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● Saving America’s Black banks 22 ● Life and debt at a PE hospital 42 ● A $500 million oil jackpot 18

August 10, 2020

The dominant search

company faces
antitrust scrutiny
for its power over
an increasingly
vulnerable
Main Street
38

Is Google
Burning
Small
Business?
JESSICA ROBINSON

Executive Director, Michigan Mobility Institute

“ THE R E’S N O
B ET TE R PL AC E TO
B UI L D A MO BI LI T Y
B US IN ESS T HAN
MI C HI GA N .”
When it comes to mobility, we’re making what the rest of the
world hasn’t even thought of yet. Michigan is home to the highest
concentration of engineering talent, has two world-class
autonomous vehicle testing sites, and we’re first in the U.S. for
mobility-related patents. With over 500 miles of roadway
equipped for connected vehicle testing, it’s no wonder that
everyone is moving to where it all started.

If you’re ready to move into the future with your business, see
how we can help at planetm.com/pure-opportunity
 August 10, 2020

◀ As the price of
search ads rose
in the pandemic,
psychotherapist
Ellen Ross had to
choose between paying
Google or missing out
on new clients

1
PHOTOGRAPH BY DAVID ELLIOTT FOR BLOOMBERG BUSINESSWEEK

FEATURES 38 Google’s Dominance of Search Ads Sure Is Taxing

The company’s health-care push is a case study in tech giants’ monopoly power

42 Private Equity Was Supposed to Cure Ailing Hospitals

A Cerberus buyout leaves investors flush and medical centers deep in debt

46 Pepsi’s Unlucky Number

A ’90s marketing stunt led to disaster and death in the Philippines
 ◼ CONTENTS Bloomberg Businessweek August 10, 2020

◼ IN BRIEF 4 Hong Kong delays elections ● Argentina’s debt deal ◼ COVER TRAIL
◼ OPINION 5 Hire laid-off energy workers to help fight climate change How the cover
◼ AGENDA 5 Tencent earnings ● U.S. crop data ● New Zealand rates gets made

“This week we’re

talking about Google
◼ REMARKS 6 A rebate meant to lift Italy’s economy widens a class divide search ads. Turns out
the company has a ton
of power over small
BUSINESS 10 Virus flareups ground airlines’ hopes for a rebound
1 12 Boeing and Airbus gamble on keeping factories running
businesses.”

“So much for

‘Don’t be evil.’”
TECHNOLOGY 14 Silicon Valley’s mostly White workforce highlights
2 the tech industry’s epic fail in diversity
“They removed that
phrase from their code
of conduct, you know?”

“How about a really big

FINANCE 18 When oil went negative, a group of traders made a killing
3 21 A coin shortage gives no quarter to laundromats
Google something?!”

“Dig deeper.”
22 Killer Mike’s campaign to get Americans to #BankBlack
“Google doodle!”

ECONOMICS 24 Biden the deficit hawk makes way for Biden the big spender “Is this 2015?”

26 Puerto Rico risks future funding as citizens skip the census “Autofill! Search meme!
The color wheel!”
28 Europe is recovering faster than the U.S.
“I get it. This isn’t the
first time we’ve arted a
POLITICS 30 ▼ Turning Chinese propaganda on its head in Hong Kong Google story.”

“Maybe we do
something with the
magnifying glass ... 
you know when you
were a kid and used it
to kill ants?”
2
“Uh, no. No, I don’t.”

“I was late to ‘Don’t be

evil.’”

32 A conservative judicial star faces a right-wing litmus test

STRATEGIES 34 How to make that commitment to racial diversity a reality

36 To keep innovating, get creative about remote collaboration
37 Providing service with a smile while wearing a mask

◼ PURSUITS 55 Architect Bjarke Ingels rethinks urban living

58 A blueprint for restaurants’ survival HONG KONG: PHOTOGRAPH BY BILLY H.C. KWOK FOR BLOOMBERG BUSINESSWEEK

60 Pandemic-born innovation may help us fly through airports

62 A cross between QVC and Netflix for the cocktail set
63 Space Age jewelry at an out-of-this-world price

◼ LAST THING 64 In a low-rate world, gold can do what bonds can’t

CORRECTION The Bank of England item in Agenda (Aug. 3, 2020) should have converted £300 billion into
$390 billion.

How to Contact Bloomberg Businessweek

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 ADVE RTI S E M E NT

The

Agile Advantage
Information
Technology
RCH N R
Chief Information
Officer

Archana joined
Atlassian in 2018 after
working for Symantec
We spoke to Archana Rao, Chief on the regulations of the country in which and Cisco.
Information Officer of Atlassian, about the employee works.
how agile management can help IT
professionals address new challenges. Then we had to make sure that their WiFi
was working, that their VPN was working
and that they could access everything on
Q: What is agile management for
our systems. Despite all that, in March TL SSI N
IT professionals?
2020, we remotely on-boarded a record S F W F
A: IT always gets the reputation of being IT TE MS
200 employees.
slow and expensive, and, too often, focused
on the technology without understanding
Q: How do you prepare for a challenge
how it will be used. Agile management
like that?
means you focus on providing value, Connect business
A: In a sense, you can’t — not specifically.
and doing so continuously. You put your strategy to technical
You need a company culture that fosters execution.
customer first.
operating in an open, transparent manner,
where everyone is comfortable learning
Q: Who is the IT customer?
from everyone else, and not just in a
A: Every employee in the company is a
hierarchical way. It’s those characteristics
customer. We have to have very good
of adaptability and teamwork that are the Team workspace to
relationships across all the company’s
real preparation for the challenges you stay on the same page.
departments, both in the trenches and at a
don’t see coming.
C-Suite level, to effectively serve them.
Q: How does this apply to IT teams
in companies that aren’t in the
software industry? A collaborative ITSM
Agile management allows solution.
you to deliver flexibility A: As every team in the world starts
along with speed. And that’s operating remotely, IT departments have an
a hard thing to accomplish. incredible challenge, but also an incredible
opportunity. How can technology be
brought to bear for every team to unleash
their fullest potential and build amazing
Q: How does that play out day-to-day?
products and services for everyone? That’s
A: Our goal is to have every new employee TL SSI N’S
the challenge agile IT is meant to address. GL CH
be productive on their first day. We were
really put to the test during the pandemic,
Q: What’s often overlooked with agile
when all those folks were being on-boarded
management and IT? 13
from their homes. offices
A: To move fast, you have to have
For my team, it was all hands on deck. strong relationships with people in every
First we had to arrange to send a laptop department, both to understand what is
to every employee — sometimes directly,
4K
needed to meet their needs and to get employees
sometimes through third parties, depending their buy-in.

170K
customers

Learn more about Atlassian and agile management at atlassian.com/enterprise

 ◼ IN BRIEF Bloomberg Businessweek By Benedikt Kammel

● Global coronavirus ● Hong Kong

cases topped
delayed
18.6m
and deaths passed
September’s
Legislative
702,000. President Trump Council election
said he thinks a vaccine for a year, blaming
may be ready before a recent surge in
yearend, with more than
a half-dozen prominent Covid-19 cases.
companies and researchers
racing to develop one.
The move outraged pro-democracy
advocates, who accuse Hong Kong
Chief Executive Carrie Lam and ● A devastating blast in Beirut on Aug. 4 killed more than 100 people and injured
China’s central government of trying thousands. The explosion, which has yet to be explained, destroyed the city’s only
to stamp out dissent. wheat silo. Now, in addition to the pandemic, Lebanon faces food shortages.

● Trump ●“Right ● French lender ● Seven & i, the Japanese

operator of the 7-Eleven
Natixis replaced
threatened to now, today, CEO François
franchise, agreed to buy
Marathon Petroleum’s gas
ban Chinese
we have an Riahi because station business for

4
social media
app TikTok. emergency.
of “strategic
differences.” $21b
A building The deal gives the world’s
largest convenience store

is on fire, operator 3,900 Speedway

outlets and a presence

BEIRUT: ANWAR AMRO/AFP/GETTY IMAGES. PELOSI: TOM WILLIAMS/CQ-ROLL CALL/GETTY IMAGES. JUAN CARLOS: CARLOS ALVAREZ/GETTY IMAGES
He’s given the company until Sept. 15
to strike a deal with Microsoft or
another U.S. entity about its American and they are in 47 of the top 50 U.S.
metropolitan markets.

deciding
operations. Critics of the app say
TikTok, with an estimated 100 million Crosstown rival Société Générale also
U.S. users, poses a national security culled deputy CEO Séverin Cabannes

how much
threat—a charge parent ByteDance and retail banking head Philippe Heim
denies. Trump added that the U.S. after reporting its worst quarterly loss
Treasury should get a slice of any sale. in more than a decade.

● Argentina and its largest water they ● Juan Carlos I, Spain’s ● A federal
creditors, which include
investment companies want to former king, said he
plans to leave the appellate court,
citing possible
Ashmore, BlackRock, and
Fidelity, struck a deal to have in the country he ruled
for almost four decades. juror bias, tossed
restructure
bucket.” The once-popular monarch
out Dzhokhar
$65b
abdicated in favor of his son,
Felipe, in 2014, after helping Tsarnaev’s death
restore Spanish democracy. sentence on
of debt. The accord sets Juan Carlos, who saw his
the stage for the country reputation tarnished by July 31.
to emerge from its third scandals in recent years,
default since the turn of didn’t say when he would
the century. leave or where his exile
House Speaker Nancy Pelosi sought
a compromise with Republicans to
would take him.
push through a new pandemic relief Tsarnaev was convicted in the Boston
package, including an extension of Marathon bombings, which killed three
the supplemental unemployment people and injured more than 260 at
insurance that has expired. the race’s finish line on April 15, 2013.
  BLOOMBERG OPINION August 10, 2020

The bill would also make a start on mending the broken

Hire Laid-Off Oil and system for funding well cleanups. Polluters should be held
accountable for cleaning up their own messes. They’re legally
Gas Workers to Fight required to, and besides, that’s what corporate responsibility is
all about. But many try to use bankruptcy to escape their obli-
Climate Change gations to workers and shift their cleanup responsibilities to
taxpayers. The bill Speaker Nancy Pelosi shepherded through
○ By Michael R. Bloomberg the House would require companies to set aside enough money
to retire wells before they drill new ones. At the moment, states
can try to attract business by minimizing that requirement,
As Congress debates how to address the economic calamity which is how we’ve ended up in this mess. We need a national
we are facing, we have an unprecedented opportunity to put standard to prevent it from happening again.
people to work addressing the climate crisis—and let’s start by The bill is stalled in the Senate. Republicans are skeptical
hiring laid-off oil and gas workers to help lead the way. about further stimulus, and the administration isn’t concerned
The fact is, the U.S. oil and gas sector was in trouble even about climate change. But cleaning up wells helps everybody.
before the pandemic struck. Last year more than three dozen It fights climate change, creates jobs, and is affordable. Biden
producers declared bankruptcy, hobbled by declining energy is right to push for it, but the idea is too good—and the needs of
prices and rising debt. The pace of filings has quickened with unemployed gas and oil workers too urgent—to wait for 2021. 
the spread of the coronavirus, and even after the virus threat For more commentary, go to bloomberg.com/opinion
subsides—which is unlikely to be anytime soon—cheap renew-
ables will drive more companies under.
This turmoil has hurt oil and gas workers—some 100,000  AGENDA
have been laid off in 2020—and communities that depend on
fossil fuel extraction are suffering. The bankruptcies have also
left scars on the environment, in the form of abandoned wells.
Some 3 million such sites are scattered across the country, 5
according to the Environmental Protection Agency, and most
leak copious amounts of methane, a powerful greenhouse gas.
But the U.S. can meet both challenges in one stroke—by pay-
ing laid-off energy workers to clean up abandoned wells.
Plugging a single well can cut its methane emissions by 99%,
according to the EPA, and the work requires skills that oil and
gas workers already possess. Yet despite the best efforts of
state regulators, most abandoned wells—more than 2 million—
remain unplugged. A federal program to plug so-called orphan
wells could create as many as 120,000 well-paying jobs, while
preventing hundreds of thousands of tons of greenhouse gases
from escaping into the atmosphere. It’s an idea that appeals to
environmental groups, fossil fuel dependent states, and even
 Will the U.S. Pull Another Plug?
some fossil fuel industry leaders. Social media giant Tencent reports earnings on Aug
Aug. 12
12,
Joe Biden has included the idea as part of his green energy amid mounting pressure on Chinese technology companies
campaign platform. I’ve spoken with him about it, and I know from governments focusing more closely on data security.
how strongly he supports it. It’s a perfect example of how
expanding the economy and fighting climate change go hand
in hand. Biden gets it, and this is the kind of practical policy—  New Zealand’s  The USDA World  China provides
central bank sets rates Agricultural Supply and economic data on July
one that helps hard-hit communities while also protecting the on Aug. 12. A strong Demand Estimates, a industrial production
environment—that he would lead as president. currency and low closely watched gauge and retail sales on
inflation have raised calls of demand for crops Aug. 14. Economists
However, we need these jobs right now, and the infra- for stimulus, including such as soy and wheat, are looking for signs of
structure stimulus bill passed by the House would create negative interest rates. is due on Aug. 12. a rebound.
ILLUSTRATION BY LAUREN MARTIN

a federal well-plugging program. While it could be more

ambitious—it would plug about 60,000 wells, far less than the  Royal Caribbean  The U.S. Court of  J.P. Morgan hosts
Cruises reports second- Appeals in Washington a virtual automotive
500,000 experts have proposed—it’s a step in the right direc- quarter earnings on on Aug. 11 reconsiders conference on Aug. 11-12
tion. Its $2 billion price tag should be modest enough to appeal Aug. 10. The pandemic a ruling to dismiss a to explore the road to
has hit the industry criminal case against recovery for the battered
to Republicans, many of whom represent states such as Texas particularly hard. former national security transport sector.
and Oklahoma that would see immediate job benefits. adviser Michael Flynn.
  REMARKS

advantage you’d have to be the sort of Italian who has that

○ The pandemic worsened global
kind of money sitting around. Case in point: Polimeno and
inequality. Now some measures meant her husband selected his-and-hers folding models because
to help are widening the gulf they’d fit into their vacation home on the coast of Tuscany.
“I’d been planning to buy bikes to get around at the beach,”
she says. “The subsidy was an opportunity I had to jump at.”
○ By Alessandra Migliaccio Like many Covid-relief provisions around the globe—
and Vernon Silver trillions of dollars for everything from modest rebates
on restaurant meals to tax breaks worth millions to
megacorporations—the bike bailout benefits lots of folks who
It’s early evening on Via del Pellegrino, a narrow cobblestone aren’t the most in need. It even helps widen income gaps that
street in the heart of ancient Rome, and Orsola Polimeno the outbreak has exposed and exacerbated.
is taking delivery of a pair of bright-orange-detailed folding Few would argue that nudging people away from cars is
bicycles. The matching bikes will be a pleasure to ride, she bad, and the bike benefit is available to everyone. But the real-
says, but the purchase is even sweeter, because the €1,500 ity is that people of more modest means—frequently dependent
($1,775) she’s spending will net her a government check for on government handouts—lack the cash for an €800 bike, even
€900. The payout comes thanks to a provision in Italy’s with a 60% discount. “Programs like the bike bonus or elec-
Covid-19 recovery plan that offers 60% cash back to buy- tric car incentives are worth more if you spend a lot, so they
ers of greener transport such as bicycles, electric scooters, tend to encourage wealthier people to buy that Tesla or fancy
even Segways and hoverboards. bike,” says Rosamaria Bitetti, an economist at Luiss University
The rebate goes up to €500 per person, corresponding to in Rome. “If you don’t have the money, it’s not going to help
the purchase of a bike costing €833. That means to take full you much, so these programs tend to increase inequality.”
  REMARKS Bloomberg Businessweek August 10, 2020

A better way would be to shift the tax breaks away from by people at the bottom of the economic ladder, will contract
consumption, which tend to reward the wealthy, and focus 26% this year, researcher Prometeia predicts.
on reductions in labor levies, beefed-up unemployment insur- And the economic impact is harder on women. They most
ance, or investments in infrastructure and research. But ideas often bear the brunt of unpaid child-care duties as schools
such as those, Bitetti says, are usually less visible to voters. and summer camps close, and they’re more likely to have
“Governments favor the bonuses because they’re easy to mar- part-time or temporary contracts, which are the first to go in
ket,” she says. “You’re putting money in the economy, but a downturn. Italy’s fashion industry, where 56% of the workers
there are more useful ideas that would help the poor more.” are women, is on track to shrink 19%. “Remember how the last
The pandemic, of course, has hit various populations differ- recession was a mancession?” says Luigi Pistaferri, professor
ently, depending on your race, your sex, and the size of your of economics at Stanford University. “This time it’s sectors that
bank account. Poor and non-White populations are more likely have lots of female employees that are in trouble—hospitality,
to contract the virus, they’re dying at higher rates because of services, public relations.”
inequities in living conditions and health care, and their chil- Governments around the world are seeking to give money
dren suffer more when schools close, as wealthier families to those most in need, and some is undeniably reaching
typically have better internet access and more time to help them. Many of Italy’s poorest get €500 or more every month
with homework. via various programs aimed at offsetting the economic toll
The most precarious workers—migrant laborers or gig- of the outbreak. The $600-per-week boost to U.S. unemploy-
economy types such as Uber drivers—are frequently the first ment checks kept many families afloat before it ran out at
to lose their already meager wages, and many don’t qualify the end of July.
CFIMAGES/ALAMY

for unemployment benefits because they don’t hold perma- In Japan, everyone is eligible for a 100,000-yen ($950) gov-
nent jobs. In Italy, which shuttered nonessential industries ernment grant—yes, billionaires too, but the effect of the
for months, the restaurant and hotel business, staffed largely money clearly will be more dramatic for drivers, waiters,
 ◼ REMARKS Bloomberg Businessweek August 10, 2020

or hotel cleaners. (An earlier plan to offer payouts of cool behind the walls of their properties, according to mar-
300,000 yen just to the needy was scrapped on concern ket researcher ProntoPro.
that assessing eligibility would slow the transfers and largely Bicycles represent one of the most poignant symbols of
defeat the purpose.) While wealthier people are benefiting modern Italian culture—from the Alp-climbing-superheroes
from the fire hose of cash, “money has gone to all classes of the Giro d’Italia, to the craftsmanship of the finest racing
in various forms, we can’t say just the middle and upper,” frames, to perhaps the nation’s most celebrated film, Vittorio
says Jeremy Siegel, a professor of finance at the University De Sica’s 1948 The Bicycle Thief. In the black-and-white fable,
of Pennsylvania’s Wharton School. “Everything is meant to an impoverished father needs his dilapidated two-wheeler for
encourage spending.” his job hanging movie posters around Rome. When it’s stolen,
Yet critics say many well-intentioned programs tend to help he can no longer feed his family. In his desperation for a new
the haves and don’t do much for the have-nots. Italy is offer- bike, he steals one from another member of the underclass—
ing tax rebates to offset green-oriented home improvements and is arrested while his young son looks on in shame. In
and will even throw in an extra 10%—so if you spend €60,000 essence, De Sica transformed bikes into a metaphor for the
(the maximum), you’ll get €66,000 in benefits. Australia is economic distress of the postwar era.
handing out A$25,000 ($18,000) grants for renovations or In the Rome of 2020, bikes present a more complex picture
newly built houses. While the cash is only for homes valued of class and opportunity. They are now, simultaneously, the
below A$750,000, detractors say it’s still a subsidy for people object of bourgeois desire and tools of the trade for legions
who don’t really need it. The money, says Cassandra Goldie, of immigrant deliverymen who fed the locals via food apps
chief executive officer of Australia’s Council on Social Service, during lockdown. While there are no statistics showing how
would be better spent with a more targeted program. “It will many of the latter are taking advantage of the “bonus bici,”
largely benefit those on middle and higher incomes undertak- it felt like Christmas in July in wealthy sections of Rome.
ing costly renovations,” she says. “It’s a wasted opportunity to Bike sales in the city tripled in the weeks after the program
address the backlog of urgent social housing repairs and the was announced, and at a shop near the Galleria Borghese
shortfall in social housing.” museum, police had to intervene to keep order as custom-
Like Italians, residents of Paris and its suburbs can get a ers jostled over limited supplies, Corriere della Sera reported.
8 rebate check for half the cost of a bike up to €1,000. And across In all, Italy has set aside about €210 million for the “mobility
France, buyers of new electric cars are being offered as much bonus.” That’s a small slice of the government’s Covid-19 mea-
as €7,000 cash back from the state. In Germany, government sures, which include €100 billion in state-guaranteed loans for
incentives on electric cars have doubled, to €6,000 for pur- small companies and some €400 billion for larger ones. (The
chases up to €40,000, at an expected cost to the treasury of moneyed middle classes are arguably getting crumbs via the
about €2.2 billion through the end of next year. bike bonus when compared with the wealthy people who con-
In the U.K. the efforts range from the micro (50% off meals trol the biggest companies. Government-backed loans have
on certain days in August, up to £10 [$13] per person) to the included a €6.3 billion credit facility for the Agnelli family’s
macro (exempting home purchases up to £500,000 from a Fiat Chrysler Automobiles NV.)
transaction tax, saving buyers as much as £15,000). “No stamp At Collalti, a bike shop near Rome’s Campo de’ Fiori mar-
duty if you can afford to buy a home. Cheaper dinner if you ket run by the same family since 1899, the spending spree has
can afford to dine out in restaurants,” British trade unionist been going full tilt. A wooden pallet holding boxes with eight
Lauren Townsend wrote on Twitter. “But nothing to ease the Casadei bikes sits at the door. A crate with a €1,000 Serious
pangs of anxiety if you’ve recently lost your job, are facing Athabasca Hybrid is propped against a wall across the street.
eviction from your home, or are using food banks every week There’s barely room in front of the store for the empty car-
just to survive. Cool.” tons from a pair of Brompton folding bikes (about €1,500
Despite the deep economic crisis, those lucky enough to apiece) just in from the U.K. Inside, Collalti family members
have kept their jobs or hold investments have been able to complete purchases by taking personal details from custom-
save—even forced to do so, given closed shops and the difficul- ers, which staffers send off to the Italian tax service. “It was
ties of jetting off to Bali, Barcelona, or Berlin for the weekend. crazy, a tsunami,” says Danilo Collalti, the current genera-
Some of the money not spent on restaurants and vacations tion’s proprietor. “Everyone wanted one, even customers
has gone into kitchen renovations, flatscreen TVs, or video who’d never ridden a bike.”
games to ease the ennui of home schooling and remote work- It is at Collalti that Polimeno found her Tern foldable bikes.
ing. Sales of game consoles almost tripled in April from the She and her husband have since packed them and the dog into
year-earlier period, according to researcher NPD Group. their car and relocated to the Tuscan sun for a work-from-
It’s also going toward swimming pools. Pentair Plc, a maker home summer. These days, Polimeno’s biggest concern is that
of pool pumps and control systems, says demand has been the government might not make good on the deal. “I’m a bit
“very, very strong.” In Italy, the number of people intend- nervous that Italy will run out of money,” she says, “before
ing to install pools has swelled by more than half this sum- they send me the check.” <BW> �With Carolynn Look, William
mer from last year, as families seek a secure way of keeping Horobin, Paul Jackson, and Nate Lanxon
 Bloomberg Bu
usinessweek August 10, 2020

The Aborted
B Airline Takeoff

U ○ Early signs of recovery have

been stalled by Covid flareups
during prime travel season

S Just a month ago, airlines around the world began

adding flights as lockdowns eased and people

I
craved escape. But as the travel season reaches
what should be its annual peak, hopes for an indus-
try comeback have been dashed by flareups of the
pandemic in Asia, a deepening health crisis in the

N Americas, and the reimposition of flight curbs in

Europe. With optimism about a quick rebound
gone, the aviation world is increasingly resigned
to years of depressed demand.

10
E Airlines are now rethinking plans to restore their
schedules and facing a jump in bankruptcies. It’s
also forcing a reassessment of just how long travel
will take to return to normal, with the International

S
Air Transport Association predicting that last year’s
traffic probably won’t be matched until 2024, a
year later than previously estimated. “The situa-
tion is deteriorating,” IATA Chief Economist Brian

S
Pearce says. “Airlines are having to take on costs,
but demand and revenues are not rising as quickly
as was expected, so they’re still burning cash.”
The difficulty airlines are having planning even
days ahead was illustrated when Britain on July 25
abruptly reimposed a 14-day quarantine for people
arriving from Spain after a surge in Covid-19 cases
in the Catalonia region. TUI AG, the world’s biggest
tour operator, responded by scrapping all package
holidays for Britons in Spain—previously their No. 1
destination—until the middle of August.
Fresh emergency measures imposed across the
Asia-Pacific region, where international flights were
first to return, suggest spontaneous clampdowns
may be the shape of things to come. A so-called
travel bubble allowing unfettered service between
Australia and New Zealand is on hold for months,
after a flareup in infections put Melbourne into lock-
down and triggered a disaster declaration in the
state of Victoria. The Philippines has halted non-
essential overseas trips just a month after resuming
service, and Hong Kong now requires some visitors
to prove they’ve tested negative for the coronavirus.
Edited by
James E. Ellis and
In the U.S., a burgeoning recovery in demand has
Benedikt Kammel been squashed by a leap in cases, with many states
USINESS Bloomberg Businessweek August 10, 2020

and some major cities adopting quarantine rules.

The relapse prompted Scott Kirby, chief executive
officer of United Airlines Holdings Inc., to predict
his company’s revenue will plateau at no more than
half of prepandemic levels until a vaccine is widely
available. IATA, which has forecast a record $100 bil-
lion loss for the industry this year and next—three  Annual airline
bankruptcies*
times the losses after the 2008 economic slump—will
need to revisit that prediction, according to Pearce. 70

Summer represents the only profitable period

for many carriers even in normal times. But with
the prospect fading for a traffic rebound, a spate
of collapses and bankruptcy filings is inevita- 35

ble, says Stuart Hatcher at consultant IBA Group.

Compounding the crisis in tourism is the collapse in
business travel, particularly on key routes across the
Atlantic and linking China with Europe, which make 0

up a major part of full-service airlines’ earnings. 2005 2020

Some 34 carriers have failed so far this year, up
FORECAST

from 27 in 2019 but well short of the 63 that went

under in 2008. Airlines that have folded include U.K.-
based Flybe; SunExpress Deutschland, which car-
ried German tourists to Turkish sun spots; Miami
Air, and the OpenSkies unit of IAG SA, which flew
between Paris and the U.S. Richard Branson’s Virgin
Atlantic Airways Ltd. filed for Chapter 15 bankruptcy 11
protection in the U.S. on Aug. 4 after telling a London
court it was set to run out of cash next month if a
pending rescue deal isn’t approved. Among other
carriers in administration, Virgin Australia Holdings
Ltd. is being acquired, and two big South American
carriers, Latam Airlines Group SA and Avianca
Holdings SA, are also likely to reemerge.
Collapses have been held back by the ground-
ing of fleets, which stemmed the outflow of cash,

ILLUSTRATION BY EVA CREMERS. *INCLUDES AIRLINES THAT CLOSED WITHOUT FORMAL PROCEEDINGS. FORECAST
together with governments using furlough programs
to pay wages and injecting billions of dollars via bail-
outs and loans. But Hatcher estimates casualties may
double by yearend. “We expect the next level of
blood to be spilled from September,” he says. “That’s
when airlines take stock of what’s been achieved INCLUDES AIRLINES IN ADMINISTRATION. DATA: INTERNATIONAL BUREAU OF AVIATION

over the summer in ticket sales and make a judg-

ment about whether to continue.”
Most devastating for carriers would be a new
wave of infections over the Northern winter, coincid-
ing with the seasonal slump in revenue and a tail-
ing off of government support. Charter carriers,
regional airlines, and operators that primarily serve
leisure destinations are most vulnerable, according
to IBA. Household names will generally endure, with
discounters buoyed by strong cash positions and
national carriers likely to be given further govern-
ment support if they need it, Hatcher says.
Meantime, a clutch of major players is facing
a long slog for survival. Carriers in Southeast
 ◼ BUSINESS Bloomberg Businessweek August 10, 2020

Asia may be endangered by a splurge on route American Airlines Group Inc. is seen as the most
expansion and aircraft orders. Auditor EY has cast at risk, with the upfront cost of insuring its debt in
doubt on the viability of Malaysia’s AirAsia Group the credit-default swaps market implying an almost
Bhd. and its AirAsia X Bhd. unit, a specialist in the 100% chance of default in the next five years. The
kind of low-cost, long-haul travel that may now be odds stand at 59% for United Airlines and 47% for
moribund. Similar pressures are playing out in India, Delta Air Lines Inc.
until recently the fastest-growing aviation market, The extent of the crisis may be most apparent in
where budget carrier SpiceJet Ltd. is struggling with the number of aircraft set to permanently exit fleets.
liabilities of more than 500 times its cash in hand. Some 980 planes have been retired, and IBA proj-
India’s government has ruled out assisting airlines ects a total of 5,000 will follow this year and next.
as it confronts the world’s fastest rate of infections. “It’s a very worrying time,” says Willie Walsh, CEO
In Europe, Norwegian Air Shuttle ASA’s bid to of IAG, which owns British Airways, Iberia, and Irish
penetrate the lucrative North Atlantic market was carrier Aer Lingus. The holding company reported
struggling under a mountain of debt before the on July 31 that all of its airlines suffered substantial
pandemic. The carrier has restructured its bor- losses in the second quarter. “The figures speak for
rowing, but by shifting its strategy to emphasize themselves,” Walsh says. “British Airways has lost
short-haul routes, it faces being squeezed between more in one quarter than the record loss it made
healthier discounters such as Ryanair Holdings Plc in a year. This is by far the biggest crisis we have
and full-service airlines like Air France-KLM and ever faced.” �Chris Jasper, with Anurag Kotoky,
Deutsche Lufthansa AG—flag carriers that have been Justin Bachman, and Mary Schlangenstein
propped up by a combined €20 billion ($23.5 billion)
THE BOTTOM LINE The airlines are expected to lose more than
in state aid. Even the three giant U.S. carriers are $100 billion this year and next. If a coronavirus vaccine isn’t found
under pressure after borrowing ballooned in April. soon to calm travelers, that dire forecast may need to be even higher.

12

Airbus and Boeing Play

The Long Game ● As their airline customers struggle to survive,
plane makers gamble on continued production

For decades, the competition between Airbus SE Airbus and Boeing are sharply reducing output,
and Boeing Co. has centered on issues such as which announcing plans to reduce staff and trimming costs
could build the biggest jumbo jet or log the most in research. They’ve also entered into what Airbus
multibillion-dollar sales each year. Then the corona- Chief Executive Officer Guillaume Faury calls “dif-
virus hit. Now the world’s two dominant plane mak- ficult” discussions with customers, negotiating to
ers will battle to see which one can best weather an stretch out delivery schedules while prodding air-
unprecedented downturn in air travel that’s emp- lines not to walk away from commitments.
tied the wallets of the airlines that buy their planes. That risks creating a dynamic that pits the plane
With new orders dormant, the challenge is to makers against ailing carriers, as they try to get them
cut costs and protect cash while keeping factory to honor contracts and accept jets they can’t afford
systems and global webs of suppliers operating at and don’t need. If they don’t press carriers to pay
a high enough pace to retain essential skills and be for at least some of the planes ordered during flush
ready to bounce back when the crisis passes. Getting times, then the airframe manufacturers will have to
the balance right will be tough, given that Airbus burn more cash to keep their operations humming.
and Boeing together employ almost 300,000 peo- But if they push too hard, they could further hob-
ple and sell aircraft that typically take a year to build. ble some customers financially—endangering future
Walking this tightrope is also expensive: In the sec- sales or even driving them toward bankruptcy, jeop-
ond quarter, Boeing burned through $5.6 billion in ardizing existing contracts. “It’s more about finding
cash; Airbus, $5.2 billion. And things are set to get ways to deal with the situation together,” Faury says.
tougher, as a fresh surge in infections prompts new Even at lower production levels—a roughly
travel restrictions worldwide. 40% drop at Airbus alone—it’s unclear whether
 Bloomberg Businessweek August 10, 2020

being less cautious than Boeing, trying to build ◀ Boeing’s 737 Max

production line in
through the downturn in hopes that as things fade, Renton, Wash.
the customers will come and get their airplanes.”
By continuing to produce more than it can
deliver, Airbus would provide greater support for
its cash-strapped supplier network and more jobs
for its own workforce, something Faury has flagged
as a priority. The danger is that if the recovery comes
later than expected—a growing possibility as areas
in Europe and elsewhere see a flareup in Covid-19
cases—Airbus will be stuck with even more planes it
can’t push on the airlines.
The company has matched its adjustments as
closely as possible to the downturn “in a way that
the market will be able to absorb the jets the two is sustainable and brings back stability, not only for
companies will churn out in coming years. Neither the company but also the wider supply chain, too,”
wants to cut too quickly, out of fear of ceding busi- says Chief Operating Officer Michael Schöllhorn. It
ness to its archrival, according to Sash Tusa, an ana- can cut back further if needed, he says.
lyst with Agency Partners in London. He says they’re Airlines are sounding an increasingly cautious
also reluctant to lower production rates until after note. Air France-KLM said on July 31 that it will con-
airlines have agreed to pay the costs associated with tinue to take aircraft only if it has financing. Air
deferring deliveries of aircraft often ordered many Canada in July threatened to cancel Boeing and
years earlier. “Airbus and Boeing are now playing a Airbus orders, including for Airbus’s Quebec-made
potentially damaging game of chicken,” Tusa says. A220 narrowbody jet, if it doesn’t get support from
At the end of the second quarter, Airbus had 145 the Canadian government. Willie Walsh, CEO of
finished jets awaiting delivery. Boeing has about British Airways owner IAG SA, said airlines that treat 13
450 of its 737 Max jets ready to ship once regula- the crisis as temporary are “misguided.”
tors clear the plane to fly again. Deliveries have A further downturn in demand could force more
been frozen since March 2019 following two deadly drastic measures. Boeing is already considering con-
crashes; the go-ahead from the U.S. Federal Aviation solidating production of its 787 widebody, which
Administration is expected by the end of fall. By is built at factories in North Charleston, S.C., and
Tusa’s count, more than 1,600 planes are scheduled Everett, Wash., into a single plant. Hard decisions lie ▼ Share of airline fleets
in storage
to enter or reenter service next year—on par with the ahead, CEO Dave Calhoun said on an earnings call:
Europe
industry’s production peak in 2018. “I don’t want to predispose any answers, because
North America
While airlines retiring some older, fuel-guzzling we don’t have any.”
China
planes from fleets will help, each plane maker is tak- For Airbus, which assembles planes in China,
ing the calculated risk of continuing to produce jets Europe, and North America, the options are more
faster than the market can absorb them. Airbus is set limited. The company has ruled out closing facto- 100%

to complete 51 aircraft a month, despite delivering ries in the short term. And dismissing more work-
only 74 in the entire second quarter. Even as Boeing ers, after it already announced plans for 15,000 cuts,
scales back its production plans, it wants to get would risk a run-in with European labor unions.
back to producing 31 of its 737 Max jets a month by Still, standing firm could pay off, allowing Airbus 50

early 2022. The monthly build rates for its widebody to scoop up a bigger share of the market, says
787s and 777s were at 19 pre-Covid and are com- Bloomberg Intelligence’s Ferguson. He says the com-
ing down to a combined 8 jets a month next year. pany is better positioned to bet travel will bounce
COURTESY BOEING. DATA: CIRIUM, BLOOMBERG INTELLIGENCE

The U.S. manufacturer is pushing to hand over at back because of state support and a healthier 0

least half of the grounded 737 Max aircraft in the narrowbody program—but it might not be enough. 1/2020 7/2020
first 12 months after the plane’s return to service. “Cutting production is the most important lever
But delivery delays related to the grounding have to pull to get through the downturn,” Ferguson
given customers extra leverage to demand flexibil- says. “I don’t see any other good responses.”
ity on when they accept the jets. �Charlotte  Ryan, with Siddharth Philip, Julie
“Both are very focused on minimizing cash burn, Johnsson, and Guy Johnson
and part of that strategy is ensuring you don’t build a
THE BOTTOM LINE New orders at Airbus and Boeing have
lot of airplanes that sit on the ramp,” says Bloomberg stalled thanks to the pandemic. Now the future of 1,600 planes set
Intelligence analyst George Ferguson. “Airbus is to enter or reenter service next year seems increasingly at risk.
 Bloomberg Businessweek August 10, 2020

T Silicon Valley Failed

To Think Different
E ● Tech companies’ mostly Renewed vows in June by tech companies to

C White workforce reflects years

of broken promises on diversity
diversify their workforces recall years of failure at
Microsoft, Facebook, and Google. At those com-
panies, Black employees make up 3.3%, 1.7%,
and 2.4% of technical roles, respectively. Proxy

H
statements show there was only one Black exec-
utive among the leadership teams at Microsoft,
Quora Inc., which runs the eponymous questions Facebook, Google, Apple, and Amazon.com last
and answers website, couldn’t figure this one out: year. He was at Google, and he left in January.

N Why were so many Black and Latinx college stu-

dents rejecting its job offers or withdrawing from
interviews? Last year, a recruiter suggested that
the Silicon Valley company might seem more
To truly make good on all these years of prom-
ises, tech companies must start by puncturing two
pervasive Silicon Valley myths: that they’re meri-
tocracies where everyone gets a fair shot, and that

O
welcoming if it had dedicated groups of under- diversity is a pipeline problem. The reality is that
represented employees for the candidates to con- Black employees are leaving faster than they’re
sult. Higher-ups were initially skeptical, she says, being hired because, for people of color, many tech
whether the company even had enough diverse companies can be painful places to work. Getting

L
14
employees to do so. Quora says it’s in the process through the door is one thing; staying and progress-
of creating such groups. ing up the ranks to a position of influence is another.
Silicon Valley’s predominantly White, male work- Often, Black employees are the only minori-
force didn’t have to be this way. The wave of national ties on their teams. They receive salary offers that

O unrest around ingrained racism has called atten-

tion to the dearth of people of color across corpo-
rate America. Yet if there’s one industry that should
have been able to avoid these problems, it’s technol-
average $10,000 less than offers to White peers,
according to recruitment marketplace Hired Inc.,
and take longer to get promoted. Many also incur
what’s referred to as a “Black tax”—additional work

G ogy. Many of today’s biggest tech companies, which

frequently use their corporate mission statements to
espouse utopian harmony, didn’t exist a few decades
ago. They didn’t inherit the same racial disparities
such as representing the company at career fairs or
conducting new-hire interviews, implicitly distort-
ing how diverse the company is. That takes them
away from their day job for no extra pay. Small

Y entrenched at banks and other centuries-old institu- wonder, then, that many tech companies lose
tions. Yet they’ve replicated the same rot. more Black employees through attrition in a given
“Tech had started to take over our world, but year than they manage to hire. To have any mean-
as the industry added tens of thousands of jobs, it ingful change, tech companies will have to spend
was ushering in the same systemic racism we’ve as much time—or more—retaining and promoting
faced for 100 years,” says Joseph Bryant, who leads Black employees as getting them in the door.
PushTech2020, an initiative of the Reverend Jesse And if they want smart people to speak up, they
Jackson. “It’s not just, ‘Don’t put your knee on can’t penalize outspoken Black workers. “One of
my neck.’ It’s also, ‘Help me get a job and build my managers used to call all the things I was doing
wealth, because I’m qualified and you’re not even around diversity ‘extracurriculars,’ ” says Bari
looking in my direction.’ ” Williams, a former Facebook Inc. lawyer who now
According to the Kapor Center for Social Impact, heads legal at Human Interest Inc., a fintech com-
about 21% of computer science graduates are Black pany. “Leadership can talk about diversity all day
or Latinx, yet they represent only 10% of technical long, but if the managers and people who imple-
roles at the 20 top-grossing tech companies. More ment it don’t buy in, it’s not going to happen.”
Edited by
than 97% of tech startup founders and their ven- Google came under fire in June after claims
David Rocks ture capital backers are White or Asian. that its campus security policy, which encourages
 ◼ TECHNOLOGY Bloomberg Businessweek August 10, 2020

staffers to look at the ID badges of passersby to make Google says it began paying closer attention to
sure they match the people’s faces, led to discrimi- attrition rates in 2018, when it saw Black and Latinx
nation against Black and Latinx workers. Employees workers leaving the company at faster-than-average
who said Black and Latinx workers were subject to rates. The company says its response efforts
disproportionately frequent checks complained to included hiring case managers to focus on trying “Leadership
CEO Sundar Pichai, who committed to ending the to retain the employees. “Only a holistic approach can talk about
practice. “It seems small, but over time it makes you to diversity will produce meaningful, sustainable diversity
feel like you don’t belong,” says one Black employee change,” the company said in a statement. all day long,
in the Bay Area, who spoke on condition of anonym- The focus on diverse hiring has overshadowed but if the
ity for fear of retribution. It’s a signal that “this space failures to retain new Black and Latinx employ- managers and
wasn’t built and isn’t intended for us.” ees, pay them equally, and promote them. Tech people who
Black Googlers who speak out are criticized companies’ leaky bucket syndrome makes it look implement it
even as the company holds them up as examples as if their overall workforce diversification efforts don’t buy in,
of its commitment to diversity, according to Timnit are stagnant. That discourages other diverse hires it’s not going
Gebru, a Google researcher who uncovered how from seeking similar jobs and creates a difficult to happen”
some facial-recognition programs mischaracter- cycle to break, according to Charlene Delapena,
ize darker-skinned women. She says co-workers a former recruiter at Quora who now works for
and managers have tried to police her tone, make another startup and also runs URx Inc., a talent
excuses for harassing or racist behavior, or ignore development organization.
her concerns. When Google was considering hav- Quora says no Black students rejected job offers
ing Gebru manage another employee, she says, her during last fall’s recruiting season. “It is import-
outspokenness on diversity issues was held against ant to our mission and also to me personally that
her, and concerns were raised about whether we provide an environment where people from all
she could manage others if she was so unhappy. kinds of backgrounds can do their best work,” CEO
“People don’t know the extent of the issues that Adam D’Angelo said in a statement.
exist because you can’t talk about them, and the The push to diversify tech’s ranks can be traced 15
moment you do, you’re the problem,” she says. to the 2013 disclosure by former Pinterest Inc.
ILLUSTRATION BY JORDAN MOSS
 ◼ TECHNOLOGY Bloomberg Businessweek August 10, 2020

engineer Tracy Chou that women made up

just 12% of the company’s engineering staff. Her
declaration prompted women at other companies
to speak out. “There’s no way we’d get systemic
change if we weren’t even willing to release the
basic numbers,” says Chou, who now runs Block
Party, the maker of an anti-harassment app.
The next year, Reverend Jackson established
PushTech2020 in San Francisco. He showed up
at the annual shareholder meetings of Google,
Microsoft, and Amazon and demanded they dis-
close their race and gender data. In 2015 mem-
bers of the Congressional Black Caucus weighed
in, meeting with Facebook Chief Operating Officer
Sheryl Sandberg and Apple Inc. CEO Tim Cook.
PushTech2020 aimed for 20% of people of
color in Silicon Valley by 2020. “We won’t say they
totally failed because this story hasn’t reached its
endpoint,” says Bryant. “But they haven’t come
close.” Top tech companies did begin to disclose
their diversity stats and hire chief diversity officers,
but five years on, not one such company has any-
thing close to a 13% Black workforce, which would
match the Black proportion of the U.S. population.
Some companies have even tried to fudge figures
16 by including temporary contractors and cafeteria
workers, Bryant says, declining to name names.
Gwen Houston, Microsoft Corp.’s former head
of diversity, says Black employees there would
quickly become disillusioned by the “only-ness
factor” that comes when few minorities are on a
team. Promotion and hiring discussions regularly
excluded Black employees under the banner of
amorphous criteria, such as whether a candidate
was considered a good “fit,” she says. When the
employees leave, she says, Microsoft’s reputation
among other Black job candidates naturally suf-
fers. By the time Houston left Microsoft in late 2017,
there had been some progress on increasing the
number of women in leadership, but not much
on the number of Black people. Twice-yearly tal-
ent reviews while she was at the company failed to
elevate many Black executives because there were
too few of them at a high enough level, she says.
A company the size of Microsoft would need
to hire 9,000 Black workers in the U.S. alone to
achieve population parity, so losing Black staff
stung. “I always used to say we need to be just as
invested on the retention as we are on the recruit-
ing because we have to manage this hemorrhaging
effect,” Houston says. “Microsoft wasn’t keen on
talking about turnover costs.”
Pledges to double the number of Black employ-
ees in senior and leadership positions by 2025 will
“hold us accountable for progress,” a Microsoft
 ◼ TECHNOLOGY Bloomberg Businessweek August 10, 2020

spokesperson said in a statement. “We need to to Adam Ward, a former recruiter for the company ◀ Google researcher
Gebru (top) and Chou,
ensure that our culture of inclusion is a top pri- who now runs his own firm. Current and former a former Pinterest
ority for everyone. We acknowledge that there is Facebook staffers say that despite adding more engineer

much more that we need to do to improve the schools to the recruiting lists, White manag-
lived experience of Black and African American ers continue to select from the same Ivy League
employees at Microsoft and members of the com- and West Coast schools they’d attended. Many
munity in society.” of these institutions act as another racial filter
The opportunity to build a diverse workforce because Black students are often underrepre-
perhaps seemed more promising at a younger sented. “Companies will give unfair weight to a
company such as Facebook, which has added school like Stanford, dipping down to the top 20%
42,000 employees globally over the past eight of students, but might pass on a student in the top
years. Facebook was founded in 2004, Microsoft 2% of their class at Penn State because of baked-in
in 1975. But according to company filings with the
U.S. Equal Employment Opportunity Commission,
there were only 260 Black employees in Facebook’s Demographics of Computer Science
11,200-strong U.S. workforce in 2016. That count
increased to more than 1,000 in 2018, but only after Share of group by race or ethnicity
Facebook’s total workforce roughly tripled. ● White ● Asian ● Latinx ● Black
Facebook has managed to increase the pro-
portion of women among its technical employ- Share of all K-12 enrollment
ees to 24% in 2020, from 15% in 2014, the first AP math and science
year it published its diversity stats. In that time, AP Computer Science A
however, it hasn’t managed to increase the share AP Computer Science Principles
of Black U.S. employees in those roles by a sin-
gle percentage point. Freshmen intending to major in CS
Chief Diversity Officer Maxine Williams, who CS bachelor’s degree completion 17
joined Facebook in 2013, says that failure doesn’t
have a simple answer—improving retention will U.S. labor force
require systemic changes beyond what the com- Computing & mathematical jobs
pany has managed so far, rather than “leaving it High-tech companies
up to chance whether someone has a good man-
CHOU: PHOTOGRAPH BY ELENA HEATHERWICK FOR BLOOMBERG BUSINESSWEEK. GEBRU: CODY O’LOUGHLIN/THE NEW YORK TIMES/REDUX

ager.” Each team will need its own goals, she says. Tech founders
“It’s bloody hard to keep doing this hard work Tech investors
every day.” 0 20 40 60 80%
In July, Facebook was accused of systemic dis-
crimination by a Black employee in a complaint to
DATA: COLLEGE BOARD, NATIONAL CENTER FOR EDUCATION STATISTICS, NATIONAL SCIENCE FOUNDATION,
BUREAU OF LABOR STATISTICS, U.S. EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, HARVARD BUSINESS
SCHOOL, RACIAL BREAKDOWN OF VENTURE CAPITALISTS. COMPILED BY THE KAPOR CENTER
federal civil rights authorities. Oscar Veneszee Jr.,
a decorated former U.S. Navy veteran, said he was bias,” says Ward. Top roles are narrowly filled with
denied promotions and stalled by middling evalu- people from other tech companies rather than
ations, despite being good at his job. He had three Black or Latinx executives in more diverse sec-
managers in three years and was often the lone tors, he says.
Black employee on his team. Veneszee said he was Experts say the coronavirus pandemic and
forced to apologize to a White Facebook recruiter global economic slowdown are hurting diversity
after questioning why a list of potential schools efforts, too. Businesses are looking for ways to
where Facebook was actively recruiting only had cut costs, and diversity and inclusion teams can
one historically Black college or university on it. be low-hanging fruit. Companies give chief diver-
“If someone is being silenced over raising diver- sity officers “little to no budget,” says Aubrey
sity concerns in recruiting, it means next time, Blanche, the former diversity head at Atlassian
someone like Oscar feels like they can’t speak up,” Corp. “They’re trying to solve 400 years of struc-
says Peter Romer-Friedman, a principal at law tural oppression and, ‘Oh, by the way, they need
firm Gupta Wessler who is representing Veneszee. to hit their target at the end of the quarter.’ ”
Facebook has said it’s investigating the allegations; �Shelly Banjo and Dina Bass, with Alistair Barr
Williams declined to comment further.
THE BOTTOM LINE The world’s largest technology companies
Facebook in 2013 found zero correlation didn’t inherit the same racial disparities entrenched at other
between alma mater and performance, according centuries-old institutions. They replicated them anyway.
 Bloomberg Businessweek August 10, 2020

18
8

Edited by
Pat Regnier
 ◼ FINANCE Bloomberg Businessweek August 10, 2020

impact calls into question CME Chief Executive

● When oil prices went
Officer Terry Duffy’s April 22 declaration that the
negative, a few traders above a futures market had “worked to perfection.”
London pub made a fortune. Did “The idea that the anomalies that day were a
function solely of supply and demand is fanciful at
they also help cause the crash?
best,” says Joe Cisewski, special counsel to Better
Markets, a lobbying group that advocates for
tougher regulation. “Oil producers, brokers, and
On April 20 the price of a barrel of oil for delivery other market participants have been sent into seri-
the following month plummeted $40 in an hour, ous financial distress. Regulators need to objec-
settling at –$37. It was the first time crude had tively and thoroughly investigate what happened.”
ever crossed into negative territory. Regulators, Spokespeople for the CFTC, FCA, and CME
oil executives, and investors have struggled to declined to comment. The CFTC has said it’s look-
understand how a commodity at the heart of ing to release a report on the crash later this year.
almost every aspect of global trade had fallen so Vega didn’t return emails seeking comment.
far that buyers had to pay counterparties to take Prop-trading firms like Vega give independent
it off their hands. traders access to the world’s exchanges, back-
But for a small group of veteran traders at a office services, and extra capital to trade with in
tiny London firm called Vega Capital London Ltd., exchange for a desk fee, a commission on every
▼ West Texas
the mystery mattered less than the results: They trade, and sometimes a share of any profits. In a Intermediate
pocketed as much as $500 million that day, trillion-dollar energy ecosystem dominated by the price per barrel
according to people familiar with the matter, likes of BP, Glencore, and Royal Dutch Shell, prop
who spoke to Bloomberg Businessweek on condi- firms are bit players. $40

tion of anonymity. Vega was started in 2016 by Adrian Spires and

Vega’s jackpot, which hasn’t been previously Tommy Gaunt, friends who’d worked together on
reported, involved about a dozen traders aggres- the management team at another London prop 19
sively selling oil in unison before the May West Texas firm, Tower Trading Group, before branching out
Intermediate contract settled at 2:30 p.m. in New on their own. In 2017 about 20 of Tower’s energy
York, the people say. It’s a tactic Vega’s traders used traders quit to join Vega, sparking a legal dispute 20

regularly, according to another person familiar with that was settled out of court. Gaunt quit as a direc-
the firm’s strategy, but that day its trading coincided tor last year, and Spires, 44, now owns all of the
with a period of unprecedented volatility, when business. He left school at 18 to take a job in the
demand for fuel was wiped out by the coronavirus trading pits of the London International Financial
pandemic, and storage space in Cushing, Okla., Futures and Options Exchange. Some of Vega’s
where buyers take physical delivery of WTI crude, traders spent time at the International Petroleum 0

had all but disappeared. Exchange, buying and selling barrels of oil using
Now regulators at the U.S. Commodity Futures hand signals, before commodities trading migrated
Trading Commission, the U.K.’s Financial Conduct from open outcry onto screens.
Authority, and CME Group Inc., owner of the The firm has an office a short walk from
Nymex exchange where the trading took place, Liverpool Street station, above one of London’s
are examining whether Vega’s actions may have All Bar One pubs, which it shares with a group -20

breached rules on trading around settlement peri- of mostly recent college graduates trading
ods and contributed to oil’s precipitous fall, accord- cryptocurrencies for another company also
ing to people with knowledge of the probes. owned by Spires. But most of Vega’s traders work
Within 24 hours of the crash, the May WTI from home, according to people familiar with the
contract had bounced back to about $10 a barrel. firm, even more so since the U.K.’s lockdown came
ILLUSTRATION BY 731. DATA: COMPILED BY BLOOMBERG

But the plunge, however brief, created some big into force. -40

losers. They include thousands of Chinese and While more than two dozen individuals trade 4/1/20 8/3/20
American retail investors who, lured by oil’s through Vega’s omnibus account, finding informa-
recent slump, had piled into instruments whose tion about them is difficult. Only a few list Vega as
value was pegged to the contract’s April 20 settle- their employer on LinkedIn. The company’s web-
ment price. site has remained under construction since Vega
Whether Vega’s windfall was a result of savvy was founded.
trading, blind luck, or something else, the idea One oil investor describes the firm as some-
that a relative minnow could have such a profound thing of a throwback to the days of the pits,
 ◼ FINANCE Bloomberg Businessweek August 10, 2020

when rowdy so-called locals made or lost for- at whatever the settlement price turned out to be.
tunes before heading to the pub to celebrate their Then, as the settlement time approached, they
winnings or drown their sorrows. Many of Vega’s aggressively sold outright WTI contracts and other
traders know each other socially, playing golf and related instruments, contributing to the down-
taking ski trips. They also trade together during key ward pressure on the price. Vega stood to profit if
periods to maximize their impact on the market, it managed to buy oil through the TAS market more
the people familiar with the firm say. cheaply than the oil it sold through the day.
To understand how Vega wound up making so Vega’s selling collided with an exodus of buy-
much money that day, it’s helpful to consider some ers, and the May contract tumbled from about $10
of the idiosyncrasies of the oil market. Among the at noon to zero at 2 p.m., then all the way down
most popular ways to trade oil is Nymex’s WTI to settle at –$37. Oil’s dive into negative territory
futures contract, which allows buyers and sellers meant that Vega ended up being paid for many of
to agree on a price for 1,000 barrels of light sweet the contracts it sold as the market was falling—and
crude for delivery at a future date. New contracts for all those it bought at the –$37 settlement price
are released every month, and they settle at via TAS, locking in a huge profit.
2:30 p.m. on or near the 20th of the month. Buying TAS and selling outrights before and
Nymex also offers a corollary instrument called during the settlement is a well-known strategy
Trading at Settlement, or TAS, in which buyers and that dates back to the pits, according to mar-
sellers agree to transact at whatever the settlement ket participants, but it carries considerable risk.
price turns out to be. The settlement price is based Selling futures can quickly turn into losses if a
on a volume-weighted average of trades occurring bigger player shows up and starts buying. “It’s a
in the two minutes before 2:30 p.m. While it might big poker game,” says Greg Newman, founder of
seem curious that anyone would agree to buy energy-trading firm Onyx Capital Group.
something without knowing the price, the TAS mar- There are also rules that forbid trading with the
ket is popular among exchange-traded funds and goal of deliberately affecting the settlement. In 2008,
20 other funds whose mandate is to track the price of Dutch firm Optiver was sanctioned by the CFTC for
oil rather than to get the best deal. It was also cen- abusing the TAS mechanism and boasting about its
tral to Vega’s strategy. exploits in emails. And in 2011 the agency introduced
One of the quirks of the oil futures market is a rule prohibiting a practice known as “banging the
that to take a long-term position, investors must close,” which it defines as trading heavily during the
keep buying new monthly contracts, then sell settlement period in one market to influence a larger
them before they expire and buy future months’ position elsewhere.
contracts, a process known as rolling. A significant But proving manipulation requires the govern-
proportion of the market’s participants are specu- ment to demonstrate intent, which is difficult with-
lators with no interest in taking possession of any out incriminating communications such as text
oil, so before each contract expires they have to messages. And winning cases has been difficult,
close out any residual positions, creating a flurry even with the new rules. “They’re not in any way
of buying and selling. slam-dunks,” says Aitan Goelman, a former head of
In the lead-up to the April 20 settlement, the CFTC’s enforcement division and now a partner
rumors were circulating that there would be sig- at Zuckerman Spaeder.
nificant downward pressure on the May contract. It seems unlikely that Vega’s traders could have
The recent slump in prices had attracted bargain- predicted just how far oil would fall on April 20. Its
hunting retail investors into funds that track oil, selling that day met a whirlwind of other factors that
including the Bank of China Ltd.’s Treasure, a spooked potential buyers and exaggerated all par-
vehicle linked to the price of oil. To manage its ticipants’ impact on the market. As a result, Vega’s
position after the influx, Bank of China and the traders made more money than they could have
banks it uses to help execute trades needed to dreamed of—and found themselves in the authori-
sell large numbers of the May contracts and buy ties’ spotlight. That may explain why its traders, usu-
June ones. Two weeks before the settlement, CME, ally active on settlement days, weren’t active in May,
which monitors market activity, issued a rare pub- June, and July, according to a person familiar with
lic warning that negative prices were a possibility. the firm’s trading. �Liam Vaughan, Kit Chellel, and
On April 20, as Bank of China and others were Ben Bain, with Jack Farchy
selling May contracts, Vega’s traders were hoover-
THE BOTTOM LINE A small group of traders in London made a
ing them up in the TAS market, according to peo- fortune on oil’s unprecedented plunge into negative territory—now
ple familiar with the matter, agreeing to buy oil they’re being scrutinized by regulators.
 ◼ FINANCE Bloomberg Businessweek August 10, 2020

A Coin Shortage Is
Hurting Laundromats ● After months of lockdown,
quarters are getting harder to find

Every morning, Charles Boukas drives to six Chase to a strange kind of liquidity problem. Since the
banks in the San Diego area in search of quarters. lockdowns began, the U.S. Federal Reserve has
The most he ever drove to was eight, but one gone to considerable lengths to ensure that big
branch was closed that day, and two others didn’t money keeps moving through the financial sys-
have change. Boukas, the 55-year-old owner of the tem. Need to sell millions of dollars of corporate ▼ Share of U.S.
Coin Hut Laundromat, is in a bind: He’s running bonds? The Fed stands ready to make it happen. consumer payments
in 2018, by purchase
low on quarters, because residents of apartment Need 75¢ for the dryer? That could be trickier. amount
complexes are using his change machine but not “This is just an unexpected wrench in the works Cash
necessarily to do laundry. The whole trip takes that I don’t think any of us could have anticipated, Debit
about two hours, and the total amount of quarters finding ourselves short on quarters,” says Brian Credit
he can get is worth $120 because his banks limit Wallace, president and CEO of the Coin Laundry Other
how many coins they give out. So he’s been seek- Association, which represents about 2,000
ing alternative sources. laundromats across the country. Less than $10

Under couch cushions? Maybe not that far—but Only a fraction of the laundromats in the asso-
close. “Our biggest success has been friends and ciation have what it calls alternative payment
family so far, and the banks are just a daily grind systems; about 20% have laundry card options and $10 to $24.99

that I do,” Boukas says. 27% accept credit cards, Wallace says. “The peo-
On top of a slowdown in foot traffic, laundro- ple that show up to the laundromat each weekend
mat owners such as Boukas are struggling because are there for a purpose,” he says. “It’s an essential $25 to $49.99

the coronavirus seems to have stopped up the service. Anything that impedes that progress cer- 21
flow of coins through the economy. People made tainly impacts tens of millions of families that use
fewer store trips, and many businesses stayed vended laundry each week.” $50 to $99.99

closed with old change sitting in their tills. Even Coinstar plays a role in the recirculation of
big retailers have felt the pinch, with many put- coins in America. Its green kiosks were respon-
PHOTO ILLUSTRATION BY 731. LAUNDRY: STEPHEN VANHORN/ALAMY STOCK PHOTO. DATA: FEDERAL RESERVE BANK OF SAN FRANCISCO’S DIARY OF

ting up signs at registers encouraging customers sible for processing $2.7 billion of coins last year. $100 or more

to use exact change or pay with plastic. Some have In the U.S., the company generally collects an
called it a national coin shortage, but as of April, 11.9% fee from customers, who take paper bills in
the U.S. Treasury estimated that about $47.8 bil- exchange for their coins, though it also offers to
lion worth of coins were in circulation, compared pay in the form of gift cards with various retailers
with $47.4 billion last year. without the fee. A spokeswoman for the company
“I don’t refer to it as a shortage, I refer to it as says it saw coin volume decrease during the lock-
‘We don’t have coin moving.’ It’s there, it’s just down, but is seeing it return.
not in the right place,” says Jim Gaherity, chief The company also operates in Japan, Canada,
executive officer of Coinstar, which collects loose Italy, and several other European countries,
change at machines that often are found in gro- but didn’t see this problem abroad. “There’s
cery stores. “It’s in homes. It’s something unique about the U.S.
probably in some businesses that we can’t figure out why
that haven’t reopened at this this has come to this crisis,”
point in time. It’s in banks—so says Gaherity.
it’s there.” Once a kiosk is full of
Even in an increasingly coins, Coinstar depos-
digital world, cash is used in its them in a financial
49% of payments less institution, which can
than $10, according recirculate the
CONSUMER PAYMENT CHOICE

to a study from the coins to cus-

Federal Reserve tomers such as
Bank of San B oukas. But
Francisco. he says a big
That’s led chunk of the
 ◼ FINANCE Bloomberg Businessweek August 10, 2020

quarters he stocks in his change machines don’t critical infrastructure workforce.” Another obvi-
make it into his washers and dryers. “I average ous fix might be to pay people for their now-pre-
$100 a day leaving the laundromat, going some- cious loose change. For a week ending on July 21,
where else,” he says. “I’m like a minibank. They Wisconsin-based Community State Bank ran a
get change from me.” coin buyback with a $5 bonus for every $100 worth
Fed Chairman Jerome Powell said in June that that customers turned in.
he believed the shortage would be temporary. If he can’t find additional quarters, Boukas says
The U.S. Mint is increasing production, and the his contingency plan is to take customers’ paper
Federal Reserve formed a coin task force with cash and operate the laundry machines man-
industry stakeholders, including Coinstar, to come ually. In the meantime, he’s been trying to dis-
up with recommendations on how to fix the flow suade the people who take his change elsewhere:
of coins. “I explained to the apartment dwellers, ‘you come
Suggestions from the Coin Laundry Association take coins out of here, you’re putting me out of
and the National Automatic Merchandising business. You are asking me to go to the bank for
Association, which represents the vending you, in a way.’ ” �Michael Tobin
machine business, include the Fed distribut-
THE BOTTOM LINE The pandemic has limited coin circulation
ing additional coins and prioritizing distribu- in the U.S. more than in other countries and forced American
tion to “consumer businesses in the essential businesses that rely on loose change to get resourceful.

Saving America’s
22
Black Banks ● An activist rapper brings attention—and customers—
to the few remaining Black-owned financial institutions

Michael Render, the rapper and activist better

● Killer Mike
known as Killer Mike, has been saying the same
thing for years: America needs Black banks.
But after George Floyd was killed by police in
Minneapolis, Render is issuing another plea on
behalf of the few Black-owned banks still standing.
Once again, he’s urging fans to #BankBlack.
The campaign has worked—at least on the small,
often precarious scale of Black-owned banks. The
largest one, OneUnited Bank in Boston, quickly
attracted $50 million of new deposits. Yet even with
that additional money, OneUnited is only an aster-
isk in the wider banking industry. JPMorgan Chase
& Co. has more than 150 branches that are each big-
ger than all of OneUnited.
While Wall Street behemoths may be too big
to fail, many Black-owned banks have proven
too small to succeed. Two decades ago, 48 were
open for business. Today there are just 21. Since
the 2008 financial crisis, as the big banks have got-
ten $2 trillion bigger, the combined assets of Black-
owned banks have actually declined.
Amid the nation’s reckoning over race, a pivotal
moment is arriving for Black-owned banks, in the
form of the #BankBlack movement Render helped
set in motion in 2016. The question is whether those
 ◼ FINANCE Bloomberg Businessweek August 10, 2020

lenders can push back against the national giants Largest Black-Owned Banks in the U.S.
that dominate their industry and pull the financial
Bank City Est. Assets as of March 31
levers in most Black communities. “The best way to
punish a wicked system within capitalism is to use OneUnited Boston 1982 $656m

capital, your dollar” to show that “systemic racism Liberty Bank and Trust New Orleans 1972 624

is bad for money, it’s bad for business,” says Render, Industrial Washington 1934 560

one-half of the rap duo Run the Jewels. Broadway Federal Los Angeles 1947 504

Render and others are urging consumers and Citizens Trust Atlanta 1921 444

businesses to use their economic power to bol-

DATA: COMPANY FILINGS, FEDERAL DEPOSIT INSURANCE CORPORATION
ster Black-owned lenders, which serve communi-
ties that remain disproportionately underbanked. payday lenders that charge high rates and fees,
Making those banks stronger and pushing the indus- she says, and a boost in low-cost deposits could
try’s giants to boost lending to African Americans further that effort.
can help begin to rectify an imbalance that has left In mainstream banking, African Americans still
Black families with an average net worth that’s one- have less access to credit and other banking ser-
tenth that of White families. vices as legacies of slavery and segregation. Unfair
There are signs that the message is taking hold. practices such as redlining, which made it diffi-
OneUnited has added more than 40,000 custom- cult for Black people to get mortgages in the U.S.
ers since the beginning of the protests sparked by for decades, and the subprime crisis have “clob-
Floyd’s death. Netflix Inc. pledged to shift as much bered” Black communities and worsened the
as $100 million to lenders that support the Black racial wealth gap, Baradaran says.
community. While that accounts for less than 2% The Office of the Comptroller of the Currency
of the entertainment giant’s cash, it’s a start. convened a roundtable last month to promote
The history of Black banks in the U.S. goes back financial inclusion, comprising representatives
to Freedman’s Savings & Trust Co., which was from minority lenders and nonprofits, as well
chartered by the U.S. government in 1865 to serve as Citigroup Inc. Chief Executive Officer Michael 23
newly freed slaves who were denied by other lend- Corbat and JPMorgan Co-President Gordon Smith.
ers. It collapsed in 1874. The #BankBlack movement offers a partial rem-
Since then, many financial institutions cater- edy, calling on Americans to use their spending
ing to Black communities have suffered the same power to create social and economic change. Killer
fate, including City National Bank of New Jersey, Mike is one of its biggest advocates. Comedian
which failed last November. In contrast, the “too Tiffany Haddish is on board, and so are other enter-
big to fail” lenders that received government bail- tainers, athletes, and community leaders. Kevin
outs during the 2008 financial crisis came into the Cohee, CEO of OneUnited, urges everyone—not
Covid-19 crisis riding high off of record profits. just Black people—to join in.
Regulations put in place to avoid future bailouts “Are you on the side of being progressive, are
in turn heaped more compliance costs on smaller you on the side of justice for all, are you on the
lenders already facing thin margins. side of equal treatment for everyone?” says Cohee.
Commercial banks in the U.S. topped $200 bil- “Or are you not?” He hopes prospective customers
MIKE: DAN MEDHURST. DATA: COMPANY FILINGS, FEDERAL DEPOSIT INSURANCE CORPORATION

lion in collective profits for the second straight year will give his bank a chance, even if they only use it
in 2019. None of the biggest Black-owned banks for their secondary accounts to start.
was able to crack $5 million. The shrinking of the Render points to his single Ju$t, featuring
industry is tied to structural racism, says Mehrsa Pharrell Williams and Zack de la Rocha from
Baradaran, a law professor at the University of Rage Against the Machine. The song is about not ▼ Assets as of March 31
California at Irvine. Black-owned banks are based losing one’s humanity in the pursuit of riches. JPMorgan
mostly in low- and moderate-income communities, “Wall Street is connected to any Black street in All Black-owned
where they collect small deposits and have fewer America—and if we don’t look at it that way, then banks in the U.S.
opportunities to profit from making loans. Like this country continues to be a giant that’s hob-
$3.1t
many of their customers, the lenders lack the cap- bling along on a broken ankle,” Render says. “If
ital necessary to grow. the Black community is strong economically,
“The fact that Black banks are still serving these the greater community is stronger.” �Lananh
$4b
communities is huge, and so they can use all the Nguyen, with Jennifer Surane
help that they can get,” says Baradaran, whose
THE BOTTOM LINE More than half of America’s Black-owned
book The Color of Money influenced Netflix’s banks have disappeared in the last two decades, and a social
move. The banks provide a crucial alternative to campaign is helping those that remain gain new customers.
 Bloomberg Businessweek August 10, 2020

E
C
O
N
O
M
I
24

C
S
Joe Biden BIDEN: TOM BRENNER/THE NEW YORK TIMES/REDUX ; RIGHT: BLOOMBERG (3)

Learns to L ve
Edited by
Deficits
Cristina Lindblad
 ECONOMICS Bloomberg Businessweek August 10, 2020

administration. Concerns that too much stimulus

○ The Democratic nominee
was being pumped into the economy and might
is willing to spend big on issues trigger higher inflation proved unfounded. Instead,
such as climate and inequality the drawn-out recovery highlighted the opposite
risk: premature belt-tightening after a recession. “It
took us 11 years to get back to full employment. One
Joe Biden, who’s warned about the dangers of key reason was that lawmakers went from fiscal
budget deficits for decades, will inherit one of the support to fiscal austerity much too quickly,” says
biggest in U.S. history if he becomes president—and Mark Zandi, chief economist at Moody’s Analytics. ○ Kelton
he’ll be in no rush to pare it back. “It’s pretty clear that was a mistake, and hopefully
That’s the signal the Democratic candidate is we don’t make that mistake again.”
sending after his campaign rolled out a $3.5 tril- “The attitudes around deficits and debt in all
lion economic program over the past month that circles—academic, political, economic—were very
promises to invest in clean energy and caregiving, different,” Zandi says. The shift was gathering
buy more made-in-America goods, and start nar- pace well before the pandemic as the U.S. ran big-
rowing the country’s racial wealth gaps. ger budget deficits under President Trump without
The bill for this agenda is modest compared any sign of inflation surging, the dollar weakening,
to the universal health-care and student loan or the flight from U.S. bond markets that Wall Street
forgiveness plans backed by some of Biden’s pri- analysts used to warn about. ○ Summers
mary season rivals. Still, it would come right In recent years, several prominent economists—
after the U.S.’s multitrillion-dollar effort to pull including some who are now part of the Biden
its economy out of a pandemic slump. This year’s brain trust, such as former U.S. Treasury Secretary
budget shortfall is forecast to exceed 17% of gross Lawrence Summers—have downplayed the risks of
domestic product, the most since the country deficits in an era of feeble economic growth and
mobilized to fight World War II. rock-bottom borrowing costs. Modern Monetary
All that red ink might have been a problem for Theory has gained a following, especially in the left 25
past incarnations of Biden. First elected to the wing of the Democratic Party. MMT argues that a
U.S. Senate in the 1970s, he has a history of urg- country with its own currency has room for more
ing fiscal restraint. In the 1990s he twice voted government spending as long as inflation doesn’t
for unsuccessful Republican efforts to make bal- get out of hand. Stephanie Kelton, a leading MMT
anced budgets compulsory by amending the economist, was a member of the task force jointly
Constitution. And as a presidential candidate in convened by Biden and Senator Bernie Sanders of
2007 he signaled that he would consider trimming Vermont to seek policies the party can unite around.
spending on Social Security and Medicare in the Fiscal hawks were driven further into retreat by
interest of sound public finances. Covid-19, which brought more pressing problems
Since then there’s been a sea change in such as Depression-era levels of unemployment as
American politics and economics. It began the economy shrank at a 33% annual pace in the
while Biden was vice president in the Obama second quarter. Biden retains a “laser focus on

Biden on Deficits January 2019

January 1985 In a survey, 44%
U.S. budget balance Backs Republican of Democrats say
as a share of GDP legislation seeking deficit reduction
to introduce is a high priority, 0%
a line-item veto. vs. 65% in 2013.

Apr R
Co -10
C
in a series of bills for a one-year freeze a balanced budget
to curb government on all federal spending. amendment to the ors he plans
spending. Constitution. axes.
“While this program is
severe, it is the only “I am one of those “irresponsible
proposal that will halt the Democrats who voted sugar-high tax cuts had -20
upward spiral of deficits.” for the constitutional already pushed us into
1975 amendment to balance a trillion-dollar deficit.” 2022
the budget.” FORECAST*

*MEDIAN FORECASTS BASED ON A BLOOMBERG SURVEY OF ECONOMISTS

DATA: U.S. DEPARTMENT OF THE TREASURY, COMPILED BY BLOOMBERG; PEW RESEARCH
 ◼ ECONOMICS Bloomberg Businessweek August 10, 2020

the long-term fiscal health of the United States,” Markets Institute. “There are plenty of Democrats
says Jake Sullivan, one of his top policy advisers. who are superhawkish on this stuff.”
But he’s consulted a wide range of economists But Baltzan says she doesn’t expect that kind
and former government officials about the need of “doctrinaire” approach to fiscal policy from the
for stimulus, and “the answer that comes back former vice president if he wins the top job this
is we’re going to have to make big, bold invest- time. “I think he’s pragmatic,” she says. “I think
ments early next year,” Sullivan says. “He feels he understands the moment in history that we’re
that’s going to be necessary.” dealing with.”
The biggest outlay in Biden’s plan is the $2 tril- The Covid crisis may compel Democrats
lion over four years earmarked to shift millions of who’ve voiced concerns about the national debt
jobs into clean energy, with the goal of cutting car- to be pragmatic as well. “We’re in a very unique
bon emissions from power generation to zero by moment, where if we don’t inject money into the
2030. The idea has been cheered by progressives economy, we’re going to end up in a depression,”
who were skeptical of Biden on climate because says Representative Tim Ryan, a Democrat from
he opposes the Green New Deal backed by such Ohio who slammed Trump’s tax cuts partly on the
Democrats as Representative Alexandria Ocasio- grounds of how much they would widen the deficit.
Cortez of New York. “We’re all concerned in the long term about debt
To boost manufacturing, Biden is pledging and deficits. But right now, it would be counterpro-
an additional $400 billion in procurement of ductive.” �Jenny Leonard and Tyler Pager
domestically made goods, as well as $300 billion to
THE BOTTOM LINE Biden was once a debt scold, but his
support high-tech research. The other core spend- $3.5 trillion spending plan demonstrates that his thinking on the
ing proposal is to expand the availability of care danger of deficits has evolved with the times.
for the youngest and oldest Americans, including
universal preschool for 3- and 4-year-olds, at a cost
of $775 billion over a decade.

Counting
26 While Biden has pledged to reverse most of
Trump’s 2017 tax cuts, his campaign hasn’t gone
into much detail on how his proposals will be
financed. “How much is stimulus and how much is

Puerto Ricans
paid for,” Sullivan says, “is a question that turns on
the economic conditions that we find in January.”
That in turn may depend on the outcome of a
budget battle in Congress this summer over the
next round of coronavirus relief. Key parts of the
$2 trillion in spending approved by lawmakers ear-
lier in the crisis, such as the $600-a-week top-up for ● Ahead of a door-to-door campaign, the territory lags
unemployment benefits, expired in July—just as the all U.S. states in census responses
economy appeared at risk of a relapse amid a new
wave of virus cases in Sun Belt states.
Biden has backed congressional Democrats As Americans are being asked to stand up and
who are demanding more than $3 trillion in new be counted in the 2020 census, Puerto Ricans are
measures, including an extension of the jobless taking a pass.
payments and aid for state and local governments. The U.S. commonwealth has a census self-
Republicans, pointing to an already rising national response rate of just 27%—the lowest of any U.S.
debt and arguing that overgenerous benefits will jurisdiction and well behind the national average of
deter people from returning to work, want to cap 63%. Alaska, the other national laggard, has a com-
the package at $1 trillion. paratively robust response rate of 49%.
If the GOP retains control of the Senate in the Just how many people the island has lost in the
November election, it could throw up the same last decade—driven away by a deep recession, politi-
kind of roadblocks to a Biden administration’s cal instability, and natural disasters—remains a mat-
spending plans. Pressure to “pare everything back ter of contention, particularly on Wall Street. The
because of concerns over deficits” won’t just be territory has been mired in court proceedings since
coming from the other side of the aisle—it could 2017, when it sought to reduce almost $125 billion
surface within Biden’s own party, too, according in debt and pension liabilities by filing for munici-
to Beth Baltzan, a fellow at the left-leaning Open pal bankruptcy—the largest claim in U.S. history. As
 investors try to claw their money back, the question The stakes are high: Any errors that might occur ▲ Santos Burgos, who
hasn’t responded to the
of how many taxpayers remain on the island to now won’t be corrected until the next census in census yet
shoulder that burden has taken center stage. 2030. “If Puerto Rico misses 100,000 people in 2020
The accuracy of the count will also have deep they are gone for a decade,” Reamer says. 27
repercussions for the island, which is why Governor The government estimates Puerto Rico has lost
Wanda Vázquez regularly issues statements urging about 14% of its inhabitants since the 2010 cen-
residents to fill out the paperwork, saying the ter- sus, leaving it with a population of 3.2 million.
ritory’s economic health depends on it. More than Many left after Hurricane Maria ravaged the island
300 federal agencies use data from the decennial in 2017. And even more have fled a grinding eco-
census to allocate an estimated $1.5 trillion in funds nomic crisis that’s seen  gross domestic output
to states and territories each year, says Andrew contract 10% from 2009 to 2019. Compounding
Reamer, a research professor at George Washington the problem, very few people have been mov-
University—everything from lunch money to dis- ing to Puerto Rico.  But just how dreadful the
bursements for highway construction. decade has been is a mystery that can be resolved
“This will be the first time we can officially only  by a direct census-to-census comparison.   
assess how much migration there was during the The data will also be key to predicting the future.
decade,” says Alexis Santos, an assistant professor
of demography at Pennsylvania State University. “I
think it’s safe to say that this is the most important Puerto Rico Lags in the Decennial Count
census that Puerto Rico has ever had.” 2020 census self-response rate* as of July 30
Quantifying the impact of an inaccurate count ◼ Under 45% ◼ 45%-55% ◼ 55%-65% ◼ 65%-75%
is tricky because it depends on who’s not being
counted. Whether a person is elderly, poor, unem-
ployed, living in a rural area—different demographic
factors tilt the balance of different government pro-
grams. But at the most basic level, “every person
counts,” Reamer says. “If you and I do not fill out
the census form, our community loses money.”
The U.S. Census Bureau says it will close the data
gap in Puerto Rico with door-to-door surveys that
began at the end of July and will continue through Puerto Rico
September under a revised schedule published on 27%
JIM WYSS

Aug. 3 that moves up the deadline by four weeks. *HOUSEHOLDS THAT HAVE RESPONDED ONLINE, BY MAIL, OR BY PHONE. DATA: U.S. CENSUS BUREAU
 ◼ ECONOMICS

Recovery U.S. vs. Europe

Jesse Keenan, an associate professor of real estate
at Tulane University, co-authored a study that argues The major economies of the euro area have been rebounding
that most government agencies on the island— from the recession caused by the Covid-19 pandemic at a
relying on their own experts—are overestimating the faster pace than the U.S.’s, according to indexes developed
size of Puerto Rico’s population in the years to come. by Bloomberg’s economists using high-frequency data such
“Demography is somewhat politicized,” Keenan as demand for electricity and usage of public transportation.
says. An agency interested in protecting bondhold- That’s a departure from a decades-long trend in which the
ers may look for forecasts that project a robust tax economy of the euro area has largely underperformed that of
base in the future. The same goes for agencies seek- the U.S. The recent divergence has led to euro gains against
ing federal money to expand roads or rebuild after the dollar. European stocks are also performing better than
a hurricane. “People have a self-interest in steering American equities. Because the U.S. hasn’t been as successful
these numbers one way or another,” he says. at controlling the coronavirus spread or protecting jobs and
Keenan’s study suggests the island could lose incomes, the recovery is showing signs of stalling stateside.
half its residents—1.6 million people—over the next �Catherine Bosley and Reade Pickert
30 years. But underpinning those grim projec-
tions is census data, and that’s why these next few New Covid-19 cases, 7-day total as of Aug. 2
months will be so critical. “The census is funda-
mental to understanding the future population and France

preparing for those future populations,” he says. Germany

Officials at the U.S. Census Bureau say  that Italy

while Puerto Rico’s self-response rate is unusually Spain

low—about half the 2010 figure—it’s not surpris- U.S. 434k

ing. According to Jeff Behler, the regional director

for the Census Bureau, the agency started hand-
delivering census packets on March 14, only to sus- Daily Activity Indicators, weekly readings

28 pend its work two days later when the island went U.S. France Germany Italy Spain
into one of the U.S.’s strictest lockdowns amid the 100
surge in coronavirus cases. It didn’t restart that pro-
cess until the end of May.
During the last week of July, some 10,000 cen-
sus “enumerators” began going door to door to 60
pull data from the silent households, an army
that will be supplemented by at least 2,000 new
hires to meet the revised deadline, according to

DATA: JOHNS HOPKINS UNIVERSITY, BLOOMBERG ECONOMICS, INTERNATIONAL MONETARY FUND, COMPILED BY BLOOMBERG
Behler. “I am confident we are going to get a 100% 20
response rate,” he says. “It just means our work-
1/8/20 7/29/20
load in Puerto Rico is a little bigger.”
On a narrow road in the heart of San Juan, a
group of men sat outside a car garage and motioned Years in which the U.S. economy outperformed the euro area’s
to a white-bagged census packet that had been
hanging on the fence of a nearby house for months.
1992 2019
It would never get answered because the home had
been abandoned after Hurricane Maria, they said.
Other homes on the street were empty because U.S. dollars per euro Change since May 15
their residents had been moved to senior-care facil- S&P 500 Stoxx Europe 600
ities or joined the wave of people heading to the
U.S. mainland. $1.18 20%

Santos Burgos, 60, said he’d received his census

packet but hadn’t filled it out yet. “My brother and
I looked at it, but it’s just too confusing,” he said. 1.12 10

“We’re waiting for the census people to come by and

help us. Tell them we’re still waiting.” �Jim Wyss
1.06 0
THE BOTTOM LINE Getting an accurate count of Puerto Rico’s
8/5/19 8/3/20 5/15/20 8/3/20
population is key for parties hashing out repayment terms on the
island’s defaulted bonds and for agencies seeking federal dollars.
 The most prominent
environmentalist in Honduras
is murdered.

BLOOD
R I V E R
How deep into the country’s
inner circle of wealth and power
will the evidence lead?

A new podcast from Bloomberg

 5 Hong K g’s
P
O
L
I
T
I
30

C Counter Revolu
S ● Pro-democracy restaurants
get creative about speech as
Beijing clamps down
food and drink to protesters last year and has since
come under heavy criticism from members of the
pro-China establishment as well as China’s official
representatives in Hong Kong.
At least one popular cafe announced it was with-
drawing from the yellow economic circle, and others
The striking red-and-white protest posters on the began to hide their affiliation. But many businesses
windows of a Hong Kong restaurant proclaim in replaced protest signs with blank Post-it notes or
Chinese, “Revolution Is No Crime! To Rebel Is plain paper—the absence of free speech being its
Justified!” and “Carry the Revolution Through to own form of dissent. And the boldest have begun to
the End.” Once meant to rally the proletariat in embrace Chinese Communist revolutionary slogans
Mao Zedong’s China, they carry a new meaning in in an ironic appropriation of the language of China’s
Hong Kong: The opposition to China’s clampdown own revolutionary leaders and in an effort to keep
PHOTOGRAPH BY BILLY H.C. KWOK FOR BLOOMBERG BUSINESSWEEK

on Hong Kong’s autonomy may be struggling, but speaking up without prosecution.

it isn’t dead. “Using politically safe, politically correct, and
Across Hong Kong, among the thousands of politically cynical slogans is a way to continue to
restaurants, shops, and other small businesses par- protest against the Hong Kong government,” says
ticipating in what’s known as the “yellow economy” Sonny Lo, a Hong Kong academic and political
in support of anti-government protests, signs of commentator. “The yellow economy members are
defiance have emerged in the weeks since Beijing now adjusting their strategy to be more flexible,
officials imposed a sweeping new national security more strategic, more underground.”
law. Almost immediately, yellow establishments took Following a year of anti-government protests
down posters with protest slogans that government that sometimes turned violent, China imposed the
Edited by
Amanda Kolson Hurley
officials warned may be violating the law. The yellow law on Hong Kong on June 30. It includes broadly
and Anthony Lin economy got its start with restaurants that provided worded provisions against subversion, secession,
 Bloomberg Businessweek August 10, 2020

deemed illegal under the national security law—

police would come in almost daily at the busiest
times, he says, to measure the space between tables
and ensure compliance with Covid-19 distancing reg-
ulations. So Pong went online and ordered a bunch
of the historical posters for about HK$2 (25¢) each.
He believes he’s the first restaurateur to start dis-
playing them, having replaced his pro-democracy
posters on July 2, just after the law came into effect.
“The police see these now, and they don’t want
to give me trouble anymore,” Pong says. “If they ◀ Pong, at his Just’er
Bar & Restaurant
were to come in and say, ‘You are breaking the
law by posting these,’ I can say, ‘Well, then you are
against the Chinese government.’ ” A spokesman for
the Hong Kong police denied that enforcement of
Covid regulations is based on any political stance.
At Mainichi, a Japanese fusion restaurant in
Mongkok where protesters took refuge during
nearby clashes with police last year, blank Post-it
notes have replaced political slogans, and some
protest fundraising items previously for sale are
gone. Yet a number of the pro-democracy images
remain, including one of a yellow-helmeted pro-
tester in a cloud of tear gas raising his hand to the
sky. One poster still proclaims “Never Give Up,”

tionaries which the restaurant’s owner, who gives his name

as Chong, says shouldn’t be seen as a violation of
the national security law.
A resurgence of coronavirus cases, however,
may turn out to be more damaging to yellow
31

terrorism, and collusion with foreign forces. establishments than the new law. The Hong Kong
Human Rights Watch has called it “a roadmap economy is reeling from the pandemic: Gross
for repression” that seeks to “prosecute peaceful domestic product dropped 9% in the second quar-
speech, curtail academic freedom, and generate a ter from the same period a year earlier, and unem-
chilling effect on fundamental freedoms.” Since it ployment is at a 15-year high. To combat a third
went into effect, 12 candidates for legislative elec- wave of the virus, Hong Kong’s strictest measures
tions, including four incumbents, were disqualified yet ban evening dining at restaurants and limit din-
over their opposition to the law or to government ers to two per table at breakfast and lunch, with
actions; a total of 15 people, including street pro- restaurants restricted to half capacity. But Chong
testers and teenage activists who posted on social says yellow restaurants may survive because of
media, have been taken into custody under its loyal clients who will keep supporting them with
provisions. On July 31 the Hong Kong government takeout orders. One of the primary apps listing yel- ● Decline in Hong Kong
restaurants’ revenue in
announced that the elections, originally sched- low restaurants has shut down, but another is still the first half of 2020
uled for Sept. 6, would be postponed for as long functioning. Many supporters have migrated to pri-
as a year because of the coronavirus pandemic.
Opposition politicians have said the real motive is
vate yellow Facebook and Instagram groups, where
photos of establishments posting Mao-era posters
29%
to prevent the pro-democracy camp from winning. have started circulating. Pong, of Just’er, says there’s
The vintage posters in yellow businesses are debate in these forums about whether Mao posters
not only ironic: Their calls for change are also indicate support for China’s Communist Party, but
inspirational, says the co-owner of Just’er Bar & those who know China’s history can understand the
Restaurant in Hong Kong’s Tsim Tsa Tsui district, appropriation of the message.
who goes by Pong. Plus, they keep police from has- Pong’s business is down 90% this year. He
sling him, he says with a chuckle. Before, when says he can hang on for six months using pre-
the pro-democracy eatery displayed posters with Covid profits, but he’s concerned that his menu of
slogans demanding freedom for Hong Kong—now spaghetti carbonara and steaks doesn’t lend itself
 ◼ POLITICS Bloomberg Businessweek August 10, 2020

to takeout. Restaurant revenue in Hong Kong activists at such groups as the Heritage Foundation
fell 29% in the first half of this year compared with and the Federalist Society that have long advised
the same period in 2019, according to government Republican presidents on judicial appointments
data. The Hong Kong Federation of Restaurants and and have helped Trump on his quest to appoint
Related Trades forecast a HK$3 billion loss of reve- judges at a faster pace than his predecessors.
nue in July from businesses not able to serve custom- Recently that movement has come under fire from
ers in the evenings. Lo, the academic, estimates that social conservatives, who say it’s mainly delivered
one-third to half of yellow restaurants may close. business-friendly judges who rule against unions
The longer Covid restrictions are in place, the more and strike down regulations while failing right-
businesses struggle just to stay afloat—never mind wing voters who care more about restricting abor- “You hear
continue their fight for change. tion, immigration, and LGBTQ rights. The dispute people talking
“The pace of the movement has been slowing could fundamentally reshape the judicial selec- about Team
down, and it seems the fire to sustain it may tion process on the right, starting with a new list Amy vs. Team
die soon,” says Carrie Lau, the 30-year-old of potential Supreme Court nominees the presi- Neomi”
owner of C+ Burger, who reluctantly replaced dent has promised to release next month.
pro-democracy posters with blank sheets of paper In June social conservatives felt betrayed
because customers feared she’d be arrested. “Yet when Gorsuch wrote a majority opinion protect-
I’m still optimistic about the future. As long as our ing gay and transgender employees from work-
generation is still here, we won’t be brainwashed place discrimination. (Republican Senator Ted
by Beijing, and we still have ways of making Cruz of Texas blasted the decision as “lawless.”)
change. The journey may be a long one, but we’ll Their alarm increased as the court went on to
never give up.” �Sheridan Prasso block the White House from ending Obama-era
protections for the undocumented immigrants
THE BOTTOM LINE To comply with Hong Kong’s national security
law, “yellow” businesses are adopting clever forms of expression.
known as Dreamers and allowed states to limit
But many won’t survive the economic blow of the pandemic. church services during the pandemic.
32 Senator Josh Hawley, a Missouri Republican,
said in a floor speech in June that Gorsuch’s ruling
marked “the end of the conservative legal move-
ment.” He’d raised similar concerns last year when
Is Neomi Rao Far he questioned Rao’s social conservative bona fides
before her appointment to the appeals bench.
Enough Right? It’s unclear how that disquiet will affect the
president, who views his Supreme Court sugges-
tions as a means of motivating voters before the
● Social conservatives doubt the bona fides of a election. Rao, who once spearheaded the admin-
judge floated as a future Supreme Court justice istration’s deregulation agenda, has emerged as a
favorite of business-minded conservatives, while
religious conservatives have gravitated toward
In less than a year and a half since being appointed potential nominees such as Amy Coney Barrett,
to the federal appeals court in Washington, Judge a devout Catholic whom Trump appointed to
Neomi Rao has consistently sided with the White the federal appeals court in Chicago and who
House in politically charged cases, earning her a appeared on his previous Supreme Court short-
reputation as President Trump’s strongest sup- list. “You hear people talking about Team Amy vs.
porter on the bench and fueling talk that he may
name her to the Supreme Court if he gets the
chance. Two of the nine justices on the high court,
Neil Gorsuch and Brett Kavanaugh, were nomi-
nated by Trump. The health problems of Justice
Ruth Bader Ginsburg have liberals worried about
him possibly getting to pick a third.
ZACH GIBSON/GETTY IMAGES

If Rao were to get that nod, Democrats would

be incensed. But her biggest obstacle may be
emerging on the right. ◀ Rao replaced Brett
Kavanaugh on the
Rao, 47, has been championed for years by federal appeals court
the conservative legal movement, a network of in Washington
◼ POLITICS Bloomberg Businessweek August 10, 2020

Team Neomi,” says Jonathan Adler, a conservative Confirmed Federal Judges

law professor at Case Western Reserve University Judges approved by the Senate as of July 7 of each president’s fourth year in office
who’s known Rao for more than 20 years. “There’s ◼ Appeals court judges ◼ Other judges
been some jockeying.”
The list remains in flux, with a range of George H.W. Bush

conservative groups offering suggestions to the 36 160

White House, which is also consulting with staff for Bill Clinton

Senate Majority Leader Mitch McConnell, according 30 184

to people familiar with the process. Some organi- George W. Bush

zations are lobbying for the choices to include con- 35 197

servative politicians whose views on social issues Barack Obama

are firmly established, such as Republican Senators 30 152

Mike Lee of Utah and Tom Cotton of Arkansas, as Donald Trump

well as Hawley, one of the people said. A White 53 194

House spokesman declined to comment.

DATA: PEW RESEARCH
Rao, who didn’t respond to a request for com-
ment, has long been seen as an up-and-comer in a legal expert at the Heritage Foundation whose
conservative legal circles. As an undergraduate at list of possible Supreme Court justices was largely
Yale, she wrote caustic opinion pieces challeng- adopted by Trump in 2016, says he will almost cer-
ing liberal orthodoxy on race and gender issues. tainly include Rao if he compiles a similar one this
After earning her law degree at the University of summer. “She has the potential, given her rigorous
Chicago, she clerked for Justice Clarence Thomas analysis and clear intelligence, to become a leader
before joining the law faculty at George Mason on the court,” he says.
University, where she helped lead the successful Rao is also friends with Leonard Leo, an archi-
effort to have the law school renamed after the late tect of the conservative legal movement who
Justice Antonin Scalia, an icon of the conservative helped secure the nominations of Gorsuch and 33
legal movement. Kavanaugh. In an interview, Leo declined to
She joined the U.S. Court of Appeals for the comment on the new White House list, but he
District of Columbia Circuit in 2019—taking the defended the movement, pointing to significant
seat occupied by Kavanaugh before he joined the rulings in support of religious groups. “Anyone
Supreme Court—after a stint in the White House who says that the judicial selection process is a
heading a regulatory affairs office. She soon drew failed conservative enterprise either doesn’t know
scorn from the left with a dissent from a ruling allow- the facts or is a snake oil merchant,” he says.
ing House Democrats to subpoena Trump’s finan- That may not be enough for social conserva-
cial records, in which she said impeachment was the tives who are pushing Trump to impose litmus tests
only context under which Congress can investigate on court nominees. Although he ultimately voted
accusations of illegal conduct by the president. In to confirm her to the D.C. Circuit, Hawley raised
June she ordered a lower-court judge to dismiss the questions about Rao’s commitment to overturn-
criminal charges against Trump’s former national ing Roe v. Wade, pointing to past writings in which
security adviser Michael Flynn without investigating she had used the phrase “anti-abortion” rather than
whether the U.S. Justice Department’s decision to “pro-life,” the term preferred by anti-abortion activ-
drop the case was a political favor to the president. ists. Hawley recently announced he would vote to
Democrats and even some anti-Trump confirm Supreme Court justices only if they agree
Republicans criticized her Flynn ruling, which is that Roe v. Wade was wrongly decided.
being reviewed by the appeals court’s full panel of Adam White, a professor at George Mason’s law
judges, saying she violated judicial norms to please school, where Rao used to teach, says he expects
the president. “She’s dangerous,” says Christopher her to remain a force in conservative legal circles.
Kang, a founder of Demand Justice, a left-wing judi- But he acknowledges that the frustration of religious
cial advocacy group. “In the positions she takes and conservatives might continue to hurt her and other
the language she employs, she’s going as far as she judges with slim or mixed track records on social
can to prove that she would be a loyal partisan on issues. “The questions Hawley raised will surely be
the bench.” Her Flynn decision would ensure a blis- raised again,” he says. �David Yaffe-Bellany
tering confirmation hearing if she were nominated
THE BOTTOM LINE Rao is a rising star in the conservative legal
to the Supreme Court. movement, but social conservatives such as Senator Josh Hawley
Still, Rao has influential backers. John Malcolm, aren’t convinced she’s on their side.
 Bloomberg Businessweek August 10, 2020

S A ‘DEI’
T TO-DO LIST
R
A
T
E
34

G
I
E
S ● Your company
has committed to
founder and chief executive officer of consulting
company Candour in Seattle and author of The
Diversity Advantage: Fixing Gender Inequality in the
becoming more Workplace, suggests an internal audit. How many
diverse. How do you people of color does your organization employ, and
how senior are they? Have you measured employee
make that happen? engagement levels by race or gender? Do you have
performance reviews to indicate how fair and inclu-
sive managers are?
In June, spurred by worldwide anti-racism protests, Once you know where you stand, set clear,
ILLUSTRATION BY MICHELLE KWON

companies pledged to do better on racial equality. measurable targets. “Deal with the problem using
Two months later, after making internal and public the tools businesses use for any problem they actu-
declarations about their commitments, some lead- ally care about—evidence, goals, and metrics,” says
ers may be wondering how to handle the next steps. Joan Williams, a professor at University of California
Edited by
It starts with gathering data, say experts in diver- Hastings College of the Law who studies gender and
Bret Begun sity, equity, and inclusion (DEI). Ruchika Tulshyan, racial bias. Especially helpful for setting objectives:
◼ STRATEGIES Bloomberg Businessweek August 10, 2020

Look not only at outcome metrics (how many Black résumés; this effectively boosts underrepresented
people are in the C-suite) but also at process met- candidates’ success, Johnson’s research has found.
rics (performance review ratings). Those can help Williams suggests moving to more structured
identify why outcomes are uneven. Communicate processes for job interviews and performance
these goals to staff with a transparent, long-term reviews. Having standard questions and criteria can
vision about why meeting them is vital. Tie it back reduce disparities. One experiment using a struc-
to the company’s mission and values so employees tured review process led to Black men and White
feel they have a stake in the outcome. and Black women getting higher bonuses. In a differ-
As with any reform, there may be resistance. ent study, an insurance company that added objec-
“People don’t volunteer to change,” says Abigail Mary tive criteria to the interview process offered jobs to
Dunne, a senior faculty member at the Center for 46% more minority candidates than it had under the
Creative Leadership in Greensboro, N.C. Win skep- old, subjective approach.
tics over by talking about what your company is miss- When setting salary ranges, Dunne suggests that
ing out on by failing to be more diverse, she says. Relying too human resources managers base their recommen-
And though you can make the robust business case heavily on dations on fair market rates. Managers should share
for diversity, she adds, make the moral case, too. anti-bias
that research with employees during the compensa-
training can
The next step is to hold employees at all levels tion conversation so hires can see how management
give the
accountable for meeting goals. That’s no different arrived at its numbers. Don’t base salaries on what
inaccurate
from any other vital business initiative, says Kira people made in previous jobs; a recent study shows
impression
Hudson Banks, a consultant and psychology pro- this perpetuates inequities, which is one reason
that racism
fessor at Saint Louis University. Be upfront about 14 states have made it illegal to ask job candidates
is an
progress, even when it’s uneven or stalled. “To be about it. The research, led by Boston University
individual,
accountable doesn’t mean to be perfect,” Banks says. economist James Bessen, found that in those states,
not a
Meeting diversity goals will take much more Black employees saw a 13% pay increase after the
structural,
than training sessions on topics such as implicit ban went into effect. Women saw an 8% uptick.
problem
bias. “Training can be helpful and start a conversa- Making progress on pay and promotions is only 35
tion, but only if it’s part of a larger strategy,” says Ella part of the challenge. “Representation is not equity,”
Washington, a professor at Georgetown University’s Banks says. Diversity might be a numbers game, but
McDonough School of Business and a leadership equity and inclusion stem from company culture—
coach. Relying too heavily on anti-bias training can the informal systems that are harder to measure and
give the inaccurate impression that racism is an indi- change. Employee engagement surveys, company
vidual, not a structural, problem. Similarly, mentor- culture assessments, or focus groups can help busi-
ing programs and employee resource groups, while nesses track if they’re creating an inclusive work-
popular, are unlikely to create lasting, systemic place, Georgetown’s Washington says.
change in the absence of strong organizational goals. Middle managers have an outsize impact on
Banks adds, “We can’t nice our way out of racism.” company culture. They shape how engaged direct
Any serious initiative requires leaders to analyze reports feel and how well they perform, Dunne says;
their internal processes—formal ones, such as hir- too often, “you have talent that is completely and
ing and promotion, and informal ways decisions are utterly buried by inept managers.” She says “race-
made and work gets done. laced” interactions—such as underestimating a Black
With hiring, recruit from a broader applicant pool employee’s qualifications—make those workers want
and work with executive search companies that spe- to shut down instead of investing more in their work.
cialize in diversity. Make sure your candidate pools To see how they’re doing on inclusion, middle
have multiple female and non-White candidates. managers can create dashboards, Johnson says.
Research by Stefanie Johnson, author of Inclusify: Make a spreadsheet to keep tabs on who gets what
The Power of Uniqueness and Belonging to Build assignment, making sure you’re handing out the
Innovative Teams and a professor at the Leeds School plum ones (and the scut work) fairly and spending
of Business at the University of Colorado at Boulder, one-on-one time with everyone on your team. This
has shown that when half a candidate pool is non- makes annual performance reviews easier to write,
White or female, the hiring committee has a 50-50 because you have clear records of what people did.
chance of choosing one of those applicants. When On the other end of the influence spectrum is
only one person in the finalist pool is non-White or the chief diversity officer, who too often lacks the
female, that person is never chosen. You might also authority to make any real changes, says Tulshyan,
anonymize the application process, removing names the Seattle-based consultant. Too many CDOs
and other race- or gender-identifying details from report to the general counsel’s office (focusing on
 ◼ STRATEGIES Bloomberg Businessweek August 10, 2020

compliance issues) or human resources (focus- his experience is identical to everyone else’s.
ing on recruiting). For diversity initiatives to suc- Above all, the most important strategy for a
ceed, the CDO should report directly to the chief more equitable and inclusive environment is per-
executive. “If you have a DEI initiative that is not led sistence. This process is going to take awhile; there
by someone with the authority to make structural won’t be a point at which you can declare success
change, it is going to be ineffective,” Williams says. and move on. “Though this moment in time has
Another dead-end strategy, Johnson says, is pro- released a lot of energy, we can’t be discouraged
moting diversity by promoting meritocracy, without by lack of immediate change,” Washington says.
explicitly talking about race or gender. Experiments “Those of us who have been doing this a long time
show that when researchers emphasize choosing know it can be great when there’s energy, but there
the most qualified candidate, study participants can be whiplash if things don’t change overnight.”
overwhelmingly choose the White male—even if �Sarah Green Carmichael

The key to mitigating these effects

is to replicate the spirit of collabora-

PROXIES FOR tion and serendipity in an organization

whose workers are physically isolated.

PROXIMITY But much of our thinking about how to

do this has been wrongheaded. We’ve
been exporting in-office routines to an
online environment.
● We have to think differently about “A big part of making remote work
our schedules to stay innovative beneficial is by not trying to re-create
36 what you already have,” says Aaron
Dignan, co-founder of TheReady, a con-
In the past five months, we’ve become to collaborate and seek feedback and sulting firm that works with Fortune 1000
pretty adaptable. But as we make the advice, and this leads to higher-quality, companies, and author of Brave New
daily, short-term adjustments our new more novel, and more diverse ideas.” Work: Are You Ready to Reinvent Your
reality requires, we might be doing Unfortunately, many of us probably Organization? Dignan pushes clients to
long-term damage to our ability to aren’t going back to the office soon. have teams meet only when confusion
be creative—unless we rethink our About 65 million Americans—40% of the or conflict emerges. “Deep thinking and
approach to work. workforce—now work remotely, accord- collision of ideas happens, but not in the
Innovating is a function of collabo- ing to Nicholas Bloom, a Stanford econ- moment,” he says.
ration. And no matter how productive omist. He predicts this shift will lead to Jason Fr ied, co -founder of
a company is on Zoom, “people learn a drop in the number of patents, copy- collaboration-software maker Basecamp,
the most from those who are physi- rights, and major product launches— which has been almost entirely vir-
cally proximate,” says Sharique Hasan, especially in industries that make tual since its founding in 1999, urges
associate professor of strategy at Duke physical objects, such as computer a shift from “real-time interactions to
University’s Fuqua School of Business. hardware, or whose employees work in asynchronous interactions.” Eliminate
“Proximity makes people more likely laboratories, like biotech. meetings, in other words, and give
employees “time to express complete
THREE WAYS TO BETTER CONNECT thoughts that others can then consider.”
Workers may not interact as much
● Don’t stare at ● Go on blind ● Pick up the using this method, but the quality of their
ILLUSTRATIONS BY MICHELLE KWON. DATA: GALLUP

yourself dates phone interactions could be higher. And man-

Disable the self-view function Zoom has a “breakout room” Make some of your daily
agers won’t have to try so hard to con-
on a videoconference call. “It function, which randomly puts interactions walk and talks. “We vince employees that working from home
makes you self-conscious, and meeting participants into small are all so sick of sitting at our
that detracts from creativity,” groups. (Slack’s Donut app works desks and staring at screens
isn’t a poor proxy of office life. People are
says Amy Edmondson, a similarly, creating random pairs.) when we need to connect with thinking, I can’t wait until this is over,
professor at Harvard Business “You can put people together each other,” Edmondson says,
School and author of The in ways that might never have adding that even small changes
Fried says. “They’re not in the mindset of
Fearless Organization: Creating happened in the office,” says Beth in our routines can shake loose wanting to get better at it.” A move away
Psychological Safety in the Comstock, a former vice chair of big ideas. �L.K.
Workplace for Learning, General Electric Co. who led its
from grafted-on scheduling could be the
Innovation, and Growth. business-innovation unit. start of that process. �Larry Kanter
◼ STRATEGIES Bloomberg Businessweek August 10, 2020

MASK WEARING 101

Q&A

As you’ve likely discovered from

interactions at your local grocery
or drugstore, employee-customer
relations are a bit strained. Making
someone at an establishment feel
welcome when both parties have
half their face covered isn’t an
innate skill. Employees need to be
taught how to do this successfully,
says Richard Delany, president of
the Old Edwards Inn and Spa in
Highlands, N.C., about a three-hour
drive from Atlanta and Charlotte. A
small Covid-19 cluster among the
staff led to a few cancellations when
the hotel reopened in May, but now
business is booming. “We feel really
good about the safety procedures because the bigger you smile, the more it can be
we put in place,” Delany says. Here seen in the eyes. It is all sort of overexaggerating
are edited excerpts from a late- the welcome process. 37
July conversation he had with ▼ Share of employed ● Do employees have ID tags?
Arianne Cohen. U.S. adults who say they We took pictures of all our employees smiling,
are always doing the
following while working: which they wear around their necks so the guest
● What made you realize that your staff would Adopting new or more can see what that employee looks like with a smile
need instruction? frequent cleaning on their face. This has been a huge hit.
An employee said to me, “Richard, have I done Maintaining 6 feet of ● Have you had to shift what workers say?
physical distance
something wrong? The last couple of times I’ve seen Since speech is such a big part of how the guest
Working remotely
you, you seemed upset with me.” Which was not the is perceiving employees, they need to make sure
Wearing personal
case. I’m usually pretty happy-go-lucky, high-fiving protective equipment that they’re upbeat. The other thing is being careful
people and smiling, but I can’t high-five them any- about what is said and how it is said.
more, and they can’t see my smile. If someone who ● Sarcasm doesn’t work from behind a mask?
knows me cannot recognize my temperament and [Laughing] No, sarcasm does not work.
65%
expressions, then obviously guests are gonna have a ● What have you had to retool?
hard time doing that with our employees. 58 We got feedback from our guests that they
● What did you train your staffers to do? appreciate our efforts, but several times they saw
Make eye contact with guests immediately, so 50 someone pull a mask down to speak. So we made
they can sense their temperament and the inten- sure that the absolute standard is that you cannot
tion of their greeting, and also to speak to guests as remove the mask.
soon as possible, so they can hear it in our voices. 38 ● What kind of masks do your staff wear?
● So when a guest approaches the front desk, We thought it’d be fun to use fabrics that we use
what does your staff do? in the hotel—fun floral masks, paisley, different-
The No. 1 thing is to stand at attention whenever April July colored stripes that match the interiors of the public
a guest enters one of our public areas—it shows rec- areas and the rooms. Guests have picked up on that.
ognition and respect—and to sort of nod the head ● What’s your advice to other managers?
gently in a welcoming, “good afternoon” movement. Vet what masks their staffers are wearing. Some
● What about smiling? of our employees have come in with masks that
We encourage smiling at all times, and that’s cover a little bit more of a face than they need to.
sort of hard, because when you’ve got a mask on, Stay away from the big, black Darth Vader-looking
you feel like you don’t need to. And to smile bigger, masks. They’re not really welcoming. <BW>
 Bloomberg Businessweek August 10, 2020

Google Dominates
Search Ads
More Than Ever.
It’s Working
Through That
38 Have you tried
Googling it?

If you’re a therapist—or any small-business owner, really—

you live and die with Google. Regulators may step in
ILLUSTRATION BY 731

By Mark Bergen and Shelly Banjo

Bloomberg Businessweek August 10, 2020

In March, Ellen Ross’s business came to a standstill. Ross is business during Covid,” he said via video feed from Google’s
a psychotherapist, accustomed to sitting across from patients, headquarters. The company gave out $340 million in ad credits
helping them deal with their deepest traumas and fears. When to small companies as part of its pandemic response. In his tes-
the pandemic started shutting the economy down, Ross shut timony, Pichai also asserted that the company operates in com-
her San Jose office, too. She nixed plans to hire another thera- petitive global markets. The point was reinforced the following
pist and began adjusting to video therapy, which meant, among day, when Google announced that its ad intake fell for the first
other things, building breaks in between sessions. time ever because of the crisis. The company still finished the
“I can’t look at a screen as long as I can interact with human spring quarter with $121 billion in cash on hand.
beings,” says Ross, who spent years counseling in hospitals When it comes to advertising, Google likes to broadly
before setting up her own practice in 2017. And then there was define the market it competes in to include even television.
the Google problem. In the beforetimes, Ross spent about $20 a And it likes to point to its fierce rivalry with Facebook Inc.
day on search ads to promote her practice. That worked well and Amazon.com Inc. But for therapists, lawyers, and anyone
enough. People would search for things like “therapist near offering a service, this argument is bogus. People peruse
me” and she would bid for those terms at Google’s silent auc- Facebook for the latest news or baby photo, not for psycho-
tion. If she won the auction, ads for her practice, True North logical care. No one goes to Amazon to buy a therapy ses-
Psychology, would appear at the top of search results. Google sion. Other search engines are afterthoughts. Ian Palombo, a
charged for each click. In 2019, she spent about $5,500. therapist in Denver, bought Bing ads right after the pandemic
Starting in April, Ross’s calculus changed. Americans were hit, but it was such a throwaway proposition, he didn’t even
stuck at home, some juggling home-schooling and work, others check to see how they did. “I mean, it’s Bing, right?” he says.
newly jobless. They were anxious and searched the web for Therapists talk about Google like they would about any
help, sometimes looking for video counseling. Ross noticed that utility. It’s just another check, only this one goes to the fourth-
the prices for her regular keywords jumped sharply. She was biggest company in the world and comes with no guarantees.
still finding patients, though they often arrived after trying one “It’s a lot like a poker table at the casino,” says Daniel Wendler,
of the proliferating virtual therapy startups, such as BetterHelp founder of Marketing for Therapists. “Anyone can play, but
and Talkspace, and it was becoming prohibitively expensive to unless you know what you’re doing, you’re likely to get rolled.”
buy the Google ads to attract them. 39
Ross wasn’t sure what to do. Google, as she well knew, has The last time the global economy cratered, in 2009, Google
a near monopoly in web search—it has 87% of the U.S. market released its first “Economic Impact” report. Regulators and
by some estimates. Its next-largest competitor, Bing, has about other critics were questioning its sway over web publishers,
7%. So Ross knew she couldn’t simply stop buying Google ads. If whether the search engine was too big and powerful. Peppered
she did, she’d lose out on any new business. But continuing to with glossy, smiling photos of mom and pop business owners
pay so much didn’t seem sustainable either. “I’m a fairly good in each state, Google’s report showed that, far from consoli-
psychologist,” she says. “I’m a terrible marketer.” dating economic power, the company was helping the little
Ross is one of millions of small-business owners whose reli- guys. A bookstore in Mishawaka, Ind., a lighting supplier in
ance on Google has only grown during the pandemic, when Kennebunk, Maine, a remodeling service in Aberdeen, S.D.—
the internet has become the main avenue of commercial life. each had grown, Google said, thanks to Google ads.
That dependence is at the heart of the most high-profile anti- Selling therapy, though, isn’t as straightforward as selling a
trust showdown since Uncle Sam went after Microsoft Corp. book or a light fixture. It can be expensive and, for some, still
in the 1990s. The U.S. Justice Department and almost every comes with a stigma. “There is just a really significant human
state attorney general are preparing antitrust cases that are need that a lot of us struggle with,” says Wendler, who’s been
expected to allege that Google’s dominance is illegal. “High helping therapists buy Google ads for the past five years. At 32,
prices in and of itself isn’t an antitrust violation, neither is being with his rectangular glasses and untidy facial scruff, he could
big,” says Herbert Hovenkamp, a professor at the University pass for an engineer at the Googleplex. He also has Asperger’s
of Pennsylvania Carey Law School. “The bigger question is syndrome and wrote a guidebook, Improve Your Social Skills,
whether Google is abusing its power.” full of tips for others with it.
Google got a preview of the government’s likely argument Those interests prompted Wendler to pursue a career as a
on July 29 during a five-hour congressional antitrust hearing. It counselor. While in grad school, he set up a marketing prac-
opened with questions about Google’s stranglehold on search tice for therapists and now handles the budgets for roughly
and included lawmakers calling four tech chief executives 20 of them a month. He wrote another book, Clicking With
“cyber barons” and unregulated bullies. Clients: Online Marketing for Private Practice Therapists. In
Sundar Pichai, Google’s well-dressed and reserved chief the first months of the pandemic, he saw the prices of key-
executive officer, began by ticking off family-owned U.S. com- words related to therapy jump as much as 50%, with some
panies that have benefited from Google ads and services. terms that had once cost $7 or $8 fetching $10 a click. Prices
“Nearly one-third of small-business owners said that, without went higher as searches and buyers piled on. “There’s only
digital tools, they would have had to close all or part of their so much inventory,” he says, referring to the slots available
 Bloomberg Businessweek August 10, 2020

for search page ads. “That is driving prices up, up, up, up.” The control such companies as Google exert over their
Prices are a problem. But even more frustrating for Wendler markets is one key reason lawmakers are trying to check Big
and other search buyers are the tweaks Google has made in Tech’s monopoly power. Consider Amazon’s “subscribe & save”
recent years as it pushes to automate wherever it can. Today feature, which lets shoppers place a standing order for Raisin
there are two basic ways to buy search ads. A business owner Bran or toilet paper. It’s convenient—and it reduces the incen-
can pick out search terms manually or take the approach tive to try competitors. “It locks you in,” says Luigi Zingales, a
Google prefers: Hand over a budget, select an industry, and let finance professor at the University of Chicago Booth School of
Google’s software figure out which ads will get the most clicks. Business. The same could be said of Google’s Smart campaigns.
In Google-ese, these are known as Smart campaigns. The idea But Wendler and other search marketers say Google’s drive
is to make search-ad buying as simple as possible, while Google to automate has dovetailed with a reduction in the quality
uses what it promises is the latest and greatest in machine intel- of customer support. For years a search-ad buyer could call
ligence to maximize profits for itself and its customers. “Our a Google help line and get someone on the phone. Starting
advertising tools are designed to help small businesses compete about two years ago, Google began outsourcing these services,
on a level playing field with large businesses, even Fortune 500 and, buyers say, the quality of support quickly diminished. “It
companies,” says a Google spokesman. “Local businesses, even feels like you’re speaking to someone who’s just talking out
those without marketing expertise, can create compelling ads of a binder,” says Matt Coffman, founder of Therapy Practice
in minutes that reach the right audiences.” Accelerator, a health-care marketing firm.
But automation doesn’t work terribly well for therapists. During the pandemic, Coffman says, he hasn’t been able to
Many are specialists, focusing on, say, couples counseling or get a human on the phone at all; Google moved its customer
trauma—distinctions that Google’s software doesn’t necessar- support to chatbots. The Google spokesman says the company
ily make. As a result, some therapists who use the automated “scaled back” support services because of Covid-19.
approach end up entering auctions for broader keywords
where the clicks don’t lead anywhere. For one of Wendler’s cli- Practically every antitrust investigator who’s looked into
ents, Google’s system once suggested “PTSD,” a search many Google has seen a web presentation called “Focus on the
people make for idle research rather than to find an expen- User.” It was created in 2014 by Yelp and TripAdvisor, local
40 sive counselor. Another client wasted a tenth of his $2,000 review sites and longtime Google critics whose central com-
monthly Google ads budget this way before Wendler caught plaint was that Google was expanding its ambitions beyond
the problem. In another feature, Google even automatically mere web search in ways that hurt small companies. As rivals
writes ad copy. “If you’re selling a widget or something, maybe tell it, Google’s search engine once did one thing: Spit out a list
that works for you,” Wendler says. People are less thrilled of 10 blue links. But starting in the mid-2000s, search results
with psychologists who sound like they’ve been programmed. began to include, above the links, actual answers to ques-
That hasn’t stopped Google from pushing therapists to adopt tions like “How hot is the sun?” and “What are the signs of
Smart campaigns. Wendler recalls Saturday calls from Google heat stroke?” Google pulled these facts from other websites,
representatives asking him to turn on automated ads for his cli- resulting in searches where consumers don’t bother clicking
ents. He politely declines and asks them not to call again. They on any links. Yelp and others argue this represents a theft
wait three months and call again. “Google is essentially com- of their intellectual property, siphoning off their web traffic.
peting with itself,” he says. “I think Google’s ultimate goal is that Gradually this extended to phrases like “Where is the best
you give them your credit card and that’s the only thing you do.” Sichuan food in London?” with the top results from Google
Maps. After Maps, Google did the same with its own services
Searching Google, for Google in travel, hotel booking, and shopping. In each case, Google
Global desktop traffic U.S. search ad revenue, Clicks from U.S. Google says it shows the best results for consumers. Competing busi-
from search engines 2018 searches, Q1 2019
nesses say this is an open-and-shut abuse of monopoly power.
in 2019
Google has done something similar with health care. At
Google 74% Google 73% No click 49%
times the company has seemed intent on capitalizing on
Doctor Google—that ubiquitous modern phenomenon of self-
DATA: NETMARKETSHARE.COM, EMARKETER, SPARKTORO

diagnosis-by-web-search. In 2015, Google teamed up with the

Mayo Clinic to begin listing symptoms and treatments directly
in search results rather than showing web links. At that point,
Unpaid clicks to
non-Google sites 41 Google said 1 in 20 searches were health-related.
About two years ago, the company hired David Feinberg, a
Bing 11 Amazon 12 hospital executive and former psychiatrist, to lead a new divi-
Baidu 10 Microsoft 7 sion, Google Health. Feinberg’s remit is to create an electronic
Google sites 6
medical records system for hospitals that functions like Google
Other Other Paid clicks to search and to help revamp Google searches about health. His
non-Google sites 4
division created a special search page for anything related
Bloomberg Businessweek August 10, 2020

to Covid-19 in May and rolled out features specifically about firm Sensor Tower. During the first couple of months of the
mental health. People can now book virtual-care appointments pandemic, new customers complaining of stress and anxiety
directly in Google Maps. Searches for terms such as “anxiety doubled from the year before, Matas says. The app saw a similar
disorder” or “PTSD” produce buttons linking to a clinically val- influx of independent therapists joining its platform, many of
idated questionnaire and other resources. whom had no choice but to try online care while the pandemic
“A lot of folks come to Google and ask us questions,” shuttered physical businesses. The Google spokesman says a
Feinberg said in a May interview with YouTuber Dr. Mike range of companies and nonprofits have bought search ads
Varshavski. “You can do your own, in essence, screening for related to mental health. He notes that the company doesn’t set
depression and anxiety. So then you can see that you’re not ad prices and that its auctions operate fairly for all advertisers.
alone.” That he was speaking on YouTube, Google’s in-house BetterHelp and others like it have another advantage: They
streaming service, was fitting. Those self-assessments happen don’t have qualms about asking customers for testimonials to
directly on Google, rather than on the sites of would-be com- display on their websites or paying social media influencers to
petitors such as WebMD or Zocdoc. Feinberg, through a rep- tout their networks. That helps them boost their rankings on
resentative, declined to comment. Google says that he doesn’t Google, which favors businesses with reviews. Many licensed
control paid ads. therapists consider that kind of marketing an ethical violation.
These Google-owned mental-health checkups on Google’s One could argue that the rise of these virtual therapy provid-
own search engine compound a problem marketers have com- ers is a positive development, making therapy affordable and
plained about for a decade—namely, that it’s very hard to attract available at a time when everyone seems to need it. But that
users without paying Google for ads. If someone near Google’s would cast BetterHelp, whose parent company brought in more
headquarters in Mountain View, Calif., searches for “treat than $550 million in sales last year, in the role of the scrappy
depression,” they might see ads for One Medical, a concierge challenger, and Ross, a sole proprietor, as the incumbent. David
health service in which Google is itself an investor; PlushCare, Cicilline, the Democratic representative from Rhode Island who
a tech company that specializes in online prescriptions; and led the antitrust hearings, challenged Pichai’s contention that
BetterHelp, a virtual counseling service. To the right, they’d Google helps small businesses. “Google just shows what’s most
see an information box where Google lists various treatment profitable for Google,” Cicilline said. Gary Reback, an attor-
options. The so-called organic search results—the old 10 blue ney with Carr & Ferrell LLC who worked on the Microsoft anti- 41
links—come below all of that. In fact, so many search results trust case, watched that and saw a clear signal that the Justice
are stacked with ads that one health-care investor says his firm Department should be more confident to pursue a case against
advises portfolio companies not to bother tweaking websites to Google. “There are so many issues, and it looks like Google is
inch higher in Google search listings. Only paid results matter. on the bad side of all of them,” he says.
This has propelled an entirely new kind of competitor that is,
more or less, the inverse of someone like Ross: Marketers that By summer, Ross’s practice was picking up again. A couple
have a sideline in therapy, such as BetterHelp and Talkspace. of patients who’d left town continue seeing her via video. New
When Ross loses Google auctions, it’s mostly to these therapy patients are coming in, stressed by the unrelenting pandemic,
consolidators. They have hundreds of millions in venture cap- dissatisfied with whatever they’d been trying as relief. She’s
ital and corporate backing, and use an Uberlike contract labor even reopened her office for those who truly need in-person
model, acquiring customers and sending them to a sprawling, care. To prepare, Ross spent hours searching for Clorox wipes
nationwide network of counselors and coaches. before finding a reliable supply at her local liquor store. She’s
Ross holds a doctorate in clinical psychology, which required also improved her video backdrop, adding new wallpaper, a
six years of graduate school. She usually charges $250 an hour. potted plant, and a smart-looking wooden desk and bookshelf.
BetterHelp’s therapists need to be licensed counselors, clinical Since more people seem to be seeking care, she’s back to pay-
social workers, or psychologists with a master’s degree and at ing Google about $20 a day. She says she’s feeling better about
least three years’ experience. The company charges from $35 her business. She’s also telling her patients that she’s preparing
to $50 a session. (Full-time therapists earn from $15 to $30 an herself for two more years of pandemic dislocation.
hour.) “I could probably make more money working at the gro- Google could be in for even more political hurt. It may
cery store,” Ross says. “They pay terribly. It’s abysmal.” have to pay record fines and make deep changes to its ad
Alon Matas, president of BetterHelp, says retention is high business. Politicians from both parties opened a probe into
among his company’s 11,000 therapists. Some therapists with a data-sharing arrangement Feinberg’s health division set up
thriving private practices in affluent areas can earn more than with hospitals. Google has waited more than nine months to
they could online, he says, but “there are providers on the plat- close its $2.1 billion acquisition of Fitbit, which makes fitness
form who make six figures annually. Definitely not ‘abysmal.’ ” trackers. Regulators, politicians, and critics have denounced
Google is, in a way, a co-conspirator in turning the business the deal, worried about handing over a company that tracks
of mental health into a marketing game. BetterHelp’s app has our bodies to one that knows so much about our minds. To
been downloaded 600,000 times so far in 2020, a 41% increase win approval, Google has promised that it won’t use any data
from the same period a year ago, according to research from Fitbit’s devices for its primary business of selling ads. <BW>
42

A decade ago, a buyout giant took over a group of Catholic By John Hechinger and
medical centers and made some clever financial moves. Sabrina Willmer
The pandemic highlights the strategy’s success and its cost
Bloomberg Businessweek August 10, 2020

arly one Sunday morning in May, a mouse wandered the relentless coronavirus, providing affordable health care has
onto a high-voltage transformer at St. Elizabeth’s never been more urgent. Steward says it’s taken steps toward
Medical Center in Boston. The rodent died, and so that goal. It points to improvements in mortality and other mea-
did part of the power supply. In one building, a 1970s sures at its hospitals since the Cerberus purchase. Yet for all
beige brick tower, lights went out. Nurses grabbed flashlights to of Steward’s impressive growth, the company, like so many
search for medicine. As minutes became hours, staffers rigged created through buyouts, remains on a financial knife’s-edge.
up flood lamps, connected to still-functioning outlets by exten- To pay off Cerberus and its investors as well as to finance the
sion cords that snaked through hallways and stuck to the floors health system’s growth, Steward has sold off some of its most
with colored tape. Electric beds no longer worked. A nurse valuable assets—the real estate its hospitals occupy—and is now
gathered a pile of pillows to prop up a stroke victim for a meal. saddled with debt.
In a building next door, the lights didn’t go out, but it In May, as St. Elizabeth’s was dealing with its electrical glitch
wasn’t safe to rely on the backup generator alone. Severely ill and the crush of Covid patients, it faced another upheaval.
patients without Covid-19 needed to be moved from a tempo- Cerberus transferred control of the company to a group of the
rary “clean” intensive-care unit into the main ICU, which had hospitals’ doctors. In an example of the strange magic of pri-
no power issues but was packed with Covid cases. So nurses vate equity, Steward’s financial struggles now hardly matter
created a makeshift boundary, a privacy curtain on wheels, to Cerberus. The investment firm has already made its money
to keep the two sets of patients apart. “I was beside myself,” back several times over.
says Jackie Fabre, an ICU nurse. “That was unacceptable. That
was terrible.” rivate equity firms see health care as a growth
The for-profit company that owns St. Elizabeth’s, Steward opportunity, in part because of the graying of
Health Care, says backup power kicked in after the transformer America, and they’ve been buying like crazy. As a
blew, the outage didn’t affect patient outcomes, and the hos- whole, they made a record $78.9 billion worth of med-
pital had been planning to consolidate the two ICUs. Steward ical investments last year, according to consultant Bain & Co.
also points to the more than $100 million it’s spent to upgrade Along with hospitals, investors have bought doctors’ offices,
St. Elizabeth’s. To be fair, the power crisis that began on May 10, surgery centers, and drug-treatment clinics.
and lasted 38 hours, was a confluence of freak events. Medical Cerberus and the Massachusetts hospitals, which were part 43
centers across the Northeast were battling a pandemic. Then a of a nonprofit group called Caritas Christi Health Care at the
mouse showed up in the wrong place at the wrong time. time of the deal, made for especially sharp contrasts. The hos-
But for some who work at St. Elizabeth’s, the outage capped pitals were anchors of local communities and had names such
years of complaints about what they see as the company’s as Good Samaritan and Holy Family. Cerberus, named after
penny-pinching approach. Steward has long been heralded the three-headed dog that guards the gates of the underworld,
as a bold experiment in using Wall Street financial engineer- is as powerful and connected as they come. Its leadership
ing to save commu- includes billionaire Stephen Feinberg, former Vice President
nity hospitals. A decade Dan Quayle, and former Treasury Secretary John Snow.
ago, Cerberus Capital Private equity typically buys a company, overhauls its
Management, a private operations, and tries to make it grow. Generally this strategy
equity firm, bought St. involves piling on a lot of debt—but, crucially, that debt sits on
Elizabeth’s and five other the books of the target company, not the private equity fund.
St Elizabeth’s Medical Center in
Catholic hospitals in David Johnson, chief executive officer of 4sight Health, a health-
an undated photo
Massachusetts. The buy- care advisory firm, says Cerberus and other private equity firms
out created Steward, which has become one of the largest U.S. bring market discipline to an industry that really needs it. “I
chains of for-profit hospitals, with $6.6 billion in annual reve- look at private equity the same way I look at nuclear energy,”
nue in 2018. says Johnson, who wrote a case study about Steward with one
The Massachusetts hospitals were hardly a prize. When of its investment bankers from Cain Brothers. “It has beneficial
Cerberus bought them, they were in precarious financial con- and detrimental uses. It is a heat-seeking missile for profits.”
dition and had substantial pension obligations. Cerberus’s own- Cerberus needed approval from the state and even the
ership wasn’t only supposed to spruce up old buildings but also Vatican to do the deal. The firm paid $246 million in cash and
revolutionize health care. Steward would build an “accountable agreed that Steward would assume a more than $200 million
care organization” under Obamacare, which passed the same pension shortfall and make $400 million in investments over
year as the buyout and brought the sense that big reforms were several years.
possible. Steward’s network of family physicians, specialists, Under its CEO, Ralph de la Torre, a heart surgeon who’d also
and hospitals could work together seamlessly to manage every headed Caritas Christi, Steward lived up to its deal, the state
aspect of a patient’s health, offering better care at a lower cost says. It ultimately invested $800 million in its Massachusetts
to the working-class communities many of the hospitals served. hospitals, with new operating rooms and emergency depart-
As the U.S. faces an uncertain economic future linked to ments to show for it. Steward recruited respected doctors
 Bloomberg Businessweek August 10, 2020

from rivals, such as Frank Pomposelli Jr., chief of surgery piled up for six months. “It was a lot of money for us,” he says.
at St. Elizabeth’s. “The care you get here is as good, if not bet- Late payments weren’t just an oversight, according to sev-
ter, than at any Boston hospital,” says Pomposelli, recruited eral former finance employees. Steward instructed staff to delay
from Boston’s Harvard-affiliated Beth Israel Deaconess Medical payments. Mike Green, who worked briefly as a controller for
Center in 2011. three of Steward’s Ohio hospitals in 2018, says the company
But almost as soon as the state monitoring period ended, wanted to improve its short-term cash flow. “Vendors that were
Cerberus did what many private equity skeptics feared. In 2016, used to receiving a payment in 30 days were waiting 90 and
Steward sold off some of the hospitals’ property for $1.25 bil- sometimes more than that,” says Green, now chief financial
lion. The hospitals now had to pay rent to use buildings they officer at Jaro Transportation Services Inc., an Ohio trucking
once owned. That helped Cerberus extract a giant gain; one of company. “It snowballed to where we were struggling to get
its funds collected a $484 million dividend, according to a con- supplies in a timely manner.”
fidential investor document. Mostly because of the real estate Steward says disputes with vendors have been resolved
transaction, the fund tripled its money. The deal also enabled and reflect a negligible part of its spending. The delays, it says,
an acquisition spree. Steward now owns 34 hospitals in nine reflect the difficulty of integrating payments systems in the com-
states, including Florida, Ohio, Pennsylvania, and Texas, as well panies it bought. “We continue to work diligently on this trans-
as two in, of all places, Malta. formation,” the company said in a statement.
Steward ended up with $1.3 billion in long-term debt in 2018.
On top of that, it owed more than $3 billion in future lease teward and its financial backer pride themselves on
payments. In keeping with the private equity model, Cerberus being shrewd hospital operators. Under Cerberus,
didn’t owe that. Steward did. The hospital company is bleed- Steward adopted software that it says can predict hos-
ing—a combined half a billion dollars in losses in 2017 and 2018 pital occupancy with 95% accuracy. That way, rather
alone, according its last publicly available financial statements. than focusing on a hospital’s average patient count—and risk
Based on 2018, the Massachusetts agency monitoring hospital being overstaffed or understaffed—Steward can get closer to
finance rated Steward’s solvency lower than that of any other the ideal. When, as is inevitable, hospitals have more than the
hospital system in the state. expected number of patients, they rely on overtime and con-
44 A spokesman for Steward says it has plenty of cash to meet tract nurses. Several years ago, the software helped alert one
its obligations, and its underlying businesses are sound and hospital to a coming surge related to a bad flu outbreak. The
growing. Still, current and former employees complain about approach has saved tens of millions of dollars a year, says Mark
chronic maintenance problems and supply shortages, and Girard, a Steward executive and radiologist in Massachusetts.
some vendors have cut off business with Steward. Since early In an investor update, Cerberus said Steward’s “proprietary
2019, several companies have taken Steward to court over proactive labor management IT tool” enabled it to reduce staff-
past-due invoices: two advertising firms, Rev77 in Arizona ing by 532 employees in 2013.
and Richards Group in Texas, for billings that topped $2 mil- But more than two dozen current and former employees say
lion; Angelica, for $317,000 in hospital linens; Great Eastern the hospitals are often short-staffed. In their view, the situation
Energy, a New York utility, for $250,000 in natural gas bills; can threaten patients, such as those who need supervision to
and Ohio vendors for $213,000 in flooring and $36,000 for prevent falls. In the business, certain mishaps are considered
boiler repair. Not long ago, Cape Cod Cafe stopped delivering unacceptable, or “never events.” In 2018, the latest year avail-
pizzas for the cafeteria at Steward’s Good Samaritan Medical able, Steward reported 754 falls to the Massachusetts Health &
Center, in Brockton, Mass. Cafe co-owner Jonathan Jamoulis Hospital Association, including 156 with injuries. In many of its
says Steward would pay only after thousands of dollars in bills units, it had a higher rate of falls than at similar sized hospitals.
The Centers for Medicare and Medicaid Services (CMS) crit-
Patient Fall Rates at Steward Hospitals in 2018 icized Steward’s response to an elderly patient’s February fall
Falls in hospital’s medical/surgical unit per 1,000 patient days at its Holy Family Hospital in Haverhill, saying it had failed to
All falls Falls with injury Peer group rate take steps to “prevent a like event from occurring in the future.”
According to a federal inspection report, the emergency room
Hospital 0 1 2 3 4 5
had ordered a one-to-one aide, or sitter, but the patient didn’t
Carney
have one. The hospital blamed a nurse for turning off a bed
Holy Family Methuen
alarm; the nurse said she had been overwhelmed with other
Saint Anne’s
patients. The company says it has increased sitters at Holy
Holy Family Haverhill
Family and elsewhere in recent years.
Nashoba
Two other indicators suggest inadequate staffing. Leapfrog
Good Samaritan
Group, a quality rating service, says Steward hospitals such as
Morton
St. Elizabeth’s, Holy Family, and Good Samaritan have above-
St. Elizabeth’s
average rates of some hospital-acquired infections. In Medicare
Norwood
and Medicaid surveys, a lower percentage of patients at those
 Bloomberg Businessweek August 10, 2020

hospitals report that they always got help as soon as they adding that during the Covid crisis, the company flew in out-of-
wanted. Overall, the CMS gives low to middling quality ratings town nurses to handle the surge in virus cases. Steward says it
to Steward’s hospitals, in part because they have more patients has support for its efforts from other labor groups. Tim Foley,
who have to be readmitted after discharge. executive vice president of 1199SEIU United Heath Care Workers
Steward says its mortality rate is better than expected based East, which represents Massachusetts nursing assistants, house-
on the underlying health of the patients it treats and that it’s keepers, and others, credits the company for cooperating with
improved since the takeover. The company also cites data show- workers and keeping struggling hospitals afloat.
ing that since 2016 its hospitals have improved their patient
safety index, which measures how well hospitals avoid a collec- ovid-19 has exposed the weaknesses of the entire U.S.
tion of 10 serious complications. Steward notes that its hospi- hospital industry. Medical centers rely on profitable
tals have won awards from Leapfrog and Healthgrades, another elective surgery to offset the losses they take on many
rating company, for services such as cardiac care. lines of business, including treating poor patients. In
An analysis of 2019 Massachusetts hospital association data May the American Hospital Association estimated that hospi-
shows patients in most Steward adult care units on average tals and health systems lost $203 billion from March through
receive less time in direct care from nurses and aides com- June, because of the costs associated with
pared with those in similar-sized hospitals. In Good Samaritan’s treating patients with the virus combined
ICU, patients received roughly four fewer hours a day of care. with the inability to treat others.
Steward says industry data can’t be used fairly to compare hos- Steward was no exception, but its fi-
pitals on staffing, because institutions may not be reporting con- nances had deteriorated long before the
sistently, making it “skewed against Steward.” Patricia Noga, the crisis. Cerberus indicated as much to in-
association’s vice president of clinical affairs, says her group vestors last year. In a yearend update,
trains hospital officials on what to include and asks them to the investment firm described Steward’s
attest to the data’s accuracy. liquidity, or ability to raise cash eas-
De la Torre
Through their union, nurses filed hundreds of unsafe staffing ily to meet obligations, as “on watch.”
reports with Steward in 2019 and so far in 2020. Massachusetts Previously, Cerberus had “no concerns.” (In a statement,
Nurses Association documents tend to claim that shifts are Cerberus said that “at no time was the Steward investment 45
down a nurse, or that nurses lack assistants, including aides for viewed as at risk.”) More recently, the firm told investors the
patients at risk of falling. “Patients had to wait excessive time for Covid crisis could cost Steward $500 million.
interventions including meds, toileting,” one Good Samaritan The company got help from U.S. taxpayers to get through
nurse wrote last September. Patients were “in hallways with- the pandemic. It received at least $400 million in loans from a
out monitoring as beds were full.” federal health program and secured a $105 million U.S. grant.
At times, nurses say, they’re forced into overtime even after Then in May, to stabilize its finances, Steward agreed to sell an
12-hour shifts, leaving them exhausted. Often, they say, the additional $400 million worth of property, according to a con-
patients are so sick that they need more than minimum levels fidential letter to investors. At the same time, Cerberus made
of staffing. “Frequently, I’m not performing the job up to stan- a move to protect its remaining investment. In June, Steward
dard,” says Stephanie Hinsvark, a St. Elizabeth’s nurse. “I feel announced the outline of a deal: The private equity firm trans-
like I’m failing my patients.” ferred a controlling interest to a management team of Steward
Struggling with overwhelming numbers of Covid-19 patients doctors. Cerberus said it was ceding control on “a high note,”
PHOTOS: PREVIOUS PAGE: ST. ELIZABETH’S: GETTY IMAGES. THIS PAGE: DE LA TORRE: MICHAEL NAGLE/

at the peak of the pandemic in the spring, nurses say short- calling its investment “a success story.”
staffing, especially a lack of aides, increased their exposure to Cerberus hasn’t cut all ties. It exchanged its stock in Steward
the virus. Lisa Mancuso, a nurse at St. Elizabeth’s for 37 years, for a kind of bond. Steward now owes Cerberus $350 million
contracted Covid-19 in May. Although she recovered, she quit through a note due in five years. Cerberus says the note puts
her job in June. Mancuso says the church prized patient care, its investors in a more “secure place in the capital structure.”
BLOOMBERG. DATA: MASSACHUSETTS HEALTH & HOSPITAL ASSOCIATION

while Steward focuses on profit. “They’re pretty much all In essence, Cerberus is hedging. If Steward were to head to
about the money,’’ she says. “They made that clear over and bankruptcy, it will be better to be a bondholder than a stock-
over again over the last 10 years. Their M.O. is take care of holder—equity is frequently wiped out. Cerberus says the
corporate first. Then, take care of everything else—second, transaction ensures that Steward has “unfettered access to
third, and fourth.” capital” in the Covid crisis and wasn’t motivated by concerns
Joseph Weinstein, Steward’s chief medical officer, says the about bankruptcy.
company is working to lower readmission rates through bet- If Steward trudges on, Cerberus will collect another $350 mil-
ter follow-up with patients. “We do not cut corners on staffing,” lion when Steward repays the note, plus interest. And if Steward
Weinstein says. “I will be emphatic on that one.” Steward says stabilizes its finances and even thrives? Cerberus can convert
the unsafe-staffing reports are a union strategy to gain lever- the note into a 37.5% equity stake. So, whether or not Steward’s
age, rather than indications of serious shortcomings. The com- nurses, doctors, and patients prosper, or its vendors get paid,
plaints can reflect unusually busy nights, a spokesman says, Cerberus may yet have another big payday. <BW>
 Bloomberg Businessweek

The Cola ConTesT Wi

46

DeCaDes ago, PePsi’s number Fever PromoTion

CaPTivaTeD Consumers anD PromiseD To enD
Coke’s DominanCe in The PhiliPPines. buT an
error aT a boTTling PlanT leD To DisasTer
 August 10, 2020

Th 600,000 W i n n e r s

47

by JeFF maysh PhoTograPhs by geriC Cruz

TWO OF PEPSI’S INFAMOUS 349 CROWNS

 August 10, 2020

ARILY SO, A WOMAN IN announced the winning number, her

her early fifties with graying husband, Isagani, rifled through their
hair, runs a sari-sari store out of crowns and found the one: 349. A million
her one-room home in a concrete building beside a railway pesos. Her prayer had been answered.
track in Manila. In the steamy heat of a summer afternoon, The couple danced and laughed until the
shirtless children appear at her window clutching coins. With TV started to rattle and a passing freight
a kind smile, she serves them warm bottles of water and Royal train drowned out their shrieks of joy.
Tru, one of a few sodas she displays alongside tiny shampoo Five miles across town, Ernesto de
sachets and single cigarettes. There’s one brand she refuses Guzmán de Lina, a tricycle-taxi driver,
to sell. If someone asks for a Pepsi, her expression sours. For was dashing downstairs to tell his
more than 28 years she’s nurtured bitter resentment against nephew Simon Marcelo that his 349
the company. “I didn’t have a job back then,” she says, start- crown had just won him 50,000 pesos.
ing in on her Pepsi story. Marcelo was already celebrating—he had
It was 6 p.m. on May 25, 1992, and So was among the 70% of a 349 worth 100,000 pesos, enough to
Filipinos watching the Channel 2 evening news. Then 23, she quit his job as a cocktail waiter in the
was living in a wooden shack beside the tracks with four chil- city’s red-light district.
dren under 5. Pepsi was about to announce the winning num- Similar scenes were playing out
ber in a promotion that had gripped the Philippines’ 65 million across the country. A bus driver had
people. Her husband, a house painter, had spent their last cen- three 1 million-peso 349s. A mother of
tavos on special “Number Fever” bottles of Pepsi, hoping one 12 whose children went through 10 bot-
of the three-digit numbers printed on the underside of the caps tles of Pepsi a day had won 35 million
would match one of the winning numbers locked inside a vault. pesos. Winners raced to the iron gates
Across the Philippines’ 7,641 islands, ads had promised of Pepsi’s bottling factory in Quezon
people “You could be a millionaire.” A million pesos, about City, just northeast of Manila, to claim
$68,000 in today’s dollars, was the largest prize available, their prizes. As the crowd grew, a sec-
48 611 times the country’s average monthly salary at the time. retary dialed the marketing director,
The published odds of winning that amount were 28.8 mil- Rosemarie Vera. “There seems to be
lion to 1, but Pepsi had already minted 18 millionaires. They many 349 crowns in circulation among
appeared in its ads, real as day. One, a bus driver named people I know,” the secretary said,
Nema Balmes, became known as Mrs. Pepsi after joking that according to an account in the Philippine
drinking cola put her husband “in the mood.” Daily Enquirer. At 10 p.m., someone from
Number Fever was the brainchild of an executive named the company telephoned the Philippine
Pedro Vergara, a Chilean who worked for the promotions Department of Trade and Industry and
department in New York. After a successful U.S. rollout, Pepsi- said a mistake had been made.
Cola International Chief Executive Officer Christopher Sinclair Within a year, a violent consumer
made it part of his strategy to fight Coca-Cola abroad. Since uprising would be under way, with riots and grenade attacks
becoming the global arm’s youngest CEO at 38, Sinclair had leaving dozens injured and five dead.
developed a reputation as a “battlefield commander.” Visiting It was perhaps the deadliest marketing disaster in history—
77 countries in six months, he was dismayed to find the world’s and remains one of the business world’s great cautionary
grocery aisles “awash with Coca-Cola red,” as Fortune put it. tales. “I don’t think that, from the onset, people would look
Pepsi hired a Mexican company, DG Consultores, to bring at this and say people could actually die,” says Lee Oster,
Number Fever to Argentina, Chile, Guatemala, Mexico, and a University of Idaho professor and the co-author of a risk
the Philippines, where it truly caught fire. Monthly sales there management textbook that included Number Fever as a case
quickly jumped from $10 million to $14 million and its market study. “But even then, like the nuclear power industry or
share from 19.4% to 24.9%. Bottling plants roared 20 hours a aviation, people have to be on top of things and realize the
day, doubling their usual production. An aggressive ad cam- catastrophic events that can happen at the end.”
paign dominated the media, with 29 radio stations and four In response to a request for comment on the events
newspapers circulating the winning numbers. The promotion, described in this story, Pepsi said it would be unable to verify
initially scheduled to end on May 8, was extended five weeks. them. “These events took place almost 30 years ago, and none
By then, Number Fever was verging on Number Hysteria. of the executives familiar with this program are at PepsiCo any-
Cops jailed a maid accused of stealing her employer’s winning more. And given that the Philippines is just emerging from one
crown, as the bottle caps were known. Two Pepsi salespeople of the world’s longest Covid lockdowns, we have been unable
were murdered following a dispute over another crown. to access stored records on this matter,” the company wrote.
The night of May 25, So murmured a prayer as the blue But, it said, “we deeply regret any pain and suffering our mis-
of the television shone in her children’s eyes. When Pepsi take caused the people of the Philippines.”
 SO IN HER SARI-SARI STORE

AMERICA DOMINATES MANY ASPECTS OF FILIPINO Pepsi’s prices. By 1992 it had expanded its share of the cola
life, from the kaleidoscope of beverages at most sari-sari stores market to 83%, so high that it no longer bothered to advertise.
to a fondness for swing dancing and apple pie. The U.S. took Number Fever hit Coke like a sucker punch. Rodolfo
control of the islands from Spain in 1898. After defeating the Salazar, president of Pepsi-Cola Products Philippines Inc.,
country’s revolutionary government in a vicious three-year boasted that half the country’s population was participating,
war, it established military bases and colonial rule, and its influ- making it “the most successful marketing promotion in the
ence remained long after independence in 1946. The U.S. inter- world.” As Pepsi’s sales jumped, Coke executives scrambled
fered in presidential elections, tacitly supported Ferdinand unsuccessfully to devise their own promotional game—even,
Marcos during his brutal two decades of rule, and generally recalls Barbara Gonzalez, Coke’s former corporate communi-
used the country as proxy turf for the Cold War. (Sometimes cations director in the Philippines, buying “a whole truck of
in bizarre ways—at one point the CIA helped suppress a com- bottles, to find out what is the ratio of what we call the seed-
munist peasant rebellion by faking vampire attacks to scare ing, the winning crown to the nonwinning.” Coke’s Filipino
superstitious guerrillas into leaving their positions.) president, Jesus “King King” Celdran, a World War II hero
Two American companies also used the Philippines for a dif- who sometimes showed up at bottling factories in a tank,
ferent kind of proxy war. PepsiCo Inc. and Coca-Cola Co. duked publicly admitted he was concerned.
it out there in ways that would never have been allowed in the There was reason to be skeptical, though, that the promo-
U.S., employing espionage and other dirty tricks. At one point tion would end as a clear win for Pepsi. During the rollout in
during the Marcos era, Pepsi executives were caught cooking Chile earlier that year, a garbled fax had led a wrong num-
the books to show higher sales than Coke, forcing a $90 million ber to be announced, triggering riots. And swindlers in the
write-off. Coke kept the upper hand mainly by undercutting Philippines were creating fake winning crowns, leading
 Bloomberg Businessweek August 10, 2020

“a social disease that nurtures the gambling instinct in our

children” in an open letter to a newspaper. But despite his
opposition, his daughter Cymbel held a winning crown. He
later wrote that he saw security guards tossing glass soda bot-
tles at the crowd and that a policeman charged at him with a
riot shield. He took cover at a nearby Dunkin’ Donuts jammed
with agitated winners. Outside, Pepsi trucks rumbled past,
flanked by guards carrying automatic weapons. A manager
tried to escape the factory, but protesters threw stones at
him. A bomb threat would follow hours later.
Del Fierro stood on a table at the doughnut shop and
demanded quiet. Then he asked for volunteers to draw up
a list of winners’ names. As reporters gathered around, he
AN ANTI-PEPSI RALLY OUTSIDE THE PHILIPPINE HOUSE announced a crusade. “It’s about Third World countries being
OF REPRESENTATIVES IN AUGUST 1993 exploited by multinationals,” he said.

MANY 349 HOLDERS TOOK UP PEPSI’S OFFER OF

500 pesos for their crowns; in the first two days, the company
paid out more than 12.5 million pesos. (The final bill ended
up close to $10 million, according to AsiaWeek.) It didn’t take
long for Pepsi to trace the source of the error: 349, designated
a nonwinner in the original promotion, had been mistakenly
chosen as a winner for the contest extension. The company
reported that crowns from the extension had been printed
with a different seven-digit security code and that none of
50 these would be honored.
The explanation didn’t appease the protesters. As del
Fierro rallied support for his campaign, which he called
Coalition 349, he got an early boost from an unlikely source:
Celdran, Coke’s local CEO, who instructed an employee to
offer del Fierro 10,000 pesos—“startup money,” according to
A 1994 ASIAWEEK COVER STORY FEATURED DEL FIERRO
the now-former staffer, who spoke on condition of anonymity.
“Can I have a megaphone?” the employee recalls del Fierro
asking when the contribution arrived. (Celdran passed away in
people to claim they’d been wrongly denied prizes even before 2013. Coke didn’t respond to emailed requests for comment.)
the 349 error emerged. Coalition 349 organized rallies outside Pepsi plants, where
When disaster struck on May 25, Pepsi initially tried to del Fierro would yell into his new PA system. He also started
change the winning number. Newspapers reported the next preparing a lawsuit he hoped would win class-action status,
morning that the real winner was 134, only adding to the confu- promising crown holders a huge settlement. He accepted
sion. The company locked the factory gates in Quezon City, and 500 pesos for legal fees from those who could afford it and
by midmorning policemen and soldiers were wrestling with worked pro bono for those who couldn’t. De Guzmán De Lina, RALLY: ROMEO GACAD/AFP/GETTY IMAGES. ASIAWEEK: COURTESY DEL FIERRO FAMILY (2)

349 holders who were lobbing rocks at the building. Executives the Manila taxi driver, arrived with his nephew at del Fierro’s
inside were trying to phone headquarters in New York, but house one night not long after the draw to find 349 holders
Sinclair was unreachable, schmoozing on a yacht at an annual lined up around the block. Inside, del Fierro’s wife, Norrie, a
gathering of bottlers, according to a report in AsiaWeek maga- glamorous cookbook author, was making food for the crowd.
zine. (Sinclair declined to comment for this story.) Del Fierro said he’d take the fight all the way to New York,
Protests carried on through the next night. At 3 a.m., Pepsi a city he knew mainly from Frank Sinatra songs. “We are com-
decided it would pay 349 holders who came forward over mitted to pursue this crusade until the very end,” he wrote in
the following two weeks a “goodwill gesture” of 500 pesos. a letter to the Manila Chronicle. “God is definitely bigger than
Executives calculated that if half the 600,000 crowns that had the 50th largest corporation in the world.” When the story hit
been minted with the number 349 were cashed in, the dam- international papers, Kenneth Ross, PepsiCo International’s
age would be contained at $6 million. primary spokesman, portrayed the activists as opportun-
Among those assembled outside the factory was Vicente ists. “Quick-buck artists have lured thousands of unwitting
del Fierro Jr., an advertising consultant and a preacher for a Filipinos with very empty promises of a huge settlement for
charismatic Catholic sect. Del Fierro had called the promotion the payment of an upfront fee,” he told the Associated Press.
Bloomberg Businessweek August 10, 2020

Groups with names such as United 349 and Solid 349 Santiago, a U.S.-educated lawyer who’d worked overseas for
actually were charging fees, with some asking as much as the United Nations, and Eduardo Cojuangco Jr., chairman
1,000 pesos for “membership.” Marily So and her husband of San Miguel Corp., a Coca-Cola partner. Other candidates
signed up with a preacher, “Brother” Bambi Santos, who said included Imelda Marcos, widow of Ferdinand. “One must won-
God had called him to fight Pepsi. They agreed to pay him der how many voters were drawn from the voting booth to
30% of any future settlements and joined his rallies and pro- Pepsi protests,” a columnist wrote. In the end, Ramos nar-
tests. In the provinces, farmers were reported to be selling rowly defeated Santiago, a result marred by evidence of fraud.
their cattle to afford the journey to Manila. In January 1993, Pepsi had to pay a fine of 150,000 pesos to
And the chaos continued. Protesters in Quezon City burned the Department of Trade and Industry, for deviating from the
tires. Speculators offered wads of cash for 349s in hopes of a promotional campaign the government had approved. “We
bigger payoff later. Even police weren’t immune to the frenzy. have done everything that we think is reasonable to amicably
One National Bureau of Investigation (NBI)
officer arrived at the Quezon City plant with
an empty attaché case to carry home his
million pesos. “Pepsi either pays,” he told a
reporter, “or they close down.” “My wife wouldn’t have died!”
As days turned into weeks and then
months, some 10,000 claimants filed suits RosaRio says he told
demanding money. Molotov cocktails crashed
into Pepsi factories and dozens of delivery PePsi RePResentatives in
trucks, their drivers dousing the flames with
7 Up. The Pepsi-Cola Hotshots basketball 1993. “it’s because of
team changed its name to the 7-Up Uncolas.
Executives began traveling with bodyguards, the 349 incident!”
and the company moved American employees
out of the country, save for one who’d worked
in Beirut. “We were eating death threats for
breakfast,” Vera, the marketing director, later
told a reporter. At a riot in Manila, a 64-year-
old protester named Paciencia Salem, whose
husband had died of heart failure during a
march, told a journalist, “Even if I die here,
my ghost will come to fight Pepsi.”

WHY HAD THE CONTEST SPARKED SUCH

anger? It was the money, of course, but it
wasn’t only that. The scandal tapped into ris-
ing anticolonial sentiment in the Philippines,
which was then flaring over the American
military presence. Following fraught, failed
negotiations, the U.S. was withdrawing from
the last of its six bases. The closures were
a victory for nationalists, but they came at
the cost of hundreds of millions of dollars in
yearly aid and tens of thousands of jobs.
Number Fever also became linked in the
public imagination with the country’s chaotic
national elections, which had taken place a
few weeks earlier but were still unresolved
thanks to counting delays and procedural and
legal challenges. The presidential contest, in
particular, had had colonial overtones, pit-
ting Fidel Ramos, a cigar-chomping, right-
leaning West Point graduate with Pentagon RAUL ROSARIO’S WIFE, ANICETA, WAS KILLED WHEN
connections, against Miriam Defensor A PEPSI TRUCK WAS BOMBED
 Bloomberg Businessweek August 10, 2020

conclude this issue,” Ross told the Los Angeles Times. “At this In early April, Sinclair, the Pepsi International CEO, flew
point we do not intend to lay out additional money.” Del Fierro, to Manila for an emergency meeting with President Ramos.
meanwhile, had hired five employees to process new lawsuit A Ramos aide told the Los Angeles Times that Sinclair pleaded
claimants—he eventually signed up about 800 in all—and was for help, warning that the incident could scare away much-
looking for U.S. lawyers to bring the fight to New York. His needed foreign investment. Ramos disagreed. “It’s a special
daughter Cymbel had taken over his advertising business. kind of case,” Ramos told the Times.
One morning in February, a schoolteacher named Aniceta The following month, a grenade tossed into a Pepsi plant in
Rosario made her way to a sari-sari store in Manila to buy rice. Davao City killed three employees. The company urged the NBI
As she reached the market, a Pepsi delivery truck arrived. to open an investigation into the attacks. A witness to several
Someone threw a homemade bomb that bounced off the truck riots, Nomer Palacios, came forward with a list of six leaders
and detonated. The blast killed Rosario and a 5-year-old girl of anti-Pepsi coalitions who, he claimed, were masterminding
standing nearby. Five others were injured. the violence to force the company to pay.
Rosario’s eldest daughter, Cindi, still recalls the shock of In late July, del Fierro and his wife boarded a flight to New
seeing her mother’s lower half covered at the funeral. “They York, armed with the findings of a Philippine Senate report
told me her legs were shattered,” she says. Rosario’s wid- whose legitimacy Pepsi contested. It called the company guilty
ower, Raul, didn’t speak for days after his wife’s death. A of “gross negligence” and “misleading or deceptive advertis-
slight man who never remarried, he tells me in a whisper that ing.” As del Fierro strode through Manhattan, he later wrote,
Pepsi invited him to an office where a group of men in polo Sinatra’s New York, New York played in his head, a kind of per-
shirts with corporate logos offered him 50,000 pesos (about sonal battle hymn. He hired two American consumer lawyers
$3,400 today) not to sue. “My wife wouldn’t have died!” he to sue Pepsi for $400 million in actual damages and $1 mil-
says he shouted in reply. “It’s because of the 349 incident, lion in “moral and exemplary” damages. “This problem will
because you cheated the people!” He stormed out, but not become a serious threat to the very existence of PepsiCo,” he
long afterward, on the advice of friends, he changed his mind told reporters. “Massive negative public opinion will create a
and took the money. very deep wound, which may be very difficult to heal.”

52
CYMBEL DEL FIERRO BUILT AND RUNS A COALITION 349 WEBSITE

“PePsi, they
killing Me softly,”
del fieRRo Recalls
heR fatheR saying
Bloomberg Businessweek August 10, 2020

PEPSI WAS IN THE MIDST OF AN ANNUS HORRIBILIS. That November hundreds of torch-wielding 349 winners
In the U.S., dozens of people were claiming they’d found demonstrated near Manila’s Malacañang Palace during a
syringes inside its cans, a “tampering” crisis the FBI would state visit by U.S. President Bill Clinton, yelling for his help
later expose as a hoax. Crystal Pepsi, a colorless version of the and igniting a Pepsi-bottle effigy stuffed with fireworks. Their
soda, was selling miserably, soon to become one of history’s hopes of American intervention were further dashed the fol-
great product failures. And a world tour by longtime spokes- lowing summer, when a New York court dismissed del Fierro’s
man Michael Jackson was about to be derailed by accusations lawsuit, saying it should be heard in the Philippines.
of child molestation, with Jackson canceling dates and saying Sinclair was made CEO and chairman of Pepsi’s combined
that he’d become addicted to painkillers first prescribed after international and North American operations in March 1996,
his hair caught fire during a 1984 Pepsi commercial shoot. but he resigned four months later, citing personal reasons.
Del Fierro showed up at a Pepsi building in upstate New “Sinclair departed voluntarily but ungracefully,” Fortune
York, where Ross met with him. He warned the spokesman wrote, “leaving the overseas beverage mess for someone else
that he’d stay in New York until they reached a settlement. to mop up.” Pepsi had by then fallen back to also-ran status
Ross said the violence had to end first. “We don’t have any abroad, outsold by Coke 3 to 1 in the Philippines. It was even
control over the violence,” del Fierro replied. He returned to overtaken by Cosmos, a local Coke-owned brew. Marketing
Manila empty-handed. there had become all but impossible. “Anytime anyone men-
Later that year the NBI alleged that a trio of thugs dubbed tions anything to do with Pepsi,” Frederick Dael, a local vice
the Three Kings was behind the anti-Pepsi bombings. Initially, president with the company, told Deutsche Presse-Agentur,
one of the men, a garment-factory worker named Rodelio “somebody always digs up 349.” To be “349ed” was slang
Formento, said he’d volunteered for a 349 group and been for being duped.
recruited by the other two during a clandestine lunch. The protests eventually died out, but the lawsuits plod-
According to documents obtained by Bloomberg Businessweek ded along for years. It wasn’t until 2006 that a Philippine
from the NBI, he told investigators that a Pepsi security offi- court finally ruled Pepsi hadn’t been negligent and wasn’t
cer was present at the meeting and that the company had liable for damages. At long last, the company’s nightmare
paid the Three Kings to cause violence at rallies in an effort was over. “This was not some little incident in a far-off land
to frame protest organizers. Formento also said they’d been that we didn’t care about,” says Ross, who left Pepsi in 1997. 53
hired to cause a rift among the various movements’ leaders. “We cared deeply about what happened. We cared deeply
“If we were successful in our mission, Pepsi would give us [a] about amicably resolving the matter to everybody’s satisfac-
huge amount,” he claimed. But Formento’s conscience nagged tion. We certainly regretted the violence that surrounded
him. “Many got hurt and died,” he told investigators. “I was so this in Manila.”
guilty, and I could not take it anymore, so I decided to reveal Marily So had by then moved on. Her husband died of a
the truth.” (Formento couldn’t be located for comment.) heart attack two years after the 349 draw, sending her into
A lawyer for Pepsi dismissed the police report, but the emotional and financial despair. Storms flooded her shack,
head of the NBI’s anti-organized-crime division told the tarnishing her winning crown, and with four growing children
media, “We’ve been had.” The People’s Journal soon ran a to feed she had no time to attend rallies, so one day she tossed
story headlined “Pepsi Goons Bombed Own Trucks.” the cap away. It was perseverance, she says, not luck, that led
In February 1994 the company lost a 349 court case. A her to find a better home and start her sari-sari store. Today,
21-year-old medical student named Jowell Roque won a lower framed photographs of her children in graduation caps and
court verdict in Bulacan, north of Manila, ordering Pepsi to gowns hang on one wall; she tears up as she shows them off.
pay him more than 1 million pesos. The company appealed, Although del Fierro never won a settlement from Pepsi,
but it’s unclear whether it succeeded. he did squash the libel case against him. And he could
That spring, del Fierro suffered a serious stroke. He claim some credit for helping pressure the government to
recovered well enough that, in the fall, when the Philippine strengthen its provisions on misleading and deceptive adver-
Supreme Court issued arrest warrants for nine local Pepsi tisements; after the 349 controversy, it started more closely
executives, he posed for a celebratory photograph holding monitoring promotional schemes and doubled its fines
a newspaper with the headline “Arrest of 9 Pepsi Executives against companies that violate consumer rights.
OK’d.” (There’s no record that the warrants were executed.) Del Fierro died in January 2010, following another stroke.
The company sued him for libel, saying he’d been circu- Each night for months afterward, Cymbel would boot up her
lating pamphlets calling Number Fever a “scam” and had father’s computer to fulfill her promise to keep up the fight.
falsely claimed Pepsi had him illegally detained. Soon after- She built a Coalition 349 website, uploading legal documents
ward another stroke almost killed him. From his hospital bed, and press clippings. Inside a filing cabinet she maintains an
he labored over paperwork, dragging himself into court when archive of thousands of winning crowns, the rusting dreams
necessary. “Pepsi, they killing me softly,” Cymbel recalls him of a generation. “He guided me to do this,” she says—so that
telling her. He made her promise to keep fighting the com- Pepsi would never forget. <BW> �With Barbarra Resurrection
pany even after he was gone. and Nicole Anne Revita
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 P
U
R
S
U
I
T
S 55

THE F U T U R E
OF L I V I N G

WE CAN’T LIVE
LIKE THIS ANYMORE
And we don’t have to. Architects and August 10, 2020

designers offer 29 brilliant solutions for the Edited by

Chris Rovzar
way we live, dine, and travel
Businessweek.com
 THE FUTURE OF … Bloomberg Pursuits August 10, 2020

Sluishuis, a forthcoming
Architect building by Ingels
in Amsterdam
Bjarke Ingels has
five big ideas to fix
urban living
By James Tarmy

W
hen pandemic stay-
at-home orders
were implemented
in March, people in cities around the
world were made prisoners in their
own apartments. Residents in many
buildings designed by the Danish-born
architect Bjarke Ingels found them-
selves spending time on their balcony.
“One of our first buildings, in In the Sluishuis, an Ingels project in
Copenhagen, has these very long
balconies that are staggered,” he says. REARRANGED Amsterdam, one of the apartment types
is called a slice home, which is essentially

LIVINGSPACES
two apartments with shared rooms in the
There, residents connect with neigh- middle. “It could be for divorced families with
bors in a physically distant way. “People children,” he explains. “Depending on whose
were sending me videos of ‘block week it is, you can move the entryway so the
parties’ where everyone was outside, Traditional apartment layouts simply don’t children can stay in the same home.”
enjoying the sunset and listening to account for many family formats, Ingels says, Co-living, he says, “is going to be a
56
music, but safely.” including single-parent households, childless bigger and bigger part of our residential
households, and co-living arrangements future.” People might have distanced during
Ingels isn’t the first architect to build
with multiple roommates. “Most of us have, Covid, but the ongoing economic slump
a balcony, but he’s made it a motif in his in our lifetime, stayed in a shared flat with may force many to find savings in shared
residences from New York to Taiwan. other people,” he says, “where we took a accommodations. “I don’t think the result of
Incorporating more outdoor space bourgeois home from the early 20th century Covid is that we’re going to live in complete
seems inevitable after Covid-19. And as and converted it into something where isolation in a sort of hermetic bubble,” he
the world reassesses offices and urban five young people each had a bedroom says. The most immediate consequence
space, Ingels sees an opportunity to and a shared living area. That should be is "that dense cities have discovered the
reinterpreted into building designs.” importance of outdoor space.”
fast-track other ideas and hone the
design language he’s been champion-
“During Covid, one of my partners in New
ing for years. “We’ve been spending a York took every conference call from his
big part of Covid, really all of 2020, look- balcony,” Ingels says. “It’s generous enough
ing at this,” he says. in terms of space, and it’s shaded well
It’s not only outdoor spaces. Ingels enough that it can function as his home
wants to change everything, including office.” Most people think of balconies—
mechanical systems, which he says lag particularly in urban apartment buildings—
in innovation; facades, which could be as “small little things, maybe with space for a
potted plant and room to smoke a cigarette,”
more energy-efficient; and the layout of
he says. “But I think the balcony is going to
apartments, which are mostly one-size- be much more like an outdoor room.”
fits-all. “In the 1950s, there was this kind Even though it’s an extension of the
of fixed idea of a nuclear family, whereas home, Ingels doesn’t think a balcony should
the diversity of households today is VM Houses in Copenhagen, necessarily be as private as the rest of
massive,” he says. In his eyes, urban completed in 2005 the house. It could, he says, be a form of
homes in the next few decades will semipublic, semiprivate common space.
Take his apartment building in Copenhagen
reflect a broad spectrum of uses, as well

BALCONIES
with balconies jutting out over one another.
as iterative innovations in technology. “At first it was seen as challenging,
Here are a few ways Ingels intends to because you didn’t have full privacy from
improve housing, wellness, and how we
live and (try to) work. AS ROOMS your neighbor,” he says. “Now it’s seen as
creating a community.”
 DESIGN Bloomberg Pursuits August 10, 2020

along those lines are on their way out, he

RETHINKING suggests, to be replaced with “personality,

character, and authenticity.”

LUXURY
He points to a hotel he didn’t design, the
Nômade in Tulum, Mexico, which is set in the
jungle and features tents nestled in groves of
palm trees. “With that abundance of greenery
“In the past, there was a global agreement you can allow people to live relatively close
on what ‘high-end’ meant,” Ingels says. to one another without impacting their
Developers (and consumers) required “a privacy,” he says. Yes, he acknowledges, the
checklist of features and materials.” Is rooms are comfortable and pleasant, but it’s
the bathroom covered in marble with a not the kind of luxury you find at the Ritz.
A tent at the Nômade in Tulum standalone bathtub? Is a kitchen loaded up The real point is that people need to “sense
with commercial-grade appliances? Criteria the care of the designer.”

BIOPHILIA
A rendering of Toyota
Woven City

King Toronto, which will feature

trees on the terraces
PREVIOUS PAGE: PHOTO ILLUSTRATION BY 731; PHOTOS: GETTY IMAGES (14). THIS SPREAD: RENDERINGS: COURTESY BJARKE INGELS GROUP. NOMADE: COURTESY NOMADE

57

Part of Ingels’s preoccupation with outdoor

space is his interest in biophilia, which
posits that humans who experience changes
in light, weather, and seasons “are more
productive and healthy,” he says. “The more
access you have to greenery, if only visually,
the fewer your sick days and the higher
your productivity.”
According to a 2009 Norwegian study,
blocking out nature results in negative
effects. Ingels says future generations
of buildings, including his own, will have
REDESIGNED THOROUGHFARES
“almost an extra layer to the facade, but Eventually, people will leave their apartment where people can ride bikes and scooters.
outdoors, where you have access to fresh and return to work. When they do, Ingels The final, he says, “will be like a park, with
air and plants.” One such project of his, King wants to change what they see when they grass and trees.” Residents will be able to
Toronto, is already under construction. “It’s step out the door. Earlier this year he released walk from one end of town to the other—or
essentially a mountain, where every home plans for Toyota Woven City, a commission wherever they need to go—without ever
has a terrace with a tree on it,” he says. from the car company set on a 175-acre plot leaving green space.
The added benefit of plants on an exterior at the base of Mount Fuji in Japan. “It turned out that this would be the
is that the nature, in theory, creates a “shade “Every third street is a classic street” with perfect scenario of a post-Covid reimagining
for a glass facade,” he says. “You don’t have room for cars, albeit ones that are mostly of a city,” he says. “When a space isn’t
to have tinted or mirrored glass,” because the electric, Ingels says. Another one of the three dominated by vehicles, it becomes additional
foliage creates a barrier to sunlight. street types is a recreational promenade, outdoor space for people to enjoy.” <BW>
 THE FUTURE OF … Bloomberg Pursuits August 10, 2020

RESTAURANTSCANBESAVED
We now know the business model needs rethinking and the layouts
aren’t safe. But legendary restaurant designer David Rockwell
has a blueprint to solve both problems with one genius, flexible plan
By Kate Krader Illustrations by Brown Bird Design

58

⑤
② ④

LU
SPE NCH
CIA
LS

Even in good times, restaurants operate on slim margins. that solves these structural problems—a multipurpose hub
Owners battle unmanageable rents and struggle to pay mea- that’s economically and environmentally viable. In these ren-
ger wages, as much of their venue’s real estate sits unused derings, the restaurant serves as a community center, grocery,
for hours every day. Now that diners are threatened by air- and educational space during the day. At night, diners sit down
borne pathogens, management is finding the spaces difficult to eat indoors, and various components can be rearranged for
to keep sanitary—if they’re open at all. privacy and distance in the midst of communality.
Bloomberg Pursuits asked the Rockwell Group, renowned “Restaurants of the future will be more flexible,” says
for designing such destinations as New York’s Nobu 57 and the founder David Rockwell. “A model like this reinforces the
Palms Casino Resort in Las Vegas, to share a vision of the future French root of the word ‘restaurant,’ which is ‘restore.’”
DINING August 10, 2020

⑧ ⑥

DIN
SPE NER
CIA
LS

59

Daytime “walls” (1) also serve as lush, Nighttime flexible private-dining spaces (9)
surrounds the kitchen, so guests
movable room dividers that
A multifunctional market and can expand or contract seating A host greets diners at an still feel like part of a communal
community space can help areas as needed. outdoor station (6). Just experience while having physical
ensure profitability during off- Restaurant/shops like these beyond, low bench seating separation. Carts in each dining
peak hours and employ more will also offer a selection of and cafe tables surrounded by nook, which include hand
people, too. cheeses, charcuterie, baked greenery provide a peaceful sanitizer, clean silverware, and
Small, automated, and goods, and other products place to wait and avoid crowd napkins, can be easily rolled up
modular food-growing beds from local artisans, either in a buildup in front. Attractive to tables when they turn over.
are stacked into long, thin spacious grocery (2) or via a sanitation stations (7) with A counter spanning the
walls throughout the room. pickup window (3). Rotating sinks demonstrate an attention kitchen accommodates pairs
Such vertical gardens would specialties can entice shoppers to hygiene. (In this future, the and solo diners. The periphery
allow the restaurant to raise at a streetside kiosk (4). QR code pandemic has passed, but is kept clear for people to
leafy greens, herbs, and edible menus and mobile ordering will restaurants are better prepared circulate easily. Bathrooms (10)
flowers indoors, providing chefs minimize server interaction. for potential new health issues.) feature automatic doors and
with a year-round supply of Outside of wait-service hours, Inside, with the green walls touch-free fixtures.
fresh ingredients to further outdoor tables facilitate grab- rearranged, the layout is now Window walls that pivot
reduce costs. Additional and-go dining. oriented around a central out onto the street blur the
rooftop gardens and apiaries In the back of the dining show kitchen (8) that’s tucked boundary between the outdoor
can further expand urban area (5), space can be converted behind sliding glass doors. This patio seating and the interior.
farm production. Any surplus into a classroom or meeting-style adds a bustling air at quieter Ventilation is further assisted
could be put into meal kits or forum, where wellness, nutrition, dining times and reassures by high-efficiency particulate
sold separately. cooking, hospitality—really guests about the business’s mobile air filters that move
These hydroponic green anything—could be taught. operating practices. A series of around the restaurant.
 THE FUTURE OF … Bloomberg Pursuits August 10, 2020

THE PREFLIGHT UPGRADE

60
TRAVEL Bloomberg Pursuits August 10, 2020

“smart tunnel” at Dubai International In response to the current pandemic,

that verifies your identity by scanning thermal cameras—common in Asian air-
Innovation born from your iris as you walk through it. Add ports following the 2003 SARS outbreak—
advanced X-ray technology, and airports will become a ubiquitous way to detect
the pandemic might may be able to identify threats without feverish travelers. Trailblazing Hong
radically improve the requiring anyone to line up, divest, or Kong International is one-upping that,
way passengers even put luggage in a tray. with full-body disinfecting stalls that look
The most radical changes have the like walk-in tanning booths. They take
move through the potential to turn airports from hotbeds your temperature and blast you with an
world’s airports of frustration into beacons of inno- antimicrobial spray, all in 40 seconds.
By Brandon Presser vation. Here’s a look at what’s being Except for these stalls, all the technol-
installed around the world, and a few ogy operates in the background, with-
Illustrations by ideas yet to come. out your even knowing it (though it may
Jaci Kessler Lubliner alarm those concerned about privacy).
Checking In
Navigating the Terminal
Navigating the Roman circus of obstacles Without having to rush to get through
known as an international airport is a snaking TSA line, passengers will In places such as Seoul Incheon and
likely the one thing travelers aren’t miss- be able to enjoy their time anywhere Guangzhou, a new type of employee can
ing during the Covid-19 crisis. Now that in the airport—including presecurity be spotted throughout terminals: robots.
forecasts predict tourism won’t fully areas. Free of human gridlock, these Some of them sterilize common high-
recover until 2023, these transit centers spaces will be landscaped and outfitted touch surfaces such as bathrooms, hall-
are getting a rare, low-traffic chance to with seating, where it will be possible ways, bag trolleys, and elevator buttons
make many of the changes flyers have to get food dropped off from Uber Eats with UV lights; others flag authorities
long wanted—along with upgrades they or Grubhub if traffic is light and you’re when they detect an unmasked face.
never imagined. Among them: disinfec- a little early. Such deliveries are being At JFK an artificial intelligence plat- 61
tion booths, biometric security scans, tested at Toronto Pearson. form called SafeDistance is using cam-
automated customs and border patrol Airline apps will also mitigate the eras to monitor for congestion, so
screenings, and enhanced self-check-in need to touch screens; in May, United employees can easily identify over-
stations. Together, they represent the Airlines Inc. announced plans for touch- crowded areas and open up other ave-
most significant overhaul of the airport less kiosks that print baggage tags when nues of access in response. A similar
experience since Sept. 11. you scan your phone. Coupled with QR software tool called Zensor uses CCTV
“The traditional way we design air- code boarding passes and self-drop lug- footage to bring real-time crowd esti-
ports has long been hamstrung in two gage stations, the check-in process will mates for places such as gate-side bath-
directions,” says Matthew Johnson, who be fully digitized. From here, walk- rooms, coffee shops, or retail outlets
helped spearhead the ongoing $14 billion ing to the gate is a choose-your-own- right to a traveler’s phone; Pittsburgh
renovation of LAX in Los Angeles as an adventure, done on your own time. International is piloting it.
aviation principal for architecture firm
Gensler. The de facto airport floor plan Going Through Security Boarding
funnels traffic through an “X” shape,
with passengers coming from various Some airports already provide security A touchless departure is the last step.
entries and converging at one congested without requiring human interaction. Cathay Pacific Ltd. is working in collab-
portal—TSA—before dispersing to find At Hong Kong International, passengers oration with U.S. Customs and Border
their gate. This design was largely put tap passports to unlock security barri- Protection to bring automated board-
into place after the 2001 terror attacks, ers, scan their boarding pass, and have ing gates to LAX and San Francisco
when extensive security scans became their photo snapped for identity verifi- International, joining a similar effort
emblems of personal safety. cation at an electronic terminal. Munich at JFK. They’ll scan your face and bio-
If long lines were once the price and Singapore Changi have similar sys- metrically verify your identity, allowing
of safety, they’re downright danger- tems. Then there’s new technology you to get on the plane without hand-
ous now. “Covid-19 is going to herald a that’s being fast-tracked for deployment: ing over your ticket and passport. James
complete reversal,” says Johnson, who Remotely operated X-ray machines can Groark, who handles landside innova-
proposes eliminating the X all together. check carry-ons for explosives, and tions for the carrier as its vice president
Airports could become like casinos, he millimeter-wave imaging systems can for airports, says that “eventually this
says, coupling eye-in-the-sky surveillance examine your shoes for traces of contra- will be mandatory for all airlines—the
with state-of-the-art sensors—as in the band while they’re on your feet. writing is on the wall.” <BW>
 CRITIC Bloomberg Pursuits August 10, 2020

AS SIPPED ON TV
The Spirits Network offers a tantalizing taste of home shopping’s
possibilities for cocktail lovers. By Brad Japhe

The rapid growth of online shopping may be the dominant The concept is on firmer footing now that the coronavirus
retail storyline of the past decade, but e-commerce in the has altered how Americans access their booze. In the first two
liquor industry remains something of an exotic curiosity. weeks of April, e-commerce for adult beverages rose almost
Don’t blame the alcohol. After Prohibition, regulation fivefold compared to the same period last year, according
in the U.S. was left to individual states, which means that, to Nielsen Holdings Plc. Sales on Drizly, the largest alcohol
including the territories and commonwealths, there are delivery app, have risen 300% since mid-March. Kantar, a data
54 separate sets of logistics for a potential purveyor to nav- insights company, suggests a third of these shoppers could per-
igate. The byzantine landscape is confounded further by a manently alter their buying habits.
three-tiered system in which suppliers and retailers can con- Buzzell says the network has a subscription base in the tens
nect only through distributors. of thousands. A $99-per-month Enthusiast package includes
Charting a surprisingly seamless course through these one bottle of midshelf liquor (think Bushmills 10) mailed to you
murky waters is the Spirits Network, a “shoppable streaming based on your flavor profile on the site. A $149 Connoisseur
entertainment channel” that started in September 2019 with membership bumps to top-shelf territory with a bottle of, say,
around-the-clock programming. It’s available on demand and 18-year-old single malt from the Glenrothes or Bunnahabhain.
free online or through its app to your preferred device, though Both paid tiers include barware and a concierge service to
62 you need to sign up with a credit card to enable o one-click pur- help procure highly
h allocated Pappy Van Winkle and notori-
chasing. By integrating buying opportunities into o original ously eluusive Yamazaki 25-year-old whiskies.
content, it positions itself somewhere between Netflix On th
he platform, it’s easy to toggle through snippets
and QVC. An Amazon Live, but for liquor. off tren
t nding content, and below that are rows
It airs both licensed content and orig ginal of reccommended programs you can tailor to
shows, which currently consist of about a do ozen your drinking
d specifications. Most feature no
titles. #WhiskyWednesdays is built around d more than three episodes, but the content con-
themed, virtual tastings. The host of Home siste
ently brandishes impressive production
Bar Hero is “liquid chef” Rob Floyd, who va
alues; expect multiple camera angles and
walks you through classic cocktail prepa- sttudio-quality lighting and sound.
rations. Bourbon personality Peggy Noe The Spirits Network has no “interruptive
Stevens shows up to demonstrate how to addvertising,” but the trade-off is the inev-
batch Manhattans, and Flavien Desoblin, itable appearance of sponsored content.
who owns Brandy Library in Manhattan, Liiquor behemoth Diageo Plc is one of the
is a ubiquitous presence. primary spenders, and it shows: Affiliated
Anytime a bottle is mentioned in a show, brands such as Don Julio tequila and Bulleit
a little pop-up “buy-bar” appears in the bo
ourbon appear across the “related prod-
lower leftt corner of the screen
screen. Click that
that, and ucts” section wearing conspicuous banners. In
you’re tak ken to a purchasing page. (The show the original programming, the company’s myr-
HAND: GETTY IMAGES. BOTTLES: COURTESY SPIRITS NETWORK

continuess to play in one corner.) If you live in a iad

a bottlings often enjoy center stage.
major urb ban area, your order can arrive in two I didn’t see any small craft producers part-
hours; the e suburbs take a day or two. Harder-to- nered ono the platform, and I doubt they have the
find products can require five days. resources for such an expense—especially now. They rarely
In a sense, the Spirits Network acts as appear in the
t shows either, which is a shame.
a fourth tier to connect connoisseurs Traditionnally we’ve relied on local bottle shops and bar-
with shop ps that have what they want. keeps to learn what’s new and next. In an uncertain
“We play y arbitrage to get the prod- e, when in-person relationships aren’t a given,
future
uct throu ugh a retail network,” says t e Sp
th pirits Network could try tapping into that same
co-found der and Chief Executive honest rapport to highlight something obscure yet sensa-
Officer Niick Buzzell. tional. Whhen they do, I won’t hesitate to raise my glass. 
THE ONE Bloomberg Pursuits August 10, 2020

The mark of an created from parts of

RARE AIR
artist, some say, is mission-flown
the ability to conjure Air Force SR-71
something from Blackbirds, long-
nothing. Aerogel, an range, high-altitude
ultralight material reconnaissance
NASA uses to both
capture stardust
Boucheron’s pendant necklace aircraft that were
capable of speeds
like a sponge and sounds like science fiction of more than
insulate its Mars
rover, is as close
Photograph by Benjamin Bouchet 2,100 mph. Prices
start at $999.
to nothing as
something can be. THE CASE
Described as “solid The centerpiece of
smoke,” the Space Boucheron’s latest
Age material is at the collection is not only
heart of Boucheron’s a lump of near-
Goutte de Ciel, air; the necklace
which translates as is enhanced by
“taste of the sky.” 6,162 diamonds
Creative director totaling 108.17 carats.
Claire Choisne The aerogel
designed the one- pendant can be
of-a-kind necklace removed and worn
to accentuate the in other, less blingy
material’s delicate configurations.
properties (it’s 98% A simple silk cord
air), protecting it is included, and a
in a clear, almost bracelet version is
63
2.5-inch rock-crystal available separately.
pendant shaped like However it’s
a teardrop. showcased, the
substance captures
THE COMPETITION and reflects an
• Instead of the ethereal spectrum
lightest material of light: It can look
known to man, try white, blue, and
osmium, one of sometimes almost
Earth’s heaviest invisible. €590,000
naturally occurring ($696,000);
substances. It’s us.boucheron.com
the source of the
glittering crystal face
of Ulysse Nardin’s
Tourbillon Free
Wheel timepiece,
which clocks in at
€102,000 ($120,800).
• If it’s a truly
extraterrestrial
bauble you’re after,
David Yurman’s $775
dog tag necklace is
made from a slice of
the 4 billion-year-old
Gibeon meteorite
and patterned with
crisscrossing lines of
iron and nickel.
• Made-to-order
titanium rings by
Mach3Ti were
 ◼ LAST THING With Bloomberg Opinion

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Stocks + Gold =
The New 60/40?
By Shuli Ren

In the past decade, a traditional 60/40 been larger than they were during the
64 portfolio of stocks and bonds, as rep- financial crisis.
resented by the S&P 500 index and People are clearly worried. Since
long-term government bonds, was a May, polls conducted by the Conference
winner. But with U.S. bond yields mov- Board show that consumers’ infla-
ing toward zero or even negative terri- tionary expectations have shot up to
tory, it may be time to rethink that mix. above 6%, from about 4.5% before the
One thought: How about swapping out Covid-19 outbreak. Meanwhile, the
some bonds for gold? future inflation rate implied by relative
In normal times, bonds serve as prices in the Treasury market has been
a hedge against falling stock prices, steadily creeping up.
because they tend to rise in value when Gold can be a useful hedge against
equities slump in an economic down- equity risk at times like this, according
turn. But this relationship starts to break down when to Goldman Sachs Group Inc. History shows that gold out-
government bond yields stay down for long periods— performed stocks by a big margin when inflation went
especially when they’re low as a result of central above its long-term trend. Gold is experiencing a record-
bank policy. breaking rally, with futures prices briefly touching $2,000

$7t
Moreover, we may be an ounce on July 31. In the Covid-19 era of easy money
on the brink of an infla- and low interest rates, Goldman estimates the price could
tionary period, which rise even to $3,000. All it would take, the bank says, is for
would be bad for both inflation to hit 4.5%, or stay at a lower rate, such as 3.5%,
stocks and bonds. The for a sustained period. We’ve grown so accustomed to
Federal Reserve has been stability in the cost of living that any uptick would send
● PUMPING CASH
flooding the financial sys- traders scrambling for gold’s protection.
The Fed’s balance sheet has grown tem with cash: In just three The 60/40 formula was conceived when bonds and
ILLUSTRATION BY GEORGE WYLESOL

substantially, from $4.2 trillion in

early March, as it buys all kinds of
months, assets held by stocks were still free markets’ agents. But now that the
debt to support the economy. the Fed ballooned by two- Fed is buying up everything from mortgage-backed secu-
● INFLATION FEARS
thirds, to almost $7 trillion, rities to recently downgraded corporate debt, bonds
Investors and consumers are from $4.2 trillion in early have lost their usefulness as a hedge against stocks. A lit-
growing more concerned about
inflation, according to market
March. Both monetary tle gold might fill the gap. <BW> �Ren is a columnist for
indicators and surveys. and fiscal stimulus have Bloomberg Opinion
 Virtual Briefing

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Founding Director, Global Health
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Chief Scientist
World Health Organization
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