---> We could see some news in Healthcare sector thisq week
Bill Ackman’s Friend Inside Harvard’s Board
Tracy Palandjian, founder and CEO of Social Finance, was until recently a director at the billionaire’s investment fund
Billionaire hedge-fund manager Bill Ackman spent months publicly pressuring Harvard to cut ties with its embattled president, Claudine Gay. Meanwhile, a friend of his on Harvard’s governing board was among a small group pushing for change.
Tracy Palandjian is a member of the Harvard Corporation, the insular 12-person group with broad authority to manage the university. Though the group stood by Gay—it accepted her resignation last Tuesday “with sorrow”—Palandjian is one of a handful of its members who had privately questioned whether she could continue as president, people familiar with the matter said. Others who lost faith in her leadership included private-equity executive Paul Finnegan and investor Timothy Barakett.
An alumnus of Harvard’s economics program and its business school, Palandjian, 52 years old, is co-founder and CEO of Social Finance, a nonprofit that raises money from investors for projects meant to reduce government spending. Until last month, she also sat on the board of Pershing Square Holdings, the publicly traded arm of Ackman’s investment firm.
The two met years ago through Harvard’s alumni network. Palandjian launched Social Finance in 2011, modeling it on a similar business her co-founders had built in the U.K. Ackman’s charitable foundation was one of its earliest backers, contributing $1.5 million soon after it launched. His foundation has given millions more in the years since.
After the New York Times reported in late December that Palandjian told a group of academics replacing Gay might not go far enough to get the university back on track, Ackman tweeted a link to the article.
“Now that’s the Tracy Palandjian I know,” he said.
Palandjian joined the board of Ackman’s publicly traded investment fund, known for taking stakes in companies including Chipotle and Hilton, in 2021.
She was added to the Harvard Corporation in April 2022, after serving on the board of overseers—Harvard’s other, larger governing board—from 2012 to 2018. She was also part of the search committees that selected former Harvard President Lawrence Bacow in 2018 and Gay in 2022.
Ackman, a fellow Harvard alum, made his name as an activist investor before morphing into a social crusader in recent years, mainly through lengthy diatribes posted on his X account. He began zeroing in on Gay’s handling of antisemitism on campus soon after the Oct. 7 attack on Israel and sent a handful of open letters that became increasingly critical of her leadership when she was accused of plagiarism.
Ackman called Palandjian a handful of times to rant during his quest to get Gay removed. He tweeted in early December one of his “friends” on the Harvard board had ghosted him and the two haven’t spoken about Harvard since early November, people familiar with the matter said.
While it isn’t unusual for members of the corporation to be in contact with other alumni and stakeholders, critics have accused Harvard of appeasing wealthy donors like Ackman.
On Dec. 13, Pershing Square said Palandjian decided to retire from its board, effective Jan. 1, due to increased demands of her work and other board positions, which include the publicly traded asset-management investment firm AMG. Her departure was also to avoid conflicts as Ackman amped up pressure on Gay to resign, people familiar with the matter said.
People who have worked closely with Palandjian say she is an expert networker who is politically adept in the boardroom, soliciting a range of opinions before making her own known.
“She stays in a safe place until she understands where the chips are going to fall,” one of the people said. “She doesn’t want to be on the losing side of any discussion.”
Another person said she tries to hear everyone out to best steer the group.
Palandjian was raised in Hong Kong and came to the U.S. as a teenager.
While an undergraduate at Harvard, she met her future husband, Leon Palandjian, a doctor who worked and invested in life sciences before becoming chief risk officer of his family’s company, Intercontinental Real Estate Corp. His brother Peter, a former professional tennis player who is married to actress Eliza Dushku, is CEO of the $14 billion real-estate conglomerate.
Tracy Palandjian completed a stint at consultant giant McKinsey & Co. before receiving an MBA from Harvard Business School and working at asset manager Wellington Management. She worked for over a decade at the Parthenon Group, a consulting firm that is now part of EY.
With the help of two fellow Harvard Business School alumni, she launched Social Finance, which raises money from investors for social programs, aiming to improve efficiency in government spending. If the programs are deemed successful, governments pay the investors back, with a profit. Former Massachusetts Gov. Deval Patrick, now a Harvard professor, is a member of its board.
Some of the firm’s work has focused on education, promoting results-based jobs training. In 2022, Social Finance partnered with a $100 million Google fund to help train students for high-tech jobs.
The Palandjians live in a Boston suburb and spend time at a ski condo in the Park City, Utah, area. They have three grown daughters, all of whom have attended Harvard.
Nation’s Top Economists Are Short-Term Happy, Long-Term Glum
At annual gathering, academic economists are surprised and relieved over soft landing, but worry about what comes next
SAN ANTONIO—The good news: the U.S. is headed for growth this year, not recession. The bad news: there is as yet little prospect growth will be any better than before the pandemic.
That, for now, is the consensus of economists speaking at the annual meeting of the discipline’s largest association.
A year earlier, when the American Economic Association met in New Orleans, attendees wrung their hands over their collective failure to spot the rise of inflation before it got out of hand, and assumed it would take higher unemployment and a recession to get it down.
This year, they are grappling with an entirely different question: how did they underestimate the prospects for what increasingly looks like a soft landing—tamed inflation without a recession? On Friday, the Labor Department reported payrolls rose solidly in December and unemployment remained close to a half-century low at 3.7%. Economists polled by Dow Jones Newswires expect the Labor Department to report on Thursday that consumer prices rose 3.3% in December from a year earlier.
“In early 2023, the U.S. economy was in a very different place than it is now,” said Janice Eberly, an economist at Northwestern University.
Since then, much of the damage left by the pandemic has healed: Immigration and labor-force participation, especially among workers ages 25-54, has rebounded, allowing employers to keep hiring and wage growth to cool. Snarled supply chains have mostly normalized, according to an index maintained by the Federal Reserve Bank of New York.
“We didn’t really understand why inflation spiked in the first place. So maybe we shouldn’t be surprised that it came down faster than we thought, too,” James Hines, economist at the University of Michigan, said.
Hines noted the U.S. recovery has been stronger than in other developed countries, which he attributed to the U.S. providing the lion’s share of its pandemic emergency support to individuals rather than firms. He said that kept consumers relatively stable while leaving room for new businesses to emerge and old ones to fail.
Still, some participants were reluctant to declare a soft landing a done deal, noting that by the broadest measures inflation still isn’t back to the Federal Reserve’s 2% target. That leaves open the possibility of it raising interest rates further, or not cutting them as much as hoped. Investors expect the Fed to start cutting interest rates in March, by a cumulative 1.5 percentage points this year, double what Fed officials projected in December.
“We’ve made a lot of progress towards a more sustainable path for the economy,” said Lorie Logan, president of the Dallas Federal Reserve. But “inflation could pick back up and reverse the progress we’ve made.”
Logan noted financial conditions have loosened since October, in the form of falling bond yields and rising stock prices, in response to softer economic data and comments from the Fed, developments that could bolster demand and inflation pressure. “We can’t count on sustaining price stability if we don’t maintain sufficiently restrictive financial conditions.”
Economists were less optimistic about the long term than the prospects of a soft landing. In a presentation here, Eberly doubted recovering to prepandemic trends will boost long-term growth. That, she said, has to come from sustained boosts to productivity that counteract significant headwinds in the form of an aging population, increased global conflict, and more-fragmented international trade.
She pointed to a surge in hotel and restaurant productivity as the economy reopened, which she anecdotally attributed to practices such as waiters no longer shuttling checks between tables and the cash register and instead bringing a card reader to customers. But changes like that may be just one-off boosts, with productivity growth returning to its sluggish pace afterward.
The top candidates for long-term growth would be artificial intelligence; hybrid work arrangements that keep people, especially early-career women, in the workforce; and sustained higher levels of immigration, she said.
Productivity boosts are difficult to predict but can be long-lasting, said Glenn Hubbard of Columbia University. That makes it even more important that technology potentially as groundbreaking as AI is implemented in a way that complements rather than replaces workers, he said. For instance, federal assistance for workers displaced by trade has in the past stumbled at helping those displaced by labor-saving technology.
Implementation matters for political reasons as much as economic ones. While the benefits of higher productivity are typically diffuse and hard for most beneficiaries to notice, “the losers are concentrated and know who they are,” Hubbard said.
Policymakers also risk reversing some of the productivity gains from globalization and free-trade agreements in recent decades in pursuit of political and national security goals, many economists at the gathering said.
“Most of the things that are going to be helpful are going to come from free markets—lots of trade, lots of investment,” said Hines. “If you inhibit your drivers of growth, what do you think is going to happen?”
Papers presented at sessions about retrenching globalization showed that foreign direct investment patterns have shifted notably in the past few years, with American investors shunning China in favor of its allies, a process called “friend-shoring.” The authors of the papers used United Nations voting records and treaty membership as proxies for aligned countries, and showed how the global investment flows are fragmenting.
In an ominous sign for the effects of degraded trade ties, John Lewis of the Bank of England presented a paper showing that the impact on trade flows from Brexit is as negative as it would have been in a “hard Brexit” scenario, despite the replacement trade agreement reached in late 2021 between the European Union and United Kingdom.
“The outlook over the coming years is negative in terms of global integration,” said Emi Nakamura, a University of California, Berkeley economist, on a separate panel.
CES Is Back and AI Will Take Center Stage. Here’s What Else to Expect From Tech’s Biggest Show.
This coming week, a ridiculous number of people will be in Las Vegas for the annual extravaganza that is CES. First held in 1967, and originally known as the Consumer Electronics Show, the event now covers so many technology segments and products that it’s either the show about nothing or everything, depending on your perspective. Expectations are that the crowd will top 130,000, which would make it the largest CES since Covid-19, and by a wide margin.
In the debut 1967 edition, which was held in New York City, CES featured modern technological marvels like turntables, TVs, and radios. This year, the show will include cars, boats, helicopters, computers, robots, streaming services, digital ad services, televisions, virtual reality headsets, consumer appliances, semiconductors, the Goodyear Blimp, Mark Cuban, Linda Yaccarino, the Wu-Tang Clan, Robert Downey Jr., and AI, AI, and AI. There will be more than 4,000 exhibitors spread across 2.5 million square feet of exhibit space, up 15% from 2023. And that isn’t counting random private meeting spaces in nearby Las Vegas Strip hotels.
I have a love/hate relationship with the show. It’s a fantastic opportunity to meet tech companies new and old, to see inventive but often ridiculous ideas, and to generally get up to speed on trends. It’s also completely exhausting—with meetings from dawn into the wee hours—and a logistical nightmare. There was less to see at CES two years ago, when attendance plunged on Covid fears, but at least you could get a cab.
Over the years, CES has been the launchpad for digital watches, camcorders, DVD players, and Atari Pong. There were also spectacular misses like 3-D TVs and Quibi. This year, the story will be the rapid emergence of artificial intelligence software and hardware.
Here’s a rundown on what to watch for at CES 2024:
Keynotes Galore: You can get a sense of CES’ breadth by looking at the long list of keynote speakers this year. There are a couple of tech stalwarts— Intel CEO Pat Gelsinger on Tuesday and Qualcomm CEO Cristiano Amon on Wednesday. Siemens CEO Roland Busch gets the opening keynote Monday night, a spot once held for 12 straight years by Microsoft founder Bill Gates. Walmart CEO Doug McMillon speaks Tuesday afternoon.
Also on the agenda are some unexpected choices: L’Oréal CEO Nicolas Hieronimus will open proceedings Tuesday morning. He’ll be talking about “beauty tech.” Gail Boudreaux, the CEO of Elevance Health, the health insurer once called Anthem, will give a Tuesday evening address on digital health. Wednesday’s roster includes Kisun Chung, the CEO of HD Hyundai, one of the world’s largest shipbuilders.
But also note who isn’t keynoting CES this year: auto makers. Internet companies. Or any of the Magnificent Seven. This show is a big platform, but if you’re Apple, Amazon, Meta Platforms, Alphabet, Microsoft, Nvidia, or Tesla, you can make news without a glitzy keynote. (Nvidia is holding its own virtual event on Monday, discussing AI PCs, cars, and other topics.)
AI Everything and Everywhere: You don’t need me to tell you that AI will be everywhere at the show. It’s one of four themes laid out this year by the Consumer Technology Association, the trade group that convenes CES, along with mobility, sustainability, and “human security for all.” AI is an amorphous idea for a trade show, but you’ll see evidence of it everywhere, and it all starts with...
...Semiconductors: Intel, Advanced Micro Devices, Arm Holdings, and Qualcomm will all be active at the show, talking about the AI PC, among other topics. Computer hardware makers like HP, Dell, and Lenovo will be there, too.
Both the chip and PC companies have been pushing the potential for “AI at the edge,” the idea that AI software workloads can be handled by laptops and mobile phones—that not everything has to be in the cloud. Synaptics, Silicon Labs, Mobileye, Ambarella, MIPS, On Semiconductor, and Infineon will be there as well, and they’ll all be talking AI.
AI for Cars: Cars, boats, tractors, bikes, trucks, and other wheeled vehicles will fill up the Las Vegas Convention Center’s West Hall—CTA says there will be more than 250 exhibitors in the mobility category, including Mercedes, VinFast, BMW, Honda, Kia, and Volkswagen. (Along with Tesla, General Motors, Stellantis, and Ford are skipping the show this year.)
There will be EVs and autonomous cars and weird personal-transport vehicles. There will also be a host of updates about auto makers’ push for “software defined vehicles.” And that means AI chatbots inside your car.
Expect announcements on automotive AI from Intel, Arm, Nvidia, and others. It’s all part of car makers’ push to add premium services to the in-cabin experience—to make cars an upgradeable platform attached to subscription fees and to wrest back control of the cockpit from Apple and Google.
Handy Tips! If you like big TVs, you should head to the convention center’s Central Hall, where Samsung Electronics, Sony, and TCL Technology will have massive booths. If planes, trains and automobiles are your thing, check out West Hall.
The weird stuff is in Eureka Park, in the Venetian—these are tiny companies with card tables, not giant multimillion-dollar displays.
And did I mention that I’m moderating a panel on AI and content creation? That one is going to be the talk of the show.
First Look at the Gucci Ancora Campaign, Fronted by New Faces
The images, photographed by David Sims, evoke campaigns from the ‘90s, a key decade for creative director Sabato De Sarno.
The Gucci Ancora ad campaign.
MILAN — A roster of marquee ambassadors and celebrities or a group of new faces? Gucci can rely on both.
After unveiling campaigns for specific product categories with the likes of Billie Eilish, Paul Mescal, Xiao Zhan, Kendall Jenner and Bad Bunny, and most recently, with Ni Ni and Chang Chen, the Florentine house unveiled the campaign for Gucci Ancora, the debut collection of creative director Sabato De Sarno.
For the occasion, the designer opted for some of the fresh faces who exclusively walked his first show for the brand last September during Milan Fashion Week. Rather than leverage talents’ popularity and social media influence to generate buzz, De Sarno decided to put product first and continued his mission to chart a new course with five new names, who combined have only about 21,000 followers on Instagram.
Ana Rossolovich, who opened De Sarno’s first show; Fadia Ghaab; Jiahui Zhang; Nyajuok Gatdet, and Violet Hume posed in front of the camera of David Sims in a group or alone, wearing key looks of the Gucci spring 2024 collection. The images evoke fashion campaigns from the ‘90s, a pivotal and formative decade for De Sarno, forging his fashion vision and influencing the current aesthetic he’s bringing to the brand.
The Gucci Ancora ad campaign.
DAVID SIMS/COURTESY OF GUCCI
“Sensuality conceived as an attitude of beauty, freedom and confidence becomes the overarching theme of a collection that extends a personal invitation to every woman — a call to live exactly in their own unique way, to revel in the distinct emotion that only fashion can inspire: ancora,” the company said in a statement.
The Italian term, which translates as “again” in English, has become a mantra for De Sarno over the past six months, appearing on billboards and extending to different projects of the house.
“Ancora is a word that you use when your desire is not over yet, whether it’s a kiss or an embrace, or making love; it’s as if you own something and you want more of it,” De Sarno told WWD at the time of his debut, adding that he wanted to “fall in love with fashion all over again.”
The Gucci Ancora ad campaign.
DAVID SIMS/COURTESY OF GUCCI
He expressed this desire by celebrating heritage elements of Gucci and incorporating them in his pared-back vision and clean and leggy silhouettes. The campaign spotlights the tailored coats, super-short shorts, logo hoodies, body-skimming tanks and knit sets he paraded at the show, as well as embossed pencil skirts, pumps and the iconic Jackie bag rendered in the Rosso Ancora burgundy hue that is becoming a signature.
The Italian term was also reprised to mark De Sarno’s first Ancora Notte eveningwear and menswear line, unveiled at the Gucci-sponsored LACMA Art + Film Gala in November. In addition to a long list of Hollywood stars, talents in the campaign attended the event wearing eveningwear pieces designed by De Sarno, flanked by colleagues including Mariacarla Boscono and Vittoria Ceretti.
The gala marked a return to Los Angeles for De Sarno, who set his first advertising campaign for Gucci at the Chateau Marmont hotel, already tapping Sims to photograph Daria Werbowy in a black bikini bottom and statement Marina Chain gold jewelry.
The Gucci Ancora ad campaign.
DAVID SIMS/COURTESY OF GUCCI
Elon Musk Has Used Illegal Drugs, Worrying Leaders at Tesla and SpaceX
Some executives and board members fear the billionaire’s use of drugs—including LSD, cocaine, ecstasy, mushrooms and ketamine—could harm his companies
Elon Musk and his supporters offer several explanations for his contrarian views, unfiltered speech and provocative antics. They’re an expression of his creativity. Or the result of his mental-health challenges. Or fallout from his stress, or sleep deprivation.
In recent years, some executives and board members at his companies and others close to the billionaire have developed a persistent concern that there is another component driving his behavior: his use of drugs.
And they fear the Tesla TSLA -0.18%decrease; red down pointing triangle and SpaceX chief executive’s drug use could have major consequences not just for his health, but also the six companies and billions in assets he oversees, according to people familiar with Musk and the companies.
The world’s wealthiest person has used LSD, cocaine, ecstasy and psychedelic mushrooms, often at private parties around the world, where attendees sign nondisclosure agreements or give up their phones to enter, according to people who have witnessed his drug use and others with knowledge of it. Musk has previously smoked marijuana in public and has said he has a prescription for the psychedelic-like ketamine.
In 2018, for example, he took multiple tabs of acid at a party he hosted in Los Angeles. The next year he partied on magic mushrooms at an event in Mexico. In 2021, he took ketamine recreationally with his brother, Kimbal Musk, in Miami at a house party during Art Basel. He has taken illegal drugs with current SpaceX and former Tesla board member Steve Jurvetson.
People close to Musk, who is now 52, said his drug use is ongoing, especially his consumption of ketamine, and that they are concerned it could cause a health crisis. Even if it doesn’t, it could damage his businesses.
Illegal drug use would likely be a violation of federal policies that could jeopardize SpaceX’s billions of dollars in government contracts. Musk is intrinsic to the value of his companies, potentially putting at risk around $1 trillion in assets held by investors, tens of thousands of jobs and big parts of the U.S. space program.
SpaceX is the only U.S. company now approved to transport NASA astronauts to and from the International Space Station. The Pentagon, meanwhile, has stepped up purchases of SpaceX rocket launches in recent years, and the company has also been looking to develop a large business selling satellite services to national-security agencies.
One former Tesla director, Linda Johnson Rice, grew so frustrated with Musk’s volatile behavior and her concerns about his drug consumption that she didn’t stand for re-election to the electric-car company’s board in 2019, according to people familiar with the matter.
Musk didn’t respond to requests for comment.
An attorney for Musk, Alex Spiro, said that Musk is “regularly and randomly drug tested at SpaceX and has never failed a test.” Spiro, who said he represents Tesla, added in response to detailed questions that “there are other false facts” in this article but didn’t detail them.
The people around Musk long ago became accustomed to his volatile behavior. Some SpaceX executives who had long worked with him, however, noticed a change at a company event in late 2017.
Hundreds of SpaceX employees gathered around mission control at the rocket company’s headquarters in Hawthorne, Calif., in anticipation of Musk, who was nearly an hour late to arrive at the all-hands meeting about the company’s latest rocket.
When he finally took the stage, Musk was strangely incomprehensible at times. He slurred his words and rambled for around 15 minutes, according to executives in attendance, and referred repeatedly to SpaceX’s Big Falcon Rocket prototype, which was known as BFR, as “Big F—ing Rocket.”
SpaceX President Gwynne Shotwell ultimately stepped in and took over the meeting.
It couldn’t be learned if Musk was under the influence that day. But after the meeting, the SpaceX executives privately talked about their worries Musk was on drugs. One described the event as “nonsensical,” “unhinged” and “cringeworthy.”
Spiro called the description of the SpaceX incident “false as has been confirmed by countless people who were present.” He declined to elaborate on what specifically was false or describe the countless people.
Then in 2018, people familiar with Musk’s behavior said, another incident seemed to mark a turning point for him—and showed that his drug use could have consequences for his businesses. That year, Musk got into trouble with NASA for smoking marijuana on the Joe Rogan show, raising red flags for some about the business impact of Musk’s conduct and causing employees at SpaceX to be randomly tested for drugs.
Worry by board members
In addition to violating federal contracts, any kind of illegal drug use would break company policies at both SpaceX and Tesla, and would raise questions about Musk’s executive role at the publicly traded Tesla, where the board has a duty to shareholders to oversee management.
Some Tesla board members over the years have talked among themselves about their concerns over Musk’s alleged drug use but haven’t said anything formally that would end up as an official board agenda item or in meeting minutes, people familiar with the discussions said. Some directors, including current Tesla board chair Robyn Denholm, have gone to Kimbal Musk, who is a Tesla board member and was a SpaceX board member until early 2022, for help with Musk’s behavior, without using the word “drugs,” the people said.
Some on the board and others close to Musk worried he was on drugs when he tweeted in 2018 about plans to take Tesla private, people familiar with the episode said. Kimbal Musk informally approached Musk about it on behalf of some board members, some of the people said. The tweet brought on an SEC investigation into whether the statement was misleading or false, and resulted in Musk’s agreement to step down as Tesla chairman for a time.
Some close to Musk said they learned he was under the influence during a media interview he gave soon after the tweet when he choked up describing how difficult his year had been.
Part of the issue directors have grappled with over the years is whether drug use by Musk is to blame for his unusual behavior, or if it is something else, such as his consistent lack of sleep, which he has talked about.
Musk oversees six companies, including social-media platform X, formerly Twitter; his tunneling venture, The Boring Co.; his brain implant startup, Neuralink; and a new artificial-intelligence company, xAI. His business life bleeds into his personal time in a way that is uncommon even for other chief executives.
At Tesla and X, he has said he regularly slept at the office. He often emails company lieutenants in the middle of the night, and hosts work meetings at midnight. He said he works almost nonstop. “Vacation is a strong word,” he said in 2022 court testimony. “For me, it is email with a view.”
In a new authorized biography of Musk, author Walter Isaacson described Musk’s “demon mode”: Musk, Isaacson wrote, entered into a state of intense fury and would frequently lash out at employees and executives. In the Isaacson book, Musk is quoted as saying, “I really don’t like doing illegal drugs.”
Musk and others have attributed his erratic office behavior to his mental health. A Twitter user asked in 2017 if he had bipolar disorder, which can cause mood swings, to which Musk replied affirmatively, although he said he was undiagnosed.
Musk also said, when he hosted Saturday Night Live in 2021, that he had Asperger’s, a form of autism.
Drug use has also been a thorny topic for directors at Musk’s companies because some of them are his close friends, and attend parties and travel with him, according to people familiar with the matter and court documents.
Musk has been known to attend parties and events at Burning Man, the Nevada arts and music festival where drugs are widely used, to blow off steam, according to people close to him.
He also throws his own private events, where drug use is common, according to people who have attended the parties.
The executive’s whereabouts are often a closely guarded secret, and he is protected by private security. At his companies, executives and employees often have to sign nondisclosure agreements.
Kimbal Musk frequently attends the same parties and events as his brother, including an Art Basel party in Miami in late 2021 when both took ketamine recreationally, according to people with knowledge of their drug use. Kimbal Musk has talked to friends about the benefits of psychedelics, and tweeted in June in support of his wife when she spoke at the country’s largest psychedelic conference about the benefits of the drugs for mental health treatment.
In 2023, The Wall Street Journal reported that Elon Musk microdoses ketamine for depression and also takes full doses at parties. Following publication of the article, Musk tweeted that ketamine is a better way to deal with depression compared with more widely prescribed antidepressants that are “zombifying” people.
In a separate tweet, Musk later said that he had a prescription for ketamine. The psychedelic-like drug can be prescribed “off label” for depression and post-traumatic stress disorder, and it is also a widely used party drug that can be purchased illegally through dealers.
Government contracts
As a general rule, board members and executives have long struggled with how to deal with substance abuse at their companies.
Some directors have wondered whether it is their role to police drug use outside the office, saying what executives do in their personal lives—especially with drugs that may be legal in certain instances or states—may not impact their business decisions.
At most companies, board members aren’t required to investigate an executive for drug use, but they often do take action if they believe it is impacting the business.
That can include encouraging a leave of absence for treatment or opening an investigation, corporate governance experts say. Drug use is a more challenging issue than other substance problems, such as alcohol, because possessing certain drugs, such as cocaine, can bring felony charges.
In 2020, former Zappos chief executive Tony Hsieh’s abuse of ketamine ultimately caused executives at the shoe company’s parent, Amazon, to step in, according to people familiar with those events.
Amazon executives gave Hsieh a couple of months to clean up his act, and when he wasn’t able to do so, he resigned. Hsieh was trapped in a house fire while under the influence in late 2020 and later died from his injuries.
Tesla’s code of conduct described the electric-vehicle maker as a drug-free workplace and prohibits all employees, including executives, from using them, even out of the office.
Illegal drug use by employees is also in violation of the rules that govern the more than $14 billion in contracts that Musk’s private rocket company, SpaceX, has with the U.S. government for civilian and military space missions.
Federal contracts require that companies comply with the Drug-Free Workplace Act and foster a drug-free culture with programs and policies, regardless of any state laws that may legalize some usage. Contractors can also lose security clearances because of drug abuse, defined as the use of illegal drugs or prescription medications “in a manner that deviates from approved medical direction.”
In his role as CEO and founder of SpaceX, Musk has a security clearance that gives him access to classified information.
Investors have often turned a blind eye to concerns about Musk, including his drug use, especially when Tesla is doing well, investors and people close to the board said. And in recent years, Tesla and SpaceX have both performed exceptionally. Tesla stock is up around 1,000% in the past five years, despite declines in 2022, compared with the S&P 500’s increase of around 86% in that time period. Revenue at SpaceX also has soared.
Tweet firestorm
In the summer of 2018, some people around the billionaire began getting concerned that he was losing control.
Several months after the all-hands meeting at SpaceX, Musk tweeted in August that he planned to take Tesla private at $420 a share—“420” is slang for smoking marijuana—and that he had “funding secured.”
The now-infamous tweet set off a firestorm among investors, who scrambled to understand the billionaire’s plans for the electric-car maker. Tesla shares increased more than 6% the day of the tweet. The SEC launched an investigation that resulted in a settlement that included fines of $40 million and Tesla adding two independent board members and overseeing the CEO’s communications. Musk didn’t admit or deny wrongdoing.
Board members told regulators they didn’t know about Musk’s plans and were taken aback by his actions. Privately some on the board became concerned that Musk was on drugs when tweeting, and some directors briefly discussed among themselves the idea of him taking a leave of absence from Tesla, people familiar with the discussions said.
In an interview with the New York Times soon after, Musk choked up multiple times as he described the intense personal toll of leading Tesla, saying, “This past year has been the most difficult and painful year of my career.”
Behind the scenes, things were much more dire: Musk had been under the influence as he answered the reporters’ questions, according to people briefed on the episode. The CEO hadn’t informed Tesla’s communications team that he was giving the interview, people familiar with the episode said.
Soon after, Musk smoked marijuana on the comedian Rogan’s show, which can be streamed online. NASA demanded written assurances that SpaceX was complying with the federal drug-free workplace law and spent $5 million in taxpayer dollars on training for SpaceX employees, according to a letter NASA sent to the company and federal contracting records.
Musk has said the agency required drug testing at SpaceX for a year.
Corporate contractors must follow standard NASA guidelines for drug tests that usually check for marijuana and cocaine and have the ability to also test for amphetamines, opiates and PCP.
Spiro didn’t respond to a question on what type of drug tests Musk has taken.
At SpaceX and some of Musk’s other companies, including the tunnel venture Boring Co., executives began warning employees to follow company rules at all times, including to not use illegal drugs, even out of the office, according to people familiar with the warnings.
SpaceX brought in drug-sniffing dogs on a random basis to make sure employees weren’t carrying illegal substances, according to the people.
At Tesla, Denholm, the current board chair, James Murdoch and other directors sometimes gathered around Kimbal Musk informally during board breaks or after meetings to ask how Elon Musk was doing or if he was getting enough sleep, people familiar with the conversations said. While the directors wouldn’t specifically ask about substance abuse, the people said they understood the questions to be about Elon Musk’s perceived drug use.
Rice, the director who didn’t stand for re-election in 2019, raised concerns about his drug consumption more than once in side conversations with board members about Musk’s increasingly erratic behavior during her two year tenure on the board, according to people familiar with her concerns. She informally asked whether the board should investigate and was brushed off, one of the people said.
The Stock Rally Has Stalled. Now Comes Earnings Season
Wall Street expects S&P 500 companies to report second straight quarter of earnings growth
After a recent pullback in stocks, investors are looking to the coming earnings season for clarity on companies’ growth prospects.
U.S. stocks defied expectations to rally in 2023 but have struggled to extend gains into the new year. The S&P 500 shed 1.5% in the first week of January. Tech stocks, which led the market last year, have stumbled, with Apple and Microsoft falling 5.9% and 2.2%, respectively, in the past week.
For many investors, quarterly results and commentary from executives will help signal if the recent stock-market declines are warranted or whether companies’ profits are strong enough to renew the rally.
“This is a very interesting and important earnings season to get confirmation on fundamental trends,” said Raheel Siddiqui, senior investment strategist at Neuberger Berman.
Analysts expect companies in the S&P 500 to report a second straight quarter of earnings growth. Profits for the fourth quarter are projected to have risen 1.3% from the same period a year earlier, according to FactSet.
That is down from the 8% profit growth analysts had projected at the end of September. For all of 2023, Wall Street now expects earnings grew 0.8% from 2022.
In the week ahead, investors will get results from some of the country’s biggest banks, including JPMorgan Chase and Bank of America, as well as Delta Air Lines and UnitedHealth Group. They will also get fresh inflation data likely to influence the Federal Reserve’s plans on interest rates.
Much of the optimism that propelled stocks’ furious ascent in the final weeks of 2023 rested on data suggesting the economy has slowed enough for inflation to ease but not enough to fall into a recession. That “soft landing” scenario would allow the Fed to shift to cutting interest rates.
Friday’s monthly jobs report showed hiring picked up in December, but job gains for previous months were revised downward. Average hourly earnings ticked up more than expected. The mix of data did little to clarify when the Fed might start lowering rates.
Investors will closely watch what corporate leaders say about their outlook for the economy, especially executives at the country’s biggest banks.
“The big question is, can the economy orchestrate a soft landing?” said Stephanie Lang, chief investment officer at Homrich Berg.
Strong consumer spending helped buoy the economy in 2023, even as the Fed pushed up interest rates to the highest levels in more than two decades. The latest data from the holiday shopping season showed an increase in spending to finish the year.
Early quarterly reports from retailers struck more of a wary tone.
Nike and FedEx, which reported their latest quarterly results in December, both lowered their revenue forecasts and warned of weak demand. Conagra Brands, the maker of Healthy Choice frozen meals and Slim Jim meat sticks, also cut its annual guidance in the past week after sales volume slipped. Walgreens Boots Alliance said Thursday it would cut its dividend, sending shares tumbling.
“We are seeing indications of more cautious consumer behavior around the world in an uneven macro environment,” Nike Chief Financial Officer Matthew Friend said in the company’s Dec. 21 earnings conference call.
Earnings results from megacap technology companies in the weeks ahead loom large over the market after a big run-up in their share prices in 2023. The heavy weighting of companies like Apple and Microsoft in the S&P 500 make their results particularly influential in the stock market’s overall direction.
Analysts expect communications-services companies to report the highest year-over-year earnings growth among the S&P 500 sectors at about 42%, with Meta Platforms being the biggest contributor, according to FactSet. They forecast the energy segment to experience the biggest profit decline compared with 2022, when oil prices soared and earnings boomed.
Some investors are focusing on sectors that lagged behind last year, believing those beaten-down areas could bounce back this year. Lang said she is interested in healthcare stocks and views them as attractively priced compared with other segments of the market.
This year, Wall Street expects earnings to grow sharply. Analysts expect profits among companies in the S&P 500 to climb about 12% in 2024, according to FactSet.
But there is some question about whether stocks will rally even if earnings climb. Companies in the S&P 500 are trading around 19.2 times their projected earnings over the next 12 months, compared with the five-year average of 18.9, according to FactSet.
“High valuations basically mean that markets are priced for perfection, and then some more,” said Anna Rathbun, chief investment officer for CBIZ Investment Advisory Services.
G20 push for faster payments risks weakening Russia sanctions, experts warn
Speeding up digital systems makes them more vulnerable to criminal networks and money laundering
A G20-led push to speed up international payments risks enabling financial crime and hindering the enforcement of sanctions against Russia and other states, industry experts have warned.
The plans to make digital payment systems more efficient by 2027 do not take into account their increasing vulnerability to criminal networks and the heightened money laundering risks posed by a surge in war-related sanctions, according to the Future of Financial Intelligence Sharing, a UK-based research programme.
“A key institutional failure at the G20 level is the lack of responsibility among payments reform policymakers to consider fraud prevention and financial crime security,” said Nick Maxwell, head of FFIS, which on Sunday published a report on the issues.
The report urged increased public and private sector collaboration to “hardwire” financial crime prevention systems into cross-border payment infrastructure and harness national data to spot money laundering networks.
A failure to address these concerns could have “wide-ranging negative impacts [for] consumer financial safety, law enforcement effectiveness against organised crime and national security in terms of sanctions implementation”, he added.
The value of cross-border transactions, including wholesale payments between financial institutions, retail transfers and remittances, is forecast to hit $250tn by 2027 from $150tn a decade earlier, according to the Bank of England.
The Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, has developed a road map for enhancing cross-border payments. The G20-led initiative is supported by the World Bank, the IMF and about 40 central banks.
The FSB published an update to the plan in October, focusing on practical measures that will enable G20 countries to fulfil a 2020 commitment to make international payments cheaper, faster and more transparent by 2027.
The “priority areas” in the financial watchdog’s road map include setting common data standards, improving settlement infrastructure and convening regulators, supervisors and lawmakers to address “regulatory friction” across the sector.
But while the road map plans to scrap the “very limited time period” required to screen transactions and recall funds before they are settled, it does not include mitigation plans for the “increased risk of cross-border fraud and associated money laundering”, the FFIS report warned.
Under the plan, cross-border payments, which are typically processed in a few hours or days, could be settled within seconds, leaving less time for counterparties to apply compliance checks and block suspicious payments.
“The faster the money moves the less time people have to react . . . speed does not have to compromise security but it can if you don’t embed security within the scheme,” said Chris Lewis, head of research at fraud prevention software group Synectics.
Alaina Gimbert, senior vice-president at US payments operator the Clearing House, said the G20 plan did not substantially address the need to enforce sanctions by blocking transactions in real time, a mandatory requirement of most US sanctions programmes.
“You can’t pretend that these compliance issues don’t exist. The G20 has not really given that risk the level of attention that it needs,” she said.
Western sanctions have greatly increased in number since Russia’s full-scale invasion of Ukraine nearly two years ago. Russian financial institutions have been hit hard by the restrictions. Some of its biggest lenders were removed from the Swift global payments system, which facilitates trillions of dollars worth of transactions every day.
Hundreds of executives close to President Vladimir Putin have been blacklisted from using western financial systems, while western companies are banned from importing a range of Russian commodities.
Gimbert urged governments to have “an honest conversation” about how to reconcile the goals of achieving faster international payments and enforcing economic sanctions.
“There’s going to need to be some form of compromise.”
The FSB did not respond to requests for comment on concerns relating to the progress report.
The FFIS published its report with the Centre for Financial Crime and Security Studies. They are both partnership programmes with the UK-based Royal United Services Institute, an independent defence and security think-tank.
Barron’s Weekend Summary: The grid, which includes production, storage, and transmission of electricity, is set to undergo significant changes
Cover:
-The grid, which includes production, storage, transmission, distribution, and consumption of electricity, is set to undergo significant changes. As data centers and electric vehicles (EVs) grow, the production of electricity will increase, necessitating more energy storage assets and robust transmission lines. This will also require more software and artificial-intelligence tools to coordinate the process. The changes will benefit homeowners, utilities, and companies that build grid infrastructure. Despite a record 4.2 trillion kilowatt-hours of electricity consumed in 2022, overall demand has been sluggish, with 60% coming from coal and natural gas, 20% from nuclear power, and 20% from renewable sources.
Interview:
-Michael Lippert, a former lawyer and Baron analyst, has been successful in buying growth stocks with sustainable competitive advantages. He focuses on companies with durable secular trends that will continue to grow over many years. Lippert's investment maxim is to buy stocks that will outperform their peers in the long run. His Baron Opportunity fund, which has $1.1B in assets, has an average annual return of 17.6% in the past 15 years, outperforming 93% of its large-growth-category peers. The fund has an all-cap mandate, with its five biggest holdings being megacaps. However, lesser-known companies like Gartner, CoStar Group, Rocket Pharmaceuticals, Guidewire Software, and Trade Desk also drive returns.
Tech Trader:
-The Consumer Electronics Show (CES), first held in 1967, is now the largest technology event since Covid-19, with an expected crowd of 130,000. The show covers various technology segments and products, including cars, boats, helicopters, computers, robots, streaming services, televisions, virtual reality headsets, consumer appliances, semiconductors, and more. With over 4,000 exhibitors spread across 2.5M ft2 of exhibit space, the event is expected to attract 130,000 attendees. The show offers an opportunity to meet tech companies, see inventive ideas, and stay updated on trends. However, it is also exhausting with meetings from dawn to the wee hours and a logistical nightmare. CES has been the launchpad for digital watches, camcorders, DVD players, and Atari Pong, but this year's focus will be on the rapid emergence of artificial intelligence software and hardware.
The Trader:
-Goldman Sachs predicts a 3% decrease in net interest income for the year, following a 16% increase for 2023. Credit quality could also be a concern, as consumers have remained resilient over the past four years. Keefe, Bruyette & Woods analysts are neutral on banks, warning that deteriorating credit could cause earnings per share to drop by up to 25%. Selectivity is essential, with KBW highlighting KeyCorp, Webster Financial, and Goldman Sachs as potential opportunities. Meanwhile, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo are set to report their financial results on Friday, with investors eagerly anticipating signs of better financial outcomes in 2024 compared to 2023, which saw rising Treasury yields impact bond bank valuations.
-Walt Disney is facing a contentious battle with activist investors, despite the company's stock losing over half its value since March 2021. Disney has entered into an information-sharing agreement with ValueAct Capital, which pledges support for Disney's board slate. Rival investment firm Blackwells Capital is pushing three of its own directors. Trian Fund Management is the most belligerent, seeking two board seats and lambasting Disney for poor performance. The drama is expected to continue over the next few months, with proxy fights potentially being just what Disney needs.
Features:
-The boomerang generation's struggle to integrate in the workforce is causing parents to grapple with the financial dilemma of supporting their adult children while securing their own financial future. Many parents are utilizing their retirement savings to support their children, with nearly half of individuals aged 18 to 29 living with their families, the highest percentage since the 1940s. A recent Harris Poll survey revealed that nearly 70% of parents with adult children have made financial sacrifices to support their children financially.
-The US labor market ended 2023 with higher-than-expected hiring, low unemployment, and steady wage gains. The December jobs report reveals that the Federal Reserve can continue to fight inflation by holding interest rates steady, rather than considering near-term cuts to spur economic growth. The US added 216,000 jobs in December, surpassing economists' forecasts and exceeding November's revised gain of 173,000. Nonfarm payrolls rose by 2.7M for all of 2023, with an average monthly gain of 225,000 jobs. Key Private Bank's chief investment officer, George Mateyo, believes the Fed should maintain a 'higher for longer' stance on interest rate policy, causing market participants to reconsider their forecasts.
Europe:
-Dividends in Europe experienced a significant drop during the pandemic in 2020, as financial firms were forced to suspend payouts. However, dividends have since rebounded, with a 60% increase across the region. The global payout ratio for stocks, which represents the percentage of company earnings paid out in dividends, has dropped from 35% in 2021 to the low 40s, providing ample room for a dividend recovery. Dividends have followed earnings but have not played catch-up significantly in terms of the payout ratio. Global higher-income stocks have performed well overall in the past four 12-month periods following the Federal Reserve's final interest-rate hike, reflecting their "value plus defensiveness" characteristics. Legrand, a French-based electrical equipment maker, and RELX, a UK digital media company, as they have strong dividend growth, with Sam Witherow, a London-based equity portfolio manager at J.P. Morgan Asset Management expecting RELX to grow its dividend at a 9% annual clip over the next five years.
Emerging Markets:
-Turkey's equity markets have seen positive flows in November and December, with yields on 10-year dollar bonds dropping 200 basis points and central bank currency reserves increasing 40%. Economic policy surprises include President Recep Erdogan's orthodox approach, which has led to increased interest rates and a decrease in inflation. The new central banker, Hafize Erkan, has hiked rates from 8% to 42.5%, with an expected increase to 45% in January. Erkan and finance minister Mehmet Simsek are working on reducing regulations that subsidized credit to favored borrowers.
Commodities:
-Chile's government has announced a public-private partnership to extend the life of the world's cheapest lithium basin by 30 years. The deal will take effect from 2060, as the Atacama salt flats in the high Andean desert are entered into a 50-50 joint venture with state copper giant Codelco. This move is seen as a pragmatic move by Chile's president, Gabriel Boric, who is advocating for progressive reforms. However, Chile will need more compromise to fulfill its lithium destiny, as its largest proven reserves are constrained by a Pinochet-era law designating lithium a strategic metal for nuclear energy. The move has been stymied by divisions between statists and free marketers in Congress.
Streetwise:
-The US stock market is increasingly dominated by artificial-intelligence companies, with the seven biggest tech companies worth more than the combined stock markets of Japan, Canada, and the UK, according to Apollo Global Management. However, only 27% of stocks in the S&P 500 outperformed the index last year, with over 150 index members trading below 15 times forward earnings projections. Most of these companies arest unexciting, with some being deeply challenged and others just unexciting. Verizon Communications and KeyBanc Capital Markets have attracted analyst upgrades, with Verizon Communications projected to top 2% in adjusted Ebitda growth this year.
Private equity targets UK accounting firms
Buyout groups hope to roll smaller companies into bigger businesses to attract larger clients
EY’s attempt to split its audit and consulting business sent shockwaves through the top tier of the accounting profession.
The break-up, eventually abandoned last year after infighting among EY’s top ranks, challenged the prevailing partnership model in which professional services firms are owned and run by their senior practitioners without external investors.
Below the top echelon of global accounting players, business models are already being transformed in a wave of consolidation fuelled by private equity groups.
Buyout investors are betting they can profit by rolling up small partnerships into bigger groups, investing in technology and using their scale to attract bigger clients that have traditionally turned only to the Big Four accounting firms — Deloitte, EY, KPMG and PwC — or the very largest mid-tier players.
Supporters of the wave of private equity interest say it provides capital to smaller firms to fuel growth that would not be possible under the traditional partnership model.
“There comes a point where partners don’t want to take further risk with their own capital,” said Timothy Mahapatra, a former Big Four partner who is now head of deals at Cooper Parry, a UK accounting firm backed by Netherlands-based private equity house Waterland. “In some cases, growth opportunities require capital in excess of what partners themselves can actually fund.”
Private equity involvement in the UK accounting sector is less extensive than is the case in the US, where domestic accounting firms are larger, but interest has been gathering pace. While the Big Four and the largest mid-tier firms such as BDO and Grant Thornton have remained independent, the long tail of smaller tax, accountancy and advisory businesses are being targeted.
Cooper Parry received investment from Waterland in 2022 and used the funds to go on an acquisition spree including the purchase of the 11 London offices of top 20 firm Haines Watts. In July, Waterland also invested in Moore Kingston Smith, another top 20 UK accounting and advisory firm.
Private equity investor Hg has used accounting and advisory group Azets to roll up more than 90 firms in six years, saying it now has annual revenues of “about £700mn”. PAI Partners, another buyout group, bought part of Hg’s stake in July.
Warburg Pincus and Permira own Evelyn Partners, formed by the 2020 merger of wealth manager Tilney and financial and professional services firm Smith & Williamson. It reported revenues of £600mn in its most recent financial year.
Part of investors’ rationale is that by combining forces, the smaller and regional firms that often work for small and medium-sized enterprises can win mandates from bigger clients that were previously out of reach.
“Over the last 10 years, the Big Four, Grant Thornton, BDO and RSM have effectively been growing the size of clients they wish to serve, so deserting the lower mid-market and the mid-market,” said Mahapatra.
Some of the top firms’ smaller audit clients have been “effectively jettisoned”, creating “an opportunity for the next wave of players, who probably prior to this change were highly fragmented small firms in very local areas.”
Winning work from the larger clients requires smaller or regional firms to bulk up and extend their geographic reach.
The change is also being driven partly by accounting firms’ need to invest in technology to make their systems more user-friendly for clients and to make rudimentary tasks more efficient.
Proponents of the partnership model say that the benefits include being able to manage the business for the long term because they are not answerable to external investors or stock market analysts.
But most accounting firms pay out the bulk of their profits to the partners each year, making it hard to get agreement for big technology investments. These reduce partners’ pay in the short term, a particular disincentive for the older among them who will retire before reaping any long-term benefit of the investments.
“Partnerships typically are structured on cash drawings in the moment so they tend to optimise for 12 months — cash conversion and withdrawal — whereas most industries have optimised for enterprise value over the long term,” said Caroline Plumb, chief executive at Gravita, a private equity-backed accounting firm.
As well as improving the service clients receive, better technology could improve efficiency and reduce data security risks, said Plumb, pointing to the fact that many accounting firms have systems containing banking information but much weaker security than banks.
Mike Reynolds at private equity group Tenzing, which has invested in Gravita and its UK peer DJH Mitten Clarke, said the case for backing tax and accounting firms was similar to the rationale for involvement in areas such as payroll and compliance services. These also sold directly to companies’ finance functions, he said, and had “high recurring revenue” because they were “reasonably mission-critical”.
Improving technology could allow firms to win more work, he added.
But expanding rapidly carries risks, particularly in an industry where attracting and retaining good staff and partners is crucial. “Some consolidators have tried to go too big too fast,” said Reynolds.
While he believes there is a strong investment case, Reynolds acknowledged that not every investor will win. “What typically happens is you see that there’s a large number of players . . . and then it narrows down probably, to four to five winners.”
Andrew Jeffs, a partner at Cavendish who advises on UK accounting firm mergers, said the question for investors would be about how they could achieve an exit.
“Trade buyers are few and far between,” he said. “So it looks like investors are banking on another round of consolidation led by bigger funds.”