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Is Hillary Good for Business? AN INSIDE LOOK AT HER PLAN FOR THE ECONOMY

Fastest Growing Companies in the World

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MOST POWERFUL WOMEN AND WHAT WE CAN LEARN FROM THEM

THE ACCELERATORS

10 SMOKING HOT COMPANIES P. 156

INVESTING

BUBBLE WATCH

P. 59

P. 18

AUTO STOCKS GET READY TO REV

THE TRENDS ABOUT TO POP


INT’L STOCKS

IEFA

INSPIRED BY ADDING FAMILY TO THE FAMILY.

U.S. STOCKS

IVV

U.S. BONDS

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INSPIRED TO BUILD. Visit www.iShares.com or www.BlackRock.com to view a prospectus, which includes investment objectives, risks, fees, expenses and other information that you should read and consider carefully before investing. Investing involves risk, including possible loss of principal. 'LYHUVLĆ“FDWLRQDQGDVVHWDOORFDWLRQPD\QRWSURWHFWDJDLQVWPDUNHWULVNRUORVVRISULQFLSDO%X\LQJDQGVHOOLQJ VKDUHV RI (7)V ZLOO UHVXOW LQ EURNHUDJH FRPPLVVLRQV 7KH L6KDUHV IXQGV DUH GLVWULEXWHG E\ %ODFN5RFN ,QYHVWPHQWV //& WRJHWKHU ZLWK LWV DIĆ“OLDWHVĹ?%ODFN5RFNĹ? k%ODFN5RFN$OOULJKWVUHVHUYHGiSHARESDQGBLACKROCKDUHUHJLVWHUHGWUDGHPDUNVRI%ODFN5RFN$OORWKHU PDUNVDUHWKHSURSHUW\RIWKHLUUHVSHFWLYHRZQHUVL6


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FEATURES

50 MOST POWERFUL WOMEN 82

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Fortune’s 19th annual compendium of the Most Powerful Women in Business reveals how female executives are transforming corporate America.

Despite progress, the number of women Fortune 500 CEOs remains tiny. Many female C-suite stars don’t get second opportunities, ending up in an invisible corporate purgatory. Why is business still underutilizing one of its most valuable assets? B y jennif er reingol d

introduction

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hail , mary

General Motors CEO Mary Barra has led the carmaker on an epic comeback ride. But it might take more than a miracle worker to lift the company’s stock. B y Paul Ingr a ssi a Plus: Barra talks with Fortune editor-at-large jennifer reingol d about what has changed at GM— and what’s next.

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the list B y k ris t en bel l s t rom, erik a f r y, be t h k o w i t t, mich a l l e v-r a m, l een a r a o , jennifer reingol d , a nne va nderme y, phil wa hb a , jen w iec zner , a nd va l en t in a z a r ya

ON THE COVER: PHOTOGRAPH FROM

TRUNK ARCHIVE

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more than skin deep

Ulta Beauty has built a fastgrowing hair and cosmetics empire in America’s strip malls. Can it go toe-to-toe with much bigger competitors? That’s up to CEO Mary Dillon. b y phil wa hb a

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the smart sting of sam Bee

The Canadian comedian has replaced Jon Stewart as America’s most trenchant political commentator. Her secret? Not hiding her frustration. B y erin grif f i t h

the disappeared

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googlegetsdisciplined

The search-engine behemoth has spent billions in the quest for its next hit. Now Wall Street veteran Ruth Porat has come aboard to help Google—and its parent company, Alphabet—get more bang for the buck. Can she get their “smart creatives” to fall in line? B y l een a r a o

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ann-marie campbell believes in you

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As Home Depot looks to the web to help it squeeze more sales out of its stores, the 400,000 associates who work in the retailer’s 2,276 locations look to one of their own to lead them. B y el l en mcgir t

most powerful women: international

Our rankings of the most powerful businesswomen based outside the U.S. b y rupa l i a ror a , erik a fr y, audre y shi, a nd cl a ire zil l m a n

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Vice chair Beth Comstock has an ungainly portfolio but a simple mission: infusing the future into a venerable company. B y Geof f Colv in

Turkey’s aborted coup is only the latest challenge for Güler Sabanci, the woman behind one of the country’s largest conglomerates. B y erik a f r y

lighting up ge

leading through chaos

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FEATURES

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ishillary goodfor business?

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To win the nomination, Clinton tacked way left on trade and ratcheted up her anti–Wall Street rhetoric. But insiders and experts say her policies are progrowth. A clear-eyed look at her plan. B y t or y ne w m y er

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Fortune’ s 100fastestgrowing companies

Too fast to be stopped: 2016’s top three-year performers in revenue, profits, and stock returns. B y sco t t de c a rl o , dougl a s G . el a m, v i v i a n gi a ng , k at rin a k a uf m a n, a nd k at hl een sm y t h

September 15, 2016

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30years offastestgrowing companies

As our list reaches the three-decade milestone, we highlight some of the highs … and lows along the way.

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Swimming upstream

Can a Bible-studying, love-peddling showman save SeaWorld … from itself? B y Erik a f r y

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it’sjeffrey katzenberg’s future

His career as a studio mogul just ended with the sale of DreamWorks Animation. But Katzenberg has shaped some of the most important changes in the movie industry over the past two decades—and he’s not done yet. B y mich a l l e v-r a m

PHOTOGRAPH BY

MICHAEL LEWIS


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DEPARTMENTS

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Macro

22

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Closer Look The rise of nationalism and protectionism has villainized free trade, but the global economic future hinges on its rehabilitation. B y chris m at t he w s 16

Sequel-itis Why does Hollywood make bad movies? People keep paying to see enough of them. B y mich a l l e v-r a m

Executive Read Two new books on gender in the workplace can help women and men become better colleagues and managers. Chartist The share of women CEOs is still minuscule, but in the boardroom there’s increasing cause for optimism.

Trend Tracking Our educated guesses for which crazes are fizzling and which are picking up steam. 20

24

26

B y s y muk her jee 18

B y Sco t t cendro w sk i

Venture 35

How I Got Started Kenneth Cole founded his own shoe company—then learned how to sell in the most modern of ways. in t erv ie w B y din a h eng

passions & Perks 41

Vintage Gems No longer considered Grandma’s leftovers, estate jewelry is in high demand. B y s ta c y perm a n 44

Dinner at Your Doorstep Blue Apron is selling more than just meal kits. It’s trying to inspire a new generation of foodies. B y john k el l

Tech 49

Person of Interest Meet Belinda Johnson, chief business affairs and legal officer of Airbnb. B y l eigh g a l l a gher

38

Great Workplaces Ad agency Dixon Schwabl offers both formal and informal education inside an employeecentric company. B y Jennif er a l se v er

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The Future Is Now As techies dream of delivery drones, the construction industry eyes the devices as a tool to save billions of dollars. B y cl ay dil l o w

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September 15, 2016

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A Boom With a View Young tech companies are supposed to “fail fast,” but founders just can’t let go. B y erin grif f i t h

invest 59

Auto Stocks Why self-driving cars could help the industry’s stocks do a U-turn. B y r ya n derousse a u 63 E XECU T I V E T R AV EL Trends in air travel: what you need to know.

72 T HE BIG T HINK How to get on the right side of the digital divide. B y john ch a mbers , e x e cu t i v e ch a irm a n, Cisco

59 10 EDI T OR ’S DESK 188 BING! CORREC T IONS Fortune’s Change the World list (Sept. 1, 2016) incorrectly stated that Brazilian forestry company Fibria operates in the Amazon. In the same article, the company AdvisorShares is incorrectly identified as Advisory Shares. Please see Editor’s Desk for an additional correction/clarification. Fortune regrets the errors.

EPIPEN: DRE W A NGERER—GE T T Y IM AGES; JOHNSON: K E V IN M A LONE Y—FOR T UNE BR A INS T ORM T ECH; T ESL A : COUR T ESY OF T ESL A MO T ORS

The People vs. the Pill Pushers Big Pharma has been hiking prices with impunity for years. Come November, that could change.

Fair Trade China’s currency falls. The world shrugs.

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EDITOR’S DESK

Mixing business with politics

F

ORTUNE is a business

magazine, not a political one, and we know our readers like it that way. But it’s hard to escape the fact that this year’s U.S. presidential election is the biggest business story running. That’s why we took space in our May 1 issue to explore Donald Trump’s rocky record in business. And that’s why, in this issue, we are exploring Hillary Clinton’s complicated—and still unsettled— relationship with corporate America (see page 74). Neither candidate gets high marks for probusiness policies—an inescapable symptom of the times. Bashing Wall Street, denouncing drug pricing, and generally favoring the “people” over business and government “elites” is the essential pose of today’s populist politics. Trump’s tax and regulatory proposals may sound appealing to many, but his attacks on immigration and trade are anathema to anyone building a global business. Clinton’s history as an internationalist offers an alternative but comes packaged with activist instincts. Both candidates carry personal baggage that makes supporters wary. Among business leaders, the impulse to choose “none of the above” has never been higher. Clinton’s business backers like to look back to the first Clinton administration, and hope for a restoration. President Bill Clinton decided early in his tenure to side with business-friendly moderates on his team, like Bob Rubin and Larry Summers, rather than the firebrand populists. He pursued a balanced budget, championed the North American Free Trade Agreement, and, after being trounced by Republicans in the midterm elections, went even further to secure welfare reform. At least partly fueled by such policies, growth during his term averaged 3.8% a year and created 21 million jobs.

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This is a different era, however, and Hillary Clinton is a different person. It’s not clear who among her advisers could or would play the Rubin role, or whether her party would allow her to go there. She may privately favor the trade agreements she now publicly opposes (as many of her business supporters assume), but reversing course after the election could be politically suicidal. Campaigns have consequences. But here’s our greatest concern about election 2016: that it’s become such a nasty race to the bottom that neither candidate can emerge with the public or political support needed to govern effectively. There are things government needs to do—rebuild crumbing infrastructure, reform a broken corporate tax structure, shore up public education and training, and perhaps most of all, rebuild trust in the institutions, public and private, necessary for a thriving society. Good luck with that. In the meantime, we at Fortune are betting on the private sector to help solve some of society’s most pressing problems. That’s why, in December, we’re assembling roughly 100 Fortune Global 500 CEOs at the Vatican to talk about forging “a new social compact.” After this year’s troubled election, it all may be on them.

alan murray

Chief Content Officer, Time Inc. Editor-in-Chief, Fortune @alansmurray

CORRECTION AND CLARIFICATION

In “Can Tech’s Tattle Tycoon Trump Thiel?” (Sept. 1, 2016) we erroneously stated that Gawker “began moving to protect its assets” in 2013 and “paid out most of the profits from its Hungarian subsidiary in a massive dividend to shareholders.” That statement was made on the basis of publicly available financial documents that showed a $4.6 million dividend. Documents later provided by Gawker, however, showed that the dividend entry was made in error and subsequently corrected to $1.26 million. Because the remaining sum is not unusual in the context of the company’s annual finances, the paragraph in question, which stated that Gawker “emptied its piggy bank well before a judge ruled in favor of Hogan,” has been removed from the online version of the story. (That correction, unfortunately, came too late for the print edition.) Additionally, we’ve added a statement to the online story from a Gawker spokesman who takes issue with our characterization of finances connected with the holding company Greenmount Creek, which is controlled by the Denton family trust. Fortune said that it was “a bit of a mystery” who the recipients of one unsecured note that will be worth $12.8 million were. The spokesman disputes that there is any “mystery” surrounding that note or Greenmount Creek and says the recipients are the children of Rebecca Denton, to whom Gawker shares were transferred at the time the trust was created in 2010.

PHOTOGRAPH BY

WESLEY MANN


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The rise of nationalism and protectionism has turned free trade into an international political villain. The future of the global economy will hinge on its rehabilitation. BY CHRIS MATTHEWS


An overhead view of California’s Port of Long Beach, which handles $180 billion in goods a year, primarily trade from Asia.

T

HE TRANS-PACIFIC PARTNERSHIP is on life support, and as President Barack Obama readies a long-shot push to get the free-trade deal through Congress this fall, he may be virtually the last elected official in Washington who hasn’t given it up for dead. Hillary Clinton—who once lauded the deal as the “gold standard” of trade agreements—has spent

PHOTOGRAPH BY

JEFFERY MILSTEIN

months trying to convince nervous progressives that she has no intention of supporting the 14-nation pact once she gets in office. (For more, see our cover story on Clinton.) And Donald Trump—the nominee of a

Republican Party whose support of free trade was once more reliable than clockwork—has been calling the pact “a rape of our country.” The agreement’s moribund condition is a far cry

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from where it was just last year, when it seemed that passing the TPP was the only thing Obama and congressional Republicans could agree on. Then Washington was rocked by the populist campaigns of Bernie Sanders and Donald Trump, which brought with them 20 years of pent-up anger over sagging wages, rising income inequality, and suspicions of corporate political cronyism. The debates’ toxicity has most members of Congress hoping the issue will just go away, lest they be labeled traitors to the American worker. The problem with this interpretation of trade deals, however, is that there isn’t much evidence that it’s accurate. “Free-trade agreements have become a scapegoat for a lot of other forces changing the economy,” says Cathleen Cimino-

Isaacs, a research fellow at the Peterson Institute for International Economics. Indeed, when one ponders the changes that the global economy has had to digest over the past 25 years, from the fall of the Iron Curtain to the flowering of the Internet-based economy to the entrance of 1.3 billion Chinese into the labor force, it would be surprising if the effects weren’t felt by American workers. The government wasn’t responsible for most of these changes, of course, but votes on free-trade agreements are an easy target for blame. The harshest criticisms of free trade, though, seem overblown once scrutinized. Sanders likes to cite a statistic from the labor-backed Economic Policy Institute that NAFTA cost the U.S.

FREE TRADE’S LANDMARK DEALS

These are the three agreements that have done the most to shape global trade in the postwar era.

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The deal: THE GENERAL AGREEMENT ON TARIFFS AND TRADE (1947–94) What it did: Twenty-three of the world’s most powerful nations signed the GATT treaty, creating the International Trade Organization. Over the decades the deal was opened to more nations, eventually creating today’s World Trade Organization.

September 15, 2016

The deal: NAFTA (1993–present) What it did: Resistance to furthering the WTO framework forced free-traders to look to bilateral and regional deals for further tariff reduction,leading to the U.S.’s famous 1993 deal with Mexico and Canada. The U.S. has kept up the practice, signing bilateral agreements with countries like Panama and Australia.

700,000 jobs over 20 years. That sounds damningly high, but it adds up to just 35,000 jobs per year, or a seventh of the number of jobs the U.S. economy has gained on average per month this year. Even if these job-loss estimates are to be believed, the increased economic growth and trade flows that resulted from the deal mean that NAFTA likely counts as a net benefit for the American economy. To be sure, the U.S.’s nearly century-long march toward freer trade has created losers as well as winners. In the six years following China’s 2001 accession to the World Trade Organization, the U.S. lost 6 million manufacturing jobs. A recent study argued that the precipitous drop was due in part to the U.S.’s agreement to make lower tariffs—which it had been temporarily approving on an annual basis—permanent as a result of China’s new WTO-membership status. But it’s impossible to say

how long those jobs would have lasted had the tariffs remained, and whether China would have retaliated by closing off its markets had the U.S. resisted its WTO membership. Most Americans recognize that protectionism is a losing hand, as evidenced by a recent Gallup poll showing that 58% of the nation sees foreign trade as an opportunity rather than a threat. It’s a vocal minority that is gumming up the works, just as it did 20 years ago when Bill Clinton fought to pass NAFTA. The deal eventually passed after he returned to Congress with fresh concessions from Mexico and Canada—a scenario many still hope could play out in a second Clinton administration with TPP. But the political will for openness has never seemed so weak, despite the math. “We are 5% of the world’s population,” Clinton herself argued earlier this year. “We have to trade with the other 95%.” A Washington that is serious about stimulating growth at home and abroad will not stay away from the free-trade negotiating table for long.

HENRY ROMERO—REU T ERS

The deal: RECIPROCAL TRADE AGREEMENTS ACT (1934) What it did: Ended decades of protectionist trade policy by granting the President authority to negotiate bilateral tariff-reduction agreements— a power used to reverse a 1930 treaty that many economists believe helped deepen the Great Depression.

Mexican PresidentEnrique Peña Nieto met withDonald Trump, who has advocated tearing up the countries’trade agreements.


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After Mylan acquired the EpiPen, the price of the lifesaving drug rose 400%.

largely tied, and federal action on drug prices is unlikely during an election year. But California’s measure, which would cap how much state health programs pay for treatments at the deeply discounted level paid by the Department of Veterans Affairs, could open the floodgates in more states if it passes. So far, Prop. 61 is polling well, despite some worries it could backfire and lead companies to charge the VA more. Big Pharma appears to be taking note: AbbVie, Pfizer, AstraZeneca, and others have already poured more than $70 million into defeating the initiative—by far the most money being spent on any California referendum this year. For the first time in a while, the rising costs go both ways.

THE PEOPLE VS. THE PILL PUSHERS

PHARMA DOESN’T CARE ABOUT YOUR OUTRAGE THE INDUSTRY HAS BEEN HIKING PRICES WITH IMPUNITY FOR YEARS. COME NOVEMBER, THOUGH, THAT COULD CHANGE. BY SY MUKHERJEE ON NOV. 8, most eyes will be

on the historic presidential contest between Hillary Clinton and Donald Trump. But the pharmaceutical industry will be focusing on another vote: Proposition 61, a California public referendum that could become the first initiative to draw blood from drugmakers, which have largely refused to change their pricing habits in the face of an intensifying political wildfire.

While a few companies have been forced to offer lower-priced medications as media backlash hits their share prices—Mylan discounted its EpiPen in August after harsh rebukes over its soaring cost—more than two-thirds of the 20 largest drug companies used price hikes to boost revenues in 2016, according to a Wall Street Journal analysis of first-quarter earnings. The public’s hands are

WE’RE WELL INTO THE ERA of the mainstream podcast, the digital audio format steered into cultural prominence by massively popular series like Serial and Radiolab. (You know a format has reached peak mainstream when Hillary Clinton has one.) In the past few years, podcasts’expandingaudiences—EdisonResearch estimates that roughly 57 million Americans download a podcast every month—have turned the platform into an obvious destination for Big Business. Here’s a look at some of the companies using podcasts for brand building. —TOM HUDDLESTON JR.

eBay

Goldman Sachs

General Electric

Netflix

The auction giant partnered with Gimlet Creative for a six-part series on startups called Open for Business. The branded podcast also plugs eBay, naturally, as “one of the first platforms for wouldbe entrepreneurs.”

Goldman’s in-house podcast showcases its market know-how by interviewing a coterie of Goldman analysts on topics like e-commerce (episode title “Brick and Mortal”) and new research (“Mutant Mosquitos”).

GE sponsored a sci-fi narrative podcast on the Slate Group’s Panoply Media about cryptologists decoding a decades-old alien transmission (partially inspired by GE’s work on soundbased medical tech).

The streaming service sponsored a one-off episode (also on Panoply) with the creators of Netflix’s hit true-crime docuseries Making a Murderer talking about the huge public response to the show.

WHY BIG BUSINESS LOVES PODCASTING

Andreessen Horowitz Cofounders Marc Andreessen (left) and Ben Horowitz are occasional guests on a16z, the podcast produced by the powerhouse Silicon Valley VC firm that has backed startups like Instagram and Skype. Discussions cover topics ranging from emoji to Pokémon Go.

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EPIPEN: GOSS IM AGES/A L A M Y S T OCK PHO T O; PODC AS T: BRYCE DUFF Y

MEGAPHONES


NEW YORK TECH SCENE

MEAL KITS

Every city has its Silicon Valley dreams, but New York arguably flew the highest and crashed the hardest with Gilt, Fab, and Quirky all failing to make a dent. It is gradually reestablishing itself, though, with buzzy firms like Betterment and Casper.

The meal-in-a-box business is sizzling (see our story on page 44), with 150 services vying for consumers’ plates. But half of diners who sign up quit over the cost, NPD says. A meal kit shakeout could be coming.

PEAK OF INFLATED EXPECTATIONS

ATHLEISURE

INNOVATIO INNOVA TIONN TTRI TRIGGE GGERR

The biggest mobile game ever had 45 million active daily users at its peak but slid to 30 million less than a month after launch. Meanwhile, shares of Nintendo (which owns the critters’ licensing rights) soared 120% initially before coming back to earth.

3D PRINTING

Industry stocks have come way down from their 2013 peaks, as the concept has lost some of its sheen. But commercial 3D printing continues to grow, even if there’s not an action-figure molder in every home.

TREND TRACKING

OUR EDUCATED GUESSES FOR WHICH CRAZES ARE FIZZLING AND WHICH ARE PICKING UP STEAM.

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Yes, they’re ubiquitous, but dating services’ growth has dwindled from more than 10% annually a decade ago to more like 4% today, according to IBISWorld. And the field is already highly consolidated.

POKÉMON

It’s easy to think the athleisure craze will go on and on. The $44 billion activewear segment grew 16% last year, NPD Group says. But there are signs this is peak yoga pant: Less hip retailers like Kohl’s and even Walmart are piling onto the trend.

SO LONG, CHARIZARD

ONLINE DATING

TROUGHOF DISILLUSIONMENT

THE GARTNER HYPE CYCLE has become a shorthand in the tech world to describe technologies’ path to adoption. Every year the research firm places products and ideas like machine learning (Gartner says it’s at peak hype) on the familiar Silicon Valley roller coaster: First come breathless reports and inflated expectations, which are followed by a trough of sorrow, when reality sets in, and the slope of enlightenment, where the kinks

September 15, 2016

PLATEAU OF PRODUCTIVITY SLOPE OF ENLIGHTENMENT FRO-YO

In 2013 it was a Main Street staple with 27% annual growth. Last year the $2 billion frozen-yogurt industry notched a much smaller 3.9% increase, according to IBISWorld, and there’s chain consolidation on the horizon. Woe unto the fro-yo franchisee.

are worked out. Finally there’s the more stable plateau of productivity, where an idea at last makes reliable money. While the firm’s eponymous cycle deals with plenty of heady intellectual concepts, we thought there were a few other ideas that could be measured the same way. Here, with apologies to Gartner, we’ve adapted its chart for trends a little further afield.—JOHN KELL, POLINA MARINOVA, PHIL WAHBA, AND ANNE VANDERMEY

AT HLEISURE: DONN A WA RD—GE T T Y IM AGES; ME A L K I T S: COUR T ESY OF HELLOFRESH; POK EMON: COUR T ESY OF NI A N T IC; 3D PRIN T ING: EMM A NUEL DUN A ND—A FP/GE T T Y IM AGES; FROZEN YOGUR T: GE T T Y IM AGES/IS T OCK PHO T O; NE W YORK T ECH SCENE: COUR T ESY OF C ASPER; ONLINE DAT ING: AL A M Y S T OCK PHO T O

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OFF THE CLOCK

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MAKING SENSE OF THE NEW WORLD OF WORK SOURCE: BOX OFFICE MO JO

Ghostbusters

the legend of tarzan

Suicide Squad

Budget: $100 million Opening weekend: $11.2 million Budget: $144 million Opening weekend: $46 million

Budget: $180 million Opening weekend: $38.5 million SEQUEL-ITIS

WHY HOLLYWOOD MAKES BAD MOVIES PEOPLE KEEP PAYING TO SEE ENOUGH OF THEM. BY MICHAL LEV-RAM

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Budget: $175 million Opening weekend: $133.7 million

AN EPIC REMAKE? More like an epic fail. In mid-August, Ben-Hur, yet another adaptation of the novel about a chariot racer in biblical times, became Hollywood’s latest big-budget bomb. The film, which cost $100 million, eked out a paltry $11.2 million during its opening weekend—a horrible harbinger for overall sales. Paramount’s colossal flop was no outlier. This summer Hollywood has churned out a stream of easy-to-ignore remakes and sequels like The Legend of Tarzan, Independence Day: Resurgence, and Ghostbusters. Yet despite these disappointments, overall ticket sales have been about on par with last summer’s $4.48 billion. The explanation? Enough

movies have done well enough to make this blockbuster season a relative success—even without many blockbusters. “Emotionally this was a tough summer on the industry and a bit of a letdown for moviegoers,” says Paul Dergarabedian, a senior media analyst at ComScore. “But the cumulative box-office numbers are actually strong.” Hollywood has a bigger problem than just this summer, though. Tinseltown’s growing reliance on franchises is no foolproof strategy, and higher ticket prices mask the larger problem of shrinking audiences. As long as studios are able to show profit growth, however, it’s unlikely they will change their ways.

8 MILLION

7.5

7.4

7.0

6.5

MULTIPLE JOB HOLDERS IN THE U.S. 1996

2006

2016

7% MULTIPLE JOB HOLDERS AS A SHARE OF ALL EMPLOYED

6

4.9%

5

4 1996

2006

2016

NO T ES: BL S DATA IS FOR WORK ERS 16 Y E A RS A ND OLDER. A NNUA L VA LUES E XCEP T FOR T HE MON T H OF JULY 2016 (SE A SON A LLY A D JUS T ED).

BEN-HUR: COUR T ESY OF PA R A MOUN T PIC T URES; GHOS T BUS T ERS: COUR T ESY OF COLUMBI A PIC T URES; T HE LEGEND OF TA R Z A N: WA RNER BROS./E V ERE T T COLLEC T ION; SUICIDE SQUA D: COUR T ESY OF WA RNER BROS.

Ben-Hur

IN THE ERA of Uber, Lyft, Postmates, and TaskRabbit, tens of millions of us, particularly millennials, were supposed to be living in a gig economy by now. How’s that working out? Depends on which numbers you look at. The number of people who say they hold multiple jobs has declined as a share of total workers over the past decade. That seems to belie the ascendance of gig work. But not all freelancers consider their side hustles additional jobs, Harvard’s Lawrence Katz and Princeton’s Alan Krueger have pointed out, making gig economy work somewhat inscrutable. Some clarification may be on the way: This summer the Commerce Department proposed a new definition for “digital matching firms,”includingUber,Etsy, eBay, and more. The first step toward understanding the new work world will be finding out how different it really is from the old one. —ANNE VANDERMEY


MACRO

FAIR TRADE

CHINA’S CURRENCY FALLS. THE WORLD SHRUGS THE CHEAP RENMINBI ONCE TRIGGERED PANIC. NOW? TRY BOREDOM. BY SCOTT CENDROWSKI CHINESE central bankers

must be grinning over their cups of hot tea. In August 2015 the People’s Bank changed the way it manages China’s renminbi. The currency’s

2% overnight fall triggered a global stock plunge, as investors worried that China was using devaluation to rescue a flailing economy. When the smoke cleared, China promised to keep the RMB stable. But the currency kept falling: The RMB is down 3% this year against the dollar, and more against a global basket of currencies. “It is hard to square the continued depreciation … with the official commitment to maintain broad stability,” Capital Economics chief global economist Julian Jessop observed recently. And yet investors have reacted with a resounding “meh,” with U.S. stocks doing especially well. Currency manipulation is a political hot topic (ask any Trump voter), so why the

VALUE OF ONE CHINESE YUAN RENMINBI IN U.S. DOLLARS 0.160

AUG. 30,AUG. 201630, $0.15 2016

0.155

$0.15

0.150 2015

collective shrug? In short, because it is traders who have sent the RMB sinking, not China’s government, and cheaper currency hasn’t had disastrous effects abroad. For example, Chinese exports haven’t noticeably benefited from devaluation. They’ve been posting sharp declines all year, as China’s sales are hurt by weak U.S.

SIX-PACK ABS

THAT BEER HAS HOW MANY CALORIES?

FOR T UNE .COM

September 15, 2016

2016

demand and rising production costs. So much for a trade war. Still, it’s clear that China’s currency liberalization, like its other free-market reforms, has been spotty. China just hosted a G-20 gathering in Hangzhou, but its trading partners will eventually want clearer proof that China plays fair.

bottles until 2013, when the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau changed the rules. Now beer giants Anheuser-Busch InBev, MillerCoors, and others (representing eight of 10 beers sold in the U.S.) have promised to add details about calories, fat, protein, and other nutritional information on all labels by the end of 2020. They say the move is altruistic, claiming a majority of beer drinkers want to know what’s in their favorite lager or pilsner. But by embracing

transparency, Big Beer has put the little guy on defense. The largest brands—including Bud Light and Miller Lite—contain fewer calories and lighter alcohol volume than, say, a heady Russian Imperial stout. Plus, it’s costly to win regulatory approval for each new nutritional label, which could change the economics of small-batch brews. The result: Craft-beer lovers could see fewer styles from their favorite local breweries if locals put pressure on them to start counting calories. —JOHN KELL

COUR T ESY OF MILLERCOORS

BREWERS ARE constantly at war. They steal flavors, fight over bar taps, and sue each other over wacky ale names. But the latest Big Beer vs. craft battlefield is relatively mundane: nutritional labeling. Alcoholcompanies were banned from listing serving fact details on cans and

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SOURCE: BLOOMBERG


MACRO

Fight Club is a worthy addition to the library of any young female professional or frustrated middle manager—or male coworker who wants to help.

EARNING IT

HARD-WON LESSONS FROM TRAILBLAZING WOMEN AT THE TOP OF THE BUSINESS WORLD By Joann S. Lublin

EXECUTIVE READ

A Reading list for powerful women

Two new books on gender in the workplace can help women and men become better colleagues and managers. BY KRISTEN BELLSTROM AND VALENTINA ZARYA

FEMINIST FIGHT CLUB AN OFFICE SURVIVAL MANUAL (FOR A SEXIST WORKPLACE) By Jessica Bennett

Do you have a mansplainer in your office? How about a “bropropriator” (a man who takes credit for his female team members’ work) or an “undermineher” (a guy who patronizes

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women with terms like “kiddo” or “young lady”)? Yes, journalist Jessica Bennett’s new book is packed with corny—if catchy—names for the sexism many women encounter at work, but her advice for dealing with this bad behavior is serious. Inspired by her own group of friends, who met monthly to discuss

September 15, 2016

their professional victories and frustrations, Bennett has assembled a novel handbook for the modern working woman. Like a cubicle anthropologist, she lays out a taxonomy of common office saboteurs, ways women inadvertently play into sexist stereotypes, and career-stalling pitfalls, like getting sucked

into “office housework” or being branded “too nice” to lead. More important, Bennett provides readers with a litany of strategies for overcoming these hurdles. While women who have managed to battle their way into the upper ranks have likely worked much of this out for themselves, Feminist

What do you do if a senior manager at your company propositions you for sex and then tells your colleagues that you slept with him after you turned him down? Carly Fiorina relates undergoing that ordeal—and how she sailed past it to land in the C-suite—in this new compendium of wisdom for the working woman. Author Joann Lublin (one of the first female reporters at theWall Street Journal) has compiled a repository of advice on a broad spectrum of issues faced by women in corporate America today—and the book is chock-full of personal anecdotes gleaned from hours of interviews with 52 powerful businesswomen. While the narrative can at times seem disjointed, the stories Lublin recounts will be funny and informative to any aspiring exec. Hewlett Packard Enterprise CEO Meg Whitman discusses the “scheduling wars” and career tradeoffs between herself and her husband. Hearsay Social founder Clara Shih notes the many times she’s been mistaken for a server at tech industry events, and former Yahoo chief Carol Bartz shares the best way to stand in a room full of men: “Spread your feet and put your ‘bitch wings’ on.”

PHOTOGRAPH BY

MICHAEL CHINI


MACRO

CHARTIST

2016 27.8%

PERCENTAGE OF WOMEN

MPW

women inch into the boardroom

25% Women now hold almost 28% of all nominating and governance committee chairs, up from 14.2% in 2005. This means they now head up the succession process at many large companies, which could lead to more diversity at the top.

WOMEN SEEM to be plateauing in the corner

office, but in the boardroom there’s increasing cause for optimism. One-fifth of all board members of Fortune 500 companies are now female, and the numbers are rising. Women are also increasingly becoming heads of boardroom committees—arguably the power positions. —JENNIFER REINGOLD

2016 20.6%

20%

chair, GOVERNANCE COMMITTEE

2016 18.2%

15%

Women now make up 20.6% of all Fortune 500 board members. That’s up six percentage points since 2005.

14.2%

chair, AUDIT COMMITTEE

member, board of directors

14.7%

2016 12.6% 10.2%

10%

chair, COMPENSATION COMMITTEE

9.0%

Female chairs of audit committees are also on the rise but still make up less than onefifth of the total.

When it comes to female CEOs, the news is sobering. Just 4.8%, or 24, of Fortune 500 chief executives are women. That’s the same percentage as the year before and up from just 1.8% in 2005.

5%

1.8%

2005

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2005

September 15, 2016

2005

2005

CEO

2005 RESEARCH BY

2016 SCOT T DECARLO

GRAPHIC BY

NICOL AS RAPP

SOURCES: C ATA LYS T, S&P GLOB A L , FORTUNE

The compensation committee has seen the smallest increase in female chairs—up only 3.6 percentage points in 11 years, to 12.6%.

2016 4.8%


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AN ICON JUST GOT LARGER

THE NAVITIMER 46 mm


SEP TEMBER 15, 2016

UR

Kenneth Cole at the company’s headquarters in New York.

HO W I GO T S TA R T ED

the man becomes the brand Kenneth Cole founded his own shoe company—then learned how to sell in the most modern of ways. INTERVIEW BY DINAH ENG

Kenneth Cole, 62, has long had a gift for drawing attention. He posed as a filmmaker three decades ago to attract buyers to his shoe startup and later made his social agenda—promoting AIDS awareness and support for the homeless—an integral part of his company’s brand. Cole took his company public in 1994, then bought it back for $280 million in 2012. Today it sells a wide variety of apparel and accessories. His story:

PHOTOGRAPH BY

PATRICK JAMES MILLER

I GREW UP in the New York area. My father had a women’s shoe factory in Brooklyn. I went to Emory University, and I was on my way to law school, but I put that on hold to help my father when one of his senior executives left. I came to realize that the law is about a book of rules, and he who learns them best, and is the most creative in interpreting them, goes furthest. But in business, you get to write your own book every day.

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VENTURE

HOW I GOT STARTED

After working with my father for two years, we started Candie’s, a line of imported shoes from Italy. Then in 1982 I set out to start my own business. I had very little money, and I knew that most startups don’t survive. So I went to Italy to find shoe factories that needed business. I designed shoes, made prototypes, and committed to ordering 40,000 pairs of shoes. There wasn’t a mechanism to get trademarks researched and registered quickly, so I used my name as the company name. Back then, shoes were previewed at Market Week. You either took a room at the New York Hilton, where the trade show was, or you had a big fancy showroom. I didn’t have the money for either. So I called a friend and said, “If I can figure out a way to park your 40-foot trailer across the street from the Hilton, will you lend it to me?” He said yes, so I contacted the mayor’s office and was told we couldn’t park the trailer unless we were a utility company servicing the streets or a production company shooting a film, thus promoting New York City. So I went to a stationery store, and $14 later I had a new letterhead that changed our name to Kenneth Cole Productions, Inc. I used the letterhead to apply for a permit to shoot The Birth of a Shoe Company, and on Dec. 2, 1982, we opened a 40-foot mobile showroom just north of the Hilton. We had shoes, klieg

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lights, stanchions, and a cameraman. Sometimes there was film in the camera and sometimes not. The buyers came, and I used a telephone booth outside the trailer to periodically adjust the orders by color and size. I sold 40,000 pairs of shoes in 3½ days and was off and running. We had $5 million in sales that first year and made a profit of $1 million. Today the company is still named Kenneth Cole Productions to remind us of the importance of storytelling and resourcefulness. In the early years I had no real plan. I figured it out as I went, which is easier to do when you don’t have a lot of staff and overhead. Back then I believed my job was just to create great-looking shoes. That wasn’t true. I learned that the shoes needed to fit, be comfortable, and not fall apart. I had to invest more in the construction of the shoe, not just the look. I also learned that my job wasn’t to tell people what to wear but to find out what they wanted, and to give it to them in an unexpected way. So I’d spend time in the stores to see what people were trying on. I’d go to clubs at night because people would dress to impress, and I’d try to interpret what they wanted. To expand, I could either find more people to sell shoes to or find more things to sell to the same people. I chose to sell in more categories. First I turned to guys. In 1984, there wasn’t a fashionable part of the busi-

September 15, 2016

A SOCIAL AGENDA AT THE OFFICE KENNETH COLE

Founder of Kenneth Cole Productions

WE ALL WAKE UP in the morning and look at what we need to do to balance the personal and the professional. In my case, I added community engagement to the mix and brought my social agenda to work.

TODAY YOU HAVE to monitor message and impact. What is the return on the investment? Community engagement is still ROI, but it’s return on involvement. We encourage other businesses to find their voices and connect with the greater community, which is the hand that feeds them. In the past we used to work hard so we could give back later. But if you make giving part of the journey to success, it makes the journey more meaningful.

ness for men. As a creative person, it’s not about seeing what’s there but seeing what’s not there. So I started designing shoes I wanted to wear, which was a luxury, and put them in stores. Then came women’s handbags and leather outerwear. I was competing with bigger brands, so we started advertising. At first, our ads were mostly tongue in cheek. But in 1985 we launched the AIDS campaign, which changed the brand forever. I wanted to speak to our audience about not just what they stood in, but what they stood for. At the time, the Live Aid and We Are the World campaigns were going on about starvation in Ethiopia. I was shocked that no one

was saying anything about AIDS. So we did a campaign with photographer Annie Leibovitz shooting some of the biggest models in the industry in support of Amfar [American Foundation for AIDS Research]. It changed the culture of the company. From that point on, we found other initiatives the company could support. In 1994 I took the company public. We aggressively rolled out stores to have a direct relationship with the consumer and started to expand globally. I had never had debt, and going public allowed that to continue. Over time, it got harder to make tough decisions in the public arena, so a few years ago I decided to become smaller to get bigger and [closed a number of stores]. I wanted to go into a new business model with e-commerce, so we rebranded and now speak about “the urban uniform for the courageous class.” Today, design is not proprietary because of the Internet and social media. What is proprietary is your brand. You need a clear point of view that is consistent and delivers on expectations. The reality is, everybody’s defining their own brand on Facebook, Twitter, and Instagram. Hopefully, they’ll allow you to be part of their brand. We went private in 2012, and I own more than 80% of the company. Success is a very personal expression, and a dangerous one. If you stand on what you’ve accomplished, it gets in the way of what you still need to do. I stay focused on what’s ahead.


The Goldman Sachs & Fortune

GLOBAL WOMEN LEADERS AWARD

Ciiru / 2016 Nominee, Kenya

Photos © Goldman Sachs

Kalyani / 2016 Nominee, India

Celebrating the Power of Women Fortune and Goldman Sachs are pleased to partner and present the annual Goldman Sachs & Fortune Global Women Leaders Award. This year’s award will go to two international business leaders who have participated in the Fortune/U.S. State Department Global Women’s Mentoring Partnership or the Goldman Sachs 10,000 Women initiative, have applied learnings to their businesses, and have effectively demonstrated the multiplier effect of investing in women. The award will be announced October 18 at the Fortune Most Powerful Women Summit in Laguna Niguel, CA. The Fortune/U.S. State Department Global Women’s Mentoring Partnership enables rising-star women from developing countries to work with leaders in the Fortune Most Powerful Women community. The Goldman Sachs 10,000 Women Initiative was launched in 2008 as an effort to foster economic growth by providing women entrepreneurs around the world with business education and access to capital. The initiative has reached women from across 56 countries through a network of 100 academic, nonprofit, and bank partners. Having achieved its initial goal of providing 10,000 women entrepreneurs with business education, 10,000 Women expanded its efforts to address one of the most significant barriers faced by women entrepreneurs around the world – access to capital to grow their businesses. In partnership with International Finance Corporation, 10,000 Women launched in 2014 the first-ever global finance facility dedicated to women to enable up to 100,000 woman entrepreneurs access to capital. This publicprivate partnership has catalyzed new investments from both the public and private sectors, including the Overseas Private Investment Corporation, announced in 2015 by President Obama, and two leading European institutional investors. To date, the facility has committed over $580 million to banks in 16 emerging markets that will enable more than 30,000 women entrepreneurs to access capital.

To learn more about this program visit:

www.GoldmanSachs.com/10000women

@GS10KWomen


VENTURE

GREAT WORKPLACES

THE 50 BEST SMALL AND MEDIUM-SIZE COMPANIES TO WORK FOR NO. 11 Headquarters Victor, N.Y. Annual revenues $71 million Perks Two employees a year get free graduate educations in-house; all staffers are eligible to get paid time off for volunteering.

Inside Dixon Schwabl’s offices.

getting schooled at work

Ad agency Dixon Schwabl offers both formal and informal education inside an employeecentric company. BY JENNIFER ALSEVER

T

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September 15, 2016

COUR T ESY OF DIXON SCH WA BL

HE DECISION to seek a master’s degree can be fraught with worries over the cost, the time, and the ultimate payoff. For Kathy Phelps it took only seconds to say, “Heck, yeah.” Not only was her $30,000 tuition waived, but the teachers came to her office. The weekly three-hour classes were held inside a conference room just one floor down from her desk inside Dixon Schwabl, an ad agency just outside Rochester, N.Y. By the end of the 16-month program, Phelps received her master’s in strategic marketing from Roberts Wesleyan College and also positioned herself as a comer at the company, joining a key leadership committee and getting a raise to boot. Says Phelps, 35, who is now a vice president: “This is where I’m going to be for the rest of my career.” That’s the idea. The on-site master’s degree program, launched a decade ago, is one of many

reasons Dixon Schwabl regularly shows up on Fortune’s list of 50 Best Small and Medium-Size Companies to Work For. The firm has a philanthropic and employeecentered culture where staffers are privy to company financials and enjoy perks like paid time off for volunteering, impromptu ice cream breaks, and scavenger hunts. The company is flooded with résumés and retains 91% of its hires. “We want to motivate people to come to work every day,” says Lauren Dixon, the company’s cofounder and CEO. The master’s program got its start after Dixon discovered that Roberts Wesleyan College, which is a client, needed classroom space to reach students on the east side of Rochester near Dixon Schwabl’s offices. It takes 50 minutes to drive across town from the college campus. Dixon agreed to provide conference rooms for two degree programs, one on strategic marketing and the other on strategic leadership.

She offered up the firm’s 115 employees as guest speakers and provided real-world case studies, as well as access to the agency’s editing, video, and recording equipment. In exchange, the ad agency received two free seats per session in each program. Dixon Schwabl isn’t a typical classroom setting, says Roberts Wesleyan president Deana Porterfield. The lobby has a twisting slide; bright, funky art covers the walls; and there’s the lively bustle of a company engaging in the very processes that the students are studying. “It’s dynamic,” Porterfield says. She’s seeking similar corporate partnerships to house other master’s programs. For Schwabl, sharing office space has created an opportunity for easy, free leadership training. Six Dixon Schwabl employees have received their master’s this way (with four more in the program now), and all have risen to leadership positions in the company. It also raises the agency’s visibility with the students, who could become future employees or clients. “We can shout from the rooftops what we do,” Dixon says. In other words, it’s great advertising.


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SEP TEMBER 15, 2016

PA S S I O N S &

PE R K S V IN TA GE GEMS

Why Estate Jewelry Is Sparkling

No longer considered Grandma’s leftovers, vintage and antique baubles are in high demand. BY STACY PERMAN

A L L PHO T OGR A PHS COUR T ESY OF SO T HEBY ’S

E

VERY COLLECTORS’

market has its turning point. For estate jewelry, it may well have been 1987, when a dazzling array of jewelry that the Duke of Windsor had bestowed on his duchess, the former Wallis Simpson, went under the hammer at Sotheby’s. It sold for over $50 million—six times the expected figure. “The Duchess of Windsor sale really brought [estate] jewelry into the realm of art,” says Frank Everett, senior vice president and sales director of jewelry at Sotheby’s.

ON THE BLOCK: This 18-karat gold, sapphire, and diamond pendant necklace and ear clips by Van Cleef & Arpels are set to be auctioned at Sotheby’s in late September.

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PASSIONS & PERKS

VINTAGE GEMS

1

2

3

4

Since then, like an upmarket entrepôt, the major auction houses have become a glamorous funnel for storied jewels, a source to acquire rare, one-of-a-kind handcrafted pieces—and perhaps make an investment too. Fueled in part by the global expansion of wealth and the spike in financially independent women buying jewelry for themselves, Sotheby’s jewelry sales hit $571 million in 2015, a 46% jump from $390 million in 2011. On Sept. 22, Sotheby’s is launching its two-day “Important Jewels” sale in New York, featuring a selection of signature pieces from every important era and every celebrated maker. From exquisite diamond rings to precious stones fashioned into fanciful brooches and

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sumptuous necklaces, the Sotheby’s sale showcases an ornate 18-karat gold, sapphire, and diamond necklace and ear clips with a detachable 84.90-carat, cushion-cut, yellow Ceylon sapphire by Van Cleef & Arpels, estimated to sell at between $150,000 to $200,000. Another star is a 1942 platinum and diamond brooch shaped into a curved bow, also by Van Cleef & Arpels, estimated to bring between $50,000 and $70,000. Such baubles are alluring, but do your due diligence. “Jewelry can be a bit of the Wild West,” says Fiona Druckenmiller, a former Dreyfus hedge fund portfolio manager who opened New York’s FD Gallery in 2010. First, pay attention to authenticity and rarity. The major auction houses, such as Sotheby’s and Christie’s, stand behind the authenticity of the pieces they are selling; they usually provide

SIGNATURE PIECES 1 An intense-yellow 30-carat diamond ring. 2 Bulgari’s diamond brooch. 3 A platinum, colored stone, diamond, and enamel Tutti Frutti bracelet by Cartier. 4 A Van Cleef & Arpels brooch set with single-cut and old European diamonds.

gemological certifications. Try to buy from a known and reputable dealer. When it comes to buying rubies and sapphires, value is based on quality, cut, carat, clarity, condition, and country of origin. For instance, the finest rubies hail from ancient mines in Burma (now Myanmar) and are prized for their clean, “pigeon-blood” red. In the world of antique, vintage, and estate jewelry, signed pieces by the maker can mean the difference between a lovely item and an appreciating asset. A signed object also makes it harder to knock off. The blue-chip makers remain the standard-bear-

ers: Bulgari, Cartier, and Van Cleef & Arpels continue to be coveted by savvy collectors. Currently, according to Everett, mid-century Van Cleef & Arpels and 1970s Bulgari are highly desired. That said, Art Deco remains timeless, with objects by Cartier the most sought-after. “Certain pieces,” says Everett, “appreciate in value like a Rothko and can be a wise investment.” Singular among them are Cartier’s signature “Tutti Frutti” jewels. Created in an opulent style that first became popular in the 1920s, the pieces combine Indian carving techniques and French platinum and diamond mountings. In 2014, Sotheby’s set a world record, selling a Tutti Frutti bracelet owned by the late Evelyn Lauder for $2.1 million. There still are relative bargains to be found. An unsigned, classic Art Deco diamond-strap bracelet is one of them. “In the 1920s they pumped them out,” Everett says. “You’re paying for the materials, and the quality was quite high.” According to Everett, such a bracelet at auction can usually be had for between $15,000 and $20,000, compared with a contemporary piece with similar materials and carat weight that may sell for as much as $100,000. Then there are those objects that collectors view as holy grails. Topping that list are the pieces made by the Parisian jeweler JAR. “Every piece by JAR is unique,” says Everett. “Women who own them don’t tend to give them up. Maybe two or three surface at auction in a year.” After all, a brilliant Rothko may dazzle, but you can’t wear one out to dinner.


PASSIONS & PERKS

DINNER AT YOUR DOORSTEP

Bring HomeCooking to Your Kitchen

Blue Apron is selling more than just meal kits; it is trying to inspire a new generation of foodies. BY JOHN KELL

I

T TOOK Matt Wadiak

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Produce, protein, p and all the e necessary fixings for a tasty dinner. Top: Too many cooks? Cofounders (from left) Papas, Salzberg, and Wadiak bring unique skills to perfect the Blue Apron recipe.

September 15, 2016

Blue Apron began selling just 20 meal kits (recipes and ingredients); today it is a $2 billion “unicorn” (a private startup valued at $1 billion or more) with 4,000 employees, selling 8 million meal kits a month. Wadiak is the visionary behind the eclectic mix of recipes, which rely on farmfresh foods and spices. As a child, Wadiak grew up watching cooking shows like Julia Child’s The French Chef and Graham Kerr’s The Galloping Gourmet, and he fell in love with the craft.

Trained at the Culinary Institute of America, he worked for revered chefs Charlie Trotter and Paul Bertolli. In 2004, Wadiak founded a New York catering company. Then, in 2012, Matt Salzberg, a Harvard MBA with venture capital experience, and Ilia Papas, an engineer who had previously worked at Walmart, hit on the idea of launching a food startup, and Salzberg’s wife suggested they meet Wadiak. “It was as simple as saying, ‘Wouldn’t it be

PHOTOGRAPH BY

CHRISTOPHER L ANE

BOX : COUR T ESY OF BLUE A PRON

just a few minutes to whip up a summer green salad with green beans and carrots in a mustard shallot red vinaigrette. In about a half-hour, Wadiak, with my (very little) help, had prepared the main course—grilled barramundi on top of an heirloomtomato salad, with smashed crispy fingerling potatoes. If Wadiak had his way, all Americans would be cooking this way at home. “We want to get people back in the kitchen again,” says Wadiak, a 38-year-old cofounder of Blue Apron, a meal-kitdelivery startup. “Food is such an important part of our culture, and sharing that with another person is perhaps one of the most intimate things you can do.” Launched four years ago,


MORE MAILBOX MEALS

With the home-delivery meal-kit business booming, there are a plethora of services to choose from. Here’s a sampling of four with different pricing and options.

MARTHA & MARLEY SPOON RECIPES BY A DIY MOGUL

COUR T ESY OF T HE COMPA NIES

This newly launched service, which costs between $8.70 and $12 per meal, features Martha Stewart’s recipes. The company says its meals can be prepared and cooked in 40 minutes or less. Ingredients emphasize seasonality and smallbatch partners, such as dairy from Vermont Creamery and Brooklyn Cured meats.

CHEF’D

HELLOFRESH

GREEN CHEF

Unlike most rivals, this brand isn’t based on a subscription model, allowing customers more flexibility to order meals whenever they want. Prices vary between $6 and $17 per serving for Chef’d, which also recently partnered with the New York Times to sell kits based on the publication’s cooking website.

HelloFresh, which sells kits that cost less than $10 per meal, is one of the few to establish an international brand. It has partnered with British celebrity chef Jamie Oliver, who has been contributing recipe ideas for users to try at home. The dishes draw on global cuisine trends but are staples that many Americans can recognize.

Meal kits face criticism for perceived wasteful and cumbersome packaging. Green Chef aims to combat that by using recycled cardboard, insulation that can be added to compost, and recycled paper. It also tailors meals to specific diet preferences, including gluten-free, paleo, and vegan. Meals cost between $10.50 and $15 each.

ONLINE MEAL MARKETPLACE

awesome if someone could deliver a recipe and all the ingredients we need to make a meal?’ ” says Salzberg, explaining the premise behind the company. (Salzberg was so passionate about the idea that it became part of his wedding vows: His wife pledged to always wash and dry the fresh produce.) Blue Apron aims to satisfy American consumers’ desires both for fresh and healthier foods and for convenience; it cuts out the grocery store and yet is generally less

CHEF JAMIE OLIVER APPROVES

expensive than dining out. Blue Apron meal kits, which come with a mix of proteins, raw produce, and precise oils, spices, and other cooking ingredients, cost $9.99 per person or $8.74 each for a family plan (including the cost of delivery). The service’s popularity across the U.S. has helped the company secure $193.8 million in five rounds of venture capital funding, according to CrunchBase, and led to talk of an initial public offering. It has also inspired

ECO-FRIENDLY KITS

competitors: More than 150 meal-kit-delivery services are vying for business in the U.S., including rivals like Chef ’d and HelloFresh. There is room for the sector to grow, however. Only 3% of U.S. adults have tried a meal-delivery service within the past year, says the NPD Group. Blue Apron hopes to stand apart with another selling point: It takes sustainably sourced food seriously. It works directly with 150 farms, partnerships that yield fairy tale eggplants, nettle pasta,

and other ingredients not often found at the local grocery store. That said, with Americans spending, on average, $4 per meal when cooking at home, it remains a question how big this segment can get. “You are going to have to convince consumers there is added value if you are going to spend more than twice as much for that meal,” says Darren Seifer, food and beverage industry analyst at NPD. With that important budgetary calculus in mind, I set out to test the kits for myself. I substituted my usual homemade dinners of grilled cheese and frozen pizza for eggplant tagine served with couscous, or brown-butter gnocchi with summer squash and almonds. In short: no comparison. After cooking with the kits for three nights, I saw some other benefits too. I learned that foods I had avoided—like eggplant and soft-boiled eggs—I actually enjoyed. Blue Apron’s team tells me that was probably because I had been cooking those foods improperly or hadn’t found the right recipe yet. “Any ingredient can be delicious if composed as part of a great dish,” says Salzberg. That is part of the vision inspiring Blue Apron’s creators. “It isn’t about creating foods that are extra fancy,” says Wadiak. “It is about creating foods that are tasty, good, simple, and fun to cook with.”

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SEP TEMBER 15, 2016

TECH PERSON OF IN T ERE S T

T OM DOOLE Y: MIK E COPPOL A—GE T T Y IM AGES FOR M T V

Belinda Johnson Airbnb AGE: 49 FROM: Houston CLOSE QUARTERS: When Airbnb’s chief business affairs and legal officer joined the homerental company in 2011 as general counsel, it was still small enough that everyone ate lunch together. HAMMER HOME: As Airbnb has grown—it hit the 100-million-guest milestone this summer—so have the forces that oppose it. Johnson oversees the strategy to push back and find resolutions. “Every challenge that comes up is just a problem that needs a solution,” she says. GIMME SHELTER: In the past year Johnson hired

TICKER TAPE A collection of curiosities

political strategist Chris Lehane to mobilize Airbnb’s host community and laid the groundwork for its lawsuit against San Francisco (objecting to changes to the city’s short-termrental laws). WAR ROOM: Johnson learned leadership lessons from her father-in-law, former Dallas Cowboys football coach Jimmy Johnson. “He wasn’t afraid to take risks,” she says, noting his controversial trade of star running back Herschel Walker for players and draft picks. “It ended up being an amazingly brilliant way to rebuild the team.”—Leigh Gallagher

“The Chinese market is the fastest adopter of new trends.” —Xiaomi vice president of global operations Hugo Barra

P H O T O G R A P H B Y BENJAMIN RASMUSSEN

SOURCE: CNBC

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IDEAS THAT ACTIVATE YOU.

OCTOBER 17-23, 2016


TECH

THE FUTURE IS NOW

3D Robotics’ aerial data system in action. Autodesk invested in the company in June as part of a broader bid to serve the construction industry.

COUR T ESY OF 3D ROBO T ICS; DOOLE Y: MIK E COPPOL A—GE T T Y IM AGES FOR M T V

A Drone for Every Job Site

As techies dream of delivery drones, builders in the construction industry eye the devices as a tool to save billions of dollars. BY CLAY DILLOW

T

HE $8.5 BILLION global construction industry isn’t exactly known for its efficiency. The U.K. Green Building Council estimates that 15% of materials delivered to construction sites end up in landfills, the result of mismanaged scheduling and purchasing. The American Institute of Architects believes building-related waste makes up anywhere from 25% to 40% of America’s solidwaste stream. With construction spending in the

U.S. totaling $1.13 trillion this year, those losses add up to more than $160 billion in waste—and that’s just in America. With that kind of scale, small gains in efficiency can translate to billions in savings for the construction industry, says Tristan Randall, strategic projects executive at Autodesk. The San Rafael, Calif., company’s AutoCAD design software is used by designers the world over to model everything from office furniture to buildings to aircraft components. It also happens to be one of the world’s largest makers of building information modeling (BIM) software, used by

“It paves the way for our future.”

designers, engineers, and architects to digitally model the physical objects they seek to create. Autodesk doesn’t make hardware; that’s the domain of its customers. But as construction companies increasingly turn to unmanned aerial vehicles— drones—to reclaim some of those wasted billions, the software maker finds itself on the front lines of a hardware revolution. “Our vision is basically a drone on every construction site,” Randall says. “And we think that’s a feasible vision.” He isn’t the only one who thinks so. The construction industry has emerged as a

Viacom interim CEO Tom Dooley on the ouster of Philippe Dauman

V I ACOM

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TECH

THE FUTURE IS NOW

“The last thing you need on a construction project is more data that you don’t have time to process.”

on a construction project is more data that you don’t have time to process.” Last year Autodesk began moving to address the discrepancy. In November it invested an undisclosed sum in Skycatch, which makes hardware and software for the construction industry. It followed that with a June investment in 3D Robotics, with which the company is developing a specialized drone equipped to scan built environments and beam data directly to the cloud. Autodesk also developed its own cloud-based design platform, called Forge, intended to help its customers quickly obtain and manipulate data. The notion of an endto-end data flow is hardly

cutting-edge for the technologists in Silicon Valley and beyond, but it’s a big upgrade for the construction industry. Still, it’s early days, says Dominique Pouliquen, a drone-initiative coordinator at Autodesk. “We are still in the learning phase with our customers as to what data they really need to extract meaning,” he says. “There are still discoveries to be made.” Competitive construction companies aren’t waiting around, says Skycatch CEO Christian Sanz. “It’s going to be less about hype and more about real, tangible ROI,” he says, using the acronym for return on investment. “And it’s going to rewrite how people do construction.”

A 3D virtual model of the Red Rocks Amphitheatre in Colorado, built with Autodesk software using drone data.

530 million Number of gamers in China in 2015 (1.7 times the U.S. population) IDC

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COUR T ESY OF AU T ODESK

key driver of the nascent commercial drone industry, which some analysts believe will top $5 billion by 2020. PwC estimates the current value of labor and services likely for replacement by drones to be $127.3 billion. More than one-third of that comes from the infrastructure and construction industries. For builders, the case for return on investment is straightforward. Drones are cheaper to fly than manned aircraft and faster than human surveyors, and they collect data far more frequently than either, letting construction workers track a site’s progress with a degree of accuracy previously unknown in the industry. With the right computing tools, builders can turn sensor data into 3D structural models, topographical maps, and volumetric measurements (useful for monitoring stockpiles of costly resources like sand and gravel). Collectively, that intelligence allows

construction companies to more efficiently deploy resources around a job site, minimize potential issues, trim costs, and limit delays. Several technology companies—senseFly, DroneDeploy, Skycatch— have developed software for this growing market, but the products often leave much to be desired, says Tomislav Žigo, director of virtual design and construction at Clayco, a Chicago firm that uses drones on its job sites. “Where it really breaks down is the processing and analytics,” he says. “The software industry needs to provide us solutions. They were very quick to jump on the bandwagon and say, ‘Here’s more data,’ but the last thing you need


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TECH

A BOOM WITH A VIEW

Why startups die slow deaths

Young tech companies are supposed to “fail fast,” but founders just can’t let go. BY ERIN GRIFFITH

L

IFE IS A SERIES of launch parties when you write about early-stage startups every day. Between 2012 and 2014, I profiled 488 different startups, from 10gen and 10sheet to Zynga and Zypsee. Conventional wisdom says 80% to 90% of them were doomed to fail. But when I recently tried to measure my hit rate, I found it wasn’t easy to determine which companies had actually succeeded or failed. No one throws a party to announce that a startup is slowly fizzling out. The list’s spectacular successes were rare, as I expected. But so were the spectacular failures. Most startups I profiled didn’t publicly flame out

4,200

Tech startups in India, the third-highest total in the world

A S S O C I AT E D C H A M B E R S O F C O M M E R C E A N D I N D U S T R Y O F I N D I A

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19%

or melt down. (A notable exception: Fab.com.) Rather, they’re living on in a state of limbo. Their websites are still accessible and their apps are still available, but they haven’t raised money in a long time. Often their Twitter accounts are dormant, their hiring pages are quiet, and their apps are buggy and in need of an update. Some have faced hurdles such as layoffs or a departed cofounder. Some have simply lost a sense of momentum— practically a death sentence in the technology industry. Whatever the case, they’re stuck in startup purgatory

no one throws a party to announce that a startup is slowly fizzling out.

Share of CIOs at the top 1,000 U.S. companies who are female

K O R N / F E R R Y I N T E R N AT I O N A L

with little hope of escape. The situation is a real problem for an industry built on hypergrowth. Venture firms only need one blockbuster deal per fund to ensure a good return—which means that failure isn’t just expected, but built into the ecosystem. “Fail fast,” the Silicon Valley mantra, is another way of saying, “If it’s not working, stop wasting everyone’s time and money.” So why are startups failing to fail fast? For starters, if we are in a tech bubble, it has yet to dramatically burst. Such an event would quickly scare off the new sources of capital keeping startups alive—crowdfunders, hedge funders, mutual funders, your rich uncle who loves Shark Tank, pro athletes, Shakira. (Even 7-Eleven and Sesame Street have launched venture funds.) But it’s not just freeflowing money keeping startups afloat. They endure because our entrepreneurobsessed culture loves tales of Against-All-Odds Founders Who Never Gave Up. Startup mythology states that founders must ignore those who say their idea won’t work. The reality is more complicated. The tech hero’s journey, typically recounted by successful entrepreneurs, conveniently skims over the real success factors: network, timing, and lots of luck. Tenacity is crucial. But so is knowing when to quit.

FOR MORE Follow Erin Griffith on Twitter (@eringriffith) or at fortune.com/boom.

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GREG BRENNEMAN

AMANDA LINDHOUT

Chair of Growth Summit; contributing writer for FORTUNE

CEO of CCMP Capital; author of Right Away and All at Once: Five Steps to Transform Your Business and Enrich Your Life

Co-author of A House in the Sky: A Memoir

HERMANN SIMON

RORY VADEN

ALEX OSTERWALDER

Author of Confessions of the Pricing Man: How Price Affects Everything

Author of Procrastinate on Purpose: 5 Permissions to Multiply Your Time

Co-author of Value Proposition Design: How to Create Products and Services Customers Want (Strategyzer Series)

JAY HARMAN

DAVID EMERALD WOMELDORFF

CAL NEWPORT

Author of The Shark’s Paintbrush: Biomimicry and How Nature Is Inspiring Innovation

Author of The Power of TED* (*The Empowerment Dynamic)

Presented by

Author of Deep Work: Rules for Focused Success in a Distracted World


I N V E ST AU T O S T OCKS

Why self-driving cars could help auto stocks do a u-turn

ORIGIN A L PHO T OGR A PH: JEFFRE Y MIL S T EIN

Like clockwork, automakers’ stocks get pummeled when the economy slows down. But autonomous-driving technology could help the industry break that cycle. BY RYAN DEROUSSEAU

O

NE OF THE AUTO INDUSTRY’S worst attri-

butes, from an investor’s standpoint, is its predictability. While car companies benefit when the economy rises, the road always turns back downhill, and automobile sales inevitably shift into reverse. Industry watchers can see this dynamic playing out right now, even as 2017 models begin to roll onto dealers’ lots. In the first half of this year the

auto industry’s revenues hit $151.8 billion, up 7.8% from the previous year. Vehicle sales are on pace to top the nearly 17.5 million cars and trucks sold in 2015. But the current run is “in extra innings,” says Adam Jonas, an analyst for Morgan

Stanley: After six years of almost uninterrupted growth, August car sales dropped a sobering 4% year over year. And investors are already anticipating the end of the party. The S&P 500 Automobile Manufacturer’s index has dropped 8% this

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INVEST

AUTO STOCKS

year. Shares of General Motors, Ford, Fiat Chrysler, Toyota—heck, even tech darling Tesla—are all well below their 2014 or 2015 peaks. (For more about how CEO Mary Barra is steering GM, see page 84.) So are auto stocks doomed to the same old repetitive commute from peak to trough? Maybe not. As cars become the epicenter of innovation, there’s a factor in play this time around that was absent the last time carmakers struggled. That, of course, is the rise of autonomousdriving technology, which could upend the business model of the industry in the not-too-distant future—in ways that carmakers and their investors could profit from. While it’s far too early to pick winners in the selfdriving-car arms race, the current down cycle in auto stocks could let investors place some early bets at bargain prices. Auto industry insiders believe that in a world where self-driving tech becomes commonplace, the whole culture of driving will shift. Fewer people would own vehicles, and more would rent cars only when needed. (Think Uber, all the time, but driverless.) On the surface that sounds like a 70-car pileup in the making for automakers: Fewer car sales, after all, should mean less revenue. But there are two factors that ease the pessimism. The first is that any shift will be both gradual and

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THE END OF THE PARTY

NEW-CAR SALES are far above

their Great Recession lows, but auto investors generally believe that a reckoning and a downturn are near. 17.8

18 MILLION

16

14

ANNUAL LIGHTWEIGHT VEHICLE SALES (monthly rate, seasonaly adjusted)

12

10 2011

’12

’14

2016

SOURCE: U.S. BUREAU OF ECONOMIC ANALYSIS

incomplete. Car-sharing works best in densely packed cities like New York or San Francisco, for example. And autonomous driving won’t fit the needs of all drivers, so the automakers will still have a big “traditional” car customer base for a long time. What’s more, some analysts believe an autonomousdriving culture may actually give automakers a more profitable business model— one in which they sell services as well as vehicles. Citigroup analyst Itay Michaeli says automakers will profit not just by selling vehicles (to consumers and to ride-sharing services) but

September 15, 2016

also through “revenues per mile” driven. Ford or GM could sell you or rent you the ride, and sell you services you consume while you’re not driving (streamed movies, for example). Michaeli says this model could let car manufacturers bring in double the amount of profit that they make today, and better yet, move “beyond the cycle” of consumer-driven peaks and troughs. There’s one big problem with this theory: “Somebody has to create a compelling business model,” says Susquehanna International Group analyst Matthew Stover, and nobody has done it yet. So while automakers angle to make it happen— whether through partnerships, R&D, or acquisition— investors should think of any present-day auto stock play as both a bet on today’s car industry and a very speculative bet on the future. AMONG THE COMPANIES with a big U.S. market presence, General Motors has made the biggest public commitment to the new generation of driving tech. Along with other moves, it has invested $500 million in ride-sharing service Lyft and spent just over $1 billion to acquire Cruise Automation, a Silicon Valley startup that makes sensors and software for self-driving cars. Investing in GM based on those factors alone would be “a really speculative move,” notes Annie Rosen, portfolio manager of the Fidelity Select Automotive Portfolio. But it

looks like a decent buy for other reasons. At under $32 a share, GM trades at just above four times earnings, which is far below the industry average of nine (and of course, far below the S&P 500’s absurd 20). Welcome to life in the auto cycle. GM has authorized $9 billion to buy back stock through the end of 2017: It’s trying to convince investors that it will still grow its earnings, even if a recession occurs. “When you went bankrupt last time” there was a recession, Stover says, “the market is not going to give you the benefit of the doubt.” If investors have avoided GM of late, they’ve absolutely punished Ford Motor. Its shares have fallen 28% over the past 18 months, partly because the company made an illtimed bet on eco-friendly cars, which haven’t sold as well since the price of gas plummeted. Through August, sales of the Fiesta and Focus, which feature Ford’s climate-friendly EcoBoost engine, are down 17% for 2016, and Ford’s sales for that month were down 8% year over year. “The stock has been under really great pressure,” says Stover, who adds that “Ford has validated the fears” by downgrading its outlook. The sales slowdown hasn’t stalled Ford’s plans on the autonomoustechnology front, though. The company has targeted 2021 as the year it will release a vehicle without a steering wheel or pedals,


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INVEST

AUTO STOCKS

working with four startups to accomplish the feat. Morgan Stanley’s Jonas says that relatively speedy timetable is intended to give Ford an edge in the “fight for brains,” as it competes with Apple, Alphabet, other tech firms and the rest of Big Auto to attract software talent. No discussion of New Age vehicles can leave out Tesla Motors, since CEO Elon Musk’s pioneering firm already offers some—limited—autonomous technology in its cars through its autopilot feature. Tesla hasn’t been as vulnerable to economic cycles as other automakers, since its luxury-oriented customers can afford to pay $90,000 or more for a vehicle. Its Model 3 version, which will start at around $35,000, is scheduled for delivery in late 2017; that, oddly enough, could make the company more recession-sensitive, as average-income consumers become customers. But given its still hypothetical profits—and its growing cash-flow problem, which Fortune has detailed—many investors are wary of Tesla’s

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GEARING UP FOR A LONG DRIVE

It’s likely to be a decade or more before self-driving technology makes a significant impact on the revenues of automakers and auto suppliers. But that isn’t stopping big companies in the field from souping themselves up for the race to come.

GENERAL MOTORS

FORD MOTOR

TESLA MOTORS

DELPHI AUTOMOTIVE

BIG TECH PLAYS: Spent just over $1 billion to buy selfdriving tech startup Cruise Automation; invested $500 million in ride-sharing service Lyft. BIG PICTURE: North American sales jumped 11% in the first half of 2016, but the stock trades for barely four times earnings. GM plans $9 billion worth of stock buybacks to encourage shareholders to stick around.

BIG TECH PLAY: Aims to release a vehicle without a steering wheel or pedals by 2021. BIG PICTURE: Ford’s stock has tumbled by almost a third over the past 18 months, due in part to the oil crash— the company made a big commitment to smaller cars, whose popularity has declined as gas prices dropped. Of course, what goes down may come up again; in the meantime Ford pays a dividend of nearly 5%.

BIG TECH PLAY: Acquiring SolarCity in a move that, among other things, could make Tesla’s battery technology cheaper and more powerful. BIG PICTURE: The arrival of the massmarket-oriented Model 3 late next year could be the turning point that boosts the company to profitability. But some investors fret that the SolarCity deal could muck up the company’s finances.

BIG TECH PLAY: Testing its sensors in self-driving cars in Singapore. BIG PICTURE: Selfdriving tech accounts for no more than 2% of Delphi’s revenue, but its deep experience in automotive electronics and safety systems could give it an advantage in the long run. Morgan Stanley auto stock analyst Adam Jonas sees Delphi as “well positioned” for the technology’s evolution.

stock at its current prices. The company’s impending acquisition of SolarCity also muddies the investing outlook. The fact that a future Tesla would sell not only vehicles and car batteries but also solar panels “dilutes the whole story,” says Bill Selesky of Argus Research. The Tesla saga just underscores how hard it is to find autonomousdriving “pure plays” among publicly traded companies. Most makers of back-end autonomous sensors and software are fairly widely diversified. For example,

September 15, 2016

Delphi Automotive, the big maker of electronic, engine, and safety systems, creates sensors for autonomous driving, including some used in a pilot project by the Singapore Land Transport Authority. But its autonomous efforts account for no more than 2% of its $15 billion in annual revenue right now. “We see them as well positioned” as the technology unfolds, says Jonas, but “not a safe haven” against traditional cycles in the auto market. MobilEye may be the only pure autonomous play

available. That company makes software and sensors that primarily work at what regulators call the tier-2 level of autonomy, where cars handle some functions on their own—the level you’re likely to see soonest on dealers’ lots. But as car companies build software internally, Mobileye’s market share could drop. Plus, the stock is not cheap. The evolution of the auto industry over the next decade is going to be fascinating to watch. But it will be a long time before it creates any investing slam dunks.


SEPTEMBER / 16

TRENDS IN AIR TRAVEL: © SAMI SERT/ISTOCK

WHAT YOU NEED TO KNOW CHECK IN

WHAT’S UP IN THE AIR?

The latest news to help you optimize your time when you travel.

Road warriors can expect five big changes ahead in air travel.

E X E C U T I V E T R AV E L

1


FROM THE EDITOR

Loyalty program pundits say airline miles are becoming less relevant because they’ve been so devalued over the past couple of years. Now I focus even more on what really has always been most important to me —attaining elite status. While the devaluation of miles is a fact, elite status signif icantly impacts the results of my business trips. Business travel can be hard. So simple things like being greeted

CHECKIN

by name, priority boarding and the opportunity to be upgraded change my trip for the better. Despite pundits’ claims, loyalty programs still mean a great deal to the business traveler.

Thompson Seattle

BY K A R E N G O ODW I N

SWEET DREAMS NEW HOTELS COMING TO KEY U.S. BUSINESS MARKETS

in Florida, Dream South Beach Miami. Spanish chain Iberostar Hotels & Resorts opened its first U.S. property in New York in June and will open a second in Miami in December, while Thompson Hotels this summer opened Thompson Seattle—the brand’s first property in the Pacific Northwest—adjacent to Pike Place Market. Thompson Manhattan hotels include The Beekman downtown, Gild Hall in lower Manhattan and Smyth Hotel in TriBeCa. Other U.S. properties—Thompson Chicago, on the city’s Gold Coast and Thompson Nashville, set to open this fall.

IN BRIEF winter. per week.

2

FO R T U N E E X E C U T I V E T R AV E L

• SEPTEMBER

FROM TOP: COURTESY OF DNA SEATTLE; COURTESY OF NIC LEHOUX

Several hotel groups will soon open a flurry of properties in the U.S. The Dream Hotel Group plans to debut six new locations in the U.S. and one in Qatar by 2019. Dream Dallas, Dream Nashville, Dream Palm Springs and Dream Times Square in New York are expected to open in 2018, while Dream Long Island City in Queens, N.Y., is scheduled to open in 2019, as is Dream Doha in Qatar, its first hotel in the Middle East. Dream Hollywood in Los Angeles is slated to open this fall. There are already two other Dream hotels in Manhattan—Dream Midtown and Dream Downtown NYC—as well as one


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FROM THE FLIGHT DECK

CHRIS COOKE has been a pilot with a major domestic carrier for more than 20 years and currently flies long-haul routes on the 777. He began his career with the U.S. Marine Corps, received Navy flight training and was a Top Gun graduate.

Smooth Landings AUTOPILOT MAY HAVE CONTROL ON YOUR NEXT

W

hen I meet someone for the first time, they’ll often ask what I do for a living. After I answer, there’s usually a standard set of questions about the latest aviation incident or some other airline-related topic. Typically, someone wants to know if we even fly the planes anymore. The answer is an emphatic yes! We might be on the autopilot a great deal of the time in cruise and almost always in bad weather, but there’s a pilot manipulating the flight controls constantly through use of the autopilot. In good weather, it is common for the pilots to “hand fly” the airplane during climbs, descents and landing. But when the weather is particularly bad, pilots will often engage the autopilot and fly the airplane by twisting knobs and pushing buttons. While this might seem like an effortless activity, it’s not. Even with the aircraft on autopilot, getting it into the proper configuration at the appropriate speed with the flaps extended and the landing gear down is very demanding. Many are surprised to learn that most of the larger jet aircraft have the ability to land via the autoland function and are required to do so when the weather drops below a certain minimum standard. This is the safest way to deliver passengers to airports in bad weather. If an airplane and its pilots are certified to autoland, your aircraft will be able to touch down safely and get you to your meeting, while other aircraft may need to circle overhead in a holding pattern or divert. After the initial descent out of high altitude, your aircraft will likely make multiple turns and further descents. All the

4

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• SEPTEMBER

low-altitude turning and vectoring from Approach Control is necessary to put the aircraft in the proper sequence for arrival at the initial approach point. When the “cleared for the approach” command is received, the pilots will engage the aircraft’s autoland system. Once the system is on, it actually tracks and locks onto a radio signal that is emitted from the point of touchdown on the runway and extends out at a three-degree angle. As the aircraft descends on this angle, a radar altimeter in its belly will alert the aircraft that it is close to the ground, sending signals to the autopilot to initiate the flare so the aircraft lands smoothly. As soon as the main wheels touch and spin up, the autobrakes engage, applying constant brake pressure to decelerate the jet at a selected rate. Once on the ground, the autopilot will track straight down the runway until disengaged by the pilots. Now comes the fun part—exiting the runway and taxiing around the airport in thick fog. Thankfully, all airports have standardized runway and taxiway markings, and all pilots carry detailed airport diagrams. Larger airports have specialized ground radar that can track aircraft movement during bad weather on the ground as well. The excellent commercial aviation safety record of major airlines in the United States can be attributed largely to enhancements and redundancy in automation of ground and aircraft systems—but the most important factors in this impressive safety record are improved training programs and a dedicated group of professional pilots and controllers.

© RICHARD SEAGRAVES

DESCENT—FOR SAFETY REASONS.


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invitation to enjoy indie music at the ocean. Cultural and religious events such as the Dragon Boat, Mid-Autumn and Lantern Festivals showcase traditions, including music and dance from Taiwan’s nine aboriginal tribes. The Taiwan Handicraft Promotion Center is a marketplace for arts and crafts in new and traditional designs from throughout the island.

ECOLOGICAL WONDERS

Cultural Mix, Natural Wonderland Inviting events, from a hot air balloon festival to an international contemporary art fair, villages dedicated to traditional crafts such as pottery making and woodcarving, the world-class National Palace Museum and stunning natural wonders such as Toroko Gorge establish Taiwan as a bucket-list destination. Taiwan is a lush island of subtropical and tropical climates, packed end-to-end with unexpected sights, sounds and experiences.

DO IT ALL

Taiwan’s compactness makes getting around traveler friendly. Bikes, planes, buses, taxis and trains move easily between cultural destinations and natural wonders. Visitors can surf uncrowded waves in the morning, take in a hand-puppet performance in the afternoon and enjoy a world-acclaimed modern dance performance in the evening.

HIGHBROW TO POP

The country’s art scene is vibrant, from the acclaimed Cloud Gate Dance Theatre that dazzles audiences at home and abroad to busy art parks and galleries. The HO-HAIYAN Gongliao Rock Festival is an open Passengers enjoy personalized extras such as turn-down and sommelier-style wine services, cozy flat-bed seats and touch-screen entertainment systems with connections for electronic devices and charging outlets.

Taiwan’s unusual geography creates an ecology that invites bird watchers, bicyclists, divers, ecotourists, fishermen, hikers, kayakers, photographers, runners and more. Purple Butterfly Valley presents a graceful, seasonal color scape. Scenic roadways and the annual Cycling Festival invite rides through Taiwan’s marble mountains, past mist-veiled waterfalls and around fertile fields. Closed, pre-World War II gold mines and Yeh Liu Geo Park inspire imagination and selfies.

5-STAR FLIGHTS

Business and leisure travelers can fly to Taiwan on EVA Air and enjoy the airline’s top-rated services from check-in to baggage claim. EVA has been awarded 5-Stars by SKYTRAX and Travel + Leisure readers ranked it among the World’s Best Top 10 International Airlines for 2016. Passenger service is a priority. On the ground and in the air, travelers encounter staff who weave consideration, interaction and mindfulness into frontline services.

UPSCALE EASY CHAIR In the comfort of EVA’s Royal Laurel Class business cabin, passengers enjoy personalized extras such as turn-down and sommelierstyle wine services, cozy flat-bed seats and touch-screen entertainment systems with connections for electronic devices, charging outlets and, on most of EVA’s Boeing 777300ERs, Wi-Fi and global roaming. Accompanied by a glass of fine champagne or wine, passengers can dine on steak, lobster or a healthier choice. Then, with EVA’s luxurious amenities, they can drift off to sleep in comfy pajamas and freshen up with high-end spa products from Rimowa Amenity Kits.

MORE FLIGHTS From gateways in Houston, Los Angeles, New York, San Francisco, Seattle, Toronto, Vancouver and, starting November 3, Chicago, EVA gives travelers more flights from North America to Taiwan with more easy, one-stop connections to more destinations throughout Asia and Mainland China than any other airline. ■


WHAT’S UP IN THE AIR?

RECYCLING OF CABIN CLASSES

For international trips, the old order of fi rst class, business class and economy class is slowly being replaced by business class, premium economy and economy. There are exceptions, but as international carriers take delivery of new long-haul aircraft, many are coming without fi rst-class cabins–and carriers often plan to refit their existing fleets to the same standard. Why? As airlines overhaul business class, they are installing features that used to be characteristic of first class, especially seats that recline fully fl at for easy sleeping and provide aisle access to everyone. As business class becomes more posh, many companies no longer allow travelers to spend extra for first class, even on the longest fl ights. And as business class moves to the front of the plane, it is often being replaced by a new middle-cabin category called premium economy–now available on more than two dozen foreign international airlines. Offering bigger, more comfortable seats and better services and amenities than regular economy, premium economy has been late coming to big U.S. carriers, but it is coming.

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• SEPTEMBER

2.

MORE PRIVATE AIRCRAFT TRAVEL

Fed up with crowded airports and long security lines, more executive travelers will abandon commercial airlines in favor of private jets and other small aircraft. New business models and app-based booking systems are making private aircraft travel more efficient and often less expensive (in some cases reducing the cost differential between first-class commercial and private jet travel to 20–30 percent or less). Companies like JetSmarter, Skyjet, JetSuite and FlightTime, following an Uber-like concept, offer smartphone apps that instantly search available inventory for private jet charters, then process booking and payment. It’s especially cost-efficient for company groups that can fill a small plane, and the technology also helps save money by looking for “empty legs” of charter flights that can take last-minute bookings. Another new approach is “all-you-can-fly”: Individuals who pay a membership fee can take unlimited flights within the vendor’s service area. This includes operations like Surf Air, in the California Corridor (and soon in Europe), and Rise, in the Texas Triangle, both of which use small turboprops.

© MASHA_TACE/ISTOCK

1.


PEOPLE OUT OF 3. TAKING THE EXPERIENCE

Air travel used to be people-intensive, from skycaps to check-in agents to gate personnel. But that’s history, and the future will keep taking people out of the process. Today, most passengers check in at self-service airport kiosks or download bar-coded boarding passes onto their smartphones. Checking luggage still usually requires an airline employee, but that’s changing as airlines start to deploy self-service bag check-in: Passengers print the tag at home or at the airport kiosk, then drop the bag off for handling. JetBlue recently launched self-service bag checking at its Terminal 5 hub at New York JFK; tests at Geneva’s airport use a robot that checks you in, prints luggage tags and carries off up to two suitcases to the baggage handling area. SITA, a company that specializes in this technology, is testing self-service aircraft boarding gates at Australia’s Melbourne airport; passengers scan their boarding pass and are allowed onto the plane. In Italy, SITA is trying out self-service gates at the Naples airport that use facial and fingerprint recognition in combination with biometric passports for automatic entry through customs. A California firm called Qylur is even developing a self-service security checkpoint that verifies IDs, screens bags and scans passengers.

© MASHA_TACE/ISTOCK

IN GLOBAL COMPETITION 4. SHIFTS

To American travelers, the term “Big Three airlines” has long meant United, American and Delta. But for international travel, “Big Three” now refers to a trio of Middle Eastern carriers: Emirates, Etihad and Qatar Airways, based in Dubai in the United Arab Emirates, Abu Dhabi and Doha, Qatar, respectively. They’ve been growing at double-digit rates for several years, creating big global route networks from their home airports and flying the newest wide-bodies from Boeing and Airbus. They added a number of U.S. destinations in the past few years and are proving tough competitors with superior in-flight services. Even as Western and Asian airlines are phasing out first class, these three are strong believers in front-cabin prestige. Etihad’s Airbus A380 super-jumbos have an ultraposh class of service called The Residence: three-room suites with a living room, bedroom, shower-equipped bathroom and butler service. As they add routes, others back away: Delta dropped Atlanta–Dubai service, and United stopped flying from Washington, D.C., to Kuwait and Bahrain. The U.S. Big Three allege their Gulf State rivals are competing unfairly, helped by subsidies from their governments. Emirates, Etihad and Qatar deny this, but the U.S. airlines are pressuring the U.S. government to stop granting them access to new U.S. markets.

POWER OF SOCIAL MEDIA 5. GROWING

Social media has emerged as a versatile new communications tool. Major airlines now have in-house staffs that respond quickly to customer problems via social media platforms and keep travelers up-to-date on day-of-travel changes or issues. Airlines increasingly use Facebook, Twitter, YouTube and Instagram as marketing tools—keeping customers informed about company news, promoting their services and destinations and sending out special offers. Social media also gives the airlines a way to track what people are saying about them online. In the future, expect to see the role of social media grow even more, with last-minute seat upgrade offers, faster communication via instant messaging and services yet to be invented. A few airlines are testing optional links between a passenger’s reservation and social media profile so people on the same flight can decide whom they might want to sit next to. Meanwhile, the travel mega-site TripAdvisor recently added flight reviews to its services so travelers can get independent opinions on an airline’s quality, and Expedia is said to be planning the same. E X E C U T I V E T R AV E L

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THE BIG THINK

how to get on the Right Side of the Digital Divide

To ensure that their societies benefit from global digitization, leaders need the right answers to these four questions. BY JOHN CHAMBERS

T

HERE’S NO DENYING that uncertainty

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Which side of the digital divide are you on? Just last month we celebrated the web’s 25th birthday and the immense impact that the Internet has had on society, changing the way we do business and propelling nations forward to where they are today. While we first saw the transformative power of the Internet come to life during the Information Age in the ’90s, I’d argue that when we look back a few decades from now, it will be the Digital Age (2010 to 2030) that stands out as a period that transformed the world. Countries that embrace digitization will rise, while those that choose to ignore it will inevitably fall short. France is already posi-

tioning itself for the digital future. The French government has put in place an ambitious plan to make the country a digital republic that is expected to create 1.1 million jobs in the next three years and $719 billion in GDP growth over the next 10 years. Through initiatives aimed at encouraging and incentivizing entrepreneurs, increasing efficiencies through smart cities, and expanding digital training for skills of the future, France is quickly becoming a global technology powerhouse. This comes at a time when European economies have reached a sink-or-swim moment, post-Brexit. These investments will fuel France’s economic growth, create jobs,

IL L US T R AT ION BY

K AROL GADZ AL A

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is the only certainty in today’s global business climate. Geopolitical tensions coupled with slow growth have created concerns about the future, and no country is immune. The International Monetary Fund recently trimmed its growth forecast for the world’s major economies for 2017, sending the signal that all countries could be at risk of slipping into a recession if they don’t find a way to accelerate growth fast. Couple this with the reality that leaders across the globe are focused on the symptoms of the problem—such as tax and trade policies—without getting to the underlying topic: digitization. Cisco believes that digitization—the intelligent connection of people, process, data, and things—will be key to how countries maintain competitiveness, foster innovation, and create jobs. It has the power to transform the way economies operate and gives them the tools they need for long-term growth. Unfortunately, most countries, including the U.S., lack the digital infrastructure needed to lead. The time for country leaders to act is now, starting by asking themselves these four questions:


and foster innovation, and will be a model for Europe and the world. Are you fueling the “startup ecosystem”? We know that smaller companies—and those who can learn from them—will drive innovation globally and create jobs. For that reason, the countries with a healthy startup ecosystem will be the ones that get ahead in the Digital Age. To fuel startups, the public and private sectors have to work together to create an attractive business environment that encourages innovation and breaks down barriers to entry. This requires legislation that makes it easier for startups to raise money and grow, such as a supportive tax environment and favorable regulations for young companies, as well as corporate programs and venture capital investments aimed at providing mentorship and financial backing. Israel is reaping the benefits of a booming startup ecosystem. The country enjoyed a record year in 2015, with 1,400 startups raising $3.58 billion in investments—and this momentum continues to build. Israel is becoming an innovation hub where startups are flourishing and technological solutions are being created to tackle the country’s greatest challenges. For instance, Cisco is partnering with the Kamatech accelerator to create opportunities for the ultra–Orthodox Jewish community, which has been

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beset with low employment and severe poverty, to integrate into the high-tech workforce. Israel’s startups are also solving global problems and disrupting industries: Work Capital, for example, is enabling women- and minorityowned businesses to grow. Have you focused curricula on technology skills? The global labor market is in need of transformation. Technology is changing the world at an unprecedented pace, with startups like Uber and Airbnb disrupting every industry and every job function. Technology skills are becoming a prerequisite across the board. Yet in the U.S. and most other countries, the education system isn’t teaching workers the skills they need to meet this demand, creating undeniable strain on the market—and this problem is only going to become more severe. By 2020 more than a third of the core skill sets of most occupations will be composed of skills that are not considered crucial to jobs today, resulting in a shortage of 40 million high-skilled workers and 45 million medium-skilled workers globally. What’s more, it is estimated that 65% of children entering primary school today will work in job types that don’t even exist yet. Teaching basic STEM skills is no longer enough. To set children up for success, education needs to refocus on technology, as the

“Unfortunately, most countries, including the U.S., lack the digital infrastructure needed to lead.” demand for technology skills will range across every job function and industry, from agriculture to retail to banking. In my opinion, 90% of the new jobs of the future will require technology skills. Network engineering, data analytics, cybersecurity, and related jobs will be at the heart of the job market, and it’s up to leaders to make preparing students a priority. If the education system doesn’t address this problem now and transform, digital inclusion will not be created, but rather a wider digital divide will. Can your infrastructure support a digital economy? Forward-looking country leaders understand the potential of the Internet of things. They are already putting the right infrastructure in place to capitalize on the 15 billion things that are connected today, which will rapidly move to 50 billion by 2020 and perhaps 500 billion by 2030. As massive amounts of data are generated, infrastructure will be required to correctly analyze information, provide insights, and enable our

digital environment in a way that opens the gateway to equality for all. Strategic investments in areas such as broadband, city Wi-Fi, and smart grids can bring nations closer to a capable infrastructure that informs companies, smart cities, and ultimately country frameworks. In India, Prime Minister Narendra Modi is working to build architectures that can support the Digital India vision, which leverages information and communication technology to deliver citizen services, virtual education, remote health care, and more. If that vision is successfully implemented, India will completely transform the way governments, citizens, and businesses interact, creating unprecedented economic value. IT’S NO LONGER a question of if or when the digital revolution will happen—we are in the middle of it, and it’s transforming the way the world operates. Leaders in India, France, the U.K., Germany, the Middle East, and elsewhere have recognized digitization as an opportunity to drive competitiveness on the global stage, serving as a model for the U.S. and the rest of the world. Now it’s up to other leaders to decide whether they are going to embrace transformation and lead in the Digital Age, or fall behind.

John Chambers is the executive chairman of Cisco.

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A NDRE W H A RRER—BLOOMBERG/GE T T Y IM AGES

SIGN LANGUAGE Hillary Clinton, the newly minted Democratic nominee for President, sends a message to both the Bernie Sanders wing of her party and more mainstream independent voters at the July convention in Philadelphia.

September 15, 2016


IS HILLARY GOOD FOR BUSINESS?

E L E C T I O N

To win the nomination, Clinton tacked way left on trade and ratcheted up her anti–Wall Street rhetoric. But insiders and experts say her policies are pro-growth. A clear-eyed look at her plan.

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BY TORY NEWMYER

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F

OUR MONTHS before she jumped into

the presidential race, Hillary Clinton spent a lunch hour in a Midtown New York City conference room huddling with a dozen of the world’s leading economists and left-leaning policymakers. The group—assembled by former Loral CEO Bernard Schwartz, and which included former Federal Reserve chairman Paul Volcker, former Fed vice chairman Alan Blinder, and Nobel Prize winner Joseph Stiglitz—had a straightforward task: to help the already odds-on Democratic nominee forge a strategy for accelerating the American economic recovery. Clinton knew the challenge would define her candidacy, and, if all went well, her presidency itself. But the solutions weren’t obvious. The recovery, then five years old, had both found its footing and revealed its fundamental weakness. Corporate profits and the stock market were soaring again, but wages remained stalled, fueling widespread frustration that good times had returned only for those at the very top. As the mandarins who gathered at the Loews Regency Hotel that day went around the room offering the soonto-be-candidate their thoughts, a theme emerged. The next President, they agreed, should focus on a handful of initiatives—making a major investment in revitalizing the nation’s aging infrastructure, strengthening federal support for research and development, cutting red tape for small and medium-size businesses, and encouraging skills training for workers. The proposals shared a focus on economic growth. Just as notably, they leaned away from an emphasis on wealth redistribution, or “fairness” in the argot of a newly ascendant left. Clinton appeared to be sold. “It was clear she’s very much oriented toward the creation of an economy based on investment and growth,” Schwartz says. But if Clinton’s instincts were pulling her toward a market-friendly plan, the electorate was tugging hard in the other direction. The primary campaign quickly exposed the depth of popular disgust toward the establishment and its consensus-oriented prescriptions. Republican voters rejected a deep bench of professional pols in favor of Donald Trump and his border wall. And Democrats packed stadiums for Sen. Bernie Sanders, the rumpled Vermont socialist who promised a massive wealth transfer from point-one-percenters to the middle class. Clinton, the peerless insider, was in peril of getting stuck in an evaporating middle. Instead, she demonstrated early she was attuned to the demand for a shake-up. She wouldn’t go Full Bernie, but she did aim to split the difference. Last summer, in her first big economic address, Clinton called for building a “growth and fairness economy.” Growth and

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fairness: “You can’t have one without the other,” she said. Her speech married appeals for the growth proposals hashed out at the Regency klatch with liberal priorities like a minimumwage hike, expanded child care, and profitsharing for workers. Clinton also launched a broad critique of corporate short-termism, the first of many digs at companies, which she claimed were too often grabbing at quick returns at the expense of longer-term value. Clinton has spent the campaign since then toeing a thin, jagged line. The self-styled pragmatic progressive has called for rewriting the rules of the economy while also extolling the virtues of incremental movement on timetested ideas. So far, somehow, she’s getting away with it. The Sanders revolt rumbled all the way into the Democratic convention in late July, but polls show those voters have rallied to Clinton, and progressive-movement leaders now give her the benefit of the doubt. In her acceptance speech at the convention, Clinton served them up some red meat, pledging to raise taxes on “Wall Street, corporations, and the super-rich.” And she declared that “American corporations that have gotten so much from our country should be just as patriotic in return. Many of them are. But too many aren’t.” Business-friendly types backing her zeroed in on another line, however: “My primary mission as President will be to create more opportunity and more good jobs with rising wages right here in the United States.” Jonathan Cowan, president of the centerleft think tank Third Way, called that the “great prize” in her speech, since it laid out the organizing project of her presidency. “In a Democratic acceptance speech at a Democratic convention, with Bernie Sanders in the room, she did not say it will be income inequality or unrigging the American economic system,” Cowan says. “She said it will be more jobs and higher incomes. I don’t know what more you’re supposed to ask her. That’s centrist economics.” As the race between Clinton and Trump tightens in the weeks before the election, many corporate leaders and other voters are asking the same thing: Who will be better for business? In a May cover story (see “Business the Trump Way” on fortune.com), Fortune took a deep dive into the real estate mogul’s record and his stated plans for the economy. And now


LAWYERS, MISC. LOBBYISTS BUSINESS $24.5 $17.0

LABOR $15.2

HEALTH $13.4

DEFENSE $0.4

COMMUNICATIONS, IDEOLOGY, SINGLE-ISSUE ELECTRONICS $25.7 $31.0

AGRIBUSINESS $1.3

FINANCE, INSURANCE, REAL ESTATE $59.2

TRANSPORTATION $1.2

TOTAL DONATION FROM SECTOR (in millions)

CONSTRUCTION $4.4

INDUSTRY SECTORS

ENERGY, NAT. RESOURCES $1.6

CAMPAIGN CONTRIBUTIONS BASED ON DONOR’S SECTOR OF EMPLOYMENT

OTHER $63.2

E L E C T I O N

CONTRIBUTION GOING TO CLINTON

$57.8

SOURCES: OPENSECRETS.ORG; FEDERAL ELECTION COMMISSION

$30.7

$25.5

NICOL AS RAPP

$16.2

$15.2 $12.9

$58.9

CLINTON $249.5 MILLION

we’re doing the same for Clinton. In this case, frankly, there is more of a public record to plumb. Business leaders, indeed, know more about Clinton than arguably any other candidate in recent memory, thanks to the quartercentury she has spent in the public glare, not to mention her personal outreach to many of them over that time. What gaps still exist they could fill by extrapolating from the first administration in which she served as a governing partner—her husband’s—which were surely the salad days for relations between Democrats and the private sector. Then again, this election has confounded expectations at every turn, with its featured players tacking left and right in so many zigs and zags it’s tough to know what anybody thinks anymore. Trump has enabled the dynamic by conducting a nearly substance-free campaign, creating a vacuum in which Clinton can be most things to most people. But the Democratic nominee has also embraced the opportu-

GRAPHICS BY

$24.3

TRUMP $8.7 MILLION

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RECIPIENTS

nity, indulging a penchant for opacity—the same instinct that helped spawn the State Department email scandal dogging her bid. So we set out to answer what Clinton will mean for business and the economy by interviewing dozens of industry leaders, political watchers, and economists. The Democratic nominee herself wouldn’t talk to us, but we reached many in her inner circle and went over her economic plan with experts of all stripes. What emerges from this investigation is a profile of a candidate who, despite adjusting for the demands of her assertive left flank, remains moored to a qualified faith in business as a guarantor of prosperity. For its part, the campaign has emphasized the point by showcasing the business leaders it has brought into the fold. Jake Sullivan, a senior Clinton policy hand, told them in a recent phone briefing that Clinton’s focus will remain on getting the economy growing faster. The call was part of a concerted effort by the Clinton camp to poach corporate executives and Republicans that has been gaining steam all summer. Sectors that typically shower campaign cash on the GOP nominee instead are backing Clinton over Trump by eye-popping margins (see chart

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on page 77). This one-sided giving may say as much about who corporate leaders think will win as it does about who they want to win, but Clinton’s overwhelming support from industry here is telling nonetheless. And the campaign continues rolling out endorsements from CEOs and Republican eminences. Many were driven to the Democrat initially by fear of a Trump win, then found themselves drawn in by an economic approach that resonated as reasonable. “I think she genuinely, actually likes business,” says Hewlett Packard Enterprise CEO Meg Whitman, one of the campaign’s highest-profile Republican recruits to date. “She understands the role we play. Generally speaking, she has a bias toward seeing how we are part of the solution as opposed to part of the problem.” A reckoning is fast approaching. If Clinton wins, before she’s sworn in she’ll begin making key appointments to her administration—an exercise that the left has decided to make a test of her commitment to change. Clinton will flunk it, in their eyes, if she hires too many retreads from Wall Street and beyond. Then, should she win in November, she would have to navigate the lame-duck debate over the Trans-Pacific Partnership, the sprawling, 12-nation trade deal she helped launch as secretary of state but opposed on the campaign trail amid rising populist hostility toward free trade. President Obama is gearing up a post-election blitz to salvage the pact, a gambit that could force Clinton to take a public stand against the man she aims to succeed. Then, say those who know her well, Clinton would likely launch her presidency by diving headlong into a burst of legislative dealmaking on her tax and spending initiatives (see chart, opposite page), an immigration overhaul, and an expansion of a social-welfare program such as universal prekindergarten. Here, business leaders have good reason to believe that despite Clinton’s leftward feints, she would be a sensible operator, if not an outright ally.

E L E C T I O N 2 0 1 6

I

F CLINTON WINS, she’ll come to office with a dubious distinction. With Republicans on track to keep control of the House—the Senate remains a toss-up— Clinton would be the first Democratic President since Grover Cleveland in 1885 to assume the presidency without an all-Democratic Congress. The fact is more than good barstool trivia. Consider President Obama’s first two years: Huge Democratic margins in both chambers allowed him to plow a historically ambitious agenda into law—including the $787 billion stimulus package, a bailout of Detroit automakers, Wall Street reform, and his signature transformation of health care—despite programmatic Repub-

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lican opposition. By contrast, even if Clinton were to win in a landslide, she would almost assuredly have to wrangle with GOP leaders on Capitol Hill to get anything done. In her loftiest expectations, say insiders, Clinton’s presidency would open with a bang by securing congressional approval for a massive investment in restoring the nation’s crumbling infrastructure. Clinton has called the state of disrepair of U.S. roads, bridges, airports, and railways a “national emergency,” and experts agree. The quality of American infrastructure slipped from fifth worldwide in 2002 to 16th last year, according to the Council on Foreign Relations—and that rank will likely slide as spending fails to keep up with maintenance needs and an ever-expanding demand for more capacity. Clinton is calling for investing $275 billion in the effort over five years, with most of that spending going directly into transportation and other projects, and another $25 billion in capital for an infrastructure bank that would provide loans (and guarantees) to private-sector builders. Fixing broken roads and bridges is part of the aim; the spending would also provide construction jobs and contribute to faster economic growth. Clinton aides acknowledge that the proposal is hardly new. A big down payment on infrastructure upgrades helped form the spine of Obama’s reelection pitch in 2012. But he couldn’t find sufficient Republican support to move it off the blocks in his second term. What’s to suggest Clinton will fare any better? For one, our infrastructure has only deteriorated over the past four years. “The fact that these challenges have not been addressed creates some political space to do something now,” says Jacob Leibenluft, a former top economic adviser to Obama now working for Clinton. Yet GOP buy-in for a 12-figure spending initiative will be anything but automatic. To bring the opposition to the table, Clinton has signaled a willingness to pair the program with a corporate tax code simplification. Her old New York colleague, Sen. Chuck Schumer, was negotiating with Republicans on just such a package as recently as this spring. And if Democrats retake the upper chamber, he’s expected to ascend to majority leader. The precise contours of a deal remain unknown. But the plan would center on forcing home at a discounted tax rate the $2 trillion


PROJECTED COST OF CLINTON’S TAX AND SPENDING PLAN 2016–26 LIMIT VALUE OF DEDUCTIONS TO 28%

$406 BILLION

INCREASE IN TAX REVENUES $1.46 TRILLION

$206 BILLION

INCREASE IN SPENDING $2.21 TRILLION

PERSONAL INCOME TAX

$500 COLLEGE COMPACT SURCHARGE (ASSUMED)

$150

4% SURCHARGE ON THOSE EARNING >$5 MIL.

$126

INSTITUTE “BUFFETT RULE”

$119

EXTEND HOLDING PERIOD FOR CAPITAL GAINS RATE CHANGES TO CARRIED INTEREST RULES, ETC.

CORPORATE INCOME TAX

OTHER REPATRIATION OF OVERSEAS PROFITS INTERNATIONAL TAX REFORMS FINANCIAL INSTITUTION “RISK FEE” LIMIT DEDUCTIONS FOR DRUG ADS OTHER

MANDATORY SPENDING DISCRETIONARY SPENDING COLLEGE COMPACT

$300

REBUILD NATIONAL INFRASTRUCTURE

$300

PAID FAMILY LEAVE

$6

$253

REPEAL OF SEQUESTER

$217

$200

EARLY CHILDHOOD INITIATIVE

$198

DISCRETIONARY DEFENSE (SEQUESTER REPEAL)

$84 $40

$92 $68

DEFICIT $746 BILLION

$100

$50

ENERGY/RESEARCH $50

$61

in overseas profits that American companies have stashed abroad. Depending on the rate, that alone could yield the revenue to fund the infrastructure spending. Policymakers couldn’t stop there, however. They’d need to solve the rest of a tax code Rubik’s Cube to keep businesses of all sizes from revolting. Big business without overseas profits would demand that corporate rates come down across the board—a move that would create winners and losers as negotiators scrubbed preferences in the code to pay for the rate reductions. Small businesses that pay taxes through the individual side of the code would then demand their own relief. And so on. Even if Clinton could somehow satisfy all these competing business interests, the tax holiday at the heart of the deal would alienate liberals, who would almost certainly view it as an unacceptable giveaway to a handful of rich multinationals. “It’s critical that we end all tax subsidies for corporations to outsource jobs,” says Damon Silvers, the AFL-CIO’s director of policy, noting that simply ending the companies’ ability to defer paying taxes on their

ECONOMIC DEVELOPMENT

$100

$44

OTHER TAXES

E L E C T I O N

SOURCE: MOODY’S

VETERANS PROGRAMS

2 0 1 6

offshore earnings would raise more than $500 billion, “money we need for infrastructure.” Though Clinton hasn’t yet spelled out how she would tackle a full tax code rewrite, she has pointed to ways she’d seek to wield the code as both a carrot and a stick. On the reward end, for example, she supports tax credits for businesses that hire apprentices and share profits with workers, and she has proposed eliminating capital gains taxes on small-business stock held for more than five years. On the bludgeon side, she wants to crack down on corporate inversions by forcing companies that shift their headquarters abroad to pay an “exit tax” on their foreign earnings—and she’s calling for closing the loophole that allows multinationals to shift profits to lower-tax locales, a practice known as earnings stripping. Tax code changes require congressional cooperation, of course. If Clinton can’t get that, she might use her executive authority to go around Congress and push changes through new rulemaking. Consider Wall Street reform. The Democratic nominee has laid out a plan for keeping a tight leash on the finance industry she once represented in the Senate—and, if elected, she could presumably push through much of her agenda without help from Capitol Hill. On her wish list? Shoring up the Volcker Rule, which aims to ban the biggest banks from making risky bets with taxpayer-

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backed deposits; imposing new reporting requirements on private equity firms and hedge funds; and prosecuting executives responsible for corporate wrongdoing. In the primary fight, the left attacked Clinton for seemingly being more interested in protecting Goldman Sachs’s bottom line than the public interest—a perception fed by her refusal to release transcripts of speeches she gave at financial institutions. But her Wall Street agenda has earned her plaudits from reform advocates. Dennis Kelleher, president of the nonprofit Better Markets, points to her push for restoring the derivatives-trading provision as a testament to her commitment. “She not only didn’t need to do it, there are only a few of us who know what the damn thing is,” he says. “She seems to be intent on regulating both the biggest banks and the shadow banking system quite aggressively.” That said, Wall Streeters keep pouring money into her campaign coffers. The securities and investment industry has shelled out $47.5 million for her campaign and the outside groups supporting it, compared to just $346,000 for Trump, according to the Center for Responsive Politics. One explanation: Financiers at least can count on Clinton, unlike Trump, to be a steady hand that won’t roil markets. “The markets really punish unpredictability,” says MGM Resorts CEO Jim Murren, another Republican executive backing Clinton. “It’s unsettling, and it creates vast gaps in valuations.” They also know her from her eight years representing New York in the Senate. “She understands the importance of capital markets and the importance of what we do,” says one industry source close to the campaign, who also contends that Clinton’s reform priorities have remained largely consistent over time: “Politically, rhetorically,” says the source, Clinton’s anti–Wall Street commentary is sharper, “but so are the times. People are pissed.” Businesses, meanwhile, are angry and frustrated about something else: excessive regulation. During his first seven years in office, President Obama finalized a record-high 392 rules that had significant economic impact. To win over corporate interests (to say nothing of Republicans), Clinton would have to demonstrate some regulatory restraint, should she make it to the White House. In August she hinted she might just do that—to an extent—calling for an easing of rules on community banks and credit unions so as to boost the capital available to small businesses. Progressives remain wary enough on this front that a constellation of outfits on the left is coordinating an effort to police Clinton’s political appointments. Activists from labor and other groups are scouring state and local governments and nonprofits to find candidates for the roughly 4,000 agency and department posts Clinton would need to fill. Their rallying cry, supplied by Sen. Elizabeth Warren (D-Mass.): “Personnel is policy,” meaning if the next administration draws its regulators from the sectors they’re

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meant to oversee, even the best-intentioned reform plans will be doomed from the start. “We want to see proven, constructive skepticism of the industries they’re going to be regulating, which isn’t to say they can’t have had ties in their entire lives, but they have to show a willingness to regulate in the public interest,” says Jeff Hauser, executive director of the Revolving Door Project. But sources close to the campaign say Clinton is unlikely to be cowed by the pressure: She will ultimately surround herself with whomever she wants, says one insider: “She has to be sensitive to the realities, but I don’t think she’s going to be paralyzed by them.” Meanwhile, lobbyists are all but taking it for granted that Clinton will find a way to reverse the Obama administration’s ban on their ilk serving in executive branch posts.

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LINTON WASN’T always so

dexterous dealing with big business. In her formative policymaking experience, helming her husband’s drive for health care reform in 1994, Clinton learned in searing fashion what can happen when a political leader fails to win over deep-pocketed industries. Then First Lady, she declined to negotiate with the insurance lobby after it aired its iconic “Harry and Louise” ads opposing the reform drive. The administration soon found itself facing an assault from insurers and an array of other industry groups that helped sink public support for the plan. Summing up the defeat in her 2003 book, Living History, Clinton wrote, “The people who financed the Harry and Louise ads may be better off, but the American people aren’t.” By the time she won elected office in her own right, Clinton had adopted a wholly different approach. In the Senate she sought out Republicans who had been enemies of her husband and tried to find common ground for bipartisan legislative projects. In New York she courted business leaders both in the city and upstate, earning goodwill by fighting on their behalf to cut through red tape and offering counsel. Her ties, for example, to Corning—an industrial technology company that has leaned Republican since its 1851 founding—remain


JA BIN BO T SFORD—T HE WASHING T ON POS T/GE T T Y IM AGES

strong enough that emTRADE RIFT ployees have contributed Protesters show $214,000 to her presitheir opposition dential campaign. Clinton to the Transforged the relationship as Pacific Partnerthe Empire State’s junior ship during the first day of senator, when she secured the Democratic hundreds of millions of National dollars in federal aid to Convention in outfit buses and trucks with Philadelphia in July. emissions-reducing technology that Corning pioneered. Around that time, she went to bat for the company in a tariff fight over fiber-optic products it was selling in China. Clinton personally sought President George W. Bush’s help and successfully resolved the issue. And she continued her advocacy for Corning after she reached the State Department, intervening in a 2012 dispute between the Chinese government and the company over its intellectual property. Conservative critics have highlighted Clinton’s mutually beneficial relationship with Corning as evidence of a pattern of corrupt coziness between the Clintons and their corporate supporters. They point to the fact that the company donated at least $100,000 to the Clinton Foundation and paid the former secretary of state $225,500 for a speech she delivered in 2014. At least as significant, however, is what Clinton’s long-running advocacy for the company’s interests in China reveals about her view of American power and the role that business plays in projecting it around the globe. Two projects defined her tenure at the State Department: Pivoting the focus of U.S. diplomacy away from Europe and the Middle East toward Asia in recognition of the region’s rising status as an economic powerhouse; and a more basic effort to elevate commercial considerations in the day-to-day conduct of the depart-

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ment’s mission, a practice she termed “economic statecraft.” She executed the second in some small ways, including by toting a list of American companies facing market-access problems to every meeting she held with a foreign counterpart. (“That practice wasn’t new,” notes Robert Hormats, who served as undersecretary of state for economic, business, and agricultural affairs, “but it had usually been done at lower levels, not by the secretary of state.”) The two projects converged in an exceedingly ambitious undertaking hinted at by Clinton’s Corning work. She became one of the Obama administration’s leading advocates for the Trans-Pacific Partnership, the megatrade pact designed to interweave Pacific Rim markets representing 40% of global economic activity. Australia, Japan, Singapore, and Vietnam were all included—China was not. Beyond creating new opportunities for American exporters, the deal aimed to check China’s influence in its own backyard. The TPP “would link markets throughout Asia and the Americas, lowering trade barriers while raising standards on labor, the environment, and intellectual property,” Clinton wrote in her 2014 book, Hard Choices. Further, she called it “a strategic initiative that would strengthen the position of the United States in Asia.” Her enthusiasm wouldn’t last. In October of last year, with Sanders rising in the polls on a message that emphasized his opposition to the TPP, Clinton announced that the final version of the package didn’t meet her standards, and she’d be opposing it too. She has grown more categorical since then, declaring in August: “I oppose it now, I’ll oppose it after the election, and I’ll oppose it as President.” Campaign officials confirm that Clinton means what she says: Under no circumstances would she support the pact, they say. Yet in a testament to Clinton’s Rorschach quality as a candidate, pro-trade Democrats and business leaders backing her don’t quite believe it. “She’s an internationalist at heart,” says Rep. Ron Kind (D-Wis.), chairman of the pro-trade New Democrat Coalition. “She knows there’s an important leadership role to play, especially in the Pacific Rim area. I haven’t met a President yet who doesn’t see the need to move forward on trade agreements.” Adds HPE’s Whitman, “Maybe she’ll try to renegotiate that deal to fix some of the things she thinks are not perfect about it. I don’t think she’s fundamentally against free trade.” As someone committed to economic growth, she can’t be. As someone who hopes to win a presidential election dominated by anti-globalism, she has to be. The ultimate question for business-minded voters is whether she can be both and succeed.

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50 MOST POWERF


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2016. IT’S BEEN A YEAR FILLED with turbulence, sure—but also with so much possibility for women. As we unveil Fortune’s 19th Most Powerful Woman package, we begin by noting the woman of that description who is not on our list—Hillary Clinton. Let’s state the obvious: Whether she is elected President in November or not, her candidacy is already having more impact on the nation than any woman in recent memory. (For more on what a Clinton presidency might mean to American business, see page 74.) But this year’s list, as always, measures only active corporate executives. So we have focused instead on 50 women leaders who, together, help run companies valued at $1.1 trillion. They include such shining stars as GM’s Mary Barra, Google and Alphabet CFO Ruth Porat, GE vice chair Beth Comstock, Ulta Beauty CEO Mary Dillon, and Home Depot’s indefatigable new head of U.S. stores, Ann-Marie Campbell. Equally impressive are the names on our international roster—such as Güler Sabanci, the head of Turkish conglomerate Sabanci Holding, who is leading in a time of national turmoil there. For all the progress made by women in business, however, there is a big catch: Some of the best leaders find themselves sidelined at the peak of their careers—a phenomenon we chronicle in “The Disappeared,” on page 100. It’s the sort of agonizing state of affairs that comedian and late-night talk-show host Samantha Bee probes brilliantly. In an election year so weird that reality has outpaced fiction, Bee has been striking a pitch-perfect tone—equal parts cutting and incredulous. (We profile her on page 128.) When it comes to power, every one of these women could light up a city. —Jennifer Reingold

INSIDE 84 MARY BARRA ¬ GM

120 MARY DILLON ¬ ULTA BEAUTY

90 THE MPW LIST

128 SAMANTHA BEE ¬ COMEDIAN

100 THE DISAPPEARED

132 RUTH PORAT ¬ GOOGLE

110 ANN-MARIE CAMPBELL HOME DEPOT

141 THE INTERNATIONAL POWER 50

116 BETH COMSTOCK ¬ GE

144 GÜLER SABANCI SABANCI HOLDING

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01

MOST POWERFUL WOMEN

NO.

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NO.

01

MARY BARRA

CEO, General Motors

HAIL,MARY GENERAL MOTORS’ CEO HAS LED THE CARMAKER ON AN EPIC COMEBACK RIDE. BUT IT MIGHT TAKE MORE THAN A MIRACLE WORKER TO LIFT THE COMPANY’S STOCK. By Paul Ingrassia

HEN MARY BARRA became CEO of General Motors in January 2014, she was by most measures an utterly conventional candidate for the job. Barra had worked for GM her entire career. Her father was a GM lifer too. And she had graduated (in 1985) from Kettering University in Flint, Mich., previously named the General Motors Institute, a fine engineering school but also a decades-long incubator of GM executive inbreeding. So even though Barra’s gender set her apart from every previous GM CEO, some auto-industry watchers fretted she would let the company relapse into the arrogance, complacency, and denial that plunged it into bankruptcy in 2009. But that hasn’t happened. Barra, 54, has steered GM deftly through the 2014 ignition-switch scandal. The fallout from that has so far resulted in $2.1 billion in fines, lawsuit settlements, and recall costs, but GM has avoided a reputational cataclysm. “Terrible things happened,” she declared forthrightly in a video

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Photograph by Marvin Shaouni

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message to employees that was released to the public. Instead of circling the wagons as GM had done in past safety scandals—notably involving the Chevy Corvair in the 1960s and the faulty “X-cars” in the 1980s—Barra commissioned an independent investigation that resulted in firings and early retirements. In 2015, GM made the gutsy move to wind down operations in Russia, unlike Ford, which stayed in a BRIC market that has looked problematic for years. More recently GM posted what Goldman Sachs called a “very strong beat” compared with Wall Street estimates on secondquarter earnings ($1.86 per share vs. forecasts of $1.52), while Ford missed expectations and issued a full-year profit warning. To be sure, Barra and GM have benefited from

WHAT MIGHT KNOCK BARRA OFF TRACK? A RESURGENCE IN GASOLINE PRICES COULD CERTAINLY WHACK GM GIVEN THAT 70% OF ITS U.S. SALES LAST YEAR WERE PICKUPS OR SUVs. strong tailwinds. U.S. car sales have surged 70% since the financial crisis. The company’s model “mix,” industry jargon for the types of vehicles sold, has skewed heavily to trucks and SUVs, which carry far fatter profits than cars. And commodities prices—steel, copper, etc.—have been low. But rival carmakers, notably Ford and Fiat Chrysler, have enjoyed the same favorable factors without capitalizing as well as GM has. Barra has not, however, gotten GM’s stock price to respond to post-bankruptcy earnings that can only be described as stellar. Last year the company had net income of $9.7 billion, more than double the $4.7 billion it earned in 2010, with the company on a similar pace so far this year. But despite a six-year bull market, GM shares remain below the IPO price of $33 per share in November 2010. “The stock is not getting credit for what’s going on,” says Stephen Girsky, a former vice chairman who left the company’s board in June. “The stock

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market thinks the car market is going south, or is at least about to stagnate.” The market may be right: Dealers say automakers are sweetening the profit-depressing discounts on their vehicles. As GM’s second CEO in five years (she also was named board chairman this past January), Barra has succeeded in providing calm stability for a company that badly needed it. Insiders say Barra is nearly impossible to dislike and credit her with a collaborative style. They say she rarely loses her temper, although she can make her displeasure obvious if meetings aren’t going well. Some credit people skills honed in her early years in factory management, a rare background for senior GM executives. Others cite a controlled ego that lets others have the limelight, unlike some of her predecessors. Indeed, one measure of those leadership skills, it seems, is her ability to retain, and work effectively with, her erstwhile rivals for the CEO’s job: GM president Dan Ammann and Mark Reuss, executive vice president and global chief of product development, purchasing, and supply chain. Ammann, for instance, has led the company’s push into new technologies, including a stake in ridehailing service Lyft and the acquisition of Cruise Automation, a Silicon Valley driverless-car shop. (Tellingly, it was he, not Barra, who was quoted in the company’s Cruise press release.) So what might knock Barra off track? A resurgence in gasoline prices could certainly whack the company given that 70% of GM’s U.S. sales last year were pickups or SUVs. Also, GM could trail in the three simultaneous automotive technology revolutions: propulsion, connectivity, and autonomy. On the propulsion front, the all-electric Chevy Bolt that launches later this year promises a 200-mile range between charges for a price of $30,000 after federal tax credits. It will beat Tesla’s new budget-priced Model 3 to market—but will consumers choose a Chevy when they can have the prestige of a Tesla? As for the movements toward autonomy—a.k.a. driverless cars and the widespread use of smartphones to summon Ubers—both might undercut the appeal of car ownership to begin with. Uber and Lyft already are making a modest dent in the archetype of the two-car family. Nearer term, the old GM culture could reemerge. The United Automobile Workers union


is a more cooperative partner than it was prebankruptcy, but that détente might not last. The contract the union signed last year was, at first, rejected by GM’s skilled-trades workers (electricians, machinists, etc.); the union relented only after the company accepted changes protecting their classifications and seniority. For GM, the best defense against slipping backward will be Barra’s own vigilance. The biggest lesson she learned from GM’s bankruptcy, she told a women’s forum in 2012, is that “if you have a problem, you’ve got to solve it. Because that problem is going to get bigger in six months. It could get bigger in two years. But it’s not going to get smaller with time.”

Not that long ago, mere survival was the goal for General Motors. But since Mary Barra took over as CEO in January 2014, the 108-year-old, $152-billion-in-sales behemoth has accelerated out of bankruptcy and recalls and shifted into overdrive with record profits. Now she’s navigating the future as she brings GM into ride sharing and autonomous driving. That performance has earned Barra the No. 1 place in Fortune’s Most Powerful Women in Business list for the second year in a row. She talks to editor-at-large Jennifer Reingold about what has changed at GM—and what’s next. Your first year as CEO was a whirlwind. Days after you started, the company announced it would recall what eventually became 2.6 million vehicles because of a defective ignition switch that was linked to over 100 deaths. It was insanity. What was the focus of your second year? A. While we were clearly dealing with the issues

DA NIEL ACK ER—GE T T Y IM AGES

Q.

associated with the ignition-switch recall, we were also doing things to strengthen the company by working both on the core business and on the technologies that are going to be important from a personal mobility perspective. We’ve made some really tough decisions in places around the world [like the 2015 decision to exit Russia], deploying capital in a way that is going to generate the right return. At the same time, we’re investing. When we are thinking of the technologies that are going to disrupt our business, there is connectivity, different propulsion systems, autonomous, and sharing.

TEAM OF RIVALS Barra, flanked by fellow executives who were considered candidates for the CEO job she got: GM president Dan Ammann (left) and EVP Mark Reuss.

When you look at connectivity, GM has 20 years of experience with OnStar. We’ve had over 1.3 billion interactions with customers, and by the end of the year we will have 12 million OnStar vehicles connected across the globe. That’s a huge advantage and a huge foundation to build on. We’re really excited about launching the Bolt electric vehicle at the end of this year, with a range of 200-plus miles. I’m really proud of how hard the team has worked to have an all-electric vehicle that takes away range anxiety for most people. And I’m most excited about people getting inside the vehicle. It’s a vehicle that hasn’t compromised; when you look at it from a technology platform, it will surprise a lot of people. Q. Talk about automation. A. There’s the work the company has been doing

for over a decade, and then we are marrying that with the [March 2016] acquisition of [San Francisco–based self-driving-car startup] Cruise Automation. It’s a company we’d been following

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“THE AUTO INDUSTRY IS CYCLICAL. BUT THIS COMPANY IS FUNDAMENTALLY DIFFERENT THAN IT WAS IN THE LAST RECESSION.”

PULLING OUT OF THE DITCH Barra has been widely credited for steering GM out of crisis. Above, the CEO testified at an April 2014 congressional hearing about GM’s faulty ignition switches.

for two years. There are many things that need to come together to do autonomous driving. You need to know precisely where you are, exactly what is going on around you, and then based on those things, you pick your path. And that’s really what Cruise is working on. Q. How are you integrating a Silicon Valley startup into big old GM? A. With Cruise, we created an autonomous

technology organization led by Doug Parks, chief engineer of the Volt, with an incredible team of people who have been trailblazers within GM. These are people who understand how the organization works and can get things done but really have a vision for speed and innovation. It’s still early days. I occasionally sit in on Doug’s weekly call that brings the whole team together. I really feel good about the way the two teams are working together. Cruise now has this incredible resource to pull what they need and do it quickly. They have access to data they never would have had. Within weeks after [the deal closed] we had Bolt electric vehicles on the road in San Francisco and Scottsdale collecting miles and developing the autonomous technology.

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Q. Mary, you have had tremendous financial success in your tenure. Profits are at an all-time high. Why hasn’t the stock responded? A. We do believe that General Motors stock is

undervalued. We think the most important thing we can do is just keep putting results on the board, quarter after quarter, year after year, while demonstrating that we have a strong future with the technologies that everyone understands are transforming this industry. I think a lot of the issue is industry-based. Everyone is very concerned, wondering, “What is peak?” “Are we at a plateau?” The auto industry is cyclical. But this company is fundamentally different than it was in the last recession. We have a stronger balance sheet, we are more disciplined, we are a much leaner organization. We may just have to prove that we can continue to generate the results. Q. Isn’t it frustrating, though? A. At times, because I know how hard everyone is

working. But I spend a lot of time talking to investors and analysts. All we can do is demonstrate that we are balanced and that we are prepared and that we do understand that we are cyclical.

think we have a very aggressive timetable. One of the things we will be gated by is safety.

Q. You have said openly that changing the culture at GM means changing behaviors. Can you give some examples of what has changed? A. Twice a year we get the top 300 leaders across

Q. There have been a lot of rumors Lyft tried to sell itself to you. Did you bid?

the globe together. We meet and we drive cars— because that’s what we do. Two years ago we

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GABRIELL A DEMC ZUK—REDUX

Q. When do you think you’ll have a self-driving product? A. We’re not putting a specific date on it, but I

A. There’s constantly speculation about General Motors. We are extremely pleased with the alliance we have. I can’t speculate on what might happen down the road, but right now I would say it is accomplishing everything we need it to.


asked a simple question before everybody came to the meeting: If you could change one behavior across the organization, what would it be? We came up with about five or six things we all wanted to improve—including driving accountability, owning each other’s problems, a relentless desire to win, and having candor and transparency. People were able to walk out the door and start to behave that way. I think a great example is how the whole org came together most recently during the earthquakes in Japan [in April] that disrupted the supply chain. Very quickly, the cross-functional team came together, took steps, and worked with the supply base. We had to make tradeoffs in the early days, but we did what was best for the enterprise. One of the other keys is to be customer focused. My predecessor always said we don’t win until the customer says we do. And when you are in a meeting where they are making tradeoffs on a new vehicle and someone will say, “But wait a minute, will the customer care about this?”—when you hear that question regularly occurring—that is something that’s extremely significant. And then lastly, even though we had a very strong first half, there were challenges outside of our control when you look at the macroeconomic situation in South America, the [Japan] $40

GENERAL MOTORS STOCK PRICE

35

SEPT. 1 $31.80

30 25 20 2011

2012

2013

$160 BILLION

2014

$10 BILLION 8

150

$152.4 BILLION

S T E V E M A RCUS—REU T ERS

2016 $9.7 BILLION

SOURCE: BLOOMBERG

6 4

140

130

2015

2

TOTAL ANNUAL REVENUE 2010

0 2015

NET INCOME*

*ATTRIBUTABLE TO COMMON STOCKHOLDERS

2010

2015

earthquake, and the pricing pressure in China. The team is saying, “I understand this happened, but where are the opportunities that I can seize, because I’m accountable to do what I said I was going to do.” We have more work to do. We’ve got to get to every single employee. We do this external survey with Aon Hewitt so that we can benchmark ourselves to other industries, and we’ve seen tremendous improvement in the engagement of our employees. This time we were able to include our global hourly workforce. All 214,000 employees had the chance to participate.

PLUG AND PLAY Barra unveiled the 2017 Chevrolet Bolt EV during a keynote address at the 2016 CES trade show in Las Vegas in January. The car will have a 200-mile range and cost about $30,000, she said.

Q. What do you want to accomplish next? You once talked about the biggest problem at GM being the “frozen middle” layer of management. What has happened to the “frozen middle”? A. I would say that the frozen middle has melted.

Across the company there are about 1,600 people who are considered executives. Two to three times a year we get together with newly appointed executives, and I spend about an hour with them via videoconference. I say how many of you have said, “If only they would do X …” or “If only they understood Y.” And they all raise their hand, and I say, “You are they!” Another core thing we are driving toward is understanding that when we first know (or think) we might have an issue, that’s the easiest time to solve it. Raise the issues and solve them early. Q. What would you tell your younger self to do differently? A. Focus more on speed. Time is not our friend.

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POWER COMES IN MANY FORMS. And on Fortune’s 2016 Most Powerful

INSIDE THE LIST

By KRISTEN BELLSTROM, ERIK A FRY, BETH KOWIT T, MICHAL LEV-RAM, LEENA RAO, JENNIFER REINGOLD, ANNE VANDERMEY, PHIL WAHBA , JEN WIECZNER, AND VALENTINA Z ARYA

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NOOY I: M A RK PE T ERSON—REDUX

Women list, it also comes in the form of many industries. Just look at the breadth of organizations run by our top 10: four tech companies. Two defense contractors. Two food companies. One financial giant. And one century-old carmaker—GM—led by Mary Barra, who repeats in the top spot on our annual list. All told, the 22 CEOs (down from our 2015 record of 27, partly because of new C-suite contenders) control $1.1 trillion in market capitalization. There are 10 newcomers or returns—including CEOs Tricia Griffith of Progressive and Vicki Hollub of Occidental Petroleum (but not counting our special bonus MPW: Beyoncé!). We also lost some perennials, including Ellen Kullman, who left DuPont last year; Sheri McCoy, who has struggled at Avon; and Marissa Mayer, who tried to right Yahoo but didn’t succeed. —Jennifer Reingold


MOST POWERFUL WOMEN

02 INDRA NOOYI CEO and Chairman, 60, PepsiCo

HE WSON: K IMBERLY W HI T E—GE T T Y IM AGES; ROME T T Y: E T H A N MILLER—GE T T Y IM AGES; JOHNSON: DA NIEL M A LIONEK; SA NDBERG: A LE X BR A NDON—A P; W HI T M A N: DAV E KO T INSK Y—GE T T Y IM AGES

2015 RANK ¬ 02

Nooyi, now in her 10th year as CEO, shows no signs of slowing down. PepsiCo’s $155 billion market cap is up 18% in the past 12 months, even as international volatility hit 2015 sales and profits, which dropped 5% and 13%, respectively. Investors seem to have faith that Nooyi’s push toward healthier food and drink offerings will pay off—and they like the $63 billion company’s $3 billion in cost cuts over the past three years too. Some think more acquisitions in the health space may come soon, as Nooyi further diversifies out of the declining soda category.

03

04

05

MARILLYN HEWSON

GINNI ROMETTY

ABIGAIL JOHNSON

CEO, Chairman, and President, 62, Lockheed Martin

CEO, Chairman, and President, 59, IBM

CEO and President, 54, Fidelity Investments

2016

¬ 04

¬ 03

¬ 06

At a time when new enemies are emerging, Hewson is solidifying Lockheed Martin’s leadership in military defense technology. Her $9 billion acquisition of Sikorsky Aircraft in November 2015—Lockheed’s largest deal in more than a decade—made it the top manufacturer of military helicopters and boosted its expertise in drones. Hewson is also rejiggering Lockheed’s $46.1 billion business, having split off its IT and technical services division in August. The moves have added almost $10 billion to Lockheed’s market value over the past year alone.

Rometty’s tenure at the helm of IBM hasn’t been easy: The tech behemoth recently issued its 17th straight quarter of declining revenue. But there are bright spots. In fiscal 2015, IBM’s “strategic imperatives” (a.k.a. businesses that are actually growing) accounted for 35% of IBM’s $81.7 billion in revenue—up from just 10% in 2010. At least some of that growth has come from acquisitions; Rometty has closed 25 in the past 18 months—a total spend of $9 billion. Several, such as Truven Health and Merge Healthcare, are in the health analytics space.

The world of investment management is changing, and Johnson wants to ensure that Fidelity—the nation’s secondlargest fund manager, with $2.1 trillion in assets under management—is changing with it. While the company is famous for its stock picking (76% of its U.S. stock funds outperformed their peers in 2015), these pricey funds are falling out of favor; investors pulled $18.8 billion from Fidelity’s actively managed equity portfolios last year. So Johnson is slashing fees on Fidelity’s passive funds and targeting a fresh generation of customers with digital tools.

06

07

SHERYL SANDBERG

MEG WHITMAN

COO, 47, Facebook

CEO and President, 60, Hewlett Packard Enterprise

¬ 08

¬ 07

Facebook’s impressive growth continues with Sandberg still in the COO slot. The $17.9-billion-in-sales social network’s mobile-ad revenue jumped 80% in the most recent quarter and now makes up 84% of total ad sales. Next up: further monetizing video and Facebook Live, the company’s livestreaming initiative. Then there’s Instagram, expected to bring in $3 billion in ad revenue in 2016 alone. In addition to her day job, Sandberg is working on a new book on grief, Option B, following the tragic loss of her husband in 2015.

Having executed one of the highest-profile tech separations in corporate history— HP’s October 2015 split into HP Enterprise and HP Inc.— Whitman is now streamlining HP Enterprise, the $52 billion storage business she runs (she also chairs HP Inc.]. But Whitman isn’t done. In May she said that HP Enterprise would merge its IT services unit with Computer Sciences in 2017 to form yet another new company—which is reportedly selling its software unit for $10 billion. The onetime Republican gubernatorial candidate is actively supporting Clinton for President.

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$1.1 TRILLION THE MARKET CAP CONTROLLED BY THE 22 CEOs ON OUR LIST.

$9.7 BILLION THE 2015 PROFITS OF GM, RUN BY NO. 1 MPW MARY BARRA.

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08

09

10

PHEBE NOVAKOVIC

IRENE ROSENFELD

SAFRA CATZ

CEO and Chairman, 58, General Dynamics

CEO and Chairman, 63, Mondelez International

Co-CEO, 54, Oracle

2015 RANK ¬ 10

¬ 09

¬ 12

Since taking the helm at General Dynamics in 2013, Novakovic, a former CIA officer, has not only brought the defense contractor out of the red but also posted record profits of $3 billion in 2015, up 17% from the year before. General Dynamics’ stock price has more than doubled since she took over in 2013. Though its Gulfstream private-jet business has flagged lately, the company has recently won major contracts with the U.S. Navy, as well as the governments of Denmark and the United Kingdom.

Rosenfeld hit a speed bump in August when she abandoned her pursuit of Hershey. The acquisition would have been the latest in a long line of moves that have transformed the $29.6 billion consumer packaged foods giant and its predecessor, Kraft, during Rosenfeld’s tenure. With the failed Hershey bid, some think Mondelez could be a takeover target itself. About 75% of sales come from outside North America, but growth in key emerging markets is slowing. Revenues were down 13.5% last year, in large part from unfavorable currency conversions.

Catz, who shuns the spotlight, has had a busy year, beginning with a major overhaul of Oracle’s contracting process. The goal? To simplify and speed up the way customers buy cloud-based offerings—a growing business for Oracle. In the fourth quarter of fiscal 2016, nearly two-thirds of Oracle’s cloud deals were inked via the new process. Still, annual revenue came in at $37 billion, down 3% from the year before. Even as cloud sales have gone up, revenue from so-called on-premise technology, Oracle’s legacy business, has declined. Looks like there is more work to do.

11

12

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LYNN GOOD

HELENA FOULKES

RUTH PORAT

President, 52, CVS/ pharmacy; EVP, CVS Health

CFO, 58, Google, Alphabet

¬ 13

¬ 14

¬ 26

Duke Energy delivers electricity to some 25 million people in the Southeast and Midwest, making it one of the U.S.’s largest utilities, as well as one of its biggest coal burners. Since Good took over in 2013, she’s packed more renewables than ever into that portfolio. Some 40% of the energy Duke delivered in 2015 was carbon-free, and Good has upped investments in solar and wind, planning to spend another $3 billion over the next five years. That’s in addition to the $4.9 billion acquisition of Piedmont Natural Gas, expected to close before the end of this year.

CVS/pharmacy president Foulkes led CVS Health’s retail business to new revenue heights—up 6.2%, to $72 billion in 2015—by gaining market share in total U.S. prescriptions filled. That helps make up for the loss of business from its 2014 decision to stop selling tobacco, as does the 2015 purchase of Target’s pharmacies. Foulkes is also hoping to lift sales of general merchandise with initiatives like CVS’s new mobile payment app and upgraded beauty sections, scheduled to be in 4,000 CVS/pharmacy stores by the end of the year.

Porat has quickly established herself as a powerful force in tech. Just three months after taking Google’s CFO job in May 2015, she got a promotion when it created a Berkshire Hathaway–like holding company, Alphabet, and named her CFO of that company as well. Wall Street seems to approve: Alphabet’s stock price has jumped 20% since the reorganization, and in 2016 the company reported doubledigit increases in both profits and revenues. Porat is also bringing discipline to the company’s moonshots, such as self-driving cars and Internet-providing balloons.

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ANGELA AHRENDTS SVP, Retail and Online Stores, 56, Apple ¬ 16

Two years into her role as Apple’s retail chief— responsible for some 12% of the company’s $233.7 billion in sales— the former Burberry CEO is working to create a new luxury retail experience. But amid a slump in iPhone sales and a slowdown in China, the pressure is on. Her first big retail project, the Apple Watch, received mixed reviews and disappointing sales. Now Ahrendts is introducing a new store look, which she debuted at the company’s flagship in San Francisco in May 2016. It includes a new landscaped help desk called the Genius Grove, movie-theater-size video screens, and a boardroom where app developers can share advice with small businesses. The question is whether any of these initiatives can help Ahrendts propel the tech giant to another year of record sales.

NOVA KOV IC: RON S ACHS—GE T T Y IM AGES; ROSENFELD: PAUL MORIGI—GE T T Y IM AGES; C AT Z: COUR T ESY OF OR ACLE; GOOD: CHUCK BUR T ON—A P; FOULK ES: JOE PUGLIESE; POR AT: W INNI W IN T ERME Y ER

CEO, Chairman, and President, 57, Duke Energy

14


A HREND T S: JOE PUGLIESE; ENGELBER T: CHRIS TA NEU; WO JCICK I: BENJA MIN R ASMUSSEN; NICHOLSON: COUR T ESY OF EN T ERPRISE HOLDINGS; GRIFFI T H: COUR T ESY OF PROGRESSIV E

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18

CATHY ENGELBERT

SUSAN WOJCICKI

PAM NICHOLSON

TRICIA GRIFFITH

CEO, 51, Deloitte LLP

CEO, 48, YouTube, Google

CEO and President, 56, Enterprise Holdings

CEO and President, 51, Progressive

¬ 21

¬ 19

¬ 20

¬ (NEW )

A year and a half into her job as the chief of Deloitte, Engelbert has helped the company—the largest professional services firm in the U.S.—grow to $17.5 billion in revenues and over 78,000 employees in fiscal 2016, up from $16.1 billion and 70,000 the previous year. The longtime Deloitte executive has emerged as a paid-leave champion, instituting a major policy change that will allow all employees—men and women—16 weeks of time off to care for family members. Two-thirds of Engelbert’s hires last year were women and minorities.

Wojcicki has been working hard to grow the $9 billion online video site despite growing competition from Facebook, Amazon, Netflix, and Snapchat. She has added live streaming, new ad formats, and virtual-reality videos to the site, which counts over 1 billion users worldwide. She has also been boosting the amount of premium original content, recently acquiring the rights to the TV drama Step Up. Now the company hopes to bring in more dollars through ad-free subscription services that also provide streaming music.

Enterprise’s revenue in fiscal 2016 topped $20 billion, cementing its status as the world’s largest rental-car company. Helping drive that growth is Nicholson’s push into markets like New Zealand, Ecuador, and the Gulf region, where it launched new franchises over the past year. The owner of National Car Rental and Alamo Rent A Car brands expanded its airport rental business. It has continued building out its car sales division (with double-digit growth last year), as well as its fast-growing carsharing businesses. Uber, watch out.

Griffith became CEO of the nation’s fourth-largest auto insurer in July. It’s an impressive run for the onetime claims rep, who worked her way up through a number of business segments and most recently served as COO of Personal Lines. Griffith takes the reins at a time of transition, as Progressive attempts to redefine itself as more than just a car insurance company. She was a driving force behind the company’s expansion into home coverage. If she can persuade customers to buy multiple policies from Progressive, that move could pay off.

18% OF OUR LIST IS MADE UP OF NEWCOMERS THIS YEAR.

September 15, 2016

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19

20

ROSALIND BREWER

ANN-MARIE CAMPBELL

CEO and President, 54, Sam’s Club, Walmart

EVP, U.S. stores, 51, Home Depot

2015 RANK ¬ 15

¬ 37

Four years in as head of Walmart’s $57 billion warehouse club division, Brewer is upping the attack on Sam’s Club’s bigger rival, Costco. She’s looking for an edge through e-commerce, implementing in-store pickup for online orders and launching an app that lets customers pay without going through checkout. She’s also investing in food offerings (more organics), remodeling stores, and locating new ones in higher-income areas. There’s more to do; Sam’s Club’s revenue, operating income, and same-store sales were all down over the previous year.

In January, Campbell was promoted from her role as head of the southern division of the home-improvement retailer to run all of Home Depot’s U.S. stores. That makes her responsible for some 90% of the company’s $88.5 billion in 2015 revenues and 350,000 employees— and a direct report to CEO Craig Menear. The Jamaicanborn Campbell, known for connecting with associates, is part of a team that is firing on all cylinders: Sales and earnings both rose dramatically, helped in part by the recovering U.S. housing market.

21

22

SUSAN CAMERON

DEBRA REED

23

HEATHER BRESCH

CEO and President, 57, Reynolds American

CEO and Chairman, 60, Sempra Energy

¬ 25

¬ 23

¬ 22

After closing the June 2015 Lorillard deal for $27.4 billion—then the largest-ever led by a female CEO—and boosting tobacco giant Reynolds American’s market cap by 19% in the past year, Cameron is a bona fide corporate rock star—again. After retiring from the company in 2011, she returned as CEO three years later for a second tour of duty, devoted to bringing the Newport brand, then owned by Lorillard, into Reynolds American’s orbit. The question: How much longer will Cameron stay? Some analysts think she could step down as soon as November.

Last year wasn’t great for Sempra Energy. In January, California declared a state of emergency as a gas leak at a Sempra-owned storage facility caused 8,000 families to temporarily relocate. The disaster has already cost the company more than $700 million (partially covered by insurance), and the stateordered cleanup operation wound down only this past summer. Not even that has derailed Sempra’s stock price, up more than 100% since Reed took the top job in 2011, driven by the company’s natural-gas infrastructure businesses and utilities.

It’s been a turbulent time for Bresch, a nearly 25-year vet of the generic-drug company. In August she was accused of price gouging after having quintupled the price of Mylan’s EpiPen. Pressure from users of the lifesaving allergy treatment—which she had also helped build into Mylan’s first billion-dollar drug—created a firestorm. But Bresch scored a win a few weeks earlier with her $7.2 billion acquisition of Swedish pharmaceutical firm Meda. The deal adds 25% to Mylan’s $9.4 billion in annual revenues, for total sales of $11.8 billion. That follows mixed results in last year’s three-way hostile takeover battle, in which Mylan blocked an unwelcome offer from Israeli rival Teva but failed in its bid for Ireland-based Perrigo.

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September 15, 2016

BRE W ER: S T UA R T ISE T T; C A MPBELL : MELISSA GOLDEN; C A MERON: NICK GREEN WAY; REED: ERIC M Y ER; BRESCH: A NDRE W HE T HERING T ON—REDUX

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CEO, 47, Mylan


MOST POWERFUL WOMEN

25

24

DENISE MORRISON

CEO and President, 62, Campbell Soup ¬ 24

MORRISON: ANDRE W TOTH—GE T T Y IMAGES; BURNS: KIMBERLY WHITE—GE T T Y IMAGES; LYNCH: COURTESY OF AE TNA; PE TERSON: A.E. FLE TCHER; L AKE: ABHIJIT BHATLEK AR—GE T T Y IMAGES; KE ANE: COURTESY OF SYNCHRONY FINANCIAL; ERDOES: SIMON DAWSON—BLOOMBERG/GE T T Y IMAGES

Since becoming CEO in 2011, Morrison is moving the biggest U.S. soup company beyond chicken noodle. In January, Campbell became the first Big Food company to say it would voluntarily label genetically modified ingredients in its products, and a month later it committed $125 million to a venture capital project investing in food-related startups. Meanwhile, Morrison is targeting $300 million in cost savings by the end of 2018. The transformation is not easy. Campbell saw revenues and profits drop 1% and 15%, respectively, in its last fiscal year.

28

MARIANNE LAKE

CFO, 46, JPMorgan Chase ¬ 31

The British physicistturned-CFO oversees the finances of the U.S.’s largest bank by assets, with $2.4 trillion. She’s also one of two women on JPMorgan Chase’s operating committee (the other is No. 30, Mary Erdoes). Lake is considered a rising star, frequently leading earnings calls and interacting with investors more than most Wall Street finance chiefs. That has led to speculation that she could one day succeed CEO Jamie Dimon. In 2015 the bank reported $93.5 billion in revenue; its net income was up 12%, to $24.4 billion.

URSULA BURNS

CEO and Chairman, 57, Xerox ¬ 17

Last January, Burns announced she would split the $18 billion Xerox into two publicly traded companies; one focused on document technology, still named Xerox, and the other, to be called Conduent, on business process outsourcing. Burns will continue as chair of Xerox but will give up the CEO role at year’s end. She tried to transform Xerox into an IT services shop, but revenue kept falling, dipping 8% in 2015. It’s not clear what will come next for Burns, the first AfricanAmerican woman to run a Fortune 500 company.

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27

KAREN LYNCH

SANDRA PETERSON

2016

President, 53, Aetna

Group Worldwide Chair, 57, Johnson & Johnson

¬ (NEW )

¬ 28

When Lynch became Aetna’s first female president in early 2015—a role CEO Mark Bertolini held before her—the fouryear vet assumed responsibility for 95% of the health insurer’s $60.3 billion in revenues. It’s been a busy year for Lynch: In August Aetna announced plans to withdraw from many of the state Obamacare exchanges, accounting for some 5% of the company’s sales. A bigger deal: Aetna’s proposed acquisition of Humana, which would nearly double its revenues but which faces a tough legal challenge from the Justice Department.

Peterson joined Johnson & Johnson in 2012 from Bayer, in the largest role ever given to an outsider at the $70 billion health care giant. She now runs J&J’s $18 billion consumer businesses (baby shampoo to glucose monitors), plus a number of functions such as IT and supply chain—key to J&J’s ongoing transformation strategy. She has led the company through a back-office overhaul, moved its data into a HIPAA-secure cloud, and last year inked major partnerships with Google, Apple, and IBM. The McKinsey alum also joined Microsoft’s board.

29

30

MARGARET KEANE

MARY ERDOES

CEO and President, 57, Synchrony Financial

CEO, JPM Asset Management, 49, JPMorgan Chase

¬ 33

¬ 29

Thirty-six years ago, Keane began her career working as a collector at a call center. Today she is the CEO of Synchrony, a major consumer financial services company that is the largest provider of private-label credit cards in the U.S. If you’re not familiar with Synchrony, that’s because it fully split off from former parent GE only in November 2015—a process that Keane oversaw. As of the end of 2015 the company had almost $84 billion in assets, including $29.7 billion in direct deposits, an increase of 50.8% over 2014.

Since being promoted to CEO of J.P. Morgan’s asset management business in 2009, Erdoes has been considered one of the most influential women in finance. The asset management business had a record year in 2015, reporting $12.1 billion in revenue. Erdoes has also introduced programs aimed at professional women. One helps women who have taken career breaks return to work, while another sends senior female executives around the world to share advice with lower-level employees.

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32

33

AMY HOOD

VICKI HOLLUB

JUDITH MCKENNA

CEO and President, 56, Occidental Petroleum

EVP and COO, 50, Walmart U.S., Walmart

2015 RANK ¬ (NEW )

¬ (NEW )

¬ 30

CFO since 2013 and the first woman to hold the job at Microsoft, Hood played a key part in the negotiations for the company’s $26.2 billion acquisition of LinkedIn in June. The former investment banker is now considered Microsoft CEO Satya Nadella’s right hand. She is overseeing the financial side of the $85.3-billion-in-revenue company’s transition to cloud computing, including nearly $7 billion in spending on new data centers last year. After Microsoft’s COO left this year, Hood took on responsibility for worldwide licensing and pricing.

Until April, no woman had ever headed a major U.S. energy explorer. That changed when 35-year industry veteran Hollub landed the top spot at $12.5 billion Occidental. Less cheery: A mineral engineer by training, she ascends to the top as the worst oil bust in decades has gouged revenue and jobs in the industry (Occidental’s net sales sank 35% last year). Going forward, Hollub has vowed to put particular emphasis on development in and around the Permian Basin, the largest oilfield in the U.S. and a vital profit driver for the company.

McKenna is helping turn the tide at Walmart’s biggest division, where she has headed operations since December 2014. The U.S. business, with $298.4 billion in sales, has now had two years of positive same-store sales—an important industry metric. McKenna has been key in the company’s decision to invest $2.7 billion in training programs and raises for some 1.2 million U.S. store employees. She’s also pushing tech: Now all store and department managers get mobile devices so that they can spend more time on the floor rather than in the back room.

34

35

37

BARBARA RENTLER

KATHLEEN MURPHY

CAROLYN TASTAD

President, Personal Investing, 53, Fidelity Investments

Group President, North America, 55, Procter & Gamble

¬ 34

¬ 32

¬ 36

Ross Stores thrived in a competitive retail environment last year, with sales up 8%, to nearly $12 billion, and profits that passed the $1 billion threshold for the first time. The press-shy Rentler has kept the momentum going. In the most recent quarter, the company beat expectations and upped its guidance. Rentler opened 84 new stores in the company’s fiscal 2015 and has 90 in the pipeline this year. With some 1,500 locations today between its two brands, dd’s Discounts and Ross Dress for Less, she thinks she can eventually get to 2,500.

Murphy, who often serves as the face of Fidelity in place of her publicity-shy boss, Abby Johnson, now oversees a personal investing empire with a record $1.9 trillion in assets under administration—nearly twice what it was when she took the helm in 2009. She has also emerged as a leader in the company’s digital efforts, rolling out new mobile apps and launching Fidelity’s first “robo-adviser” in July, an appeal to young investors looking for affordable financial help. Murphy is known for her focus on female investors, who she says are an underserved market.

As P&G continues to try to regain its mojo after years of subpar performance, Tastad is on the hot seat. New CEO David Taylor is reemphasizing North America, P&G’s largest geographic unit, with $28.7 billion in revenues. But that business will soon be smaller because the company is selling off some 100 brands. The biggest chunk of those, including Wella and Clairol, will move to Coty later this year. Now the Canadian-born Tastad must gin up excitement for such new products as Tide Purclean and Downy Unstopables.

CEO, 59, Ross Stores

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LYNNE DOUGHTIE

CEO and Chairman, 53, KPMG U.S. ¬ 44

Since becoming KPMG U.S.’s first female CEO in July of last year, Doughtie has presided over a major growth period for the professional services company. The Big Four firm posted a 14.8% revenue increase for its 2015 fiscal year, to $7.9 billion, making it the fastest growing of its U.S. peers. But the focus is on innovation as well as numbers: This year the company expanded its partnership with Microsoft and announced an agreement with IBM to apply its Watson technology to KPMG’s services. Doughtie also unveiled the firm’s first high-tech workspaces, called Ignition Centers, that more closely resemble the offices of a hot young startup than a professional services firm. A 30-year veteran of KPMG’s audit and advisory businesses, Doughtie runs the KPMG Women’s Leadership Summit, which brings together the top women in business, politics, and sports.

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HOOD: COUR T ESY OF MICROSOF T; HOLLUB: M AURICIO R A MIRE Z; MCK ENN A : CUR T IS M Y ERS; MURPH Y: COUR T ESY OF FIDELI T Y IN V ES T MEN T S; TAS TA D: COUR T ESY OF PROC T OR & G A MBLE

CFO and EVP, 44, Microsoft

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BRIDGET VAN KRALINGEN

JULIE SWEET

DOUGH T IE: SCO T T H A LLER A N—GE T T Y IM AGES; VA N K R ALINGEN: SPENCER HE Y FRON; SW EE T: ARNOLD A DLER; WA LDEN: COUR T ESY OF V ERIZON; H A NLON: COUR T ESY OF HOME DEPO T; BA LL A RD: COUR T ESY OF BES T BU Y; M ACK : COUR T ESY OF W ELLS FA RGO

SVP, Industry Platforms, 53, IBM

Group CEO, N. America, 48, Accenture

¬ 35

¬ (NEW )

Van Kralingen has a new gig— at IBM, that is. In late August she was named SVP of the company’s Industry Platforms group, a role that gives her responsibility over Big Blue’s blockchain strategy. Over the past few years the longtime IBMer has had her hand in many of the tech giant’s other new growth areas. She helped close acquisitions like Bluewolf Group, a leading consulting firm that helps companies use cloud-based software applications, and landed key clients like HR software provider Workday, which recently shifted to IBM’s cloud.

After spending five years as Accenture’s general counsel and chief compliance officer, Sweet took over the professional services giant’s $14 billion North America business in June 2015. She quickly put her stamp on things, leading a series of acquisitions in hot industries such as cloud computing and cybersecurity. Sweet is also focusing on diversity and working families at Accenture: It became the first big consulting firm to release a detailed gender and ethnicity breakdown of its workforce and also lets new parents work locally for one year.

43

40

41

42

MARNI WALDEN

CRYSTAL HANLON

SHARI BALLARD

MARY MACK

EVP/President, Product Innovation and New Businesses, 49, Verizon Communications

President, Northern Division, 51, Home Depot

Senior EVP and President, U.S. Retail, 50, Best Buy

¬ (NEW )

¬ 40

¬ 39

¬ (NEW )

One of two executives directly reporting to Verizon CEO Lowell McAdam, Walden is overseeing the $131.6 billion company’s evolution from a telecom into a media business aiming to compete with Facebook and Google. Walden is rumored to be on the short list of potential successors to McAdam, but right now her focus is integrating Yahoo—acquired for $4.8 billion in July—with AOL, bought last year for $4.4 billion. She also runs some of the company’s new ventures, such as online video streaming and connected cars.

Hanlon continues as president of the northern division of Home Depot, the company’s single largest unit, with $29.5 billion in revenues, some 800 stores, and 110,000 employees. The 31year company veteran and onetime student of physical therapy is a very visible part of the company’s commitment to customer service, which has bounced back after years of decline. It makes sense: She was mentored by head of stores Ann-Marie Campbell (No. 20). Home Depot’s stock is up 16% in the past year, outpacing the surging S&P 500.

Already wearing multiple hats as Best Buy’s head of U.S. retail and human resources, Ballard has gained even more responsibility at the Minneapolis-based retailer. In May she was named senior executive vice president, shedding her HR role but adding the Mexico business as well as real estate to her purview. Ballard, who started as an assistant store manager, now oversees some 1,400 Best Buy stores, accounting for over 80% of the company’s overall revenues. Sales fell slightly in fiscal 2016, to $39.5 billion, but beat investors’ expectations.

The former head of Wells Fargo’s brokerage business, Mack was named to run the company’s community banking arm in July, replacing the retiring Carrie Tolstedt. That puts Mack in charge of the largest retail bank chain in the U.S., with more than 6,000 branches in 39 states and D.C., along with 94,000 employees. Though online banking and low interest rates have caused other banks to close sites, Wells Fargo has defended its expansion. Still, the $49.3 billion division’s profits fell 1.4%, to $13.5 billion, in 2015.

22% OF THE 2016 MPWS COME FROM THE TECH INDUSTRY.

Senior EVP and Head of Community Banking, 53, Wells Fargo

September 15, 2016

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MOST POWERFUL WOMEN

2016

45

46

47

DIANE BRYANT

JENNIFER TAUBERT

JANE FRASER

DEBRA CREW

EVP and GM, Data Center Group, 54, Intel

Company Group Chairman, 53, Johnson & Johnson

2015 RANK ¬ 43

¬ (NEW )

¬ 41

¬ 46

Last April, Bryant was promoted from SVP to executive vice president of Intel’s data center group. Once Intel’s CIO, she now leads the chipmaker’s most profitable business, selling the high-end processors that last year brought in an impressive $18 billion in sales. But overall demand for server chips recently slowed, and Intel’s stock price has taken a hit. Bryant’s biggest challenge is to continue to deliver doubledigit revenue growth—no easy task.

New MPW Taubert expanded her role last year at the health care giant’s pharmaceuticals business when she added Latin America to her list of responsibilities. As head of the Americas for Janssen, she oversees more than $20 billion—nearly 30% of Johnson & Johnson’s total revenues. That figure has doubled since she took on the role in 2012. The industry veteran has been pushing big data and analytics to help J&J solve some of medicine’s most pervasive challenges, including cardiovascular and metabolic diseases and serious mental illness.

Since she took the reins of Citi’s $11.5 billion Latin America division in 2015, Fraser has faced a number of challenges, mostly coming from economic woes in that part of the world. Under pressure, Citi said in February that it would sell off its consumer banking businesses in Brazil, Argentina, and Colombia. Now Fraser—who also gained control of Citi’s Mexico operations when she took the job— is focusing on cutting expenses and streamlining businesses. In her first year in charge, both revenues and profits showed improvement.

Crew oversaw $8.6 billion of Reynolds American’s net sales of $10.7 billion last year—a number that’s expected to surge in 2016. That’s when the company will report a full year of postmerger numbers after the conclusion of its June 2015 deal with Lorillard. Crew also added another title, COO, to her already impressive résumé in October, gaining oversight of manufacturing and R&D. And with CEO Susan Cameron rumored to be stepping down later this year, many industry watchers say Crew is the clear heir apparent at Reynolds.

MARY DILLON

GLORIA FLACH

SUKANYA MADLINGER

CEO, ULTA BEAUTY

COO, NORTHROP GRUMMAN

SVP, RETAIL DIVISIONS, KROGER

Under Dillon, Ulta just keeps growing; it reported comp sales up 11.8% last year despite opening 100 new stores.

Flach’s promotion this year signals that she could be the next CEO of the $23.5 billion defense contractor.

Promoted last September, Madlinger oversees nine divisions that bring in more than $41 billion in sales.

SONA CHAWLA/ MICHELLE GASS

DIANE GREEN

ANNA MANNING

COO/CHIEF MERCH. & CUST. OFFICER, KOHL’S

SVP, ENTERPRISE, GOOGLE

PRES.,REINSURANCE GROUPOFAMERICA

The pressure is on the two vying to succeed Kevin Mansell as CEO after reinvention efforts have stalled.

As the new cloudcomputing czar, VMware founder Greene now takes on Amazon and Microsoft.

Manning, currently president of the $10.4 billion reinsurer, will take over as CEO in January 2017.

ALICIA BOLER-DAVIS

CAROLYN EVERSON

LISA JACKSON

MARISSA MAYER

EVP, GLOBAL MANUFACTURING, GM

VP, GLOBAL MARKETING SOLUTIONS, FACEBOOK

CEO, YAHOO

Boler-Davis, a rising star, was named head of all manufacturing at GM in June and reports directly to CEO Mary Barra.

Everson is on a tear as Facebook continues to kill it in advertising—in which she has been a force since 2011.

VP, ENVIRONMENT, POLICY AND SOCIAL INITIATIVES, APPLE

ON OUR RADAR

98

CEO, Latin America, 49, Citigroup

FOR T UNE .COM

September 15, 2016

Former EPA chief Jackson heads clean-energy efforts. She’s close to CEO Tim Cook.

Mayer sold to Verizon after a failed turnaround. It’s unclear what’s next for the high-profile, highly paid CEO.

COO/Pres., 45, R.J. Reynolds, Reynolds American

BRYA N T: DAV ID PAUL MORRIS—BLOOMBERG/GE T T Y IM AGES; TAUBER T: COUR T ESY OF JOHNSON & JOHNSON; FR ASER: BR A D T REN T; CRE W: COUR T ESY OF RE Y NOLDS AMERIC A N; COMS T OCK : BENJA MIN R ASMUSSEN; H A MMER: LIS A BERG—NBCUNI V ERS A L; FINUC A NE: DAV ID HUME K ENNERLY—B A NK OF A MERIC A; BE YONCÉ: K E V IN M A ZUR—W IREIM AGE/GE T T Y IM AGES

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BONUS PICK! 48

49

50

BETH COMSTOCK

BONNIE HAMMER

ANNE FINUCANE

Vice Chair, 56, General Electric

Chair, 66, NBCUniversal Cable Entertainment Group, Comcast

Vice Chairman, 64, Bank of America

¬ 50

¬ (RETURN)

¬ (NEW )

Since being named GE’s first female vice chair a year ago, Comstock has led the 124-year-old, $117.4 billion company’s efforts to adapt to the digital world. She heads up the Business Innovations group, where she focuses on creating partnerships, developing business models, and discovering new markets; GE Lighting, where she is shifting from traditional lighting products to LED; and GE Ventures, which invests $200 million a year in a portfolio of over 90 companies and which should generate external revenues of more than $2.4 billion this year.

Despite a rapidly changing media landscape, Hammer’s networks churn out hits. Mr. Robot, which launched on USA Network last year, is one of the most popular shows on TV. It’s also critically acclaimed, garnering six Emmy nominations. But that’s just one series. Hammer, the highest-ranked woman at NBCUniversal, oversees 10 cable networks, including USA, Bravo, Syfy, and E!, and 137 original shows, with a collective 129 million viewers. She also spearheaded NBCUniversal’s August deal for the broadcast and cable rights to the Harry Potter franchise.

Bank of America named Finucane vice chairman in 2015, making her the only woman with the title among all the major banks. A longtime associate of CEO Brian Moynihan since their days working together at Fleet Bank, she is a main contact with BofA ‘s major shareholders. She also runs strategy and marketing, and heads the $83.4 billion company’s commitment to green lending. Still, although BofA beat relatively low sales and earnings estimates in 2016’s second quarter, the stock has been flat over the past year, as the market hits new highs.

51 BEYONCÉ Queen Bey, 35 ¬ (NEW )

This has been the year of Beyoncé. Not only did she make music history by becoming the first female artist to have 12 songs on the Billboard top 100 (all on her sixth album, Lemonade), but she also made waves in the business world too. In April she launched the athleisure clothing brand Ivy Park. While the venture is her first major foray outside the music world, Beyoncé is no stranger to being the boss. Back in 2007 she founded her own entertainment and management company, Parkwood Entertainment. This year Parkwood added a music label to its operations and signed its first three artists, all of whom are women. Empowering women seems to be an ongoing theme for the music mogul: In May she announced an investment in WTRMLN WTR, a female-founded watermelon-water startup. FOR T UNE.COM

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DESPITE PROGRESS, THE NUMBER OF WOMEN FORTUNE 500 CEOs REMAINS TINY. MANY FEMALE C-SUITE STARS DON’T GET SECOND OPPORTUNITIES, ENDING UP IN AN INVISIBLE CORPORATE PURGATORY. WHY IS BUSINESS STILL UNDERUTILIZING ONE OF ITS MOST VALUABLE ASSETS? By Jennifer Reingold

Photographs by Stephanie Gonot

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ENÉE JAMES has the sort of résumé that CEOs are made from. She rose from product manager to become president of Intel. She accumulated myriad experiences there, including senior operating and nonoperating roles in multiple divisions. She was a prominent player in a prominent industry, placing 21st on Fortune’s 2014 ranking of Most Powerful Women in Business. James was one of two internal candidates to replace Intel CEO Paul Otellini. In a very unusual move, she and Brian Krzanich pitched themselves as a package deal, in which they would become co-CEOs. Only Krzanich got the job. Two years later, in July 2015, James announced she would leave in January 2016 “to pursue an external CEO role.” With that sort of background, you might assume that James, 52, would be snapped up as a big-company CEO. Instead she found herself in a corporate catch-22: Boards hesitated to hire her as a chief executive because she hadn’t been one before. “I was president of a very big company, bigger than most companies out there,” James says. “But still people say, ‘She would be a first-time CEO.’ You know how many people have said that? It’s insane.” Earlier this year James became an operating executive in the Carlyle Group’s telecom, media, and technology practice. It’s a prestigious and well-paid position, and James says she loves it. But it’s also the type of role that retired executives typically sign on for when they’re on the downslope of their career and they’re no longer craving an ambitious all-in gig. That doesn’t describe James. She is vibrant, fully engaged, and a member of several major boards, including Citi’s and Oracle’s. There are 126 women who fell off Fortune’s MPW list between 2000 and 2015. Of those, some 30 retired purposely or are over 65 and likely too old for another top role at a large company. Four are ill or have passed away. Sixteen fell off the list simply because higher-ranked women replaced them and continue in their same jobs. Others went to small startups, private equity, and nonprofits or work part-time as directors on boards. But only 12 went on to another major operating role in a large company, and only eight currently hold the CEO title at any size private or public company. That means that just about 13% of the women once on our list, all of whom built incredible careers at large corporations and are of prime working age, had another major role at a big public company. Even those who achieved the ultimate business success—a seat in the corner office—have found that achievement hard to replicate. Of the 50-odd women who have become CEOs of a

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Fortune 500 company since 2004, only two—Meg Whitman and Susan Cameron—have repeated as a Fortune 500 CEO. Whitman went from eBay to Hewlett-Packard; Cameron was tapped to return to her old company, Reynolds American. (A third, Carol Bartz, followed a term as chief of Autodesk, a Fortune 1,000 entity, by heading Yahoo.) You could probably name more men off the top of your head who have had multiple stints as Fortune 500 chiefs. For context, consider that of the 93 men during this period who left their jobs under pressure, five of them later returned as CEOs of another public company, according to search firm Spencer Stuart. For the five women pushed out, the number is zero. The mere fact that there are so few CEO jobs means they are incredibly hard to come by for anybody. And as companies work harder on internal succession, landing an external CEO gig is increasingly akin to winning the lottery: In 2015 only 10% of new chief executives were outside hires, according to Spencer Stuart. That means that a person of either gender who doesn’t get the job at his or her own company is unlikely to get it elsewhere. Still, scarcity does not completely explain the fact that only 24, or 4.8%, of the CEO positions in the Fortune 500 are currently held by women—a number that’s been stagnant for two years and that has risen only glacially in the past decade. This is a difficult story to write. At Fortune we have long championed the progress of women in business, which is very real. The women who make up our MPW list are powerful by any measure. The CEOs alone control $1.1 trillion in market capitalization, run a vast swath of industries from defense to technology to consumer products, and make decisions that influence the lives of millions. They continue to make inroads on corporate boards (see Chartist, page 26) and in the C-suite generally, in the public sector, and perhaps even in the Oval Office, where the chief executive of the Free World may soon be a woman (for more on Hillary Clinton, see page 74). Despite all that, there is something wrong if so many all-star women at the peak of their careers, with decades of top-level management experi-


set st y list: todd dav is—r edey e; wa r drobe st y list: ashley guer zon; h a ir & m a k eup: mishelle pa r ry—celestine agenc y

ence, can’t land the ultimate job. There is also something wrong if, in the prime of their careers, they’re not fully utilized. At the very least, the Big Business community is suffering a tremendous leakage of top-tier talent at a time when there is more volatility and disruption than ever before. “It is a huge waste,” says Jim Citrin, head of the North American CEO practice and member of the board practice at Spencer Stuart. It is true that the numbers of female CEOs are so small that one new posting can noticeably alter the statistics. But it is also hard not to see something amiss. In 2016, why are so many top-tier executive women—women who have proved themselves time and again—disappearing from corporate America? HE GLASS CLIFF. It is a phrase that evokes a slippery, life-threatening danger, a high peak that takes decades to summit but weeks to tumble from. Coined by Michelle Ryan and Alex Haslam of England’s University of Exeter in 2004, the term refers to a phenomenon in which women leaders are more likely to be offered the top position at companies that are struggling or in crisis. That may be because men see the job as too risky or that women realize that the best way to prove their mettle is to take on the toughest assignments. “Their tenure is characterized by precariousness,” says Ryan, professor of social and organizational psychology at Exeter. The most obvious recent example is the stormy tenure of Yahoo CEO Marissa Mayer (more on her later). The glass cliff applies beyond the business world, it appears. Note the sudden rise of Theresa May to Prime Minister of the U.K. following the shocking Brexit vote—after which the male leaders who pushed for Britain to leave the European Union declined the opportunity to steer the country through its messy aftermath. New research supports the thesis. Alison Cook and Christy Glass of Utah State University studied all 50 of the women CEOs of Fortune 500 companies through 2014. They found that 42% were appointed during times of crisis, compared with 22% of a matched sample of men in the

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same period. Those women also began their jobs with less influence; only 13% who became CEOs were also named chairman of the board— compared with 50% of the men. It is also a fact that female chief executives are more likely than men to leave under pressure. A study from PwC shows that between 2003 and 2013, 38% of female CEOs were forced out of their jobs, compared with 27% of male chiefs. And Spencer Stuart, which analyzed the tenures of all CEOs who left their jobs between 2004 and the present, found that although the average age of a person assuming the top job was very similar—50 for women, 52 for men—the average tenure was significantly shorter for women: seven years vs. nine. Says Cook: “[Women] are more likely to be promoted in times of crisis, and because they are women, they experience a lot more pressure. When they are not able to turn their firm around, it’s a confirmation bias: They really don’t have what it takes. They couldn’t cut it. As former Intel president James puts it, “You’re a pioneer. You either get to the promised land or you die.” It is a paradox for women, who often raise their hands for the toughest jobs because they feel pressure to prove themselves beyond any doubt. Are

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number of female Fortune 500 ceos: 24 Just 13% of women were appointed CEO and chair (through 2014), vs. 50% of male chiefs. 42% of Fortune 500 female CEOs were appointed when their company was struggling, compared with 22% for men. Only two women have ever been CEO of more than one Fortune 500 company. FOR T UNE.COM

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between 2003 and 2013, 38% of women CEOs were forced out, vs. 27% of male CEOs. of 93 men who resigned as CEOs under pressure, five returned as CEOs of a public company. For women, that number is zero. SOURCES: Fortune, Utah State University, PwC, Spencer Stuart

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they, as a result, decreasing their chances of attaining the steady, hand-on-the-tiller CEO jobs that are easier to succeed in? When I mention the glass cliff to Mel Healey, who spent 25 years rising through the ranks at Procter & Gamble, ultimately running its $32 billion North America division before losing the CEO role to David Taylor, she chuckles knowingly. “I don’t think there has been one job in my career at any company where it wasn’t a turnaround, and I was told that from day one,” she says. As senior women take on these challenges and succeed, they become known as crisis experts, which means their skills may not seem optimal to lead a smoothly functioning operation. Sallie Krawcheck is one of those rare women who not only landed a large corporate job but managed to get several more. After being CEO of Sanford Bernstein, she went to Citigroup, where she first ran Smith Barney and later became CFO of the parent company. Then, after being fired, she

went to Bank of America, where she headed up the Merrill Lynch wealth management business. “I was three times on the glass cliff,” Krawcheck says, pointing out that her reputation as someone who could turn around a troubled business meant that those were the only kinds of roles she was offered. “I said [to the recruiters], ‘Did you guys share the same script?’ ” Adding to the pressure is the rise of shareholder activism, which has made the job harder for all CEOs—but, as a new study from Arizona State’s Carey School of Business shows, more so for women. The study, published in August, shows that female heads of large companies have a 27% chance of tussling with an activist at some point. For male CEOs, the chance is less than 1%. Do (almost exclusively male) activists believe that it’s easier to get women CEOs to bow to pressure? Or is it that they zero in on companies that are already struggling and thus more likely to have women at the helm? Some of the most visible targets of activists in the past two years were DuPont (run by Ellen Kullman until she abruptly resigned in 2015), Mondelez (led by Irene Rosenfeld), and PepsiCo (Indra Nooyi). This is not to say that women don’t fail for the same reasons that men do. Nor do all women on glass cliffs slip off of them. Mary Barra, who ranks No. 1 in this year’s assemblage of Most Powerful Women, is a shining example of success against steep odds (see page 84 for more). Days after she took over as CEO in January 2014, General Motors announced an enormous and damaging recall of 2.6 million cars. Barra’s cool leadership and willingness to admit mistakes stabilized GM and led it to record earnings. There are outsider CEO success stories as well, such as Meg Whitman, who came to eBay from Hasbro and then moved to HewlettPackard, and Mary Dillon, CEO of Ulta Beauty (page 120), who has hopscotched ably across industries. She rose to global chief marketing officer at McDonald’s before becoming CEO of U.S. Cellular, then went to Ulta, where she has outperformed almost every one of her retail peers. Some, obviously, survive the glass cliff. But it remains very real.


HERE IS SOMETIMES a double standard for female executives, and it isn’t always negative. The media (and we at Fortune are not immune) love a fresh face, an unexpected story. That means that a female leader—especially a youngish, attractive one—is far more likely to get media coverage than your average white, bald AARP member. Says Krawcheck, who was a Fortune cover subject as “the last honest analyst” in 2002: “I wouldn’t have been on the cover of Fortune if we hadn’t had a very different strategy from the rest of Wall Street, nor would I likely have been on the cover if I had been a middle-aged guy with hair growing out of my ears.” The positive attention can make it easier to marshal energy and attract investors. But there is a flip side, which is that women face extra scrutiny. Case in point: Marissa Mayer, who graced Fortune’s cover twice in three years and was the subject of endless fascination (She’s young! She has babies while CEO! She wears designer clothes just like a celebrity!) despite the fact that she was the fifth CEO in five years to take a shot running a company (Yahoo) that had long ago lost its raison d’être. It was an underdog story. And everyone loves an underdog. Until she blows it. It is fair to argue, now that Yahoo is being sold for just $4.8 billion, that Mayer flopped. This does not make her failure any better or worse than those of her predecessors; she conceived a strategy, then did not manage to unify the company or its customers behind it. Still, the attention she received, on both the way up and the way down, was wildly out of proportion to the size and importance of her company. It is unclear whether Mayer will—or should— land another large corporate role. If the past pattern holds, she may not. Just look at the 13 women who dropped off our 2014 list. One, Pat Woertz of Archer Daniels Midland, truly retired. Four others continued at their companies but were replaced on the list by other candidates. And of the others (all of whom are in their forties or fifties), Maureen Chiquet, former CEO of

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Chanel, left in January this year and so far has not resurfaced. James of Intel; Deb Henretta, formerly head of Asia for P&G; and former P&G exec Mel Healey work in private equity or consulting. Gail Boudreaux, once the executive vice president of UnitedHealth Group, is on the sidelines, waiting until her noncompete clause expires. Gisel Ruiz was taken out of an operating role at Walmart and now runs human resources for its international unit. And Deirdre Connelly, former head of North America pharmaceuticals for GlaxoSmithKline, left in 2015 and currently sits on one board, Macy’s. “I think in many cases women don’t get the rocket-ship CEO jobs,” says Dawn Lepore, former vice chairman at Charles Schwab and CEO of Drugstore.com. “Even if women have a successful outcome, it’s not at the same level. So it makes it harder to get another highprofile position.”

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O YOU DON’T make it to the top of your own company.

Now what? As Renée James’s experience suggests, it’s not easy to move from even the presidency of a marquee company like Intel to a chief executive slot elsewhere. Citrin of Spencer Stuart explains the CEO selection process as a sort of Venn diagram, with successful candidates appearing in three overlapping circles: capability, credibility, and attractability. For women who have already risen to C-suite positions, capability is not the issue—they have the résumés to prove it. Attractability—the ability to persuade an executive to take the job—isn’t either. But when it comes to credibility, women have a disadvantage because so few of them have previously been CEOs. This may be why some 80% of current female CEOs are insiders. Healey notes that after she left P&G with decades of experience running some of its most complex units, the phone rang— but not for CEO gigs. “Senior operating roles, yes,” she says. “[Large company] CEOs, no.” Healey is now launching her own leadership consulting business. Bartz got approached too—but only when she was already in the corner office. “When I was a sitting CEO, I took calls every week,” she says. “But there aren’t that many women. That’s how [boards] avoid being culpable.” She notes that the only two female CEOs to repeat at different large companies—herself and Whitman—have done so at tech companies, an industry in which failure and risk taking are considered a natural part of the process. Contrast these experiences with those of the three male contenders to replace Jack Welch at GE back in 2000. After Jeff Immelt got the job, the other two executives, Robert Nardelli and

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HOW NOT TO VANISH

Being great at your job may not be enough to get you to the corner office. So how does an ambitious woman become perceived as CEO material? Here are a few practical suggestions. NETWORK MORE THAN YOU THINK YOU NEED TO Women often focus 100% on their job, in part because they don’t want anyone to question their judgment and because they are more likely to be seen as self-promotional. Don’t fall into that trap. “You need to actually network—and not just with women, but across your industry,” says Renée James, former president of Intel. “That means putting yourself out there.” That applies inside the company too—both with the board of directors and with others at equal levels. “One thing I could have done more aggressively would be creating more [internal] alliances,” says Mel Healey, former head of P&G North America. “Instead of walking in [and pitching an idea], first enroll all the potential naysayers. Women tend to feel the idea will stand on its own.” James extols the value of external boards—as well as finding a sponsor on one’s own board. “You ask them to give you feedback, to spend time with you,” she says. DON’T FEAR THE LATERAL MOVE A career is rarely a straight line. For women, it’s particularly important to develop a breadth of experience, says former Yahoo CEO Carol Bartz: “You should take as many different functional jobs as you can, as opposed to, say, staying in marketing. Even if you have to take a demotion.” But don’t instantly jump at any opportunity— or if you do, do so with eyes wide open. The glass cliff is real and can be perilous. Says Healey: “Even if the role is just big and fantastic and wonderful-looking, go find out why no one else wants it.”

GO HIGH WHEN THEY GO LOW It is sometimes harder for women to bounce back from a misstep than it is for men. Bartz was roundly criticized for her use of salty language—something that executives like T-Mobile’s John Legere embrace as a point of pride. Know that you may well be held to a higher standard. “Fight the fight in a way that you’re proud of,” says Jan Fields, former head of McDonald’s USA and now a board member at Monsanto and Chico’s. “Don’t let anybody take you down in the mud, because you’ll get dirty.”

James McNerney, were heralded as the most desirable hires in the country. Nardelli quickly landed the chief executive job at Home Depot. (Seven years later he was forced out, then moved to Chrysler, where his tenure culminated in the company’s bankruptcy.) McNerney became head of 3M and then moved to Boeing, where he performed well. It’s tough, of course, even for male executives who leave under pressure. Tough—but

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maybe not so tough. Mark Hurd, who, after being forced to resign in 2010 for violating the business-conduct rules as CEO of HP as part of a sexual-harassment scandal (Hurd denied wrongdoing), ended up as co-CEO of Oracle, along with a woman, Safra Catz. No woman who left under pressure has landed the CEO title at a large company. HERE’S ANOTHER potential explanation for at least some women’s inability to land the top jobs: Many remove themselves from the race. Some are fed up with the pressures and don’t want to work as hard for a brass ring that may never materialize. Others have extenuating circumstances such as illness or family-related complications. After selling Drugstore.com to Walgreens in 2011, Lepore opted to remain in Seattle because it was best for her children. “To do this [CEO] job well,” she says, “it’s all-encompassing. I also think that men have set up their personal lives in such a way that they have the infrastructure and the ability to have that maniacal focus. Nobody’s asking them to take care of their aging parents, to handle the child with learning differences.” Lepore has a point. When was the last time you heard of a male C-suite executive stepping down to help a sick relative, as Christi Shaw, U.S. country head at Novartis, did in May to help her sister fight cancer? Henretta, who ran P&G Asia, says she asked to come back to the U.S. because her mother was suffering from Stage 4 cancer. She was offered the struggling beauty business. Henretta headed it until 2014, then left P&G after it became clear that she was no longer in the running to lead the company and her mother’s condition worsened. Instead of seeking a CEO position, Henretta spent her mother’s last several months with her. She has no regrets. Today Henretta is a senior adviser at consultancy SSA & Co. and says she enjoys it. But if another meaty CEO opportunity opened up? “If the perfect job in an industry I’m passionate about came along, I wouldn’t say no,” she says.

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MOST POWERFUL WOMEN

2016

“I ran a $20 billion business with a full P&L. If I could find another job that I liked as well, I would certainly consider it.” Other women have simply had it with the unceasing pressure. “Do we have the tough skin to do it? Yes, we do,” says Healey, who also says she would be open to the right possibility. “The question is, Do we want to do it all over again? This is a question that men don’t tend to ask themselves because they haven’t been scrutinized like this.” Jan Fields, former president of McDonald’s USA, puts it more bluntly: “Sometimes women say, ‘I don’t need this shit.’ They’ve made a lot of money, and they say, ‘I don’t want to put myself out there any more.’ ” So they go their own way. Krawcheck just launched her own business, Ellevest, an investing platform for women. “My view was that after seeing the movie twice, I didn’t want to do this again,” she says. “The only thing I was giving up was working for a CEO and having a big office and making money.” Indeed, after a long career, money is rarely an issue. That was certainly true for Pat Curran, who started as an hourly worker in the pets department at Walmart in 1983, hoping to earn enough money to attend nursing school. Over the next 25 years she worked herself up to executive vice president of store operations. Her career was on a tear. She was named to Fortune’s MPW list in 2005. But in 2009, at age 45, she gave it all up, to the shock of her fellow executives. “I wanted the second part of my life to be about service and giving,” Curran says. “Could I pursue my passion for the medical field and give back?” She enrolled in nursing school and today is a specialist in the newborn section at Mercy Hospital in Rogers, Ark. Curran works for free. “I was incredibly happy with my career,” she says. “At no point did I question whether it was the right place for me as a woman. But I don’t have any regrets. I tell my family and friends I would have done it sooner if I had realized how much joy it would give me.”

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URRAN IS AN OUTLIER. Most executive women love their

chosen field and want to continue in it. And as depressing as all the statistics about women CEOs are, there’s also reason for hope. Just read the profiles in this issue. Part of the reason for optimism comes from the boardroom— which is, of course, the place where all those CEO decisions get made. Women now make up 21% of all board members of Fortune 500 companies. And 98% of companies have at least one female director, according to Spencer Stuart. This is good news— but not necessarily because female directors are more likely to choose women. They aren’t, says Ryan of the University of Exeter: Both sexes “have the same stereotypes about leadership.” It’s because people with unconventional backgrounds are more likely to consider unconventional candidates, which may benefit those who have not previously been CEOs. Mary Minnick, a one-time CEO contender at Coca-Cola and a partner at Lion Capital in London, has served on several high-profile boards, including those of Target, Heineken, and WhiteWave. “No board likes to be in the headlines as having made a controversial choice,” she says. “As you drive toward consensus, you tend to drive toward the common, safe choice.” Which is usually not a woman, unless she is a longtime insider. Having just one woman on a board, say many directors, is not enough to effect change. Citrin says the magic number is three. And Henretta, who serves on three boards, including Staples’, believes that the relative power on the board itself also makes a difference. If women do not head committees or serve as chairman, they are unlikely to have as much influence. On that front, there’s good and bad news. Nearly 28% of the heads of the crucial nominating and governance committee of Fortune 500 companies are women, up from 14% in 2005, and audit and compensation committee chairs are 18.2% and 12.6% female, respectively. The numbers are more dismal when it comes to the most powerful position, the chairmanship: Only 30 women hold that title in Fortune 500 companies. Groups have sprung up to identify more women candidates. There is the Boardlist, run by former Google executive Sukhinder Singh Cassidy, and Women in the Boardroom, to name two. The goal: to counter the common complaint that there are not enough women executives available to consider. To borrow a phrase from a one-time presidential candidate, they are accumulating “binders full of women.” If they now can share these binders with boards that have significant female board membership, an optimist would say we might reach a tipping point. That point now seems visible—yet somehow still distant.

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MOST POWERFUL WOMEN

NO. 20

2016

ANN-MARIE CAMPBELL

Head of U.S. Stores, Home Depot

ANN-MARIE CAMPBELL BELIEVES IN YOU

AS THE BIG HOME-IMPROVEMENT RETAILER LOOKS TO THE WEB TO HELP IT SQUEEZE MORE SALES OUT OF ITS STORES, THE 400,000 ASSOCIATES WHO WORK INHOME DEPOT’S 2,726 LOCATIONS LOOK TO ONE OF THEIR OWN TO LEAD THEM. By Ellen McGirt

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Photographs by Melissa Golden

September 15, 2016


THE HOME TEAM IN UNIFORM Campbell, center, poses with store associates in Atlanta.

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at the Home Depot store No. 121, on Cumberland Parkway in Atlanta, and Ann-Marie Campbell, the new head of U.S. stores, is there to move some product. The employees who motor by all seem to know her. “How are you?” she calls cheerily, as many come over to chat. Kids, work, travels, life. “Whoa—you got a new badge!” she says. “Good work!” One young woman stops Campbell to gush. The woman had joined Home Depot after 14 years of working in fast-food store management. She has four kids and a personality that could power the lighting section. “I need to ask you about work/ life balance,” she says, breathlessly sharing her path through the store—she started part-time in “garden” and then worked in several other departments—while pointing to her badges. She lowers her voice. “I mean, really, how do I get to be you?” Later on, Campbell jumps to greet a customer

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T’S 8 A.M.

who had been silently staring at an array of faucets and other sink-related material, looking mildly defeated. “Finding everything you need?” she asks. Her standard mode of engagement is rapid-fire conversation—without, somehow, ever losing a smile. She appears ready to coach him through the installation if need be. You see, Ann-Marie Campbell believes you can do anything. Even you, nervous plumber. Even you, eager badge-toting shelf stocker. Actually, especially you. This latter group—the 300 associates who work in the Cumberland Parkway store—are the true targets of her visit. They are Home Depot’s frontline fighting force, the soul of the company’s effort to maintain its dominance in the homeimprovement realm. Sure, the entire brick-andmortar retail sector may be aching to figure out how to be indispensable to customers both online and in aisle seven. But to Campbell, “the 300” on Cumberland—and the happy warriors at the store 14 miles away on Piedmont Road Northeast and those in the one nearby in Buckhead and, heck, all


MOST POWERFUL WOMEN

the other store associates in Home Depot’s 2,726 locations—offer the obvious answer. These are the 400,000 or so surrogates, she says, who will make the case to customers that Home Depot can deliver, whatever the platform. That core belief—and her ability to convince many others of it too—is how Campbell ascended Home Depot’s corporate ladder. As executive vice president of stores, she is responsible for the lion’s share of the company’s $88.5 billion business. The position has become a stepping-stone: An earlier occupant of the job, Marvin Ellison, became the CEO of J.C. Penney in 2015. But Home Depot loves a humble beginning, and Campbell’s does not disappoint. Now 51, she began as a part-time cashier some 31 years ago in Miami store No. 216, a new Jamaican immigrant looking to make her way. Back then she had an accent so pronounced that Bernie Marcus, Home Depot’s cofounder, had trouble understanding her. “He still jokes that he had no idea what I was saying for the first five years I was here,” she says. “But the customers and associates liked me, so that was all he needed to know.” Campbell was tapped as part of a small but strategic management shake-up last January, barely one month after the company published a sales target of $101 billion within the next three years—an increase from the current level of nearly 15%. The figure, which is in line with the sales growth the company has managed in recent years (see chart), doesn’t sound crazy ambitious at first. But analysts expect that, despite a strong housing market of late, economic challenges could swat retail sales across the board in the not-so-distant future. Several big name-brand chains (Sears, Macy’s, Kohl’s, among them) have been shuttering dozens of stores. Home Depot hasn’t announced any store closings, but it also has no plans to build new ones. Execs at the company still seem to carry the scars of the 2008 downturn, which has made them wary of expanding in uncertain times. That deep recession, of course, was led by a collapse in the housing sector—and “it hit us hard,” says Carol Tomé, Home Depot’s chief financial officer and close friend and mentor to Campbell. “We had nearly $13 billion in sales wiped out.” Home Depot closed stores and exited entire businesses, such as its “expo” design stores. “I vowed to myself never to support a future store opening that would have to be closed,” says Tomé.

So Campbell’s mission is to wring substantially more sales out of the stores she’s got—and to make sure that Home Depot’s human sales associates and its e-tail platform work together to reinforce the customers’ experience that they’re being wellserved. Stores, websites, and distribution centers need to be “fused” to get products to consumers in any way that they like. “A big part of what I’m doing is preparing for that world,” says Campbell. In truth, it’s already here: While online sales accounted for just 5.6% of the total in Home Depot’s most recent second quarter, that’s a 19% increase over the same quarter the previous year. And believe it or not, Home Depot’s $4.7 billion in annual online sales already make it the fourth-largest e-commerce company in the U.S.—trailing only Amazon, Apple, and Walmart—according to eMarketer. “For the leadership of the big boxes, the next few years will be about making the omni-channel presence seamless,” says Jaime Katz, a Morningstar analyst, so that consumers will be agnostic about whether they shop in the store, online for in-store pickup, or online for home delivery. Home Depot’s investment in its distribution chain has given it a modest lead over the competition. “They made a lot of smart investments that have served them well,” says Tom Wrobleski, executive vice president of the consulting firm Chainalytics, who worked on Home Depot’s distribution strategy some 12 years ago. The challenge now is figuring out how to nail that “last mile” distribution, by delivering products—by whatever means and platform—to increasingly tech-savvy customers. Home Depot, for its part, has invested in mobile tools to drive both sales and foot traffic. But Campbell’s strength, says Wrobleski, is her willingness to experiment. “Ann-Marie really knows how to drive change,” he says. “She’s naturally iterative and understands how to fail fast and move on.” To make sure that associates aren’t summarily called away for stocking duties and other storerelated tasks when they should be taking care of customers, for instance, Campbell created a dedicated, 40,000-employee-strong brigade—the merchandising execution team—to tend to store appearance and the bulk of stocking. That leaves the remaining roughly 90% of associates to serve and create rapport with customers, including the professional contractors who now account for some 40% of Home Depot’s business.

September 15, 2016

2016

THE RÉSUMÉ:

WINNING RETAIL HEARTS AND MINDS 2016

EVP, U.S. STORES HOME DEPOT

(WHERE SHE HAS WORKED FOR THE PAST 31 YEARS)

2009

PRESIDENT, SOUTHERN DIVISION 2006

VP, VENDOR SERVICES 2005

VP, DIRECT RETAIL, MARKETING, AND SALES 2004

VP, MERCHANDISING AND SPECIAL ORDERS 2002

REGIONAL VP, FIELDOPERATIONS 2001

VP, OPERATIONS

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2016

Campbell, who is an executive vice president and one of three women on Home Depot’s sevenperson executive committee (she reports directly to CEO Craig Menear), is the company’s great implementer of new processes and ideas. It’s a skill she honed in her previous job as president of Home Depot’s southern division, a fleet of nearly 700 stores. The changes typically evolve like a call-and-response, often taking months or years to complete. “Things like supply-chain management, the way we do shipping and receiving, changing the stores to be mini–distribution centers, all start as pilot programs,” she says, developed by cross-functional teams and fine-tuned in the field. While she was division president, her stores were a key testing ground. She offers one small example that has big implications for the future of the company: fixed schedules for associates. It’s an unusual scheme in retail, but one that may help the company build out its third shift, which typically starts at 9 p.m. In addition to managing freight and stocking shelves, the night squad is often responsible for prepping Internet sales-for-pick-up orders, which today account for 42% of all orders online. The advantage of fixed schedules is straightforward enough: Workers can plan their lives around them. The disadvantage is when a worker can’t get out of a shift that’s destroying her life—which is what happened to one associate, a single mom, who shared her plight with Campbell during a store visit last year. “People know my story—how I started like they did and that I struggled with things, like being a working mom,” says Campbell. “They ask me things they wouldn’t ask anyone else.” (Campbell reassured the woman that she would get a shift that worked for her.) Employee surveys, town halls, and regular man-

WHENACUSTOMERDEMANDEDTO “SPEAKTOAGUY,” CAMPBELLWOULD “PICKTHEGUYWHOKNEWTHELEAST TOCOMEHELP,” SHESAYS.“HE’DALWAYS HAVETOKICKTHEQUESTIONBACKTOME.” 114

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ager meetings all help Campbell make sure she’s in tune with how “her workers” are doing, but it’s walking the floor that gives her the most insight. There, in person, she can see beyond the name tags on associates’ orange aprons—she reads the signs of life in the “flair” they wear: clips with pictures of kids, or stars and hearts drawn in Sharpie brights. She reads their badges—recognitions for sales and service achievements, for promotions, for being voted “job title” of the month, for the number of years an associate has worked at the company. The badges have become not only a way for employees to telegraph their résumés and ambitions, but also (to seasoned veterans, at least) symbols in a semiotics of leadership potential. And Ann-Marie Campbell speaks fluent badge. “Honestly, being a store manager was the best job I ever had,” she tells one employee during a smallish town hall for associates in Atlanta in August. The worker tells Campbell that his goal is to become a manager himself by age 30. After asking the associate some questions about his life—he worked as a truck driver until his wife threatened to divorce him for his time on the road—she ticks through a list of must-dos if he is to climb the company ladder: “Tell your manager you want to spend some time getting to know other departments,” she says. “Ask people who have the job you want how they got it.” Campbell spends several more minutes with the young man, advising him to be persistent, to stay curious, and to keep in touch with the people he meets. “Drop them emails asking what you should do to learn,” she continues. “You have to ask people for help. I wasn’t good at that.” in Jamaica to a wellto-do couple, a happy family of four kids, derailed by her father’s early death when she was just 1∏ years old. “I was raised largely by my grandmother,” a fiercely independent woman who had 10 children of her own, was divorced in her forties, and started a homegoods retail business that she grew into a multimillion-dollar enterprise. “She showed me that I must work hard and never give up,” says Campbell. She attended an exacting boarding school and entered adulthood disciplined and focused. “As an immigrant, it’s a very good orientation to have,” she says. She moved to Miami to continue her education, paying for expenses with part-time work at Home Depot. It’s a big part of her cashier-to-

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AMPBELL WAS BORN


C-suite narrative that she started in the stores as an hourly up-and-comer 31 years ago (she has the badge to prove it). She worked hard and rose fast. But her swift flight up the company’s org chart nearly went into a stall in 1996. “Let me tell you a personal story,” Campbell says to another young associate at the town hall who wants to know if she had ever thought of leaving the company. “I had just come back from maternity leave with my second son,” the veteran begins. Her reentry gift was a promotion to district manager, with 13 stores under her leadership. It was Miami, a district going through massive economic upheaval. “I was completely overwhelmed.” When her assistant overheard her talking about her plans to resign, she quickly called Campbell’s boss, a charismatic guy named Lynn Martineau, a Home Depot early hire who left the company in 2002. Campbell, recalls Martineau, “was such an unusual person from the beginning— incredibly smart. She didn’t sugarcoat anything.” At the time, he says, the company was still young, still growing fast. “There was no blueprint for a lot of what we were doing,” he adds. The company was simply looking for people with good instincts. “She was perfect in that environment. When you recognize talent, you want to put it where it can grow.” Martineau flew in and had a surprise intervention for Campbell in the parking lot. “I had bad numbers, bad shrinks [returns], and every Monday on the company conference call, I was being pounded on everything,” she says. “And I had two kids under 4. But Lynn told me I was promoted for a reason and that he would help. But I had to ask for what I needed.” Campbell looks the young town hall questioner in the eye: “And that’s what I’m telling you to do.” HE ADVICE can and should work for anyone. But Campbell believes that encouraging employees to ask for help is also a tool for inclusion. Home Depot is committed to building a workforce that looks like the communities it serves, Campbell says—a diversity that, as a black woman and an immigrant, Campbell herself reflects. When one associate fearlessly asks Campbell if her thick Jamaican accent held her back when she arrived in America, she lets out a guffaw. “You know, I started in Miami, which was a pretty

GR A PHIC SOURCE: OMNIS VINCES

T

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HOME DEPOT vs. lowe’s

$102.8 $10 2.8

$100 $10 0 BILL BILLION ION $88.5 $88 .5

90 HOME HOM E DEPO DEPOTT REVE REVENUE NUE

80

$71.0 $71 .0

70 LOWE’S LOW E’S RE REVEN VENUE UE

60

$59.1 $59 .1

50

PROJEC PRO JECTED TED

40 2006* 200 6* 6% 4 2

2010 201 0

HOME DEPO HOME DEPOTT TOTA TOTALL SAME–S SAM E–STOR TOREE ANNU ANNUA AL A SALES SAL ES GRO GROWTH WTH

2016 201 6

2019 201 9

5.6% 5.6 % 4.8% 4.8 % LOWE’S LOWE’S

0 –2

* FISCAL FISCAL YEAR END

–4 –6

SOURCES: SOURCES: BLOOMBER BLOO MBERG, G, S&P GLOB GLOBAL AL

–8 2006* 200 6*

2010 2010

2016 201 6

diverse place, so being an immigrant wasn’t the problem,” she tells the young man, an immigrant himself. “I was really the only woman on the sales floor back then, and when customers would come in with an issue, they’d demand to speak to, you know, a guy.” Her management tactic was simple but effective. “I’d pick the guy who knew the least to come help,” she says. “The man would always have to kick the question back to me.” And strangely enough, after three-plus decades, her mission at the company hasn’t much changed: It’s to have every store associate feel knowledgeable, important, and respected—because when that happens, the customers they’re taking care of are likely to feel the same way. After the town hall in Atlanta is over, Campbell reflects for a moment on the young man who wanted to be a store manager by age 30. “You know, I’ve been at Home Depot longer than he’s been alive,” she says thoughtfully. “But what’s going to keep him around for 31 years?” She pauses to let the question sink in, and then answers it herself: “That’s my big job now.”

September 15, 2016

HOLDING ON TO THE LEAD Since the end of the recession, Home Depot has been growing faster and stronger than its chief rival, Lowe’s—both in same-store sales and total revenue.

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ILICON VALLEY entrepreneur Eric Ries didn’t know what to think when Beth Comstock approached him at a publication party for his book, The Lean Startup, and said she wanted to talk. She was General Electric’s chief marketing officer back then, in 2011, and thought his ideas might work at GE. “I was super-skeptical,” Ries recalls. “I didn’t know her. If you’d told me the CMO of a big company wanted to talk to me, I’d have rolled my eyes. My expectations were not high.” At her invitation, he spoke at GE marketing events over the following year.

September 15, 2016


NO. 48

BETH COMSTOCK

Vice Chair, Business Innovations, General Electric

VICE CHAIR BETH COMSTOCK HAS AN UNGAINLY PORTFOLIO BUT A SIMPLE MISSION: INFUSING THE FUTURE INTO A VENERABLE COMPANY.

RUSS WIDS TRAND—GE T T Y IMAGES

By Geoff Colvin

Then she arranged for him to work with a couple of industrial teams to apply the lean-startup principles of creating a bare-bones product, showing it to customers, learning, and adapting. Results were good, so Comstock arranged for Ries to work with more GE units. Such experiments were unorthodox at GE, but Comstock—direct, fast-paced, articulate—has a way of making the ambitious and unorthodox sound logical and matter-of-fact, even obvious. “What I didn’t understand was that this was a series of trials, because she had an agenda for what the company needed to do,” Ries says. Eventually Comstock had him present his ideas and results at the annual meeting of GE’s top

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INSTIGATOR AND INTEGRATOR “GE clearly sees itself and presents itself as a digital company,” says CNN’s Jeff Zucker, who worked with Comstock at NBC. “With all due respect to [Immelt], I don’t know that that happens without Beth.”

officers. CEO Jeff Immelt was so impressed that he had all of GE’s 5,000 senior managers trained in these concepts in a lightning-fast four months. Today those ideas that Comstock heard at a book party have become one of GE’s top initiatives, FastWorks. GE credits it with speeding innovation and slashing costs—for example, enabling development of a massive new gas turbine in just 30 months, vs. the usual five to six years. What authority did Comstock hold to go changing fundamental processes across the company, influencing new products and business models for jet engines, power turbines, MRI scanners, and more? None, exactly. She was the CMO. But to understand her value to GE, why she was promoted to vice chair a year ago, and why she’s No. 48 on Fortune’s newest ranking of the Most Powerful Women in business, the story of FastWorks explains a lot. “It’s hard for people outside who think in terms of organization charts to appreciate Beth’s role and her impact,” says Susan Peters, GE’s human resources chief. Officially Comstock, 56, is “vice chair, business innovations,” an opaque title. She still oversees marketing, sales, and communications, but she’s also in charge of “building out GE as a service,” a mysterious phrase to outsiders, and she oversees GE Lighting as well as GE Ventures and

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Licensing, which invests in startups. It’s a sprawling portfolio that is baffling on its face. You have to wonder: What unites these assorted parts? The answer is also unique—but not baffling. Comstock’s job is to see the future and help GE’s businesses figure out what it means for them. For example, she says, “digital”—shorthand for the power of data and analytics—“we identified a while ago, and that goes back to work I did at NBC. So it’s trend identification. Jeff seeded it on the tech side and the commercial side, and it was up to me to put together the right starter team to bring in a new business model.” New business models based on data and analytics now span all of GE, much as FastWorks does. That’s why the company now calls itself “the digital industrial” in a marketing campaign that Comstock supervises. “The kind of work I do is seeding and incubating ideas, and then they scale and they go,” she says. The digital idea has scaled vastly. CNN president Jeff Zucker, who has known Comstock since they both worked at NBC 25 years ago, says, “GE clearly sees itself and presents itself as a digital company. With all due respect to Jeff [Immelt], I don’t know that that happens without Beth.” Immelt himself wouldn’t argue. “She has spearheaded our investment in the industrial Internet, driving our evolution to a digital industrial company,” he said when she was named a vice chair last year. As for that GE-as-a-service idea, understanding Comstock’s role requires piercing another apparent mystery: why the former CMO is running GE Lighting. It’s because lighting, GE’s original product line (the company’s founders include Thomas Edison), wasn’t going to survive without a reimagined business model. LED bulbs’ efficiency, 20-year life span, and falling prices killed the old model, which relied on replacement sales. So Comstock looked across GE and came up with a new model. It combines LEDs, which can be harnessed to sensors, energy load controls, and more, with GE’s businesses in solar power, energy storage, and data analytics. Commercial customers—retailers, hotels, cities—can get cheaper, more eco-friendly lighting plus troves of actionable business information, all packaged as a service. Customers include JPMorgan Chase, Simon Properties, Hilton Hotels, and the city of San Diego. The new business, called Current, is based in Boston and has been separated from the rest of the lighting unit in Cleveland, which still makes conventional bulbs as well as LEDs for consumers; both parts report to Comstock. Current expects revenue of $1 billion this year, a mere flicker in a $140 billion company, but

PHOTOGRAPH BY

BENJAMIN RASMUSSEN


MOST POWERFUL WOMEN

its greater importance is to demonstrate how the service model can work for the rest of GE. Finding new business models is a big reason Comstock also oversees GE Ventures. It backs startups in GE’s industries, helping them through the company’s scale and global contacts while learning from them about innovating. For example, GE and two startups are incubating a drone-based inspection business of potential value to GE’s power, rail, and energy units. The technology here can be exciting, but that’s only part of the payoff. “This is business model R&D,” Comstock says. “Often it isn’t the tech that’s most important; it’s the business model.” Which leaves one more puzzle. Why does the person in charge of something as deeply operational and strategic as business model innovation also oversee marketing, sales, and communication? Even here there’s logic. Marketing, expansively defined, requires understanding every facet of the market and where it’s going and responding smarter and faster than competitors. That’s the definition Comstock embraced years ago. “You should be as central a part of the process of innovation as product managers and engineers,” she told her team when she was CMO. Not many marketers think that big or could get away with it; it probably helps that the boss, Immelt, was a marketer for his first several years at GE. It also makes sense that Comstock, helping to shape GE’s transformation, oversees how it’s presented. The company’s recent funny TV ads, in which twentysomethings explain why it’s cool to work for a big, old, industrial company, have certainly earned their cost with the attention they have attracted. Comstock’s seemingly hodgepodge portfolio thus forms a coherent whole. That helps explain why she’s a vice chair, an exalted position that has been reserved for (male) executives who run or have run giant operations or the finance function. She doesn’t fit the mold, and that’s part of the message that Immelt and the board wanted to send. The company is attempting a massive, once-a-generation transformation, for good reason. GE stock has trounced the market in the past year, but it’s still below where it was when Immelt became CEO 15 years ago. To right itself, the company has almost completely shed GE Capital, and Immelt has made $100 billion of industrial acquisitions. The company is becoming radically more global. It has committed to a digitally based strategy, aiming to be one of the world’s top 10 software companies by 2020. That’s a very tall order. Comstock is a GE anomaly in temperament. In a company with many big personalities, where a criterion for advancement used to be “filling the room,” she’s a self-described introvert. She claims she has to

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force herself to meet new people, but she does it, and it has paid off. “She’s the most networked person in the company,” says Susan Peters, citing a key reason Comstock is in demand as a trend spotter. “At our global research center, when we’re determining with them where to put our money, she’s a go-to person,” Peters says. “What’s the zeitgeist? We go to her.” Comstock skipped the orthodox path to stardom at GE, which typically includes an early stint on the corporate audit staff. Instead she came up through PR at NBC when GE owned it. GE chief Jack Welch asked her to head communications for the whole company in 1998, and Immelt named her CMO in 2003. She pushed each job’s boundaries. One more anomaly: Comstock serves on an outside corporate board, Nike’s, though that’s normally forbidden to top GE executives. The company made an exception because board service widens her perspective, which is the essence of her job. “I have to put her in the razor-smart category,” says Alan Graf, a Nike director since 2002 and FedEx’s longtime CFO. “She’s equally comfortable talking about finance or marketing.” Comstock’s wide-ranging résumé prompts the obvious question of what’s next. She can’t rise any higher at GE, being just four years younger than Immelt. A recruiter at a top search firm, who requested anonymity, says she’s a “superstar” who would be “on many more boards if GE allowed it.” Another veteran recruiter adds, “She could go do something elsewhere but probably won’t. Those who leave the vice chair position at GE tend to leave earlier.” But Graf says, “I won’t be surprised to see Beth as a CEO somewhere. She’s obviously capable of that. I guarantee you she’s on some lists.” Of course, Comstock doesn’t say much about it. She told the Fortune Unfiltered podcast, “I think there will also be a time to say I’ve got to stop and figure out what’s next. A part of me would like to just study for a year. I’d like to have a gap year and sort of get myself together.” Who wouldn’t? Until then she’ll likely continue as an instigator and integrator, as she has long described it, futurist and connector. How it’ll all work out remains uncertain; Wall Street finally believes in GE’s transformation, but there’s a long way to go. For now it’s fair to say that more companies will need to transform themselves and could use someone in Comstock’s role. “When I tell other executives the FastWorks story, it really shocks them,” says Eric Ries. “They say it wouldn’t work for them. A lot of executives say they don’t have a Beth. No kidding. She’s the company’s secret weapon.” Though less secret by the day.

September 15, 2016

2016

THE RÉSUMÉ:

UP FROM PR 2015

VICE CHAIR, GE 2008

CHIEF MARKETING AND COMMERCIAL OFFICER, GE 2006

PRESIDENT, INTEGRATED MEDIA, NBCUNIVERSAL 2003

CMO, GE 1998

VP, CORPORATE COMMUNICATIONS, GE 1996

VP, CORPORATE COMMUNICATIONS, NBC

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2016

MARY DILLON

CEO, Ulta

MORE THAN SKINDEEP ULTA BEAUTY HAS BUILT A FAST-GROWING HAIR AND COSMETICS EMPIRE IN AMERICA’S STRIP MALLS. CAN IT GO TOE-TO-TOE WITH THE BIG DEPARTMENT STORES? THAT’S UP TO CEOMARY DILLON.

5:57 a.m. 10:41 a.m.

By Phil Wahba

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Photographs by Rebecca Greenfield

September 15, 2016


A FULL DAY IN MAKEUP Mary Dillon commuting in suburban Chicago; checking inventory with manager Domingo Gonzalez III at an Ulta store in Naperville, Ill. (bottom left); meeting with her executive team (center); and holding a Q&A with Ulta “beauty associates� (right).

1:17 p.m.

3:18 p.m.


MOST POWERFUL WOMEN

2016

T DIDN’T TAKE Mary Dillon long to realize she was in over her head. Six months into her tenure as CEO of Ulta Beauty, Dillon wanted to see what it felt like to work on the retailer’s front lines on the craziest shopping day of the year. So on Christmas Eve in 2013, during a family ski holiday, she picked up a six-hour sales-floor shift at an Ulta store near Salt Lake City. Inconspicuous in dress-code-compliant black shirt and pants and an Ulta name tag, Dillon found herself besieged with questions from customers—about this facial mask or that haircoloring treatment—and overwhelmed by just how much she didn’t know about the 20,000 different products Ulta sells. Eventually, at the store manager’s suggestion, she took a spot at the front of the store. “The only thing I was qualified for was handing out shopping bags,” she recalls. That’s what she was doing when she had an epiphany. Another customer came up with a

I

HANDS ON WITH BRANDS Dillon, shown here at Ulta’s headquarters in Bolingbrook, Ill., rose in the marketing world by getting inside her customers’ heads. She once ran a marathon just so she could better understand Gatorade drinkers’ needs.

6:09 p.m.

stack of coupons and asked Dillon how to apply them, given their mazes of terms and conditions. Dillon couldn’t decipher the discounts either. But what really ignited her agita was what those coupons said about Ulta’s marketing—its focus on the constant discounting that she calls a “race to the bottom.” “It really hit me that day,” Dillon says. “I didn’t want Ulta to be thought of as the retailer for discounts. I wanted Ulta to be known as a beauty retailer.” That may sound like a hair’s-breadth distinction to a layperson, but it’s a big deal to Dillon and Ulta Beauty. Ulta’s formula for selling beauty products— put them all under one roof and offer deals, deals, deals—turned the chain into a fast-growing juggernaut, a very rare success story in a gloomy decade for retail. Though it’s largely invisible in posh urban shopping districts, the Bolingbrook, Ill., company now ranks as the country’s biggest specialized beauty retailer. “They understand how American women buy beauty,” says Wendy


Liebmann, CEO of WSL Strategic Retail. Since 2008, Ulta’s store count has tripled—it recently opened its 900th location—and sales have followed suit, reaching $3.9 billion in 2015. Comparable sales growth, which strips out results from newly closed or opened stores, has also soared, rising an astonishing 14.4% year over year in Ulta’s most recent quarter, head and shoulders above even the best-performing chains (most of which would be thrilled to hit 2%). Investors have salivated over the results: Ulta’s stock is up more than 250% since Dillon became CEO, and its market capitalization now exceeds $15 billion, towering over retailers like Macy’s, Kohl’s, and Nordstrom, whose sales are several times greater. But all that growth has brought Ulta to a critical juncture. Competition is getting hotter, as rivals from drugstores to department stores to specialty chains like Sephora chase the fastgrowing spending of beauty-product buyers. Shareholders’ expectations are sky-high—maybe unsustainably so. And Ulta remains unknown to a large swath of America. To keep winning in this arena, Ulta is striving to redefine itself—making its image more about customer experience and convenience, less about coupons. That challenge and many others fall to Dillon, a 55-year-old marketing veteran with an easygoing air—and a deep well of experience at huge brands ranging from Gatorade to McDonald’s. Howard Schultz, CEO of Starbucks, whose board Dillon joined in January, says she has the kind of savvy that will help Ulta stand out in a crowded retail field: “She understands the theater and the romance.” That savvy has helped Dillon keep the momentum going, despite her lack of a beauty background: The Ulta CEO job is her first in the industry since she was 16. “Ulta was not even on my radar” when she was approached about the gig in 2013, she tells Fortune at Ulta’s headquarters, 30 miles southwest of Chicago. But that, she adds, was a good thing: It gave her a clean slate. Any speculation Dillon might be a don’t-rock-the-boat leader was quashed in 2014, when she announced that Ulta planned to expand to 1,200 stores by 2019. En route to that goal, she has already rewritten much of Ulta’s playbook—the first steps in a transition she hopes will elevate the company from strip-mall secret to household name.

“[DILLON] UNDERSTANDS THE THEATER AND THE ROMANCE THAT ARE NECESSARY IN ALL ASPECTS OF THE CUSTOMER EXPERIENCE.” so far to an allinclusive ethos. It sells everything from mass-market brands to high-end cosmetics to professional hair-care products, all in a format that lets customers try before they buy. Ulta offers salon services too, so in one trip you theoretically could get your hair done and get a facial, and then buy a curling iron and moisturizer to maintain the look at home. The chain was the brainchild of a group of former executives at Osco, a Midwestern regional drugstore, whose insight was that busy women didn’t want to go to a drugstore, then a mall, then a salon to shop for beauty products. The idea, recalls Terry Hanson, an Ulta cofounder, was “to save women time.” That may sound obvious today, but it wasn’t the norm in 1990, when Ulta opened its first five stores. Nor was it the founders’ only prescient idea: In 1994, Ulta introduced a shopperrewards program, a relatively new concept in retail at the time. The program, now called Ultamate, is one of the nation’s biggest loyalty programs, with 20.6 million members—and members account for an astounding 80% of its sales. Ulta opened most of its early locations in strip malls. That was initially a function of how little rent it could afford, but it sped up the chain’s expansion. The strip-mall locations became an even greater asset after the Great Recession, as traffic at conventional malls dropped off. Along the way, Ulta developed a reputation as an oasis for women where shopping is a kind of playtime for the suburban mom. (“It’s not a chore,” is how Dillon describes an Ulta break.) Stores are relatively roomy—typically 10,000 square feet, with about 10% of that taken up by salon stations—and Ulta says three-quarters of customers spend at least 15 minutes there per visit. Ulta went public in 2007 and kept expanding aggressively. But growth was almost too easy, company directors now say: Ulta was moving a lot of

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LTA OWES ITS SUCCESS

September 15, 2016

HOWARD SCHULTZ CEO, STARBUCKS

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THE RÉSUMÉ:

LEADINGIN FOOD, PHONES,AND FACIALS 2013

CEO, ULTA BEAUTY 2010

CEO, U.S. CELLULAR 2005

GLOBAL CHIEF MARKETING OFFICER, MCDONALD’S 2004

DIVISION PRESIDENT, QUAKER FOODS, PEPSICO 2002

VICE PRESIDENT OF MARKETING, QUAKER FOODS, PEPSICO 2000

VICE PRESIDENT OF MARKETING, GATORADE, PEPSICO

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product but falling behind on e-commerce and its supply chain—and, above all, on taking the company’s image up a notch. When CEO Chuck Rubin departed in 2013 to lead arts-and-crafts retailer Michaels Stores, the board opted for a fresh start. “We knew how to open doors,” says Charles Philippin, Ulta’s nonexecutive chairman. “The next big task was to figure out how to make our customers more loyal and get our brand awareness up.” Enter Mary Navins Dillon. believe Dillon was predestined to lead Ulta. The fourth of six children of a Chicago steelworker and a homemaker, Dillon got her first paycheck from Jewel-Osco. At a store in Darien, Ill., as a 16-year-old in 1977, Dillon first worked in candy and tobacco before moving on to cosmetics. There she was full of suggestions for ways to improve product layout—but managers were uninterested in employee feedback, so she kept them to herself. She paid her way through college with odd jobs, working as a bank teller, cleaning houses, and waitressing at a comfort-food joint called R.J. Grunts. In 1984, a year after graduating from the University of Illinois at Chicago with a degree in marketing, Dillon started an executive training program at Quaker Oats. Her $29,000 starting salary floored her father, who had taken many years to reach that level. Dillon became known for going to great lengths to get inside customers’ heads. “She uses her empathy to understand their hearts and what might motivate them,” says Margaret Stender, a colleague and mentor at Quaker Oats. After becoming head of marketing for pet-food brand Kibbles ’n Bits, Dillon, who didn’t own pets, started the Good Doggie Club—meeting regularly with dog parents so she could learn what they loved, hated, and needed. In 2000, when she took over Gatorade’s marketing, Dillon signed up to run the Chicago Marathon to better understand distance runners’ needs. It was her first, and so far only, 26.2-mile race, but Dillon stunned her jock coworkers with an overachieving finishing time. The next day at work, she recalls, “everyone was looking at the newspaper and was like, ‘You just qualified for the Boston Marathon.’ ” For family reasons, Dillon wanted to keep her

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career rooted in Chicago. (She and her husband, Terry, have four grown children, and Terry, a biochemist, was a stay-at-home parent.) In 2005 she landed with one of the city’s biggest corporate names, becoming global chief marketing officer at McDonald’s. McDonald’s chairman emeritus Andy McKenna, a mentor and fixture of Chicago’s business community, says Dillon mixed datadriven rigor with creativity; among her innovations was a “Global Moms Panel” that helped her vet the fast-food chain’s campaigns. Because of McDonald’s structure, however, Dillon didn’t have responsibility over a profit-and-loss line, and she didn’t have the hands-on authority she craved. Today she describes the job as feeding her “a big dose of humility.” But McKenna recalls her having big ambitions, saying, “She wanted to be a CEO.” In any case, when U.S. Cellular, a wireless carrier based in Chicago, came knocking in 2010, Dillon jumped at the chance to lead a company. The stint was a tough one. Regional carriers in general were struggling, and in three years as CEO, Dillon was unable to move the company’s stock. She also made an early misstep: She decided the carrier wouldn’t offer Apple’s iPhone, saying it was too pricey. She reversed herself 18 months later amid falling customer counts. (Dillon calls her initial rejection “the right decision at the time.”) Still, the job gave Dillon even more executive expertise, including a better understanding of technology and experience running U.S. Cellular’s 400 retail stores—and it all added up to make her the leader that Ulta wanted. of a store in Naperville, Ill., Dillon is a warm whirlwind, hugging store managers and greeting stylists by name. She makes store visits around the country at least once a month, but her dropins are more frequent here, just a few miles from Ulta’s headquarters. Her visits often include mini focus groups with staff, during which Dillon asks for the brutally frank feedback she didn’t feel entitled to give as a teenage drugstore clerk. Dillon’s own tastes in beauty products could be called Midwestern Put Together—stylish but not showy. (Last year on an Ulta trip, she bought a pair of Ardell false eyelashes—only to immediately remove them, satisfied that “I can do this if I need to.”) On store visits she adopts a customer’s mind-set: She’s in the market for a good

O

N A TOUR


ULTA

MARKET CAPITALIZATION (Sept. 2, 2016)

MACY’S

$10.6

$15.5 BILLION GAP

CHIPOTLE

$12.0

TIFFANY

WHOLE FOODS

$9.6 NORDSTROM

MICHAEL KORS

$8.7 KOHL’S

$9.6

$8.3 J.C. PENNEY

$2.8

$8.7

$8.0

AVON

$2.4

SOURCE: S&P GLOBAL

red lipstick and considers herself a hair-product aficionado, boasting that she’s “great at braids” and does a mean updo. But she’s also quick to boast about improvements. Just inside the store sits a stack of catalogs for Ultamate members. These used to be glorified coupon-clipper books with dull fonts and drab design. Now it looks like something a shopper might actually want to read. “It’s not just price, but about product and teaching the customers about beauty,” Dillon says. Though the company was soaring when she became CEO on July 1, 2013, Dillon saw that there were cracks in Ulta’s mirror. Market research at the time showed a 75% overlap between Ulta’s offerings and Amazon’s beauty assortment. That meant Ulta was “Amazon-able” and needed to compete on much more than price. The board gave Dillon a mandate to elevate Ulta’s presentation, marketing, and product lines and generally catch up with the times on the e-commerce front. Those catalogs represent just one tiny brushstroke in the makeover. Ulta’s in-house brands, which account for only about 3% of sales, are getting an upgrade. Dillon has overhauled the Ultamate loyalty program, introducing new perks like one that offers some items exclusively to members. The more Ultamate shoppers Ulta has, the better its analytics for deciding on new products and new store locations. And Ulta has just launched its first-ever store credit card—yet another way to gather better shopper data. Dillon has also strengthened Ulta’s technical backbone. In 2014 she set a long-term goal for e-commerce to double from 5% of Ulta’s sales to 10%; since then, it has grown at a searing pace of about 50% a year. Dillon’s team has opened two new distribution centers to support e-commerce, along with a suite of IT systems to improve merchandising (the art of what to stock and when). To better understand the supply-and-delivery process, Dillon has been known to show up in jeans and tennis shoes to work on Ulta loading docks.

900 800 ULTA STORE COUNT

600 400

TOO BIG TO IGNORE Ulta’s rapid expansion and blistering same-store sales growth have made it one of the few retailing stocks that investors love; its market capitalization now towers over those of retail and service-sector companies whose sales are many times greater.

200 0 2004

2010

2016

15% 11.8% 10 5 COMPARABLE SALES CHANGE

0 2004

2010

2015

SOURCE: ULTA BEAUTY'S ANNUAL FILINGS

Few elements of Dillon’s strategy are as important as her efforts to ramp up Ulta’s higherend beauty-product offerings. It’s easy to see why: Last year, sales of prestige beauty products rose 7%, according to NPD Group. Dillon and chief merchandising and marketing officer Dave Kimbell, with whom Dillon worked at U.S. Cellular, have introduced 200 new brands, including luxury lines like Estée Lauder, Clarins, and Jessica Alba’s Honest Beauty. Ulta is rolling out soupedup in-store boutiques for upmarket brands like Lancôme and Clinique at 500 of its stores. Brands like these used to shun Ulta because of its down-market locations. That began to change in the 2000s, and now, in a virtuous circle that Dillon wants to perpetuate, Ulta’s success is giving it more clout with developers in finding prime locations for new stores—helping her expand store count while gussying up the chain’s overall image. “Over time our real estate is getting better, not worse,” says Ulta’s chief financial officer, Scott Settersten. You’re likely to find older Ulta stores next to, say, a 99-cent store or a convenience store.

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RETOUCHING HER ROOTS Dillon, a Chicagoland native, has spent all but four years of her career in the region. During college at the University of Illinois at Chicago, she waited tables at Lincoln Park comfort food eatery R.J. Grunts, which keeps a photo gallery of former staff; a photo of Dillon from 1980 sits just above and to the right of her head.

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But Ulta’s preferred neighbors are retailers like T.J. Maxx and Target—because of the middle-class shoppers they attract—and now some stores can be found next to a Trader Joe’s or Whole Foods. Regardless of the store address, Ulta’s reliable growth has contrasted favorably with the ongoing department-store meltdowns, making it easier to lure luxury brands. “There is nothing wrong with strip malls if Ulta has a nice presentation, traffic, training, and experience,” says Fabrizio Freda, CEO of Estée Lauder. In other words: Downmarket stigma be damned. the only company that has noticed “the lipstick effect,” beauty’s status as a recession-proof revenue driver. According to Euromonitor International, the $80-billion-a-year U.S. beauty industry has been growing 4% a year since 2010—much faster than other areas of retail. Hispanic and African-American women make up a disproportionate share of the market, and featuring more diversity in Ulta’s marketing is among Dillon’s big goals. Ulta commands about 3% of the beauty and salon market, and Dillon thinks she can double that. But Ulta will have to keep raising its game in a tough competitive field. Sephora, owned by French luxury giant LVMH, skews more urban and high-end, but 45% of Ulta customers also

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shop there, according to Kantar Retail. It’s keeping the heat on by testing high-tech features like iPad stations that offer beauty classes and virtual makeup try-ons. On the department-store front, J.C. Penney is opening more Sephora locations within its stores and upgrading its in-house salons. Struggling Macy’s, meanwhile, is speeding up the expansion of its Bluemercury luxurybeauty chain. Drugstore chains and retail giants are also in the mix. Target and Kohl’s have “beauty concierges” to help their customers. By year-end, CVS will have upgraded the beauty areas at 4,000 stores, and Walgreens will have deployed the full skin-care and cosmetics offerings of its higher-end Boots No. 7 line at 1,800 stores. “Drugstores are doing more in beauty than any other retail channel,” says Kantar Retail director Brian Owens. “They want to convert shoppers who may have gotten ideas at Sephora or Ulta,” stealing the patronage of customers looking to simply restock familiar brands. For now, investment analysts seem to think Ulta can keep its edge. “The burden is on Ulta” to keep its product line fresh, says Oliver Chen, a retail analyst with Cowen & Co., but thanks to “the solid management team, the very good concept, and the scale, the momentum bodes well.” Of course, no company’s momentum is infinite. Last year, Ulta’s stock rose 37%, and the board rewarded Dillon with a compensation package of $18.6 million. That made her the sixth-best-paid U.S. woman CEO in 2015, ahead of the likes of Mondelez International’s Irene Rosenfeld and HP’s Meg Whitman, according to the Associated Press. But numbers like that won’t be easy to replicate. Dillon has begun readying Wall Street for a future in which Ulta posts comparable sales growth of 5% to 7% a year. That’s a figure that most retailers can only dream of attaining. Still, for Ulta, that will represent a slowdown, resulting from the law of big numbers, potential cannibalization from its new stores, and, yes, stiffer competition. “We’re doing well,” Dillon tells staff during her Naperville store visit. “So now is the perfect time to ask, ‘What are we doing right?’ ” That’s not the only relevant question, however. Ulta has to fight the temptation to go into autopilot mode and coast on what works. “We are never complacent,” Dillon tells Fortune. “My job is to make us look 10 years out and be prepared.”

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MOST POWERFUL WOMEN

SAMANTHA BEE

2016

Host, Full Frontal

THE SMART STING OF SAM BEE

T HE NE W YORK T IMES/REDUX

By Erin Griffith

A

Photograph by Chad Batka

SEPTEMBER 15, 2016 • F O R T U N E

THE CANADIAN COMEDIAN HAS REPLACED JON STEWART AS AMERICA’S MOST TRENCHANT POLITICAL COMMENTATOR. HER SECRET? NOT HIDING HER FRUSTRATION.

likes to say she’s entered her “don’t give a f**k” years. She no longer gives any f**ks about getting along or playing nice or keeping her cool, a fact laid bare on her TBS show, Full Frontal With Samantha Bee. Since its debut in February, Bee has quickly solidified herself as one of the freshest, strongest voices in late night. Average viewership for her weekly show currently tops the average nightly viewership of Conan and The Nightly Show With Larry Wilmore, which was recently canceled. She’s even closing in on her former employer of 12 years, The Daily Show, according to Nielsen. Where most of Bee’s male peers pad their shows with light, polite jokes and chipper celebrity interviews, Bee goes for the jugular every Monday. Donning tennis shoes and “power blazers” described by adoring bloggers as “patriarchy busting,” Bee stands, feet planted firmly in a power pose, and rants, ruthlessly, unrelentingly, and hilariously. A segment on workplace sexual harassment T 46, SAMANTHA BEE

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“I’MJUSTPASTTHEPOINTOFCARING WHATPEOPLETHINK.IHAVEWORKED INENVIRONMENTSWHEREIFELTLIKE IWASN’TMYSELF,ANDITWASN’T LONG-LASTING.” called “Samantha Bee’s #ROAR, You-Go-Girl Job Fair for Future Women. Lean In!” is delivered with bitingly perky sarcasm. In a segment on Brexit and immigration, she shouts, “When Britain needs brown people again, they’ll just colonize you!” Bee, who was born in Toronto, refers to Donald Trump as a screaming carrot demon, an orange supremacist, America’s burst appendix, and Casino Mussolini. And she has enough funny epithets at the ready to skewer everything from abortion rights restrictions to Seattle’s controversial sports arena. Whether you agree with her politics or not, Bee has proved that female-focused topics can have wide appeal: More than half of Full Frontal’s viewers, indeed, are men. Calling from a vacation in New York’s Catskill Mountains, Bee tells Fortune that she and Jo Miller, her show runner, didn’t design Full Frontal to stand out from the competition. It does that naturally, given that she’s one of two women in late-night TV (Chelsea Handler has a show on Netflix), but also because the world is primed for her style of impassioned feminist fury. In an era of raging, angry men like Trump, the “light and polite” shtick offered by network late-night hosts just feels unsatisfying. Bee is not pointing to the absurdity of it all and shrugging like “What can ya do?” She’s not slipping through the same “I’m just a comedian!” mea culpa trapdoor that Jon Stewart—otherwise an obvious inspiration— often used. She can’t hide her outrage. “We don’t actually know how to make any other type of show, because,” she pauses, letting out a deep sigh, “we feel these frustrations. We need this catharsis.” After the Orlando shooting, Bee forcefully dismissed the entertainment world’s formula of offering “well-meaning words about how we’ll get through this together, how love wins, how love conquers hate.” With shaking hands and a slight waver in her voice, she declared, “F**k it! I am too angry for that. Love does not win unless we start loving each other enough to fix our f**king problems.” To politicians offering “thoughts and prayers,” she demanded, “Stop thinking and do something to improve our society!” Bee’s intention was always to “fight through the comedy clutter in a strong, clear voice,” she says. But she didn’t realize how “ferocious” Full Frontal’s point of view was until she taped the first one in front of a crowd in February. It was a revelation: “I felt like I was on a journey with the audience, and I felt it just drop into my center so hard. And we all watched and we were going, ‘Oh, my God, that’s it! Hey! Wow!’” Bee lets out a big, infectious laugh. “Like, you could look into the audience and see the expressions on their faces. It felt like we all had a moment, and then from

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there we felt free.” Performing is therapeutic for her: “When I walk away from the show after performing it, I feel great. I feel like I really got it out of my system. It’s very satisfying. Very satisfying.” That freedom and satisfaction comes after many years of grinding it out. Before breaking into showbiz on The Daily Show, Bee held plenty of bad jobs, from cleaning grease traps at diners to working at an erectile dysfunction clinic. Along the way she molded her personality for situations, a pressure well understood by women in the workplace. “I’ve done a lot of tempering myself for the benefit of other people through the years,” Bee says, “but I’m just past the point of caring what people think. I have worked in environments where I felt like I wasn’t myself, and it wasn’t long-lasting.” Bee says she’s noticed a shift in the “temperature” around feminist issues, particularly in the workplace. “I think we’re more frank with each other. I think we’re more able to be honest about our experiences,” she says. “Now people are standing up to Roger Ailes. That’s a good thing.” She’s part of the shift herself, having committed to hiring a diverse workforce. Full Frontal uses blind submissions for writers and actively seeks to hire newcomers to the industry. Bee says she feels an obligation to level the playing field for others, since she and Miller were total outsiders—and relative latecomers—to the entertainment world. “Any access we’ve been granted came from grit, stickto-itiveness, and determination,” she says, noting that Full Frontal hasn’t solved comedy’s diversity problem yet. Not that Bee hasn’t had encouragement over the years. She got plenty of helpful guidance when it came to her decision to jump to TBS. (Bee is also executive producer of TBS’s The Detour, which stars her husband, Jason Jones.) The best advice Bee has received, though, came when she was worrying about when to start a family. A friend asked her why she was waiting to live her life. Bee says, “It was such a great moment where I went, ‘Am I waiting for my bosses to give me the okay to live the fullest life that I want to live? This is insane.’” Almost on cue, Bee’s three children (ages 6, 8, and 10) interrupt to tell her about the movie they want to watch (Mamma Mia!). “I’m having a conversation right now,” she says to them. And then, in a comic vibrato, she belts out: “I’m leaning in! I’m leaning in!”

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MOST POWERFUL WOMEN

NO.

13

2016

RUTH PORAT

CFO, Google

GETS DISCIPLINED By Leena Rao

S EP T EM B ER 1 5, 2 0 16 • F O R T U N E

THE SEARCH-ENGINE BEHEMOTHHAS SPENT BILLIONS IN THE QUEST FORITSNEXT HIT.NOW WALL STREET VETERANRUTH PORAT HAS COME ABOARD TO HELP GOOGLE—AND ITS PARENT COMPANY,ALPHABET— GETMOREBANGFORTHEBUCK. CANSHE GET THEIR “SMART CREATIVES”TO FALL IN LINE?

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FINANCIAL ENGINEER Porat led Google’s reorganization under the holding company Alphabet last year; since she joined the company in May 2015, its stock price has risen more than 40%.

S

didn’t stop Ruth Porat from setting out for her beloved spinning class. But black ice kept her from getting there. Early one Sunday in January 2015, Porat slipped and fell near her home on Manhattan’s Upper West Side, shattering her left shoulder blade. After she rushed to an emergency room, doctors told her she would need immediate surgery. Wrong answer. Porat was the chief financial officer of Morgan Stanley, whose annual earnings call was two days away. Instead of going under the knife, she went to her office, arm in a sling. Porat refused painkillers, saying they would impair her judgment, and put in two long workdays before the Tuesday morning call. Only after that did she go in for surgery—driving straight from the office to the hospital. But within days she was back in Midtown Manhattan, explaining the company’s results to Morgan Stanley’s

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September 15, 2016

board. “We could all see her hand was very swollen and black and blue,” recalls Hutham Olayan, a senior executive at Saudi conglomerate Olayan Group and a longtime board member. But Porat “was presenting as if nothing had happened.” Porat’s shoulder remained painful for months, but it didn’t keep her from traveling. A few weeks after the accident, she flew to California on a trip that helped her land one of the most prominent and difficult jobs in technology—becoming CFO at Google and helping the tech giant transform itself as it approaches its third decade. A high tolerance for pain isn’t literally a job requirement for most leaders. But over a career at the highest levels in corporate finance, Porat has been equally unflappable, navigating physical obstacles and fighting great metaphorical discomfort—the race-the-clock stress of the financial crisis, the tension of negotiations among big-ego executives, and now the culture clash of imposing financial discipline at tech’s biggest idea factory. In doing so, Porat, 58, has the rare distinction of having been one of the most powerful women in both finance and technology—two industries in which women have struggled to reach senior positions. Porat’s work ethic stands out even by the caffeinated standards of Wall Street. But she far outshines the pack, according to former Morgan Stanley CEO John Mack, in her ability to reason her way through the most difficult financial problems. She matches that analytical rigor with an approachability and warmth that make her a consummate boardroom diplomat. “Ruth is the only person who can deliver bad news to me, and I’ll still like her,” says Jeff Immelt, CEO of GE. After nearly 30 years in finance, Porat now calls a different industry her home. At Google, where she started in May 2015, Porat has traded suits and heels for hoodies and jeans. She jumped immediately into the task of restructuring Google under a new corporate umbrella, Alphabet—and showing investors how much the company was earning from and spending on its core search and ads business on the one hand and its “moonshot” projects on the other.

PHOTOGRAPH BY

WINNI WINTERMEYER


So far she has given shareholders plenty to celebrate. After her first earnings report, in July 2015, Google’s market value increased $60 billion in a single day, the largest such gain ever for a U.S. company. In all, Google’s stock (now Alphabet’s) is up more than 40% since Porat switched to Pacific time. “No normal person could walk into a massive restructuring … with new subsidiaries and compensation and be completely fine,” says Alphabet chairman Eric Schmidt, who calls Porat “extraordinary.” Still, the Alphabet reshuffle is just one step in a long-term transformation, one that puts Porat at the center of a contentious struggle over Google’s future. For all its impressive innovations, from the Android operating system to advances in artificial intelligence, Google still gets about 95% of its revenue from online advertising, and industry watchers believe it will inevitably lose its edge there as rivals grow stronger. “The clock is ticking on Alphabet’s dominance,” says independent technology analyst Rob Enderle. Google needs another hit—ideally from one of the nonadvertising businesses now labeled Other Bets. Inventing the next breakthrough isn’t Porat’s job, but as CFO, she’s the one leaning on the inventors to show results. And that’s where the tension lies. Under Porat’s scrutiny, those business units are facing unprecedented pressure to bring their costs in line with their revenue. Schmidt and Google founders Larry Page and Sergey Brin say such discipline will help Google spot winners more efficiently. But some of the company’s “smart creatives” fear that Alphabet could inadvertently strangle the next great innovation in its infancy, in the name of fiscal prudence. Porat herself recently told an audience that “you can’t cost cut your way to greatness.” (She declined to speak on the record for this article.) Yet that principle hasn’t stopped the company from cutting, and a recent string of executive departures suggests that some cuts are drawing blood. In short, the hoodie honeymoon phase is over. to Silicon Valley was in fact a homecoming. She was born in England, but her family moved to Palo Alto when she was a child, when her father joined Stanford’s SLAC National Accelerator Laboratory. Dan Porat, a Holocaust survivor who never earned a high school diploma, became an accomplished physicist who authored more than

P

ORAT’S TRANSITION

“RUTH IS THE ONLY PERSON WHO CAN DELIVER BAD NEWS TO ME, AND I’LL STILL LIKE HER.” 40 scientific and technical papers. Frieda Porat, Ruth’s mother, was a psychologist, and Ruth never doubted she would have both a family and a career. Her love for math and problem solving led Porat to Wall Street. After graduating from Stanford and from business school at Wharton, Porat joined Morgan Stanley as a junior mergers-and-acquisitions banker in 1987. She hit her stride in the mid1990s after becoming head of Morgan Stanley’s technology banking team, just as Wall Street was growing infatuated with the shiny new Internet. Porat worked closely with Mary Meeker, Morgan Stanley’s influential tech-stock analyst, who’s a confidante to Porat and godmother to her three sons. (Porat and securities lawyer Anthony Paduano married in 1983.) At a time when tech analysts tended to be exuberant bulls while bankers were more skeptical, “Ruth was the oil in the machinery” that helped the team agree on which transactions to back, says Joe Perella, then head of Morgan Stanley’s investment banking. Porat and Meeker could be an irresistible sales force, bombarding tech executives with data and ideas to win the right to lead their stock offerings. But Porat also had no problem telling startups to slow down and prove their business models before going public. Mack eventually promoted Porat to vice chairwoman of investment banking—a job that gave her influence with bigger companies. When Immelt first met Porat, he had just succeeded Jack Welch at GE. “When bankers would visit, they would take the first 30 minutes and tell me Jack Welch stories, like that was supposed to make me feel good,” Immelt recalls. “Ruth never did that.” With Immelt, too, Ruth earned respect by advising against some deals, even when saying yes could have reaped big fees for Morgan Stanley. When GE spun off insurance unit Genworth in 2004 in a $2.8 billion IPO, Porat pressed Immelt to set the opening share price lower, arguing that the stock would flounder if priced too high. “CEOs hate to hear shit like that,” Immelt says. “But she was right.”

September 15, 2016

JEFF IMMELT CEO, GE

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THE RÉSUMÉ:

BY THE NUMBERS AND BEYOND 2015

CFO, GOOGLE, ALPHABET 2010

CFO, MORGAN STANLEY

2006

GLOBAL HEAD OF FINANCIAL INSTITUTIONS GROUP, MORGAN STANLEY 2003

VICE CHAIRMAN, INVESTMENT BANKING, MORGAN STANLEY 1999

GLOBAL HEAD OF TECHNOLOGY BANKING, MORGAN STANLEY 1996

GLOBAL HEAD OF TECH EQUITY CAPITAL MARKETS, MORGAN STANLEY

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In 2006, Morgan Stanley assigned Porat to its financial institutions banking business, which helped big banks raise capital. That meant she was, in effect, sitting in a lifeguard tower when the financial-crisis tidal wave made landfall. In June 2008, Mack received a call from Hank Paulson, then the Treasury secretary, who was assembling a team to help the ailing mortgage giants Fannie Mae and Freddie Mac. “I need the best minds you have to help figure out what to do,” Paulson told Mack. Mack sent two top bankers, Porat and Bob Scully. When Porat arrived in Washington, Paulson told her, “This is going to be the most exhausting and rewarding thing you ever do.” Porat and Scully designed a plan to put the two entities under conservatorship, with the feds taking over their management—the only way, Paulson says today, to provide “a very necessary long-term guarantee” to keep the mortgage market liquid. Executives at Fannie Mae and Freddie Mac bitterly opposed the move, but it very likely kept the Great Recession from getting even worse. “I can’t tell you how many times Paulson called to thank me for giving him Ruth,” Mack says. Paulson also tapped Porat to help rescue insurance giant AIG. When she returned home late one night to shower during that ordeal, a former colleague recalls, she found a collage of Post-it notes of support waiting in the kitchen; Porat’s 11-year-old son wrote, “Fix this so I can have my mommy back.” Porat’s Washington experience helped her earn a promotion to chief financial officer, in January 2010. The ensuing years weren’t great for Morgan Stanley—its profits have lagged since the financial crisis—but Porat earned plaudits for stabilizing its finances and helping it meet government “stress tests.” She also showed a knack for lightening the mood. When the staff would work weekends and nights to prep for earnings reports, for example, Porat would blast pop music and sing along. was ready for a change. She had been considered as a candidate for deputy Treasury secretary but withdrew rather than undergo a banker-bashing confirmation hearing. As a trustee at Stanford, she was making more trips to the West Coast, and colleagues say she felt nostalgia for Palo Alto, where her father still lives. Mack encouraged Porat to reach out to Bill

B

Y LATE 2014, Porat

September 15, 2016

Campbell, the longtime top adviser to Google and Apple. One Saturday in February 2015, Porat visited Campbell at his Palo Alto home to talk about a career change. As Campbell later told Fortune (in an interview before his death this April), Porat had one stipulation: She didn’t want another CFO job. Campbell responded, “Well, I have the perfect job for you. How about the CFO of Google?” What Porat hadn’t known was that Google’s then-CFO, Patrick Pichette, was leaving—and that her work during the financial crisis had impressed Google’s leaders. Porat told Campbell she was intrigued, and word got around fast. Almost immediately after she left Campbell’s house, she got a call from Page’s assistant, setting up a meeting. The courtship was quick too: Less than a month after her visit with Campbell, Porat had a job offer, with stock and bonuses that brought her hiring package to almost $70 million. to crisis-era Wall Street may sound like comparing a mosquito bite to a heart attack. But even successful executives have nightmares, and at Google those involve the company becoming the next Yahoo or Nokia—tech bellwethers that fell behind as the industry’s landscape changed. That’s why the eventual success of Other Bets innovations matters so much. Investors, too, want assurances that Google’s research is paying off. When the company went public in 2004, Page and Brin publicly declared that Google would never sacrifice long-term goals in response to pressure from shareholders. Twelve years later, with Google one of the world’s most widely owned stocks, the company can no longer say, “Just trust us.” On Porat’s first day at Google, Page explained to her his vision for a holding-company corporate structure and told Porat that implementing it would be her top priority. In August 2015, three months after Porat had started, she and Page announced the creation of Alphabet. Google became a subsidiary of Alphabet, as did most of its smaller, research-driven units, including connected-home business Nest and Google Fiber, its home broadband initiative. Alphabet now discloses revenue and profits for two categories: Google and Other Bets. The Google bucket includes not only the advertising business but also cloud services and Android. In the second quarter of this year, that

C

OMPARING TODAY’S Google


JEFFERY S A LT ER—T HE NE W YORK T IMES/REDUX

bucket accounted for 99.1% of Alphabet’s $21.5 billion in revenue; all the Other Bets, just 0.9%. Porat and her investor-relations team are explaining these changes to big investors in 15- to 30-minute “office hours” meetings—standard procedure for many companies but previously unheard-of at Google. “I was shocked when I met Ruth for the first time, and she actually asked our team, ‘What can Alphabet do better?’ ” says Eric Sheridan, managing director of UBS’s Internet and interactive entertainment research group. Porat won more investor goodwill in October 2015 by announcing a $5.1 billion stock buyback. But inside Alphabet, the new order is generating more tension than elation. Porat’s team meets regularly with each Other Bets business, walking them through their units’ spending and earnings, and urging them to make tradeoffs to bring them in line. This is Corporate Finance 101, but it represents a drastic shift—and an uncomfortable one for many project managers. “Ruth is approachable and warm, but she is persistent in what she wants—and she asks direct questions,” says one Google employee, implying that such bluntness is, itself, new. Current and former employees also say the scru-

tiny goes hand in hand with the kind of cost cutting companies that aren’t Google have endured for decades. Some cuts are relatively minor: Employees are encouraged to use video conferencing instead of traveling to meetings, for example. But others have deeper strategic implications. One source close to the company says it’s now difficult for Other Bets to get new hires approved. The Bets are also being told to be self-sufficient administratively: They can rely on Alphabet for functions like legal counsel, human resources, and public relations, but only if they pay Alphabet for the services. (One Other Bets subsidiary was billed $500,000 for a year’s worth of PR help.) If these units were independent companies, of course, they’d be shouldering these costs on their own. But within Alphabet, they represent unfamiliar constraints, and for some, a signal that the culture Google was built on—focusing on innovation over profits—is dissipating. Google executives reject that assertion. Schmidt, the chairman, acknowledges that the focus is new but says it allows Alphabet to invest more efficiently in its winners. Alphabet has been aggressively hiring engineers for cloud-computing and artificial-intelligence projects, for example.

September 15, 2016

THE BIG TWO OF INTERNET 1.0 Porat (right) with famed tech-stock analyst Mary Meeker in 1999, when Porat headed Morgan Stanley’s technology banking team. The duo helped the bank become a dominant force in tech IPOs.

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2016

l l“The cost cutting is real, and it’s the right thing to be done, and it’s driven by [Porat],” Schmidt says. “Before she was there, we had lost discipline.” But is discipline really the problem? In the most recent quarter, Other Bets lost an ugly $859 million on $185 million in revenue. Still, when you consider that Alphabet generated $7 billion in free cash that quarter, the losses seem like something the company could easily absorb. Cost cutting, says Enderle, the analyst, “is like taking painkillers when you are sick. At some point you are going to have to address what is making you sick.” The real issue at Alphabet, he adds, is that “what they are vspending money on isn’t successful.”

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The Alphabet reorganization essentially separated Google’s core moneymaking operations from its researchoriented and experimental “moonshot” divisions. Now those companies, known as Other Bets, are under pressure to be more financially self-sufficient. Here’s a guide to what they’re doing and how they’re faring.

NEST sells “smart home” features like smartphonecontrolled thermostats, alarms, and cameras. It’s bringing in revenue (reportedly $360 million in 2015), but tensions have mounted over slow product development and sales targets.

FIBER aims to offer gigabitspeed Internet and TV service via fiber-optic connections. Earlier plans called for Fiber to serve 5 million users by 2016, but that figure has reached only several hundred thousand, and layoffs have been reported.

VERILY, Alphabet’s lifesciences unit, has projects that include a huge genetic data-collecting initiative. The unit has performed well financially, thanks to deals with medical and pharmaceutical companies, but has struggled to retain talent.

SELF-DRIVING CARS from Google are now being tested on California roads. The tech hasn’t been commercialized yet, but the team, a unit of X, is seeking partners among automakers and recently signed a collaboration with Fiat Chrysler Automobiles.

X, formerly known as Google X, is the starting point for many of the search giant’s moonshot ideas, including Project Loon (above), which brings Internet connectivity to rural areas using massive balloons. Cost controls have reportedly slowed down hiring at X, and an executive shake-up has been reported.

CALICO, led by former Genentech CEO Arthur Levinson, is devoted to antiaging research, with a focus on the biological and genetic factors that determine human life spans. Google has invested $240 million in Calico, but little is known about its current commercial prospects. COUR T ESY OF GOOGLE

ERITED OR NOT, Alphabet’s reforms have pushed some managers toward the exits. Nest founder Tony Fadell left in June, not long after telling tech website the Information that “the fiscal-discipline era has now descended upon everything.” (He remains lan Alphabet adviser.) Three executives from Google’s self-driving-car unit left in August, as did Bill Maris, founder and head of Google’s venture arm. And there have been reports of an executive shakeup at X, Alphabet’s research lab. The departures have prompted plentiful chatter around Palo Alto. But having navigated the battles of the financial crisis, Porat knows how to tune out noise. She also has the kind of personal experience that keeps corporate infighting in perspective: She has beaten breast cancer twice and has been in remission since 2003. As Meeker, now a partner at venture capital firm Kleiner Perkins, puts it, “Don’t underestimate the leadership talent that develops from crisis management.” That talent has made Porat an important voice for Google, inside the company and out, at a time of momentous change. This past January, at the World Economic Forum summit in Davos, Switzerland, Porat and Schmidt hosted a dinner for European leaders. They decided that Porat would make introductory remarks and then yield the floor to Schmidt. But as Porat began talking, Schmidt realized she was giving a far better speech than he could. “The way she spoke showed she knew Google so well,” he recalls. v For a moment, Schmidt wasn’t sure what to do. But he quickly arrived at an answer: “Just shut up and listen to Ruth.”

LONG-SHOT BETS

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MOST POWERFUL WOMEN INTERNATIONAL FOR THE PAST TWO YEARS, Fortune has ranked the most powerful businesswomen in two

global regions—Europe, Middle East, and Africa (EMEA) and Asia-Pacific. This year we have returned to a single list of 50 women based outside the U.S. At the top: Banco Santander group executive chairman Ana Botín, whose company was rocked by volatility but maintains an unmatched level of global power. The 2016 list is a diverse one, with members from 19 countries (though almost half reside in China or England) and many industries (finance leads, with 17). Sixteen percent are new, including two CEOs in the U.K. (Alison Brittain of Whitbread and Anne Richards of M&G Investments) and tech stars Jennifer Li, CFO of search engine Baidu, and Jean Liu, president of ride-sharing giant Didi Chuxing. The biggest mover is our new No. 3, Isabelle Kocher, now in her fifth month helming French energy giant Engie, up from No. 19 on last year’s EMEA ranking. None of these leaders had it easy; sluggish growth, China’s slowdown, geopolitical uncertainty, and the strong U.S. dollar all took a toll on performance. —Erika Fry

By RUPALI ARORA, ERIKA FRY, AUDREY SHI, AND CLAIRE ZILLMAN

September 15, 2016

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141


THE INTERNATIONAL 01

02

ANA BOTÍN

ARUNDHATI ISABELLE BHATTACHARYA KOCHER

55, Group Executive Chairman Banco Santander SPAIN ¬ 2015 RANK: 1 (EME A)

03

60, Chairperson State Bank of India

49, CEO Engie

INDIA ¬ 2 (ASIA)

FR ANCE ¬ 19 (EME A)

1. BOTÍN

14. MARTELLO

05

CHUA SOCK KOONG

CHANDA KOCHHAR

58, Group CEO Singapore Telecommunications

54, Managing Director and CEO ICICI Bank

SINGAPORE ¬ 3 (ASIA)

INDIA ¬ 1 (ASIA)

06

07

08

09

10

ALISON COOPER

GÜLER SABANCI

HO CHING

ANNIKA FALKENGREN

ORNELLA BARRA

50, CEO Imperial Brands

61, Chairman and Managing Director Sabanci Holding

63, Executive Director and CEO Temasek

54, CEO and President SEB Group

62, Co-COO Walgreens Boots Alliance

U.K . ¬ 2 (EME A)

T URKE Y ¬ 4 (EME A)

SINGAPORE ¬ 10 (ASIA)

SWEDEN ¬ 3 (EME A)

U.K . ¬ 5 (EME A)

11

12

13

14

15

DONG MINGZHU

WANG FENGYING

LI DANG

WAN LING MARTELLO

PATRICIA BARBIZET

62, CEO Gree Electric Appliances

46, CEO and Executive Director Great Wall Motor

59, President and Director China General Technology

58, Head of Asia, Oceania, and SubSaharan Africa Nestlé

CHINA ¬ 4 (ASIA)

CHINA ¬ 7 (ASIA)

CHINA ¬ 6 (ASIA)

SWIT ZERL AND ¬ (NEW )

61, CEO, Artémis, and CEO and Chairman, Christie’s International Groupe Artémis FR ANCE ¬ 6 (EME A)

16

17

18

19

20

LUCY PENG

ROSE LEE WAI MUN

VÉRONIQUE LAURY

SHIKHA SHARMA

MARIA RAMOS

43, CEO Ant Financial

63, Vice Chair, CEO Hang Seng Bank

51, CEO Kingfisher

57, CEO and Managing Director Axis Bank

57, Group CEO Barclays Africa Group

CHINA ¬ 11 (ASIA)

CHINA (HK ) ¬ 8 (ASIA)

U.K . ¬ 8 (EME A)

INDIA ¬ 9 (ASIA)

SOU TH AFRIC A ¬ 11 (EME A)

21

22

23

24

25

DOMINIQUE SENEQUIER

CAROLYN MCCALL

SERPIL TIMURAY LUBNA OLAYAN

19. SHARMA

22. MCCALL

14 2

NANCY MCKINSTRY

63, President Ardian

54, CEO EasyJet

47, Regional CEO, AMAP Vodafone

61, CEO and Deputy Chairperson Olayan Financing

57, CEO and Chairman Wolters Kluwer

FR ANCE ¬ 10 (EME A)

U.K . ¬ 7 (EME A)

U.K . ¬ 15 (EME A)

SAUDI AR ABIA ¬ 16 (EME A)

NE THERL ANDS ¬ 13 (EME A)

FOR T UNE .COM

September 15, 2016

BOTİN: SHAUN CURRY—FINANCIAL TIMES-RE A /REDUX; CHING: AL DR AGO—THE NE W YORK TIMES/REDUX; MARTELLO: GIANLUCA COLL A—BLOOMBERG VIA GE T T Y IMAGES; SHARMA: SONU MEHTA—HINDUS TA N T IMES VIA GE T T Y IM AGES; MCC A LL : M AT T HE W LLOY D—BLOOMBERG VIA GE T T Y IM AGES

8. CHING

04


MOS T POWERFUL WOMEN INTERNATIONAL

2016

POWER 50 26

27

28

29

30

WU YAJUN

MOYA GREENE

KWON SEON-JOO

ISABELLE EALET

DOMINIQUE LEROY

52, Chairman Longfor Properties

62, CEO Royal Mail

CHINA ¬ 13 (ASIA)

U.K . ¬ 9 (EME A)

59, CEO and Chairman Industrial Bank of Korea

53, Global Co-Head of Securities Goldman Sachs

SOU TH KORE A ¬ 12 (ASIA)

U.K . ¬ 18 (EME A)

BELGIUM ¬ 12 (EME A) 29. E ALET

31

32

33

34

35

WEI SUN CHRISTIANSON

MAGGIE WEI WU

EMMA WALMSLEY

JENNIFER LI

RACHEL DUAN

60, Co-CEO AsiaPacific, CEO China Morgan Stanley

48, CFO Alibaba

47, CEO GSK Consumer Healthcare GSK

49, CFO Baidu

CHINA ¬ 15 (ASIA)

U.K .¬ 24 (EME A]

CHINA ¬ (NEW )

46, SVP, GE, and CEO and President, GE China General Electric

CHINA ¬ 17 (ASIA)

E A LE T: COUR T ESY OF GOLDM A N SACHS; WA LMSLE Y: COUR T ESY OF GSK; YA FA NG: DENIS BA LIBOUSE—REU T ERS; RUSSA K-AMINOACH: A RIEL JEROZOLIMSK I—BLOOMBERG VIA GE T T Y IM AGES; WAT K INS: DA N HIMBRECH T S—EPA

51, CEO Proximus

CHINA ¬ 19 (ASIA)

36

37

38

39

40

JEAN LIU

TSAI (PATTY) PEI-CHUN

SUN YAFANG

ALISON BRITTAIN

ERICA MANN

37, President Didi Chuxing

36, CEO Pou Chen Group

60, Chairman Huawei Technologies

51, CEO Whitbread

CHINA ¬ (NEW )

TAIWAN ¬ (NEW )

CHINA ¬ 21 (ASIA)

U.K . ¬ (NEW )

33. WALMSLEY

57, Head of Consumer Health Division Bayer SWIT ZERL AND ¬ (NEW )

41

42

MARGARITA BOO-JIN LOUIS-DREYFUS LEE

43

44

45

RAKEFET RUSSAKAMINOACH

ANN CAIRNS

ANNE RICHARDS

54, Chairperson of Supervisory Board Louis Dreyfus Holding

46, CEO Hotel Shilla

SWIT ZERL AND ¬ 21 (EME A)

SOU TH KORE A ¬ 20 (ASIA)

46

47

NANCY SOUTHERN

ALISON WATKINS ZHOU 53, Group Managing QUNFEI Director Coca-Cola Amatil

C ANADA ¬ (NEW )

AUS TR ALIA ¬ 22 [ASIA)

59, CEO, Chairman, and President ATCO

50, CEO and President Leumi Group ISR AEL ¬ 23 (EME A)

48

59, President, International Markets MasterCard

52, CEO M&G Investments

U.K . ¬ 25 (EME A]

U.K . ¬ (NEW )

49

50

MARINABERLUSCONI

LINDA HASENFRATZ

46, CEO and Founder Lens Technology

50, Exec. Chairman, Fininvest Group, and Chairman, Mondadori Group Fininvest

50, CEO Linamar

CHINA ¬ 18 (ASIA)

ITALY ¬ 22 (EME A)

C ANADA ¬ (NEW )

September 15, 2016

38. YAFANG

43. RUSSAKAMINOACH

47. WATKINS

FOR T UNE .COM

14 3


NO. 07

GÜLER SABANCI

LEADING IN TIMES OF CHAOS 14 4

FOR T UNE .COM

September 15, 2016

Chairman, Managing Director, Sabanci Holding

TURKEY’S ABORTED COUP IS THE LATEST CHALLENGE FOR GÜLERSABANCI. BY ERIKA FRY

COUR T ESY OF S A B A NCI HOLDING

NEVER DULL Gűler Sabanci has run Turkish conglomerate Sabanci Holding since 2004— through good times and bad.


MOS T POWERFUL WOMEN INTERNATIONAL

N HER ANNUAL letter to shareholders earlier this year, Güler Sabanci, chairman and managing director of Sabanci Holding, one of Turkey’s largest conglomerates, offered a couple of reasons for optimism in 2016: “the favorable turn in Turkey’s relations with the EU” and “the immense opportunities in store” for her country in the coming year. Just six months later, it’s a radically different picture. Turkey is currently under a state of emergency, as it has been since a failed coup attempt in July. The resulting purge, which has removed more than 80,000 people from public duty—including thousands of academics and the chief financial officer of Turkish Airlines—has drawn international condemnation. Meanwhile, the country continues to grapple with the region’s refugee crisis and the wave of deadly terrorist attacks that have hit its major cities and southern border region, as well as the Turkish lira’s 21% decline in value since January 2015. With the broader global volatility out there, it’s hard to imagine a more challenging environment in which to lead the Istanbul-based Sabanci—a $17.6 billion portfolio of businesses that spans the financial, industrial, retail, and energy sectors. So far Sabanci, which operates in 16 countries, is holding its own. In the first half of 2016 the group’s sales rose 22% in local currency, and profits were up 11%. The family business’s third-generation leader and a fixture on Fortune’s Most Powerful Women international list (No. 7 in 2016), Sabanci is confident the country will rebound as well. “Turkey has an incredible stamina to come back,” she told Fortune in mid-August. A cordial but hard-charging 61-year-old with owlish glasses and a booming voice, Sabanci is no stranger to turmoil. She joined the family company, which was run by her five uncles (her father died when she was young), straight out of college 38 years ago. Though the group was known for textiles, Sabanci shrewdly opted for a job in its fledgling tire company, Lassa. “I had wanted to grow with a business,” she explains. “I loved the smell of rubber!” A 1980 coup nearly derailed her plans. The putsch, which ushered in a period of fluctuating exchange rates and import restrictions, drastically disrupted operating conditions and brought Lassa to the brink of bankruptcy. Sabanci’s job import-

I

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2016

ing raw materials from abroad was especially tough. It took three years to recover, but she now considers the experience one of her most valuable. “I learned crisis management firsthand. And being part of that team has helped me all my life.” Sabanci continued to gravitate toward challenges, forging the company’s first-ever joint venture in 1987, to build a steel-cord factory in Turkey. The effort altered the family business. “We were used to having control,” she says. “My uncle asked me, ‘Who will be boss then?’ I said the project itself will be the boss.” As Turkey emerged on the world stage in the 1990s, she played a pivotal role in globalizing the company. Then, in 2004, she became Sabanci’s chairman, elected by the majority of family members—and over many male relatives—following the death of her uncle Sakip. It was a startling development at the time, an unprecedented position for a woman in Turkey. That’s not her only “first:” A leading Turkish philanthropist who founded a university in 1994, she has also proved savvy at navigating her nation’s complicated politics—steering clear of sensitive sectors while acting as a strong economic ambassador for Turkey. Fadi Hakura, who runs the Turkey Project at think tank Chatham House, notes that this fits the Sabanci tradition: “They’ve been able to manage the gyrations of the last five decades. They know how to manage the volatility governing Turkish politics.” At this particularly fraught moment, that means doubling down on the home country. “We are still investing,” Sabanci says. “We strongly believe in the future prospects of our country, and we put our money where our mouth is.” The previous weekend she had joined the Turkish Prime Minister to open a Composite Technologies Center of Excellence—an academic-industry collaboration intended to develop a more innovative R&D ecosystem in the country. Sabanci also sees a silver lining in the national unity that has come out of the summer’s failed coup, calling it an important opportunity to implement reforms. But she is guarded when it comes to criticism of her country’s current direction. She wouldn’t comment on Turkey’s postcoup purge, other than to accuse the Western media of bias. Of the attempted takeover itself, though, she is unequivocally opposed. “It is a very bad memory for Turkey, and hopefully it will always stay a bad memory only.” Now she must use her crisis-management skills—once again.

September 15, 2016

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100 FORTUNE

By Scott DeCarlo, Douglas G. Elam, Vivian Giang, Katrina Kaufman, and Kathleen Smyth

F O R T U N E . C O M FASTEST- GROWING COMPANIES

WE ALL KNOW THE PHRASE “too big to fail.” Perhaps we should add “too fast to be stopped.” For this, the 30th edition of Fortune’s list of Fastest-Growing Companies—which reveals the top threeyear performers in revenues, profits, and stock returns (the methodology is explained on page 156)—there’s a surprise. Routinely dominated by tech companies, with energy enterprises enjoying periods of ascendancy, the roster now reflects the rise of small banks and other financial institutions; 28 appear on this year’s list. The behemoth banks have sometimes been vilified by protesters or scorned by politicians. But here’s a different kind of response, as customerfocused competitors rise up. Such rejuvenation is crucial for the economy, and this list captures the revitalizing moment when corporate buds turn into flowers.

SEPTEMBER 15, 2016

FASTESTGROWING COMPANIES

FAS T E S T- G R O W I N G C O M PA N I E S

1 5 1


FORTUNE

EARNINGS PER SHARE

RANK 29

FINANCIALS S

15

HEALTH HEALT L H CARE

2016

2015

1

2

23 NUMBER OF COMPANIES IN EACH YEAR’S LIST

F O R T U N E . C O M FASTEST-GROWING COMPANIES

SEPTEMBER 15, 2016

TECHNOLOGY

5 OTHER

2

RETAILERS

2

MINING 1997

0 2000

2005

2010

2016

FALLING FAST, BOUNCING BACK The past few years have seen dramatic reversals in the roster of smoking-hot companies. Oil and gas players, which rode the fracking boom to utter dominance, have vanished, while financial entities have rebounded from wipeouts in 2008–09 and claimed the crown as the top industry.

203

3

INSYS THERAPEUTICS

119

10

141

7

273

1

10

Menlo Park, Calif.

4

Chandler, Ariz.

5

Milwaukee

6

19

San Diego

LIGAND PHARMACEUTICALS

7

21

Manhattan Beach, Calif.

SKECHERS U.S.A.

155

6

61

ABIOMED

127

9

59

29

DOUGLAS DYNAMICS 2

Danvers, Mass.

AMBARELLA

1

Santa Clara, Calif.

LENDINGTREE

10

Charlotte

40

48

11

TAL EDUCATION GROUP 1

40

49

NOAH HOLDINGS

45

40

AERCAP HOLDINGS 3

68

23

FEDERATED NATIONAL HOLDING

71

22

SKYWORKS SOLUTIONS

67

24

JINKOSOLAR HOLDING 1

45

39

112

13

74

19

251

2

NETFLIX

77

18

UNIVERSAL INSURANCE HOLDINGS

54

31

ACADIA HEALTHCARE

51

34

25

12

5

13

12

14

3

15

65

Beijing

1

Shanghai Dublin

Sunrise, Fla.

Woburn, Mass.

Shangrao, China

17

9

18

98

GILEAD SCIENCES

Foster City, Calif.

SUPER MICRO COMPUTER

San Jose

BEAR STATE FINANCIAL

Little Rock

20

46

Los Gatos, Calif.

21

26

Fort Lauderdale

22

6

Franklin, Tenn.

YY

1

23

Guangzhou, China

116

12

24

SUPERIOR UNIFORM GROUP

51

32

TEXAS PACIFIC LAND TRUST

41

47

Seminole, Fla.

93

Dallas

26

Irvine, Calif.

BANC OF CALIFORNIA

42

45

27

NETEASE 1

20

90

118

11

MOLINA HEALTHCARE

72

21

CYNOSURE

45

41

Beijing

LAM RESEARCH

28

83

Fremont, Calif.

29

73

Long Beach, Calif.

30

Westford, Mass.

31

Dallas

HILLTOP HOLDINGS

51

33

32

ASTRONICS

46

37

DYCOM INDUSTRIES

48

35

ILLUMINA

65

25

QUALYS

95

15

34 35

G R A P H I C S B Y NICOL AS RAPP

VIPSHOP HOLDINGS

3

34

33

1 5 2

5 4

25 EDUCATION EDUCAT A ION

187

1

192

19

0

NATURAL HEALTH TRENDS

Rolling Hills Estates, Calif.

FACEBOOK

16

ENERGY

East Aurora, N.Y. Palm Beach Gardens, Fla.

28

San Diego Redwood City, Calif.

Through the quarter ended April 30, 2016. Incorporated in the Cayman Islands. 2 Includes a $220 million income benefit stemming from a deferred tax asset. 3 Incorporated in the Netherlands. † 1

Rank

Guangzhou, China

9

INDUSTRIALS

Three-year annual growth rate (%)

2

8

24

For an explanation of Fortune’s methodology, go to the end of the list.


FAS T E S T- G R O W I N G C O M PA N I E S

NET INCOME

REVENUE

revenue

T O TA L R E T U R N

Rank

Past four quarters† ($ millions)

Three-year annual rate* (%)

Rank

P/E, current fiscal year profits (est.)

52

106

2

298

211

1

8A

266

105

3

6,852

56

9

24

4,686

53

13

19,767

66

5

44

53

147

1

322

41

21

45

49

46

17

395

31

31

23

263

31

39

87

47

15

50

273

27

51

3,358

55

11

13

38

27

57

330

72

4

105

59

38

25

303

45

17

45

49

41

22

298

73

3

41

103

39

23

620

81

2

42

95

53

12

358

40

22

18

1,090

102

4

5,316

24

51

6

41

53

14

264

26

45

9

1,000

30

41

3,393

44

18

13

146

48

16

2,886

31

32

4

17,341

59

9

32,839

19

66

7

92

29

49

2,265

33

29

11

12

57

10

80

10

85

23A

127

24

66

7,164

45

16

304

109

27

54

607

43

20

7

124

61

7

2,046

19

65

18

159

89

5

1,002

8

90

14

13

23

67

222

56

10

19A

35

35

30

57

26

44

38A

69

66

6

516

14

75

14

1,217

39

24

4,121

48

13

19

786

22

70

5,821

25

47

14

139

37

28

15,350

10

84

19

19

31

38

359

23

55

40

125

51

15

1,621

9

89

14

68

44

20

690

12

80

17

113

16

95

2,462

57

8

22

414

25

61

2,253

23

54

46

18

22

68

173

23

57

76

Multilevel marketer of beauty products and nutritional supplements owes its glow to the Hong Kong market, which provided 93% of its revenues last year. Flash sales of mid-to-high-end apparel, hugely attractive to the swelling ranks of wealthy Chinese, keep the trend for this online fashion retailer headed upward. It may not be so cool with kids anymore, but nearly a quarter of humanity uses Facebook. Result: a projected 12% of the world’s digital-ad revenues this year. Investors buzz as medical-marijuana company’s oral THC solution, Syndros, is the only FDA-approved drug to treat nausea and vomiting caused by chemotherapy. Who craves snowy winters? Operators of ski resorts—and this seller of snowplows and salt spreaders, which is appearing on this list for the first time. This biotech licensor’s two hit drugs—Krypolis, used to treat blood cancer, and Promacta, used to prevent bleeding episodes—injected big royalties last year. Sneaker and athleisure manufacturer continues to sprint, this time propelled by accelerating international sales. More use of its top device, Impella 2.5, gives this producer of small heart pumps a healthy pulse. Its latest quarterly sales jumped 40% vs. the same period in 2015. Extreme rise: Maker of camera chips for GoPro now targets the drone-video business. Shares have skyrocketed by 67% in the past three months. Online exchange connects lenders to borrowers. Surges in small-business and auto loans have helped the stock jump nearly 20-fold over five years. Chinese tutoring service gets a gold star for a more than 50% increase in net income and enrollment as it rapidly expands to meet student demand. Amid volatile markets, China’s affluent entrust $15.2 billion in assets to this wealth manager, with many clients diversifying their investments overseas. With airlines enjoying a comeback, this aircraft lessor is flying high on demand for its fleet. On average, AerCap sells or leases an aircraft every 24 hours. Premiums are flowing into this Florida home insurer, but forecasts for the most active Atlantic hurricane season in years could soon wash away profits. All charged up: Radio-frequency chips for mobile devices, such as Apple’s iPhone, boost profits for this innovative maker of semiconductors. The sun shines on this solar-panel manufacturer, with record shipments in the second quarter. Yet overcapacity fears still loom over the industry. Revenues from new (and safer) HIV meds, including Descovy, Genvoya, and Odefsey, are soothing a drop-off in this biopharma company’s hepatitis C drug sales. Cloud-computing trend helps this maker of servers and storage technology float 80 spots up the list despite weaker-than-expected orders in the fourth quarter. Acquisition of the Metropolitan National Bank and consolidation of six branches in 2016 helped this regional bank bulk up its assets by 37% over the past year. Netflix now streams its binge-watchable content to over 83 million members in more than 190 countries. But can it stay on top as subscriber growth ebbs? Universal’s policy: A new direct-to-consumer online platform attracts customers outside the Florida market to this property and casualty insurer. Treatment provider for mental health, substance abuse, eating disorders, and more uses acquisitions to help deliver a 69% revenue jump in the first quarter. Once a chat venue for online gamers, YY.com is now a videocentric social network that charges users to send virtual gifts or play games with entertainers. Established in 1920, this provider of uniforms gets its lifeblood from the thriving hospital and health care sector. It doubled its revenue in the past three years. With 900,000 acres from a bankrupt 19th-century railroad, this trust still generates Texas-size earnings 128 years later, thanks to the recent fracking boom. Institution that prioritizes lending to community development projects like affordable housing now has $8.3 billion in assets, vs.$700 million in 2010. Game company successfully transitions two hits, Fantasy Westward Journey and Westward Journey II, from PC and online, respectively, to mobile versions. Known for 3D NAND flash-memory chips (used by Samsung and Intel), Lam plans to merge with KLA-Tencor, yielding an entity with annual revenues of $8.7 billion. Obamacare is only the latest boon for this health insurer, whose 4.3 million members overwhelmingly have their premiums paid by the government. Vanity is great business: Cynosure aims its lasers at customers’ unwanted body hair, cellulite, and love handles, transforming them into profits. Once a REIT specializing in manufactured homes, Hilltop has gobbled up banks and a mortgage provider, increasing its assets more than 10-fold since 2011. Another beneficiary of the airline resurgence, this maker of everything from power systems for airplane seats to safety equipment has reached cruising altitude. Somebody’s got to lay all that fiber-optic cabling for your broadband, and Dycom does the heavy digging for AT&T, Verizon, Comcast, and Alphabet. Growth in its DNA: The world’s largest genetic sequencing company is launching a startup, Grail, to develop blood-based screenings for early cancer detection. Rising threats are a boon for this cybersecurity company, which protects Amazon, Microsoft, and eight of the 10 largest global banks.

* Through June 30, 2016. The S&P 500 returned 11.6% annually over the same period. (Company returns lower than that of the S&P are bolded.) A P/E estimates for the current fiscal year are not available. The figure shown is the trailing 12-month P/E ratio.

F O R T U N E . C O M FASTEST- GROWING COMPANIES

Three-year annual growth rate (%)

SEPTEMBER 15, 2016

Past four quarters† ($ millions)

1 5 3


FORTUNE

EARNINGS PER SHARE

RANK 2016

2015

36

NY PA

OH AR

AZ

1

2

3

TX

SEPTEMBER 15, 2016

CONSTELLATION BRANDS

17

98

38

45

UNITED INSURANCE HOLDINGS

St. Petersburg

19

91

39

8

New York City

WISDOMTREE INVESTMENTS

56

30

VASCO DATA SECURITY INTERNATIONAL

61

27

PATRICK INDUSTRIES

21

89

UNDER ARMOUR

21

87

28

70

46

36

AMTRUST FINANCIAL SERVICES

29

68

EMERGENT BIOSOLUTIONS

34

57

DIAMOND HILL INVESTMENT GROUP

30

65

BOFI HOLDING

36

54

28

71

SC

42

62

Baltimore

FL

NETFLIX

MONOLITHIC POWER SYSTEMS

SUPER MICRO COMPUTER

PACWEST SKECHERS U.S.A. NATURAL HEALTH TRENDS BANC OF CALIFORNIA BOFI HOLDING LIGAND PHARMACEUTICALS

CALIFORNIA

PACWEST

43

Beverly Hills

44

11

Beijing

CHINA DISTANCE EDUCATION HOLDINGS

45

27

New York City

46

LAM RESEARCH

FACEBOOK AMBARELLA

Oakbrook Terrace, Ill. Elkhart, Ind.

Almost as striking as the number of financial companies (mostly banks, but also insurers and a few real estate firms) on this year’s list is their geographic dispersal. Only two are based in the nation’s money capital, New York, with three or more each in such states as Florida, Georgia, and Arkansas.

F O R T U N E . C O M FASTEST-GROWING COMPANIES

Victor, N.Y.

42

ARKANSAS, BANKING POWERHOUSE?

QUALYS

17

41

FIRMS PER METRO AREA

GILEAD SCIENCES

79

NC GA

96

Columbus, Ohio

48

56

San Diego

CHINA BIOLOGIC PRODUCTS

Beijing

50

Houston

OMEGA PROTEIN

45

38

51

ORBOTECH

Yavne, Israel

28

72

52

Los Angeles

44

43

53

Miami

NORWEGIAN CRUISE LINE HOLDINGS

73

20

54

MONOLITHIC POWER SYSTEMS

San Jose

33

59

55

Grand Rapids

SPARTANNASH

18

95

56

Zug, Switzerland

LUXOFT HOLDING

17

97

57

MARTIN MARIETTA MATERIALS

30

64

GENTHERM

81

16

SIMMONS FIRST NATIONAL

22

86

LITHIA MOTORS

31

62

60

MOLINA HEALTHCARE

CU BANCORP

14

Pine Bluff, Ark.

40

Medford, Ore.

61

Pompano Beach, Fla.

STONEGATE BANK

23

84

INTERCONTINENTAL EXCHANGE

22

85

MANHATTAN ASSOCIATES

29

66

ASPEN TECHNOLOGY

105

14

KB HOME

140

8

PACKAGING CORP. OF AMERICA

29

67

ENSIGN GROUP

33

61

ULTA BEAUTY

24

83

Atlanta

63

Atlanta

ILLUMINA

64

49

65 66

1 5 4

6

Northville, Mich.

62

No surprise that California is home to the greatest number of companies on our list (19). But more of the enterprises are located in the southern part of the state than in the north. Does that reflect “unicorns” in Silicon Valley choosing not to go public—or is SoCal not getting the respect it deserves as an entrepreneurial hotbed?

5

Raleigh, N.C.

ENSIGN GROUP

THE VALLEYS: SILICON VS. SAN FERNANDO

4

49

59

KB HOME

1

Gaithersburg, Md.

47

58

CU BANCORP

Bedford, Mass. Los Angeles

39

Lake Forest, Ill.

67

Mission Viejo, Calif.

68

Bolingbrook, Ill.

69

Little Rock

BANK OF THE OZARKS

25

78

70

METHODE ELECTRONICS

34

58

15

Chicago

Through the quarter ended April 30, 2016. Incorporated in the Cayman Islands. 4 Incorporated in the U.S. 5 Incorporated in Bermuda. 6 Incorporated in the British Virgin Islands. † 1

Rank

ASSURED GUARANTY

Hamilton, Bermuda

40

MD

CA

Three-year annual growth rate (%)

20

37

WA

For an explanation of Fortune’s methodology, go to the end of the list.


FAS T E S T- G R O W I N G C O M PA N I E S

NET INCOME

REVENUE

revenue

T O TA L R E T U R N

Rank

Past four quarters† ($ millions)

Three-year annual rate* (%)

Rank

P/E, current fiscal year profits (est.)

914

34

33

2,083

7

92

6

1,055

34

32

6,548

48

14

26

30

38

27

383

34

27

10

80

46

18

300

–4

97

38

31

20

76

223

25

46

52

45

27

56

976

63

7

24

240

30

43

4,206

37

24

69

317

60

8

1,027

13

76

14

25

27

55

113

19

64

17

453

42

21

4,828

17

67

8

88

27

52

570

25

48

22

37

24

64

126

34

28

17A

114

31

37

359

16

69

7

92

18

83

312

66

6

30

30

18

88

373

31

37

13

61

28

50

758

27

42

12

23

30

44

105

13

77

16

522

25

60

4,484

10

86

11

40

18

89

344

43

19

58

62

54

11

7,618

21

62

15

70

29

48

651

38

23

29

328

25

63

3,636

26

43

27

87

16

97

865

23

58

15

89

34

34

426

24

53

14

183

35

29

8,058

11

83

11

27

33

35

103

23

56

15

1,328

45

19

5,056

14

73

19

108

15

100

573

49

12

36

137

18

84

473

12

81

26

90

21

73

3,130

–8

99

12

450

30

40

5,717

14

74

16

49

18

86

1,419

31

34

15

345

21

74

4,130

35

25

42

194

29

46

536

22

59

15

85

18

87

809

28

39

15

Leading U.S. insurer of muni bonds beefs up via acquisitions. AG is insuring $412 million in bonds to help finance the renovation of LaGuardia Airport’s Terminal B. Americans guzzle Corona and Modela, and as long as they do, this beer and wine company will keep chugging dollars. Calm, sunny weather in Florida makes for balmy profits. After the purchase of American Coastal Insurance, United will have $1 billion of premiums in force. Purveyor of exchange-traded funds enjoyed a lucrative 2015, but investors have abandoned its Japan and Europe funds in 2016, reducing assets managed. Hacks stoke demand for identity-authentication products, such as Vasco’s fingerprint sign-ins for banking apps and two-step authentication for work devices. Maker of building products for recreational vehicles and motor homes rolls along with acceleration of 25% in sales to the RV industry. Performance sportswear seller makes fifth straight appearance on this list riding interest in high-tech gear and athleisure apparel. A merger with tech lender Square 1 last year earned this commercial bank access to the high-octane startup world. Who says teaching means poverty? Online education provider makes the grade with 3.3 million course enrollments and a 108% profit gain in its latest quarter. Insurer, which covers “specialty” risks and workers’ compensation claims for small business, has been on a decade-long run, with revenues soaring 10-fold. The world’s only anthrax vaccine, BioThrax, brought in some 55% of revenues for this manufacturer of drugs to protect against bioterrorism and other threats. A strong economy helped this manager of mutual, exchange-traded, and private investment funds sparkle; it now oversees $13 billion in assets. Branches? We don’t need no stinking branches: Internet-only bank continues its ascent, scooping up, among other things, H&R Block’s former bank assets. Demand in China far exceeds supply for this biopharma company’s blood products, which it derives from human plasma. Humans may turn up their noses at menhaden (a.k.a. pogy), but Omega catches tons of the fish in the Atlantic and turns them into fish oil and animal feed. Orbotech’s niche—testing circuit boards and flat-panel displays used for phones and tablets—prospered due to strong business from Chinese chipmakers. All the way from Los Angeles … to Orange County, this hyper-regional bank has enjoyed a steady upward trajectory in its 11 years of existence. It’s smooth sailing as higher ticket prices, increased onboard sales (from spas to art auctions), and the launch of its largest ship create a tide of revenue. Seller of chip-based power systems used everywhere from cloud computing to cigarette lighters in cars also scores with the purchase of sensor-maker Sensima. This owner of 16 supermarket chains was named the “hottest” Fortune 500 company in 2015—and now it’s going to be a grocery subcontractor for Amazon. Luxoft provides software—one product discerns creditworthiness—to a 70%-financial customer base, including top clients Deutsche Bank and UBS. Construction spending builds and profits mount for this provider of rock, sand, gravel, and concrete (which spun off from Lockheed Martin 20 years ago). Gentherm’s technology will heat your bottom (in a car seat), your back (in a bed), or your drink (in a cupholder). It’s fair to say its business is warming up. A local doctor founded this institution in 1903. It opened with $3,338.22 in deposits. More than a century and multiple acquisitions later, it has $6 billion. Car dealership chain puts the pedal to the metal in 2014 and 2015, buying dealers with $3.1 billion in revenues and clocking an 11% annual gain in same-store sales. South Florida mighty mite is the first—and only—U.S. bank operating in Cuba as it launches the first Cuba-ready credit card. ICE swallowed up its iconic, bigger rival, the New York Stock Exchange, and keeps stocking up, buying Interactive Data Corp. and energy-trading venue Trayport. Manhattan designs software that helps 40% of retailers—from Ralph Lauren to Starbucks—manage supply chains, inventory, and omni-channel commerce. Provider of software aimed at improving processes and reducing errors overcomes tough times in the oil-drilling industry with sales to refiners and the like. Homebuilder, whose revenues crashed from $9.4 billion in 2006 to $1.3 billion in 2011, digs out of the abyss with $3 billion in revenues last year. As long as customers prefer to get packages delivered rather than drive to the mall, this maker of boxes will continue to deliver hefty sales. As baby boomers flood into retirement, this skilled nursing provider is ramping up facilities, with 72 recent acquisitions and the opening of six health care resorts. One-stop beauty destination is flush with cash from record online and in-store sales; about 80% of sales came from members of its loyalty rewards program. Risk-taking Arkansas bank fills a lending void in New York’s construction market; its portfolio of loans and leases, now $9.7 billion, has almost tripled since 2013. Powering down: Maker of touch-sensitive screens and radio and medical devices slumped to a 8.2% yearly decline in net sales, sending it slipping down this list.

* Through June 30, 2016. The S&P 500 returned 11.6% annually over the same period. (Company returns lower than that of the S&P are bolded.) A P/E estimates for the current fiscal year are not available. The figure shown is the trailing 12-month P/E ratio.

F O R T U N E . C O M FASTEST- GROWING COMPANIES

Three-year annual growth rate (%)

SEPTEMBER 15, 2016

Past four quarters† ($ millions)

1 5 5


FORTUNE

EARNINGS PER SHARE

RANK

F O R T U N E . C O M FASTEST-GROWING COMPANIES

SEPTEMBER 15, 2016

60

1 5 6

40

20

0

TOP PERFORMERS past 12 months (LATEST REPORTED FIGURES)

51.4% FACEBOOK 44.6% TAL EDUCATION 37.6% LIGAND PHARMACEUTICALS 31.3% BANC OF CALIFORNIA 28.6% AMERIS BANCORP 27.8% DYCOM INDUSTRIES 26.7% PATRICK INDUSTRIES

80

THE ACCELERATORS

76.3% LENDINGTREE 74% NATURAL HEALTH TRENDS

100%

99.8% NETEASE

2016

Fortune’s annual assemblage of rapidly ascending enterprises has always been based on a methodology that seeks to eliminate flashes in the pan. We don’t want to spotlight an outfit that lucks into one jackpot year, so we examine three-year performance in revenues, profits per share, and stock return. This year we also decided to spotlight one subset of that elite group: those that had the best 12-month record by the same three metrics. At left are the results. They reveal virtue, good timing—and, yes, sometimes a bit of luck too. The companies are a microcosm of our broader collection, with three financial entities (two of them community banks) representing the largest category, the dominant social media powerhouse (Facebook), and Chinese companies in gaming and education. There’s an outfit, Dycom, that lays fiber-optic cable for the likes of AT&T and Verizon, and even Patrick Industries, which supplies parts to RV makers. (You might not consider that a hot industry until you ponder how many baby boomers have reached retirement and are taking to the Interstate.) One of the companies wouldn’t have made this grouping were it not for a blessing from the tax man. Ligand Pharmaceuticals generated $27 million in operating income, then was able to apply a $219 million tax benefit (the result of carrying forward net operating losses from the past). All in, Ligand’s $257 million in net earnings easily topped its $72 million in revenues. Companies with more profits than sales? Now that would be an exclusive list.

2015

BNC BANCORP

71

High Point, N.C.

72

MICHAEL KORS HOLDINGS

39

51

London

34

56

73

72

BIOGEN

Cambridge, Mass.

42

44

74

36

Norcross, Ga.

FLEETCOR TECHNOLOGIES

16

99

TYLER TECHNOLOGIES

24

80

AMERIS BANCORP

39

52

75

Plano, Texas

76

Moultrie, Ga.

77

Atlanta

GRAY TELEVISION

40

50

78

HOME BANCSHARES

Conway, Ark.

24

81

79

Elkhart, Ind.

DREW INDUSTRIES

27

73

80

Pittsburgh

HFF

25

79

81

COSTAR GROUP

Washington, D.C.

26

77

82

Lake Oswego, Ore.

GREENBRIER COS.

61

28

83

Cleveland

TRANSDIGM GROUP

26

75

84

Reston, Va.

NVR

35

55

85

Dublin

FLEETMATICS GROUP

26

76

86

HERITAGE FINANCIAL

Olympia, Wash.

19

93

87

Phoenix

WESTERN ALLIANCE BANCORPORATION

29

69

TRINITY INDUSTRIES

45

42

89

PROVIDENCE SERVICE

Stamford, Conn.

33

60

90

Shanghai

SINA

64

26

91

Louisville

ALMOST FAMILY

15

100

92

SOUTH STATE

Columbia, S.C.

27

74

93

Bethesda, Md.

EAGLE BANCORP

17

96

G-III APPAREL GROUP

24

82

TOTAL SYSTEM SERVICES

19

92

94

66

70

95 96 97

99 100

Dallas

1

New York City

Columbus, Ga.

81

Miramar, Fla.

SPIRIT AIRLINES

41

46

38

EAGLE MATERIALS

39

53

MINERALS TECHNOLOGIES

18

94

98

1

6

Rank

30

88

Three-year annual growth rate (%)

For an explanation of Fortune’s methodology, go to the end of the list.

Dallas

New York City

88

Reston, Va.

MAXIMUS

21

88

92

GENESEE & WYOMING

31

63

Darien, Conn.

Through the quarter ended April 30, 2016. Incorporated in the Cayman Islands. 6 Incorporated in the British Virgin Islands.

2016 FASTEST-GROWING METHODOLOGY: To qualify, a company— domestic or foreign—must be trading on a major U.S. stock exchange, report data in U.S. dollars, file quarterly reports with the SEC, have a minimum market capitalization of $250 million and a stock price of at least $5 on June 30, 2016, and have been trading continuously since June 30, 2013. Companies must have revenue and net income for the four quarters ended on or before April 30, 2016, of at least $50 million and $10 million, respectively, and have posted an annualized growth


FAS T E S T- G R O W I N G C O M PA N I E S

NET INCOME

REVENUE

revenue

T O TA L R E T U R N

Rank

Past four quarters† ($ millions)

Three-year annual rate* (%)

Rank

P/E, current fiscal year profits (est.)

50

16

96

245

27

41

15

839

32

36

4,712

–7

98

11

3,695

27

53

10,936

4

94

14

378

34

31

1,701

21

61

24

65

18

85

635

34

26

57

43

19

80

295

21

60

15

43

20

75

638

15

71

6

149

29

47

469

17

68

17

90

16

94

1,464

33

30

31

88

22

69

525

25

49

15

19

26

58

752

19

63

66

224

19

81

2,952

7

91

5

491

18

91

3,000

31

36

26

409

15

99

5,323

25

50

16

33

30

42

298

9

88

41

37

38

26

167

9

87

14

215

15

98

605

27

40

14

714

21

72

5,954

0

95

10

80

19

82

1,708

16

70

18

51

18

90

895

–2

96

70

20

20

77

558

31

35

16

100

25

59

457

12

79

17

88

20

78

287

29

38

18

110

19

79

2,369

24

52

15

377

17

92

2,857

31

33

19

310

17

93

2,186

12

78

11

153

21

71

1,143

6

93

20

107

30

45

1,755

12

82

15

152

25

62

2,314

15

72

23

228

24

65

2,086

–11

100

18

* A

Operating as Bank of North Carolina, its recent purchase of Southcoast Financial has helped it amass total assets of about $6.5 billion. Back on Kors? The fashion brand is gearing up to combat slowing growth with new men’s wear and wearable-tech offerings and international expansion. Multiple sclerosis drug Tecfidera continues to boost revenue for this biotech— a stalwart of this list, appearing for the seventh time. FleetCor’s corporate payment cards processed about 1.9 billion transactions in 2015 for gas, meals, lodging, and other services, fueling a 42% revenue increase. Even schools get their code from the cloud, and this specialized software provider for the public sector enjoyed a 17% organic revenue rise last year. Another small-town bank thrives, in this case continuing to spread out across the Southeast (it bought 18 locations from Bank of America in 2015). What began as the proprietor of a single newspaper in 1897 is now a TV powerhouse. Gray owns more than 90 local TV stations, many acquired in recent years. Another agglomeration of community banks in the South reaps 21 consecutive quarters of steadily increasing profitability and holds $9 billion in assets. Americans love the open road, and this supplier is riding the comeback of RVs as well as serving the manufactured-homes industry. This advisory and financing firm has become a key intermediary in commercial real estate projects, making its fourth appearance on this list. Purchases of LoopNet, Apartments.com, and Apartment Finder since 2012 helped jack the market value of this real estate data provider up to more than $7 billion. Railcar-maker chugs along even as the industry slows, filling its order backlog and buying a freight-car manufacturer with 70% of the South American market. An aerospace upswing propelled sales for this maker of defense and commercial aircraft components, such as cockpit security and ignition systems. Homebuilders continue pulling themselves out of the post-2008 trough, and NVR has nearly doubled its annual revenues since that low point. Fleetmatics, which just agreed to be acquired by Verizon, uses GPS technology to track the location, speed, and fuel use of some 750,000 trucks and other vehicles. Another ultra-regional bank (focused on the area around Tacoma and Olympia, Wash.) has nearly tripled its deposits over five years. Deposit increases of more than $3 billion and the purchase of Bridge Capital Holdings boosted this commercial bank’s profits by 31% in 2015. A $940 million contract to build wind towers provided a welcome revenue gust, offsetting stagnant results in other areas of this diversified industrial’s business. This health care holding company was treated to a 49% revenue spike in 2015 driven by businesses that transport patients and assess and treat them at home. Owner of China’s Twitter-like microblog site Weibo found profits as it shifted focus to entertainment and e-commerce after crackdowns on online dissent. Regional provider of rehab, as well as health care at home, serving senior citizens broadens its reach through acquisitions. It took 80 years for South Carolina’s largest bank to make this list; a recent merger with Southeastern Bank enlarges its territory. Yet another bank dotting the list, this provider of commercial and consumer financing boasts an impressive 30 straight quarters of record earnings. Maker of apparel and more for brands such as Ivanka Trump, Tommy Hilfiger, Karl Lagerfeld, Dockers, NFL, and many others sews up record sales in 2015. Winner in the (hotly contested) most-uninformative-name category, this payment processor is the second-largest manager of money loaded into prepaid cards. How does a low-cost airline generate high profits? Fees for everything from water to printing tickets. Spirit soars, but customer satisfaction remains grounded. Rebounding housing market cements profits for the other Eagle, maker of gypsum wallboard, concrete, and other construction materials. Miner and processor of minerals—products range from quicklime to laundry additives to concrete waterproofing—lifted sales 70% after buying AMCOL in 2014. When you call customer service for government health insurance, you’re probably talking to Maximus. It has already signed $1.3 billion in contracts this year. Profits are down in North America and Australia for this regional freight railroad, but the acquisition of Freightliner generated increased European revenue in 2015.

Through June 30, 2016. The S&P 500 returned 11.6% annually over the same period. (Company returns lower than that of the S&P are bolded.) P/E estimates for the current fiscal year are not available. The figure shown is the trailing 12-month P/E ratio.

in revenue and earnings per share of at least 15% annually over the three years ended on or before April 30, 2016. ¶ Companies that meet these criteria are ranked by revenue growth rate, EPS growth rate, and three-year annualized total return for the period ended June 30, 2016. (To compute the revenue and EPS growth rates, Fortune uses a trailing-four-quarters log linear least square regression fit.) ¶ The overall rank is based on the sum of the three ranks. Once the 100 companies are identified, they are then reranked within the 100, using the three equally weighted variables. If there is a tie, the company with the larger four-quarter revenue receives the higher rank. ¶ Excluded are real estate investment trusts, limitedliability companies, limited partnerships, business development companies, closed-end investment firms, companies about to be acquired, and companies that lost money in the quarter ended on or before April 30, 2016. In addition, Fortune excludes companies that have announced intentions to restate previously reported financial data, if these errors appear to have a significant impact. Also, Fortune excludes companies that lost money in the quarter ended May 31 or June 30, if the loss represents a deterioration in business conditions. The data are provided by Zacks Investment Research. The data checking process was aided by information provided by S&P Global Market Intelligence and Lexis Securities Mosaic.

F O R T U N E . C O M FASTEST- GROWING COMPANIES

Three-year annual growth rate (%)

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Past four quarters† ($ millions)

1 5 7


FORTUNE

30 YEARS OF FASTEST-GROWING COMPANIES

1988

Apple, FedEx, Compaq, and Sun make early appearances. Dell and Starbucks soon join them and become regulars.

THE HIGHS… AND LOWS

1990–91

They used to call typewriters and VCRs “technology”: Smith Corona and Blockbuster enter.

2000

Enron joins the list in 2000. Just over a year later it is scandaltarred and bankrupt.

PIXAR’S MONSTERS, INC.

“PAPA JOHN” SCHNATTER

F O R T U N E . C O M FASTEST-GROWING COMPANIES

SEPTEMBER 15, 2016

APPLE’S JOHN SCULLEY

1 5 8

2 Sun Microsystems 1 5 Compaq Computer 1 14 Walmart 1 17 FedEx 1 19 Apple 1 24 Toys “R” Us 1 11 Smith Corona 1

1987

1988

1989

6 La-Z-Boy 1

1

FIRST APPEARANCE ON THE LIST

1990

1991

7 Outback Steakhouse 1 21 Callaway Golf 1 26 Starbucks 1

1992

2 Cisco Systems 1 7 Blockbuster 1 46 Amgen 1 70 Dell 1

PEAK PLACING

1993

27 Boston Market 1 41 Papa John’s International 1

1994

1995

23 Amgen 63 CompUSA 1 14 Callaway Golf

HOUSING

BIOTECH/PHARMA

46 Qualcomm 48 Iomega 1

1996

1

1

17 Biogen 30 SM Energy 1

1997

3 CompUSA 33 Swift Energy 1

1998

1999

15 Hain Celestial 1 24 Forest Laboratories 1 29 Enron 1

2000

2 Meritage Homes 1 14 Dell 16 Qualcomm

2001

32 Pixar 1 86 Activision Blizzard 1

ENERGY

FEDE X : LOUIS LIO T TA—NE W YORK POS T A RCHIV ES V IA GE T T Y IM AGES; T OYS “ R ” US: COUR T ESY OF T OYS “ R ” US; SCULLE Y: BLOOMBERG V I A GE T T Y IM AGES; BLOCK BUS T ER: W ILLI A M F. C A MPBELL—LIFE IM AGES COLLEC T ION; C A LL AWAY GOLF: LES JORGENSEN—LIFE IM AGES PIX A R: COUR T ESY OF WA LT DISNE Y/E V ERE T T COLLEC T ION; X T O ENERGY: J.G. DOMK E—BLOOMBERG V IA GE T T Y IM AGES; GENEN T ECH: JB REED—BLOOMBERG VIA GE T T Y IM AGES; JOBS: DAV ID PAUL MORRIS—GE T T Y IM AGES; A M A ZON: SPENCER PL AT T—GE T T Y IM AGES; NE T FLIX:


FAS T E S T- G R O W I N G C O M PA N I E S

2007

The fracking boom propels 37 oil and gas companies onto the list. In 2016 there are none.

2009

Chipotle Mexican Grill begins a fouryear streak. But after a disastrous series of illnesses caused by its food in 2015, the quick-serve chain isn’t likely to return for a while.

2012

2013

Under Armour, its sneakers favored by the likes of Stephen Curry, launches a five-year (and counting) run.

IT consultant and outsourcer Cognizant makes the cut for a record 10th year in a row. (Apple’s eight-year string, from 2007 to 2014, is the second longest.)

JEFF BEZOS STEVE JOBS

STEPHEN CURRY

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2002

2003

7 Countrywide Financial 1 30 Electronic Arts 1 61 Genentech 1 78 Pulte Group 1

2004

66 Cognizant Technology Solutions 1 77 National Oilwell Varco 1

2005

16 Valero Energy 18 Netflix 1 98 Toll Brothers 1

2006

19 Valero Energy 1 21 Cognizant 29 Gilead Sciences 1 30 Genentech

6 National Oilwell Varco 98 Buffalo Wild Wings 1

2007

6 Apple 29 ImClone Systems 1

2008

2009

2 Keurig Green Mountain 11 Priceline Group 1 30 Amazon.com 67 Sturm Ruger 1

2010

11 Keurig Green Mountain 1 52 Amazon.com 1 67 Activision Blizzard 82 Buffalo Wild Wings 83 Chipotle Mexican Grill 1

2011

6 Lululemon 51 Under Armour 1

2012

10 Sturm Ruger 13 Lululemon Athletica 1 54 Chipotle

2013

35 Lennar 39 Toll Brothers 56 Winnebago 79 Kinder Morgan 1

2014

65 Winnebago Industries 1

2015

42 Under Armour 65 KB Home 1

2016

9 Gilead Sciences

COLLEC T ION; S TA RBUCKS: LY N ALW EIS—DEN V ER POS T V I A GE T T Y IM AGES; PA PA JOHN ’S: TA RO YA M AS A K I—LIFE IM AGES COLLEC T ION; IOMEGA : SSPL /GE T T Y IM AGES; AC T I V ISION BLIZ Z A RD: COUR T ESY OF AC T I V ISION BLIZ Z A RD; ENRON: PAT SULLI VA N—A P; PAUL S A KUM A—A P; CHIPO T LE: PAT RICK T. FA LLON—BLOOMBERG VIA GE T T Y IM AGES; W INNEB AGO: COUR T ESY OF W INNEB AGO; UNDER A RMOUR: NOA H GR A H A M—NB A E V IA GE T T Y IM AGES

F O R T U N E . C O M FASTEST-GROWING COMPANIES

5 XTO Energy 1 9 SM Energy 62 Lennar 1

1 5 9


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SWIMMING UPSTREAM

CAN A BIBLE-STUDYING, LOVE-PEDDLING SHOWMAN SAVE SEAWORLD … FROM ITSELF?

By Erika Fry Photographs by Landon Nordeman

MANBY TO THE RESCUE SeaWorld CEO Joel Manby (opposite) outside SeaWorld Orlando’s shark-themed roller coaster, a new attraction that’s central to Manby’s makeover strategy.

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For years it has seemed as if things couldn’t possibly get worse for SeaWorld. This is, after all, a company whose Job-like tale of woe begins back in 2010, on a gray February day at its flagship Florida park. There, following a “Dine With Shamu” show, a $30-per-plate affair during which guests lunch tank-side and killer whales do tricks, Shamu—actually an 11,800-pound, 29-year-old Orcinus orca named Tilikum, or “Tilly”—killed the trainer. This grisly tragedy led to Occupational Safety and Health Administration proceedings (which SeaWorld Parks & Entertainment lost), several critical books, and most famously Blackfish, a chilling, 90-minute documentary—SeaWorld folks prefer the term “propaganda”—that implicates Tilly in two other deaths and suggests that his history of violence stems from a life confined to a pool. The film debuted at Sundance a few months before

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SeaWorld’s April 2013 IPO, and it was aired, repeatedly, on CNN in the months after. (It was then made available on demand on Netflix.) It unsettled many Americans, who said so on social media and created a wide-open window of opportunity for SeaWorld’s nemesis, People for the Ethical Treatment of Animals (PETA). That group gamely leaped, wreaking havoc on the Internet and staging protests at parks, parades, and SeaWorld executives’ homes. Celebrities like Matt Damon, Willie Nelson, and Jessica Biel piled on. Longtime SeaWorld corporate partners walked away. (Southwest Airlines terminated its relationship after 26 years.) Attendance dropped. Politicians in California floated legislation that would put an end to orca breeding. What Blackfish had done, to devastating effect, is portray one of the company’s core missions— the care and training of animals in captivity— through a lens that cast captivity itself as torture. Bewildered by an attack on practices they consid-


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ered genuinely humane, the staff at SeaWorld fought back with a series of combative but ineffective public-relations campaigns (drawing hecklers more than changing minds). It stooped to sending security staff to spy on PETA. SeaWorld also got hacked, sued, and pummeled by the stock market. By December 2014, when CEO Jim Atchison, a company lifer who began his career as a ticket taker, announced his resignation, SeaWorld had become a place where many Americans would not be caught dead. Enter the Love Doctor. Joel Manby was the well-liked chief of Herschend Family Entertainment (HFE)—a theme park company that owns properties such as Dollywood and Silver Dollar City in Branson, Mo.—before answering SeaWorld’s siren song and becoming its CEO in April 2015. Manby was quasi-famous for a memorable 2010 appearance on CBS’s Undercover Boss and for his seven-point leadership guide, Love Works.

The book, blurbed by Dolly Parton and the president of Chick-fil-A, espouses Christian values and calls for “unconditional love” in the workplace. And indeed, Manby got straight to healing: In his first 16 months on the job he shook up the managerial ranks, made nice with adversaries by vowing to end the park’s theatrical orca shows, and laid out his strategy to make SeaWorld a purpose- (rather than a porpoise-) driven company. But if you’re looking for a feel-good turnaround story, you won’t find it here—at least not yet. Even with those bold rebranding efforts, SeaWorld has continued to sink. You can add to its litany of troubles: Tropical Storm Colin, Zika, the bad Brazilian economy (which kept hundreds of thousands of visitors away), Brexit (which may do the same), a summer blockbuster (Finding Dory) with an anti-captivity bent, and the rotten luck of opening its latest, much-anticipated Orlando attraction on the saddest weekend in the REPUTATION city’s history—that of the horrific mass KILLERS shooting at the Pulse nightclub. Killer whales and SeaWorld’s stock has plunged 34% trained-animal this year; its revenues for the first half shows have been star attractions of 2016 are $15 million off last year’s at SeaWorld’s underwhelming levels. Analysts think theme parks, SeaWorld could struggle to keep paybut controversy triggered by a ing its hefty, shareholder-appeasing whale trainer’s 6.5% dividend. Manby says he is full of death in 2010 ideas to save SeaWorld, but he recently has dragged the confessed that right now he’s just feelcompany down. ing for the floor. “We haven’t proven that we’ve hit the absolute bottom,” he told analysts on an August earnings call. The modern story of SeaWorld is a corporate failure of epic—even biblical—proportions. The tale of a oncebeloved and iconic company that, when confronted by relentless travails, didn’t change or even register the world changing around it. Of a strong swimmer that found itself out of its depths and desperately paddling to shore—with a lifeguard in Manby who may or may not have the power to tow it to safety.

In the beginning,

SeaWorld was supposed to be an underwater restaurant. Founded in 1964 by four UCLA frat brothers, it became a marine park when those guys obtained some sea lions. Over the decades the company evolved in a similarly haphazard fashion—an interesting side business or a tenderly run passion project for a series of unlikely owners including Harcourt Brace (a textbook publisher) and Anheuser-Busch (a beer company). Not until 2009, when private equity firm Blackstone purchased the group—by then a portfolio of 10 parks that included Busch Gardens and Sesame Place—had SeaWorld’s

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potential as a profit-optimized business been fully considered. Blackstone pumped money into new attractions, and in 2013 it presented SeaWorld with great fanfare to the public market, parading a lemur and a delegation of penguins across the floor of the New York Stock Exchange. The IPO made a splash; the stock leaped 24% on its opening day, and with $1.5 billion in revenue, SeaWorld went on to have a record year. It’s one of the ironies of this story that just when SeaWorld’s future had never looked brighter, it all started to come crashing down, a tsunami caused by SeaWorld’s Shamu shows and its collection of 29 captive orcas (the company owns 89,000 animals in total). The IPO happened in April, and SeaWorld’s market cap peaked at $3.6 billion in May. But by October, Blackfish was doing laps on CNN and seeping into America’s collective consciousness. The protests started, the stock took a dive, and, many would argue, SeaWorld stuck its head in the sand. Manby didn’t just choose to go to SeaWorld. He felt called to it. He knew the company from his years in the industry, and he was passionate about its cause. “I really felt the company was getting a bad rap,” says Manby, a fit 57-year-old who wears his hair slicked back, Miami Vice– style. “I wanted to help them get through this.” It frustrated him especially that a group of people who cared so deeply for animals could be so vilified for harming them. The company’s efforts in early 2015, when Manby was considering coming to SeaWorld, only made him more certain of that. At the time, the company’s San Diego park shut down its sea lion and otter show to send staff to rescue and rehabilitate hundreds of animals stranded on the California Coast. Friends describe Manby as a man of deep faith and genuine decency. He likes a challenge, and he’s known to be an obsessive and methodical decision-maker, as well as “just a real sensitive guy,” says his business-school buddy Dougal Cameron, a real estate entrepreneur in Texas. (Cameron also calls Manby, who has four daughters, the ideal “girl daddy.”) Manby grew up poor in Battle Creek, Mich., a farm boy who loved animals and excelled at everything. He was a star athlete (he once guarded Magic Johnson, albeit poorly, in high school), a talented musician, and his college valedictorian. He wound up at Harvard Business School, where he dabbled in comedy and formed close friendships with three guys (Cameron is one of them) in his Bible study group. Even today they talk once a month in a regularly scheduled group phone call. Manby went on to success at the car company Saturn and then at Saab, where he was a rising star—but ultimately all the travel made him miserable. He moved on to a brief stressful stint at Greenlight.com, Amazon’s autosales website, where he took charge just before the dotcom bubble burst. It was amid the wreckage of that crash that

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Manby was offered the job to run Herschend, a family-owned—and until then, family-run— amusement-park company. It worked out wonderfully. Despite his outsider status, Manby proved himself a capable and creative park operator—boosting the business with low-cost festivals and family-friendly acquisitions like Ride the Ducks, America’s largest amphibious-vehicle tour operator. Just as skillfully, he shepherded the company through the financial crisis, concentrating marketing efforts and making low-impact cuts. Nelson Schwab, HFE’s chairman, marvels at Manby’s strategicthinking skills. “He sees the bigger picture and how to achieve a bigger goal.” Running HFE was a good gig, one that Manby said (in his book) that he thought he would never leave.

But Manby had

ideas for SeaWorld. In the interview process, he had given the board a 10-point plan. He wanted to bring financial discipline, amp up the park’s attractions, and reposition the company as an animal-conservation, rather than an animal-entertainment, brand. He also planned to address SeaWorld’s bruised reputation, which he considered something of a surface wound. “I thought if we got the truth out and talked about it, people would give us a fair shot,” Manby told me in June. That was a miscalculation. SeaWorld had


E A RL GIBSON III—GE T T Y IM AGES

ANIMAL KINGDOM CEO Manby (with flamingos at SeaWorld Orlando) is shifting the company’s focus toward conservation and education and away from trainedanimal shows, which have long spurred protests (like the one at left, in Long Beach). Manby’s strategy puts more emphasis on animals like Gentoo penguins (far left, with a SeaWorld staffer in Orlando).

already plowed considerable resources into such storytelling efforts under the banner “SeaWorld Cares.” Manby’s tenure began just as the company launched a new campaign, this one featuring heartfelt television spots starring the company’s veterinarians and trainers. PETA turned that campaign on its head, too, continuing a counteroffensive it called “SeaWorld of Hurt.” Manby was beginning to understand that changing the company’s reputation would take more than an ad campaign. But at SeaWorld, he was an outsider—and most insiders were feeling only resignation. There was an impervious haters-gonna-hate attitude. Sure, attendance had dropped, but guest surveys showed that those who actually visited the parks loved them. Many execs, some of whom had been there for decades, were convinced that if they just let it, Blackfish would blow over like the phases of animal activism before it. That’s what had happened with Free Willy. It was a tough crowd for a man eager to make changes. But as it was, Manby had more immediate image issues to address. Days before he took office, SeaWorld circulated a video showing a drunken racist rant by a former-employeeturned-critic. It was a dumb idea. The move backfired when it was widely perceived as a smear campaign. Soon after, PETA discovered that SeaWorld employees had infiltrated its

ranks by posing as animal-rights activists. A gleeful media pounced on the scandal. Manby, for his part, owned up to the embarrassment and called in an elite law firm to investigate (and later a former FBI director to advise). It was, perhaps, a low point for the Love Doctor when he found himself admitting on an earnings call that the company had spied on activists and explaining that he and the board had intervened to stop the practice. One thing was clear: SeaWorld was nothing like Herschend, a place where higher-ups wrote handwritten notes to recognize good work and where employees lined up for the company’s “Leading With Love” training course. But for all of SeaWorld’s problems, Manby was still a believer. The company had been working on Blue World, an orcahabitat project that it called “revolutionary.” SeaWorld had spent months in the planning, cultivating an advisory group of conservationists and academics from the likes of the Scripps Institution of Oceanography and the National Marine Mammal Foundation. The tanks envisioned would be the largest of their kind, 50 feet deep, with fast currents that would let the whales swim against moving water. And, indeed, in October 2015, the California Coastal Commission—the regulatory heavyweight that controls development along the state’s shoreline—approved the plan. But there was a catch—a big one. The commission stipulated that SeaWorld would have to stop breeding orcas. For the company it was yet another lose-lose proposition. Even if it made a huge investment to improve the habitat of the last 11 California-based killer whales in its care, the state was stamping an end date on its business model.

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As surprising as the ruling was, Manby had privately entertained the notion that SeaWorld would have to do more than build bigger tanks. In his quiet and deliberate style, he had begun sizing up options. Months earlier he had mobilized a task force of four board members—code-named the Q Committee—to research possible paths on the orca issue. Its nine-month study returned a compelling finding: Average Americans—not just animal-rights activists—thought that keeping large creatures in small spaces was wrong. The writing was on the wall. SeaWorld needed to change. He had already taken a first step: talking with people who disagreed with him. Manby’s friend John Campbell, a former California congressman who had served as cochair of the animal-welfare caucus and knew Manby from Campbell’s car dealership days, offered to put the new SeaWorld executive in touch with Wayne Pacelle, the CEO of the Humane Society of the United States. Campbell thought they were both “good guys” who would probably get along; he couldn’t understand why their organizations wouldn’t. Pacelle was writing his book The Humane Economy and had just finished a critical chapter on SeaWorld. In June 2015, Campbell began moderating a series of friendly if initially awkward phone calls between the two CEOs. In December he brokered a dinner. “They just needed to look in each other’s eyes,” he says.

Campbell didn’t hear from them again until

March 16, the day before Pacelle and Manby popped up together on all three major network morning shows announcing that SeaWorld would end orca breeding and theatrical shows, and that the two organizations were now (kind of) allies. Together they would fight shark finning—where fishermen cut off the fins for food in a practice that kills 75 million sharks a year—and other animal welfare injustices. There had actually been lots of activity in the interim: Manby and Pacelle started texting regularly, and Pacelle made his first-ever trip to SeaWorld, a place where he had previously vowed he would never go. Some things horrified him, like the swim-with-dolphins program at Discovery Cove; others impressed him, like SeaWorld’s rescue work. Ultimately the unlikely alliance seemed to come down to empathy. “People who work there love animals; appreciation of animals is a big part of their enterprise,” says Pacelle. “If you sit down, look at the other person, and see the complexity, you find you have more common ground than you might have imagined when lobbing cannonballs.” Manby had another clandestine effort underway—this one led by his emissary, John Reilly, who was then president of SeaWorld San Diego and is now chief operating officer. In late 2015, Reilly traveled to a “general aviation airport” outside Sacramento for a secret meeting with Richard Bloom, a California assemblyman whose district includes

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TURNING PARKS UPSIDE DOWN Park guests on the Manta roller coaster in Orlando. SeaWorld is investing more resources in rides, some with educational themes. Manby wants to create “experiences that matter.”

PETA strongholds like Santa Monica and West Hollywood—dubbing the private booth at the restaurant the “cone of silence.” The point of the meeting was simple. Bloom had authored legislation that would have proved devastating to SeaWorld: an anti-captivity bill. Both men felt there was room to compromise. It turned out, there was. On the same day in March that Manby and Pacelle announced their alliance in a press blitz, Reilly and Bloom appeared together publicly to introduce a new piece of state legislation, the Orca Protection Act. The bill had been watered down from the one Bloom had introduced in 2014—the park could keep its whales—but it banned orca breeding and shows in California, a restriction even broader than the one imposed by the California Coastal Commission. Still, SeaWorld wasn’t fighting it; the company was championing it. And shareholders were thrilled, sending the stock up 17% over the next two days. (The bill was signed into law in August.) Months of quiet diplomacy had paid off. Manby’s faith—that SeaWorld could be seen as a force for good—was bearing out. “We’ve completely changed the mind-set in D.C. and California,” Manby told Fortune in June. “We’ve completely cleared the air.” But SeaWorld had also committed itself to radical changes. Its signature Shamu shows would be phased out and replaced by less circus-like “encounters,” in which trainers explain how whales behave in the wild in a “natural-looking setting.”


That prospect upset many at the company, some of whom left. Diehard fans considered it caving to PETA and expect it will only invite more trouble over, say, dolphin shows. Manby calls the decision among the hardest he has ever made and says breaking the news to his animal-care staff, who never viewed their roles as anything other than a force for good, was the hardest part. But Manby has a plan for this rescue mission. The idea is to attract moms and millennials by infusing the parks with what he considers SeaWorld’s long-overlooked purpose: caring for the planet and the creatures on it. In Manby’s view SeaWorld parks can be educational and fun. (In a play for the Christmas festival business, SeaWorld licensed the rights to “Rudolph the Red-Nosed Reindeer” last year.) Part of the strategy is to add attractions and turn the parks “inside out”—showcasing the animal-rescue and rehabilitation work the company does. SeaWorld spent more than $13 million on these activities last year; among thousands of other efforts, it freed 20 manatees from a storm pipe in Miami. All of it will fall under a rubric Manby dubs “experiences that matter.”

Riding Mako,

SeaWorld’s new sharkthemed ride—the tallest, fastest, longest roller coaster in Orlando—Manby appeared utterly carefree. It was opening day for the attraction, a hot, cloudless morning in early June, and as I white-knuckled the safety bar, Manby threw his

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hands in the air and left them there for the full, winding, two-minute, 73-mile-per-hour ride. Named after the mako shark, the coaster is surrounded by signs of SeaWorld’s new advocacy bent. Manby hopes people will take a ride and come out caring about the predator’s plight. To help them do so, the company has rigged up a radar screen in the gift shop that tracks sharks SeaWorld has tagged in the wild. Visitors can observe migratory patterns or perhaps see evidence of a tragic shark capture. (The tagging devices sometimes show up, ominously, on land in New England, Mexico, or as far away as Spain.) SeaWorld had also partnered on Mako with wildlife artist and marine biologist Guy Harvey—a big get for the once-toxic park. Harvey, who enjoys a cultlike following and whose work is displayed on the hulls of Norwegian Cruise ships, designed merchandise for SeaWorld and painted a mural along Mako’s entrance. He was on hand opening day to sign autographs and talk about his study of sharks. Mako is important to Manby—one of his first big decisions as CEO was to approve its development—and it’s what he wants SeaWorld’s parks to be: educational but still thrilling. Though SeaWorld’s survey data show that the public has responded positively to its new direction—four out five said they are more likely to visit—at the parks it remains, in some ways, business as usual. SeaWorld’s theatrical whale shows will continue in San Diego until 2017 and for even longer in its two other marine parks. Spectacles involving dolphin-riding trainers and shows like “Sea Lion High” will go on indefinitely. Which is perhaps why the activists, many of whom want SeaWorld’s animals to be moved to sanctuaries, have hardly let up. The day I was in town, a PETA member clad in goggles and a porpoise-themed wet suit got press attention by submerging herself in a large fish tank on a street in downtown Orlando. That was perhaps in reaction to a video of one of SeaWorld’s whales, named Morgan, on loan to a marine park in Spain, that had gone viral that week: Morgan had defied trainers during the orca show and rather than swimming had remained on her pool’s concrete ledge. Animalrights groups claimed she had beached herself in an attempted suicide. (Malia, a whale at the show I attended, did the same thing, but my crowd was a friendly one.) SeaWorld says the behavior is not concerning and notes that Morgan has a hearing deficit. Earlier this summer, the animal-rights group erected a few billboards around Orlando just for Manby: “Joel, every night I lie alone in the tub and cry,” they read. “Please let me go. —Tilly.” When I ask Manby how he might update Love Works based on his experience at SeaWorld, he pauses to give the question some thought. “Sometimes life isn’t fair,” he says. “But you have to move on.”

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His career as a studio mogul just ended with the sale of DreamWorks Animation. But Katzenberg has shaped some of the most important changes in the movie industry over the past two decades— and he’s not done yet.

BY MICHAL LEV-RAM H E D A Y A F T E R selling his company to Comcast for $3.8 billion, Jeffrey Katzenberg is doing what he’s always done—presiding over back-to-back breakfast meetings. In Hollywood circles, the former CEO and cofounder of DreamWorks Animation—and the “K” in its original parent company, DreamWorks SKG—is known for his multiple morning mealtime tête-àtêtes. Today’s appointments are being

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LET’S DO BREAKFAST Katzenberg holds court over “breakfast pizza” at Los Angeles eatery Jon & Vinny’s, where the former studio head has been holding back-toback-to-back morning meetings as he prepares to launch a new investment firm.

PHOTOGRAPH BY

MICHAEL LEWIS

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mas. In fact, he’s champing at the bit to start his next chapter: running his own investment firm. Over a bowl of seeded pecan granola and a Diet Coke, he is simultaneously taking calls on his cell phone and answering my questions. By his side is a printout of that day’s schedule, neatly folded. It looks full. That befits someone whose highflying circle of friends attests to his indefatigability. “You can’t be more energetic, more ambitious, and more alert than Jeffrey,” says IAC chairman Barry Diller, who hired Katzenberg as his assistant at Paramount Pictures in 1974, his first big break in Hollywood. “He’s still just as smart and snappy as he was back then.” “He’s called me up and said, ‘You’re gonna donate to this, and here’s how much,’ ” says actor George Clooney, who along with Katzenberg has hosted some of Hollywood’s biggest political fundraisers. “I suppose people hate when they see a call coming in from him because they know he’s going to make them do something.” Meg Whitman, the CEO of Hewlett Packard

S T E V E S TA RR—CORBIS/GE T T Y IM AGES

held in a back booth at a trendy pizzeria in Los Angeles’s up-andcoming Fairfax neighborhood. It’s one of those spots that are cool precisely because they don’t look that cool, with its nondescript, neon-green sign and wood-paneled, sauna-like walls. (For even more hipster appeal, it’s located next to an Orthodox Jewish synagogue.) Katzenberg fits right in by looking inconspicuous, in a blue-and-white striped buttondown and slacks. Rimless glasses frame his greenish eyes. Sure, he’s 65, but whatever Hollywood-concocted cleanse he’s been on for the past few decades, it appears to be working. Katzenberg has the energy and drive of a man at the start of his career, not the temperament of someone already eligible for senior-citizen discounts. He is direct, efficient. Take a short pause while asking him a question, and you sense his mind wandering, as though there were a million things he could have accomplished in that split second of wasted time. Then again, there’s a juvenile and jovial side that emerges in conversation. He’s got a cackling laugh and a smile that stretches (almost) from ear to ear. This is, after all, the man who brought a flatulent green ogre and a pratfall-prone overweight panda to the moviegoing masses. And his passion for the fun and quirky hasn’t waned: When we meet, he is about to head to the Burning Man festival with his 33-year-old son. It’s a fitting time for the long-standing studio exec to embark on a vision quest in the Nevada desert—because now that DreamWorks Animation is a part of Comcast, Katzenberg is out of the picture. Not that he has any qualms about where he’s going next or about leaving the past behind. “I have no remorse,” Katzenberg says as I slide onto the bench across from him (it’s 9:15 a.m., and I’m his third meeting of the day). “I’m not sad.” The approximately $400 million he personally made from the deal may have something to do with his buoyancy. But it’s clear Katzenberg isn’t planning on spending the rest of his life bobbing around on a yacht in the Baha-


A LBER T O E. RODRIGUE Z—GE T T Y IM AGES

BOOKENDS OF AN ERA Far left: Jeffrey Katzenberg (left) with partners Steven Spielberg and David Geffen, announcing the launch of DreamWorks SKG in October 1994. DreamWorks Animation split off as an independent company with Katzenberg as CEO in 2004. At left, Katzenberg (right) with Mellody Hobson, DreamWorks Animation’s chairwoman, and her husband, Star Wars creator and producer George Lucas. Hobson led negotiations when the animation studio sold itself to Comcast this past spring.

Enterprise and a former DreamWorks Animation board member, recalls a ski trip with Katzenberg: “He skis the way he works. You chase him down the mountain, then jump on the lift and have a very efficient conversation, and then you chase him down the mountain again. In an hour and a half you have skied more with Jeffrey than you normally ski in a day—and I’m a pretty good skier.” And director Steven Spielberg, Katzenberg’s longtime friend and former business partner, sums him up in one word: “Tenacious.” Katzenberg admits his greatest motivator is, well, winning. An avid gambler, he got kicked out of summer camp at age 15 for playing cards (that was for M&M’s; these days he plays poker for much higher stakes). But DreamWorks wasn’t always a straight flush. The original production company never lived up to the expectations generated by its high-wattage founders: Katzenberg, Spielberg, and music and film mogul David Geffen. DreamWorks Animation, which became independent in 2004, had more success—but never attained the scale to secure its future in an increasingly conglomerate-heavy Hollywood. As recently as April 19, nine days before the Comcast acquisition was reported, Wall Street firm Cowen & Co. reduced its revenue projections for DreamWorks Animation and reiterated the stock’s underperform rating. Still, under Katzenberg’s direction, the animation studio, based in Glendale, Calif.,

was prolific, sometimes profitable—and most important, prescient. In 22 years, including as a division of DreamWorks SKG, it produced 32 films, garnering more than $13.5 billion in worldwide box-office revenue. Shrek 2, DreamWorks’ top-grossing movie, raked in $916 million by itself. And along the way Katzenberg pushed the studio to embrace some of the most disruptive forces churning the waters in Hollywood. He was early to recognize that companies other than Disney could turn animated franchises into enduring revenue sources, early to see the importance of streamingmedia distribution, and early to spot China’s potential to reshape the industry. Channeling Wayne Gretzky, Katzenberg says he tried to go to where the puck was heading, not to where it was. Lucky for him, he adds, DreamWorks was nimble enough to skate along with him: “We were in a very advantageous position in that we were a little startup company.” With the Comcast deal, that little startup belongs to a mammoth company with control over a large share of the Internet pipeline, a dominant position in cable, and, through its NBCUniversal unit, a major role in television networks and the film and theme-park businesses. The acquisition is a reminder of a fundamental lesson about today’s Hollywood: Go big or go home. Scrappy studios aren’t the future. At least for now, that belongs to huge conglomerates that can utilize a film’s intellectual property across all of their businesses—and across the planet. Katzenberg foresaw that future and helped his studio make the best of it. Now the question is what part he’ll go on to play in it. He has hinted that his new firm will focus on the convergence of media and technology. But that’s all hypothetical. For now he’s got time to expound on lessons from his long career. He is efficient, but he is still a storyteller. Like many good yarns, this one starts at the end.

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n a Wednesd ay even in g in mid-April, Katzenberg got a

phone call from Comcast CEO Brian Roberts. The cable guys had gotten wind that a Chinese private equity firm was in talks to acquire the studio, and they wanted a chance to bid. Their intel was right: Katzenberg’s board was far along in talks with the firm, which wanted to take the studio private and keep Katzenberg at the helm. (DreamWorks Animation has not disclosed the identity of the firm; other sources have reported that it was PAG Asia Capital.) Ironically, one of Hollywood’s best-known dealmakers couldn’t do much to seal this deal. Katzenberg owned all of DreamWorks’ class B shares—with more than 60% of the company’s total voting power—but under the company’s governance rules, most of the negotiations were in the hands of its independent directors. He asked Roberts to call chairwoman Mellody Hobson, president of Chicagobased Ariel Investments. The following morning, at 6 a.m. Central Time, Hobson’s cell phone rang, the first of many calls, meetings, emails, and text messages between her and Roberts. “No one got any sleep for a while,” says Hobson. She told Comcast that they would have to move fast—and that any offer would have to “meaningfully” exceed $35 a share. (DreamWorks Animation traded in the mid-20s at the time, but the Chinese offer gave the studio some leverage.) The cable provider, lambasted for years for its slow response time, pushed the deal at lightning speed. That weekend Roberts and other senior executives flew from their Philadelphia headquarters to L.A. to meet Hobson and Katzenberg for—you guessed it—breakfast. By the end of April, DreamWorks had a pretty sweet offer. Shareholders would receive $41 in cash per share, a total equity value of $3.8 billion. Comcast would fold the animation unit into its Universal group. It would also snap up DreamWorks’ TV production arm, which has a burgeoning development deal with Netflix. Comcast said in an SEC filing that the acquisition represented a “great opportunity to strengthen NBCUniversal’s film animation business, expand its theme-park attractions and enhance its position in the kids TV space.” There was just one catch—Katzenberg would no longer run the show. Comcast had a stable of animation executives under the Universal brand, most notably its Illumination Entertainment unit, which created the Despicable Me and Minions franchise and is run by founder Chris Meledandri.

Katzenberg would stay at least temporarily to oversee DreamWorks’ new media properties, including the YouTube channel AwesomenessTV. But that was a minor if not honorary role. “The fact that I had to move on was jarring at first,” Katzenberg admits. “I was days away from doing just the opposite. It was a bit of a shocker.” The offer, however, was too good to refuse. “You have to give shareholders the best price,” says Hobson. “You don’t walk away from $41 [a share].” And recognizing that reality, Katzenberg acquiesced. “Jeffrey saw the great fit here and stepped up to say he was ready to pass the baton,” Roberts tells Fortune. “He stayed up the last night for nearly 24 hours, helping on all the open issues to make sure the deal could be announced in the morning as planned. Just fantastic leadership at all levels.” On April 28, the DreamWorks Animation board voted. In a text message to Roberts, Hobson conveyed the news: “It’s done.” On Aug. 22, the deal officially closed. That afternoon, Katzenberg slung his backpack over his shoulder, got into his white Tesla Model S, and drove off of the DreamWorks campus for the last time as CEO.

“WE PROMISED THE MOON, THE STARS, AND THE SUN,” KATZENBERG SAYS OF DREAMWORKS. “BUT THE THING I CAME TO UNDERSTAND WAS THAT THE PROMISE WAS ALWAYS GOING TO BE GREATER THAN THE REALITY.”

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t had been clear for quite a while that

DreamWorks Animation wouldn’t exist much longer as an independent company. “You saw the handwriting on the wall,” Hobson says. “These standalone studios, they are a thing of the past.” Hobson should know: She’s the spouse of Star Wars creator George Lucas, who sold his studio, Lucasfilm, to Disney in 2012. Katzenberg had learned similar lessons from the original DreamWorks SKG. At its inception in 1994, it aimed to become the first new major studio in 65 years. But despite some hits, including Saving Private Ryan and Gladiator, Dreamworks SKG floundered on its own. In


BIGGER AUDIENCES, MORE SEQUELS, BIGGER RISKS

lion—not including marketing. Still, 2006, not long after spinSome snapshots of for Katzenberg, the process hatched ning off its animation divihow the movie industry at least four globally successful sion, it sold its live-action has changed since franchises: Shrek, Kung Fu Panda, film business to Viacom’s DreamWorks SKG was founded in 1994. Madagascar, and How to Train Your Paramount Pictures. ParaDragon. Over a 22-year span, the mount eventually spit the TOP-GROSSING FILM studio’s films brought in an average live-action studio back out, 1994 $421 million each at the box office. and after several plot twists, Forrest Gump Opening weekend And that doesn’t include income from Spielberg and a handful of box office licensed videogames, toys, and other other investors brought it (in 2016 dollars): $50.7 million merchandising ephemera. “Movies back to life last year, signing have become a portfolio,” says Katzena five-year distribution deal 2016 berg. “Inside that portfolio you’ve got with Comcast’s Universal Finding Dory Opening weekend some blockbuster hits, blockbuster Pictures to release its films. box office: $135.1 million disasters, and some in-betweens.” “We promised the moon, The problem is that for a smaller stuthe stars, and the sun,” says SEQUELS AMONG dio, a few consecutive disasters can put Katzenberg. “We had to THE 10 HIGHESTthe portfolio deep in the red. From 2001 paint the most unbelievably GROSSING MOVIES to 2012, DreamWorks Animation had optimistic and ambitious 1994 1 17 hits in a row. But then three backidea ever. But the thing I Clear and to-back flops—Rise of the Guardians, came to understand—and Present Danger Turbo, and Mr. Peabody and Sherman— so did Steven and David— 2016 lost more than $150 million collectively, was that the promise was 4 forcing the studio to take write-downs. always going to be greater Finding Dory Captain America: Civil War Being publicly traded made life than the reality.” Jason Bourne tougher still. “When you’re public, the But in animation, as X-Men Apocalypse pressure to succeed on each movie is Katzenberg realized, the enormous,” says Bob Iger, chief execugap between promise and ANIMATED FILMS AMONG THE 10 HIGHESTtive officer of Disney and a career-long reality was narrower. Indeed, GROSSING MOVIES peer, partner, and competitor of Katthe animation division of 1994 zenberg’s—himself a contender to run the trio’s creation has spun 1 The Lion King Disney in the early 1990s. “Because out more valuable IP than of the creative process, you’re bound any other endeavor of the 2016 to have hits and misses. There is no original studio. Developing 4 Finding Dory tolerance for the misses.” Conglomercartoon movies for kids, done The Jungle Book The Secret Life of Pets ates like Disney and Comcast, with right, can pay off big: If you Zootopia their many distribution channels and create lovable and “sticky” revenue streams, can shrug off a flop. characters, you can relatively AVERAGE MOVIE DreamWorks, with its nearly exclueasily monetize that initial IP TICKET PRICE sive reliance on animated movies and investment across multiple 1994 $4.18 a pipeline that could produce only movies, TV spinoffs, and one or two films a year, saw its stock lines of merchandise. 2016 plunge whenever a film had a weak Of course, it’s only $8.66 opening weekend—5% in a day after relatively easy. The process Rise of the Guardians, 7% in a day is slow and costly. Films Source: Box-Office Mojo. *2016 data are through Aug. 31. after Turbo. take three to four years to Katzenberg believes that under Comcomplete, progressing from cast, whose annual revenue is more than 80 times greater ideation to storyboarding to using computerthan DreamWorks Animation’s in its best year, the studio generated imagery to animate minute details will not only find comfort but also finally reach the scale it like the movement of hair and the texture of was destined for. And assuming Comcast decides to deploy powdery snow. At DreamWorks Animation, Shrek the Ogre and Po the Panda across its theme parks a typical movie cost upwards of $140 mil-

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and TV networks, there will be a little piece of Katzenberg in that many more American homes.

against Comcast’s 2014 bid to buy Time Warner Cable. But a drastically changing industry can make for some pretty strange bedfellows.

f course, thanks to a pioneering partnership that Kat-

zenberg helped engineer, DreamWorks Animation already has an outsize presence in home streaming. Katzenberg goes way back with Netflix and its chief content officer, Ted Sarandos. In 2004, when Netflix made its money shipping DVDs in its iconic red envelopes, they collaborated on an innovative marketing ploy. “The first time we ever deviated [from the red envelopes] was when we did the green DVD cover for Shrek 2,” recalls Sarandos—green, of course, being the color of the titular ogre’s skin. “I’m sure it was Jeffrey’s idea.” An even better idea—one for which Katzenberg credits former DreamWorks Animation president Ann Daly—was to sign on early to Netflix’s streaming service, at a time when most studios were reluctant to get close to the tech maverick. “Because of the way kids view our movies, the idea of being on demand at any time was a perfect fit,” Daly recalls in a phone interview. In 2011, DreamWorks Animation made the unprecedented decision to switch its film output deal from HBO—its partner for 16 years—to Netflix. That meant that after theatrical release, its animated films would be available exclusively on Netflix. “We were the first studio to do that,” says Daly, who has left DreamWorks since the Comcast deal. In the summer of 2013, DreamWorks struck another deal, agreeing to supply Netflix with 300 hours of original episodic programming over several years. The new shows would be based on DreamWorks IP, including characters like Puss in Boots from the Shrek movies and a reimagined version of the cult 1980s hit Voltron. In January the companies extended their partnership, agreeing to create more hours of original programming (about 1,600 episodes) and to start distributing them on a global scale. “Jeffrey’s belief in digital was there a long time ago,” says Jason Kilar, a former DreamWorks board member and former CEO of streaming service Hulu. “Most people, when they hear about something small and new, they ignore it.” Ultimately, Katzenberg saw a huge opportunity in Netflix and a new approach to monetizing DreamWorks IP. Other content creators are eager to follow that template. Katzenberg says the Netflix tie-in helped make DreamWorks Animation even more attractive to Comcast. Jeff Shell, chairman of Universal’s Filmed Entertainment Group, concurs: “We literally didn’t have the capability to make animated kids’ TV until now,” he says, noting that Netflix is “increasingly the primary way that kids are discovering and watching TV.” It may seem hard to imagine a cozy Comcast-Netflix partnership, given that Netflix so forcefully lobbied

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’m about halfway through my breakfast

pizza (I told you this restaurant was cool) when Katzenberg pulls out his now-out-of-date business card. We’re talking about Oriental DreamWorks, the joint venture he set up in China in 2012, and it’s time for show-and-tell. On one side of the card is what you’d expect: Katzenberg’s name, title, and contact information. To the left is DreamWorks’ iconic logo— the silhouette of a little boy fishing while seated on a crescent moon. Then Katzenberg flips the card and shows me the back. “I had this made years ago, and I’m not kidding you, this was a game changer,” he says. On the other side of the card are the same details, only in Chinese characters. More strikingly, the logo has been changed. Instead of a little boy, a huggable panda bear is nestled into the moon. And, yes, the bear is fishing. “When I showed that to everybody [in China], they went, ‘Okay, we get it,’ ” says Katzenberg. “The idea that Po,” the bear from Kung Fu Panda, “could become their Mickey Mouse and that DreamWorks could become their family brand, that’s what got people excited.” About six years ago Katzenberg began to see a change in the market and political atmosphere in China and to think the time was ripe for a partnership. On a trip to London in 2011, he sought advice from WPP chief executive Martin Sorrell. The global ad agency head told him to talk to Li Ruigang, a WPP board member and chairman of an investment firm called China Media Capital. “I went back to my hotel room and called him,” says Katzenberg. “I remember looking out at Hyde Park and pitching my brains out to someone on the other side of the globe whom I’d never met before.” Katzenberg wasn’t calling because he wanted distribution in China—his studio already had that. His idea was to set up a joint venture to develop movies for a Chinese audience. Making it truly big in China, he realized, would take a lot more than dubbing American movies into Mandarin. Yes, American films tend to fare well in China—even when they’re domestic flops. But China’s government makes it challenging to

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FROM T OP: AP PHO T O; IM AGINECHIN A—A P IM AGES

PIVOT TO ASIA At left: Katzenberg (third from right) and Li Ruigang, chairman and CEO of China Media Capital (fourth from right), at the 2014 unveiling of a master plan for the Shanghai DreamCenter entertainment complex. Li and Katzenberg cofounded Oriental DreamWorks, a joint venture whose efforts to develop madefor-China movies are a sign of China’s growing influence in Hollywood. Below, Katzenberg and Li at the China premiere of Kung Fu Panda 3, the first Oriental DreamWorks production.

market and distribute them, enforcing strict annual quotas on imported flicks. “I thought, what China would want above all else was their own Disney,” Katzenberg recalls. “They admired Disney … but the thing we see time and time again in China is that they want their own version of those things.” Li encouraged Katzenberg to get on a plane to visit him in China (Katzenberg has returned about once a month ever since). They hatched an idea for a company in which Chinese animators would develop made-forChina movies to be exported globally. DreamWorks Animation would own a 45% stake and coproduce films. Li helped Katzenberg win state approval and raise money from Chinese investors. By 2012, Oriental DreamWorks was formed. (“They came up with the name,” says Katzenberg. “We would have thought that’s prejudiced, but they thought the opposite.”) So far, Oriental DreamWorks has released only one movie: Kung Fu Panda 3—but it was a promising start. Its opening weekend this January was the best ever in China for an animated movie, and globally it has taken in more than $500 million. And being a product of the joint venture rather than a DreamWorks Animation film conferred real advantages. For example, makers of imported movies aren’t allowed to start marketing them in China until the government’s film commission gives them a theater release date—often just a few weeks in advance. Oriental DreamWorks, on the other hand, had plenty of time to bombard Chinese consumers with ads. In the screenplay of China-U.S. collabora-

tion, we’re barely past Scene 1. Oriental DreamWorks was slated to release one new movie a year starting in 2018, but now that Comcast owns DreamWorks’ share, it’s not certain that plan will stick. Li suggests the relationship’s business model will continue to change. “I think the market is still evolving so fast,” he told Fortune. Even Katzenberg is uncharacteristically cautious: “The payoff,” he says, “isn’t clear yet.” Still, other American studios are following DreamWorks’ lead: In 2015, Warner Bros. unveiled its own joint venture with China Media Capital, called Flagship Entertainment Group, producing Chinese-language films for worldwide distribution. iguring out how to make China work may be part of Katzenberg’s next chapter. He is setting up a new office (in L.A., not far from the pizzeria) and has reportedly recruited several partners and investors for his new venture. He’s mum on the details, telling Fortune only that “what’s happening in tech and new media has completely captivated me.” But sources close to Katzenberg say he’s intrigued by the model his longtime mentor, Barry Diller, has built. IAC, Diller’s conglomerate, owns everything from dating services like Match.com and Tinder to video sites like College Humor and Vimeo. How Katzenberg will put his own spin on that model remains to be seen. What’s absolutely clear is that he has zero plans of retiring. Ever. “No, not possible,” he says incredulously when asked. “My work is my happiness.” Appropriately enough for a man who has sold millions of movie tickets to kids, he reaches into his animated catalog to sum up his philosophy. He quotes Oogway, an elderly tortoise and mentor figure in Kung Fu Panda: “Yesterday is history, tomorrow is mystery, but today is a gift. That is why it is called the ‘present.’ ”

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WHILE YOU WERE OUT STEP 2: You apologize. Like sharks trolling the it was for people who waters for chum, this love apologies. Every day activates an atavistic was abuzz with outrage, hunger muscle in the all those righteous, predator population. It’s angry people formed blood. But not enough into the daily flash mob. blood. Need more blood. It was rich, wasn’t it? Other sharks are alerted. Ryan Lochte telling a The waters grow violent TV audience he was with the frenzy for meat. sorry for denigrating the good people of Brazil. STEP 3: You are How sorry was he? Not alarmed to find that the sorry enough! And Blake apology you offered has Shelton, expressing regret not been accepted. You’re for those jokes he made sorry? How sorry are four years ago. Jokes? Ha! you? Why didn’t you say Hey, even Donald Trump you were sorry earlier? was obviously advised to Why now? Why not apologize for something— yesterday? What are you In the age of social media, apologizing is more he couldn’t quite articgoing to do about it? Are likely to lead to heartache than forgiveness. ulate what—by his new you going to resign? Will campaign team, and makanybody be fired? Why BY STANLEY BING ing this guy apologize for not? Will there be an anything is really cruel, investigation? Who’s on you know? Like throwing a cat into a swimming pool. the panel? And what about that other thing you did in 2011? That’s just a few. We live in a culture of gotcha and sorry, How about that, huh? and Twitter drives the hostile, accusatory, triumphant STEP 4: You clarify and bumble. The mainstream media conversation. And even when Twitter doesn’t initiate the have now joined the show and are interviewing people about apology-generation ritual, it’s the enormous echo chamber you. Larger social issues are examined. Those around you bein which every offense, from large to small, is amplified and gin to wonder whether you’ll survive. Your sponsors abandon played out until the inevitable outcome—the career death of you. (For good reason: You’re an idiot!) The fact is, very, very the apologizer. few individuals or business entities can stand up to the kind Now, the thing that’s lethal about all this from a business of relentless professional scrutiny kicked off by a professionperspective is that apologies are, for the most part, ineffecally conducted witch hunt driven by apology lust. tive, counterproductive, and just plain stupid. Because (esSTEP 5: Crushed and disgraced, you are carried out of town, pecially for those who have insufficient reservoirs of goodwill covered with tar and feathers, and deposited in a nearby ditch. with the angry, vengeful, seething populace) an apology is Now, I’m not saying there aren’t some actions that require not the end of anything. It’s the beginning of the end. an apology. You falsify emission results. You ignore all warnLet’s say it’s happening to you or your organization. Here’s ings and your oil rig explodes. You steal billions of dollars how it plays out most of the time: from unwary grandmothers. You are caught on video running over a puppy. In such cases, yeah, you’ve got to say you’re STEP 1: You do something that catches the notice of one of sorry. And then expect to reap the well-earned consequences. the sentries of righteousness. It could be something serious. Otherwise? Ride it out, baby. Play dead. Wait for the angry It could be an ill-advised joke: Why badger to get tired of sniffing you and depart to look for did the chicken cross the road? Way to FOR MORE something tasty in a nearby garbage can. They always do. go, Stand-Up Boy: Now PETA has a Follow Stanley Bing at stanleybing.com Badgers are hungry, but they’re not that smart, and as for petition demanding you apologize to and on Twitter at attention span, forget about it. chickens, who often die in the attempt. @thebingblog. WHAT A GREAT SUMMER

Be Silent, not Sorry

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Self-braking. Self-correcting. Self-parking. Its impact is self-explanatory. The all-new Mercedes-Benz E-Class. The 2017 E-Class embodies Mercedes-Benz’s commitment to transforming not just the automobile, but mobility itself. A self-parking, self-correcting luxury sedan with intelligent advances like PRE-SAFE Impulse Side, which can anticipate a side-impact collision and reposition you to help minimize the effect, and PRE-SAFE Sound, which helps protect the ears from damaging sound should an impact occur. The revolutionary new E-Class is the very future of transportation. Here and now. MBUSA.com/E-Class

2017 E 300 Sport Sedan in Selenite Grey metallic paint shown and described with optional equipment. PRE-SAFE® Impulse Side and PRE-SAFE Sound technologies do not guarantee that a driver would not suffer injury in the event of a collision. Vehicle cannot drive itself, but has semi-automated driving features. Always observe safe driving practices. Please refer to the operating manual for details on driver-assist systems. ©2016 Mercedes-Benz USA, LLC For more information, call 1-800-FOR-MERCEDES, or visit MBUSA.com.

Fortune - September 15, 2016  

Fortune Magazine (USA) Sept 15, 2016 | 190 pages

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