the
the news, and all of a fronted with inappropriate or aggres- U.S. Senate Judiciary Committee about the
sudden then Lubbers sive sexual provocation in a professional sexualized atmosphere she experienced
gets asked to leave. setting. The women said they would get while working for Clarence Thomas in the
I worked at the UN angry and refuse to put up with it. But when 1980s, she was criticized for having kept
until November 2010, Woodzicka and LaFrance subjected 50 of in touch with him and for following him
when I accepted an the women to inappropriate comments across two jobs (one, ironically, at the Equal
agreed-upon separa- in what they believed werereal job inter- Employment Opportunity Commission).
tion package. Ive had a viewsthe interviewer asked if they wore You might need to call on this person for
hard time finding a new bras to work, if they felt they were sexually references, says Hill, now a professor of
job. Had I known back desirableevery woman, without exception, social policy, law, and womens studies at
in 2004 that my weird sat through the interview and answered the Brandeis University. Unless youre willing to
last name would be so questions. None reported the interviewers explain to future employers why youre not
Google-able that when behavior. Later, they said they hadnt been speaking to this person, there is an under-
even my children apply angry. What theyd felt was fear. standing that if this is someone you worked
for jobs, theyd be asked, We really didnt think the difference for, someone who holds a key to your future
What happened to your between their assumptions and their behav- in his hands, youre going to have to main-
mother? I dont know if I ior would be so stark, says LaFrance, a tain some kind of relationship.
would have done it. professor at Yale. My first response as a sci- I like to believe that now we under-
Contacted through entist was, Wow, this data is so great! My stand these kinds of situations better, she
hispersonal website, second thought was, Oh God, this is awful adds. But people should remember that
Lubbers didnt respond to for women. even if it takes them years, or they dont
requests for comment. <BW> When the women were being harassed, come forward at all, that doesnt mean it
With Josh Eidelson their most common reaction was to smile. didnt happen. <BW>
 PAUL
MANA
IS FO
50

BA T R
CK (BECAUSE
HE NEVER
WENT AWAY)
A
On the morning of July 18, the first day of the 2016 Republican
National Convention in Cleveland, a group of reporters covering
the presidential campaign packed themselves around a long table

new
for an on-the-record breakfast with Paul Manafortthe seasoned
political hand who, as chairman of Donald Trumps presidential
campaign, had the unenviable task of trying to soften the candi-

day is
dates rough edges. Manafort, 67, was sharply dressed, as usual.
As one of the most successful lobbyists of the Reagan-Bush era,
hed developed a taste for the finer things: handcrafted Italian
suits and Parisian shirts; homes in Palm Beach, the Hamptons,

coming and Trump Tower. Now back on the scene after almost a decade
out of the public eye, Manafort looked a little beleaguered. The
road to Cleveland had been rocky. Trump was entering the con-

to vention without the unified support of his party, and no one in

the pundit class seemed to believe he could hold himself together
long enough to convince anyone he had

Washington,
the temperament to lead.
But over the course of an hour,
Manafort calmly and steadily made a case

and
for how and why Trump would prevail.
The system, Manafort said, was rigged. Hillary Clinton, along with
elites like the people in the room, didnt understand how struggling

the
Americans cared more about improving economic opportunity than
addressing social issues. This is an election about change, he said
flatly. We have a candidate who everybody recognizes is a change
candidate, and were running against the epitome of Establishment.

King I mean, you tell me any candidateI couldnt pick one off the shelf
better than Hillary Clinton to run against on change-vs.-Establish-
ment. This wasnt just spin, he argued; it was math. His internal

of polling, he said, all but confirmed Clintons inability to transcend

her base. To the 11 million voters in the several states we have
to target, her profile is terrible, he said. People dont see her as 51

K Street
somebody who can solve the problem.
This was, many would now say, the very reason for Trumps
victory in November. But that morning in July, the reporters

is
seemed unconvinced. What, some asked, about Trumps lack of
discipline, his volatility, his divisiveness? About all that, Manafort
simply referenced another insurgent Republican hed worked for

primed
a lifetime ago, at the start of his long career as one of Washingtons
most powerful political operatives.
Just like with Ronald Reagan, he said, I think once Donald
Trump is accepted by the American people as somebody who can

and be president, I think the race is over.

Then Manafort paused, allowing a small tilt of the head and
a smile.

ready When that will be, I dont know.

By the time enough Americans had accepted Trump to make him

our 45th president, Manafort had all but disappeared from view.
Hed resigned from the campaign on Aug. 19, after one too many
run-ins with the candidate about his temper and one too many
exposs about Manaforts alleged ties to Russian oligarchs. His
replacement, Breitbart News Executive Chairman Steve Bannon,
let Trump be Trump. Since the election, Bannons influence has

By only grown, with his appointment as chief White House strategist

drawing attention to his ties with white nationalists and the alt-right.
But during the campaign, while Bannon was making noise with
the fringe and Republican National Committee Chairman Reince

Robert Priebus was greasing wheels with the party faithful, it was Manafort
who had the discipline to get Trump past a dismal stretch of spring
primaries and on a solid road to the nomination, articulating the

Kolker
message the candidate would eventually ride to victory, then step-
ping aside when he saw that he wasnt its most practical face.
Manafort took Trump to the mountaintop. Its a place
 Manafort knows well, where he still has contacts and friends.
For years, he was the King of K Street, defining the modern-day
cash-for-foreign-access lobbying system that Trump criticized
during his campaign but has embraced during the presidential
transition period. Manafort may never have the same visible
role in Trumps inner circle that he once had, but he maintains
strong ties with key members of the transition team and with
Trump himself. Its already clear from the transition that the pop-
ulist and nationalist platitudes of Trumps rhetoric are colliding
with the realities of Washington. That leaves Manafort poised
to return to the role he knows best in D.C.: the most influential
man youll never see.
Manafort, who didnt respond to requests to be interviewed
for this story, has always worked best in the dark. In this way,
hes unlike many of the other political strategists of his vintage
swashbuckling friends like Roger Stone, folksy colleagues like Lee
Atwater, and canny rivals like Karl Rove. Manafort came up in
Washington as a young Republican in the 1970s, the same time as
Stone and Rove. As the middle-class son of a Republican mayor in
New Britain, Conn., Manafort gets the Reagan Democrat phenom-
ena, Stone says. That is, the swing group that elects Nixon and
Reagan. This is a silent majority, the coalition of white Southerners
and Northern Catholicsblue collars. After helping Gerald Ford
fend off an advance by Reagan in 1976, Manafort became one of
the first hires to help the Reagan campaign in 1980. Then, with
his man in office, he became one of the first to cash in on his con-
nections to the new White House.
He started a lobbying business with Stone, Charlie Black
(Reagans 1980 political director, who also launched the career
of Jesse Helms), and Atwater (whose Willie Horton ad would help
close the deal for George H.W. Bush in 1988). Aside from helping
52 Republicans such as Arlen Specter and Phil Gramm get elected,
the firmwhich was called Black, Manafort, Stone & Atwater (later
Black, Manafort, Stone & Kelly)changed the way foreign influ-
ence worked in Washington. In 1984, when Philippine President
Ferdinand Marcos needed lobbying assistance, Manafort took the
contract. In 1986, when Angolan guerrilla leader Jonas Savimbi
needed an introduction in Washington, Manafort was there to
help. In 1998, when Nigerian dictator Sani Abacha wanted to con-
vince Americans that he was a progressive democrat, Manaforts
firm was there for him, too. I am not one to knock honest greed,
William Safire wrote at the time, but never has rainmaking seen
such moneymaking.
Through many iterations of the firm and its roster of part-
ners, what set Manafort and his colleagues apart was the hotline
they had to the White House. Manafort, at some point, became
a very valuable asset for the State Department, whom he was
working with, Stone says. If you look at all of our clients, they
were all pro-Western, they were all pro-United States. They all
had good relationships with Ronald Reagan and his administra-
tion. Manafort continued to work on Republican presidential
races, too, managing the 1988 convention for Bush. Stone remem-
bers bringing Trump, whod become one of the firms clients,
into the conventions production trailer to watch Manafort in
action. Manafort had known Trump since the 70sthey were
said to have been introduced by the right-wing kingmaker Roy
Cohn. Trump was now seeking help protecting his gambling
business from the rise of Indian casinos. (Black, Manaforts old
partner, remembers Trump being slow to pay his bills. The
stories you hear about him screwing subcontractors and all are
undoubtedly true, but I always held out till I got my money,
Black says with a laugh.) At the 88 convention, Donald kind
of just soaked it all in, Stone remembers. And he asked a few
questionsWhats the purpose of this? Whats the purpose of McCain was practically family: His campaign manager was Rick
Manafort with Trump and his daughter Ivanka at the
Republican National Convention
that? Then he kind of walked away, and he said, Very impres-
sive. He was nodding his head. He got it.
Stone says Manafort was like Trump in that they were
limited-government Reaganites, not empire-building neocon-
servatives like Rove or Dick Cheney. But what motivated them
both, more than ideology, exactly, was cash. Paul is clearly
driven by money, theres no question about that, says Stanton
Anderson, one of Manaforts oldest friends, who was also his
lawyer for 35 years. He needed to make a lot of money to sustain
his lifestyle.
In the 80s that was nothing to be ashamed of, especially on
K Street. When Manafort was exposed later that decade for using
his connections to get a $43 million U.S. Department of Housing
and Urban Development grant for a developer client, he testi-
fied brazenly before Congress: The technical term for what we
do is lobby. For the purposes of today, I will stipulate that, in
a narrow sense, some people may term it influence-peddling.
That quote would dog Manafort for the rest of his career. He was
never charged for any crime, but for a moment he became what
hed never hoped to bevisible, conspicuous, a target.
PREVIOUS SPREAD: PHOTO ILLUSTRATION BY 731; PHOTOS: GETTY IMAGES (3); SHUTTERSTOCK (1); THIS SPREAD: RICK WILKING/REUTERS
The HUD project was an early attempt by Manafort to set up
a business for himself. There followed a real estate development
company in Manhattan, which was accused in a 2011 civil suit of
being a money-laundering operation for one of his international
clients, the Ukrainian natural gas dealer Dmitry Firtash. The suit
was dismissed, and nothing was ever proved, but it was clear
Manafort was circulating with oligarchs by then. They included
the aluminum magnate Oleg Deripaska, a friend of Vladimir Putins
whom Manafort introduced to both Bob Dole (whom Manafort
helped to secure the Republican nomination in 1996) and Arizona
Senator John McCain. Those new friendships ended up backfiring
on Manafort. The problem, old friends say, arose from his con-
nection to a longtime client, Viktor Yanukovych, an unpolished
Ukrainian kleptocrat whom Manafort, Pygmalion-like, had trans-
formed into a politician who was palatable enough to the coun-
trys voters to win a presidential election. But Yanukovych was
also influenced by the Kremlin. When, in 2006, the American
ambassador to Ukraine asked Manafort to get his client to stop
bad-mouthing NATO, Manafort flatly refused. His friends say that
was the moment he crossed over. Where once he could rationalize
his work by saying he was supporting American interests abroad,
doing well by doing good, he now seemed suspect.
When McCain became the Republican presidential nominee
in 2008, friends recall that Manafort expected to work on the
campaign, just as he had for Dole, the elder Bush, and Reagan.
Davis, Manaforts partner at the D.C. lobbying firm, by now called
Davis Manafort. But when Daviss association with Manaforts
Ukraine work threatened to make him look bad, Davis dis-
avowed everything, telling the Washington Post in 2008 that any
Ukrainian connections he might have all relate to my private
business and have nothing to do with Senator John McCain.
Davis kept Manafort away from the campaign, and their firm
shut down. Anderson, a friend of both, says the two havent
spoken since.
I thought Paul was permanently damaged by the international
stuff, Anderson says. Im not sure any other candidate would
have brought him back, other than Trump.
When Manafort joined the Trump campaign as a consultant this
springhes no longer registered as a lobbyistmany pundits
wrote him off as a has-been. Trump seemed desperate, in a
slump. Hed lost primaries in Wisconsin, Colorado, and North
Dakota, and got 10 fewer Louisiana delegates than Ted Cruz, even
though hed won that primary. But within a month, Manafort
had engineered the departure of Corey Lewandowski as Trumps
campaign manager and taken over as chairman. He righted the
ship, amassing enough delegates to bring Trump the nomina-
tion. Then the narrative changed. Now Manafort was Trumps
Rasputinan oligarch whisperer whod worked his black magic
in Ukraine and now was doing it for Trump.
The media resumed the investigations into Manaforts murky
Russian connections. Was he a highly paid agent of the Kremlin,
scheming to alter the Republican platform to help Putins inter-
ests? When Manafort had started consulting in Ukraine, such
work wasnt stigmatized in the way it became after the 2014
Ukrainian Revolution, when outbreaks of violence resulted in
the ouster of Yanukovych, then the president, whod balked at
aligning the country less with Russia and more with Europe. That
Yanukovych was on the wrong side of the revolution was one
thing; the bigger problem was that Manafort didnt seem to mind.
It was like he was willing to throw away the perspective that he
came to that country with, the Reagan perspective, says Jeff Link,
a Democratic consultant who, with David Axelrods firm, worked
for Yanukovychs opponent, Yulia Tymoshenko. Link believes
Manafort must have been willing to just walk away from that
[perspective] apparently for the contract. Because I cant imagine
that he embraced that ideologically.
Aside from his teenage criminal record of assault and
robbery, Yanukovych was most famous for the culture of graft
he instilled. No one doubted that Yanukovych was scummy,
says Andrew Weiss, who oversees Russia and Eurasia research
for the Carnegie Endowment for International Peace. He was
surrounded by all these thugs and then went on this kind of
rapacious push. Last summer, the New York Times seemed to
connect the dots between Manafort and that corruption when
it uncovered a registry suggesting that he received more than
$12 million in cash from Yanukovychs political party from 2007
to 2012. There was no proof of any such transfer, just his name
listed 22 times. Manafort denied he received the money.
Even if Yanukovych wasnt exactly a favorite of Putins, his
policies benefited oligarchs who are friends of Putins. That
potential conflict made Manafort a target when he joined
Trumps team. Manafort, for his part, has roundly denied any
connection to Russia, most recently telling NBC that the accusa-
tion was Democratic propaganda. Asked if theres any possi-
ble truth to the notion that Trump chose Manafort because he
had access to Putin and that the Kremlin was dictating policy
and even hacking the opposition with Manaforts help, his old
lobbying partner Black laughs. Putin certainly knows who
Paul is, he says, and he probably figures Paul did a good job
for Yanukovych. But the Trump connection isnt convincing
to Black. Putins a celebrity. Donalds a celebrity. [Trump]
doesnt stop and think through the strategic foreign-policy
implications of things. Hes thinking, That guys a big dog, Id
rather be friends with him than one of these weaklings like Jeb
Bush. Thats just the way he thinks.
On the campaign trail, Manafort was conspicuous again, in the
spotlight. He wasnt enjoying it. That, as much as the challenge
of guiding Trump, may have motivated him to step aside. Since
then, he hasnt gone away so much as reverted to form, working
behind the scenes. In the campaigns final weeks, he was in close
touch with Trump; Politico reported that Manafort helped the
campaign develop a strategy to exploit the news when James
Comey announced, 11 days before the election, that the FBI was
looking at a new trove of e-mails from the private server Clinton
operated as secretary of state. In the closing days, according to
Politico, Manafort encouraged Trump to go after blue-collar votes
in Michigan, which he did. Manaforts advice, and his loyalty,
proved useful until the end.
After the selection of Mike Pence as Trumps running mate,
Manafort said he believed Pence could do for Trump what James
Baker III did for Reagan: introduce the outsider to Washington
and help him through the transition. It was another perfect pre-
diction. Pence indeed is running Trumps transition. A source
close to Manafort says hes in regular contact with the vice pres-
ident-elect, as well as with Trumps attorney general pick, Jeff
Sessions, the Republican senator from Alabama and a Trump
supporter and confidant. (Manafort and Sessions have known
IM NOT SURE 53
ANY OTHER
CANDIDATE WOULD
HAVE BROUGHT
HIM BACK, OTH E
TH A N T R
RU
M P
each other since the 70s.) And Manafort is also close with Tom
Barrack, the billionaire founder of Colony Capital, who has a
spot at the top of Trumps inaugural committee.
Friends say Manafort wouldnt want to become a lobbyist
again or to have a concrete role with the administration; that
would be too confining. But the Washington that Trumps team
will govern in is a place Manafort understands and had a strong
hand in shaping. Its a matter of time, perhaps, before his par-
ticular set of skills will be put to use again. And given the Trump
teams apparent warmth toward Russia, there should be plenty
for the King of K Street to doand plenty of money to be made
doing it.
The night of Nov. 8, Stone got a text from his old friend, at the
exact moment one of the news outlets was calling the race for
their man. The message was just four words: How sweet it is. <BW>
THE GUY BEHIND
KIND COME IN FOR A NIGHTCAP BUILD
YOUR ROLODEXXX
MISS SLOANE
MISSES

How it became the color of our time

By Jennifer Miller Photograph by Sara Cwynar
 Etc. Marketing

I
n September 2013, Marlien Rentmeester, founder of
the fashion site Le Catch, was combing the racks at
Shareen Vintage in Manhattans Chelsea neighbor-
hood, when a fuchsia A-line frock caught her eye.
It was so shockingly pink, so cool and different,
that I wore it out of the store, she says. On the
street, women were giving me compliments left and right.
Rentmeester, the former West Coast editor for shopping mag-
azine Lucky, had a sharp eye. In the months that followed,
she started seeing pink everywhere: on streetwear blogs, in
ad campaigns for Acne Studios and online beauty company
Glossier, and in the pantsuits worn by Hillary Clinton.
Fast-forward to 2016, and pink is an even greater phe-
nomenon. Rentmeester long considered pink fussy, dainty,
babyish, or even weak. Now she says the color is emblematic
of women on the rise financially, culturally, and politically
even if Clintons pink pantsuits didnt get as much attention as
the pink pussy-bow Gucci blouse Melania Trump wore to the
second presidential debate. (Some pundits suggested the bow
was a subtle rebuke to her husbands critics after the grab
them by the p---- tape leaked.) We interpret our environ-
ment through the colors we wear, Rentmeester says. Pink
is unapologetic, dramatic, and bold. Were taking it back and
making it our own. That reclamation is a story thats not just
about skirts, pantsuits, and blouses, but about how fashion
can upend larger cultural ideas about power and gender.
Brands have long marketed pink in retrograde ways. Until
recently, the NFL took a pink-it-and-shrink-it approach
56 to womens wear, making bubble-gum-colored jerseys in
womens sizes rather than offering choices in team colors,
a strategy the league started phasing out early this decade.
And pink products are often considered specialty items; as
such, theyre routinely priced higher than identical products
marketed to men, according to a 2015 report by the New York
City Department of Consumer Affairs.
Now, companies are imbuing pink with all sorts of positive
associations, tapping into the same vibe Rentmeester felt. This
fall, J.Crewa struggling company but still a bellwether of mass
tastespromoted its new line around hundreds of custom-
developed shades of pink. In an e-mail, Jenna Lyons, presi-
dent and creative director, explained that pink was worthy
of the same rebrand as a once-sidelined vegetable: If kale
can have its own marketing team, so can pink! We feel that
color is a natural mood enhancer, and like kale, it is good for
you. Where J.Crew is
promoting the color
as a path to happiness,
high- fashion brands
such as Gucci and Chanel
have recast it as funky and
cool, with pink bomber jackets
and bowler hats, respectively. Even
cookware maker Le Creuset launched
a series of hibiscus-hued pots and
platters this year because it provided
vibrancy and a strong anchor
for the companys spring line, says
Will Copenhaver, marketing communi-
cations director.
The idea that the color could be something other than
a feminine stereotype isnt new. Historically, there were no
strong gender associations with pink, says Michelle Finamore,
curator of fashion arts at the Museum of Fine Arts in Boston.
Until World War I, babies of both genders were dressed in
white because stains were more easily bleached. Even when
stores began to introduce baby pink and baby blue into
kids departments, they werent divided by gender. A 1918
article in Earnshaws Infants Department, a trade publica-
tion, explained that pink, being a more decided and stron-
ger color, is more suitable for the boy, while blue, which is
more delicate and dainty, is prettier for the girl.
Jo Paoletti, author of Pink and Blue: Telling the Boys From
the Girls in America, says modern associations with the colors
took generations to sink in. It was only after World War II that
brands began marketing pastels to women, largely as an anti-
dote to the military-inspired fashions and textile rationing of
wartime. Catalogs advertised pink appliances, wallpaper, and
upholstery. Bathrooms and kitchens were painted Mamie
pink, so named for Dwight Eisenhowers wife, who wore a pink
peau de soie gown to the 1953 inaugural ball. In 1955, Dodge
introduced the pink and white La Femme, a two-door hardtop
that came with a matching umbrella, purse, compact, and lip-
stick case. At the time, families were starting to buy multiple
cars, and women were more involved in the decision.
And yet the company stopped producing La Femmes a year
later. Pink as a marketing device was just too limiting, says
Virginia Scharff, author of Taking the Wheel: Women and the
Coming of the Motor Age. Buying a pink lipstick is not that big

Theres more than one way to name a pink Mineral pink

Burnished
Pale shell
Shell
Some of the ones J.Crew has come up with: pink Sherbet
Coral rose
Light mauve Sharp pink Whisper pink Glamorous Pomegranate Faded shell Palazzo pink Rose dust
Standard Tea rose Buff pink pink Bright Jasmine Crisp pink Light
pink Heather Heather Crisp begonia Flamingo Pale jasmine Coral pink raspberry
Dark peony beet quartz begonia Rose quartz Burnished Redwood Mauve blush Pink
Light blush Burnished Heather Flash pink Vintage pink rose blush Victorian pink grapefruit
Punch shell blossom Azalea Fuchsia Spiced rose Shocking Soft blush Sunset coral
Burnished Sweet guava Deep rose Larkspur pink Petal Coral pink Subtle pink Bright pink
coral Pink blossom Heather Pink Desert rose Rose petal Ashford berry Seashell pink
Sun-washed Berry rosebud Powder Pale coral Peony Neon Bright
pink Neon flame Heather deep Ash pink Tropical pink Heather petal peppermint sherbet
Desert pink Warm blush coral Vintage shell Pale blossom Peppermint Classic pink Romance
Metallic blush Fresh Heather Pink hibiscus Paris pink Tawny pink Vintage pink
Light blossom berry Pink bouquet Heather shell Cranberry quartz Rose apple
flamingo Raspberry Dusty Pink Caribbean punch Fresh Barbados
Tropical Golden rose blossom lemonade pink Persian pink raspberry cherry
guava Bright fuchsia Vivid fuchsia Iced blush Cool pink Heather Vintage berry Dark flamingo Sweet
Vintage Vintage blush Frosty petal Frosty berry Dusty pink blush Pale hibiscus Urban pink blossom
fuchsia Bright Sweet Wild petunia Bright berry Heather Flamingo Sorbet Pale rose
Bright rhubarb fuchsia Stanton pink Light pink peony pink Blossom Picador pink
flamingo Blush Soft peony Neon pink Pinup pink Seaside coral Sail pink Ballet pink Neon fuchsia
 Etc.

an investment. Buying a pink car is a differ-
ent order of magnitude. By the mid-1960s,
brands were no longer exhorting women
to think pink. The counterculture drove
fashion, in particular, from the latter half of
the decade through the 70s; young people of
both genders were more inclined to wear flowered pat-
terns and vibrant colors.
Fashion historians say our recent understand-
ing of pink as an explicitly feminine color only
emerged in the 80s, when it became common for
parents to learn the sex of their unborn babies.
This created a marketing opportunity, says
Paoletti, as stores could sell boy and girl versions
of everything. And because pink had been asso-
ciated with women in the 50s, it became the de
facto girls color. (See: the 1986 John Hughes classic
Pretty in Pink, starring Molly Ringwald.) But, Paoletti
says, theres a distinction between how people
viewed the color in the 50s vs. the 80s and 90s.
In the 1950s, pink was presented as a fashion, a
cultural choice, she says, whereas later on it was
presented as part of [girls] nature. This happened
with help from Walt Disneys $5.5 billion princess
empire. The irony is that Disney itself proves the
nature argument wrong. Not one of the iconic prin-
cesses drawn prior to 1960 is known solely for wearing pink.
Snow White (1937), Cinderella (1950), and the Sleeping Beauty
(1959) are all featured in blue. In Peter Pan (1953), its baby
Michael who appears in pink footsie pajamas.
With the reappropriation of pink, millennial women have
turned the dictate back into a choice. Its why the cover
of #GirlBoss, Sophia Amorusos best-seller about taking
charge at work, is pale pink. Its why Stephanie Danler,
who wrote the hit coming-of-age novel Sweetbitter, was
so excited when she first saw her books salmon-pink
cover. I know that women have an ambivalent rela-
tionship with pink because it symbolizes femininity and
PHOTOGRAPH BY SARA CWYNAR FOR BLOOMBERG BUSINESSWEEK; ILLUSTRATIONS BY 731; CLOTHING COURTESY J.CREW
publisher worried the cover would alienate male readers,
she says, but in fact, pinks cross-gender appeal is part of its
popularity: Theres so much androgyny and fluidity that I
didnt think peoplemen or womenwould be scared of
the color, Danler says.
The un-gendering of pink helps explain why Gucci, Off-
White, and Pigalle all released pink menswear in 2016and
why the buzziest color of Common Projects sneakers, a favor-
ite label among stylish men, was blush. It also explains why the
Pantone Color Institute, which analyzes global color trends,
A color becomes popular
because its symbolic of the
age were living in. These are
turbulent times. People are
looking for calm
named rose quartz a 2016 color of the year. Laurie Pressman,
the institutes vice president, says pale pink is associated with
wellness and mindfulness. A color becomes popular because
its symbolic of the age were living in, she says. These are
turbulent times. People are looking for calm. She points to
studies in which shades of pink have been shown to soothe
unruly students or prisoners. Pantone found examples of com-
panies that are trying to help create balance for employees,
reduce stress, and bring wellness-focused measures into the
office space, Pressman says, by using pink accents in dcor.
This year, for the first time, Pantone named a second color of 57
the year: a pale blue called Serenity. As early as 2014, color
experts began spotting an uptick in both shades across com-
mercial spheres, often as complements to each other.
Of course, now that pink has become chic among mil-
lennials, its fair to be skeptical of marketing that leverages
the color. Are publishers and fashion houses interested in
supporting a feminist cultural movement? Or are they just
looking to sell books and footwear? How long until the back-
lash begins, if it hasnt already? For now, those questions are

has been traditionally weak, she says. But I saw it as a state-
ment color, as challenging. She thought millennial women
would feel the same way, and she was right. Since May the
novel has sold more than 100,000 copies, and the cover has
been tagged at least 2,500 times on Instagramwhich Knopf
told Danler is unusual for a book jacket. Some people at the
less important than more practical ones. Historically, pink
was marketed as a warm-weather color. Youd never find it
this time of the year, Paoletti says. But thats no longer true.
A Le Catch reader recently asked if she could wear her pink
Anne Fontaine moto jacket through November. Rentmeesters
answer was unequivocal: Go for pink all winter long! <BW>

Bohemian Copper rose Dusty petal Sheer pink Deep blush Guava berry Island coral Provence Sweet blush
rose Dark azalea Pink sand Ornamental Neon azalea Soft rose Neon dahlia pink Pink frost
Fuchsia Heather Pale pink pink Pink begonia Rose Ashen clay Picturesque Sweet
blossom geranium Dusty bloom Soft seashell Dried papaya blossom Faded quartz pink papaya
Clay sand Light Sweet Summer Fuchsia Peppermint Retro pink Fresh guava Heirloom
Iced quartz hibiscus jasmine sorbet bloom ice Dark berry Frosty pink
Vintage rose Pink mist Oxford pink Bright azalea Neon petal Ash rose Retro fuchsia blossom Desert
Dahlia Misty rose Faded Summer pink Soft blossom Soft fuchsia Decorative Fresh sunset
Light shell Pampered blossom Wild berry Bright coral Brilliant coral pink bouquet Dusty quartz
Winter coral pink Bright papaya Fresh peony Neon Pale petal Warm pink Brilliant
Spiced guava Iced rose Deep coral Bright rose primrose Coastal pink Fresh berry peony
Hot pink Heather Petunia Soft azalea Soft berry Coral reef Dark bloom Neon
Heather snapdragon Brilliant Heather pink Pale rhubarb Wild peony Dusty dahlia hibiscus
petunia Wild rose azalea Bright Dusty peony Intense pink Carnival Soft petal
Pink oxford Pure pink Autumn berry peppermint Distressed blossom Neon rose
Dusty Guava Heather Antique pink quartz Wild Dover pink
begonia Sweet dahlia sorbet Jasmine pink Soft pink strawberry Pale bloom Fresh papaya
Neon Rose ash Pale blush Faded guava Neon coral Dusty blush Metallic rose Bauble pink
blossom Light Powder pink Soft begonia Sunwashed Hibiscus Capri pink Jasmine Dried rose
Beet flamingo Romantic Brilliant blush Wildflower Neon Light berry Bright tulip
Bright dahlia Dark mauve pink poppy Dusty shell pink flamingo Sunset pink Dark begonia
Coral shell Tulip Sweetbriar Pink wash Burnished Vibrant berry Fresh rose Begonia Faded blush
Heather Quartz Vivid coral Smoky rose rouge Daybreak Pale fuchsia Shore pink Delicate petal
raspberry Bright guava Dusty rose Neon berry Shell pink pink Festive pink Peruvian pink Icy rose
 Etc. Drinks

Fancy a
Nightcap?
Eight ways to upgrade your end-of-day drink. By Sierra Tishgart

Grand Street Cocktail

Jessie Dur, bar manager at New Yorks famed, newly
reopened speakeasy Chumleys, makes this
soothing concoction with a dash of amaro. Its great
for settling your stomach before bed.

One bag of Sleepytime tea, steeped in

4 oz. of hot water for 3 minutes
oz. Amaro Montenegro
oz. sweet vermouth
1 dash Angostura bitters

Remove tea bag. Add amaro, vermouth,

and bitters. Drop in a lemon wedge. Stir.

58

After-School
Special

PHOTOGRAPH BY CAROLINE TOMPKINS FOR BLOOMBERG BUSINESSWEEK; PHOTOS: ALAMY; GETTY

Kyle Davidsons Chicago bar Elske
is opening soon. Once it does, hell
be unwinding with this supersimple
twist on the Manhattan.
The White
1 oz. Cynar
1 oz. bourbon (whatever you have Walker
on handDavidson likes W.L. Weller
90 proof or Wild Turkey 101) Chamomile plus coconut milk is
about as mellow as it gets. Chef Ari
Pour over rocks. Jiggle the glass. Taymor of Los Angeless Alma at
Add an optional orange peel or slice. Corn n Oil the Standard mixes the two with
a little rhum agricole and lemon
If a nightcap can help you unwind and make you think youre on to create a sweet, tropical night-
a tropical island, so much the better. Anthony Schmidt, beverage time treat.
director at San Diegos new tiki-inspired bar False Idol, is
happy to oblige and carry you away to the Caribbean. 1 oz. rhum agricole
2 oz. hot chamomile tea
2 oz. Barbados rum, such as Mount Gay 1 oz. coconut milk
oz. John D. Taylors Velvet Falernum oz. lemon simple syrup
2 or 3 heavy dashes Angostura bitters (one part lemon juice,
A squeeze of lime one part simple syrup)

Mix ingredients, including the squeezed lime. Mix ingredients.

Top with cracked ice. Stir.
 Rum & Tonic
A nightcap for me usually revolves around
really good tonic water, says Tara Gallina,
co-owner of Vicia in St. Louis. Its easy to stock
in the fridge and easy on the stomach, and itll
gussy up whatever booze you have on hand.
2 oz. dark rum
2 dashes Angostura bitters
1 bottle Fever-Tree tonic
1 lime wedge
Pour rum and bitters over ice. Stir and top with
tonic and a squeeze of lime.
Off Broadway
A nightcap doesnt have to be much more than a
couple fingers of bourbon or brandybut if it could
be both, wouldnt you want that? Bartender Kevin
King from McCradys Tavern in Charleston, S.C.,
uses apple brandy and orange bitters in this deli-
ciously autumnal drink.
1 oz. apple brandy
1 oz. bourbon
1 oz. sweet vermouth
2 dashes orange bitters
Stir with ice and strain into a coupe.
Garnish with a twist.
Etc.
Pineapple Rum
Rickey
Top Chef alum Kwame Onwuachi,
who opened his restaurant, Shaw
Bijou, in Washington, D.C., in
November, looks for evenly matched
sweetness and acidity to balance
out the craziness of the day.
2 oz. aged rum, such as Cruzan
Black Strap
oz. pineapple juice
oz. lime juice
oz. simple syrup
Combine all ingredients in a shaker.
Stir. Pour over ice. If you have mint on
hand, muddle it in the shaker prior to
mixing. If you have club soda, top it
with some of that, too.

59

Play Crack
the Sky
On a cold night, Jon Lewis of the Rue
bistro in Portland, Ore., recommends
this spicy cocktail to warm things up.
Miracle Mile bitters, made with
exotic roots and spices, pairs well with
any aged amber spirit.

2 oz. Old Grand-Dad, 100 proof

oz. genepi
oz. Punt e Mes
1 dash Miracle Mile Forbidden bitters

Stir. Serve over a big ice cube

with an optional orange peel
garnish.
 Etc.
NETWORKING AT NIGHT
Skirt Club wants to help women be as confident in the boardroom as they are in the boudoir
By Megan Koester
D
o you think you might get on
the body tequila table? asks
Genevive LeJeune. The founder
of the all-women networking
society Skirt Club, LeJeune is with
about 75 female professionals on
the Sunset Strip in Los Angeles at
a bar called Mmhmmm, a thor-
oughly appropriate name considering
the goings-on inside. One of the barely
clad attendees stretches herself out, and
lines of salt are spread down her legs, the
red bottoms of her Louboutins reflecting
in the mirrored walls. The fastest woman
to lick the salt and down a tequila shot
will be rewarded with a slice of lime,
transferred via kiss.
The scene isnt quite as scandalous as
60 it sounds. Although Skirt Club
bills itself in press releases as an
underground play party for
bisexual & bi-curious women,
no sexual contact or heavy
petting are allowed. And it
isnt just about tequila-soaked
fun. Skirt Clubs motto is con-
fidence in the bedroom leads
to confidence in the board-
room. The way LeJeune sees
it, leaning in to take a lime out
of a womans puckered lips
makes a woman more likely to
lean in at the office.
LeJeune, 34, started Skirt
Club as an experimentthe
first event was held in her
living room. Shed been explor-
ing versions of these parties
in her native London three
years ago, but all she encoun-
tered was men grabbing and
pushing and insisting and
putting pressure on women to
fulfill their fantasies, she says.
I didnt see women asking to
fulfill their own. That was
because, she realized, they
werent in a comfortable envi-
ronment: Women today regu-
larly convene at conferences
and kibitz online about gender
Workplace
politics, not to mention attend women-
only social clubs, such as the Wing in New
York. But gatherings that provide a safe
space for women to support and learn
from one another while also embracing
their sexuality are rare.
There are now Skirt Clubs in London,
New York, Miami, Sydney, and Berlin,
with plans to expand to San Francisco,
Chicago, and Toronto. More than half
the clubs membership of 5,000 lives in
London, where its growing an average of
14 percent per quarter; in the U.S., where
the clubs were introduced earlier this
year, growth is at 22 percent per quarter.
Skirt Clubbers are often profes-
sionals with entrepreneurial leanings,
though the largest group is lawyers. On
average, members self-identify as twos
on the six-point Kinsey scaleone is
exclusively heterosexual, three is per-
fectly bisexual, and six is exclusively
homosexual. Some of them are in a
relationship, too, LeJeune says, and
have come with the consent of their
partner. One L.A. attendee, a therapist,
heard about it from her boyfriend, who
paid her admission$50 for the event
at Mmhmmm, though occasional edu-
cational workshops cost more. While
each event features some kind of central
activity such as the body tequila table,
more of the women seem to use the
party as a networking opportunity than
an erotic escapeof course the argument
could be made that, in L.A., networking
is eroticism. (If youre won-
dering whether I exchanged
business cards with a charm-
i n g E n g l i shwo m a n wh o
described me as Jodie Foster-
esque, I did.)
Much has been made of
the monetization of empow-
erment, but LeJeune has prof-
ited little from Skirt Club so
far. After paying venue fees,
hiring all-female bar staff,
and purchasing hundreds
of bottles of Champagne
for each event, she says she
feels as if shes running a
charity. Starting next year,
shell impose an initiation fee
for new members, who are
vetted for the legitimacy of
PHOTOGRAPH BY CAIT OPPERMANN FOR BLOOMBERG BUSINESSWEEK
their interest. Her goal with
Skirt Club is simply to provide
a safe space for women to
enjoy one anothers company
under the liberating rubric of
sexual exploration. While that
aspiration may not be as filthy
as the images that some minds
might conjure, its more pow-
erful. Weve had gentlemens
clubs for centuries, LeJeune
says. Its high time we have
our own. <BW>

EM
C
DE
k
Four of the more surprising corporate
leadership changes, according to W. Glenn
Rowe, associate professor of strategic
management at Ivey Business School at
Western University in London, Ont.:
Apple, 1985
CEO John Sculley called an emergency
board meeting after learning that
co-founder Steve Jobs was planning to oust
him. The board thought Jobs was erratic
and went against him.
Right move? There probably wont be
multiple biopics made about Sculley.
Home Depot, 2000
Robert Nardelli wasnt interested in an
extended grooming period before assuming
the top job, so then-CEO Arthur Blank
stepped aside, despite the company being
in good health.
Right move? Over Nardellis seven years as
CEO, Home Depots stock lost more than a
third of its value. He was fired in 2007.
Starbucks, 2008
Howard Schultz, who built Starbucks into
a coffee giant in the 1990s, stepped aside
as CEO in 2000; he returned in 2008,
firing Jim Donald. Schultz wrote in his 2011
biography, Onward, that he wanted to return
the company to its core values.
Right move? Schultz saw Starbucks
through the lean times of the recession. The
business has become a model of corporate
social responsibility.
Four Seasons Hotels, 2013
Kathleen Taylor, whod been with Four
Seasons since 1989, was the heir apparent
to founder Isadore Sharp before taking
over the CEO job in 2010. There was never
an explanation for Taylors departure, but
some speculated that she hadnt expanded
aggressively enough.
Right move? Nine new Four Seasons
properties have come online this year alone.
Astrology
E R HORO
B S
By Ashleigh D. Johnson
And youll have help: Saturn, the planet of
long-range planning, Jupiter, the planet of
abstract thinking, and Uranus, the planet
of sudden change and progressive reason-
ing, are working together at the begin-
ning of December, as they will be all next
year, when Jupiter and Saturn form a
sextile. Put day-to-day business aside and
block out time to come up with goals for
the future.
On the 7th, emotional Venus enters
inventive, socially conscious Aquarius,
making it a good time to turn outward
and find ways to help others. But dont put
those ideas in place until the 13th, when
the full moon in sociable Gemini creates
opportunities for fruitful partnerships.
Mars moves into Pisces on the 19th,
putting the planet of drive and willpower
under the sign of compassion and sym-
pathy. Pisces also rules prisons and hos-
pitals, so you might focus your giving
there. Also on the 19th, Mercury goes
into retrograde, as it was at the begin-
ning of the year. The sun enters deter-
mined Capricorn two days later on the
21st, the winter solstice, which can be a
somber time of year; but Mercury going
retrograde gives 2016 a natural bookend
you should feel more reflective than sad.
Put those reflections to use on the
29th, when the new moon in Capricorn
gives you the chance to restate long-term
goals. That day, Uranus returns to forward
motion after having been retrograde for
a good chunk of 2016. This could open
the door to sudden leadership changes
at your company, so start imagining your-
self taking a big leap forward, and it might
soon be a reality. <BW>
Etc.
C
O
PE
60
A sextilewhen the planets
form a 60-degree angle with
the earthis considered
8
a harmonious alignment.
61
Judith Beck, president of the Beck
Institute for Cognitive Behavior
Therapy in Bala Cynwyd, Pa., on how to
make a New Years resolution stick:
1. Think small. Giving in to defeatist
impulses is habit-forming. Aim
for something you can achieve.
2. Focus on the payoff. Make sure the
advantages of changing your behavior
outweigh the disadvantages. For
example: managing your time better
during the day so youre home to put the
kids in bed.
3. Lock yourself in. Whatever you
resolve, put it in your no choice
category of behaviors, alongside things
like checking for your keys on your way
K
out the door.
For guidance in determining where
to make charitable contributions,
BBB Wise Giving Alliance (give.org),
Charity Navigator (charitynavigator
.com), CharityWatch (charitywatch.org),
and GiveWell (givewell.org) are all good
resources. Amanda L Gordon
 Etc. The Critic

REALITY BITES
Miss Sloanes release coincides with a moment that didnt happen. By David Walters

I
n a memorable scene from Miss
Sloane, a high-stakes political drama
62 about a Capitol Hill power broker
taking on the gun lobby, the title
characterplayed by an ice-cold
Jessica Chastaindescribes the job
of a lobbyist to a Senate ethics com-
mittee that suspects it has backed
her into a corner. Its wrong. Lobbying
is about foresight, she says. Its about
making sure you surprise themand they
dont surprise you.
As zingers go, its OK. But its also
a line the filmmakers might wish they
could take back. When French indie dis-
tributor EuropaCorp sought a late Novem-
ber release for Miss Sloane, it anticipated
a moment when post-election policy
wonkery and Academy Awards buzz might
coalesce into a single, ripped-from-the-
headlines conversation. The film is, after
all, about a strong, ambitious womana
Washington heavyweightnavigating a
male-dominated industry while fending
off sexism to get meaningful work done.
The timing looked perfect.
Surprise!
Under different circumstances, Miss
Sloane might have emerged as this years
soapier answer to 2016 Best Picture
in two directions, drawing in those who this timeand she gets told that a lot,
are up for a taut political counterfactual mostly by her new boss (Mark Strong),
and scaring away people whod prefer to whos more of a not-by-any-means guy.
sit through Bad Santa 2. First-time screenwriter Jonathan
Its a shame, because theres a lot to Perera delivers a surprisingly ambi-
like. Chastain pops as Elizabeth Sloane, tious script, full of twists and turns and,
an insomniac workaholic and grade-A ass- perhaps most satisfying, the type of rat-
kicker, the kind of unscrupulous lobbyist a-tat dialogue that warms the hearts of
who learns all the rules so she can better West Wing fans. (The movie is directed
circumvent them. When her boss (Sam by Oscar nominee John Madden.) Perera
Waterston) recruits her to drum up more was inspired by real-life former lobby-
female support for the Second Amend- ist Jack Abramoffwho went to prison
ment (one suggested slogan: God created for conspiracy, fraud, and tax evasion
women; Samuel Colt made but the script also shares
them equal!), she abruptly DNA with two Big Tobacco
switches sides, joining a
competing lobbying firm
TAUT POLITICAL political films of the late
1990s and early 2000s: the
to ensure the passage of COUNTER- Michael Mann thriller The
the Heaton-Harris bill, a
piece of legislation propos-
FACTUAL OR BAD Insider and Jason Reitmans
satirical Thank You for
ing tighter gun control. SANTA 2 ? Smoking. Its worth noting
But Sloanes conver- that, unlike the cigarette
sion isnt a go-and-sin-no- industry in those films, the
more moment. To rouse congressional pro-gun contingent in Miss Sloane isnt a
support, she dupes a school-shooting boo-hiss villain. Theres even a good guy
survivor (Gugu Mbatha-Raw) into becom- with a gun. When he stops a bad guy with
ing the public face of the movement. a gun, it lends credence to the National
She also lies, cheats, and has emotion- Rifle Associations cherished ideal that
less sex with a high-priced male escort more guns equals more safetyand gives
( Jake Lacy). Eventually shes dragged in the movie political verisimilitude.
KERRY HAYES/EUROPACORP

winner Spotlight, a small-studio offering
that rode sturdy performances and topi-
cality to critical acclaim and an $88 million
worldwide box office. Instead, it stands
to send holiday movie-season audiences
front of a holier-than-thou senator ( John
Lithgow) to answer for her professional
indiscretions. In Sloanes world, the end
always justifies the means, no matter
how often shes told shes gone too far
Still, nothingnot good guys, not bad
guyscan stop Sloane. Like any good
lobbyist, the case she makes proves too
compelling. The question is whether
audiences will want to listen. <BW>
 What I Wear to Work Etc.

What do you do for W?

I oversee any part of the W experience
that touches the consumer, whether
that has to do with where we build
new Ws, the design process, the mix
of bars and restaurants, or managing
the preopening buzz.
ESSENTIEL
ANTHONY
WARBY PARKER
INGHAM
44, global brand leader,
W Hotels, New York
Whats your day to day like?
I move from dealing with real estate
investorswho are generally a
more corporate typeto mixing with
our music director, whos covered
in tattoos and has a full beard.

LUCIO CASTRO

APPLE
63
How would you
describe your style? Cool shirt.
Traditional cuts with It has whimsical
elements that give
urban streetwearI like it a lighthearted
mixing it up. I have an touch. The print
Its nice that you
aversion is tiny dogs.
get to wear jeans to suits.
on the job.
I found these in
London years ago,
and they were Do you always wear
such a perfect fit. bracelets?
Theyre slightly BALLY
elastic, so even
LEE I do. I got the red-and-
though theyre white one at Davos in
tight, they have Switzerland. The green
PHOTOGRAPH BY CHRISTOPHER LEAMAN FOR BLOOMBERG BUSINESSWEEK

some give. one I found randomly

LINKS OF LONDON in Cape Town.

I like your glasses.

Tell me about your shoes.
Theyre trainers in style, Theyre so affordable, you can
but the uppers are leather, just buy lots of them. Can you
so theyre formal and casual tell Im an impulse shopper?
at the same time.

OLIVER SWEENEY

Interview by Jason Chen

 Etc. How Did I Get Here?

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DANIEL LUBETZKY Founder and chief executive officer, Kind

My dad survived Education

Dachau. Around
1984, when I was 16,
there were anti-
Semitic incidents in
Mexico City, and he
decided to bring us
to San Antonio.
Robert E. Lee High
School, San Antonio,
class of 1986
Trinity University, San
Antonio, class of 1990

With his parents in Stanford Law School, At his grandparents ranch in

Mexico City, late 70s class of 1993 Mexico City, 1978

I started selling watches in flea I went to Israel to write a legislative

markets at 16, then graduated to Work proposal encouraging American companies
to be catalysts for Arab-Israeli ventures.
mall kiosks. I thought I was going Experience
No one wanted a Mexican-Jewish American
to have kiosks across America. lawyer telling them what to do.
199394
64 Haas Koshland
PeaceWorks first venture was Fellowship
Arab-Israeli. I tracked down a
bankrupt sun-dried-tomato spread 1994

ning and purpose, or youll end up answering e-mail and letting life carry you away without a direction.
Present
maker and said, Why dont we Founder, president,
partner? We still exist under the PeaceWorks
brand Meditalia.
2002
Present
Founder,
OneVoice Movement
At a OneVoice meeting with Shimon Peres,
2004 president of Israel at the time,
Present and actor Jason Alexander, 2011
Founder, CEO,
Kind

2010
Present
Its an NGO for people
At Kinds first
New York office,
Co-founder, who are fed up with
2004
Maiyet
terror and determined
to seize back the agenda
for conflict resolution.
I was dissatisfied with my
snacking options. Everything Its high-end stuff
was artificialI thought there youd find at Barneys,
We just announced the Kind
was a need for snacks that you made by craftsmen
Foundation. The inaugural program,
in developing
could feel good about eating. countries or where Kind People, looked for people
theres been conflict. transforming communities through
kindness. We got 5,000 nominations.
We also recently became the first
Life Lessons national snack brand to publish the
Courtesy subject (5)

added sugar content in our snacks.

ea

um
1. Dont allow yourself to believe its not gonna happen. 2. Show your humanity in commerce, business, and life. 3. Take time to reflect on what gives yo