https://www.nytimes.com/2018/03/19/business/dealbook/facebook-cambridge-analytica.html
The Latest Test to Zuckerberg’s Leadership: DealBook Briefing
MARCH 19, 2018
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Good Monday. Here’s what we’re watching:
• Facebook’s stock slides as lawmakers want answers on the latest controversy.
• The trial for the Justice Department’s lawsuit over AT&T’s deal for Time Warner starts this morning.
• Mark Zuckerberg is on the hot seat following the Cambridge Analytica revelations.
• Congress is racing to complete its spending bill.
• U.S. companies warn President Trump about sweeping tariffs.
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The latest test to Zuckerberg’s leadership.
Is Mark Zuckerberg’s unusually powerful position at Facebook in part to blame for the latest backlash against the company?
The giant social media company is
under the spotlight because a political data firm apparently misused information about more than 50 million Facebook users. Facebook is still facing questions about Russia-linked accounts that had significant reach within the United States through the social network. In both cases, Facebook has struggled to show the public that it can get in front of its problems. Information about the Russia-linked accounts
came out piecemeal, and Facebook
knew as early as 2015 that the political data firm had violated its data policies.
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Mr. Zuckerberg at first
downplayed concerns about Facebook’s role in the 2016 presidential election (something he later said he regretted). His recent communications contain more
high-minded deliberation than hard discussion of the company’s problems and how to deal with them.
These look like the reactions of a leader who thinks he is not going anywhere. Indeed, through his holding of special voting shares, Mr. Zuckerberg has an especially powerful position at Facebook that might shield him from the normal forces of accountability. C.E.O.s without that protection might do more to tackle a big problem because it more directly threatens their job security.
Facebook, of course, has taken steps to address the abuse of its network. It has added hundreds of new employees to help police posts, and it has implemented artificial intelligence technology to spot material that falls afoul of the company’s guidelines. Such initiatives cost money. Mr. Zuckerberg earlier this year said that such initiatives would have a significant impact on Facebook’s profitability. Indeed, there’s a strong argument to make that Mr. Zuckerberg’s protected position will allow the company to press ahead with expensive investments in the face of any shareholder grumbling that may arise.
In the near term, though, it’s hard to envision shareholders applying significant pressure on Facebook to be more responsive to the political and legal risks. They may believe Facebook’s extraordinary profitability – its operating profits are roughly equivalent to 40 percent of its profits – will help the stock ride what they see as a passing storm.
If governments propose restrictions on using members’ data, Facebook’s business model would be tested. The company’s board, in theory, should press Mr. Zuckerberg for details on how he will deal with such shackles. But prominent board members like
Marc L. Andreessen and
Peter A. Thiel are skeptical of regulation. Facebook might be tempted to fight back.
Lawmakers may hold the line, however, sensing that the public has real concerns about the company. And if Facebook’s responses look tardy and inadequate, the consequences could be harsh, as the fate of Wells Fargo
shows. Mr. Zuckerberg, in his uniquely dominant position, is the one person who can make sure this doesn’t happen.
— Peter Eavis
Facebook’s woes are dragging down tech stocks.
Facebook’s drubbing has gotten worse as the American trading session has progressed.
After opening the day down more than 4 percent, the selloff steepened driving shares of the social media giant down roughly 8 percent before noon.
The slide wiped about $30 billion off of Facebook’s market value. The stock is now down more than 12 percent from its all-time high hit at the start of February.
“We think this episode is another indication of systemic problems at Facebook,”
said Brian Wieser, an analyst at New York-based brokerage Pivotal Research Group.
Facebook’s woes showed signs of spreading, too.
The S.&P. 500 tech sector is the worst performing of the index’s 11 sectors.
Shares of Google-parent Alphabet are down about 4 percent at midday. Amazon.com’s losses are hovering around 2.8 percent and Apple is down nearly 2 percent not long before 12 p.m.
Given the outsized role the tech sector has played in the aging bull market, its declines Monday are dragging down the broader stock indexes.
The Dow Jones industrial average is down more than 400 points, or 1.7 percent, while the S.&P. 500, is off nearly 50 points, or 1.8 percent.
— Matt Phillips
Lawmakers want answers on Facebook’s latest controversy
Lawmakers in the U.S. and Britain
want Mark Zuckerberg to explain how Cambridge Analytica, the political data firm founded by Steve Bannon and Robert Mercer, harvested private information from over 50 million user profiles.
“It’s clear these platforms can’t police themselves,” tweeted Senator
Amy Klobuchar, a Democratic member of the Senate Judiciary Committee.
What happened: The NYT and
The Observer of London reported how Cambridge had collected data from an outside researcher to better target Facebook users. Christopher Wylie, who oversaw Cambridge’s data collection until 2014, told the NYT of his former company, “For them, this is a war, and it’s all fair.”
Facebook argued that the incident wasn’t a data breach and that Cambridge had committed a violation. But former Federal Trade Commission officials told the WaPo that Facebook
may have violated a privacy pact reached with the regulator. (The tech giant is reviewing whether one of its employees
had been aware of the data leak.)
More on Cambridge Analytica: Alexander Nix, the company’s chief, is facing scrutiny over
business dealings with Russian interests. Mr. Wylie said that one Russian company, the oil giant Lukoil, appeared more interested in political message targeting than commercial uses. And Cambridge is
reportedly trying to block the airing of a report by Channel 4, a British television channel, in which reporters went undercover at the firm.
Critic’s corner
Jeffrey Goldfarb of Breakingviews writes:
“Facebook has abjectly failed to grasp the magnitude of its problems. It took Zuckerberg almost a year to apologize for his blithe 2016 comment that fake news posted across his website didn’t influence the U.S. election. In the meantime, there are mounting concerns over its online advertising power, handling of privacy matters and how much tax it pays in Europe. Ten years ago, Zuckerberg hired Sheryl Sandberg to help turn his startup into a serious corporation. It may be time for more adult supervision.”
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Michael W. Ferro Jr. stepped down as chairman of the newspaper publisher Tronc after a period of intense scrutiny that included newsroom unrest at The Los Angeles Times. Credit David Paul Morris/Bloomberg
Michael Ferro has stepped down as chairman of Tronc.
The newspaper publisher announced Monday that Michael W. Ferro Jr., a Chicago entrepreneur and its biggest shareholder, has stepped down as the company’s chairman. The move came just weeks after Mr. Ferro helped
negotiate the sale of Tronc’s crown jewel, The Los Angeles Times.
Justin Dearborn, the company’s chief executive, will replace Mr. Ferro as chairman.
“I am confident that under the leadership of Justin and the rest of the board and management team Tronc will continue to deliver value for investors while executing the plan for digital transformation,” Mr. Ferro said in a statement.
Mr. Ferro will remain an investor in Tronc. But his decision to step down as chairman follows a period of intense public scrutiny.
— Sydney Ember
The LTSE takes a step to make companies think about the long term.
The Long-Term Stock Exchange hoping to popularize long-term thinking as a corporate governance strategy has taken another step toward making its goal a reality.
The start-up disclosed today that it has filed with the Securities and Exchange Commission to let it apply its listing rules to the IEX, the stock exchange famous for wanting to tamp down on high-frequency trading.
The filing — which will commence the public part of the S.E.C.’s rule-making process on the matter — advances
the LTSE’s aim of enshrining what it believes are best practices in running companies into corporate charters.
If the S.E.C approves the rule, it means that companies can go public using the LTSE principles, but also have their stocks trade on traditional exchanges like the N.Y.S.E. and the Nasdaq like any other listing. That means these companies can get the liquidity they need along with the corporate governance structure that they want, according to the LTSE’s founder, Eric Ries.
It also formalizes
a tie-up between LTSE and IEX, the exchange best known as the subject of Michael Lewis’s “Flash Boys.”
What the principles include
• Letting so-called “citizens,” or investors who plan on sticking with companies for the long term, eventually accumulate more voting power over the years than “tourists” who plan on sticking around for a shorter time.
• Blocking the use of certain kinds of compensation, including short-term bonuses paid to executives based on metrics like reaching a certain milestone for end-of-year earnings
• Banning short-term guidance
• Having long-term investors register their holdings with the company. “The company will know effectively in real time who their long-term investors are,” Mr. Ries said.
• Reporting requirements that include disclosing earnings per share net of buybacks, to provide a more accurate way of measuring how a company is doing without factoring in financial engineering.
The context
• Mr. Ries has spoken of the need to reward long-term investors. “Most of the listing standards are designed to align managers and long-term shareholders,” he told me. “That frees up management to do what’s right.”
• It comes as companies continue to bemoan short-term thinking in the stock markets that has C.E.O.s focused more on meeting a quarter’s targets than longer-term goals.
• LTSE’s goal is to eventually become a stock exchange on which companies list their shares. But for now, it wants to be allowed to create a special kind of listing for IEX that lets companies go public under its principles.
• LTSE also plans to promote itself as serving companies first and foremost and to make money more from listing fees and tools and services for its companies, rather than from trading offerings and data aimed at investors.
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The caveat
It’s a long road ahead. Not just for the S.E.C. rule-making process, but also in convincing start-ups to adopt these rules when they go public.
“What we have promised our venture investors is not that this is going to instantly transform the market overnight,” Mr. Ries said.
— Michael de la Merced
Photo
Credit Win Mcnamee/Getty Images
It’s budget time, and Congress is preparing to spend
Friday is the deadline for lawmakers to pass a budget, and they are considering a plan that would
cost more than $1 trillion. Expect the deficit to widen to more than $800 billion, as well as a lot of pet projects.
The proposal will probably garner Democratic support, but opposition could come from: a)
fiscal conservatives, and b) President Trump (if it includes funding for a New York tunnel project).
In related news: How the tax bill could make your credit card payments
more expensive.
Photo
Thomas Donohue, chief executive of the U.S. Chamber of Commerce. Credit Alexandre Meneghini/Agence France-Presse — Getty Images
U.S. companies warn the White House on China tariffs
Forty-five trade groups, including the U.S. Chamber of Commerce, urged President Trump
not to move forward with sweeping tariffs on Chinese goods.
Here’s what
Thomas Donohue, the C.E.O. of the chamber, said:
“The livelihood of America’s consumers, businesses, farmers, and ranchers are at risk if the administration proceeds with this plan.”
Elsewhere in trade: Mr. Trump is requesting authority to
unilaterally raise tariffs, power that could undermine the World Trade Organization. And Latin American countries are forging
closer commercial ties with each other, and with China.
The political flyaround
• President Trump
attacked Robert Mueller’s investigation, using the special counsel’s name in his tweets for the first time and drawing
rebukes from some Republican lawmakers. Despite one Trump lawyer’s call for an
end to the special counsel’s investigation, another says
that there is no plan to fire Mr. Mueller.
• The special counsel is looking into the Trump Organization’s finances. What’s the connection to Russia? (
NYT)
• Mr. Mueller’s case against Paul Manafort includes evidence from hard-to-crack jurisdictions like Cyprus and St. Vincent and the Grenadines. (
WSJ)
• Attorney General Jeff Sessions
fired Andrew McCabe, the F.B.I.’s deputy director. Several Democratic lawmakers
offered to hire Mr. McCabe to help him qualify for his government pension. Mr. McCabe says he
kept memos on Mr. Trump.
• Senior Trump administration officials were
asked to sign nondisclosure agreements about their time in the White House that would extend past Mr. Trump’s tenure.
• Kushner Companies filed false paperwork with New York City to improperly remove tenants in Queens. (
A.P.)
• Keep track of who has left the Trump administration. (
NYT)
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President Trump with Crown Prince Mohammed bin Salman of Saudi Arabia last year. Credit Stephen Crowley/The New York Times
What does the Saudi crown prince want from his U.S. tour?
Crown Prince Mohammed bin Salman will meet with the Trump administration and tour several cities this week. Here are a few things most likely on his agenda:
•
Shoring up military and political support for its bombing in Yemen, despite American lawmakers’ concerns about the U.S. role.
• Persuading American businesses to
invest in Saudi Arabia as part of his Vision 2030 plan. The crown prince will meet with
Apple and Google, among other companies. Also of interest: In
an interview on “60 Minutes,” he said that women were “absolutely” equal to men.
Elsewhere in the Middle East: How Saudi Arabia is building a
homegrown entertainment industry. The head of the broadcast conglomerate MBC
touted his company’s expanding ties to the kingdom — after he was freed from detention. And here’s the fascinating tale of Qatari royalty
who were kidnapped while on a falconry hunt.
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Your Spotify must-read
Bill Gurley of Benchmark asked in
a tweet storm whether the streaming giant was better off pursuing profitability instead of growth. Mr. Gurley argues no — and points out that the company is now more valuable takeover bait.
Photo
Paul Jacobs, Qualcomm’s former chairman Credit Ruben Sprich/Reuters
How realistic is Paul Jacobs’s quest to buy Qualcomm?
The son of the company’s founder wants to
take the chip maker private, à la Michael Dell and his eponymous computer empire. But it would be a herculean task. Consider:
• Mr. Jacobs would probably have to pay more than the $117 billion that Broadcom offered.
• He only owns about 1 percent of the company. Mr. Dell owned 14 percent of his.
• He would have to bring in significant equity partners, since there is no way he could finance a takeover with debt alone. But it’s not clear where they might come from (SoftBank has shown little interest so far) and whether any foreign backers could pass a national security review.
Critics’ corner: Shira Ovide of Gadfly writes, “It’s unwise for the company’s former C.E.O. to chase after a dream that can’t possibly come true.” And
John Foley of Breakingviews asserts that Qualcomm’s biggest issue is mending fences with Apple.
Elsewhere in deals: Newell Brands
revamped its board to settle a fight with Carl Icahn. HNA plans to
sell $2.2 billion worth of property across China. CACI has
bid $7.2 billion for the tech services contractor CSRA to try to spoil CSRA’s impending sale to General Dynamics.
Photo
Masayoshi Son, the founder of Softbank. Credit Toru Hanai/Reuters
The tech flyaround
• SoftBank is considering taking ARM Holdings public again, though it’s not clear when. (
FT)
• Dropbox has reached a new low for corporate governance, John Plender of the FT writes. (
FT)
• Bitcoin is at $8,353 after
another wild weekend. And Mastercard says it would be “
very happy to look at” digital money issued by central banks. And Twitter will
ban many virtual currency ads.
• Ola, the Indian ride-hailing company, is expanding in Australia and challenging Uber there. (
NYT)
• Foreign smugglers are trying to ship advanced American military technologies to China, Russia and other adversaries at rates that outpace the Cold War. (
NYT)
• FedEx has found that while robots may take your role, they might not take your job. (
NYT)
• Apple is designing and producing its own device displays for the first time, unnamed sources said. (
Bloomberg)
• Google wants a cut of the purchases made through user searches. (
Reuters)
• Pricing ever-more-popular cybersecurity insurance is difficult. (
FT)
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The billionaire investor Steven A. Cohen in 2016. Credit Coley Brown for The New York Times
Point72’s president quits amid gender bias accusations
Douglas D. Haynes, who was named as a defendant in a suit that accuses
Point72 Asset Management of underpaying women and fostering a hostile work environment, resigned on Friday, the NYT reported. Two sources said the move wasn’t related to the litigation, but it still creates another headache for Steven Cohen’s investment firm as it prepares to become a full-fledged hedge fund.
The misconduct flyaround
• A lawyer for Steve Wynn reported a woman to the F.B.I. after she threatened to go public with allegations of the casino mogul’s misconduct toward her. (
WSJ)
• An Alaska Airlines pilot sued the company, alleging she was drugged and raped by another pilot during a layover last year. (
NYT)
• James Levine, former music director at the Metropolitan Opera, is suing the company after he was fired following an internal inquiry that said it had found evidence of sexual misconduct. (
NYT)
• Few law firms are choosing to include partners in their gender pay gap reporting in Britain, a move that would likely widen the pay gap significantly. (
FT)
Revolving door
• Alex Wilmot-Sitwell, the head of Bank of America Merrill Lynch’s European operations, has left amid frustration with Brexit. (
FT)
• Ann Gronowski, a professor of pathology at the Washington University School of Medicine, has resigned from Theranos’s board. (
FT)
The speed read
• The activist investor Edward Bramson has acquired just over 5 percent of Barclays, increasing pressure on the British bank to turn around its performance. (
FT)
• Hillhouse Capital Management is raising a fund that could be the largest ever devoted to the China region, surpassing the $9.3 billion raised by K.K.R. last year. (
FT)
• BBL Commodities, one of the biggest energy-focused hedge funds, is looking to raise $1 billion for a new fund that will wager on macroeconomic trends. (
WSJ)
• China plans to name Yi Gang, an American-educated economist, to lead
its central bank in a move signaling that Beijing will continue an ambitious — and, some say, much needed — financial shake-up to get the country’s debt under control and keep its economy growing. China’s president also handed the reins of the country’s financial system to
a close ally, Liu He.
• Blackstone guaranteed Stephen Schwarzman new rewards for his contribution to the firm as a founder when he chooses to retire — and even after his death. (
WSJ)
• Christian Bittar, once a star banker for Deutsche Bank, pleaded guilty to conspiring to rig the interest-rate benchmark known as Euribor. (
Bloomberg)
• An influential committee of lawmakers in Britain says the country should seek to postpone its exit from the European Union if talks drag on. (
NYT)
