Berkshire bucks the trend
Tomorrow is Berkshire Hathaway’s annual shareholder meeting, the gathering known as “Woodstock for capitalists.” Like last year, the company is bowing to the times by holding the meeting virtually. But another aspect of the discussion may show that Warren Buffett is increasingly out of step with the times, DealBook’s Michael de la Merced reports.
Investors are pressing Berkshire to disclose more about climate change and work-force diversity. Shareholders, including the Calpers public pension fund, argue that Buffett’s conglomerate isn’t doing enough to disclose its portfolio companies’ progress in addressing those issues. Buffett opposed these initiatives ahead of the meeting, arguing that they cut against Berkshire’s philosophy of letting its subsidiaries operate largely independently. “I don’t believe in imposing my political opinions on the activities of our businesses,” he said at Berkshire’s 2018 annual meeting.
Buffett is expected to get his way, for now. He controls over a third of Berkshire’s voting power and holds sway over faithful retail investors, virtually guaranteeing that the proposals will fail to pass.
Simiso Nzima, the head of corporate governance at Calpers, points out that the S.E.C. appears inclined to force more disclosure on climate change risks anyway.
The big question is whether this will tarnish Berkshire’s golden reputation. Corporate America is increasingly heeding investor demands — including from BlackRock, a major Berkshire shareholder — to do more to fight climate change and racial inequity. Berkshire does not dispute the importance of climate change and diversity, but Buffett’s pushback here risks denting his standing as perhaps the world’s most admired investor. “I don’t think at the moment there’s been a slip in the gold standard,” said Lawrence Cunningham, a professor at George Washington University and a Berkshire shareholder, “but if it’s not tended to, there might be.”
HERE’S WHAT’S HAPPENING
Big Tech finishes earnings season on a strong note. Amazon’s first-quarter earnings more than tripled — yes, tripled — to $8 billion, surpassing expectations. As our colleague Shira Ovide writes, the quarter showed that tech giants are “unquestioned winners of the pandemic economy.”
Europe’s antitrust chief accuses Apple of unfairly squeezing Spotify. Margrethe Vestager announced today that an E.U. investigation found that the iPhone maker abused its control over its App Store to charge its music-streaming rival more in fees.
A big day in New York City: July 1. Mayor Bill de Blasio said the city would fully reopen by that day. But officials concede that tourism won’t fully return to prepandemic levels for years, and employers have been largely targeting the fall for bringing workers back to offices.
The head of the Credit Suisse board’s risk committee steps down. Andreas Gottschling won’t stand for re-election. He is the latest official at the Swiss bank to exit following scandals at Greensill and Archegos.
Good and bad news for AstraZeneca. The drug maker beat expectations for earnings and sales growth, but it is struggling to compile the data requested by U.S. officials to have its Covid-19 vaccine approved by the F.D.A., The Wall Street Journal reported.
Ari Emanuel’s I.P.O. second act
Endeavor, the entertainment conglomerate run by the Hollywood mogul Ari Emanuel, pulled its I.P.O. at the last minute in 2019 amid lukewarm interest from investors. Although the pandemic hurt its live events business as well as its talent representation division, yesterday Endeavor made its market debut, closing the day with a market cap of more than $10 billion. Emanuel spoke with DealBook about what changed — and what comes next.
On why the I.P.O. went ahead this time
“There was confusion with regard to the U.F.C., so we cleaned that up,” Emanuel said about the mixed-martial arts league that Endeavor is acquiring full control of with proceeds from the offering. Debt was also a worry before, and leverage will be reduced with help from a $1.7 billion private placement, with Third Point and Elliot Management among the investors.
Endeavor also used the pandemic period to restructure and consolidate, shifting further away from its talent agency roots. Endeavor’s businesses will help feed a demand for content and events after the pandemic, he said: “We’re the story about coming out.”
On Endeavor’s role in the streaming wars
“We’re platform agnostic, and we serve all parties,” Emanuel said. The broadcasters are spending “huge” amounts to build out their streaming platforms. “I don’t have to do that,” Emanuel said. “I just have to supply it.”
On how he met Elon Musk, who is joining Endeavor’s board
“I definitely cold called. That’s kind of in my nature,” Emanuel said. “We’ve represented him in some of his endeavors. And then over time, he and I became friendly.”
“He’s also a great entrepreneur, meaning he knows how hard it is to build and run a company,” he added, noting that they often call each other for advice.
On whether he has any concerns about putting Musk on the board given the Tesla chief’s history with the S.E.C.
Today in Business
“The days of the bullpen, the trading floors — that’s over.”
— Whitley Collins of CBRE on how the pandemic has upended the commercial real estate market, reversing the trend of “more and more dense” office spaces.
A warning on gig workers
Marty Walsh, the labor secretary, said yesterday that “in a lot of cases” gig workers in the U.S. should be classified as employees, not independent contractors. “In some cases they are treated respectfully and in some cases they are not, and I think it has to be consistent across the board,” he told Reuters. Shares of Uber, Lyft, Fiverr and DoorDash fell on the news.
But how much control does Walsh have over how companies classify their employees?
There’s no single law that makes workers employees or contractors. The Labor Department can enforce the Fair Labor Standards Act, which establishes the federal minimum wage and overtime pay. This only applies to employees, and who should fall into that category has been the subject of a long-running debate.
New guidance wouldn’t change the law. But it could change how the Labor Department decides whether to bring lawsuits against gig economy companies. “It’s implicitly a sign to employers that you should comply with this interpretation or there’s a risk of enforcement,” Brian Chen, a staff attorney at the National Employment Law Project, told DealBook. The guidance is nonbinding, but Benjamin Sachs, a professor at Harvard Law School, said courts “tend to give it deference” when making decisions. “I wouldn’t be surprised if we saw specific action coming from the department sometime this year,” said William Gould, a Stanford law professor and the former chairman of the National Labor Relations Board.
An unequal recovery
Alisha Haridasani Gupta, a gender reporter for the In Her Words newsletter, explains why promising G.D.P. numbers aren’t the end of the story.
“A boom-like year” is how one economist described what the U.S. economy might look like in 2021. The latest data, published yesterday, showed that G.D.P. grew at a robust 6.4 percent annualized rate in the first quarter.
While the headline numbers may at first glance suggest that America’s economic health is on track for a full recovery, a closer look reveals an economy that is “profoundly unequal across sectors, unbalanced in ways that have enormous long-term implications,” as The Times’s Neil Irwin put it.
Growth has been fueled by consumer spending on goods, while the services sector has yet to recover. Services account for more than 95 percent of the jobs held by women, according to Michael Madowitz, an economist at the Center for American Progress.
“I’m a little worried we’re too confident the service job losses are just going to spring back to life,” Madowitz said. “If nobody closed a business that might be fine, but that seems unlikely.”
Roughly two million women have left the work force since last February. G.D.P. does not account for their lost productivity and earnings, nor for the hours of work at home that women shouldered in the past year, uncompensated.
Weekend reading: The soul of a C.E.O.
Hubert Joly, the former C.E.O. of Best Buy, has written the kind of book he would not have read early in his career, with new-age formulations he might have once found laughable, like “human magic.” But now he sees business as a philosophical quest, and Best Buy’s transformation from a sinking ship to a success proves that putting purpose first is good for profits. Joly spoke to DealBook about “The Heart of Business,” which is out next week.
Why did you write a book?
So much of what I learned in business school is either wrong, dated or incomplete. We urgently need a new philosophy of business and capitalism, a refoundation around purpose and humanity. There’s no going back after the pandemic. We’ve seen each others’ homes and vulnerability. We need to make a declaration of interdependence.
Isn’t pursuing profits the point?
Milton Friedman is on my “most wanted” list. People who oppose stakeholder capitalism are mistaken. We can create better economic outcomes by connecting with employees, customers, communities and the planet. People should refuse zero-sum games. The book is a practical guide for leaders who are eager to abandon the old way.
And it’s also spiritual?
Yes. Because work is fundamental. We should ask ourselves why we work, what drives us. At Best Buy, before the holiday season, we’d gather — even though it’s a very busy time — to talk about what gives people energy, what matters. Magic happens when work is connected to meaning and individual genius, to the thing that’s good or beautiful in each of us.
How does this “magic” manifest itself?
Two Best Buy employees performed pretend “surgery” on a broken dinosaur toy behind the counter and gave a boy back a new item, saying his baby dino recovered. That had to come from the heart. They could have just sent his mother to the shelf. Leaders need to use their heads and hearts and see and hear employees and give people the freedom to make work meaningful.
THE SPEED READ
Nestlé agreed to buy a majority of the Bountiful Company, a maker of vitamins owned by KKR, for $5.8 billion. (CNBC)
Shares in Darktrace, the British cybersecurity company, climbed after its I.P.O. was priced at a valuation of 1.7 billion pounds ($2.4 billion), below the reported target of $4 billion. (Reuters)
Politics and policy
The Senate approved a $35 billion bill to clean up the nation’s water systems, but further compromise on infrastructure spending looks unlikely. (NYT)
Apple and Samsung were the latest companies to report problems making products because of a shortage of computer chips. (WaPo)
How Google plans to revamp its offices for the postpandemic era: Goodbye, sit-down cafeterias; hello, outdoor meeting spaces. (NYT)
Best of the rest
The fight over control of Apollo Global Management has reportedly sidelined another co-founder, Josh Harris. (Bloomberg)
Vaccination passports could help countries reopen their borders more quickly — if they can agree on a common standard. (FT)
She rose to fame through the “Disaster Girl” meme. Then she made $500,000 by turning it into an NFT. (NYT)
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