THE COMING BOND MELTDOWN đƫMEET THE DRONE BILLIONAIRE SPECIAL 2015 EDITION
2000 BIGGEST AND BEST COMPANIES
ALPHA ACTIVIST BILL ACKMAN “WE’RE BUILDING SOMETHING WE WANT TO OWN FOR YEARS.”
CAN VISA KILL OFF CASH? HONDA LEARNS TO FLY HALL OF FAME CEOs
WALL STREET’S LOUDMOUTH BANKED OVER $1 BILLION LAST YEAR. NOW HE’S QUIETLY CREATING THE NEXT BERKSHIRE HATHAWAY. (WANT IN?)
In the lead role: John Travolta, movie legend and aviation aďŹ cionado. Guest star: the legendary North American X-15 that has smashed all speed and altitude records and opened the gateway to space. Production: Breitling, the privileged partner of aviation thanks to its reliable, accurate and innovative instruments â€“ such as the famous Chronomat, the ultimate chronograph. Welcome to a world of legends, feats and performance.
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WELCOME TO MY WORLD
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Contents // May 25, 2015
VOLUME 195 NUMBER 7
ON THE COVER 82 | BILL ACKMAN 2.0 Activism gets the headlines on Wall Street, but its boldest practitioner, Bill Ackman, is quietly pivoting to a second act that has more in common with Warren Buffett than Carl Icahn. BY ANTOINE GARA
4 | FORBES
MAY 25, 2015
COVER PHOTOGRAPH BY JAMEL TOPPIN FOR FORBES
Ambition knows no time zone.
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Copyrigh Copy righ ghtt © ©2 2015 5 Unit nited ed Parce Parce arcell Servic Servic rvice rv e of Ame America rica,, Inc. Inc.
May 25, 2015 22
13 | FACT & COMMENT // STEVE FORBES Good news: You won’t retire broke.
LEADERBOARD 18 | SEATING CHART: MAYWEATHER VS. PACQUIAO The A+ list of Wall Street and Hollywood, sports and entrepreneurship fought for the best seats in the house.
20 | RICHEST BY STATE: ALABAMA The wealthiest man in Alabama is big in the South—and in South America, too. Plus: the ﬁve richest rappers.
22 | LUXURY LINEAGE: THE ARMANI SUIT A history of the most elegant item a man can put on.
24 | FAREWELL TOAST Victoria’s Secret’s Les Wexner on the late A. Alfred Taubman.
26 | SEAL THE DEAL A very brief briefcase for when you really mean business. Plus: a $150,000 Titanic deck chair, suitable for rearranging.
30 | CONVERSATION Reader hosannas greet the miraculous resurrection of the Twinkie.
THOUGHT LEADERS 32 | OPINION // AVIK ROY Improving Marco Rubio’s tax reform plan.
34 | CURRENT EVENTS // AMITY SHLAES The “no bailout” pledge.
36 | INNOVATION RULES // RICH KARLGAARD
STRATEGIES 40 | MAGIC TOUCH Ten years ago touchscreen pioneer David Caldwell narrowly missed a chance to revolutionize consumer electronics. Can his latest invention bring redemption? BY JOANN MULLER
46 | BENTLEY ON A ROLL Amid chaos at parent company Volkswagen, could the venerable British automaker’s CEO get a second shot at the top? BY MARK EWING
TECHNOLOGY 48 | THE GOOGLE FOR THE BROKEN WEB If you could expose every ﬂaw on every website, all at once, wouldn’t that be a good thing? Not everyone agrees. BY THOMAS FOX-BREWSTER
54 | NICE GUYS HIRE BETTER High-ﬂying tech companies face constant staffing challenges. Airbnb’s process kills the chaos. BY GEORGE ANDERS
ENTREPRENEURS 56 | THE SIX-MINUTE LOAN Banks still aren’t making enough small-business loans, so Kabbage is quickly ﬁlling the void—at crazy high interest rates.
92 6 | FORBES
BY DARREN DAHL
MAY 25, 2015
One man, one engine. One unrivaled drive. Introducing the all-new 2016 Mercedes-AMG GT S.
Mercedes-Benz has reached a new era in performance, innovation and sportiness. Introducing the all-new 2016 Mercedes-AMG GT S. Handcrafted by a master engine builder, the 4.0-liter 503-hp bi-turbo V-8 engine is an engineering masterpiece, and truly the embodiment of the “one man, one engine” AMG philosophy. This, along with its ultra-light space frame and optimal weight distribution, makes for the most dynamic driving experience ever. The 2016 Mercedes-AMG GT S — designed for the open road, engineered to dominate the racetrack. Visit MBUSA.com/GTS
2016 Mercedes-AMG GT S shown in Solar Beam Yellow metallic paint with optional equipment. ©2015 Mercedes-Benz USA, LLC
For more information, call 1-800-FOR-MERCEDES, or visit MBUSA.com.
May 25, 2015
INVESTING 64 | AN IMMINENT DISASTER FOR BONDHOLDERS? Loomis, Sayles’ Dan Fuss has almost $5 billion positioned for a credit market tornado. Read this before putting money into bonds. BY WILLIAM BALDWIN
68 | PORTFOLIO STRATEGY // KEN FISHER Five market trends you can count on.
70 | SMALL STOCKS // JIM OBERWEIS Change agents for your portfolio.
79 | SCREEN TEST // MARC GERSTEIN The soothing sound of return on equity.
FEATURES BrandVoice WITH ADP
The HR Guide To The Galaxy (Or At Least Most Of The Earth) 90
92 | THE FLIGHT OF HIS LIFE At a North Carolina airﬁeld just 240 miles from aviation’s birthplace, a revolutionary Honda engineer named Michimasa Fujino is making his 29-year dream of a new kind of business jet a reality. BY JOANN MULLER
TIMOTHY ARCHIBALD FOR FORBES
Biotech pioneer John Martin helped Gilead Sciences climb 831 spots over the last decade to No. 192 on our annual ranking of the world’s largest companies. See six more Hall of Fame CEOs.
104 | MOVING AT THE SPEED OF MONEY While overhyped cryptocurrencies like Bitcoin grab all the attention, Visa CEO Charles Scharf has quietly put a $6.8 trillion stranglehold on the world’s commercial transactions. The future of payments? Surprise! It’s already here. BY DANIEL FISHER
114 | HALL OF FAME CEOS These six CEOs have not only kept their jobs, they’ve also presided over some of the largest global growth stories of the last decade. BY STEVE SCHAEFER
121 | OK ROBOT Decades of science ﬁction movies have trained us to fear robots. In real life, robotics is evolving in a more interesting direction, one where humans and machines collaborate to do more together than they could do separately. BY ALEX KNAPP
130 | DRONE WARS At 34 Frank Wang has turned his dream of ﬂying robots into the world’s biggest drone company—and a $4.5 billion fortune. Now, as the market for his devices explodes, his old colleague is trying to take him down. BY RYAN MAC, HENG SHAO AND FRANK BI
LIFE 140 | SPLENDOR IN THE GLASS Can billionaire Alexander Vik produce a world-class wine at his new luxury resort in Chile? BY ANN ABEL
152 | THOUGHTS
8 | FORBES
MAY 25, 2015
ONLY ONE THING CHANGED TODAY: EVERYTHING. Sometimes the most challenging and rewarding jobs occur beyond the hours of nine to five. ADP delivers benefits technology with a human touch to help your employees make more informed and confident decisions about the things that matter most. Visit adp.com and see how we can provide a more human resource for your business.
Talent Management | Benefits Administration | Workforce Optimization
Steve Forbes CHIEF PRODUCT OFFICER Lewis D’Vorkin FORBES MAGAZINE EDITOR Randall Lane EXECUTIVE EDITOR Michael Noer
A New Level Of Storytelling BY LEWIS D’VORKIN
ART & DESIGN DIRECTOR Robert Mansfield FORBES DIGITAL VP, INVESTING EDITOR Matt Schifrin MANAGING EDITORS Dan Bigman – Business, Bruce Upbin – Technology SENIOR VP, PRODUCT DEVELOPMENT AND VIDEO Andrea Spiegel EXECUTIVE DIRECTOR, DIGITAL PROGRAMMING STRATEGY Coates Bateman ASSISTANT MANAGING EDITORS Kerry A. Dolan, Luisa Kroll – Wealth Frederick E. Allen – LEADERSHIP Loren Feldman –ENTREPRENEURS Tim W. Ferguson FORBES ASIA Janet Novack WASHINGTON Michael K. Ozanian SPORTSMONEY Mark Decker, John Dobosz, Deborah Markson-Katz DEPARTMENT HEADS Avik Roy OPINIONS Jessica Bohrer EDITORIAL COUNSEL BUSINESS Mark Howard CHIEF REVENUE OFFICER Tom Davis CHIEF MARKETING OFFICER Charles Yardley PUBLISHER & MANAGING DIRECTOR FORBES EUROPE Nina La France SENIOR VP, CONSUMER MARKETING & BUSINESS DEVELOPMENT Fred Poust SENIOR VP, CONFERENCES & BUSINESS DEVELOPMENT Michael Dugan CHIEF TECHNOLOGY OFFICER Elaine Fry SENIOR VP, M&D, CONTINUUM FORBES MEDIA Michael S. Perlis PRESIDENT & CEO Michael Federle CHIEF OPERATING OFFICER Tom Callahan CHIEF FINANCIAL OFFICER Terrence O’Connor CHIEF ADMINISTRATIVE OFFICER Will Adamopoulos CEO/ASIA FORBES MEDIA PRESIDENT & PUBLISHER FORBES ASIA Rich Karlgaard PUBLISHER Moira Forbes PRESIDENT, FORBESWOMAN MariaRosa Cartolano GENERAL COUNSEL Margy Loftus SENIOR VP, HUMAN RESOURCES Mia Carbonell SENIOR VP, CORPORATE COMMUNICATIONS FOUNDED IN 1917 B.C. Forbes, Editor-in-Chief (1917-54) Malcolm S. Forbes, Editor-in-Chief (1954-90) James W. Michaels, Editor (1961-99) William Baldwin, Editor (1999-2010)
MAY 25, 2015 — VOLUME 195 NUMBER 7 FORBES (ISSN 0015 6914) is published semi-monthly, except monthly in January, February, April, July, August and October, by Forbes Media LLC, 499 Washington Blvd., Jersey City, NJ 07310. Periodicals postage paid at Jersey City, NJ 07302 and at additional mailing offices. Canadian Agreement No. 40036469. Return undeliverable Canadian addresses to APC Postal Logistics, LLC, 140 E. Union Ave., East Rutherford, NJ 07073. Canada GST# 12576 9513 RT. POSTMASTER: Send address changes to Forbes Subscriber Service, P.O. Box 5471, Harlan, IA 51593-0971. CONTACT INFORMATION For Subscriptions: visit www.forbesmagazine.com; write Forbes Subscriber Service, P.O. Box 5471, Harlan, IA 51593-0971; or call 1-515-284-0693. Prices: U.S.A., one year $59.95. Canada, one year C$89.95 (includes GST). We may make a portion of our mailing list available to reputable ﬁrms. If you prefer that we not include your name, please write Forbes Subscriber Service. For Back Issues: visit www.forbesmagazine.com; e-mail firstname.lastname@example.org; or call 1-212-367-4141. For Article Reprints or Permission to use Forbes content including text, photos, illustrations, logos, and video: visit www.forbesreprints.com; call PARS International at 1-212-221-9595; e-mail http://www.forbes.com/reprints; or e-mail email@example.com. Permission to copy or republish articles can also be obtained through the Copyright Clearance Center at www.copyright.com. Use of Forbes content without the express permission of Forbes or the copyright owner is expressly prohibited. Copyright © 2015 Forbes Media LLC. All rights reserved. Title is protected through a trademark registered with the U.S. Patent & Trademark Office. Printed in the U.S.A.
10 | FORBES MAY 25, 2015
I have an unusual title in the world of traditional media—chief product officer. It sounds right out of Silicon Valley, but it fits what I do. Success in the news business is no longer possible without a keen understanding of the technology behind the journalism. I combine my interest in both to help develop, build, market and sell what we make—a digital platform, magazines, apps and more. Each has distinct features or functionality, or products within products. More than ever, they’re aimed at marketers. BrandVoice, our industry-leading native ad program, is one of them. Last month I made ten sales calls in San Francisco and Los Angeles. Native got all the attention—with BrandVoice in print on everyone’s mind as much as digital. That marketplace reality makes perfect sense. Magazines never really had an audience problem. Readers love them. They like the ease of use, the concise packaging, the feeling of belonging to a larger community that supports a publication’s mission. Magazines certainly have an advertiser problem. Blame the industry itself for that. It failed to come up with exciting new ad products to make ad agencies think twice before chasing digital eyeballs, which are easier to target, track and measure. FORBES has developed a print ad product for the times. Over the last four years we’ve run 50 two-column BrandVoice stories in our magazine. Each was written by a marketer, always clearly labeled as such, and placed alongside related editorial content. In January we expanded the effort. AT&T produced a BrandVoice cover and two-page story for the 30 Under 30 issue that followed our editorial cover. A month later Fidelity created a two-page BrandVoice graphic that was featured on the actual cover itself as part of an editorial package on retirement. In this issue ADP put together a two-page graphic as part of our Global 2000 package (see p. 90). I’ve always believed the mission of journalism is to inform. In my life as a journalist that meant ﬁnding great stories. In my role today it means developing products to convey information. The business of journalism, the ﬂip side of the coin, is about coming up with innovative solutions for marketers. That requires new product, too. My job as chief product officer is to focus on both—and make sure it adds up to a rewarding consumer experience. F
SHOPPING ROYAL IN PARIS Paris-Charles de Gaulle: Enjoy a pleasant stopover and explore the many luxury shops or relax in the comfort of our lounges.
FACT & COMMENT — STEVE FORBES “With all thy getting, get understanding”
GOOD NEWS YOU WON’T RETIRE BROKE BY STEVE FORBES, EDITOR-IN-CHIEF
THE MEDIA are full of stories that all too many Americans are not saving enough for retirement. Some alarmists declare that more than eight out of ten are ﬁnancially unprepared for their “golden years.” Accordingly, they conclude this crisis requires major government intervention, ranging from sharply boosting Social Security beneﬁts to raising taxes on the rich and then sharing that money with those less rich. Wealth tax, anyone? But it turns out that the situation isn’t so dire after all. A paper from the American Enterprise Institute, “Why Americans Don’t Face a Retirement Crisis,” written by two experts—Andrew Biggs, a former principal deputy commissioner of the Social Security Administration, and Sylvester Schieber, a former chair of the Social Security Advisory Board—looks at the facts instead of the politically motivated hype, cutting through to the truly relevant data: what people have actually saved for retirement, what they’ll get from Social Security and what they’ll get from deﬁned-beneﬁt plans (several million people are still covered by those). The paper then goes on to compare all of that information with what Americans will need to maintain the standard of living to which they’ve become accustomed during their working lives. The vast majority of people are in decent shape. Retirement savings as a percentage of household earnings went up between 2007 and 2013, from 124% to 128%. According to the Federal Reserve, in fact, these savings as a percentage of personal incomes have been on the upswing since the Fed began tracking this data in 1981. Other surveys conﬁrm that the combined total of all personal retirement assets as a proportion of personal incomes has been moving up nicely. Moreover, the ongoing reforms of 401(k)s are helping, especially the advent of the employee default option: Workers are automatically enrolled in com-
pany plans unless they speciﬁcally opt out. Companies are also boosting matching contributions. The real crisis involves retirement assets managed by government: the underfunding of Social Security and the truly abysmal underfunding of many state and local government pension plans. As the AEI paper states, “It took 401(k)-style plans just three years to recover their ﬁnancial-crisis losses, and today total assets are almost 37% above 2007 levels. Contrastingly, state and local government pensions are currently less than 5% above their 2007 peak, despite beneﬁt liabilities that have grown by 36%.” Government is manifestly not the solution here. Ronald Reagan was right: Government is the problem, especially its antigrowth policies.
Unfounded Frankenfood Fears Antiprogress extremists never let the truth stand in the way of their goal to turn back the clock to a time when malnutrition and outright famine were the norm. Their relentless assault on genetically modiﬁed crops or organisms (GM crops or GMO), so-called Frankenfoods, is an ongoing example of their destructive, fact-free approach. One shudders to think of the global misery that would have ensued had these forces been around in the 1960s, when Norman Borlaug spearheaded the breakthroughs dubbed the Green Revolution, which enormously increased crop yields, particularly in India. There and elsewhere more than a billion lives were saved, people who would otherwise have been lost to hunger. Borlaug won the Nobel Peace Prize for his efforts. Today he’d be attacked as an antinature technomonster. Another instance of this antitechnology mind-set is the hullabaloo over honeybees. Extremist environmentalists have been making stinging statements that hon-
MAY 25, 2015
FORBES | 13
FACT & COMMENT // STEVE FORBES eybees, which pollinate our crops and ﬂowers, are in dire danger; that hive health is declining, as are honeybee populations. This, shout the alarmists, requires government action, speciﬁcally, banning a class of agrochemicals called neonicotinoids. As happens all too often in this Luddite age, these pesticides are actually a great advance because they help increase agricultural output, a necessity as world populations grow and people achieve higher standards of living. Nor are they harmful to humans—or honeybees. The sky-is-falling cry of “Beepocalypse!” is baloney. The greatest threat to these critters is big government. In a Forbes.com post, “Rash Regulation Is What’s Really Threatening Honeybees,” based on a comprehensive study conducted by Angela Logomasini of the Competitive Enterprise Institute, the record is set straight. ƀǇBee populations. Over the past halfcentury honeybee populations have increased nicely around the world. “American and European commercial hives have decreased largely because honey production moved to other nations, where the number of hives has grown substantially.” There have been health challenges in the U.S. and Europe, which beekeepers have been effectively battling. Survival rates, for instance, have been improving and are now near normal. ƀǇNeonicotinoids. A target of extremists, these insecticides are not villains but heroes. They are a godsend, because they minimize the need to spray
plants, thereby nearly eliminating any possible collateral damage to honeybees and other nontargets. “There is no pattern associated with neonicotinoid use and hive health issues,” Logomasini notes. “In many places where these chemicals are used widely, such as in Australia, hives are doing ﬁne.” Nonetheless, regulators, including— no surprise—the EPA, are waging war against neonicotinoids. The EU, a bastion of this kind of deadly, knownothing mentality, has banned them indeﬁnitely. Meanwhile, the assault on GMOs continues. The food chain Chipotle recently announced that none of its offerings will contain ingredients from GMOs. Henry Miller devastates this piece of grandstanding in the Forbes.com post “Chipotle: The Strangest Restaurant Menu Ever:” Farmers and plant breeders have been selecting and hybridizing plants to enhance their desirable characteristics for millennia. Corn has been drastically modiﬁed by selective breeding. Tomatoes and wheat and innumerable other food plants have similar histories. Another common technique for creating new plant varieties, which originated about a century ago [my italics], is radiation mutagenesis—subjecting seeds to radiation to scramble their DNA and create mutants. Thousands of plant varieties—including lettuce, wheat, rice, oats and the
popular Rio-Sweet and Rio Star pink grapefruit—that we consume routinely were derived this way. Some of the skeptics about modern genetic engineering would remonstrate that using “conventional,” or pre-molecular, techniques adds no “foreign” genes to the genome of the resulting plant. They’re wrong. Since the 1930s plant breeders have performed “wide cross” hybridizations, in which a large numbers of “foreign,” or “alien,” genes have been moved across what used to be thought of as “natural breeding boundaries” to create plant varieties that cannot and do not exist in nature.... Wide-cross hybridizations and radiation-induced mutagenesis represent far more drastic “tinkering with Nature” and create far greater attendant uncertainty about the results than the modern molecular techniques.... Where does [all this] leave Chipotle’s “no genetic modiﬁcation” promise? That should limit their menu to wild berries, wild game, wild mushrooms and wild-caught ﬁsh and shellﬁsh. Virtually all of the other foods in our diets come from organisms that have been genetically modiﬁed in some way. What a weird world we live in these days, where ignorant but inﬂuential voices thwart the very things that can make life better, especially for the poor and undernourished. F
Restaurants: Go, Consider, Stop Edible enlightenment from our eatery experts and colleagues Richard Nalley, Monie Begley, and Randall Lane as well as brothers Bob, Kip and Tim.
z The Polo Bar
z King Bee
z Il Mulino Prime
It’s more about the experience here than the food. Every inch of interior beautifully reﬂects the Ralph Lauren look. The menu promises classics but often delivers less-than-pleasing versions: The crab cake is thin, the tuna tartare shows little imagination, the veal chop is overly oiled. But the plump cheeseburger, the corned beef sandwich and the brownie à la mode are deﬁnite winners.
This Acadian spot honors the Canadian roots of the Cajuns, but too many dishes lack the ﬂavor spark that blossomed on the bayou. The poutine stuffs lamb into a bland, giant dumpling; the salt pork conﬁt lobster lacks harmony, its parts greater than the whole. But the bar snack of fried pork cracklings tossed with peanuts and caramel deserves to be replicated everywhere.
Though it serves up delicious fare, this offspring of Il Mulino isn’t equal to its progenitor’s Stardom. The stark white interior with faux animal heads painted white seems more cutting-edge than the cuisine. The entrées are all expensive, with the lobster mac & cheese the only relative bargain. For desserts the cheesecake, the limoncello and the chocolate cake are inspired.
MAY 25, 2015
424 East 9th St. (Tel.: 646-755-8088)
331 West Broadway (Tel.: 212-226-0004)
1 East 55th St. (Tel.: 212-207-8562)
Why does a Smart Nation matter? Singapore, a tech innovation hub, is tackling tomorrow’s big challenges today
All growing cities face challenges such as managing traffic, caring for ageing populations and creating sustainable living environments. Singapore is no exception. What differentiates this small island-nation is its tenacity and political will to change quickly and effectively for the better. Right now it’s putting those qualities to work as it transforms into a tech innovation hub, generating big, scalable ideas that solve real-world problems. Singapore is the world’s ﬁrst Smart Nation – one that’s small enough to be an exciting test-bed for new innovations, yet big enough in vision and outlook to take a lead in using technology to tackle some of the world’s most critical challenges. Even better, Singapore is now inviting innovators from around the world to join it in finding breakthroughs, test-bedding them locally and eventually applying them globally. What are the GLOBAL CHALLENGES?
Urban Density Two-thirds of the world will live in cities by 2050.1
Ageing Population The world is ageing fast. By 2050, more than 2 billion people will be over 60.2
Healthcare By 2025, there will be 8 billion people, 800 million of whom will be over 65 with high health needs.3
Mobility People are moving more into congested centres, with urban travel to triple by 2050. Traffic congestion could bring cities to a standstill.4
Energy Sustainability Global demand for energy will rise by up to 37% by 2035. 5
Why START UP in Singapore? 11,000 government data sets open for innovation
World’s most tightly packed
US$22 billion government investment in R&D7
venture capital pool8
Use Singapore as a Living Lab for new technologies
Enjoy the world’s easiest place to do business9 – register a company online in 15 minutes
Leverage the world’s fastest broadband10 – nationwide ultra-high speed 1Gbps access
Access a skilled ICT workforce, more than 146,000 strong
Reach 600 million people in the rest of S.E. Asia
Learn more at www.smartnation-forbes.com
United Nations 2World Health Organization 3World Health Organization 4Arthur D. Little/UITP 5BP 6The Economist 72006-2015 8Asian Venture Capital Journal Research 2013 9World Bank 10Ookla
May 25, 2015
SEATING CHART: MAYWEATHER VS. PACQUIAO 18 RICHEST RAPPERS 20 LUXURY LINEAGE: THE ARMANI SUIT 22 FAREWELL TOAST: A. ALFRED TAUBMAN 24 TAKE A SEAT ON THE TITANIC 26
The briefcase gets even briefer. From top: leather portfolio by Tod’s ($645); carbon ﬁber and leather Chassis portfolio by Dunhill ($790); leather zip portfolio by Valextra ($1,720); leather Damier portfolio by Louis Vuitton ($1,520); carbon ﬁber zip portfolio with leather trim by Ralph Lauren ($1,950). DAVID ARKY FOR FORBES
PAGE 26 MAY 25, 2015 FORBES | 17
LeaderBoard SEATING CHART
Lords of the Ringside The fight itself was a snooze. At Mayweather vs. Pacquiao, the real battle was for the best seats in the house.
LEO DICAPRIO ACTOR
RUPERT MURDOCH $13.9 BILLION MEDIA
WHEN FLOYD Mayweather fought Manny Pacquiao at the MGM Grand in Las Vegas on May 2, it became the richest ﬁght in history. FORBES estimates that of $465 million in revenue, the two men split $300 million for their 36 minutes of work plus 11 minutes of rest. True to his name, the victorious “Money” Mayweather reaped an estimated $180 million, while Pacman took home a lovely consolation prize of $120 million or so. But chump change for many in the stands. Behold, a who’s who and who’s where.
CHARLES BARKLEY ATHLETE
BILLIONAIRE TONY ROBBINS MOTIVATIONAL SPEAKER
BRADLEY COOPER ACTOR
JAMIE FOXX ACTOR
JIMMY KIMMEL LATE-NIGHT HOST
MARK WAHLBERG ACTOR
STANLEY DRUCKENMILLER $3.1 BILLION HEDGE FUNDS
JAKE GYLLENHAAL ACTOR
CLINT EASTWOOD ACTOR
DENZEL WASHINGTON ACTOR
PETER GUBER 18 | FORBES MAY 25, 2015
STEVE WYNN $3.4 BILLION CASINOS, HOTELS
PHILIP GREEN $5.1 BILLION RETAIL
LEWIS HAMILTON F1 DRIVER
STEFFI GRAF ATHLETE
PHILLIP RUFFIN $2 BILLION CASINOS, REAL ESTATE
PAUL TUDOR JONES
MARY J. BLIGE
$4.6 BILLION HEDGE FUNDS
$11.7 BILLION BANKS, REAL ESTATE
LES MOONVES CBS CEO
$1 BILLION SPORTS
ROBERT DE NIRO ACTOR
JAMES PACKER $5.2 BILLION CASINOS
MIKE TYSON ATHLETE
MICHAEL KEATON ACTOR
KEVIN PLANK $3.1 BILLION UNDER ARMOUR
DONALD TRUMP $4.1 BILLION TV, REAL ESTATE
NICKI MINAJ MUSICIAN
TOM BRADY ATHLETE
MAY 25, 2015 FORBES | 19
BY MICHAEL SOLOMON
$4.3 BILLION NEW ENGLAND PATRIOTS
NET WORTH: $2 BILLION Stock in his high-frequency-trading ﬁrm, Virtu Financial, which made money 1,484 of its ﬁrst 1,485 days in business, jumps 17% on day of IPO.
RICHEST BY STATE
THE FORBES FIVE
4.83 MILLION GROSS STATE PRODUCT:
TODAY’S TOP hip-hop moguls keep deﬁning success upward: Despite selling his headphone line, Beats by Dre, to Apple for $3 billion last year, Dr. Dre still isn’t the richest man in rap.
(0.78% GROWTH YEAR-ON-YEAR) GSP PER CAPITA:
$40,621 RICHEST: GARRY DRUMMOND
1. DIDDY NET WORTH:
$735 MILLION Though Mr. Combs (right) hasn’t yet had a Beats-level exit, he might soon, thanks to huge stakes in TV network Revolt, clothing line Sean John, alkaline water brand Aquahydrate and new tequila DeLeon.
2. DR. DRE
RICHEST BY STATE BY CHASE PETERSON-WITHORN; RICHEST RAPPERS BY ZACK O’MALLEY GREENBURG ALL FIGURES AT THE TOP OF THIS AND SUBSEQUENT PAGES REPRESENT CHANGES IN WEALTH BETWEEN MAR. 17 AND APR. 7. SOURCES: INTERACTIVE DATA VIA FACTSET RESEARCH SYSTEMS; CHRIS LYONS (LEFT); MIKE PONT/FILMMAGIC/GETTY IMAGES (RIGHT)
$700 MILLION His Beats sale got him the largest single-year payday of any musician in history—and a nine-ﬁgure tax bill that kept him from the top of the list.
3. JAY Z
$550 MILLION His diversiﬁed portfolio continues to grow, courtesy of assets such as entertainment company Roc Nation and Armand de Brignac champagne. Streamingservice Tidal’s impact remains to be seen.
GARRY DRUMMOND’S coal-mining Drummond Co. was built on the backs of three mules, which his father used as collateral on the $300 bank loan that put him in business in 1935. Drummond, who lives near Birmingham, joined the company in 1961 and led an expansion into Colombia that has been both proﬁtable and controversial: Drummond has fought lawsuits alleging ties to paramilitary forces that killed more than 100 people—including three union leaders—between 1996 and 2006. Families of the victims say the company abetted human rights violations by paying the rebels for protection that included the use of lethal force against civilians. A jury ruled in favor of Drummond in 2007, and most subsequent cases and appeals have been dismissed. Drummond has countersued, alleging defamation by lawyers, and another suit alleges extortion on the part of lawyers, “advocacy groups” and Llanos Oil, a Dutch competitor. 20 | FORBES MAY 25, 2015
4. 50 CENT
$155 MILLION After scoring $100 million on the sale of Vitaminwater in 2007, 50 hopes to repeat the feat with stakes in new ventures, including SMS headphones, Effen vodka and Frigo underwear.
5. BIRDMAN $150 MILLION
His slight dip this year (down from $160 million and the No. 4 slot in 2014) mirrors the value of his label Cash Money, which has been dogged by rumors of the departure of big acts, including superstar Lil Wayne.
MAY 4, 2015 FORBES | 20
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Our complimentary Business Plan Tool can help you focus on the things that will make your business thrive. Like most small business owners, Carolyn Miye* was so busy running her business that she found it hard to organize ideas for her company’s future into a business plan. Using the Business Plan Tool from Wells Fargo, she gained valuable insight to help her focus on what to do next. It’s just one of the complimentary resources in the new Business Plan Center. To learn more, visit WellsFargoWorks.com.
*Wells Fargo rewarded Carolyn Miye $10,000 to help with her marketing plans. © 2015 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
NET WORTH: $38.8 BILLION For the ﬁrst time the Amazon boss breaks out his cloud business, revealing a $5 billion giant that has grown 50% in the last year.
The Armani Suit ON MAY 1 Giorgio Armani began a yearlong celebration of his 40th anniversary in fashion with the opening of Armani/Silos, a Milan museum dedicated to the 80-year-old billionaire designer’s most famous creations and drawings. And when it comes to symbolizing success for the past four decades, nothing has meant business like an Armani suit.
1984 Miami Vice may be remembered for its pastel T-shirts and slouchy suits, but that image was mainly the look of Don Johnson’s Sonny Crockett. It was his partner, Rico Tubbs, who wore impeccably tailored Armani suits and ties. Neither man, it should be noted, dressed like a vice cop.
1992 When Eric Clapton wanted to shed his wild and woolly ’70s rocker image, he did it with the help of Giorgio Armani. In 1990 the guitar god attended his ﬁrst Armani show, and the designer began dressing him in understated threebutton suits and jackets in muted colors. Seven years later Clapton composed the music for an Armani fashion show. 22 | FORBES MAY 25, 2015
2014 For years George Clooney has walked red carpets in clothes designed by Armani, his Lake Como neighbor in Italy. And when the Oscarwinning actor married Amal Alamuddin in September 2014, he did so in an Armani tuxedo. The following morning the groom appeared in an elegant gray Armani suit, but few noticed—because his bride wore a ﬂower-print dress by Giambattista Valli.
2013 A wolf of Wall Street can’t wear sheepish clothing, so when director Martin Scorsese wanted to re-create ’90s power dressing, he had his longtime friend Armani design suits— including the almighty blue pinstripe—for Leonardo DiCaprio.
BY MICHAEL SOLOMON COUNTERCLOCKWISE FROM TOP: ADRIANO ALECCHI/MONDADORI PORTFOLIO VIA GETTY IMAGES; PARAMOUNT/EVERETT COLLECTION; RON TOM/NBCU PHOTO BANK/GETTY IMAGES; PHIL DENT/REDFERNS/GETTY IMAGES; JAMES DEVANEY/WIREIMAGE/GETTY IMAGES; PIERRE TEYSSOT/AFP/GETTY IMAGES
1980 The anointing of Armani came in 1980, when the designer’s clothes were featured in American Gigolo, the ﬁrst of many Armani collaborations with Hollywood. As worn by Richard Gere’s title character, the power suit lost its inﬂated shoulders and gained a new power: sex appeal.
1975 Founded in Milan by Armani and Sergio Galeotti, the label produced its ﬁrst men’s collection in October 1975. Within three years the designer had softened the ﬁt of men’s (and women’s) jackets and become known as “King of the Blazer.”
Started my Camry. Rescued a dog. Searched for the owners. Uncovered a plot. Escaped with the evidence. Took a leap of faith. Left them all behind. Kept the dog.
ONE BOLD CHOICE LEADS TO ANOTHER.
The 2015 Camry. Our boldest Camry ever. toyota.com/camry Prototype shown with options. Production model will vary. ÂŠ2015 Toyota Motor Sales, U.S.A., Inc.
LeaderBoard 30 UNDER 30
NET WORTH: $2.6 BILLION All bad news for Dorsey’s Twitter, which lowers revenue and proﬁt projections as losses mount; shares drop 20%.
Tastemakers Smarter eats from the FORBES 30 Under 30, in 30 words or less.
A. Alfred Taubman (1924-2015) Adam Belanich, Noah Belanich The sibling pioneers of the iced coffee kegerator are expanding their “craft on draft” operations to iced tea and kombucha. Nearly 600 offices use their Joyride machines, eliminating K-cup waste.
Laura Borel JAWBONE | 26
Borel oversees the nutrition component of Jawbone’s app, which tracks not only calorie consumption but also assesses the wholesomeness of your culinary choices.
Ali Bouzari PILOT R+D | 27
The chefs and scientists at Bouzari’s consultancy help budding entrepreneurs improve the ﬂavor of new edible products such as protein substitutes and cricket ﬂour.
ASK 50 BILLIONAIRES
What’s the Most You’ve Ever Paid for a Bottle of Wine? Under $100
$100 to $500
$500 to $1,000
$1,000 to $10,000
24 | FORBES MAY 25, 2015
More than $10,000
I don’t buy wine
I ﬁrst got to know Alfred Taubman because I thought his company was ripping me off. It was about 1970, and I made a handshake deal with one of Al’s leasing agents to open The Limited’s seventh store in a Milwaukee mall. When I got the official agreement, the rent was twice as expensive. I phoned Mr. Taubman, as I called him back then. “I think the guy made a mistake,” Al told me. “But if somebody speaks on behalf of my company and you believed it, I’ll stick with it.” A nice ﬁrst impression, but Al wasn’t always so polite. Three years later he summoned me to his office in Detroit. We hopped on a helicopter and walked through a few of his malls. As I trailed him like a duck following a massive animal, he did not acknowledge me. After lunch he broke his silence: “You saw your stores?” he asked. “They’re the ugliest stores I’ve ever seen. You’d better ﬁx them or I’m going to have them torn down.” Then he walked out of the restaurant. That was Al. Tough, honest and, most of the time, correct. My wood-and-brick storefronts were horrible. We made them more stylish, and in 1982 he called me up. “Les,” he said, “I just saw your Beverly Center store.” Here he goes again, I thought. “And I wanted to tell you it’s the best store I’ve ever seen.” Then he hung up. At least one of my stores is now in every single shopping mall he owned. Al had so many interests, such intense curiosity. At his house in Palm Beach I saw excellent artwork in a home for the ﬁrst time. He talked about charter schools 20 years ago. The same with stem cell research. When he went to jail, he put me on the shortlist of people allowed to visit. My wife, Abigail, and I went up there once a month. We brought a sleeve of quarters—the only thing you could bring inside—to buy White Castle burgers at the vending machine. In my opinion he was innocent. But Al didn’t dwell on that. He just counted the months until he could see his grandchildren again. His giving to Michigan inspired me to give to Ohio State. He was just as generous with friends. About 25 years ago I found a big box in my garage and pulled out a beautiful piece of artwork, one I had admired in Al’s house. I told him I couldn’t accept it. “A deal is a deal,” he told me. “We never know what the future is, and I want you to have something to remember me by.” As I sit at my desk right now, that painting hangs above my head.
30 UNDER 30 BY KATHRYN DILL
JOYRIDE COFFEE | 28, 26
BLOOMBERG (TOP); ILLUSTRATIONS BY PATRICK WELCH (LEFT); NILS JORGENSEN/REX/NEWSCOM; WINE BOTTLE: GETTY IMAGES
On Apr. 17 Alfred Taubman, who made a $3.1 billion fortune building malls across America, died of a heart attack at age 91. Taubman famously turned around the auction house Sotheby’s but served ten months in prison after he was convicted in a price-ﬁxing scheme. His friend, tenant and fellow billionaire LES WEXNER, founder of Victoria’s Secret, reﬂects on a life.
NET WORTH: $5.2 BILLION Disney releases trailer for Star Wars VII; nerds go nuts, and the franchise mastermind watches his Disney shares hit an alltime high.
SEAL THE DEAL
The New Power Bag
WHAT’S briefer than a briefcase? A sleek portfolio meant to hold a single document—the one that’s about to be signed. Made in leather (or carbon ﬁber), the new bag has no handles, no shoulder straps and would start to bulge if you tried to tuck in a mobile phone. Carrying one sends a clear message of ruthless efficiency: You’re all business.
ON THE BLOCK
A Seat to Remember REARRANGING deck chairs on the Titanic might be the quintessential exercise in futility, but collecting them isn’t. In April a wooden Nantucket recliner from the doomed ocean liner was auctioned at Henry Aldridge & Son in England and sold for £100,000 (nearly $150,000). The chair was on the promenade deck when the great ship went down in 1912 and is one of a half-dozen retrieved by the cablerepair ship Mackay-Bennett, which was sent to recover bodies. According to Aldridge’s records, the chair was then given to Mackay captain Julien Lemarteleur by one of its crew, and for the past 15 years it has been owned by a Titanic collector in England, who kept it by a large window in his home, overlooking the ocean. The anonymous winning bidder can’t actually sit in the chair; it’s too fragile. Given the furniture’s tragic provenance, though, why even risk it?
26 | FORBES MAY 25, 2015
BY MICHAEL SOLOMON (2)
An unsinkable Titanic deck chair sells for $150,000.
PHOTOGRAPH: DAVID ARKY; CREATIVE STYLE DIRECTOR: JOSEPH DEACETIS; STYLE ASSOCIATE: JUAN BENSON; PROP STYLIST: TERRY LEWIS; HENRY ALDRIDGE AND SON (BOTTOM)
LEATHER DAMIER PORTFOLIO by Louis Vuitton ($1,520)
W O R K
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T H E
E D G E
ÂŠ 2 0 1 5 Sa m sung Ele ct ronics A m e rica , Inc. S a m sung and G al axy S are trademark s of Samsu ng E l ectroni cs Co., Ltd. S cre e n im a g e s sim ulated. Appearance of devi ce may var y.
PROMOTION | BUSINESS AVIATION
Raising the Bar—Again BY TONY VELOCCI
he voice of the customer can be a powerful tool in the hands of a truly innovative company. A prime example is Gulfstream Aerospace Corp., with its recent launch of the G500 and G600 aircraft. Like so many other Gulfstream products that have preceded them, the new models appear certain to set a higher standard in performance and comfort in one of the world’s most discerning capital goods markets: business jets. The company started laying the groundwork for its clean-sheet designs in 2008, taking into account feedback it received f rom op er ators who were p ar t of it s Advanced Technology Customer Advisory Team. For example, they expressed a desire for a larger fuselage, longer range and faster cruise speeds—and improved fuel economy. Altogether, the consultations resulted in more than 200 design changes, including improved cockpit functionality, additional
storage space and cabin layout revisions. What emerged from Gulfstream’s productdevelopment center—one of the most robust in all of civil aviation—were two aircraft whose combination of speed, range and cabin comfort are unmatched by any other purpose-built business jet in production or development. Not only do they have longer and larger cabins than the top-selling G450 and G550, but they also fly higher, faster and farther, on less fuel. High-speed cruise speed for both aircraft is Mach 0.9, or about 595 mph. At long-range cruise speed—Mach 0.85, or about 561 mph—the G600 has a range of 6,200 nm. The G500 has a 5,000-nm range when flying at Mach 0.85.
Cabin Comfort Inside the cabin, the two aircraft provide 2 inches more headroom, 7 inches more cabin width and 8 inches more floor width than the G450 and G550. In addition, both models
have the same cabin windows as Gulfstream’s flagship, the G650, which are the largest in the industry. The G500 has six windows per side and three seating areas, while the G600 cabin has seven windows per side and room for three and a half seating areas. The extra length accommodates an optional crew-rest compartment. Meanwhile, the jets’ pressurization system of 10.7 psi provides a 3,000-foot cabin altitude at 41,000 feet, and a cabin altitude of 4,850 feet at the aircraft’s 51,000-foot maximum ceiling—the lowest cabin altitude in their classes. Depending on their configuration, the G500 and G600 can seat 12 to 16 passengers.
Top-Notch Avionics The jets’ cockpit is just as innovative. For example, the G500 and G600 are the first business jets to feature active sidestick controls, which provide pilots with a classic airplane feel of mechanically linked sticks, as well as improved crew coordination and situational awareness. An enhanced vision system featuring higher resolution and an increased field of view, along with synthetic vision for the primary flight display, is standard. FlexJet, a major provider of fractional aircraft ownership services, is among the first customers of the G500. The company anticipates type certification from the U.S. Federal Aviation Agency and the European Aviation Safety Agency in 2017, with deliveries of the G500 and G600 to start in 2018 and 2019, respectively. Q
MAX SPEED: MACH 0.88 MAX RANGE: 4,350 NM MAX ALTITUDE: 45,000 FT
Growing an international business demands reliability and peak performance. That’s what the Gulfstream G450™ delivers. This aircraft is part of the top-performing platform in business aviation and consistently earns NBAA reliability ratings above 99 percent. Take the guesswork out of success. Put yourself in a G450.
SCOT T NEAL | +1 912 965 6023 | firstname.lastname@example.org | GULFSTREAMG450.COM Range shown is based on NBAA IFR theoretical range at Mach 0.80 with eight passengers. Actual range will be affected by ATC routing, operating speed, weather, outfitting options and other factors.
+BEN BERNANKE NET WORTH: $6.5 BILLION Hedge fund titan often criticized Bernanke as Fed chairman. Now he’s hired him as an advisor—and the revolving door spins anew.
CONVERSATION EVERYBODY LIKES a Twinkie, right? Steven Bertoni’s May 4 cover story about the salvation of Hostess by Dean Metropoulos and Apollo Global’s Andy Jhawar had tongues wagging (and drooling). The tale is high drama—strikes, implementation of efficiency measures and the rebirth of a snack-food icon—and reader opinions were … well, as homogenous as Twinkies themselves. “Love Hostess products, those ‘preservative-packed calorie bombs with ingredients that read like a chemistry textbook,’” tweeted (in earnest!) Jennifer Gerholdt of the U.S. Chamber of Commerce Foundation, quoting Bertoni. Breitbart’s John Nolte gushed: “Loved this story. What unions destroyed, innovation & chemicals saved.” And in a gesture as sweet as vanilla ﬁlling, Daren Metropoulos tweeted our cover image and “Proud of my Dad.” Awww. Have a Twinkie on us!
THE INTEREST GRAPH Judging by reader clicks, snack cakes and rock ’n’ roll have nothing on the futuristic motorbike taking Taiwan by storm. The Tesla of Scooters Is Driving Asia’s Two-Wheel Revolution
120,419 page views
MAPPING IT OUT FORBES’ Janet Novack and Ashlea Ebeling took to Twitter to advise anxious Millennials about ﬁnancial planning. More at storify.com/forbes.
@TEHRIFFIC What are the most common mistakes beginners to ﬁnancial planning make?
@ FORBES When it comes to investing, beginners are often too conservative (no stock) or too risky (one stock). One big mistake is cashing out of a retirement account because you didn’t build an emergency fund. @SCHULTZZYRUN What can current college students do to get their ﬁnances on track while being under student loans?
Revenge of the Record Labels: How the Majors Renewed Their Grip on Music
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The Next Billion-Dollar Startups 69,493
Pharmacy Startup PillPack Could Change the Way America Takes Its Medicine 68,006
“As the MP3 heads the way of the eighttrack tape, it seems the labels have learned from their mistakes.”
The Billionaire Banker Ready to Bet on Oil 50,735
Innovation Factory: How Parker Hanniﬁn Pumps Out Breakthrough Products 30,992
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THE BOMB 1,709 VIEWS
30 | FORBES MAY 25, 2015
“Gogoro’s bike is what you’d get if you mated a Vespa and an iPhone.”
“Medication overload is a big problem. Some 32 million Americans are on at least ﬁve different prescription drugs.”
FORBES If you’re living on student loans, before you buy anything, multiply its price x 1.5. It’s a mental trick to remind you that it will cost more by the time you pay interest on your loans. @JAMESDOS3 Is it worth it for a beginner investor to work with an algorithm-based system like Wealthfront as opposed to a human?
FORBES I like roboadvisors like Betterment and Wealthfront. But you don’t really need algorithms—you can simply buy a balanced fund that is 50% stocks/ 50% bonds.
BY MEHRUNNISA WANI
TRAVEL REINVENTED With 200+ hotels, we’re everywhere you want to be. With modern, classic design and always-approachable service, we offer what matters most to keep you comfortable and connected. This is Four Points.
am Post-workout breakfast in the room.
am Cab it to a meeting. Take a conference call on the way.
pm Deal done. Pregame check-in.
pm Meet the team for dinner.
pm Kick back, relax with beers and the game.
©2015 Starwood Hotels & Resorts Worldwide, Inc. All Rights Reserved. Preferred Guest, SPG, Four Points and their logos are the trademarks of Starwood Hotels & Resorts Worldwide, Inc., or its afﬁliates.
THOUGHT LEADERS AVIK ROY // THE APOTHECARY
THE FLAW IN MARCO RUBIO’S TAX REFORM PLAN Now, I’m a card-carrying reformocon, but I see a ton of problems with the Lee-Rubio child tax credit. First of all, there’s no empirical evidence that the plan would actually lead to the production of future taxpayers. Most of the tax credits would go to parents who’ve already borne children and have no interest in bearing more. Furthermore, to the degree that the credit incentivizes more childbearing, it may increase out-of-wedlock births. Numerous studies indicate that children born out of wedlock have a far higher risk of living their lives in poverty: net recipients, not ﬁnanciers, of the entitlement state. Second, we already have a democratic imbalance, with two-ﬁfths of Americans experiencing no income tax liabilities. Lee-Rubio would worsen that problem by eliminating payroll tax liabilities for a signiﬁcant portion of the population. The U.S. tax code is already the most progressive in the industrialized world; Lee-Rubio would make that worse. Third, because the credit is refundable against payroll taxes, it would either accelerate the impending bankruptcy of the proA COSTLY—AND CLUMSY—SUBSIDY FOR PARENTS grams funded by payroll MARS AN OTHERWISE ATTRACTIVE PROPOSAL taxes—Social Security and Medicare—or count as new mate that it would reduce federal tax revenue by more than $4 trillion federal spending, spending that Lee-Rubio in its ﬁrst decade, if you exclude the effects of economic growth. But doesn’t offset with cuts elsewhere. over the long run, they say, Lee-Rubio would pay for itself, by increasAnd fourth, as the Tax Foundation analysis ing the size of the economy by 15% and by increasing employment by points out, the child tax credit would increase 2.7 million jobs. the deﬁcit by more than $1.7 trillion over a The most controversial feature of the plan—and rightly so—is its efdecade, while contributing nothing to ecofort to use the tax code to encourage more Americans to make babies. nomic growth. Think about it this way: The The plan includes a new child tax credit of $2,500, which would be Lee-Rubio child tax credits are at least $700 refundable against income and, importantly, payroll taxes. Rubio and billion costlier than the tax credits deployed Lee worry that parents don’t bear more children because they “shoulby ObamaCare to offer health coverage to the der the ﬁnancial burden of raising the next generation of taxpayers.” uninsured. This has been a leading concern for a fraction of the “reform conservaThat $1.7 trillion could have been used to tive” wing of the Republican Party, a group focused on expanding opraise living standards for every American by portunity for lower-income Americans. further reducing individual and corporate tax rates. For Senator Rubio it’s a missed AVIK ROY IS FORBES’ OPINION EDITOR AND A SENIOR FELLOW AT THE MANHATTAN INSTITUTE. opportunity. F 32 | FORBES MAY 25, 2015
THOMAS KUHLENBECK FOR FORBES
IN MARCH two freshman Republican senators—Mike Lee (Utah) and Marco Rubio (Fla.)—released an ambitious plan for tax reform. Nonpartisan experts believe the plan would turbocharge U.S. economic growth. But the plan is marred by a multitrillion-dollar effort at social engineering, one that would increase the deﬁcit without expanding the economy. Given that Senator Rubio is one of the most attractive contenders in the 2016 presidential race, his views on tax reform warrant special attention. And there is a lot of good stuff in his proposal, entitled the “Economic Growth and Family Fairness Tax Reform Plan.” (Disclosure: I’m an advisor to former Texas governor Rick Perry.) It would clean up loopholes in the corporate tax code, cut the federal corporate tax rate to 25%, move to a territorial tax system and eliminate taxes on capital gains and dividends, among other things. On the individual side, the plan would consolidate the code into two brackets: 15% and 35%. It would eliminate all itemized deductions save the mortgage and charitable deductions. It would abolish the alternative minimum tax. Michael Schuyler and Will McBride of the Tax Foundation have conducted the most thorough analysis to date of the plan. They esti-
THOUGHT LEADERS AMITY SHLAES // CURRENT EVENTS
QUALITY TAX POLICY unites America and prepares us for stronger economic growth. That’s why Republican presidential candidates have traditionally made taxes the central plank in the GOP platform. Under an optimal tax plan all people are treated the same. Rates are low. That, in turn, is why the ﬂat tax, indeed, the sort favored by FORBES’ editor-in-chief, Steve Forbes, has sustained its charm down the decades. Voters tend to trust a plan they understand. Back during the Reagan years activist Grover Norquist began daring Republican candidates to sign “The Pledge,” a commitment to agree not to increase taxes. Yet that logic doesn’t seem to hold in this election round. The early tax plans—and some would even hesitate to call them plans—are not optimal. Candidates currently favor a disuniﬁed mishmash, singling out groups for various preferences. The plan put forward by Senator Marco Rubio (R–Fla.) is a good example of this. Its centerpiece is a $2,500 tax credit for families. This is tax policy as consolation, for such credits “score” at zero when we reckon how much they contribute to growth. Rubio, however, morphs from Santa to tiger when it comes to investors, slashing corporate and capital gains taxes in a way that would promote growth. Republicans are producing divided tax plans because they’re addressing a genuine economic divide. Wall Streeters, the energy sector and a few others are faring well, but others are not. Middle-age Americans observe that they owe more money, drive older cars and hold less equity than they had imagined they would at this point in their lives. For their part, young people sense that they are, to cite the title of economist Diana Furchtgott-Roth’s new book, “disinherited.” Only debt and subpar jobs lie ahead.
THE ROMNEY PROBLEM The reason for this divide is bailout policy that dates back to the 2008 ﬁnancial crisis. In the summer of that year President George W. Bush and presidential candidates Senators John McCain and Barack Obama were spending more time on Scott McClellan’s Iraq tell-all, Sarah Palin’s performance as Alaska governor or the Obama campaign’s mastery of social media than on mortgage-backed securities. The crisis surprised all three men. Uncertain, ﬁrst President Bush and then President-elect Obama joined Congress in turning to bailouts and subsidies as the answer. Those bailouts ultimately hurt the economy because they “picked losers,” investing in ﬁrms whose dissolution might have made better sense. Companies didn’t hire the way
they might have had there been no bailouts. The corporate and bank bailouts ceased, but the greater bailout, the Federal Reserve’s monetary bailout, continues to this day. The Fed’s easing represents a historic example of what Ludwig von Mises labeled “malinvestment.” Mises and others in the Austrian School, notably Friedrich von Hayek, argued that failing to allow markets to clear impedes recovery. Now we have textbook evidence. In any case, voters young and old aren’t blind to the hypocrisy of bailing out one group while ignoring the other. This is why they react heatedly when candidates demonstrate even a hint of condescension (Mitt Romney’s problem). Perhaps the Fed and the government should have provided liquidity in the autumn of 2008 and stopped there. Perhaps even that liquidity shouldn’t have been provided. And perhaps monetary reform is the ﬁrst change needed. These nontax questions warrant discussion. Yet Republicans aren’t speaking much about the 2008 record. Rubio has explicitly said that he considers the past “yesterday,” i.e., irrelevant. Candidates would rather mumble something about “liquidity” or Lehman Bros. and how complicated it all was than take a stand. The 2008 crisis is the elephant in the elephants’ room, the event that affects voter trust in the GOP. Since voters aren’t sure what happened in 2008—and aren’t sure what will happen in the next crisis, either— they’re in no mood to take the sort of leap of faith tax reform requires. Understandably resentful, they prefer a tax handout. Politicians sense this and deliver accordingly. Suggestion: Postpone the tax talk, and, instead, push the candidates on bailouts. Force them to declare whether they consider themselves to be “Austrian” or neo-Keynesian.” Let them say whether, come the next crisis, they’d wing it, à la Hank Paulson, or actually put forward a plan. Clear the air on 2008, and there will be trust enough for tax reform. But the best pledge for this election round is a “No Bailout” pledge. F
AMITY SHLAES, PRESIDENTIAL SCHOLAR AT THE KINGS COLLEGE AND CHAIR OF THE COOLIDGE FOUNDATION BOARD; PAUL JOHNSON, EMINENT BRITISH HISTORIAN AND AUTHOR; AND DAVID MALPASS, GLOBAL ECONOMIST, PRESIDENT OF ENCIMA GLOBAL LLC, ROTATE IN WRITING THIS COLUMN. TO SEE PAST CURRENT EVENTS COLUMNS, VISIT OUR WEBSITE AT WWW.FORBES.COM/CURRENTEVENTS.
34 | FORBES MAY 25, 2015
THOMAS KUHLENBECK FOR FORBES
THE “NO BAILOUT” PLEDGE
THOUGHT LEADERS RICH KARLGAARD // INNOVATION RULES
RICH KARLGAARD IS THE PUBLISHER AT FORBES. HIS NEW BOOK, TEAM GENIUS: THE NEW SCIENCE OF HIGHPERFORMING ORGANIZATIONS, COMES OUT IN JULY. FOR HIS PAST COLUMNS AND BLOGS VISIT OUR WEBSITE AT WWW.FORBES.COM/KARLGAARD.
36 | FORBES MAY 25, 2015
to discourage ownership. So whatâ€™s next? The answer isnâ€™t more taxes. At some point the goose will squawk and talent will stop coming in. The answer is to use technology and data to seek new efficiencies. (Singaporeâ€™s tropical climate makes increasing the number of people walking and biking unfeasible.) Improved health and transportationâ€” obvious, right? Theyâ€™re on every cityâ€™s and countryâ€™s wish list. The third category discussed by Prime Minister Lee is rather unique. Ć€Ç‡*Ć?(Ć?)'#(!Ç‡',%.*&Ĺş â€œWe want to become a safe and secure data marketplace. A place where companies can easily conduct testing and extract insights on market research and consumer trends. A place where data can be shared in order to unlock value and innovation, and where the government releases many data sets to the public to build applications and services.â€? Thatâ€™s a bit differentâ€”and brilliant. Singapore will be positioned as part Switzerland/ part Silicon Valley. Without saying so, the prime minister was addressing some peopleâ€™s fears that Hong Kong has been compromised as a â€œsecure data marketplace.â€? Mr. Lee is too much of a diplomat to say it directly, but the implication is clear: Singapore wants to be Asiaâ€™s top banking city. The coming revolution in ďŹ nancial technologyâ€”ďŹ ntech, as itâ€™s calledâ€”is just starting. Will the winners be disruptors from Silicon Valley? Or, because banking is regulated in every country in which it is practiced, will the ďŹ ntech winners be hybrids of disruptors and traditional bankers? My conference panel said the latter. In which case, partSwitzerland/part-Silicon-Valley Singapore is ideally positioned.
AGâ€™S ROLE IN SMART CITIES Letâ€™s not forget that most basic need: food. How will an additional 2.5 billion city dwellers be fed? Join the Forbes AgTech Summit on July 8â€“9 in Salinas, Calif. to ďŹ nd out. Go to Forbes.com/conferences to learn more. F
THOMAS KUHLENBECK FOR FORBES
THE UN SAYS the global population will reach 9 billion by 2050. Six billion of that population will live in urban areas. Thatâ€™s a jump of 2.5 billion city dwellers over the next 35 years. Argue the numbers all you wishâ€” Iâ€™m skeptical that world population will grow as fast as the UN predicts. Still, the effect on cities will be inescapable, whether the jump in city dwellers is 1.5 billion or 2.5 billion. The stresses on cities will be enormous: water, food, energy, transportation, health care, security, crime, quality of life. This is why we love capitalism: The opportunities will be huge, too. The smart-city innovation race will generate tens of trillions of dollars in the coming decades. Which countries and companies will be the big winners? I see three categories of winners. The ďŹ rst will be suppliers of digital technology, from high-speed telecom, cloud services and digital security to apps, for example, like Uberâ€™s and Airbnbâ€™s that use physical resources with greater efficiency. But these can get you only so far. The second category will be traditional industry reborn. The trick will be to ďŹ nd breakthroughs in materials, construction and transportationâ€”updates to the blood-and-sweat stuff that built the great cities of the 20th century. Will the winners be known names, such as GE, Mitsubishi, Tata and Samsung, or new players? A third category will be the smart cities themselves. Leaders will likely create services that can be used to teach other cities, so their expertise will have value beyond the beneďŹ ts enjoyed inside the cities. Smart cities will enjoy premium brands in a tough global economy, and they will attract talent. A great example is Singapore. Last month I attended a smart-nations conference in Singapore. Prime Minister Lee Hsien Loong kicked off the event with a reception at his residence. He spoke about his top three priorities. Ć€Ç‡Aging population. It is imperative that older Singaporeans lead healthy and fulďŹ lling lives. One out of nine today is over 65. In 15 years that number will be one in ďŹ ve, almost as high as in Japan now. Living in a small city-state, Singaporeans donâ€™t have the outsourcegranny-to-Arizona-or-Florida option. Citizens will have to â€œage in place,â€? while not burdening the economy. This means big opportunities at the intersection of health care and technology. Ć€Ç‡Transportation. Land is scarce in Singapore. â€œWe canâ€™t keep on building more and more roads indeďŹ nitely, becoming like Los Angeles.â€? Singapore, like Denmark, taxes cars almost double the purchase price
Your IT solution should be reducing your workload, not adding to it. At CenturyLink, we believe you shouldn’t spend more time getting technology to work than you do beneﬁtting from it actually working. So we design our managed services solutions to work better together – from our high performing broadband network to our IT infrastructure and services. Delivering reliable uptime and dedicated support, all backed by multi-layered security, is what we do at CenturyLink. Because technology should help you manage the complexity of your business, not add to it.
May 25, 2015
STRATEGIES A TOUCHIER TOUCHSCREEN 40 BENTLEY BULKS UP 46
TECHNOLOGY EIGHT-LEGGED CYBERCOP 48
ENTREPRENEURS EXPENSIVE LOANS, LIGHTNING FAST 56
SURVIVING THE COMING BOND STORM 64
At Airbnb there’s always an artist in the house. Everything starts with billionaire cofounder Joe Gebbia, a fellow handy with a cartoonist’s sketch pad—and an expert in the art of warmhearted recruiting. PAGE 54
MAY 25, 2015 FORBES | 39
STRATEGIES REINVENTING AMERICA
Magic Touch A dozen years ago touchscreen pioneer David Caldwell narrowly missed a chance to revolutionize consumer electronics. Can his latest invention bring redemption?
n the early 2000s engineer David Caldwell might have missed the chance of a lifetime. While developing touch-sensitive switches for home appliances, Caldwell was invited to Cupertino, Calif. to demonstrate his patented TouchSensor technology to Apple, which was looking to replace the mechanical scroll wheel in the original iPod. After peppering
40 | FORBES MAY 25, 2015
him with questions about how it worked, an Apple engineer asked, “Can you integrate it into a round wheel?” Sure, replied Caldwell. But nothing ever came of the discussion, partly because Illinois-based Gemtron, the glass company that controlled his technology, wasn’t interested in diversifying beyond its core expertise: selling $100
Looking for a breakthrough: Unlike today’s touchscreens, David Caldwell says, his technology works even with wet or gloved hands.
BRIAN KELLY FOR FORBES
BY JOANN MULLER
cooktops embedded BYE-BYE, BUTT DIALS? CURRENT “CAPACITIVE” TOUCHSCREENS ARE TRIGGERED WHEN A FINGER CROSSES A THRESHOLD IN AN with electronics to companies like Gen- ELECTRIC FIELD ABOVE THE GLASS. BUT THEY’RE PRONE TO FALSE TRIGGERS AND DON’T WORK WITH eral Electric, Whirl- WET HANDS OR GLOVES. INSTEAD, ALSENTIS HSS MEASURES DISRUPTIONS IN AN ELECTRIC FIELD CALLED A “TOUCH RECOGNITION ZONE” TO INDICATE WHEN A TOUCH OCCURS. BY CAPTURING THAT DATA, IT CAN pool and Electrolux. DISTINGUISH BETWEEN A FINGER AND A SPLASH OF WATER OR OTHER ACCIDENTAL TOUCH. Apple, of course, CURRENT “CAPACITIVE” TOUCHSCREENS found another way to make its touch wheel. Some 400 Glove million units and $67.5 billion in sales But gloved Sensors later, it is still in use hands can’t interpret break disrupt thin on the iPod Classic. in electric threshold, and Who knows threshold as go undetected. what might have a touch. happened if the talks continued? Glass Glass Caldwell, now 58, his round face framed by shaggy CALDWELL’S HEURISTIC SIGNATURE SENSING (HSS) bangs and rectangular glasses, tries Glove not to dwell on the “Touch missed opporturecognition Even a gloved nity. “You can’t look zone” collects hand has data from back,” he says, sita readable movement and “electronic ting in a nondescript position. touch signature.” office-park laboratory in Holland, Mich. “I did okay.” Glass Glass Caldwell holds more than 30 Mich., an expert in automotive touch conpatents, many on touch technology. His trols, “there’s nobody even close.” TouchSensor switches have been incorMost touch-sensitive products, like porated into millions of control panels, those used in the iPhone and other perfor everything from automobiles to washsonal computing devices, are known as ing machines to beverage dispensers at “capacitive” systems. They sense when and fast-food joints. Still, when Gemtron sold where an object—typically a ﬁnger—breaks TouchSensor to another firm in 2007 for an electric ﬁeld. To trigger a touch signal, just $65 million, Caldwell opted to strike engineers set a very thin threshold, just out on his own. Less than a year later he above the surface of the device, to measure formed a new company, AlSentis, to reincapacitive change. That’s why a light touch vent touch technology once again. is all that’s needed to operate a smartphone. The result, eight years later, is a potenBut environmental factors can wreak tial breakthrough that could transform how people around the world interact with havoc with capacitive systems: Who hasn’t accidentally butt-dialed someone or strugtheir electronic devices. Called HSS (for gled in vain to make a call with wet hands or “heuristic signature sensing”), Caldwell’s patented setup is far more reliable and uses with gloves on? During manufacturing, even the slightest variance, like an uneven layer far less energy than today’s touch systems. of paint or adhesive, or a change in humidIt even works when wet or dirty, and can ity, can affect the circuitry and how a touch be operated with gloves on. panel feels or if it works at all. “From what I’ve seen,” says Bruce BanCaldwell’s breakthrough idea: Do away ter, president of Tech-D-P in Plymouth, 42 | FORBES MAY 25, 2015
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with the arbitrary trigger point in a capacitive system and replace it with a smarter electronic “touch signature” that can detect an actual touch on a real surface. HSS technology uses a larger area above the surface—the touch recognition zone— to capture and process more information from the electric field. HSS measures not only when an object (or finger) breaks the field, but also the speed at which the object is traveling, when it stops, and its final position on x and y axes. By quickly processing all the extra data, it knows exactly when a finger is a finger and when it’s a drop of water or something else and, more important, what data to ignore (no more butt dials). And because it’s not dependent on calibration of an arbitrary threshold, it also works with gloves. For now AlSentis is focused on licensing its technology to replace buttons on cars, industrial equipment and kitchen devices. Touchscreen prototypes for consumer devices are coming later this year. On the new Chevrolet Corvette and Camaro, General Motors replaced the little blue OnStar button on the frame of its cars’ rearview mirror with an HSS switch embedded directly into the glass for a sleeker look. Bauer Products redesigned its keyless entry systems for recreational vehicles using HSS sensors because the old LED-backlit keypads were prone to malfunction when it rained. “Think of all the controls, light switches, machinery, dashboards in cars. We’re really excited,” says Amway heir Rick DeVos, who is an AlSentis investor through Start Garden, his early-stage venture ﬁrm (other investors include Windquest Group and Methode Electronics). The auto industry alone produces 4.6 billion buttons a year. Coca-Cola has millions of vending machines in the U.S., each with 8 to 12 buttons. Caldwell’s aptitude for electronics was evident even as a kid shooting off rockets in Lapeer, Mich., about an hour north of Detroit. In high school he griped about taking math and science—until he got to physics, “because now I know what it’s all about.”
After graduating in 1975, he joined the STAT SHEET Navy, where a recruiting test pegged him to work on a nuclear-powered vessel. He made the most of it, LYING LOW learning all he could about energy, Skyscrapers? Yeah, height is cool. electronics and microprocessors, But in Silicon Valley, today’s businessbuilding boom is largely horizontal— which were just emerging. and packed with park space. When he left the Navy in 1981, he married and resettled in Michigan, working on rainsensing windshields for General Motors. He later jumped to GM supplier Donnelly, where his interest in thin film sensors really took off. But Donnelly was APPLE CUPERTINO, CALIF. less interested, so Caldwell left, SQUARE FEET 2.8 million determined to make the sensors COMPLETION DATE 2016 FOUR-STORY, SPACESHIP-LIKE NEW HQ IS REPORTEDLY WAY he’d been working on obsolete. OVER BUDGET. IF COSTS REACH A PROJECTED $5 BILLION, IT’LL BEAT ONE WORLD TRADE CENTER TO BECOME AMERICA’S He created a new company, PRICIEST BUILDING. LET’S HEAR IT FOR HOARDED CASH! TouchSensor Technologies. Finding capital was always a struggle. His father provided the original seed money, and Caldwell had to scramble to find out-of-state investors (he found none in Michigan at the time), GOOGLE eventually selling control to MOUNTAIN VIEW, CALIF. Gemtron to stay afloat. SQUARE FEET 3.2 million AlSentis is his second chance. COMPLETION DATE Undetermined “LARGE TRANSLUCENT CANOPIES WILL COVER EACH SITE, The company says it broke even CONTROLLING THE CLIMATE INSIDE YET LETTING IN LIGHT AND AIR,” WROTE DAVID RADCLIFFE, GOOGLE’S VP OF REAL last year as revenue exploded ESTATE, ON THE COMPANY BLOG. “WE AIM TO BLUR THE DISTINCTION BETWEEN OUR BUILDINGS AND NATURE.” from $123,000 in 2013 to more than $2 million in 2014. With only 15 employees (6 of them engineers), the company won’t manufacture anything. Its business model is to license the technology and outsource manufacturing. It hopes to raise several FACEBOOK million dollars this year in a MENLO PARK, CALIF. SQUARE FEET 434,000 Series A financing round. COMPLETION DATE Spring 2015 “This is so much bigger than DESIGNED BY FRANK GEHRY, FACEBOOK’S NEW 22-ACRE FACILITY BOASTS A 9-ACRE GREEN ROOF. TO GET APPROVAL TouchSensor,” says Caldwell. FOR THE PROJECT, THE COMPANY AGREED TO BUILD 15 LOW-COST HOMES OR CONTRIBUTE $4.5 MILLION FOR LOCAL “There are so many applications AFFORDABLE HOUSING. that want touch. Where we’re standing, the road is wide open.” And who knows? Maybe someday it will lead back to Cupertino.
“All we have to believe is our senses. … If they lie to us, then nothing can be trusted.” —NEIL GAIMAN 44 | FORBES MAY 25, 2015
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Bentley On a Roll Amid chaos at parent company Volkswagen, could the venerable British automaker’s CEO get a second shot at the top? BY MARK EWING
WHEN LAST WE MET Wolfgang Dürheimer in 2012, FORBES called him the “next king of Volkswagen,” a rising star at the world’s secondlargest automaker. Having led VW’s Porsche R&D to previously unimaginable heights—he developed and launched that fountain of proﬁt, the Cayenne—he was moved to sister company Bentley in 2010 to redraw the business plan in the midst of the Great Recession, after two years of collapsing sales and over $400 million in losses. “I joined Bentley at a great time where I could really make my mark,” the 56-year-old CEO says now. Conﬁdent in future growth, Dürheimer had bold plans that included development of an extravagant new ﬂagship— the $300,000 Mulsanne—and by 2011 Bentley returned to proﬁt, just barely. For his efforts, Dürheimer was named head of Audi R&D—in short, “chief engineer.” Then Dürheimer’s career went into a spinout. A culture clash with Audi lifers and a proposed recasting of Audi’s mission ended Dürheimer’s tenure after nine months. Following a short time in what the Japanese call a “window job”— watching over VW Motorsport—Dürheimer was back at Bentley. Such is life at VW these days. Dürheimer’s drama is just a bit part in the Wagnerian Ring Cycle playing out at the automaker, where Ferdinand Piëch, the mercurial chairman of Volkswagen, was recently ousted in a showdown with his presumed successor, Martin Winterkorn. When Piëch publicly humiliated Winterkorn in March, saying he wasn’t up to the task of running the company long term, Winterkorn went 46 | FORBES MAY 25, 2015
to the mattresses with his allies in labor, got the backing of the automaker’s top-level committee and beat his old boss for control of the company. By late April Piëch was gone. Which takes us back to Dürheimer. Despite a 17% jump in ﬁrst-quarter operating proﬁts, sales at the Volkswagen Group are stagnant: The number of vehicles sold was up just 1.8% in the ﬁrst quarter over last year, with proﬁts eked out through cost-cutting. Winterkorn’s push to grow in the hot U.S. market (where car sales are up almost 6% so far this year) has been a disaster, down 1.4% through the ﬁrst quarter, following a 2% decline in sales last year. Increasingly, VW’s stable of luxury brands has become its proﬁt center, especially Porsche and Audi. To stay on top, Winterkorn will need to keep it that way. That’s good news for Dürheimer. Under his command Bentley sold just over 11,000 vehicles in 2014, a new record, and turned a proﬁt of $191 million. Next year he’ll launch Bentley’s ﬁrst SUV, the Bentayga, initially with a W12 engine and then with a hybrid powertrain. “By the end of the decade 90% of our range will offer hybrid capability,” he says. And more new models are on the way. Among the most glamorous unveiled at the Geneva Auto Show in March: the Bentley EXP 10 Speed 6, a two-seat hybrid concept car named after the 1920s Bentley Speed 6 that won at Le Mans. Coupled with his time at Porsche, Dürheimer’s performance now makes him the favorite to lead all four sports-luxury brands at VW: Bentley, Bugatti, Lamborghini and Porsche. It’s a powerful throne in the postPiëch era—but for his sake let’s not call him the next king of anything just yet. F
Bavarian Bentley Boy: CEO Wolfgang Dürheimer believes the company’s future lies in hybrids, like the Bentley EXP 10 Speed 6 concept (below) and the forthcoming SUV, the Bentayga.
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TECHNOLOGY TRANSFORMATIONAL TECH hackers out to make a quick buck. It’s called PunkSPIDER, a remarkably simple search engine that scans the whole Web for vulnerabilities that snoops and crooks might exploit to steal data, and makes these exploits accessible to anyone—for free. Call it the Google for the broken Web. Because of the time and cost constraints of running constant scans, Don’t be evil: PunkSPIDER has Alejandro Caceres and been limited to one Amanda Towler are not in this for the money. scan a year (though that’s set to change this year). During the last scan in May 2014, PunkSPIDER’s code ran for four days on cloud servers to test, or “fuzz,” more than 98 million websites If you could expose every flaw on every website, all at once, by ﬁring junk data at wouldn’t that be a good thing? Not everyone agrees. them to see if errors occurred, the ﬁrst BY THOMAS FOX-BREWSTER sign of a potential acker culture is dying. A scene weakness. That ﬁrst fuzz, Caceres says, turned that used to be replete with up a large yet “depressingly predictable” numanticorporate sentiment and ber of vulnerabilities, 3.4 million in total. profreedom ideals is being sold The next scan, which will run in late May, out by cybersecurity capitalwill be bigger and badder than the last, coverists more concerned with making a quick buck ing more sites and additional varieties of Web selling ways to exploit websites and phones vulnerabilities. It will even extend into sites than actually protecting Web denizens. That, at hosted on the so-called “dark Web,” where least, is how Alejandro Caceres sees it. Caceres drug dealers and human rights activists alike is the 30-year-old cofounder of a software ﬁrm use the Tor network to anonymize their identicalled Hyperion Gray, which he started with ties by routing them through layers of servers. his girlfriend and business development partThere are plans to have the scanner running ner, Amanda Towler, in their poky Arlington, daily, too, which will keep the data up to date. Va. apartment. Spreading the knowledge that a vulnerabilCaceres’ opinion wouldn’t be all that inity exists is leaps away from teaching people ﬂuential but for the fact that he and Towler how to use it to break into a Web app. (The have unleashed an epic feat of revenge against real cybercriminals are already using more
The Google For The Broken Web
48 | FORBES MAY 25, 2015
JAMEL TOPPIN FOR FORBES
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TECHNOLOGY TRANSFORMATIONAL TECH Over the last two years Caceres and Towler have worked to improve on PunkSPIDER’s rough, early appearance. The Web page, punkspider.org, is now as clean-looking as Google’s search page, with a bar for whole addresses or just part of the URL. If you want to reﬁne your results, there are buttons to specify a range of common Web vulnerabilities to search for. Sites are given a ranking from 0 to 5. Caceres says you shouldn’t visit a site with a score of 2 and above. A search for ebay.com, for instance, with all buttons clicked, brings up two pages of results for various apparent ﬂaws across the site. Prior to PunkSPIDER, a business could get this kind of security assessment only by paying tens of thousands of dollars to a professional ﬁrm as part of a wider penetration test. “Security should not be just for the upper echelons. We really believe this information should be made freely available,” says Towler. Even as some government and law enforcement agencies look askance at the duo behind PunkSPIDER, others have been keen to avail themselves of their skills. Caceres’ crew won a role on the Memex program funded by the Pentagon’s Defense Advanced Research Project Agency (DARPA). Memex produces highly customizable search tools to better illuminate both the dark and standard Web, and led to convictions last fall of human traffickers by studying their activities online. Hyperion Gray has been adding doses of artiﬁcial intelligence to Memex so it can mimic human interactions with websites, such as opening drop-down menus or hovering over interactive elements. Memex has been getting contracts from police forces, though they can’t say which, who want better search tools to help catch “the most heinous” criminals, says Caceres. Towler and her partner, who now work out of Concord, N.C., know they could make a bundle in search. “We just don’t care. We’d rather keep this project as something we enjoy, something that isn’t sleazy and provides an important service for the community,” Caceres says.
“True computer hackers follow a certain set of ethics that forbids them to profit or cause harm from their activities.” —KEVIN MITNICK 50 | FORBES MAY 25, 2015
GADGETS WE LOVE BUG WITH A PLUG
sophisticated tech to scan for weaknesses, albeit on a much smaller scale.) Nevertheless, PunkSPIDER initially spooked the security police. Just before their February 2013 $10,000 Kickstarter campaign to fund the search tool’s development, Caceres and Towler presented their baby at the SchmooCon security conference in Washington, D.C. Caceres opened the ﬂoor to questions, and, halfway through, one of the attendees told him to get a lawyer. Without proper authorization from website administrators, such scans can potentially breach the U.S. Computer Fraud and Abuse Act, as security researchers have frequently warned. Just weeks after the SchmooCon unveiling, Caceres was contacted via e-mail by a member of the U.K. government team responsible for securing a number of its Web domains. They warned of “exposing yourself to a huge amount of risk for a relatively minor reward. ... Please be careful as there are some very legally hostile sites you will be probing.” One company that owns proxy servers through which the PunkSPIDER crawler has traveled claimed to have been contacted by federal authorities about the suspicious activity. Towler admits they were scared. “We ended up talking to the Electronic Frontier Foundation about it, how best to manage this, how not to get arrested,” adds Caceres. The EFF, an advocacy group for an open Web, offered some advice on how to stay within the conﬁnes of the law. It appears to have worked, as Caceres has had no serious legal threats since launch. PunkSPIDER is part of a broader “massscanning” movement that includes tools such as Masscan, Shodan and Critical.io that use brute force to peel away the facade of security across the Web. Meanwhile, Google, Facebook and others have set up sizable bug bounty programs, with prizes as high as $33,000 at Facebook and $20,000 at Google. Caceres is also hopeful that PunkSPIDER, by turning these ﬂaws up for free, will be an even better deterrent to the vulnerability black market, where researchers are selling previously unknown exploits to the highest bidder (sometimes crooks, sometimes law enforcement) at prices as high as $100,000.
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SMARTER, SHARPER WORKPLACES WITH VIDEO INTELLIGENCE You do not normally hear the terms “business intelligence” and “video surveillance” used in the same sentence. However, things have changed, and organizations are starting to look at video data captured by surveillance systems as another source of business insight. Why? The quality of surveillance video has become sharper. Surveillance systems have become smarter. Total cost of ownership has decreased. Today, the latest video surveillance systems can deliver outcomes that extend far beyond security to the bottom line, and they are now poised to change the ways organizations do business. Simply put, video surveillance has come to big data. Jon Cropley, a video surveillance industry analyst at IHS, says the function of video analytics has been primarily limited to security as a means to constantly monitor footage and alert personnel when a suspicious event occurs, thereby both predicting and preventing security incidents. However, it’s only recently that the industry has begun to modernize and leave low-resolution analog cameras behind. “Analog systems were the norm until around 2007, mainly because highdefinition systems had high costs associated with storage and bandwidth, and that kept the industry lagging,” says Avigilon’s Bryan Schmode, Chief Operating Officer at the Vancouver-based business intelligence and security solutions company. “When we introduced our high-definition solutions, we changed all that.”” ity solutions, Avigilon provides end-to-end security leading the industry in its innovativee use of technology since its introduction of the industry’s first 11 MP camera in 2006. Its patented High Definition Stream Management (HDSM)™ technology enables customers to enjoy the benefits of HD—sharpness and clarity—while shedding the cost burden of storage and network bandwidth that HD normally brings with it.
“Analytics goes beyond that as well,” says Avigilon’s Chief Technology Officer, Dr. Mahesh Saptharishi. “Intelligence through analytics converts a sensor platform from being a passive observer of the physical world, into a means of interacting with your physical environment in a very different way.” In the smart workplace of the future, he says, with cameras and sensors dedicated to digitizing and understanding the physical world, collaboration is a seamless experience. All meetings and interactions can be recorded and indexed on-demand, and the physical and cyber worlds are equally and jointly searchable—so it will be a simple matter to pull up last week’s strategy session and see exactly what was discussed or written on the whiteboard. “So with video analytics, the goal is to make the physical environment a sensory and computational extension of its occupants.”
“Video content analysis brings information from the physical world into the realm of big data.”
Avigilon combines the clarity of HD and the insight from analytics to deliver an extremely powerful solution for security and business. Cropley agrees that many of the algorithms developed for security can serve a dual purpose: the algorithm that could be Bryan Schmode used to alert authorities to loitering vandals in a city Chief Operating Officer, Avigilon also works to alert the sales staff to the lingering customer in need of assistance.The challenge, he says, is in getting organizations to understand that much of their existing video security infrastructure can be applied to service “Video content analysis brings information from the physical world into business objectives as well. the realm of big data,” says Schmode. “There’s a tremendous opportunity to impact business outcomes and enhance decision-making.” Video analytics, for example, could allow brick-and-mortar stores to measure and monitor customer behavior in real time—just as their online counterparts already do. It could enable workplaces to analyze employee gait and posture to provide an objective measure of morale and productivity. We might see shipping facility managers, those responsible for keeping loading times low, rerouting traffic when their video analytics alerts them that queues are too high, or retail staffing reallocated to assist customers whose location and behavior—captured by video surveillance—“predicts” they will be important and significant buyers.
Analytics solutions can make use of existing camera infrastructure, even bumping up images from analog cameras to a higher quality resolution. Return on investment can be almost immediate—as much as $800,000 within 90 days, in the experience of Chad Gordon, an integrator at Blue Violet, an Avigilon partner. “The whole goal is to make an existing paradigm more efficient, solving problems and creating a clearer ROI,” says Saptharishi. “All with the intent of helping the customer make better, faster decisions, and putting more money in their pocket.”
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TECHNOLOGY THE FUTURE OF WORK
Nice Guys Hire Better High-flying tech companies face constant staffing challenges. Airbnb’s process kills the chaos.
AFTER GRADUATING from college in 2005, graphic designer Joe Gebbia traversed the East Coast, hunting for a job. Despite obvious talents, nobody wanted him. Now the cofounder of Airbnb—the “sharing economy” icon expected to raise money soon at an astounding $20 billion valuation—is a 34-year-old billionaire. Gebbia has been rethinking how his ﬁrm approaches hiring. Last quarter Airbnb got 50,000 applications for just 300 jobs. Expand a business that fast and it’s hard to keep the little stuff running well. (Dig back far enough on the career site Glassdoor.com and there’s a post by a disappointed Airbnb job-seeker recounting a series of “disorganized” Skype calls with recruiters, in which “not a single one looked at my résumé.”) Big salaries and lavish perks are required to mask the reputational damage. Gebbia began feeling uneasy about the company’s HR “blind spot” in 2011, when Airbnb surged from 50 employees to 500. Job interviews weren’t happening on schedule. And when they ﬁnally took place, strong prospects were left in limbo for weeks. Candidates were so irritated that when Airbnb ﬁnally did make job offers only 50% to 60% said yes. (Most companies aim for rates of at least 75%.) So Gebbia pushed the old-fashioned virtues of timeliness, clarity and courtesy. “Everything at Airbnb is a continuation of what it’s like to be a guest in somebody’s house,” he says. “We think about how each stage makes people feel.” Step into the recruiting quadrant of Airbnb’s big, open-plan workspace and the ﬁrst thing you see is a 10-foot-long storyboard showing the ten key stages of hiring. (Two of Airbnb’s founders graduated from the Rhode Island School of 54 | FORBES MAY 25, 2015
Design, so they create Walt Disney-style storyboards with the same zeal that management consultants have for PowerPoint.) Each stage shows the steps to be taken and a few words about candidates’ desired mood. Terms such as “prepared” and “feeling loved” abound. It’s no longer tolerable for Airbnb’s interviewers to postpone candidate reviews until weeks after the in-person interviews. Wellthought-out decisions within two or three days are mandated. A cheery tone helps, too. Airbnb now pairs each candidate with a recruiting coordinator: a well-paid, amiable staffer who ensures that the small moments go well, such as an e-mail heads-up about parking directions. Something as simple as Airbnb’s eagerness to bring him a glass of water before a key interview made a big impression on Matt Ziskie, a global travel manager. He joined within the past six months. But not every gesture pays off. Recruiter Laura Terheyden recalls sending one star engineer a custom-designed Airbnb onesie for his infant son. “I got a lovely thank-you note, but he chose to work somewhere else,” Terheyden ruefully recalls. Overall, according to Jill Riopelle, Airbnb’s head of recruiting, the storyboarding exercise underscored the importance of moving briskly. Airbnb’s job-offer acceptance rate for engineers has climbed to 80%, the kind of ﬁgure that helps the company win tussles with the likes of Twitter and Uber. F
Airbnb cofounder Joe Gebbia’s formula for wooing recruits: custom onesies and prompt thank-yous.
TIMOTHY ARCHIBALD FOR FORBES
BY GEORGE ANDERS
ENTREPRENEURS ALTERNATIVE FINANCE
Kabbage CEO Rob Frohwein won’t give you a loan just because you have a lot of Facebook likes, but it helps.
The Six-Minute Loan Banks still aren’t making enough small-business loans, so Kabbage is quickly filling the void—at crazy high interest rates.
hen Jennifer Kirk, who owns Posh Puppy Boutique, a pet grooming and supply shop in Rocklin, Calif., had an opportunity to expand her business last year, she turned ﬁrst to her bank, which made her wait three weeks before rejecting her loan application. Then she learned about Kabbage, which let her apply
56 | FORBES MAY 25, 2015
online—linking directly to her bank, PayPal and QuickBooks accounts (as well as her social media feeds)—and then ran an automated program to assess her creditworthiness. Six minutes later she had an answer: She was approved to borrow up to $50,000 on a sixmonth loan, and she could transfer part or all of those funds to her PayPal account whenever she needed them. “The money was instantly avail-
EVAN KAFKA FOR FORBES
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ENTREPRENEURS ALTERNATIVE FINANCE able to me,” says Kirk. But at a price—an annual percentage rate of about 27%. Today Kabbage offers borrowers lines of credit for as much as $100,000, with loans payable over six months. The average line of credit is $25,000, and the average borrower takes seven or eight loans a year, totaling $50,000. Since its start in 2009, the company has lent more than $750 million to small businesses, and it expects to lend $1 billion in 2015. It also expects to be proﬁtable this year, with revenue exceeding $100 million, up some 200%. Those numbers put Kabbage among the leaders of the increasingly crowded ﬁeld of alternative lenders, says Smittipon Srethapramote, a vice president at Morgan Stanley, who researched the space prior to the initial public offering of OnDeck, a Kabbage competitor. “It’s well-known that banks have pulled back from making loans to small businesses since the recession,” Srethapramote says. “Kabbage and other lenders have ﬁlled the void.” Not unlike Uber and Airbnb, they have created a largely unregulated industry that is making a lot of money. The seeds of Kabbage, founded in 2008 and based in Atlanta, were sown by Rob Frohwein, an intellectual property lawyer. Now CEO, Frohwein saw how much data were becoming accessible via the cloud and that companies like eBay and PayPal were providing application programming interfaces, or APIs, that a lender could use to get real-time access to a business’ customertransaction data. Kabbage, Frohwein says, put the two concepts together. Before starting the company, he called Kathryn Petralia, who worked for a ﬁnancial services ﬁrm and was an expert in credit and payments, and Marc Gorlin, a serial entrepreneur with venture capital connections. In 2009 the three cofounders created a plan to ﬁnance Kabbage with venture capital, but a road trip to California proved fruitless. Instead, they raised $500,000 by issuing a convertible note, and after hiring employees and leasing office space, they got $1.5 million from a group of 45 angel investors. They made their ﬁrst 100 small-business loans in 2010. That December Kabbage closed its ﬁrst venture round and has since developed relationships with Silicon Valley Bank, Victory Park Capital and now Guggenheim Partners to provide the capital it loans out. One reason Kabbage has been able to attract capital is its loan default rate. Even though it can assess applicants in minutes and never demands 58 | FORBES MAY 25, 2015
THE ALTERNATIVE BANKERS The so-called alternative loan industry has exploded to take advantage of a gap in small-business funding. These options tend to be more automated, more convenient and more expensive. CASH ADVANCE/SHORT-TERM ONLINE LOAN A variety of ﬁrms lend or advance cash against a company’s revenue or credit card transactions. The money is repaid through incremental payments extracted automatically from a company’s bank account. Beneﬁts: Fast turnaround, poor credit scores not a problem. Drawbacks: Higher cost, shorter terms. Examples: CAN Capital, Merchant Cash & Capital, OnDeck. Typical cost: Fees can range from 30% to 200% APR.
LINE OF CREDIT Unlike a term loan, a line of credit can be drawn against when the need arises. Beneﬁts: Interest is paid only on the amount taken; cash can be available quickly. Drawbacks: The line can be revoked or changed at the lender’s discretion. Examples: OnDeck, Kabbage, Headway Capital. Typical cost: 7% to 80% APR.
TERM LOANS Similar to bank loans. Beneﬁts: Longer terms and larger amounts are available. Drawbacks: More expensive than bank loans. Examples: Funding Circle, Lending Club, Fundation. Typical cost: 6% to 30% APR plus fees.
CROWDFUNDING A way to raise money from lots of small contributors. Beneﬁts: When it works, it can be straightforward. Drawbacks: Can be as challenging as traditional channels. Examples: Kickstarter, Indiegogo. Typical cost: 4% to 5% plus processing fees.
MARKETPLACES Small-business lending marketplaces gather multiple options in one place. Beneﬁts: Easy comparisons, ability to pitch multiple lenders at once. Drawbacks: Process can take longer because marketplaces don’t lend their own capital. Examples: Lendio, Fundera. Typical cost: Lenders pay ﬁnder’s fee.
a personal guarantee, Kabbage says its loans are as likely to be repaid as those of traditional banks, which routinely take weeks to make a decision. Frohwein says Kabbage targets established businesses rather than startups, with its automated model assessing three factors: capacity to repay, character, and the consistency or stability of the business. “We believe we get to know a small business better by being connected to their data sources electronically than any loan officer can do by sitting down at a desk with the borrower,” says Frohwein. He says Kabbage incorporates nontraditional metrics, such as a company’s Twitter or Facebook followers, as well as the online reviews its customers post, as a way to round out an applicant’s story. “You won’t get a loan because you have 7,000 likes on your Facebook page,” he says. “But we might increase the cash available to you if you have an active social media follow-
ENTREPRENEURS ALTERNATIVE FINANCE ing because it establishes the credibility of your business with its customers.” Before she connected with Kabbage, Jennifer Kirk went to her local bank, where she had a business checking account and a personal savings account, and where it took her several hours to ﬁll out a loan application. She had to apply in person, she had to supply three years of tax returns—which showed she had made a proﬁt every year—and she had to produce copies of her husband’s pay stubs. When the bank ran a credit report, she says, her score topped 700. Three weeks later the bank responded: denied. “They said I was too risky,” Kirk says. But it’s rarely just about risk. Brock Blake, CEO of Lendio, an online marketplace that connects small businesses with an array of lenders, says banks make more money with larger loans to larger organizations over longer periods. The result, Blake says, is a small-business funding gap—especially for amounts in the $25,000 to $55,000 range. And that’s the void alternative lenders like Kabbage target. This has led to a booming industry, with new players arriving all the time, from startup peer-to-peer lenders like Prosper to spinoffs from companies like Amazon, PayPal and Square. “We like to joke that the Girl Scouts of America are about to give up on cookies to get into the small-business lending business,” says Frohwein. With all of that credit available, many businesses have gotten in over their heads because they didn’t realize the full price they were agreeing to pay. The fact that the loans are for short terms can disguise how expensive they are. Ami Kassar, CEO of MultiFunding, a loan broker based near Philadelphia who helps businesses obtain alternative loans when he thinks they represent the best option, says alternative loans typically have an annual percentage rate of 40% to 60%. Jay Goltz, an entrepreneur and small-business advocate in Chicago, was recently asked to evaluate alternative lenders on behalf of the city. He contacted several, posing hypothetical borrowing scenarios, and was shocked by what he heard. “Some of these guys make used-car salesmen look good,” says Goltz, who calculated that one lender was charging as much as 150%. “I don’t know how any business could
grow fast enough to pay off that kind of loan.” Still, Goltz says alternative loans can work. “If you have a big opportunity, and you need to buy equipment or inventory that will help your business grow and return a positive ROI,” he says, “then a loan like that can make sense.” Srethapramote of Morgan Stanley says he was surprised to learn that two of the top small-business groups that turn to OnDeck are doctors and dentists. “These are professionals who would rather pay a premium for the convenience of applying for a loan online and getting funded in a day or so,” he says. Frohwein says that Kabbage prides itself on being transparent about the cost of its loans, which carry an average annual percentage rate of 40%. He said the rates range from 1.5% to about 20% for the ﬁrst two months of the loan, depending on a variety of risk factors and how long the cash is kept, and then drop to 1% for each subsequent month. He adds that Kabbage doesn’t charge hidden origination or maintenance fees and that customers pay interest only on the money they borrow and can pay less if they pay back their loans early. After Jennifer Kirk was approved by Kabbage, she decided she needed about $30,000, which she took with several withdrawals. She used the money to open a pet-grooming salon to supplement her retail operation, leasing space, buying new equipment and hiring additional employees. Kabbage typically charged her 2% of the loan amount for each of the ﬁrst two months, and then 1% for each of the additional four months, for what Kabbage says is an annual percentage rate of about 27%. “While APR is a consideration, most of our small-business customers are focused on the return they’ll get from a loan,” says Frohwein. “Also, over time we drop the rates and increase line availability for customers that demonstrate positive repayment behavior.” Kirk acknowledges that getting credit was expensive but says it was an easy decision given that no bank would lend her money to expand. In fact, she says, her revenue is up 21% so far this year—with the ﬁrst month’s boost in sales enough to cover the cost of her capital. “I needed money to make money,” she says.
“ ‘Credit’ comes from the Latin ‘credere,’ ‘to believe,’ for credit is the belief that the money you’re borrowing will someday be returned.” —ROBERT ROWLAND SMITH 60 | FORBES MAY 25, 2015
TRENDING What the 70 million Forbes.com users are talking about. For a deeper dive go to FORBES.COM/ ENTREPRENEURS
JOE WANG The turnaround vet has a new challenge: Turn tiny TreeHouse Interactive, a relationshipmanagement company, into a giant. He’s sanguine: “I’ve grown companies to over $100 million in revenue more than once.” COMPANY
RISE ART It’s bringing a “try before you buy” policy to what you hang on your walls. Whether it’ll make even a pointillist pinprick in the $57 billion art industry is an open question. IDEA
THE ON-DEMAND ECONOMY Looking for extra income? You might be able to rake in $200,000-plus with Uber, but 56% of online, on-demand workers make $40,000 or less annually.
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THE LINDE GROUP The Linde Group is the world’s largest gases and engineering company. Now it is also one of the top 500 companies on the 2015 Forbes Global 2000 list. Linde is renowned for its quality, innovative product solutions and close ties with its customers. In an interview with Forbes Custom, CEO Dr. Wolfgang Buechele explains how the company intends to sharpen its unique profile and further extend its market leadership.
“We believe in talking to our customers to find out exactly what they need, and then turning those needs into solutions that fit to perfection.” —DR. WOLFGANG BUECHELE CEO OF THE LINDE GROUP
Dr. Buechele, how would you describe Linde in three sentences? The Linde Group is a world-leading technology company specializing in gases and engineering. Over its 135-year history, the group has built up vast and proven experience in the planning, procurement, construction and operation of gas-generation and processing plants. In addition, Linde is a trusted
Linde technology in modern food production. Today, cryogenic cooling and freezing is a proven process that helps maintain quality.
supplier of gases to customers of all sizes across almost all branches of industry, trade, research, science and medicine.
As the market leader, you face stiff competition from around the globe. What makes a prospective customer choose Linde? Our employees show an exceptional level of dedication, expertise and passion for our
company. It’s this energy that has made us a true global player in the gases and engineering business. This is something that our customers also appreciate. In the future, we want to harness our innovative drive even more effectively to create customer-centric solutions and applications. We believe in talking to our customers to find out exactly what they need, and then turning those needs into solutions that fit to perfection.
Welding and cutting are among Lindeâ€™s top strengths. Linde products, hardware and services make manufacturing processes more efficient and environmentally friendly.
FAST FAC TS
The Linde Group Active in more than 100 countries worldwide r3FWFOVF US$18.1 billion r0QFSBUJOHQSPĂąU US$4.1 billion r/VNCFSPGFNQMPZFFT 65,500 r#VMLEFMJWFSJFTQFSZFBS >2,000,000 r1MBOUTDPNQMFUFEBSPVOE UIFHMPCF >4,000 r1BUJFOUTTVQQPSUFEXPSMEXJEF 1.4 million
customersâ€”which products and services deliver real added value, thus setting us apart from the competition. That is ultimately what it all comes down to, and therefore is the guiding force for our actions.
What can we expect from Linde in the future? Linde is working on a host of forward-looking projects. We want to drive the expansion of hydrogen infrastructure and make zeroemissions mobility a reality todayâ€”not just a dream for the future. On a different front, we are already working closely with customers on the development of resource-efficient applications: for example, in the steel and chemical industries. In addition, our intelligent valve will enable us to improve our logistics processes and further enhance convenience and safety levels for our customers.
In other words, the customer is critical to everything you do. What exactly does that entail?
Linde is also active in the medical gases business. With the acquisition of Lincare, you took on the U.S. market leader in the homecare sector. What are your plans in this market?
More than ever, we have to put ourselves in our customersâ€™ shoes and ask ourselves every day what they actually want and how we as a company can respond to those needs. We need to find out what we can offer our
Healthcare is a global growth market that is being shaped by changing demographics. An aging population means the number of patients with chronic respiratory conditions in particular continues to riseâ€”and with it
the need for medical care and support services. Acquiring Lincare in 2012 put us in an excellent position in the U.S. market. We can use this as a springboard to further develop our business model on a global scale. We are firmly committed to innovating for the benefit of our customers. After all, our products have the potential to improve quality of life for millions of people.
What does Lindeâ€™s listing as one of the top 500 companies on the 2015 Forbes Global 2000 mean for you? Itâ€™s certainly an honor and an accolade. But it is also an incentive. Itâ€™s easy to move up, but we want to stay at the top in the long term and be the undisputed number one in our industry. We also want to leverage our position of strength to drive further growth. Q
For more information, visit linde.com
INVESTING FIXED INCOME
An Imminent Disaster For Bondholders? Loomis, Sayles’ Dan Fuss has almost $5 billion positioned for a credit market tornado. Read this before putting money into bonds. BY WILLIAM BALDWIN
hat insanity has overtaken bond buyers? Vainly seeking safety in diversiﬁcation, they gobble up international bond funds with dismal yields. They chase performance, not realizing that momentum works in reverse in ﬁxed income. Desperate for yield, they sit still for rotten deals from junk bond issuers. This is a disaster waiting to happen. Daniel Fuss, comanager of the Loomis Sayles Bond Fund, is ready for it. He’s got $4.8 billion of ultrashort bonds burning a hole in his pocket. The fund is extraordinary in two ways. Since Fuss opened it 24 years ago, this mix of junk and high-quality bonds (with a sprinkling of convertibles) has delivered a 9.7% compound annual return. That means he turned a dollar into $9. The return is ahead of the return on either a pure junk or a pure quality index and two points a year ahead of a 50-50 blend. The other noteworthy aspect of the fund is how far it veers out of the baseline. Most bond managers choose to (and, in the case of index funds, have to) stay close to the market composite. Fuss and a changing cast of comanagers
IF HISTORY REPEATS THE YIELD JUST RETOUCHED A 2% LOW. OMINOUS. 16% 14 12 10 8 6 4 2 0 1871
YIELD ON 10-YEAR U.S. TREASURY BONDS. SOURCE: ROBERT SHILLER, “IRRATIONAL EXUBERANCE.”
64 | FORBES MAY 25, 2015
(currently Matthew Eagan and Elaine Stokes) aren’t afraid to stick out, at the moment with an extremely defensive posture. That is costing their investors money in the short term. The fund’s 20% near-cash position earns nothing. Another 36% is in bonds due in ﬁve years or less, and those bonds earn next to nothing. Result: Over the past year the $24 billion fund has eked out a return of 1.8%, three points behind the Barclays U.S. Aggregate Bond Index. Why ﬁght the tape? Because, Fuss ﬁgures, the probability of an interest rate rise is 80%. A correction would allow him to make up lost ground by acquiring cheap bonds from desperate sellers. “If the weather forecaster says conditions exist for a tornado, I’m going to be in the shelter,” says this midwestern native. “We have built a buying reserve. We’ll be happy we have it should a tornado land in the area.” Fuss has seen plenty of bad weather during his 57 years in the credit business. But “I’m basically an optimist,” he says, recalling the portfolio’s 18-year average maturity in its early days. For this optimist the fund’s recent 6.6-year maturity represents a dramatic shift from risk-taking to preserving capital. (That capital belongs primarily to institutions. In 1996 Loomis opened the fund to retail buyers, at an expense ratio of 0.9%; among the latter are a lot of Fuss’ relatives, including a teenage great-grandson.) Around the globe savers are nonchalantly absorbing debt issues that look absurd to people old enough to remember what a bond bear market looks like. Mexico just ﬂoated a security due in 2115 and paying 4% in euros. “A country issuing a 100-year bond in another country’s currency?” Fuss asks. “History has been unkind to that kind of transaction.”
Bond manager and sometime optimist Dan Fuss.
JASON GROW FOR FORBES
MAY 25, 2015 FORBES | 65
INVESTING FIXED INCOME with such terms, Fuss says. They keep weak borrowers on a short leash. Fuss says he learned a lot in his ﬁrst job out of the Navy in 1958, working for Arthur B. Kohasky at the Wauwatosa State Bank in Wisconsin. Kohasky ran the bank for three decades and, well into his 90s, would haunt the loan department looking for signs of sloppy underwriting. He made it his business not just to know his corporate customers but to help them make a sale if that was necessary to collect on a loan. Fuss takes risks on borrowers, but only after nitpicking analysis of the sort that would have made Kohasky happy. It helps that Loomis, Sayles (a Natixis subsidiary of which Fuss is vice chairman) has 49 credit analysts on staff. They had Fuss buying bonds from Ford when the market assumed that Ford would join General Motors in bankruptcy court. He got Irish bonds at fat yields during the meltdown. Not every such speculation works out. Fuss admits to acquiring, before the ﬁnancial crisis, some of the doomed preferreds from Fannie Mae. He’s adding few junk credits to the collection now. “Are you getting paid fairly for the risk? Absolutely not. Credit standards have weakened,” he says. After stints in money management and ﬁnancial research, Fuss joined Loomis as a portfolio manager in 1976. It was in the middle of the worst decade ever for bonds. Fuss saw a bottom too early, acquiring long bonds for clients in 1979. But he still had some buying power two years later when the U.S. Treasury slapped a 15¾% coupon on bonds going to auction. Advice to bond buyers from Dan Fuss. That auction, in SeptemDon’t trade. Even institutional buyers get killed by bid-ask spreads. ber 1981, represented a historic Only exception: coupon Treasurys. turning point in interest rates. Avoid junk. Especially the covenant-lite stuff that is coming out now. This year, as the yield on 20-year Buy TIPS direct. If you must own inﬂation-protected bonds (yields Treasurys dipped to 2%, there are meager), buy at a Treasury auction to avoid the nasty spreads. may have been an epochal turn Stay in North America. Japanese and European yields are ridiculous. in the other direction. Beware ETFs. The liquidity of exchange-traded funds will evaporate At 81 Fuss has 20 years to go in a crash if they own junk or emerging market bonds. to surpass his Wauwatosa idol in Hold some cash. Put it aside to use in the next ﬁnancial crisis. longevity. He’s patient. So what Look for discounts. A corporate bond trading at 90 cents on the if cash yields nothing? “You grit dollar won’t be called away in the rebound. your teeth and have lower income for a while,” he says.
Then there is the avid buying of developedmarket government bonds, despite low (in some cases negative) yields. Investors have plunked $36 billion into the Vanguard International Bond Index fund, which has three-fourths of its assets in Japan and Europe. They may have persuaded themselves that this kind of diversiﬁcation gives them shelter from a bond crash. Or worse, they may think that the hot performance (total return over the past year: 7.5%) will go on. Momentum in bonds? Banish the thought, says Fuss. When bond prices go up, yields go down. That doesn’t raise your expected return, it lowers it. The Vanguard fund yields 0.8%. This pathetic number, not the past performance, is the best gauge of future returns. In the U.S. market irrational exuberance is most visible in junk. Junk bonds can be rewarding during economic expansions. But even in the best of times they are tricky because a corporate borrower usually reserves the right to call in a bond early. It will do that if its business improves and it can reﬁnance at a lower rate. For the investor it’s a lopsided proposition. Tails you lose (in a default), heads they call the whole thing off. Add to call risk another problem that has crept into junk of late: Exploiting the public’s thirst for yield, corporations are issuing bonds with covenants that allow more debt to be added atop the junk issue and/or give the borrower free operating rein as it slides into insolvency. Banks lending to corporations do not put up
SEVEN PILLARS OF WISDOM
“Why should we look to the past to prepare for the future? Because there is nowhere else to look.” —JAMES BURKE 66 | FORBES MAY 25, 2015
GO CONSIDER STOP
TECH’S IN EFFECT Pre-IPO bets on Facebook, Twitter and Yelp paid off for Kevin Landis’ $190 million Firsthand Technology Value Fund. Much of his focus is on private companies, but here he casts his gaze upon the public markets.
NETFLIX Stock goes for 145 times earnings, so you can’t make a valuation argument, but to be on the right side of cord-cutting and streaming, it’s the purest way to play.
ROCKET FUEL Ad shift to digital and mobile is powerful, but investors have grown skeptical. Rocket Fuel shares have been cut in half this year, but it has good tech for those who want in. Not for the faint of heart.
1990S TECH STARS Microsoft, Intel, HP and their ilk had great success and make investors comfortable. The risk isn’t that you’ll lose everything; it’s that your money will be stuck in a holding pattern.
OUTSIDE-THE-BOX THINKING TO HELP ENCOURAGE INSIDE-THE-LANE DRIVING. The Inﬁniti Q50 with Active Lane Control.*
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Mavericks Secrets of Success High-profile members of Forbes lists will share their insights, advice and personal experiences to help readers enhance their own business performance. Visit www.forbes.com/secretsofsuccess for these stories.
INVESTING KEN FISHER // PORTFOLIO STRATEGY
FIVE MARKET TRENDS YOU CAN BANK ON CONTINUING last month’s format, here are common investor questions from this month:
staples, 10% industrials, 8% energy and 11% everything else. Here are ﬁve fresh stocks I like now to help you toward that end:
“With this bull market now six years old, isn’t it time to be cautious?” It’s caution time when few worry. Bull market length says nothing, by itself, about the future. See my Apr. 14, 2014 column online. Only excess optimism or a gargantuan, unexpected economic problem can derail bull markets. To date we have neither.
While long down on energy because of oil’s oversupply, it’s still 8% of the world stock market. You need to own some, just in case. You want what does well in good and bad basic oil realities— implying a big market, yet governmental protection—which scream for CHINA PETROLEUM & CHEMICAL (SNP, 94), also called Sinopec. It’s huge, cheap and should sport a 4% dividend yield this year. I’ve long loved good drug stocks for this bull market. Ireland’s ACTAVIS (ACT, 283) is lesser known but still a major, basic, second-tier branded and generic player with a wide product portfolio, $23 billion in sales—operating in some 100 countries. It was put together via multiple acquisitions and has yet to hit real proﬁtability—but it will. The stock is of ever more institutional quality and is reasonably valued compared with what it should earn in a few years. Buy it before it soon changes its name to Allergan. Higher end, with fatter gross margins (which I love), glitzier proprietary products and higher organic growth is AMGEN (AMGN, 158). It sells at 16 times my 2015 earnings estimate. With these two druggies a small portfolio can largely emulate the broader drug-stock waterfront. Also fat, gross-margined but German (and I love the whole continent right now) with high quality and moderate growth at a reasonable price is enterprise software giant SAP SE (SAP, 76). As this cycle lengthens and capital expenditures increase, SAP should shine. It sells at 17 times my 2015 earnings estimate with a 1.8% dividend yield. Another cheap capital-expenditures opportunity? Below where it was 8 and 16 years ago, Swiss ABB (ABB, 22) is a $40-billion-sales-size, classic latecycle stock, strong in robotics and industrially oriented power transmission systems globally. With a few breaks this could easily hit $40 this bull market. It sells for 15 times my 2015 earnings estimate with a 3.5% dividend yield. F
“Could a summer Supreme Court voiding of the Affordable Care Act be a huge disaster?” Could! It would take the President trying to end-run the court by executive order, which could create a constitutional crisis, which would have bigger implications beyond health care. Shy of that, ACA is likely a discounted stock market speed bump as it has been almost from its beginning.
BY ITSELF, BULL MARKET LENGTH SAYS NOTHING ABOUT THE FUTURE
THOMAS KUHLENBECK FOR FORBES
“I read so much about the Fed raising rates this year. Is that a problem?” No! Two reasons: First, you read so much about it—so it’s surely largely priced in already. No surprise there. Second, we have a very long history of initial Fed interest rate hikes, and they say simply nothing about future stock returns statistically looking out 30, 90, 180, 360, 1,080 or 1,800 days. “With foreign leading U.S. stocks now, should we dump our U.S. holdings?” Last year folks wanted to do exactly the reverse because the U.S. led. Same logic! My Feb. 9, 2015 column detailed why that was stupid. Those who dumped foreign are whipsawed now. Chasing heat gets you burned. Think global always, and unless you think you’re a lot smarter than everyone else, in which case you won’t take my advice anyway, never let yourself vary too darned much from the world’s big weights—currently 52% U.S., 23% Europe and 25% everything else. The world is your friend—more diversiﬁcation. “Does that same advice apply to sectors?” Absoposilutely! Sectors: 22% ﬁnancials, 14% tech, 13% consumer discretionary, 12% health care, 10% MONEY MANAGER KEN FISHER’S LATEST BOOK IS BEAT THE CROWD (WILEY, 2015). VISIT HIS HOME PAGE AT WWW.FORBES.COM/FISHER.
FORBES MAY 25, 2015
It’s where you’ll make pancakes at 2 in the morning. It’s where you’ll perform epic shower concerts. It’s where you’ll tell her she’s gonna be a sister. It’s where you’ll long to be when you’re anywhere else. But first you have to find it...
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INVESTING JIM OBERWEIS // SMALL STOCKS
RADICAL CHANGE is a fact of life of the analytics equation provided by Google for anyone in the retailing and adverand Yahoo. In February ad giant WPP signed tising sector these days. You can thank a strategic partnership with comScore and technology, which has improved busiwill acquire as much as 20% of the company. ness prospects and efficiency and, at With sales and EPS growth of 17% and 32%, the same time, made it intensely more respectively, shares trade for 26 times my competitive. This month I am focusing forward estimate of $2. on small-cap companies in advertising For retail brands my top pick is Manhatand retailing that are capitalizing on tan Beach, Calif.-based SKECHERS USA (SKX, 90), a maker of branded lifestyle footwear. The these sweeping changes and seizing company surprised analysts in its last two opportunities for rapid growth here quarterly reports with forecasted sales well and abroad. ahead of expectations and a backlog up midBased in Los Angeles, THE RUBICON PROJECT (RUBI, 17) developed technology to automate the buying and selling of advertising. Rubidouble-digits over last year. Demand is parcon reduces the cut of intermediaries and simpliﬁes the exchange ticularly robust abroad: International sales of digital advertising through a proprietary platform that matches are expected to grow from some 35% of rev700-plus premium digital publishers with more than 100,000 digienues today to 50% over the next few years. tal buyers of advertising space, using a real-time bidding auction to Skechers is a powerful brand with a signiﬁoptimize for price and advertiser return on investment. Although cant global expansion under way, and its the ad-tech space is fragmented and competitive, few are as tightly shares understate the company’s true value, integrated with major publishers as Rubicon is. Additionally, Rubicon particularly after you factor in the $5.54 per is viewed by some publishers as the “non-Google” option (competitor share in cash. The stock trades for 18 times DoubleClick is owned by Google). With the real-time bidding market my forward EPS estimate. estimated to grow 50% My last pick is Canadian annually to $20 billion by large-format movie compaIMAX SHOULD SEE 2017, Rubicon is strateginy IMAX (IMAX, 37), known for BLOCKBUSTER GROWTH its immersive motion piccally positioned between IN CHINA ture technologies. IMAX buyers and sellers to grab theaters can be found in some of this money. Shares 62 countries, with almost two-thirds of the trade for 38 times my forward estimate of $0.47, for estimated growth company’s box office revenue derived from of 48% in revenues and 161% in EPS. international sales. IMAX has more than 900 The eyeball migration from TV to online media is also driving theaters in operation and nearly 400 in backbusiness at digital-analytics ﬁrm COMSCORE (SCOR, 52). Headquartered in Reston, Va., comScore is, at its core, a subscription-based research log. China is a big driver for IMAX, where company that tracks the online behavior of more than 2 million users. it is growing at a 40% rate. Within the U.S. In 2012 comScore introduced a cutting-edge digital advertising anathe overall box office in 2015 should beneﬁt lytic called vCE (validated Campaign Essentials), which competes from the wealth effect of lower gas prices directly with Nielsen’s Online Campaign Ratings (OCR). Last year and a better ﬁlm slate compared with last comScore announced that Google would test vCE technology in its year, including features like Fast & Furious 7, DoubleClick ad server and that Yahoo has agreed to a similar deal. Mission: Impossible—Rogue Nation, Avengers With vCE growing at an estimated 35% annual clip, expect the ﬁrm’s 2 and the latest Star Wars ﬁlm. IMAX trades growth to accelerate if, as we expect, vCE becomes an integral part for 30 times earnings. In the next 12 months I expect 25% revenue growth and 60% growth JIM OBERWEIS IS PRESIDENT OF OBERWEIS ASSET MANAGEMENT AND EDITOR OF THE OBERWEIS in EPS. F REPORT. FOR MORE INFORMATION VISIT WWW.FORBES.COM/OBERWEIS. 70 | FORBES MAY 25, 2015
THOMAS KUHLENBECK FOR FORBES
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PROMOTION | BUSINESS AVIATION
Business Aviation Propelling Productivity
WRIT TE N BY
Numerous studies and surveys have revealed that mid-level employees are more often passengers aboard business aircraft than C-level executives. The explanation for this is quite simple: Companies are discovering that business aviation is an essential business tool that provides a host of practical advantages, if not a clear-cut competitive edge. For example, teams of managers can travel from headquarters to distant facilities for on-site decisionmaking. Moreover, companies can adjust travel itineraries in real time, optimizing their ability to service clients and customers, as well as respond to opportunities.
3 PROMOTION | BUSINESS AVIATION
A New Legacy of Business Jets A crowded field of highly capable, state-ofthe-art business jets can fill this vital role for enlightened, enterprising companies, but one of the most widely anticipated is the Embraer Legacy 500, which recently entered service as the world’s most technologically advanced midsize model. The airplane’s clean-sheet design sets the standards for capability, affordability, comfort and reliability. With its $20 million base price, the aircraft actually straddles the gap between the $16 million to $18 million midsize jet category and the $25 million to $27 million super-midsize jet category, even though it shares more in common with the latter. The Legacy 500 can transport eight to 12 passengers approximately 3,000 nm at Mach 0.80, or about 609 mph. It offers the best cabin pressurization in its class—6,000 feet when flying at 45,000 feet, which means greater comfort on long flights. Its main stand-up cabin is equal in height (6 feet) and just 3 inches shy of the length and width of the cabin of the moreexpensive Challenger 300, one of the supersize jets with which it competes. An added feature that passengers will welcome is that the Legacy 500’s fuselage is equipped with 14 of the largest windows in the more-expensive super-midsize class, flooding the cabin and the lavatory with ambient light and making it appear larger than its actual dimensions. Furthermore, the aircraft’s 150-cubic-foot overall baggage capacity is far larger than that of any midsize jet—and it exceeds the storage space available in nearly all other super-midsize jets. In the cockpit, the aircraft is the first jet in its class to replace conventional controls with fly-by-wire. This technology enables a smoother, more natural-feeling flight by translating manual inputs from the pilot electronically rather than mechanically. This reduces pilot workload and creates a smoother flight for passengers. The Legacy 500 also features next-generation avionics, with four 15.1-inch high-resolution displays, advanced power management and highefficiency, fully automated engines, not to mention the Enhanced Vision System and Head-up Display.
Thinking AHEAD The Legacy 500’s many safety and reliability systems aren’t the only features that will provide owner-operators with peace of mind. Embraer Executive Care (EEC)—a comprehensive maintenance program—complemented
Embraer Legacy 500
Embraer Legacy 500 interior
The Embraer Legacy 500 recently entered service as the world’s most technologically advanced midsize model. by the AHEAD (aircraft health analysis and diagnosis) monitoring system, and maintenance tracking, performance and flight operations software, provide all of the tools to keep the jet ready to fly on command. AHEAD consolidates aircraft information from onboard systems and web-based databases, providing owner-operators with prompt support, aircraft usage information
and the ability to anticipate scheduled maintenance. It also allows owner-operators to estimate aircraft utilization, increase their aircraft’s dispatch reliability, optimize fleet operation with up-to-date aircraft positioning, and automatically transmit aircraft data en route to destinations for efficient troubleshooting and maintenance planning. The net result is predictability and a business tool that allows owner-operators to get full utilization of the aircraft. Of course, not all business travelers need to fly across the country or the equivalent distance nonstop, as the Legacy 500 can do. In fact, periodic surveys by the National Business Aviation Association have shown that many companies use a purpose-built business airplane to fly mostly into small community airports that are underserved or have no scheduled airline service at all. Between 2007
5 PROMOTION | BUSINESS AVIATION
The HondaJet design innovatively positions the engines on over-the-wing pylons, which reduces drag at high speed and improves fuel efficiency. It also allows for more generous cabin space and passenger legroom. Another innovation is the application of natural laminar flow technology to the design of the main wing airfoil and fuselage nose, as well as the use of a composite fuselage. These innovations combined enable the jet to achieve a higher cruise speed and the best fuel efficiency in its class compared to competing models, according to Honda Aircraft. En route to their destination, passengers have state-of-the-art audio and video on demand and control of an interactive 3-D moving map at their fingertips. Passengers can control lighting and electrically dimmable window shades at each seat via their personal electronic devices. The HondaJet’s baggage capacity (66 cubic feet) also is the largest in its class, and an externally serviceable private aft lavatory is available. In the cockpit, the aircraft is equipped with the most sophisticated flight deck available in any light business jet. It includes a Hondacustomized Garmin G3000 next-generation, all-glass avionics system composed of three 14-inch landscape-format displays and dual touch-screen controllers. HondaJet is close to receiving final type certification; first deliveries and entry into service will follow.
A HondaJet in the delivery hangar
HondaJet pilot seat
and 2014, U.S. airlines reduced the number of scheduled domestic flights by nearly 20%, with midsize and small airports the hardest hit, according to a study by the Massachusetts Institute of Technology. Under these circumstances, a smaller jet may provide the ideal air transportation solution, as in the case of Honda Aircraft Co.’s HondaJet Model HA-420. The Federal Aviation Administration (FAA) recently granted this newly designed airplane a provisional type certification.
HondaJet Rings In a New Era for Light Jets HondaJet, which currently is on a world tour, is the newest member of a family of business aircraft known as light jets. They offer the flexibility, efficiency and performance that many companies and individual owner-operators can tailor to their specific needs, particularly for shorter, nonstop flights. But this airplane is like no other light jet currently on the market.
NetJets: The Expert in Transition Assistance
In the cockpit, the HondaJet is equipped with the most sophisticated flight deck available in any light business jet. Within the last 12 months, the chief designer, Honda Aircraft Company President and CEO Michimasa Fujino, and the company received two of the world’s most prestigious awards for the jet’s innovations. The $4.5 million, four- to six-passenger jet is certified for both single-pilot and two-pilot operation. It has a range of 1,180 nm, and it is the fastest airplane in its class, with a maximum cruise speed of 420 kts., or about 483 mph. Its maximum altitude is 43,000 feet.
As appealing as the Legacy 500 and HondaJet are, even with their best-in-class features, owning any type of business aircraft outright isn’t the ideal transportation solution for all organizations and individuals. A substantial number of organizations and entrepreneurs are turning to NetJets to help them sell a jet they already own so they can take advantage of several NetJets turnkey programs—ranging from shared ownership and leases to jet card services, where fliers purchase blocks of time tailored to their specific needs. NetJets provides such assistance in the U.S. and Europe through its Aircraft Transition Services program, which the company started in 2013. The impetus for the program was the growing number of requests from aircraft owners who recognized the value of business aviation, but no longer wanted to own an airplane, not to mention several of them. They saw NetJets as a logical alternative to a broker—and for good reason.
$ $# %!
7 PROMOTION | BUSINESS AVIATION
NetJets manages more than 300,000 flights annually to more than 170 countries.
Berkshire Hathaway manages and operates the world’s largest and most diverse fleet of private aircraft. It includes about 700 jets comprised of no fewer than 40 types. They range from light jets, such as the Embraer Phenom 300, to large-cabin, ultra-long-range airplanes such as the Bombardier Global 6000. At any given time, it has a significant number of new aircraft on order.
For example, NetJets will take delivery of the first of 25 Bombardier Challenger 650 jets as part of the company’s Signature Series aircraft, with the option of purchasing 50 more. Signature Series airplanes are new jets that manufacturers have customized from design through production exclusively for NetJets. Enhanced features include advanced inflight entertainment systems and custom cabin designs, as well as advanced cockpit and cabin technologies to ensure maximum safety, reliability and operating efficiency. “We’re in the market every day, so we have the expertise to support all of the requests we receive,” says John Odegard, senior vice president of whole aircraft sales at NetJets. “Sometimes it’s a matter of taking someone’s airplane as a trade-in and moving them into the fractional share program. In other cases, it’s simply
a matter of helping clients dispose of their asset. We do it on a case-by-case basis according to what makes the most sense for our customers.” As knowledge of the “transition” service spread through word of mouth, NetJets became more proactive, letting customers know about the specialized assistance it could provide. For the last 12 months or so, NetJets has been doing an average of one transaction per month, and it is in the process of laying what Odegard describes as “the right foundation” for expanding the program.
An Illustrious History in Aircraft Charter NetJets’ roots stretch back to 1964, when it established the nation’s first aircraft charter company. In 1986, it pioneered the concept of fractional aircraft ownership, offering individuals and businesses all the benefits of whole airplane ownership at a fraction of the cost. Its services also come with the guarantee that fractional owners’ jets will be ready for them in four to ten hours’ notice, depending on the product owned. NetJets manages more than 300,000 flights annually to more than 170 countries. It has flown more hours than all other fractional aircraft companies combined, backed by some of the most rigorous pilot training and maintenance and operational procedures available anywhere. To Odegard, the NetJets’ Aircraft Transitioning Services is one more tool to help clients select the transportation solution that best suits them. “We are a one-stop shop for customers, no matter where they are located or what their particular requirements,” he says.
Taking Business Aviation to New Heights ©NetJets
Bombardier Challenger 350
Like the HondaJet and Embraer’s Legacy 500, NetJets’ transition program is a testament to the innovation that the business aviation community is continually spawning, not just in the form of more-advanced airplanes, but also in terms of a full gamut of services. No matter what the approach, prospective customers of business aviation will be well served to do their homework and ask the questions that will pinpoint the strengths and weaknesses of providers they might be considering. In the end, they they will reap the rewards of a productivity tool—business aviation—that will help their company grow, compete and succeed in an increasingly global marketplace.
INVESTING MARC GERSTEIN // SCREEN TEST
THE 2000S MAY HAVE been a lost decade in the stock market, with the S&P 500 down 25%. The teens, however, have been terriﬁc. The blue chips have returned about 85% since the start of 2010, and the index is now almost 45% above where it ended the 1990s. So it’s understandable to wonder if the tide will turn, especially since the next signiﬁcant move in interest rates will likely be upward. If risk management isn’t top of mind, it should be. Unfortunately, conventional risk measurement concepts (beta et al.) are just highfalutin statistical report cards derived from how stock prices behaved in the past. They don’t consider why the stocks moved as they did. Instead we should assess risk based on factors likely to inﬂuence future share-price performance. Research published recently in the Journal of Portfolio Management, by Russell J. Fuller, Raife Giovinazzo and Yining Tung of Fuller & Thaler Asset Management, is a step in this direction. They start with the widespread recognition of return on equity (ROE) as the ultimate measure of company quality. This is common sense: A company that earns $20 of proﬁt from $100 of capital is “better” than one
RISK MANAGEMENT SHOULD BE TOP OF MIND, BUT FORGET BETA that earns only $10. They also sought out consistent ROE generators. The ﬁnancial establishment has long cherished maximization of expected return and minimization of share-return volatility. Fuller, Giovinazzo and Tung found they could achieve market-beating riskadjusted returns by starting with S&P 500 stocks with strong ROEs, then optimizing expected return and low ROE volatility. I adapted this by screening on Portfolio123 for stocks ranked in the top 25% in terms of ﬁve-year average ROE and in the lowest 20% in terms of ROE volatility. From among those stocks, I selected the ten best values (based on enterprise value to sales). A back-test of this hypothetical portfolio over ten years (assuming rebalancing every four weeks and 0.25% per trade price slippage) produced an annual return of 15.6% versus 8.1% for the SPDR S&P 500 ETF (SPY, 208). It outperformed SPY by an average of 0.24% during up months but was 1.11% better during down months. MARC GERSTEIN IS EDITOR OF FORBES LOW PRICED STOCK REPORT, RESEARCH DIRECTOR AT PORTFOLIO123 AND AUTHOR OF SCREENING THE MARKET (WILEY, 2002). FOR MORE FROM GERSTEIN GO TO WWW.FORBES.COM/GERSTEIN.
Besides high and stable ROEs, several of the ﬁrms enjoyed strong cash ﬂow and have paid generous dividends and engaged in share buybacks. WAL-MART (WMT, 78) made the list. In response to competition from smaller dollar-discount stores, it has beefed up online efforts and opened smaller box stores that move into lower-volume neighborhoods while still beneﬁting from the company’s powerful operational scale. In the similarly competitive department store category, KOHL’S (KSS, 72) deemphasizes the less convenient malls that usually house department stores in favor of the strip centers it often anchors. Also, Kohl’s offers more national brands than do comparably priced stores and private-label goods of national brand quality. WHOLE FOODS MARKET (WFM, 48) faces competition both small (local organic-food stores) and large (as supermarket chains add more organic). It’s ﬁghting back with even broader organic and highermargin private label offerings and enhancing customer service (home delivery, online shopping and a loyalty program). Meanwhile, ObamaCare has posed pricing challenges for health insurers, but UNITEDHEALTH (UNH, 111), like its peers, is expanding its customer base. As the industry’s big gorilla, UnitedHealth has scale that produces efﬁciencies and pricing leverage via suppliers and contributes to its consistently high ROEs. Also, its pending acquisition of Catamaran will enable UnitedHealth to also apply scale advantages to pharmacy beneﬁt management. Auto insurer PROGRESSIVE (PGR, 27) has ﬂourished with such novel ideas as online quotes and pricing comparisons and use of offbeat information such as credit scores to determine premium prices. Rivals have been imitating it, but Progressive stays out front through other innovations, such as its Snapshot discounts, which use wireless technology to monitor drivers and, hence, offer savings to those with proven safe habits. F MAY 25, 2015 FORBES | 79
THOMAS KUHLENBECK FOR FORBES
THE SOOTHING SOUND OF RETURN ON EQUITY
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Talent Management | Benefits Administration | Workforce Optimization
May 25, 2015
ACKMAN WANTS TO BE LIKE BUFFETT 82 THE 2,000 BIGGEST COMPANIES IN THE WORLD 84 HONDAJET TAKES OFF 92 VISA’S CASH GRAB 104 HALL OF FAME CEOS 114 WORKPLACE OF THE FUTURE: ME AND MY ROBOT 121 BrandVoice WITH ADP
THE HR GUIDE TO THE GALAXY (OR AT LEAST MOST OF THE EARTH) 90
Thirty-four-year-old Frank Wang is the world’s ﬁrst drone billionaire. His DJI sells more than half of all drones on the planet, including this Phantom 3 model. “I appreciate Steve Jobs’ ideas, but there is no one I truly admire.” PAGE 130 MAY 25, 2015 DAVID HARTUNG FOR FORBES
FORBES | 81
JAMEL TOPPIN FOR FORBES
82 | FORBES MAY 25, 2015
BILL ACKMAN 2.0 Activism gets the headlines on Wall Street, but its boldest practitioner, Bill Ackman, is quietly pivoting to a second act that has more in common with Warren Buffett than Carl Icahn. BY ANTOINE GARA
From activist to active manager: William Ackman (right), chairman of Howard Hughes Corp., with its chief executive, David Weinreb.
MAY 25, 2015 FORBES | 83
BILL ACKMAN CN CN CN CN US US US CN US US JA US NE GE UK US US KO US CN GE US US CN US GE US RU FR SZ SP CN JA US FR US CN CN US UK UK US BR US GE US AU US US AU US SZ CA GE CN UK BE JA RU AU BR JA JA US US CA US FR US GE GE US CN SZ AU US JA SZ CN US SZ HK AU CN US US SP US US FR US NE US CN US US JA FR US UK GE FR CN NO US UK CA GE RU SZ FR
ill Ackman bounds onto the stage in the ballroom of the Crowne Plaza Hotel in midtown Manhattan in front of hundreds of his peers: the crème de la crème of hedge funds, GENERAL ELECTRIC law ﬁrms, endowments and large Jack who? CEO Jeff Immelt bets pension funds. It’s early April, and the company on a return to its Ackman is determined to give the industrial roots. Active-Passive Investor Summit a preview of what he internally calls “Pershing Square 2.0”: his rebirth as a kinder, gentler investor, more focused on building companies that last than on making quick trading proﬁts. The ballroom responds with a yawn. So, after a pause, the billionaire poster boy for activist investing—the more polite name for what used to be dubbed corporate raiding— pivots back to his comfort zone, unleashing a barrage of accusations about one of his most infamous and controversial positions, Herbalife, the supplements seller that he’s bet $1 billion against and calls a pyramid scheme. “We know they have been or are looking to hire criminal defense counsel,” he says cryptically of Herbalife’s top executives, as Twitter lights up like a Christmas tree. (Herbalife denies Ackman’s claims.) ROSNEFT What sanctions? Headlines soon appear Kremlin’s oil giant still pumping more than across the Internet and on 4 million barrels a day. CNBC: “Ackman: HLF Execs Hiring Own Lawyers an Ominous Sign.” After-hours volume in Herbalife stock heats up, but the shares fall only 0.3%. What about Pershing Square 2.0? Not a mention, even though the biggest move for last year’s hottest money manager—his hedge fund was up 37% (versus 2% for the average hedge fund), nearly doubling his net worth to $2.5 billion—hides in plain sight, 10 miles west of the Las Vegas Strip. WALT DISNEY Feel the Force: Star Wars Take a trip out there via ﬁlms could add more than $1 billion a year to U.S. Highway 215, toward revenues—every year. the breathtaking but desolate beauty of Red Rock Canyon National Conservation Area, and you’ll ﬁnd the largest retail development in the nation since the ﬁnancial crisis, rising up from the sagebrush. Some 1.4 million square feet of shops, offices and res-
CN NE GE
84 | FORBES MAY 25, 2015
taurants ranging from Macy’s to Apple, Traders Joe’s to Wolfgang Puck’s—the kinds of offerings that hark back to the days before the great mall die-off. From speakers submerged beneath the sidewalks of the city’s outdoor mall you can hear Frank Sinatra’s “The Best Is Yet to Come.” And it will: Potential customers are ﬁlling the thousands of McMansions and townhomes being thrown up around the mall by the likes of Lennar, Pulte and Toll Brothers. Water crisis? Apparently not in Summerlin, Nev., a planned community where new golf courses, swimming pools, bike trails, schools and churches dot the palm-lined streets and cul de sacs in neighborhoods with names like Segovia, Aspenglen and Sterling Ridge that spread across 35 square miles. Summerlin is a key asset for a real estate company with a legendary provenance and a low proﬁle: the Howard Hughes Corp., 26% owned by its chairman, Ackman. But it’s far from the only asset: Summerlin is one of four planned communities and 30 real estate properties owned by Howard Hughes, which in 2014 reported $635 million in revenues and $190 million in operating proﬁts on $5.1 billion in assets, with 45 million square feet of retail, commercial and residential land in its development pipeline, from Houston to the exurbs of Washington, D.C. Howard Hughes is rebuilding New York’s South Street Seaport and owns 60 acres of beachfront property in Honolulu that should yield nearly two dozen luxury towers. “Howard Hughes is the only company that I am, in effect, an executive of,” says Ackman, who has agreements that render him unable to invest directly in real estate or any other private companies through his hedge fund, Pershing Square. “It is the one we have the most control and inﬂuence over, and the most amount of reputational equity invested.” Well, not much yet. The real estate community almost never talks about Howard Hughes. Nor does Ackman. But that will change, as he uses it as a holding company for his Pershing Square reinvention. Just as Summerlin offers families, mostly refugees from bustling big cities like L.A., Chicago and New York, a chance for low taxes and a fresh, highly curated start, Howard Hughes offers Ackman a chance to change his reputation from the modern-day corporate raider everyone loves to hate into a corporate empire builder.
JEFFREY R. IMMELT: ANDY SHAW/BLOOMBERG; ROSNEFT: ANDREY RUDAKOV/BLOOMBERG
2015 RANK RANK CHANGE COMPANY COUNTRY CODE 1 OICBC 2 OCHINA CONSTRUCTION BANK 3 OAGRICULTURAL BANK OF CHINA BANK OF CHINA 4 S 5 OBERKSHIRE HATHAWAY 6 T JPMORGAN CHASE EXXON MOBIL 7 T 8 S PETROCHINA GENERAL ELECTRIC 9 T 10T WELLS FARGO TOYOTA MOTOR 11S APPLE 12S 13T ROYAL DUTCH SHELL VOLKSWAGEN GROUP 14S HSBC HOLDINGS 15T 16S CHEVRON WAL-MART STORES 16S 18S SAMSUNG ELECTRONICS CITIGROUP 19T 20S CHINA MOBILE ALLIANZ 21S VERIZON COMMUNICATIONS 22S 23T BANK OF AMERICA 24S SINOPEC MICROSOFT 25S 26S DAIMLER 27T AT&T GAZPROM 27T AXA GROUP 29S 30S NESTLE BANCO SANTANDER 31S PING AN INSURANCE GROUP 32S 33S MITSUBISHI UFJ FINANCIAL 34S JOHNSON & JOHNSON TOTAL 35T 36S PROCTER & GAMBLE 37S CHINA LIFE INSURANCE BANK OF COMMUNICATIONS 38S GOOGLE 39S 40T VODAFONE BP 41T 42 OAMERICAN INTERNATIONAL GROUP 42S ITAÚ UNIBANCO HOLDING 44T IBM BMW GROUP 45S 46S COMCAST COMMONWEALTH BANK 47S 48T PFIZER GOLDMAN SACHS GROUP 49S 50T BHP BILLITON METLIFE 50S 52S NOVARTIS ROYAL BANK OF CANADA 53S 54T SIEMENS CHINA MERCHANTS BANK 55S 56S PRUDENTIAL ANHEUSER-BUSCH INBEV 57S 58S NIPPON TELEGRAPH & TEL ROSNEFT 59T 60 OWESTPAC BANKING GROUP 61S BANCO BRADESCO 62S SOFTBANK HONDA MOTOR 63S 64S GENERAL MOTORS UNITEDHEALTH GROUP 65S 66S TD BANK GROUP INTEL 67S 68T EDF 69T FORD MOTOR DEUTSCHE TELEKOM 70S BASF 71S 72S BOEING INDUSTRIAL BANK 73S 73S UBS 75 OANZ 76S CISCO SYSTEMS SUMITOMO MITSUI FINANCIAL 77T 78S ZURICH INSURANCE GROUP CHINA MINSHENG BANKING 79S 80S MERCK & CO. ROCHE HOLDING 81S 82S CITIC PACIFIC NATIONAL AUSTRALIA BANK 83T 84S SHANGHAI PUDONG DEVELOPMENT WALT DISNEY 84S CVS CAREMARK 86S 86T TELEFÓNICA 88S ORACLE CONOCOPHILLIPS 89T 89T SANOFI UNITED TECHNOLOGIES 91T ING GROUP 92S 93T COCA-COLA 94S CHINA CITIC BANK MORGAN STANLEY 95S 96T HEWLETT-PACKARD 96S NISSAN MOTOR 98S GDF SUEZ 99T PEPSICO S LLOYDS BANKING GROUP 100 101 T MUNICH RE S SOCIÉTÉ GÉNÉRALE 101 103 S CNOOC T STATOIL 103 105 T AMERICAN EXPRESS S RIO TINTO 105 T BANK OF NOVA SCOTIA 107 108 S BAYER 109 T LUKOIL S GLENCORE INTERNATIONAL 110 111T CREDIT AGRICOLE CHINA STATE 112S CONSTRUCTION ENGINEERING 113T UNILEVER S DEUTSCHE BANK 114
THE MODEL, ULTIMATELY, IS WARREN BUFFETT.
ELLEN KULLMAN: SIMON DAWSON/BLOOMBERG
Despite the fact that he’s the best known of a new generation of activists, along with Daniel Loeb and Jeffrey Smith, the 49-year-old Ackman bristles at the thought of such a legacy. After all, how many people under 40 have ever heard of Asher Edelman or Meshulam Riklis or Irwin Jacobs, the notorious and successful corporate raiders of another Wall Street era? Comparisons with the most successful activist ever, his Herbalife nemesis Carl Icahn, make Ackman especially uncomfortable. “We are very different from Icahn,” he sniffs, referring to Icahn’s penchant for nimble trades and quick ﬁxes. “We invest in very stable, predictable businesses.” Instead, he’s taking a page from Buffett, who focused on trades until he found a publicly traded textile company named Berkshire Hathaway and then began swallowing businesses and stashing them under it. Ackman has the holding company, courtesy of assets acquired in 2010; the legendary Howard Hughes name was a bonus that came when he sucked up the Summerlin project. To build an enduring business, though, he needs permanent capital. Hedge funds like Ackman’s are in no position to manage assets long term, since limited partners have the right to redeem interests every quarter. It’s why, by their nature, they are trading vehicles. So last October Ackman issued shares in a new entity publicly traded in Amsterdam, Pershing Square Holdings Ltd., creating some $6.5 billion in new permanent capital from investors, mostly outside of the United States. Add to this his own and his employees’ money in Pershing Square hedge funds and Ackman has boosted his permanent capital to more than $8 billion (his total assets under management are now $19.5 billion). “Pershing Square Holdings is recognition that, given the ﬁrm’s investing style, sometimes there will be periods of intense pushback and ridicule,” says Harvard Business School’s Michael Porter, who taught Ackman in the early 1990s and is a Pershing Square advisor. “If you are in a situation where capital can walk and you have investors that can be rattled, having a good anchor of permanent capital is very important.” Redemptions have plagued Ackman in the past. During the ﬁnancial crisis in 2008, and
then after 2013, when Pershing suffered embarrassing losses on J.C. Penney and Herbalife, redemptions amounted to 10% of net assets. Those last redemptions proved foolish, given the massive 2014 that Ackman turned in, driven most prominently by investment gains in Botox-maker Allergan. They were also cautionary, as more of them would have undermined Ackman’s turnaround. “Imagine if we had redemptions and were forced to unwind—we couldn’t do Allergan,” he says. This permanent war chest lets him take on ever larger targets with less heartburn—and look more toward the long term. “When I describe what we did in the early days of Pershing, we found undervalued companies, we proposed changes that would unlock value, and then after they took the various steps we generally exited,” he says. “People described them as more ﬁnancial engineering.” He adds: “If you look at what we have done during the last ﬁve years, Canadian Pacific, Air Products, General Growth … even Allergan and Valeant was about creating a company. They both existed, but the combinaDUPONT Activist Trian Mantion was building something we agement has CEO Ellen Kullman under wanted to own for years.” the gun for growth. FOR ACKMAN, HOLDING ASSETS MEANS A RE-
turn to his roots. For all his hedge fund bravado, his success is rooted in real estate. It’s in his blood. His father owned a successful New York real estate ﬁrm. After graduating from Harvard College in 1988, Ackman quickly became a top producer. Later, at Harvard Business School, he plowed nearly half of his savings into the stock of Alexander’s Stores, a retailer that fell into distress in the early 1990s. Sensing that Alexander’s real estate, such as 731 Lexington Avenue (current headquarters of Bloomberg LP), MCDONALD’S new CEO Steve was worth more than the claims Can Easterbrook pull McD’s out of tailspin? against the company, Ackman Can anyone? bought shares for a little over $8 apiece the day the company ﬁled for bankruptcy, and within a matter of months he sold for $21. A great trade for a kid, but the deal taught him a lesson in shortsightedness. Soon after he
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BILL ACKMAN cashed out, Alexander’s was acquired by Steven Roth’s Vornado, which converted it to a REIT. Alexander’s now trades at more than $400 a share and has paid rich dividends for years. After business school Ackman partnered with classmate David Berkowitz to form hedge fund Gotham Partners, raising $3 million, largely from family and friends. He stuck with what he knew. His ﬁrst major break was an audacious attempt to buy the distressed mortgage of Rockefeller Center Properties in 1995. Guppysize Gotham took a 6% stake in the REIT that owned Rockefeller Center’s mortgage, and Ackman proposed a recapitalization to keep it from would-be vultures, including Sam Zell, General Electric and Disney. Ultimately Ackman lost to a consortium that included Goldman Sachs, Tishman Speyer and David Rockefeller, but at 28 he gained major Wall Street cred—and a 39% return for Gotham in 1995. David Rockefeller and co-investor Leucadia National were impressed. Rockefeller became a Gotham investor. In 1996 Ackman turned to racetracks for a new set of deals to swing with Wall Street’s power players. At the time, Starwood Capital’s Barry Sternlicht discovered so-called pairedshare REIT structures in hotels and racetracks that allowed its owners to earn both lease revenue and operating income under a REIT tax shield. The loophole set off a buying frenzy for hotel chains like Sheraton, Westin and Wyndham. In classic greenmailer style Ackman got involved by contesting the racetrack takeovers that Sternlicht and other dealmakers, such as Colony Capital’s Thomas Barrack and Apollo Global Management’s Leon Black, were eyeing, holding out for higher premiums. Ackman’s paired-share REIT obsession eventually backﬁred in 1998, after Gotham won its proxy contest for REIT First Union. That year, the IRS closed the loophole, and First Union shares plummeted. Things continued to get worse for Gotham as Ackman strayed into golf courses, multilevel marketing ﬁrm PrePaid Legal Services and a privately held dotcom called Giftcertiﬁcates.com. These deals eventually proved to be Gotham’s undoing after First Union shareholders balked at his attempt to merge it with his moneylosing golf courses. Gotham investors began to lose conﬁdence in him and withdrew capital, causing assets to fall over 40% between 1998 and 2002, as Ackman, as bold as ever, de86 | FORBES MAY 25, 2015
cided to try his hand at activist short-selling, eventually drawing an investigation from then New York attorney general Eliot Spitzer. Ackman was pressured into DALIAN WANDA China’s richest man, Wang unwinding Gotham in 2003, Jianlin, raised $3.7 billion in an IPO despite country’s and Berkowitz quit the busigloomy real estate market. ness altogether. Ackman’s conﬁdence was unshaken. “Not for a moment did I sense any despair in Bill,” says business school classmate Robert Jaffee, who invested in Gotham and is a current hedge fund limited partner. Pershing Square launched in January 2004 with $4 million of Ackman’s savings and $50 million from Leucadia. But because of ALIBABA Gotham’s failures, Pershing Square GROUP pledged to its partners not to inWorld’s largest IPO in New York for vest directly in private compae-commerce giant, but relationship with nies—including real estate. Chinese government getting bumpy. This created a dilemma because real estate has always been his sweet spot. “It is an asset class I understand, and we have made a fortune in it,” says Ackman, who isn’t known for modFIAT CHRYSLER esty. “I don’t know that I’ve AUTOMOBILES ever made a bad real estate Sergio Marchionne in homestretch as CEO, apparently investment.” ﬁshing for a megamerger. The ﬁnancial crisis of 2008 presented the solution that led to Howard Hughes. As markets were descending into turmoil, Ackman bought up 25% of struggling mall REIT General Growth Properties at a ﬁre sale, helped steer it into a managed bankruptcy and then cherry-picked certain undeveloped assets from the carcass, an unwanted hodgepodge that rivals dubbed “Sh-tco.” General Growth turned out to be his greatest investing triumph, with a 130-fold gain on his stock, amounting to a $3.7 billion proﬁt for his hedge fund. “Sh-tco” turned into the Howard Hughes Corp., a $6 billion vehicle that has seen its stock climb 300% since it was spun off—and allowed Ackman back into the real estate game unfettered. ONE OF HOWARD HUGHES’ MOST VALUABLE AS-
sets is on Bill Ackman’s home turf: Manhattan’s South Street Seaport. Which explains why, on a stormy, bone-cold March evening, he is staring
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BILL ACKMAN at blue jeans, which have been hand-painted with acrylic blue, purple, magenta, teal and white splatters that resemble the patterns of a Jackson Pollock painting. The offerings at the RiLAS VEGAS SANDS alto Jean Project, located at LVS shares crap out, losing 30% of value as the Seaport, have Ackman luck in Macau cools. puzzled. “How do you check out the price? Nothing’s labeled. It has like a SKU, a sign and no price!” he exclaims to David Weinreb, the Howard Hughes CEO, who accompanies him. A young shopkeeper named Kandice quotes the jeans at $245. “That’s artwork, not jeans,” Ackman murmurs as he scans the denim hanging on brick walls inside a refurbished 19th-century row house. He begins to barrage the unknowing Kandice as if he’s grilling a CEO: What percentage of customers are male? How much trafﬁc does the store get? Is it really more of a wholesale busiKRAFT FOODS Buffett-backed Heinz ness? Why open a store in this merger will make it world’s ﬁfth-largest location? Is there anything food company. Tasty. other than denim and acrylic for sale? How do the clothes wash? Kandice meets every Ackman demand, and he reciprocates with a parting thought: “When the theater opens you guys are going to be booming!” The theater he’s referring to is a high-end iPic cinema, where ﬁlmgoers can take in 3-D movies while knocking back beer and cocktails and munching overpriced burgers. It’s slated to open in 2016 next door to Rialto in the Fulton Market Building, a piece of the $1.5 billion plan to rebuild the Seaport. In 2017 Howard Hughes expects to reopen the Seaport’s Pier 17 with 182,000 square feet of leasable space and a 1.5-acre rooftop for concerts, ice skating, weddings and Rockefeller Centeresque tree lightings. Then come the inevitable luxury residential AMAZON.COM No proﬁts? No probskyscrapers. lem. Investors (still) keep faith with Jeff Weinreb, as the Howard Bezos’ pricey visions. Hughes point man, is key. Ackman has real estate chops, but Weinreb lives and breathes it. The two ﬁrst met in high school in Chappaqua, N.Y. Weinreb, who grad88 | FORBES MAY 25, 2015
uated two years before Ackman, was a celebrity at school because he starred in TV commercials for Ronzoni pasta and Bubble Yum gum, and used his earnings to buy an apartment in Manhattan. He then dropped out of New York University (and later show business) and wound up in Texas, where he sold real estate during the oil boom of the 1980s. He eventually caught the eye of Chicago Bulls and White Sox owner Jerry Reinsdorf, who put him in charge of a few buildings. Weinreb’s Midas touch for turning around busted real estate deals in the aftermath of the savings-and-loan crisis quickly became legendary. “David has taken some dog properties and really made winners out of them,” says Reinsdorf, terming him “a smart guy who doesn’t tell people how smart he is.” That makes him a good pairing with the boastful Ackman. By the mid-1990s Weinreb’s company, TPMC Realty (for “Turnaround Properties Make Cash”), was known as one of the preeminent distressed real estate ﬁrms in Texas. “Even in the worst of times,” Weinreb says, “there’s someone making money.” In 2002 he reconnected with Ackman via a cold call. Seven years later, with the real estate market languishing, Weinreb began talking to Ackman about launching a fund to buy up distressed properties. The discussion eventually morphed into Weinreb taking charge of Ackman’s plan for Howard Hughes. Weinreb’s background in turnarounds is what made the Las Vegas project so enticing. The mall was abandoned in 2007, as the real estate market began to sicken. Until a year ago it was fallow, with concrete and rusting steel columns sitting atop wasteland purchased by reclusive business tycoon and aviator Howard Hughes in the 1950s to avoid taxes (see box, p. 89). “We’re the largest landholder in a constrained market,” says Weinreb. “It was self-evident that Downtown Summerlin would have a bright future when the market recovered.” More tantalizingly, Howard Hughes owns 200 acres of barren desert to the east, which is slated for 4,000 residential units and 1.4 million square feet of office space. And another 5,600 acres to the west and south, which will become increasingly valuable if Ackman’s projections, which call for Summerlin’s 100,000 population to double, come to fruition. Control is important in all of the duo’s mas-
KRAFT: SCOTT OLSON/GETTY IMAGES; JEFF BEZOS: MIREYA ACIERTO/GETTY IMAGES
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fact, was spending $118 million on a deal in 2011 to buy out the 48% interest Morgan Stanley held in the Woodlands. They also decided to retain the 25 million square feet of strategic development Howard Hughes owns on all of its properties. Just as Buffett counts on steady cash ﬂow from Berkshire Hathaway’s insurance holdings, Ackman is trying to position Howard Hughes as a real estate cash machine. Cash ﬂow is expected to triple by 2016 CK HUTCHISON HOLDINGS to over $500 million per year, ac- Hong Kong’s “Superman,” Li Ka-shing, cording to Compass Point anarestructures far-reaching empire; snags U.K. lyst Wilkes Graham. telecom giant O2. “Howard Hughes management isn’t concerned with meeting a quarterly estimate,” says James Davolos, portfolio manager at Horizon Kinetics, the ﬁrm’s largest outside shareholder. “They’re concerned with compounding the value of the investment over the next ﬁve, seven or ten years.” TARGET And real esBungled Lilly Pulitzer sale came to own the 25,000 enrages customers. Strike one tate will lead to for new CEO Brian Cornell. acres of land adjacent to the other businessLas Vegas Strip, now called es. In Vegas, for example, Howard Summerlin in honor of Hughes’ Hughes owns a minor league basegrandmother Jean Amelia ball team (and plans to build a stadiSummerlin. In 1972 Hughes put his um for it in Summerlin). And don’t be Vegas real estate into Summa surprised if Ackman becomes the latCorp., which ﬁnally began est Wall Street titan to own a casino. developing Summerlin in the One of Howard Hughes’ most unusu1990s. Summa sold to mall al and potentially valuable assets is the developer Rouse in 1996, and in air rights above the 1.9 million square 2004 General Growth bought foot Fashion Show Mall on The Strip, Rouse for $12.6 billion. During across from the Wynn hotel and sandGeneral Growth’s bankruptcy, wiched between Trump InternationAckman carved out a trove al and Treasure Island. “I took everyof unwanted assets plus the thing where the market wouldn’t asHoward Hughes name. Fittingly, Howard Hughes sign a value,” says Ackman. Corp. still retains about $250 Bill Ackman on the Las Vegas million in crises-related taxStrip? The Howard Hughes Hotel & loss carryforwards today, so Casino? it currently pays no taxes. “Ultimately, the best real estate Eventually Ackman may turn has a big entertainment component,” Howard Hughes into a REIT, says Ackman, as cocky as ever. “Never dodging still more taxes. again am I going to miss anything like Hughes himself couldn’t have Rockefeller Center.” F done better. —A.G.
ter plans. Besides its Las Vegas real estate and planned community, Howard Hughes also owns the Woodlands, a 28,400-acre planned community on the outskirts of Houston conceived in the 1960s by shale gas pioneer George Mitchell, as well as parts of James Rouse’s planned community in Columbia, Md. It also owns Ward Village, a 60-acre plot of coastal land in Honolulu, where the company has already broken ground on two luxury towers that are more than 80% sold. Instead of pawning off projects to joint venture investors, Ackman and Weinreb are doubling down. One of Weinreb’s ﬁrst moves, in
THE HOWARD HUGHES TAX DODGE THE LATE BUSINESS TYCOON
LI KA SHING: OLI SCARFF/GETTY IMAGES; TARGET: DAMIAN DOVARGANES/AP
and billionaire Howard Hughes may be best remembered for producing the most expensive Hollywood ﬁlm of its day (Hell’s Angels, 1930), ﬂying around the world in record time (1938), his affair with Katharine Hepburn (1939) and building the largest airplane in history, the H-4 Hercules “Spruce Goose” (1947). Or for his ﬁnal decades, when mental illness turned him into a recluse who ran his empire from a hotel suite. But despite his rococo extravagances, Howard Hughes was a master businessman, particularly skilled in the art of avoiding taxes. In his memoir, Hughes’ accountant Noah Dietrich claims Hughes paid only about $20,000 in income taxes a year. Indeed Howard Hughes Corp.’s circuitous journey into Bill Ackman’s portfolio began as a tax scheme. In the 1930s the IRS levied a 37.5% penalty tax on unnecessary accumulated surpluses. Hughes operations never paid dividends, so Dietrich began plowing proﬁts into undeveloped land. That’s how subsidiary Hughes Aircraft
MAY 25, 2015 FORBES | 89
472 T PHILIPS 473 T H&M S CONSOLIDATED EDISON 474 S SAUDI ELECTRICITY 474 476 S CHINA CNR 476 S FUJITSU T SONY 478 479 S MASTERCARD 479 T SUZUKI MOTOR S CHINA CINDA ASSET 481 MANAGEMENT 482 S SOUTHWEST AIRLINES T CHESAPEAKE ENERGY 483 484 T PRAXAIR 485 S HDFC 485 S TATA CONSULTANCY SERVICES T PACCAR 487 488ONATIONAL COMMERCIAL BANK T T&D HOLDINGS 489 490 T BANK MANDIRI T COAL INDIA 490 492 S COMPASS GROUP T INPEX 493 T PROGRESSIVE 494 495 S CRH 496 T KOÇ HOLDING S SYSCO 496 498 S ECOLAB S TYSON FOODS 499 500 S EVERGRANDE REAL ESTATE T ISBANK 501 502OCK HUTCHISON T RESONA HOLDINGS 503 S CLP HOLDINGS 504 504 S DISH NETWORK 506 S BHARTI AIRTEL S BIOGEN IDEC 507 508 T CUMMINS S CIC GROUP 509 510 T TESCO WASTE MANAGEMENT 511S 512 T SWISS LIFE HOLDING T ROYAL AHOLD 513 514 S DAIWA HOUSE INDUSTRY T LARSEN & TOUBRO 515 516 S SUNCORP GROUP S SWIRE PACIFIC 517 518 S MARSH & MCLENNAN T GFNORTE 519 520 S KASIKORNBANK T XEROX 521 522 T AKBANK T PRECISION CASTPARTS 523 524 T TOYOTA TSUSHO T ATLAS COPCO 525 525 S THYSSENKRUPP GROUP T INTERNATIONAL PAPER 527 528OYPF S COMMERZBANK 529 529 S ENTERGY S XCEL ENERGY 531 532 S VALEANT PHARMACEUTICALS S KUBOTA 533 534 T TARGET S CELGENE 535 536 S FOSUN INTERNATIONAL S MAZDA MOTOR 537 538 T LOEWS T OMNICOM GROUP 539 540OALLY FINANCIAL T AEON 541 542 S DONGFENG MOTOR GROUP S SAMSUNG FIRE & MARINE 543 544 S DAIKIN INDUSTRIES T FIFTH THIRD BANCORP 545 546 S BAIDU S KERING 547 548 S QBE INSURANCE GROUP S THE PRICELINE GROUP 549 550 S BANKIA T OTSUKA HOLDING 551 552 T KYOCERA T PANASONIC 553 554 S RELX GROUP T TRANSNEFT 555 556 T GRUPO MEXICO T SHIN-ETSU CHEMICAL 556 S AXIS BANK 558 559 T VOLVO GROUP 560 T DAIWA SECURITIES T NATIONAL BANK OF CANADA 560 562 S WESTERN DIGITAL S DAQIN RAILWAY 563 T SIAM COMMERCIAL BANK 564 565 S BEST BUY 566 T FRANKLIN RESOURCES S FAIRFAX FINANCIAL 567 568 S WOODSIDE PETROLEUM 569 T ROGERS COMMUNICATIONS 570 S COUNTRY GARDEN HOLDINGS SUMITOMO ELECTRIC S 571 S LIBERTY GLOBAL 572 573 T HEIDELBERGCEMENT T CIMB GROUP HOLDINGS 574 575 T NKSJ HOLDINGS T NORILSK NICKEL 576 577OTOKYO GAS 578 S PUBLIC BANK T ARCELORMITTAL 579 580 T HANA FINANCIAL GROUP 580 T TELUS T BG GROUP 582 583 S GD POWER DEVELOPMENT S CHINATRUST FINANCIAL 584 585 T AKZO NOBEL T FORTUM 585 587OAIR PRODUCTS & CHEMICALS 588 T SIMON PROPERTY GROUP 589 S HILTON WORLDWIDE HOLDINGS T SCA 590 CONTINUED ON PAGE 94 S UP T DOWN O UNCHANGED O NEW
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THE HR GUIDE TO THE GALAXY (OR AT LEAST MOST OF EARTH)
In the universe of enterprise business, change is happening at warp speed, especially when it comes to Human Capital Management. If you’re not ahead of the game, you’ve already fallen behind. Here is an expert ﬁeld guide to help you succeed as a global corporation and conquer the corporate cosmos.
THE WORLD’S GOT TALENT An overwhelming majority
While more than
two-thirds of multinational companies see talent acquisition and tracking as the workforce management strategy with the greatest impact,
nearly half identify talent management as their top business challenge.
of CEOs around the globe admit they need to change their talent strategy,
yet only a third will actually attempt to do so. That’s quite a disconnect, one that can hurt a global company’s ability to expand.
BRAVE NEW WORLD Is your Human Capital Management (HCM) capable of recognizing trends as they develop? It should be. For example, the No. 1 global business objective for many organizations is to continue growing by expanding into new markets. Grow + Expand
90 | FORBES MAY 25, 2015
How prevalent is this trend? A majority of North American HR executives expect to up headcount outside their headquarter country in the next one to two years. This “new market expansion” is representative of a rapidly changing global footprint, as the number of international and foreign employees is on the rise.
THINK SIMPLE On average, global companies are trying to manage
That’s a lot of systems! It also creates a lot of potential challenges. For real global agility, a company should be trying to simplify via system uniﬁcation. This allows them to focus on the outcomes instead of the process. After all, you can’t see where you’re going if you’re always staring at the steering wheel.
SECRET WEAPON A recent study revealed that onl y
of companies have any analytics capabilities in HR. Knowing that, it should come as no surprise that only
of senior business leaders say they changed a business decision in response to an HR insight in the past year. This is a major missed opportunity. By streamlining infrastructure, your HCM can hone in on more important strategic contributions like predicting skill shortages, managing global talent mobility and developing the next leadership team. In this way, HR can become a resource—a kind of secret weapon—that supports overall business initiatives by prioritizing areas of greatest impact, makes data-driven workforce management decisions, and helps with risk mitigation and compliance.
ADP GLOBAL HUMAN CAPITAL MANAGEMENT DECISION MAKERS SURVEY (2014 & 2015), ADP RESEARCH INSTITUTE® HARNESSING BIG DATA: THE HUMAN CAPITAL MANAGEMENT JOURNEY TO ACHIEVING BUSINESS GROWTH, ADP RESEARCH INSTITUTE®
MAY 25, 2015 FORBES | 91
THE FLIGHT OF HIS LIFE At a North Carolina airﬁeld just 240 miles from aviation’s birthplace, a revolutionary Honda engineer named Michimasa Fujino is making his 29-year dream of a new kind of business jet a reality.
BY JOANN MULLER
ICHIMASA FUJINO, CHIEF EXECUTIVE OF
Honda Aircraft Co., clambers up a steep ladder to a grated-metal platform to check on his baby. At eye level he peers inside the machinery where Honda’s new advanced light jet is choking in wires and sensors—3,000 gauges in all—an ugly cross between a spacecraft and a Christmas tree. He’s collecting data on the plane’s structural integrity while it’s being buffeted with simulated forces well above its maximum loads. The plane’s composite fuselage holds up well, as expected, inside this sophisticated torture chamber in Greensboro, N.C.—a good sign. Next door, in a sparkling
92 | FORBES MAY 25, 2015
EVAN KAFKA FOR FOR FORBES
MAY 25, 2015 FORBES | 93
JOSEPH DEAN/NEWSCOM (TOP)
HONDAJET new factory with soaring ceilings and a ﬂoor so glossy you can see your reﬂection in it, workers dressed in bright white uniforms are handcrafting HondaJets for customers who have been waiting more than eight years to take delivery. The wait is nearly over. On Mar. 27 the plane received provisional type certiﬁcation from the U.S. Federal Aviation Administration, a critical milestone that means it is safe for ﬂight. Final FAA approval is expected in the next few months. When it comes, it will be a great relief for Honda, the $117 billion (sales) Japanese industrial icon (No. 63 on the Global 2000) best known for making cars, motorcycles and power generators. The launch of HondaJet, three decades in the making at an estimated cost of $1.5 billion to $2 billion, is an opportunity to shift the focus away from a string of crises that knocked the company off its game in recent years. It survived the Great Recession only to be rocked by the Japanese tsunami and then a ﬂood of quality recalls that tarnished its reputation. Earlier this year U.S. regulators slapped Honda with a record $70 million ﬁne for failing to report warranty claims and more than 1,700 incidents involving death or injury, as required under the government’s early-warning safety system. A few weeks later Honda said CEO Takanobu Ito, 61, would step down in June after six years at the helm. Honda officials disputed reports that Ito was pushed out, noting that his tenure was in line with past CEOs and that he handpicked his successor. While the company is thrilled to showcase its reviving industrial ingenuity, no one will be happier than Fujino. The delivery of the ﬁrst HondaJets in the next few months is the culmination of a 29-year obsession to create a breakthrough small jet aircraft—quieter, roomier and faster than any rival on the commercial market. With a price tag of $4.5 million, the HondaJet is being marketed as a tool for business owners who have assets of $20 million to $40 million and want to keep tabs on their operations. But they’re just as likely to use one for a quick golf outing or weekend getaway. These buyers, mostly in the U.S., were hit hard when the economy tanked, and many wouldn’t have been able to get ﬁnancing anyway. But Honda’s timing could be right, says aviation consultant Rolland Vincent. Worldwide sales of business jets rose 6.5% in 2014, to 722 planes, 94 | FORBES MAY 25, 2015
worth $22 billion. Although very light jets (like the 9,200-or-so-pound HondaJet) are still lagging, sales are perking up. Last year 87 light jets (under 12,500 pounds) were delivered, up from 77 in 2013 but still way down from the 371 delivered in 2008. “The feeling that we’re through this dark time is highest among smaller-jet owners,” Vincent said. Early demand is promising. Honda already has more than 100 orders. SucACTAVIS cessful newcomers are rare in CEO Brent Saunders did about $100 billion in deals the aviation industry, but Hon- last year. Time to digest? da’s credibility in autos gives it a better chance than most, says Vincent. “Who can question their engineering prowess, their manufacturing expertise, their supply chains?” And who can question Fujino’s determination to reinvent business jet travel? “My career objective was to create a concept for an airplane, and design and sell it by myself,” said the intense but soft-spoken Fujino, a youthful-looking 54, with thick eyebrows and large wire-rim glasses competing for attention. “I don’t want to be [responsible for] just a portion of the product. I want to start by concept.” It’s hardly the traditional deﬂated-ego kenkyo of a “team-ﬁrst” Tokyo salaryman, but that’s Fujino. In an age where engineering is dominated by anonymous teams his HondaJet, with its long tapered nose and distinctive engine placement on top of the wings, is a personal statement, the aluminum and carbonﬁber embodiment of an extraordinary decadeslong journey that led him from his birthplace in Japan to a Mississippi college town, back to the boardrooms of Japan and, ﬁnally, to the helm of this manufacturing plant in North Carolina, 240 miles—as the private jet ﬂies—from Kitty Hawk, where the Wright brothers FAST RETAILING took ﬂight in 1903. How’s this for fast? Japanese clothing “From time to time there are giant Uniqlo hopes to open 200 new stores developments in aircraft that this ﬁscal year. break the mold of the past,” says Bruce Holmes, a former NASA research engineer and aerodynamics expert. “And I think the HondaJet is one of them.” EVEN PARKED ON THE TARMAC, THE HONDAJET
is striking, with its sharp beak and bold palette
590 T SCA 591 T SSE T AGEAS 592 593 T ASML HOLDING 593 T EBAY 595 S DTE ENERGY 596 S ATLANTIA T AL RAJHI BANK 597 598 S ASAHI KASEI T THALES 599 600 S MITSUBISHI CHEMICAL T REYNOLDS AMERICAN 600 S ASTELLAS PHARMA 602 602 S SANLAM 604 T ANADARKO PETROLEUM T EVONIK 604 606 S HAITONG SECURITIES S SODEXO 607 608 S AES S MTR 609 610 S BECTON DICKINSON T SABANCI HOLDING 611 T ANHUI CONCH CEMENT 612 613 S ACTAVIS 614 S STEINHOFF INTERNATIONAL T VTB BANK 615 616 T OMV GROUP 617 T PUBLICIS GROUPE T DELPHI AUTOMOTIVE 618 S BANK OF IRELAND 619 620 T ANGLO AMERICAN S CME GROUP 621 S BANCO DE SABADELL 622 622 T GRUPO AVAL 624 T SUMITOMO CORP. S WHIRLPOOL 625 626 T UNIBAIL-RODAMCO 627 T FALABELLA T AISIN SEIKI 628 T REGIONS FINANCIAL 628 630 S BANK CENTRAL ASIA S LG DISPLAY 631 632 T CEZ GROUP S SHIRE 633 633 T SPECTRA ENERGY S PEUGEOT 635 636 S DOLLAR GENERAL T CENOVUS ENERGY 637 637 S COGNIZANT TECHNOLOGY T KEPPEL CORP. 639 640 S BUNGE T SIAM CEMENT 641 642 T POTASHCORP S TESORO 642 644 T ALSTOM S INGERSOLL-RAND 644 646 T CHINA RESOURCES POWER S NEW WORLD DEVELOPMENT 647 648 S MERCANTIL SERVICIOS T LG CHEM 649 650 S WHEELOCK & CO. S YARA INTERNATIONAL 651 652OKOHL’S 653 S AMERISOURCEBERGEN 653 T TENARIS T NATIONAL BANK OF ABU DHABI 655 656 T COUCHE TARD S INTERCONTINENTALEXCHANGE 657 658 T M&T BANK 659 T FREEPORT S SEAGATE TECHNOLOGY 660 S TORAY INDUSTRIES 661 662 S NAN YA PLASTICS S HENDERSON LAND 663 664 S NUCOR T SWATCH GROUP 665 666 S EMIRATES NBD T CENTRICA 667 668 S DEUTSCHE BOERSE S INDUSTRIAL BANK OF KOREA 668 670 T KINGFISHER S MURATA MANUFACTURING 671 672 S INFOSYS T FERROVIAL 673 674 S FIRST GULF BANK T ADECCO 675 S GOODYEAR 675 677 S ENCANA 678OWOORI BANK O EVERSOURCE ENERGY 679 679 S DAVITA S BRF 681 S APPLIED MATERIALS 682 682 T KELLOGG 684 T ADIDAS T AGRIUM 685 686 T ROLLS-ROYCE HOLDINGS 687 S HUADIAN POWER INTERNATIONAL 688OBANCO DE VENEZUELA 688 S FANUC T FAST RETAILING 690 691 S NASPERS T SAFRAN 691 693 T MOSAIC S CHINA SHIPBUILDING INDUSTRY 694 695 T PORSCHE AUTOMOBIL HOLDING T ABERTIS 696 T CARLSBERG 697 698 T ASAHI GROUP HOLDINGS 699 T PARKER-HANNIFIN T VF 699 701 T CHINA NATIONAL BUILDING T MAGNIT 701 703 S CHINA EASTERN AIRLINES S MYLAN 703 705OSNAM 706 T APACHE 707 T JX HOLDINGS T CHINA STEEL 708 709 T SIME DARBY S UP T DOWN O UNCHANGED O NEW
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MCKINSEY & COMPANY CITES KNOWLEDGE-INTENSIVE MANUFACTURING AS ONE OF THE EMERGING GAME CHANGERS OF THE 21ST CENTURY. GET THE WHOLE STORY AT JOBS-OHIO.COM/FORBES
OHIO IS EASY TO FIND.
JUST LOOK FOR THE MOST ADVANCED MANUFACTURING IN THE WORLD. With the broad shoulders of an enduring legacy of manufacturing to stand on, Ohio is the epicenter of the additive manufacturing revolution. We have galvanized the efforts of industry, universities, thought leaders and government, an alignment that is producing breakthrough after manufacturing breakthrough. From prototype to production, Ohio is leading the way. The race is on. And the ďŹ rst one to the future wins.
THE FUTURE IS HAPPENING IN OHIO. GET THERE FIRST.
READY FOR TAKEOFF At $4.5 million the HondaJet isn’t exactly the Civic of the skies. But it is faster and more fuelefficient than rivals, and loaded with high-tech features. Bonus: It’s got a private bathroom.
TINY POWERHOUSES Compact turbofan engines built by GE Honda Aero Engines weigh just 465 pounds each but produce 2,095 pounds of thrust.
TOUCHSCREEN CONTROLS Honda worked with Garmin to create a state-of-the-art, computerpowered, ﬂat-panel, multiscreen avionics system with dual touchscreen controllers.
ROOMY CABIN With the engines over the wings, there’s more space for passengers and their cargo. Cabin features like lighting are controlled with a tablet computer instead of buttons. The bathroom? It’s in back.
CESSNA CITATION CJ4
EMBRAER LEGACY 450
PRICE: $4.5 million RANGE: 1,400 miles
PRICE: $9 million RANGE: 2,500 miles
PRICE: $16.6 million RANGE: 2,900 miles
(Can ﬂy nonstop from New York to Miami) MAX CRUISE ALT: 43,000' CRUISE SPEED: 483MPH PASSENGERS: 6
(Can ﬂy nonstop from New York to Houston) MAX CRUISE ALT: 45,000' CRUISE SPEED: 519MPH PASSENGERS: 8–9
(Can ﬂy nonstop from New York to Los Angeles) MAX CRUISE ALT: 45,000' CRUISE SPEED: 624MPH PASSENGERS: 7–9
96 | FORBES MAY 25, 2015
ENGINE ON TOP The HondaJet’s engines are mounted on the wings, in a carefully selected “sweet spot,” to reduce shock waves when ﬂying at high speeds.
COMPOSITE FUSELAGE Instead of aluminum, the plane’s body is molded from a combination of composite honeycomb sandwich panels and stiffened panels, making it strong and lightweight.
IN THE FLOW To improve aerodynamics, without hurting lift, Honda sculpted the wings and nose to dramatically reduce drag across the surfaces.
COMFY COCKPIT Fujino spent years studying ergonomics, visibility and human-machine interfaces to keep pilots happy for the long haul.
DASSAULT FALCON 5X
PRICE: $45 million RANGE: 6,000 miles
PRICE: $64.5 million RANGE: 8,100 miles
(Can ﬂy nonstop from New York to Moscow) MAX CRUISE ALT: 51,000' CRUISE SPEED: 610MPH PASSENGERS: 8–12
(Can ﬂy nonstop from Shanghai to New York) MAX CRUISE ALT: 51,000' CRUISE SPEED: 562MPH PASSENGERS: 18
8,000 mi MAY 25, 2015 FORBES | 97
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HONDAJET choices: red, blue, green, yellow or silver. But its most distinctive feature is the unusual location of the engines—on top of the wings. On most aircraft the engines are below the wings or attached to the rear of the fuselage. Without those structural constraints the HondaJet (which is about two and a half times the size of a minivan) can provide more room for passengers and their stuff. The cabin is 20% larger than comparable business jets, and the rear cargo area is spacious enough for 16 pieces of luggage, including 2 golf bags. Passengers don’t have to play footsie the way they do in most small business jets; the facing seats are set farther apart, providing 14 inches of extra legroom. It seats up to seven, including the pilot. And there’s still enough space for a bathroom, an important selling point, says Fujino. With the engines out over the wings, it’s also quieter. Honda says its jet ﬂies faster and higher than any other jet in its class, such as Cessna’s Citation Mustang (391mph) and Embraer’s
Phenom 100E (448mph) jets. It’s also about 15% more fuel-efficient. The top speed is 483mph, and the maximum cruise altitude is 43,000 feet—higher than most commercial airliners. Its range is 1,358 miles, not enough to ﬂy coast-to-coast but perfect for regional hops or even a trip from New York to Miami. Still, something looks off. Don’t two bulky engines sticking up from the wings kill the plane’s aerodynamics? That’s what most aviation experts learned in school, supported by a failed attempt in Germany years earlier. “When I showed people the sketch, everybody laughed at me,” recalled Fujino. “They hated the idea.” Fujino’s secret, discovered after years of analysis and a chance encounter with an old textbook, was ﬁnding the perfect spot to mount the 465-pound engines. When he tested a scale model of his plane at Boeing’s wind tunnel facility, the results showed that his plane produced less drag at high speeds than conventional “clean wing” designs. As a child, Fujino was fascinated by air-
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Old Dominion simpliﬁes global shipping by doing more than delivering freight. Our focus on premium service means every shipment arrives with one of the lowest claims ratios and one of the best on-time records in the industry.
Old Dominion Freight Line, the Old Dominion logo, OD Household Services and Helping The World Keep Promises are service marks or registered service marks of Old Dominion Freight Line, Inc. All other trademarks and service marks identiﬁed herein are the intellectual property of their respective owners. © 2015 Old Dominion Freight Line, Inc., Thomasville, N.C. All rights reserved.
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CONTINENTAL RESOURCES Shares of Harold Hamm’s pioneering fracker fell 60% as oil prices plunged. Will a recent rebound last?
OOREDOO Qatari telecom with fun-to-say name (ooo-ree-do) faces tumbling proﬁts amid currency swings and emerging market weakness.
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938 T VOESTALPINE AS 939 T J SAINSBURY UK LU 940OALTICE 940 S LEND LEASE GROUP AU 942 T WOLSELEY SZ 943 T NRG ENERGY US 944 S ADANI ENTERPRISES IN S SHAANXI COAL INDUSTRY CN 945 946 T SOLVAY BE T EVEREST RE GROUP BU 947 948 T HERTZ GLOBAL HOLDINGS US T SANDISK US 949 S CONTINENTAL RESOURCES US 950 950 S O’REILLY AUTOMOTIVE US 952 T EIFFAGE FR T JIANGXI COPPER CN 952 954 T KPN NE T EMAAR PROPERTIES AE 955 956 S SKF GROUP SW S ST. JUDE MEDICAL US 957 958 S AMEREN US T TECHNIP FR 959 T HUNTINGTON BANCSHARES US 960 961 T BELGACOM BE 962 T LEUCADIA NATIONAL US S MILLICOM INTERNATIONAL LU 962 964 T SEADRILL BU 965 S PUBLIC STORAGE US T INDUSTRIES QATAR QA 966 S BANK OF YOKOHAMA JA 967 968 S DELTA LLOYD NE S YAMAHA MOTOR JA 969 S LEAR US 970 971 S ARAB NATIONAL BANK SU 972 S FIDELITY NATIONAL FINANCIAL US S LORILLARD US 972 974 T INVESTEC UK 975 S NEXT UK S DP WORLD AE 976 T BANQUE NATIONALE 977 DE BELGIQUE BE 978 S SUNING APPLIANCE CN S FLEXTRONICS INTERNATIONAL SI 979 980 S POWER GRID OF INDIA IN S GEMDALE CN 981 982 T BANK OF INDIA IN SP 983OAENA 984 T IDGC HOLDING RU S LENNAR US 984 986OFINMECCANICA IT 987 S INNER MONGOLIA YILI CN 988 S TUI GE S AVALONBAY COMMUNITIES US 989 989 S RANDSTAD HOLDING NE S AMCOR AU 991
planes and studied aeronautical engineering at Tokyo University. But in Japan there wasn’t much of an aerospace industry, so his education was mostly theoretical. After graduating in 1984 at age 24, he joined Honda, where he worked on automobile research and development. His background wasn’t lost on Honda executives, however, who in 1986 launched a series of secret R&D projects, in keeping with the company’s culture for placing bets on innovations that could pan out decades down the road. Fujino, then 26, was surprised and somewhat reluctant when he was reassigned to a small team tasked with developing an experimental airplane. (Honda’s famous humanoid robot, Asimo, grew out of another of these secret R&D projects.) Fujino was uprooted from his home in bustling Tokyo and transplanted to tiny Starkville, Miss., home of Mississippi State University, a leading research center for advanced aeronautics. Working out of a drafty airplane hangar and living in an apartment three times bigger than his home in Japan, Fujino faced culture shock. He couldn’t un-
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ALCATEL-LUCENT Nokia’s $17 billion bid seems to offer respite from onslaught of Chinese competition. At least for now.
882 T FORTESCUE METALS GROUP 884 S PROLOGIS S BOE TECHNOLOGY GROUP 885 S CHONGQING CHANGAN AUTO 885 887 S PGNIG GROUP 888 S VAKIFBANK S BANK OF NANJING 889 890 S HERMÈS INTERNATIONAL 891 S NEWMONT MINING T LG CORP 892 893 S HANWHA CORP 894 S BRITISH LAND T BARRICK GOLD 895 T PUNJAB NATIONAL BANK 896 897ORECRUIT HOLDINGS 898OJD.COM 899OULTRAPAR PARTICIPACOES 900 S PIONEER NATURAL RESOURCES S CAPITALAND 901 S FINATIS 901 903 S TATA STEEL 904 T ALCATEL-LUCENT S CHINA OILFIELD SERVICES 905 S PHOENIX GROUP HOLDINGS 906 907 T CONAGRA FOODS 908 T SECOM S CHARTER COMMUNICATIONS 909 910 S HEALTH CARE REIT 911 S SM INVESTMENTS T FORMOSA CHEMICALS 912 913 T ANTARCHILE 914 T CIT GROUP T UNIPOL GRUPPO 915 S ALL NIPPON AIRWAYS 916 916 S QUINENCO 918 T HERSHEY T WW GRAINGER 919 S KAWASAKI HEAVY INDUSTRIES 920 921 S SUMITOMO METAL MINING S CGI GROUP 922 923 T CAMERON INTERNATIONAL 924 S INTACT FINANCIAL T SAMSUNG C&T 925 T BEIERSDORF 926 927 S BANK NEGARA INDONESIA 928OAERCAP HOLDINGS S ALLIANCE DATA SYSTEMS 929 930 T FORMOSA PLASTICS S TOWNGAS 931 932 T AXIATA GROUP T DEUTSCHE LUFTHANSA 932 934 S SCHRODERS S PEGATRON 935 936 T BANK HAPOALIM T MOTOROLA SOLUTIONS 936
HONDAJET derstand the locals’ drawl and longed for Japanese food in a three-stoplight backwater. ACTIVISION BLIZZARD
FOR A DECADE FUJINO AND
the Honda aviation team toiled in Starkville, challenging the limits of existing technology. Their ﬁrst project was to modify an existing single-engine turboprop plane by making the wings and tail section out of composite materials. For Fujino it was his ﬁrst hands-on experience with a real airplane. Much of the ﬁrst year was spent sanding molds and fabricating parts. The second jet was built from scratch. They gained practical experience in airplane design, but without breakthrough technologies that would bring new value to the industry, the company didn’t see much reason to get into aviation. So in 1996 Honda pulled the plug. Fujino and his heartbroken colleagues were HARLEY-DAVIDSON shunted back to Tokyo Motorcycle monolith’s shares are down nearly 25% as it and started looking for recalls 46,000 bikes. new jobs within Honda R&D. But Fujino wouldn’t give up. During his years in Mississippi he came to understand American culture and lifestyles, and recognized the need for small planes and regionGRUPO BIMBO al airports in a country as The Mexican bakery powervast as the U.S. He was still house still appears hungry despite gobbling up convinced there would be a string of North American companies. a market for a plane that was fast and fuel-efficient and didn’t sacriﬁce cabin or luggage space. He kept looking for a design breakthrough. It came in 1997 as Fujino was unpacking after moving to a new home in Japan. He spotted a 1930s aeronautics textbook by Ludwig Prandtl, the RALPH LAUREN German aeronautical engiThe clothes are looking neer whose pioneering analgreat. The shares? Less so, as a strong dolysis built the foundation for lar drags on the fashion house’s hopes for modern aerodynamics. As he global growth. leafed through the dusty pages,
Attack! Revenue from its digital operations now over 40% of total $4.4 billion for 2014.
100 | FORBES MAY 25, 2015
he was reminded that in the early 20th century there were no computers for numerical simulation or computational ﬂuid dynamics. Instead, Prandtl and his peers used complex theoretical functions—old-fashioned math— to analyze aerodynamic ﬂow. This got Fujino thinking: Instead of trying to minimize interference between the air ﬂows around the wings and around the engines, why not combine the two air ﬂows to ﬁnd the ideal aerodynamics overall? That would help him identify the sweet spot on the wings for the engines. “It was a very different thought process,” he said. One night, not long after he found the textbook, he was lying in the darkness when a new design concept hit him. He jumped out of bed, ﬂipped on the light switch— and couldn’t ﬁnd a piece of paper. So he ripped a calendar off the wall and sketched his inspiration on the back of it. It became the engine-on-wing concept for the new HondaJet. In December 1997 Fujino pitched Honda’s board of directors. He showed them his sketch, told them about the need he’d seen in America for small jets and how it could transform mobility for customers there. It could become the Honda Civic for the skies. Eventually he won their approval to develop his concept. FOR THE NEXT THREE YEARS FUJINO WORKED
on his ideas. The location of the engines on the wings was critical, but there were other important aerodynamic features that made the plane more efficient. One was the wing itself. Specially shaped to reduce drag, with surface irregularities—like rivets—reduced to a minimum, the wing’s contour allows air to ﬂow smoothly across it, a concept called natural laminar ﬂow. Another important design breakthrough was the plane’s long, sloping nose with bulges and curves in deliberate places: It, too, allows a ribbon of smooth-ﬂowing air to hug the fuselage. By cutting down on the drag that typically occurs at high air speeds, these innovations provide better aerodynamics without decreasing lift, making the HondaJet more efficient. He genuinely felt that Honda was making important technology breakthroughs, but because the project was still top-secret,
GRUPO BIMBO: SUSANA GONZALEZ/BLOOMBERG RALPH LAUREN: DANIEL ACKER/BLOOMBERG
GLOBAL 2OOO 991 S LEVEL 3 COMMUNICATIONS US 993 S MEDIOBANCA IT S HEBEI IRON & STEEL CN 994 994 S VENTAS US 996 S CAMPBELL SOUP US 997 S HELVETIA HOLDING SZ 998 T ORIGIN ENERGY AU S MITSUI OSK LINES JA 999 1000 S ADVANCED SEMICONDUCTOR TA S JULIUS BAER GROUP SZ 1000 1002 S HORMEL FOODS US T ASUSTEK COMPUTER TA 1003 T GRUPO TELEVISA MX 1003 1005 T CF INDUSTRIES HOLDINGS US 1006OACTIVISION BLIZZARD US S HCL TECHNOLOGIES IN 1007 1008 T JOHNSON MATTHEY UK T KUWAIT FINANCE HOUSE KU 1009 1010 S CMS ENERGY US COMERICA US 1011T 1012 S DOLLAR TREE US T WEATHERFORD INTERNATIONAL SZ 1013 UK 1014OST. JAMES’S PLACE 1014 T KT CORP KO 1016 S NOVOLIPETSK STEEL RU T CHOW TAI FOOK JEWELLERY HK 1017 1018 T GAIL INDIA IN 1019 T ROCKWELL AUTOMATION US US 1020OMACERICH T AVNET US 1021 1022 S XIAMEN C&D CN S INNOLUX TA 1023 T BANK OF GREECE GR 1024 1025 T CANADIAN TIRE CA 1026 T CANARA BANK IN S DELHAIZE GROUP BE 1027 1028 S BEIJING ENTERPRISES HK 1029 T MGM RESORTS US S CROWN CASTLE INTERNATIONAL US 1030 S LONDON STOCK EXCHANGE UK 1031 1032 T MURPHY OIL US T MEGAFON RU 1033 1033 T PTT GLOBAL CHEMICAL TH S ASSURANT US 1035 1036 T ALFA MX S BYD CN 1037 1038 S SHANGHAI CONSTRUCTION CN T GALP ENERGIA PO 1039 1040 T CENCOSUD CH S KEYENCE JA 1040 1042 S BORGWARNER US T MEDIOLANUM IT 1043 1044 T ADVANCED INFO SERVICE TH T FLUOR US 1045 1046 T CIELO BR S BOSTON SCIENTIFIC US 1047 1048OSHENGJING BANK CN T GUANGZHOU R&F CN 1049 1050 T DOVER US T NIELSEN HOLDINGS US 1051 1052 T ONEX CA S DONGBU INSURANCE KO 1053 1054 T CEMIG BR T HARLEY-DAVIDSON US 1054 1056 S PARTNERRE BU S HUISHANG BANK CN 1057 CN 1058 S CHINA NATIONAL CHEMICAL S HOST HOTELS & RESORTS US 1058 1058 S SHANGHAI PHARMACEUTICALS CN S AVAGO TECHNOLOGIES SI 1061 1061 T RAIFFEISEN BANK INTERNATIONAL AS S AJINOMOTO JA 1063 1064 S ALLEGHANY US S CHINA COSCO HOLDINGS CN 1065 1066 S SUNTORY BEVERAGE & FOOD JA S WR BERKLEY US 1067 1068 T GRUPO BIMBO MX S ZIJIN MINING GROUP CN 1069 1070 T IDEMITSU KOSAN JA T UBI BANCA IT 1070 1072 T AIR FRANCE-KLM FR T TRW AUTOMOTIVE HOLDINGS US 1073 1074 S CATAMARAN US T ONEOK US 1075 1076 S FISERV US T SES LU 1076 1078 S W&W-WÜSTENROT GE T SINGAPORE AIRLINES SI 1079 T TOKYU JA 1080 T XL GROUP IR 1081 1082 T ARROW ELECTRONICS US FR 1082OKLEPIERRE 1084 T SGS SZ T UNI-PRESIDENT TA 1084 1086 S INTUIT US T BOSTON PROPERTIES US 1087 T T ROWE PRICE US 1087 1089 T RALPH LAUREN US 1089 T TECK RESOURCES CA T NORSK HYDRO NO 1091 1092 S COMMUNITY HEALTH SYS US S DELTA ELECTRONICS TA 1093 1094 T ELETROBRÁS BR S TURKISH AIRLINES TU 1095 S INDUSTRIAL ALLIANCE 1096 INSURANCE CA 1097 T KYUSHU ELECTRIC POWER JA 1098 T NOBLE GROUP HK S MASCO US 1099 1100 S KOTAK MAHINDRA BANK IN DR HORTON US 1101S 1102 OCHINA GALAXY SECURITIES CN S BS FINANCIAL GROUP KO 1103 1104 S SMC CORP. JA T SJM HOLDINGS HK 1105 S KINNEVIK SW 1106 1107 T DAITO TRUST CONSTRUCTION JA 1108 S DR PEPPER SNAPPLE GROUP US S C.H. ROBINSON WORLDWIDE US 1109 1110S CHINA GEZHOUBA CN AU OPTRONICS TA 1111S
GANNETT: DANIEL ACKER/BLOOMBERG
he couldn’t talk about it, not even with his family (his wife, a son and two daughters). Meanwhile, other companies were getting credit for their work on lightweight jets. He craved outside validation for his ideas. “I don’t know how many times I wanted to quit,” he recalled. In October 2000 Honda allowed him to establish a research facility at the Greensboro airport to build a prototype, which took another three years. Finally, in December 2003, the HondaJet was ready for its maiden ﬂight. During its steering test the plane turned “as if a ﬁgure skater were making ﬁgure eights on the ice,” Fujino recalled in a Honda case study. “I must admit I became rather emotional,” he wrote of the moment. “It looked like it was moving under its own will. At last I felt as if my ‘daughter’ would become independent of me as she tried her wings for the ﬁrst time.” Despite the success—and two more years and undisclosed additional millions of dollars spent testing the aircraft—by 2005 Honda had still not committed to building Fujino’s jet on a commercial scale. To stoke public interest and sway the board of directors, he arranged for the HondaJet to make its debut at AirVenture Oshkosh, a show put on by the Experimental Aircraft Association that draws 500,000 visitors a year from more than 60 countries to tiny Wittman Regional Airport in Oshkosh, Wis. On July 28, 2005 a blue-and-white HondaJet swooped down from the sky and was immediately swarmed by thousands of airplane enthusiasts (one person gave him a $50,000 deposit). Armed with so much positive feedback, Fujino again went to the Honda board with a proposal to commercialize the plane. After several discussions the verdict was ﬁnally delivered in March 2006. Then CEO Takeo Fukui spoke after several minutes of silence. “He spoke as if he were convincing himself,” recalled Fujino. “‘Honda is a mobility company. We should pursue the future through the HondaJet.’ For a moment I could not even believe what I had just heard.” Honda started taking orders in October 2006 at the National Business Aviation Association convention in Orlando, Fla. By the end of the convention it had more than 100
orders. In June 2007 the newly created subsidiary, Honda Aircraft Co., broke ground on a $120 million world headquarters, R&D center and production line at the Greensboro airport. In September 2012 it added a $20 million customer-service facility, bringing the GANNETT total campus to more than Continued print declines threaten to choke green 600,000 square feet on a shoots in digital. 130-acre plot, with 1,300 employees. Honda expects to build 40 to 50 planes in the next 12 months, ramping up to 75 the following year. “I’ve never seen a company investing as aggressively as this,” said Vincent. Based on the size of the Greensboro manufacturing facility and the cost of tooling, “they’re signaling they intend to have more jets. No one gets into this industry and has just one model.” ALEXION For now, at least, FuPHARMACEUTICALS jino has nothing to say Uber-pricey drug Soliris just hit $2 billion in sales, but about Honda’s long-term as founder Leonard Bell retires, investors fret about plans for aviation, other long-term prospects. than pointing out with a shy smile that the hangar doors at his North Carolina plant are almost twice the height of the 15-foot-high HondaJet’s tail. Instead, he’d rather talk about the plane he’s just completed. Proudly poring over every detail, it’s obvious it all spilled out of his own mind—the curvature of the ceiling lights, the electronically controlled dimming shades, the panel that drops down from the bathroom door for privacy. Even the paint scheme is important to Fujino, who calls it “my ﬁnal ‘artwork’ contribution.” “Most business jets are white, with a thin stripe. I wanted something different.” Standing next to his favorite—dark blue on a white background, with silver edges for vivid contrasts— he says his goal was to reﬂect the movement of air ﬂowing over the fuselage. “Airplane design is like a painting,” he DANGOTE says. “While I am working on CEMENT it, I am already thinking about Amid Nigeria’s turmoil, founder Aliko the colors I will use. And the Dangote remains Africa’s richest man. frame to display it.” F MAY 25, 2015 FORBES | 101
1112T NIPPON YUSEN JA 1113T ZIMMER HOLDINGS US CHIBA BANK JA 1114S 1115S FIRST REPUBLIC BANK US 1116S AMPHENOL US 1116S BRASKEM BR 1116S KERRY GROUP IR GENWORTH FINANCIAL US 1119T 1120 S CHINA FORTUNE LAND DEVELOPMENT CN T MITSUBISHI MATERIALS JA 1120 1122 T GENTING MA T LEGRAND FR 1123 S AGL ENERGY AU 1124 1125 S INFINEON TECHNOLOGIES GE 1125 T RSA INSURANCE GROUP UK S EASYJET UK 1127 1128 T HINDALCO INDUSTRIES IN S YANZHOU COAL MINING CN 1128 1130 S WISCONSIN ENERGY US NXP SEMICONDUCTORS NE 1131S 1132 T FINANCIÈRE DE L’ODET FR S MOODY’S US 1133 T COCA-COLA ENTERPRISES US 1134 1134 S NITTO DENKO JA 1136 T DOOSAN KO S GANNETT US 1136 1138 T ATTIJARIWAFA BANK MO 1139 S CBRE GROUP US T SHIN KONG FINANCIAL TA 1140 T SUN ART RETAIL GROUP HK 1140 1142 T UNIQA AS T BIDVEST GROUP SA 1143 S HENRY SCHEIN US 1144 1145 S BANCA MPS IT 1146 T VEDANTA RESOURCES UK S AMADEUS IT HOLDINGS SP 1147 1147 S EXPERIAN IR 1147 S SHENZHEN OVERSEAS CN T LI & FUNG HK 1150 ROCK-TENN US 1151T 1152 OORIENT SECURITIES CN S MOHAWK INDUSTRIES US 1153 1154 T BOMBARDIER CA S SAPUTO CA 1154 1156 T NATIONAL BANK OF GREECE GR S SEIKO EPSON JA 1157 1158 S ALEXION PHARMACEUTICALS US T RED ELÉCTRICA SP 1158 1160 T HYUNDAI ENGINEERING KO WESTERN UNION US 1161T 1162 T STOREBRAND NO T EL PUERTO DE LIVERPOOL MX 1163 1164 T ARCH CAPITAL GROUP BU S UNIVERSAL HEALTH US 1164 1166 T BHARAT HEAVY ELECTRICALS IN T NEW YORK COMMUNITY US 1166 1168 T BRENNTAG GE T QUEST DIAGNOSTICS US 1169 1170 T SHAW COMMUNICATIONS CA STARWOOD HOTELS US 1171T 1172 S RENESAS ELECTRONICS JA S POWER FINANCE IN 1173 1174 S ELECTROLUX GROUP SW T TURKCELL TU 1175 1176 T YAMATO HOLDINGS JA S SINO-OCEAN LAND HOLDINGS CN 1177 1178 S INTERPUBLIC GROUP US DEUTSCHE ANNINGTON S 1179 IMMOBILIEN GE 1179 T TINGYI HOLDING CN ADVANCE AUTO PARTS US 1181S 1182 S AMERICAN FINANCIAL GROUP US T CA US 1182 1182 S DUBAI ISLAMIC BANK AE S ORIENTAL LAND JA 1185 T RHB CAPITAL MA 1185 1187 S MASRAF AL RAYAN QA 1188 S SHINSEI BANK JA S RAYMOND JAMES FINANCIAL US 1189 1189 S SOUTHWESTERN ENERGY US DSM NE 1191T 1192 ONUTRECO NE T TURK TELEKOM TU 1192 1192 T WYNN RESORTS US US 1195 OELECTRONIC ARTS T HANG LUNG GROUP HK 1196 1197 T STAPLES US T SISTEMA RU 1198 1199 S HOYA JA T CHINA RESOURCES ENTERPRISE HK 1200 S CINCINNATI FINANCIAL US 1200 1202 T RUSHYDRO RU S MONDI UK 1203 1204 S AGILE PROPERTY HOLDINGS HK KO 1205OSAMSUNG SDS S BBMG CN 1206 1207 S ZOETIS US S HAINAN AIRLINES CN 1208 1209 T HANKYU HANSHIN HOLDINGS JA 1210 S MEAD JOHNSON NUTRITION US SOJITZ JA 1211T 1212 S JYSKE BANK DE T OI BR 1213 T FMC TECHNOLOGIES US 1214 1215 S RITE AID US T DANGOTE CEMENT NI 1216 1217 T PKN ORLEN PL S HIKVISION CN 1218 JA 1218 ONIPPON PAINT 1220 T STORA ENSO FI S WUHAN IRON & STEEL CN 1221 S PERRIGO IR 1222 1222 S VESTAS WIND SYSTEMS DE S STARWOOD PROPERTY TRUST US 1224 1225 S SUN PHARMA INDUSTRIES IN T AUTOLIV SW 1226 1226 S TAISEI JA T METALURGICA GERDAU BR 1228 T JERONIMO MARTINS PO 1229 CONTINUED PAGE 106 S UP T DOWN O UNCHANGED O NEW
SHINING A LIGHT ON DOING BUSINESS IN LAS VEGAS BY BETH ELLYN ROSE NTHAL
Moving the Digital Signage Expo to Las Vegas
Angelo Varrone Chairman and CEO Exponation LLC
According to the Las Vegas Convention and Visitors Authority (LVCVA)… đƫƫĆċĂƫ)%((%+*ƫ+"ƫ0$!ƫƫ %05Ě/ƫąāċāƫ)%((%+*ƫ2%/%0+./ƫ (/0ƫ5!.ƫ3!.!ƫ%*ƫ0+3*ƫƫ 0+ƫ00!* ƫƫ)!!0%*#ƫƫ +.ƫ+*2!*0%+*ċƫ đƫƫ$!ƫ%05ƫ%/ƫ3!((ƫƫ !-1%,,! ƫ0+ƫ$+/0ƫ)!!0%*#/ƫ* ƫ!2!*0/ƫ+"ƫ((ƫ /%6!/Čƫ+û!.%*#ƫ*!.(5ƫƫ āāƫ)%((%+*ƫ/-1.!ƫ"!!0ƫƫ +"ƫ)!!0%*#ƫ/,!ċ ƫđƫƫ$!ƫ%05ƫ+*2!*%!*0(5ƫ +/0/ƫ)+.!ƫ0$*ƫ āĆĀČĀĀĀƫ$+0!(ƫ.++)/ċ
Among those companies that have realized the myriad business benefits of Vegas is Exponation LLC, an Atlanta-based organization that specializes in full-service trade shows and event production and management. It owns four events in the digital signage and commercial lighting industries, and its landmark event is Digital Signage Expo (DSE). Angelo Varrone, chairman and CEO, says the company launched DSE in San Francisco, later moving it to Chicago and then to Vegas in 2008, where it has remained ever since. “It became obvious that we needed to be in a city with world-class trade show credentials and one that was more aligned with digital signage technology,” he explains. “Las Vegas is perfect because it has an amazing amount of digital signage, with new installations happening all the time. Industry members can come to Vegas to explore what is being done firsthand as well as to see what’s new on our show floor. “As part of DSE’s education program, we book three tour buses and take registrants on a live tour of Vegas’ newest and most exciting digital signage installations. The live tour sells out every year,” Varrone says.
The Winning Draw of Las Vegas Exponation had no qualms about moving its signature event to Vegas, and the LVCVA has guided it every step of the way. “Since Las Vegas is the number one city for trade shows in the world, the LVCVA is familiar with all aspects of the business. They make it easier to stage a show here,” Varrone explains.
Known as a hot spot for world-class entertainment, outstanding cuisine and amazing nightlife, Vegas also means business. In addition, he says, the LVCVA assigns “a highly professional event manager who serves as a partner every step of the way. They help get the building ready for the show and even provide assistance with attendee marketing.” The fact that Vegas offers so much to do is, of course, another huge plus for convention-goers. “In their free time, our attendees have more opportunities to do things they couldn’t do in other cities,” Varrone points out. Exponation even produces a weekly newsletter to keep attendees up to date on what’s happening during the show.
A Boost in Business Moving the DSE to Vegas was, without a doubt, a smart choice. According to Varrone, in its first year, the Expo’s attendance increased by 25%—a significant portion of which comprised international visitors. “Las Vegas is very accessible from many worldwide destinations. That helps DSE attract visitors from over 60 countries. There is no doubt that international guests tend to be more comfortable coming to Las Vegas.” In addition to noting an increase in attendees since its move to Vegas, DSE has also seen a surge in exhibitors, winning four “Fastest 50” awards from industry publications over the past seven years. The award goes to the 50 fastest-growing trade shows in a particular year. “Exhibitors understand the benefits of showing their products in Las Vegas, and that has been a major factor in DSE’s growth,” Varrone notes. For Exponation, hosting its main event in Vegas turned out to be a wise business move. To plan your next business meeting or trade show, visit VegasMeansBusiness.com. Q
Vegas means business. With world-class meeting facilities, an extensive range of hotel rooms, and a city unrivaled in event and convention experience, here, business as usual is better than usual. In fact, attendance increases an average of 8 percent when shows rotate into Las Vegas. Find out all the reasons why so many FORTUNE 500 速 companies choose Las Vegas. 速
FORTUNE 500 is a registered trademark of Time Inc. Used with permission.
While overhyped cryptocurrencies like Bitcoin grab all the attention, Visa CEO Charlie Scharf has quietly put a $6.8 trillion stranglehold on the world’s commercial transactions. The future of payments? Surprise! It’s already here. BY DANIEL FISHER
104 | FORBES MAY 25, 2015
MOVING AT THE SPEED OF MONEY MATT FURMAN FOR FORBES
MAY 25, 2015 FORBES | 105
HANERGY: ROBERT NICKELSBERG/GETTY IMAGES; TENET: SUSAN GOLDMAN/BLOOMBERG
among the Pentagon contractors and trade associations in a western suburb of Washington, D.C. is a low-slung building protected by landscaped berms and a fence topped by razor wire. The exterior walls are a patchwork of whites, grays and greens to confuse passersby trying to judge its size from a distance. A 24-foot-deep moat provides a last line of defense against anybody trying to crash a vehicle through its walls. But while this fortress could easily pass as an outpost of some shadowy three-letter spy agency, it’s actually home to something far more mundane—and far more powerful. This is the nerve center of Visa, the global credit card company. Walk through a biometric security scanner into its data center—as I did recently—through a room dominated by huge video screens and past ranks of EMC data storage units holding petabytes of information ready for instant recall, and you’ll ﬁnd a single IBM Z-class mainframe, like the black monolith in Stanley Kubrick’s science-ﬁction classic 2001, quietly crunching up to 100 billion computations every second. Almost every time somebody swipes a Visa card anywhere in the world, the transaction ﬂows through here or a sister facility in Colorado. The company instantly checks 500 variables, from the customer’s location to his spending habits to the location of the merchant, and spits out a thumbs-up or -down on whether to allow the charge to go through. It’s the sort of centralized, Big Iron processing that Silicon Valley was supposed to obliterate years ago with peer-to-peer networks and cheap Internet-connected devices. Yet Visa endures. And grows. The credit processing company, which started 57 years ago as a nonproﬁt association of banks, went public on the eve of the ﬁnancial crisis in 2008 and sailed through it with a 390% total shareholder return over the past six years, landing as No. 263 on FORBES’ 2015 Global 2000 list of the world’s largest companies. It is also one of the planet’s most prodigious
cash machines. Visa had 60% operating proﬁt margins on revenues of $12.7 billion last year and cash ﬂow of more than $7 billion (dwarﬁng capital expenditures of $500 million). Visa handled 100 billion purchases worth $6.8 trillion, according to The Nilson Report, which tracks the credit card industry. That’s double the amount of rival MasterCard and 14 times American Express. For perspective, Visa thinks there are another $11 trillion in cash KEURIG GREEN and check transactions in the world MOUNTAIN each year that could go electronic. Stream of new ventures have And Visa’s transaction volume has revenues up 250% over the been growing steadily at 10% a year last four years. since the IPO. Nonetheless, there are threats. Retailers have won billions of dollars in antitrust suits accusing the company of helping banks keep fees— which can clip as much as 2.75% off a merchant’s revenue—too high. Customers love the easy credit but loathe interest rates that can top 20%. West Coast venture capitalists see Visa as an oligopolistic dinosaur and are pouring hundreds of millions of dollars into rivals that use Bitcoin. Meanwhile, banks, which collect the bulk of the fees from merchants, are warily eyeing Visa’s efforts to bypass them and forge direct relationships with retailers by offering oneclick Internet transactions and providing data on consumer behavior that only Visa possesses. None of which seems to faze Visa’s chief executive, Charlie Scharf. In time, he says, would-be Visa disrupHANERGY THIN FILM POWER tors all discover—just as InGROUP ternet upstarts PayPal, Square With shares up sixfold in a year, is this a solar buband Uber did—that it is simply ble in the making? easier and more economical to work with his leviathan than ﬁght it. “They don’t do what we do,” says Scharf, 50, who was a longtime lieutenant to JPMorgan Chase Chief Jamie Dimon and took charge at Visa in 2012. “They don’t have the network we have.” He’s already rushing to embrace what comes next: proTENET viding the back end for smartHEALTHCARE Paying patients and phone-based payment systems admissions up, bad debt from formersuch as Apple Pay and similar ly uninsured down. ObamaCare is worksetups for Samsung and other ing for somebody! mobile devices. Scharf’s techni-
2015 RANK RANK CHANGE COMPANY COUNTRY CODE 1230 S UNICHARM JA S HARBIN BANK CN 1231 1232 T NETAPP US 1232 T SHIZUOKA BANK JA 1234 T ESPIRITO SANTO FINANCIAL LU 1235 T ANNALY CAPITAL MANAGEMENT US S FIRST QUANTUM MINERALS CA 1235 1237 S OLAM INTERNATIONAL SI T WM MORRISON SUPERMARKETS UK 1237 1239 S AUTONATION US T DIRECT LINE INSURANCE UK 1240 CN 1241 OGUOSEN SECURITIES 1242 T SHARP JA T BPI PH 1243 S MARKEL US 1244 1245 T MOLSON COORS BREWING US S OMRON JA 1246 1247 T HINDUSTAN PETROLEUM IN T ASAHI GLASS JA 1248 1249 S MANPOWER US S THAI BEVERAGE TH 1250 S PVH US 1251 1252 T BRAMBLES AU 1253 T AREVA FR T UNITED UTILITIES UK 1253 1255 S KEURIG GREEN MOUNTAIN US 1255 S UC RUSAL RU 1257OCJ CORP. KO CN 1258OEVERBRIGHT SECURITIES 1259 S GIVAUDAN SZ T JM SMUCKER US 1259 T PLDT PH 1259 1262 T LIBERTY MEDIA US 1263 T HYUNDAI GLOVIS KO GE 1264ODEUTSCHE WOHNEN 1265 S BELLE INTERNATIONAL HOLDINGS HK 1266 T WULIANGYE YIBIN CN T BROWN-FORMAN US 1267 T GOLDCORP CA 1268 1268 S UNITED RENTALS US T BANKINTER SP 1270 1271 T CLOROX US T CP ALL TH 1272 1272 S NSK JA T LIXIL GROUP JA 1274 1275 S TDK JA S SALESFORCE.COM US 1276 1277 T ARAB BANK JO S BALL US 1278 1279 T ANALOG DEVICES US S GRIFOLS SP 1280 1281 T TERNA IT T MOL HUNGARIAN OIL HU 1282 1283 T SEMBCORP INDUSTRIES SI S EDWARDS LIFESCIENCES US 1284 1285 S ITV UK S SCANA US 1285 1287 T BANK LEUMI IS T HONG LEONG FINANCIAL MA 1287 1289 S SAVOLA GROUP SU S SAUDI ARABIAN MINING SU 1290 1291 T ANTOFAGASTA UK S ROCKWELL COLLINS US 1292 1293 S CONCHO RESOURCES US T MELCO CROWN ENTERTAINMENT HK 1294 1294 S TOKYO ELECTRON JA S LABCORP US 1296 1297 S METROPOLITAN BANK & TRUST PH 1298 S CHINA INTERNATIONAL MARINE CN T NEWS CORP. US 1299 S PAYCHEX US 1300 1301 S CERNER US 1302OHANERGY THIN FILM POWER GROUP CN 1302 T KGHM POLSKA MIEDZ PL T BCI-BANCO CREDITO CH 1304 T FIRST FINANCIAL HOLDING TA 1305 1306 T CELANESE US 1307 T GJENSIDIGE FORSIKRING NO S OBAYASHI JA 1308 1309 S NETEASE CN S RURAL ELECTRIFICATION IN 1310 1311T SAUDI ARABIAN FERTILIZERS SU T PRADA IT 1312 1313 T COLRUYT BE S HAMMERSON PLC. UK 1314 1314 ORESTAURANT BRANDS INTERNATIONAL CA 1316 T MICHAEL KORS HOLDINGS HK 1317 S DARDEN RESTAURANTS US T CHUGOKU ELECTRIC POWER JA 1318 1318 T MISC MA T INGRAM MICRO US 1320 S ROPER INDUSTRIES US 1321 1321 T TRANSOCEAN SZ 1323 S HUA NAN FINANCIAL TA T GLOBAL LOGISTIC PROPERTIES SI 1324 1325 S JIANGSU YANGHE BREWERY CN 1326 T EMPIRE CA ROSTELECOM RU 1327 T T ATOS FR 1328 1329OLAM RESEARCH US S WYNDHAM WORLDWIDE US 1330 1331 T AMBANK GROUP MA S INTU PROPERTIES PLC. UK 1331 T KINTETSU JA 1333 1333 S YUANTA FINANCIAL HOLDING TA 1335 S HYUNDAI MARINE & FIRE KO S TENET HEALTHCARE US 1335 1337 S WESTERN REFINING US T DSME KO 1338 1339 S CHINA HONGQIAO GROUP CN T PETRONAS CHEMICALS MA 1339 S CHINA MERCHANTS HOLDINGS HK 1341 1341 T COSMO OIL JA S FORTIS (CANADA) CA 1343
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VISA cal team spent more than a year working with Apple before the launch of Apple Pay last October. The plan: Grab billions of dollars more in fees each year by making Visa the payment method of choice for everything—right down to $1 hamburgers at McDonald’s and three-block taxi rides in Singapore—with the ultimate goal of replacing cash itself. “It took us 50 years to get to 36 million merchants globally,” says James McCarthy, executive vice president in charge of innovation and a former IBM executive who joined Visa in 1999. “Now,” he says, holding his iPhone in the air, “we’ve got 7 billion of these.” SCHARF HAS BEEN IMMERSED IN CAPITAL MAR-
kets since he was a teenager. He interned at his father’s offices at Shearson Lehman Bros. in New York from the age of 13 and landed a job as Jamie Dimon’s personal assistant during his senior year at Johns Hopkins. Instead of leaving for Wall Street after graduation in 1987 he joined Dimon at a Baltimore lending outﬁt known as Commercial Credit, run by an ambitious banker named Sanford I. “Sandy” Weill. For the next two decades he accompanied Weill and Dimon on a journey through the evolving ﬁnancial marketplace as Weill bought Shearson, Salomon Smith Barney, Travelers insurance and ultimately, in 1998, Citigroup. After Dimon and Weill fell out in the late 1990s, in 2000 Scharf followed Dimon to Bank
One in Chicago, where the two of them became closer (Scharf and his boss even shared a guitar instructor). He was named chief ﬁnancial officer at the age of 35 and then joined JPMorgan Chase as head of retail ﬁnancial services, including mortgages, when it bought Bank One in 2004. Scharf guided JPMorgan’s retail and mortgage business through the ﬁnancial crisis—the big bank took federal bailout funds only “because we were asked,” Dimon later said—but quit that job in 2011 to run JPMorgan’s $10 billion private equity arm in what some took as a demotion. Dimon says Scharf came to him looking for a change after years in the same retail job. “What else could I do?” says Dimon, now JPMorgan Chase’s chairman and CEO. He described his longtime lieutenant as “very diligent, very NINTENDO bright, very honest,” who has “an Can Mario ﬁnally go mobile? Betability to handle lots of complex ter hope so after three consecutive things, relate to lots of people.” years of losses. All of which is proving useful in Visa’s C-suite. The company has roots in BankAmericard, which San Francisco-based Bank of America rolled out in 1958 as the ﬁrst credit card available to middle-class consumers and smaller merchants who lacked their own private charge cards. Originally a simple paper card with a $300 credit limit, BankAmericard was vulnerable to fraud. Merchants literally ﬂipped through tele-
THE NEXT WAVE 1. Customer’s phone veriﬁes identity with a thumbprint or facial recognition, and then a “secure element” or tamper-proof chip inside transmits a 16-digit token and unique cryptogram to authorize the charge. It sends the information wirelessly to the merchant’s point-of-sale terminal.
3. Visa swaps the token for the cardholder’s actual 16-digit number and analyzes up to 500 variables before authorizing or rejecting the charge within milliseconds.
2. The POS sends the
4. The bank that issued the
token and cryptogram to the merchant’s acquiring bank and on to the Visa network for veriﬁcation.
card to the customer approves payment and sends money to the acquiring bank via Visa’s settlement and clearing system. ACQUIRING BANK
DANIEL HERTZBERG FOR FORBES
THE “TOKENIZATION” TECHNOLOGY IN APPLE PAY ALLOWS CONSUMERS TO BUY GOODS WITH A SIMPLE TAP OF THE CELLPHONE AT A STORE TERMINAL.
1344 S AYALA CORP. 1344 T EISAI S INNER MONGOLIA 1344 BAOTOU STEEL 1347 S CHECK POINT SOFTWARE 1348 S INOTERA MEMORIES 1349 T ABENGOA 1349 S SL GREEN REALTY S ANTERO RESOURCES 1351 1352 S NÜRNBERGER S MONSTER BEVERAGE 1353 1354 S MASHREQ BANK T SEARS HOLDINGS 1355 T AEROPORTS DE PARIS 1356 1357OSKYWORKS SOLUTIONS 1358 T CHICAGO BRIDGE & IRON S OLYMPUS 1359 1360 S AAREAL BANK S SNC-LAVALIN GROUP 1361 1362 S CRESCENT POINT ENERGY T COMPUTER SCIENCES 1363 1364 S ANGANG STEEL 1365OCHEIL INDUSTRIES S FOOT LOCKER 1365 1367 S E-TRADE FINANCIAL 1368 T PIRELLI & C. T WANT WANT CHINA 1369 1370 S BANK OF CHONGQING 1371 S NIPPON EXPRESS S ADOBE SYSTEMS 1372 T PIRAEUS BANK 1373 1374 S CHINA LONGYUAN POWER T SMITH & NEPHEW 1375 T AGILENT TECHNOLOGIES 1376 1376 S SINOPAC FINANCIAL 1378 T IHI S NVIDIA 1379 1380OSEKISUI CHEMICAL 1381 T REGENERON PHARMACEUTICALS S ACCOR 1382 T STEEL AUTHORITY OF INDIA 1383 1384 S CHINA MENGNIU DAIRY S FUKUOKA FINANCIAL GROUP 1384 1386 T ZIONS BANCORP T LATAM AIRLINES 1387 1388OKERRY PROPERTIES LTD. T ICA GRUPPEN 1389 1390 T KOREAN AIR S CAPITA 1391 1392 S AMERICAN WATER WORKS T TORCHMARK 1392 1394 T NINTENDO T BUNZL 1395 1396 T DAI NIPPON PRINTING T HOLLYFRONTIER 1396 1398 S KT&G T AMERICAN CAPITAL AGENCY 1399 1400 S ACTELION T KAJIMA 1401 1402 T S-OIL T AXIS CAPITAL HOLDINGS 1403 1404OJB FINANCIAL GROUP T MEDIPAL HOLDINGS 1405 1406 T GKN S BANCO OCCIDENTAL 1407 1407OEXPEDIA S WOLTERS KLUWER 1409 1410 S ARM HOLDINGS METRO INC. 1411T 1412 S BRILLIANCE CHINA AUTOMOTIVE HOLDINGS 1412 S COMPAL ELECTRONICS S SAUDI HOLLANDI BANK 1412 S CHIPOTLE MEXICAN GRILL 1415 1416 T CPFL ENERGIA S TAIWAN COOPERATIVE 1417 FINANCIAL 1418 OTONENGENERAL SEKIYU S CROWN HOLDINGS 1419 1419 S GRUPO ELEKTRA T AOZORA BANK 1421 1422 S SIGMA-ALDRICH S TAQA 1423 1424 S QATAR ISLAMIC BANK T COMMERCIAL BANK OF QATAR 1425 1426 T OJI HOLDINGS T INDUSTRIVARDEN 1427 1428 T REXEL T TOPPAN PRINTING 1428 S WHITBREAD 1430 1431 T AHLI UNITED BANK 1432 T UNION BANK OF INDIA T BANCO DAVIVIENDA 1433 1434 S ELECTRIC POWER DEVELOPMENT O WESTFIELD 1435 S REMGRO 1436 1437 T ALPHA BANK 1438OCENTENE T BANCO COMERCIAL PORTUGUES 1439 1440 S GEBERIT 1441 T MAXIS 1442 S HANESBRANDS S ASSURED GUARANTY 1443 1444 S BENDIGO & ADELAIDE BANK S SIKA 1445 1446 T GRUPO CARSO T ARAMARK 1447 T TRAVIS PERKINS 1447 1449 T WÄRTSILÄ 1450OFOUNDER SECURITIES T COACH 1451 1451 T DASSAULT AVIATION T ILIAD 1453 1454 T CHAROEN POKPHAND FOODS S ASPEN PHARMACARE HOLDINGS 1455 1455OLARGAN PRECISION 1457 T BANCO POPOLARE S CHANG HWA BANK 1457 T AMETEK 1459 1460 S JARDEN
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PH JA CN IS TA SP US US GE US AE US FR US NE JA GE CA CA US CN KO US US IT CN CN JA US GR CN UK US TA JA US JA US FR IN CN JA US CH HK SW KO UK US US JA UK JA US KO US SZ JA KO BU KO JA UK VZ US NE UK CA CN TA SU US BR TA JA US MX JA US AE QA QA JA SW FR JA UK BN IN CO JA AU SA GR US PO SZ MA US BU AU SZ MX US UK FI CN US FR FR TH SA TA IT TA US US
SEARS: AMANDA GORDON/ BLOOMBERG
phone-book-size volumes to check the validity of card numbers. Bank of America spun out what became Visa in 1970, and three years later Visa unveiled the ﬁrst electronic authoSEARS rization system, called BASE I. It followed HOLDINGS with BASE II in 1974, an electronic system for CEO Eddie Lampert spins real estate into clearing and settling transactions among the REIT as retailer’s collapse continues. How banks that issue cards to consumers and “acmany more tricks does he have left? quiring banks,” which represent merchants. Now Visa sits at the center of a global network of more than 1,500 banks linked by 1.5 million miles of secure ﬁber-optic lines, serving as a sort of intelligent switch for deciding whether to move money to pay for each transaction. It also scouts for fraud and helps settle disputes over charges. Visa doesn’t reap the reward of those usurious 20% interest fees or even the vast majority of the 2.75% charged to merchants. Instead it has to be content collecting 8 to 20 basis points, or hundredths of a percent, off of each transaction. At the heart of the system is that WARTSILA annoying-to-type 16-digit number Finnish enginemaker sees demand fall due to lower prices for crude oil. embossed on the plastic bulging
your wallet. When a customer swipes a card or cellphone at a merchant’s point-of-sale terminal, that information is transported to one of Visa’s data centers. Within milliseconds its computers use a constantly evolving set of algorithms to determine whether the purchase ﬁts the customer’s buying proﬁle—or whether it’s likely to be fraudulent or exceed the bank’s credit limit. BUT THERE’S A SOMEWHAT FATAL FLAW TO ALL OF THIS,
one Scharf knew he’d have to contend with when he joined the ﬁrm looking to expand more rapidly into mobile commerce and the multitrillion-dollar cash economy. With access to a credit card number, plus a few other easily obtainable details, fraudsters gain full control of an account’s purchasing power and can encode magnetic strips on blank plastic cards (Amazon.com will sell you a magnetic card reader/writer for $17). Worldwide, credit card fraud is estimated to have topped $14 billion last year, according to The Nilson Report, with banks and merchants bearing most of the cost. To truly protect accounts, you need to keep those 16digit numbers private, restricting access to those within Visa’s secure network. There are existing solutions: Eu-
Because weekend warrior
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VISA including 1,000 in the U.S., to creropean card issuers have used difficult-to-copy microchips and personal identiﬁcation numbers ate software and tools for online and mobile purchases this year, to protect transactions for years, but U.S. meron top of the 6,000 employees chants have resisted paying for the setup. he now oversees. He also overSystems like Apple Pay, which operate with sees the once unthinkable prosoftware-based encryption known as “tokenizacess of opening up Visa’s network tion,” promise an alternative, one with more seto outside developers working curity yet without the complication of punchNETFLIX Netﬂix hits 62 million on the next generation of mobile ing a PIN into a keyboard. Instead of using the subscribers thanks to slew of original apps. The company has already customer’s actual 16-digit credit card numcontent. released a set of application prober, a phone equipped with Apple Pay transgram interfaces, or APIs, to simplify transactions mits a dummy number, a software “token,” as and speed the adoption of Visa Checkout, an enit’s known, which alerts the computer terminal crypted, standardized version of Amazon’s oneat the retailer’s checkout counter to request anclick payment system for websites. other vital piece of information from a chip in “We’re telling [developers], ‘Please dream, the phone: a cryptogram, or a long string of randomly generated numbers, that only Visa’s com- please build new applications,’ ” says Taneja. Scharf clearly recognizes the potential threat puters can verify. Transactions can be further from new electronic payment systems, most protected by biometric security like thumbprint famously Bitcoin, which rescanners and even facial recogniplaces Visa’s sprawling computtion. If a hacker somehow cloned er network with a single registry a customer’s phone, Visa’s comCREDIT CARDS HAVE ALREADY OUTSTRIPPED ALL FORMS OF maintained by many computers, puters would detect that it was PAYMENT IN THE U.S.—EVEN CASH. where payments are transferred being used in two places at once $4.11 2013 from one account to another and shut down the account. 2018 with a simple journal entry. No Coupling that kind of secu$3.14 one owns Bitcoin; it’s just a platrity with the ubiquity of mobile ($TRIL) $2.49 form created by an anonymous phones could allow Visa to attract $2.17 $2.11 coding genius (or possibly a millions more customers around $1.56 $1.35 group of several geniuses) workthe globe and billions more trans$1.03 $1.05 $0.57 ing under the name “Satoshi actions—plus the fees. For a Nakamoto.” Venture capitalglimpse of where this leads, look Cash Checks Credit Debit Electronic Cards Cards Payments ists, excited by the buzz around at what happened when Visa lowSOURCE: THE NILSON REPORT. the new currency, have poured ered its fees and eliminated sigmore than $300 million into businesses that ennatures for fast-food and many other purchases able Bitcoin transactions or use its underlying under $25 (who steals a hamburger, anyway?). currency. “I don’t stay awake at night worryMcDonald’s quickly became the largest merchant ing about Bitcoin,” says Scharf, “but I’m also not by number of transactions on the Visa network. dismissive of it.” “Tokenization is the enabler,” says Scharf, Under Scharf, Visa is experimenting with who demanded weekly updates from his team alternative payment sysduring the yearlong process of building Apple tems. It was an early invesPay. “Whether they’re big tickets or small ticktor in Square, which allows ets, we like it all.” small merchants to process SCHARF IS A TECHNOLOGY TRUE BELIEVER. card transactions on their cellFAMILY DOLLAR He joined Microsoft’s board last year, and he’s phones. Visa also reportedly STORES bingeing on talent like Rajat Taneja, 50, who put a few million dollars into An $8.5 billion takeover by smaller rival Dollar Tree once ran Microsoft’s e-commerce platform. LoopPay, which developed an expected to close in May. Scharf recruited Taneja away from Electronic ingenious method for generArts in 2013 to run Visa’s sprawling technology ating a wireless version of a credit card’s magdivision. Working out of Visa’s industrial-chic of- netic strip. Within six months Visa’s investment ﬁces overlooking San Francisco Bay, Taneja will doubled in value, as Samsung scooped up Loophire 2,000 software engineers and developers, Pay to install in its phones.
ROGELIO V. SOLIS/AP (BELOW)
HOW WE BUY
1461 S HENGAN INTERNATIONAL GROUP 1462 T STOCKLAND AUSTRALIA S JTEKT 1463 1464 S ABU DHABI ISLAMIC BANK 1464 T CAESARS ENTERTAINMENT 1466 S MEIJI HOLDINGS 1466 T STRABAG S AGL RESOURCES 1468 1468 T PENTAIR T NAVER 1470 1471 T SHOPRITE HOLDINGS T XILINX 1472 T ZODIAC AEROSPACE 1472 1474 T INTUITIVE SURGICAL 1474 T SHIMIZU S CATTOLICA ASSICURAZIONI 1476 1477 S NETFLIX T GEA GROUP 1478 1479 S FAR EASTERN NEW CENTURY T DELEK GROUP 1480 1481 T MITSUBISHI UFJ LEASE T ENKA 1482 T NMDC 1483 1484 S UNION NATIONAL BANK 1485 T PETRONAS GAS S SMURFIT KAPPA GROUP 1486 1487 S WESTLAKE CHEMICAL 1488 T EQT T DEXIA 1489 1490OBARRATT DEVELOPMENTS 1491 T COLOPLAST T HEXAGON 1492 S ILLUMINA 1493 1494 T OTP BANK 1495 S ALINMA BANK T MCGRAW-HILL COS. 1496 1497 S SHIMANO 1498 T ZENITH BANK T QANTAS AIRWAYS 1499 T US STEEL 1500 1501 OSOCIEDADES BOLIVAR S FRANSHION 1502 PROPERTIES (CHINA) 1503 T CITY DEVELOPMENTS T SAMSUNG HEAVY INDUSTRIES 1503 1505 S NEW HOPE LIUHE S ALASKA AIR GROUP 1506 1507OTRANSURBAN GROUP 1508OOLEO E GAS PARTICIPACOES 1509OSHANGHAI COMMERCIAL & SAVINGS BANK T CHINA LIFE INSURANCE 1510 (TAIWAN) 1510 S E.SUN FINANCIAL S COMMERCIAL 1512 INTERNATIONAL BANK 1512 OIDEA CELLULAR T AMBAC FINANCIAL GROUP 1514 1515 T NESTE OIL T ALFRESA HOLDINGS 1516 1517 S PANDORA T SHOWA SHELL SEKIYU 1518 1519 S NOVOZYMES S TRACTOR SUPPLY 1520 1521 T MATTEL T ISETAN MITSUKOSHI HOLDINGS 1522 1523 S SIGNET JEWELERS T SHANXI TAIGANG STAINLESS 1524 1525 T IDBI BANK 1525OJG SUMMIT HOLDINGS 1527 T KINGDOM HOLDING S HOKUHOKU FINANCIAL GROUP 1528 1528 S LIG INSURANCE 1530 T FONCIÈRE DES RÉGIONS T SEVERSTAL 1530 T E-MART 1532 1533OCHIMERA INVESTMENT S CORPBANCA 1534 1535 T YAMAGUCHI FINANCIAL S WORLD FUEL SERVICES 1536 T PUBLIC POWER 1537 1538 T ACCIONA 1539 S AVIS BUDGET GROUP S CHENIERE ENERGY 1540 1541 T TERNIUM T PGN 1542 1543 T NEWELL RUBBERMAID T NIPPON PAPER INDUSTRIES 1544 1545 T MITSUI CHEMICALS S BANCA POPOLARE DI MILANO 1546 T PEMBINA PIPELINE 1547 1548 S JB HUNT TRANSPORT 1548 T TAIWAN MOBILE T DASSAULT SYSTEMES 1550 1551 OOFFSHORE OIL ENGINEERING T FAMILY DOLLAR STORES 1552 T OIL & GAS DEVELOPMENT 1553 1554 S ALMARAI 1555 T FASTENAL S EXPEDITORS INTERNATIONAL 1556 1557 T ARCA CONTINENTAL 1557 T PULTEGROUP 1559 S IOI GROUP 1560 S EZDAN HOLDING GROUP 1561 S BURBERRY GROUP S BANK AUDI 1562 1563 S DIA S GUANGZHOU AUTOMOBILE 1564 GROUP CO. LTD. T OLD REPUBLIC INTERNATIONAL 1565 1566 T ALTERA 1567 S KANSAS CITY SOUTHERN 1568OEFG EUROBANK ERGASIAS 1568 T SANY HEAVY INDUSTRY T LOTTE CHEMICAL 1570 1570 T SINOPEC ENGINEERING (GROUP) T COCA-COLA HBC 1572 1573 O3I GROUP 1574 OKIMCO REALTY T WILLIS GROUP HOLDINGS 1575
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CN AU JA AE US JA AS US SZ KO SA US FR US JA IT US GE TA IS JA TU IN AE MA IR US US BE UK DE SW US HU SU US JA NI AU US CO HK SI KO CN US AU BR TA TA TA EG IN US FI JA DE JA DE US US JA BU CN IN PH SU JA KO FR RU KO US CH JA US GR SP US US LU ID US JA JA IT CA US TA FR CN US PK SU US US MX US MA QA UK LE SP CN US US US GR CN KO CN SZ UK US UK
1576 S BANK MUSCAT 1577OTIFFANY & CO. S HUNTSMAN 1578 S RANGE RESOURCES 1578 1580OLUPIN 1580ONINGBO PORT T MIZRAHI TEFAHOT BANK 1582 1583OUNITED INTERNET 1584 T X5 RETAIL GROUP T KAWASAKI KISEN KAISHA 1585 1586OAMOREPACIFIC 1587 T BCV GROUP S HARRIS 1587 T YTL 1589 1590OREXAM 1590OSAMSUNG CARD 1592OBANCO CONTINENTAL 1592 T INTER RAO S CHUGOKU BANK 1594 T FBN HOLDINGS 1595 1595OMOSCOW EXCHANGE 1597 T LINEAR TECHNOLOGY 1597ONORWEGIAN CRUISE LINE HOLDINGS S TECH DATA 1599 1600 T HRG GROUP 1601 T JOYO BANK T CIMAREX ENERGY 1602 1603 S AFFILIATED MANAGERS GROUP 1604 S MERITZ FINANCIAL GROUP S TWITTER 1605 1606 T BANCA POPOLARE DELL’EMILIA 1607 S TOSOH S HALYK BANK 1608 T NISHI-NIPPON CITY BANK 1608 1610 OH&R BLOCK 1611 OAECOM TECHNOLOGY 1611 OGRAHAM HOLDINGS T SUNAC CHINA HOLDINGS 1613 1614 T DONGFANG ELECTRIC T SUZUKEN 1614 1616 T 77 BANK 1617 T WISTRON 1618 ORISESUN REAL ESTATE DEVELOPMENT CO. 1618 OUNITED AIRCRAFT CORP. 1620 T FCC 1620 S LINKEDIN T NORTH PACIFIC BANK 1620 1623OAMERICAN REALTY CAPITAL PROPERTIES T HACHIJUNI BANK 1623 1625 T HANKOOK TIRE T MMI HOLDINGS 1625 1627 T BANK OF KYOTO
OM US US US IN CN IS GE RU JA KO SZ US MA UK KO PE RU JA NI RU US US US US JA US US KO US IT JA KZ JA US US US CN CN JA JA TA CN RU SP US JA US JA KO SA JA
1628OSEAT-PAGINE GIALLE 1628 T CCR S EAST WEST BANCORP 1630 1631 S LKQ 1631 T YAMADA DENKI 1633 T WENDEL 1634 T HIROSHIMA BANK 1635OMALLINCKRODT 1635 T BAJAJ AUTO S CHINA NATIONAL MATERIALS 1635 1635OSAMSUNG SDI T SYNDICATE BANK 1635 S SVB FINANCIAL GROUP 1640 1641 T PETRO RABIGH 1641 T UCB T SINO LAND 1643 1644 T GUNMA BANK T HELMERICH & PAYNE 1644 1644OSBM OFFSHORE S MERCURIES & ASSOCIATES 1647 1648 S CHINESE ESTATES 1648OINDUSTRIAL SECURITIES T JACOBS ENGINEERING 1650 1651 T EVRAZ GROUP 1652OTRINITY INDUSTRIES T SUMITOMO RUBBER 1653 1654 S PROSIEBENSAT1 MEDIA 1655 T GS HOLDINGS 1656OHOSPIRA T HYOSUNG 1657 1658 T GREENTOWN CHINA HOLDINGS 1658OMBIA S VERTEX PHARMACEUTICALS 1660 1661 S SIGNATURE BANK 1662 T MINMETALS DEVELOPMENT T CENTRAL BANK OF INDIA 1663 1663ORHOEN-KLINIKUM 1663 T ZAIN S NASDAQ OMX GROUP 1666 T NOMOS BANK 1667 1668 S KAISA GROUP HOLDINGS T AGCO 1669 1669 T SK NETWORKS S RMB HOLDINGS 1671 1672 S SAUDI INVESTMENT BANK S SEALED AIR 1673 1674OFLEETCOR TECHNOLOGIES S SHISEIDO 1675 1676 T BLOM BANK T IYO BANK 1676 1678 S BAYWA T GUDANG GARAM 1679 1680OGOODMAN GROUP T ISRAEL DISCOUNT BANK 1680 1682OOSISKO GOLD ROYALTIES
IT BR US US JA FR JA IR IN CN KO IN US SU BE HK JA US NE TA HK CN US UK US JA GE KO US KO CN US US US CN IN GE KU US RU CN US KO SA SU US US JA LE JA GE ID AU IS CA
Now Visa is working with automakers to embed tokenization into cars, turning them, in essence, into rolling credit cards. Consumers will be able to query their onboard navigation system about the nearest pizza joint, order a large pie with bacon and onions, and pay for it in the drive-through via a secure Bluetooth connection linked to the car’s unique vehicle identiﬁcation number. Need a ﬁll-up? Pull up to the pump, put the nozzle in your car and let the software pay. THERE’S ANOTHER HUGE OPPORTUNITY TO ALL THIS TECHNOLOGY, ONE THE
company is only starting to leverage: personal data. Every time you swipe your card, Visa collects a tranche of informaVERTEX tion deep enough to drown an NSA agent: PHARMACEUTICALS spending habits, travel history and, with the Shares have more than doubled on outlook for addition of GPS-enabled devices, exact locapowerful new cystic ﬁbrosis drug Kalydeco. tions. The company knows more about the habits, hobbies, tastes and trends of the world’s consumers than any organization on earth. “Visa has the most data—it’s the single-biggest advantage they have,” says Matt Harris, a managing director with Bain Ventures who invests in alternative payment systems. Lately it has been tapping that vast trove of information to help member merchants. In 2011 Visa and clothing retailer Gap announced Mobile 4 U, for example, a service that allows Gap to ﬁre text messages to consumers alerting them to deals when they are near a Gap store. Only
Because Monday pitch meeting
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VISA sion of its processing network for the bank Visa has all the data necessary to tell a retailer that a loyal, big-spending customer is nearby under a ten-year contract that reportedly includes lower fees. Scharf folded in this conand possibly open to a discount offer, a potentest against his former boss, tial gold mine for marketers—and potentially Dimon. Neither would comtransformative for the way goods are marketment on the deal. Pressed to ed. Of course, location-based marketing might discuss Visa’s relationship strike some people as creepy, so to assuage with merchants and banks, concerns Scharf says Visa will allow such proScharf says simply: “We ungrams only on an opt-in basis. TESLA MOTORS New battery plans have derstand who our clients are.” Visa’s urge to help retailers isn’t totally alinvestors salivating. For the time being Scharf truistic: The company’s relationship with merwill have to remain content to boost revenue chants remains strained, and Visa is clearly based on increasing the number of transactions looking to do more than just gin up additional transactions. Retailers have won billions of dol- it processes rather than increasing its cut. Visa’s greatest growth, not surprisingly, is likely to come lars in antitrust suits against Visa and MasterCard, accusing them of helping banks keep fees in emerging markets, where cash dominates (and fees tend to be higher). China, so far, is off limits, too high with rules that prohibited them from with its $6.9 trillion credit card business held by encouraging customers to use cash or less exthe state-controlled UnionPay system, but Chipensive debit cards. As part of the settlement nese officials plan to open up the processing side Visa and MasterCard dropped those rules, but the two are still being sued by holdouts, includ- of the business to foreign companies. Africa, too, represents a big opportunity. Deing Wal-Mart, which are seeking billions more. “Visa continues to have some market power velopers there came up with a clever way to move money via prepaid cellphones, and Visa to set fees higher than they should be,” said Craig Wildfang, the Minnesota lawyer who ne- adapted its existing mechanism for paying refunds into a worldwide gotiated a $7.25 billion setcash-transfer system. Elsetlement of antitrust claims where in the developwith Visa and MasterCard SINCE GOING PUBLIC IN 2008, VISA SHARES HAVE BEEN A STANDOUT—EVEN IN A BULL MARKET. ing world, Visa has used that was approved in 2013. 500 its analytics to help retail“There is and there has 400 VISA INC. CLASS A - TOTAL RETURN ers identify bottlenecks, been price competition in 300 like the grocer in Indonethe business,” says Scharf. 200 3/18/08=100 sia who increased sales by “People have choices.” accepting electronic payPerhaps the biggest 100 ments for small transacproblem for Visa is one S&P 500 - TOTAL RETURN tions and thus sped custhat’s been part of the 50 tomers through the checkcompany since it was 2008 2009 2010 2011 2012 2013 2014 2015 out line. formed: Visa doesn’t issue Meanwhile, sales and earnings should climb Visa cards, and that’s unlikely to change anysteadily for some time. Deutsche Bank estimates time soon. “They don’t have any direct relationships with cardholders or any direct physi- Visa’s revenue will grow another 11% next year to $15.4 billion as earnings per share, buoyed by cal relationships with merchants,” says Harris. a $5 billion stock buyback program, rise 15%. Which means Visa can’t charge higher fees for At some point Scharf will have to negotiate the providing rewards to consumers, say, or forge purchase of Visa’s European operation, which direct relationships with retailers unless it enis still owned by member banks, under a put oplists an acquiring bank as an ally. Despite all tion that could cost $10 billion, but for now Visa Scharf’s ambitions he remains, ultimately, a gets fee income from Europe anyway. Besides, vassal of the banks. that’s just loose change to a company with amScharf was forced to confront this weakbitions as big as Visa’s. “The Visa story is not a ness shortly after taking charge at Visa when two-year story or a ﬁve-year story,” Scharf says. JPMorgan Chase, the largest issuer of Visa “We have the opportunity to grow this company cards, threatened to move its business to Masfor decades to come.” F terCard unless Visa set up a private-label ver-
112 | FORBES MAY 25, 2015
1683 T CSN BR 1684 S PENSKE AUTOMOTIVE US US 1685ONEWFIELD EXPLORATION 1686 T LIBERBANK SP 1687 S LINDT & SPRUNGLI SZ 1688 T JGC JA 1689ODIXONS CARPHONE UK T BANCO BPI PO 1690 1691 S NIPPON STEEL TRADING JA GE 1692OAXEL SPRINGER 1692 T FLOWSERVE US S CJ CHEILJEDANG KO 1694 T GECINA FR 1694 1694 S PBF ENERGY US 1697 T JUROKU BANK JA US 1698OESSEX PROPERTY TRUST 1699 S POLARIS INDUSTRIES US T TESLA MOTORS US 1700 1701 T ASHIKAGA HOLDINGS JA T CHINA COMMUNICATIONS 1702 SERVICES CN 1703OCHINA DEVELOPMENT FINANCIAL TA IR 1703OENDO T SCRIPPS NETWORKS 1705 INTERACTIVE US 1706 T AIRPORTS OF THAILAND TH 1707 T ALFA LAVAL SW TA 1707OCATCHER TECHNOLOGY 1709 S JABIL CIRCUIT US 1710 S GUANGDONG INVESTMENT HK INDIAN OVERSEAS BANK IN 1711S S DCC IR 1712 1713 S SBI HOLDINGS JA JA 1714 OTOKYU FUDOSAN S YUNNAN BAIYAO GROUP CN 1715 1716 S TAIHEIYO CEMENT JA 1717 S FRONTIER COMMUNICATIONS US T K+S GE 1717 1717 OMAHANAGAR TELEPHONE NIGAM IN 1720 T BANCA CARIGE IT S AMERICAN EQUITY INVESTMENT US 1721 T RELIANCE STEEL US 1722 1723 S CHURCH & DWIGHT US T SENSHU IKEDA HOLDINGS JA 1724 1725 T WATERS US S GAMESTOP CORP. US 1726 1727 T NANTO BANK JA T TALISMAN ENERGY CA 1728 1729OCINTAS US TU 1729OERDEMIR 1729OTECH MAHINDRA IN UK 1732OTAYLOR WIMPEY 1733 T HYAKUGO BANK JA S TAIWAN BUSINESS BANK TA 1734 1735 T PERMANENT TSB GROUP IR 1736OBEIJING XINWEI TELECOM TECHNOLOGY GROUP CN 1736OTOKYO TATEMONO JA JA 1738ONIPPON MEAT PACKERS 1738OSPIRIT AEROSYSTEMS US T G4S UK 1740 1740 T SOHO CHINA CN S VERISK ANALYTICS US 1740 1743 S SUPERVALU US T SALZGITTER GE 1744 1745 T TAISHIN FINANCIAL HOLDINGS TA UK 1746ODERWENT LONDON 1747 OLENS TECHNOLOGY CN T MCCORMICK & CO. US 1748 1748 T PINNACLE WEST US S DENBURY RESOURCES US 1750 1751 S INTERACTIVE BROKERS GROUP US 1751 T ST ENGINEERING SI T TOHO BANK JA 1753 S FIRST PACIFIC HK 1754 1755 T ABERDEEN ASSET MANAGEMENT UK JA 1755OBROTHER INDUSTRIES 1755 S CHINA AVIATION OIL SI T BASLER KANTONALBANK SZ 1758 1759 T BANCA POPOLARE DI SONDRIO IT T OGAKI KYORITSU BANK JA 1760 1760 T ORICA AU TA 1762ONANYA TECHNOLOGY 1763 T ISS DE T SURUGA BANK JA 1764 1765OCOPEL BR T DAISHI BANK JA 1765 1767 S CATLIN GROUP BU T CREDITO EMILIANO IT 1768 1768OFOSHAN HAITIAN FLAVOURING & FOOD CO. CN 1768 T STMICROELECTRONICS SZ 1771 T THOMAS COOK GROUP UK UK 1772OPERSIMMON PLC. 1773 T MURPHY USA US T JC PENNEY US 1774 US 1775OHARMAN INTERNATIONAL 1775 T TDC DE 1777 S HANWA JA UK 1778OVIRGIN MONEY HOLDINGS 1779 S PACKAGING CORP. OF AMERICA US 1780 T ASHLAND US SP 1780 T BOLSAS & MERCADOS 1782OMIGDAL INSURANCE IS 1783OCDW US T SHIGA BANK JA 1783 1785 T ORIENT JA UK 1785OSEGRO PLC. T GUARANTY TRUST BANK NI 1787 1788OGOLDIN FINANCIAL HOLDINGS HK 1788 S JAPAN EXCHANGE GROUP JA US 1790OOFFICE DEPOT 1791 T NELNET US T TOP FRONTIER INVESTMENT 1792 HOLDINGS PH 1793OIMI UK T GANSU JIU STEEL GROUP 1794 HONGXING IRON & STEEL CN T FIRST NIAGARA FINANCIAL US 1795 S UP T DOWN O UNCHANGED O NEW
SI IN CN JA US CN IN JA JA AU KO CN IS PH KO KO CN QA IN TA AU KO IN GE US FI KO US US CN SU US JA CN CN US CN US SP US UK US IT US US TA TA NO US US US JA GR
JA 1848OKIYO BANK 1850 T GS ENGINEERING KO 1851 OLG HOUSEHOLD & HEALTH CARE KO 1851 ORADIAN GROUP US 1853 T BOK FINANCIAL US 1854 S PANG DA AUTOMOBILE TRADE CN 1855 T BANQUE CENTRALE POPULAIRE MO US 1855OHEALTH NET 1855OSYNNEX US T ALPIQ HOLDING SZ 1858 1858 T HUNAN VALIN STEEL CN T MAANSHAN IRON & STEEL CN 1858 S ORIENTAL BANK OF COMMERCE IN 1858 1862OEP ENERGY US 1862 T KAGOSHIMA BANK JA T HOPSON DEVELOPMENT 1864 HOLDINGS HK 1865 T HUGO BOSS GE T CHENG SHIN RUBBER 1866 INDUSTRY CO. TA 1867OUNDER ARMOUR US S SYMETRA FINANCIAL US 1868 1869 S HYUNDAI WIA KO T POPULAR US 1870 S ALLIANT ENERGY US 1871 1872 T HOKKOKU BANK JA 1872OKB HOME US S CITY NATIONAL US 1874 1875OBANK OF CYPRUS CY 1875 T SARAS IT T AIRGAS US 1877 HK 1877OENN ENERGY HOLDINGS 1879OAPA GROUP AU T CENTURY TOKYO LEASING JA 1879 T WORKDAY INC. US 1881 1882 T BABCOCK INTERNATIONAL GROUP UK 1882 T VARIAN MEDICAL SYSTEMS US S KUWAIT PROJECTS KU 1884 1885OMITSUI ENGINEERING & SHIPBUILDING JA 1885 T ZOOMLION HEAVY INDUSTRY CN T AIR CANADA CA 1887 UK 1888OASHTEAD GROUP 1888 T LUNDBERGS SW S STERICYCLE US 1890 1891 T INCHCAPE UK S AMDOCS US 1892 1893OQEP RESOURCES US T INDIAN BANK IN 1894 1895 T A2A IT 1896OSINOTEX INVESTMENT & DEVELOPMENT CN 1896 T CNO FINANCIAL GROUP US US 1896OWELLCARE HEALTH PLANS 1899OGREAT PORTLAND ESTATES UK
PEABODY ENERGY With shares down 75%, can this mining giant survive America’s War on Coal?
UNDER ARMOUR Investing heavily in women’s workout-wear business, which generated $600 million last year.
GAMESTOP Now trading in retro game consoles like Super Nintendo in hope that vintage sells.
T THANACHART CAPITAL TH 1899 1901 OOVERSEAS UNION ENTERPRISES SI US 1902OREALTY INCOME 1902OSNAP-ON US 1902 T VIETIN BANK VE 1905OSHANGHAI INDUSTRIAL HOLDINGSCN T SÜDZUCKER GE 1905 T ST GALLER KANTONALBANK SZ 1907 1908OAMTRUST FINANCIAL SERVICES US 1909 T HOKKAIDO ELECTRIC POWER JA 1909 T MICROCHIP TECHNOLOGY US 1911 OSICHUAN CHUANTOU ENERGY CN 1912 OCULLEN/FROST BANKERS US 1913 OCOMMERCIAL BANK FOR INVESTMENT & DEVELOPMENT OF VIETNAM VE 1913 OCYS INVESTMENTS US CN 1913 OKANGMEI PHARMACEUTICAL T IKB DEUTSCHE GE 1916 1916 OPEPCO HOLDINGS US T MECHEL RU 1918 CN 1918 OOCEANWIDE HOLDINGS 1918 S SHUI ON LAND CN T FIBI HOLDINGS IS 1921 1922 T EMS-CHEMIE HOLDING SZ 1922OFIRST CITIZENS BANCSHARES US 1922OSBA COMMUNICATIONS US SZ 1925OSONOVA HOLDING S YUNNAN YUNTIANHUA CN 1925 1927 T MAIL.RU GROUP LTD. SPONSORED GDR REGS RU 1927 T SHANGHAI MATERIAL TRADING CN T JAPAN SECURITIES JA 1929 1930 T DVB BANK GE TH 1931 OTMB BANK 1932OCANTV VZ T LUZERNER KANTONALBANK SZ 1932 1932 T METCASH AU T INTERCONTINENTAL HOTELS UK 1935 1935 T SECURITAS SW JA 1935OSEIBU 1938 T LAURENTIAN BANK CA T ROYAL BOSKALIS NE 1938 BANK OF NAGOYA JA 1940 T S ARAB BANKING BN 1941 1942OEMPRESAS CMPC CH AU 1943OOIL SEARCH 1943ORESMED US T CST BRANDS US 1945 1946ODR. REDDY’S LABORATORIES IN SI 1946OFRASERS CENTREPOINT 1948OINCYTE US T VALIANT HOLDING SZ 1948 1950 S TOYOTA BOSHOKU JA T EMBRAER BR 1951 1951 OFREESCALE SEMICONDUCTOR INC. US
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1953 S KONICA MINOLTA JA 1953OTBEA CN S ANDHRA BANK IN 1955 T KESKO FI 1956 1956 T SEVERN TRENT UK 1958 S CAIXA ECONOMICA MONTEPIO GERAL PO T THAI OIL TH 1958 1960 T MOTOR OIL GR 1961 OALLIED WORLD ASSURANCE SZ SI 1962OCWT 1963ODAEWOO SECURITIES KO 1964ONOK JA T ALDAR PROPERTIES AE 1965 T HYSAN DEVELOPMENT HK 1966 1967 T LS CORP. KO 1968OROHM JA HK 1969OKWG PROPERTY HOLDING 1970 T PEABODY ENERGY US T UMICORE BE 1970 T BANK OF IWATE JA 1972 1972OCHINA POWER INTERNATIONAL DEVELOPMENT CN 1972 T TPV TECHNOLOGY HK S BMCE BANK MO 1975 T BEKB-BCBE SZ 1976 1976 T INTOUCH HOLDINGS TH S SYNOVUS FINANCIAL US 1978 T YUEXIU PROPERTY CO. CN 1978 1980OASSOCIATED BANC-CORP. US 1980 T SICHUAN CHANGHONG ELECTRIC CN US 1982OCHEMTURA 1983ORR DONNELLEY & SONS US 1983OXINHU ZHONGBAO CN 1985OJOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM VE US 1986OHD SUPPLY HOLDINGS 1987OINDUSIND BANK IN HK 1988OBRIGHTOIL PETROLEUM 1989 T BANRISUL BR T BALFOUR BEATTY UK 1990 1991 OBURGAN BANK KU T IHEARTMEDIA US 1992 1992 T LANXESS GE T OCI NE 1992 1995 T ALROSA RU QA 1996OBARWA REAL ESTATE 1996 T YAMANASHI CHUO BANK JA 1998OTRANSDIGM GROUP US T WEG BR 1998 2000OHASBRO US T J. FRONT RETAILING JA 2000 S UP T DOWN O UNCHANGED O NEW
PEABODY ENERGY: SETH PERLMAN/AP; GAMESTOP: DANIEL ACKER/BLOOMBERG
T GOLDEN AGRI-RESOURCES 1796 1796 S JSW STEEL 1798OCHANGJIANG SECURITIES T HYAKUJUSHI BANK 1798 1798OPHARMACYCLICS 1801 T CHINA AGRI-INDUSTRIES 1801 S UCO BANK T SAN-IN GODO BANK 1803 1804 T HIGO BANK T BANK OF QUEENSLAND 1805 1806OSAMSUNG ELECTRO-MECHANICS 1807OHEILAN HOME T ISRAEL CORP. 1808 1808 T MANILA ELECTRIC 1810 ONH INVESTMENT & SECURITIES DGB FINANCIAL GROUP 1811S 1811T GUANGDONG ELECTRIC POWER T DOHA BANK 1813 1814 T CORPORATION BANK S WPG HOLDINGS 1814 1816 ORAMSAY HEALTH CARE T LG UPLUS 1817 T ALLAHABAD BANK 1818 1818 T AURUBIS 1820OBIOMARIN PHARMACEUTICAL 1820OFISKARS 1820OKOREA ZINC 1820OQUINTILES TRANSNATIONAL 1824 T DICK’S SPORTING GOODS S SINOMACH AUTOMOBILE 1825 1826OJABAL OMAR DEVELOPMENT T KLA-TENCOR 1826 T KEIYO BANK 1828 1829 S FINANCIAL STREET HOLDINGS 1830OVIPSHOP HOLDINGS T HUDSON CITY BANCORP 1830 1830 S TONGLING NONFERROUS METALS S AKAMAI TECHNOLOGIES 1833 1834 T ENAGAS S PEOPLE’S UNITED FINANCIAL 1834 1836 S ICAP S PALL 1837 1838 T CREDITO VALTELLINESE T ERIE INDEMNITY 1838 1838OHUNTINGTON INGALLS INDUSTRIES T INVENTEC 1841 1842OPRESIDENT CHAIN STORE 1842 T SPAREBANK 1 SR-BANK 1844OJONES LANG LASALLE INC. S EQUIFAX 1845 1845OINTERNATIONAL FLAVORS & FRAGRANCES T MUSASHINO BANK 1845 1848 T HELLENIC PETROLEUM
HALL OF FAME Change has been the only constant for the companies of the Global 2000 list over the last decade. But through all the turmoil—including the most severe ﬁnancial crisis since the 1930s—these six CEOs have not only kept their jobs, they’ve also presided over some of the world’s best growth stories. BY STEVE SCHAEFER
James Taiclet Jr. Age 55. CEO since 2003 INDUSTRY: telecommunications towers RANK: 798 (+556 spots since 2006) SALES: $4.1 billion (+334%) PROFITS: $824.9 million (N/A) ASSETS: $21.3 billion (+143%) MARKET CAP: $41.2 billion (+215%)
AMOUNT PAID TO VERIZON TO TAKE OVER 11,448 OF ITS TOWERS IN 2015, BY FAR THE BIGGEST DEAL IN AMERICAN TOWER’S HISTORY.
114 | FORBES MAY 25, 2015
There might be ten factors driving the growth of the mobile Internet industry, but it all relies on radio-based technology, and the physics are unassailable—if you want more people to have broadband Internet, you need more equipment in the field.
The most transformative technology of the next ten years will be personalized medicine. Driverless cars will pale in comparison.
BAD HOMBURG, GERMANY
Mark Schneider WOLFGANG WILDE FOR FORBES; OPPOSITE: JAMEL TOPPIN FOR FORBES
Age 49. CEO since 2003 INDUSTRY: health care RANK: 283 (+559 spots) SALES: $30.8 billion (+212%) PROFITS: $1.4 billion (+521%) ASSETS: $48.3 billion (+341%) MARKET CAP: $32.8 billion (+316%)
$4.6 billion VALUE OF SEPTEMBER 2008 TAKEOVER OF APP PHARMACEUTICALS, BASED IN SCHAUMBURG, ILL., THE MAKER OF AN INJECTABLE BLOOD-THINNING DRUG USED IN DIALYSIS PATIENTS.
MAY 25, 2015 FORBES | 115
Stanley Bergman Age 65. CEO since 1989 INDUSTRY: dental and medical supplies RANK: 1144 (+633 spots) SALES: $10.4 billion (+124%) PROFITS: $466.1 million (+208%) ASSETS: $6.1 billion (+138%) MARKET CAP: $11.8 billion (189%)
NUMBER OF COMPANIES HENRY SCHEIN HAS ACQUIRED OVER THE LAST DECADE.
116 | FORBES MAY 25, 2015
JAMEL TOPPIN FOR FORBES; OPPOSITE: PHOTOGRAPH BY JONATHAN KOZOWYK FOR FORBES; GROOMING BY SUZANA HALLILI; REPORTING BY CHRISTOPHER HELMAN
Digitization is changing the way that dentistry is practiced, and there is no doubt that over the next decade there will be exciting advancements in this area that we cannot even dream of today. There is a tremendous opportunity in countries with a rapidly expanding middle class, a political environment conducive to business and a highly skilled workforce.
GLOBAL 2OOO HALL OF FAME
David Whipple Crane Age 56. CEO since 2003 INDUSTRY: electric utilities RANK: 943 (+1052 spots) SALES: $15.3 billion (+546%) PROFITS: $134 million (+28%) ASSETS: $40.7 billion (+422%) MARKET CAP: $8.3 billion (+119%)
NEW HOUSEHOLD CUSTOMERS NRG GAINED ACCESS TO WITH ITS 2009 TAKEOVER OF RETAIL ENERGY PROVIDER RELIANT.
Two pieces of advice stand out in my mind: ‘Any time someone comes to you seeking to make a “strategic” investment, substitute the word “stupid” for “strategic” and you’ll be fine.’ And ‘never defend the indefensible,’ which actually came from my father. If you think about the two bits of advice, they’re related.
“ MAY 25, 2015 FORBES | 117
GLOBAL 2OOO HALL OF FAME
ST. PAUL, MINN.
Douglas Baker Jr. Age 56. CEO since 2004 INDUSTRY: cleaning chemicals RANK: 498 (+642 spots) SALES: $14.3 billion (+215%) PROFITS: $1.2 billion (+277%) ASSETS: $19.5 billion (+413%) MARKET CAP: $34.1 billion (+268%)
VALUE OF THE 2011 MERGER WITH NAPERVILLE, ILL.-BASED WATER TREATMENT COMPANY NALCO.
Our focus is delivering clean water, safe food, abundant energy and healthy environments. These needs are fundamental and transcend economic ups and downs. Wherever water needs to be conserved, food needs to be safe, energy is required and people seek healthier environments, we will find opportunity. 118 | FORBES MAY 25, 2015
Michael O’Leary Age 54. CEO since 1994 INDUSTRY: airlines RANK: 829 (+547 spots) SALES: $7.3 billion (+320%) PROFITS: $1.1 billion (+207%) ASSETS: $12.7 billion (+158%) MARKET CAP: $16.5 billion (+135%)
PASSENGERS RYANAIR EXPECTS TO SERVICE ANNUALLY IN 2024, UP FROM 89 MILLION IN 2014.
WOLFGANG WILDE FOR FORBES; OPPOSITE: JAMEL TOPPIN FOR FORBES
In low-fare airlines Boeing’s new 737 MAX aircraft is a game changer with 4% more seats (allowing average fares to fall by up to 5%) and a great new engine technology, which will reduce fuel consumption, oil bills and emissions by almost 20% per seat. MAY 25, 2015 FORBES | 119
Quinnipiac National Poll - March 9, 2015
WORKPL ACE OF THE FUTURE
OK ROBOT Decades of science ďŹ ction movies have trained us to fear robots: They will enslave us. Wipe us out. Take our jobs. In real life, humans and machines are teaching each other how to do more together than they could do alone. Here are six companies where robot training is well under way and the humans are getting valuable tech skills in the bargain. BY ALEX KNAPP
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we are Workday and the Workday logo are registered trademarks of Workday, Inc. ©2015 Workday, Inc. All rights reserved.
JAMEL TOPPIN FOR FORBES
PARL OR TRICKS ARE PRODUCTIVITY
Engineer NATE KOONTZ is a trainer for Rethink Roboticsâ€™ versatile Baxter, and for each new customer (John Deere and Kaiser Permanente among them) he usually starts by studying photos or illustrating the task that a customer would like to automate long before rigging up Baxter to an assembly line. Total training time can take anywhere from a couple of hours to a month on-site, depending on complexity. Rethink often holds hackathons to teach Baxter new tricks, such as bartending or playing Connect Four. Games can unearth ideas for new software features. One such solution came from an employee whoâ€™d trained Baxter to make coffee with a Keurig brewer. The process ended up being used by a Baxter doing quality control for a consumer beverage company. That particular Baxter was trained to mix a drink, examine it for sediment and pour it out in a manner similar to the way it was trained to brew coffee.
AUTODESK TEACHING A ROBOT TO PAINT
In the new short ﬁlm Artoo in Love, the famous Star Wars droid goes head-over-wheels for a similarly domeshaped U.S. mailbox. The ﬁlm, written and directed by Autodesk engineer Evan Atherton, called for a scene in which the lovers pose for a sketch artist, also a robot. Not settling for fakery, Atherton asked his Autodesk colleague DAVID THOMASSON if he could train a robot to sketch from life. Why not? They tutored the robot ﬁrst on line drawings, guiding its arm across the canvas, then moved on to curves and ﬂourishes until its algorithms could eventually take over. With the ﬁlm wrapped, the team is now teaching the robot to paint and eventually will use motion-capture so it can mimic and adapt human actions to make more original works. The hope, says Thomasson, is that robots will be not just “a practical tool but also a creative partner.”
TIM PANNELL FOR FORBES
LEARNING FAST AND IN UNISON
Raytheon’s 47,000-square-foot factory in Tucson is chock-full of robots and humans working together. Raytheon doesn’t build its bots: It buys them and installs a common software interface to make them simpler to train and retask. When a robot needs to learn something, the task is ﬁrst simulated in Raytheon’s software and then pushed to the robot for initial testing. The whole process can take just a few hours to a day, according to operator CHARLES SCOTT. Once a bot is on the ﬂoor, the factory line simulation is updated and pushed out to robots already in use. “They’re very common robots, but these guys have made them solution-oriented for our products, which are very complex,” said Kim Ernzen, vice president of operations.
JAMEL TOPPIN FOR FORBES
Some unlucky human at GM’s Orion, Mich. assembly plant has had the dull, backbreaking job of pulling spare tires off a conveyor and stacking them based on their assigned vehicle. No surprise: The factory’s ﬁrst collaborative robot, which arrived in January, was ordered to stack tires. The hard part was teaching it how to maneuver in a crowded workspace where people are usually 2 feet away. “Manufacturing is a contact sport,” says GM engineer Marty Linn. GM turned up the sensitivity on the robot’s force sensors and ran it through many dress rehearsals using real props and people. The humans had to learn to work with the robot, too, going through an “awareness week” of demos and testing. The robot is now considered part of the team.
JONATHAN KOZOWYK FOR FORBES
GET TING CL OSER TO THE MACHINE
A. ZAHNER CO. WELDING LIKE HUMANS DO
Architects worldwide turn to Kansas City’s A. Zahner Co. for huge, custom metalwork and facades, which adorn buildings such as New York City’s Guggenheim Museum, the Dallas Cowboys’ stadium and the Art Wall at Doha. For years Zahner’s unionized workforce was reluctant to let robots in until the employees and CEO BILL ZAHNER realized they would free up skilled craftsmen to do more intricate work on large-scale projects. “If you do certain things faster, it enables the more artistic aspects to expand,” said Zahner. The ﬁrst robot arrived in 2007 and started learning by watching engineers as they welded points along arcs up to 14 feet long. It would follow those points based on the movements demonstrated by the engineers. The welds are done just as well as a master craftsman can do, Zahner said, maybe even better because the robots don’t get tired as they reach the end of a long day.
ABB ROBOTICS EASY AS AN IPHONE
ABB Robotics’ newest robot, YuMi, is a two-armed collaborator aimed at companies that have not considered using robots before. Its user interface was inspired by the iPhone, “a sophisticated product, but you don’t have to know a lot,” says ABB engineer Bertil Thorvaldsson. YuMi can be programmed for basic tasks with only a tablet app, but for now its more sophisticated customers are using its full set of software tools for tasks such as electronics manufacturing. But of all the robots here, the YuMi is likely the easiest one for your family to train once they get a chance.
Transforming the rules of Engagement June 9-10 New York City
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DRONE W BY RYAN MAC, HENG SHAO AND FRANK BI
130 | FORBES MAY 25, 2015
At 34 Frank Wang has turned his dream of flying robots into the world’s biggest drone company—and a $4.5 billion fortune. Now, as the market for his devices explodes, his old colleague is trying to take him down. PHOTOGRAPH BY DAVID HARTUNG FOR FORBES MAY 25, 2015 FORBES | 131
PROMOTION | ECONOMIC DEVELOPMENT
ÂŠ Glow Images
Bermuda Sailing Into the Spotlight
ust 90 minutes by air from New York City, Bermuda is nearer than you may think and close to many peopleâ€™s idea of paradise. The island is a riot of color: azure waters, pink sands, golfing greens and pastel architecture. Thanks to the Gulf Stream, it enjoys subtropical sea and air temperatures. Last year, Bermuda welcomed nearly 585,000 visitors. Capitalizing on its North Atlantic location, Bermuda will host the 35th Americaâ€™s Cup in 2017, set to generate $300 million and showcase the islandâ€™s attractions. When Bermuda won the bid, Premier Michael Dunkley said: â€œBeing home to the Cup is an extraordinary opportunity that fits the heritage, profile, culture and future of Bermuda and its people.â€? To maximize that opportunity, Bermuda is positioning itself as an ideal destination for work and play. A public-private partnership, the Bermuda Business Development Agency promotes the islandâ€™s business advantages, while the independent Bermuda Tourism Authority (BTA) spearheads tourism development, investment and marketing. Their shared goal is to increase tourism numbers, improve infrastructure, create jobs and expand the economy. Says Minister of Tourism
Development and Transport Shawn Crockwell, â€œThe development of the BTA has created a new sense of hope for the industry.â€? But, as the BTAâ€™s slogan says, Bermuda is â€œso much more.â€? It is also a blue-chip financial services center and a leading insurance and reinsurance jurisdiction. With over 40 Tax Information Exchange Agreements in place, it was the first offshore hub placed on the OECDâ€™s white list in 2009. As Patrick Tannock, chairman of the Association of Bermuda International Companies, notes, â€œThis is an innovative, solutions-oriented, dynamic and entrepreneurial marketplace that continues to evolve.â€?
The Americaâ€™s Cup Home to one of the worldâ€™s oldest yacht clubs and the host of the 2017 Americaâ€™s Cupâ€”one of the worldâ€™s longest-running ocean racesâ€” Bermuda will leverage the event to diversify its economy and revitalize its tourism sector. â€œSailing is in our DNA,â€? says Minister of Economic Development Grant Gibbons. The government has created Americaâ€™s Cup Bermuda Ltd., under CEO Mike Winfield, to ensure that Bermuda delivers, while official sponsor Appleby Bermuda Ltd., an offshore law firm, is also eagerly anticipating the Cup: â€œFrom an international business perspective, itâ€™s very valuable,â€? says Managing Partner Kiernan Bell.
OFFSHORE LAW FIRM OF THE YEAR CLIENTS ARE SAYING
Conyers has the â€œexpertise to provide cutting-edge advice DQGH[HFXWLRQRQWKHELJJHVWPRVWKLJKSURĹšOHPDWWHrs.â€? q,I,QHHGFURVVERUGHUDGYLFHWKH\ZRXOGEHP\ĹšUVWchoice.â€? BERMUDA
BRITISH VIRGIN ISLANDS
ECONOMIC DEVELOPMENT | PROMOTION
Bermuda has developed a highly competitive fiscal system over the last century. It taxes consumption and imports instead of income and corporations, levying payroll tax and customs duties on goods and services. Backed by strong rule of law due to its status as a British Overseas Territory, it boasts an enviable environment for international business companies—with over 18,000 registered today—that complies fully with the strictest global standards regarding transparency and the prevention of money laundering and financing of other illegal activities. Bermuda’s public sector is committed to creating an ideal business climate, and the private sector supports that commitment with its creative approach to devising and delivering solutions to suit the needs of clients worldwide. Formed in 2001, Arch Capital Group is a Bermudan insurance and reinsurance company that provides innovative products not only on the island, but also in the United States, Canada, Europe, Australia and South Africa. “Bermuda is our home; we were one of the first insurance companies here,” notes Arch Chairman, President and CEO Constantine Iordanou. “The beauty of Arch is that we have operations throughout the world, and we scan the globe to see where there are opportunities. Worldwide, we now have 49 offices in different locations.” Under Iordanou’s leadership, Arch has rapidly grown to become one of the industry’s most innovative players. Today, it has a market capitalization of $7 billion and has expanded the reach of its mortgage insurance and catastrophe reinsurance through strategic mergers and acquisitions. At the same time, the group has worked closely with successive governments to help refine regulations that enable Bermuda to compete in the changing financial landscape. One of Arch’s latest ideas is to lease out its underwriters to companies that are willing to assume greater risk for potentially higher returns. Working in cooperation with J.P. Morgan’s Highbridge hedge fund, it is outsourcing services to another homegrown reinsurer, Watford Re (of which Arch owns 10%). “Think of it as a company that has a head, but everything else—the body, arms and legs—is rented,” Iordanou explains. Further proof of Bermuda’s uncanny ability to identify and develop niche markets lies in its insurance-linked securities. Since 2009, the island has cornered the ILS market, handling 57% of global trade, with listings worth nearly $16 billion on the Bermuda Stock Exchange (BSX) last year. In remarks to Insurance Journal this past January, BSX President and CEO Greg Wojciechowski asserted: “Bermuda must continue to innovate to remain ahead of the curve and retain its position as the premier ILS domicile.” Established in 1928, the international law firm of Conyers Dill & Pearman has provided private and business clients with all the advice they need on matters ranging from commercial and corporate regulation to litigation, insolvency and restructuring. Affiliated with the Codan group of companies, which has dedicated management, services and trust divisions, it won the coveted “Offshore Law Firm of the Year” title in the Chambers Global Awards 2014. The firm employs 140 lawyers in eight jurisdictions worldwide and specializes in Bermuda, the British Virgin Islands, the Cayman Islands and Mauritius. According to Narinder Hargun, director of the litigation department and co-chair, “We very much consider it part of our duty to develop and promote international business here in Bermuda. We look at the requirements of the client and our marketplace, and we provide for those.” Q
K NOW LED GE
THE STRENGTH OF ARCH
Not all insurance coverages or products are available in all jurisdictions. Coverage is subject to actual policy language. © 2015 Arch Capital Group Ltd.
Section Project Managers: Suzan Bahsoun and Matthew Dickert For more information, contact: Gabriel Gutiérrez—email@example.com
rank Wang Tao has never been arrested. He pays his taxes on time. And he rarely drinks. But on the eve of a January sitdown with FORBES—his ﬁrst public interview this year with a Western publication—the Chinese national who happens to be the world’s ﬁrst drone billionaire found himself on the wrong end of American authorities. A U.S. government intelligence employee in Washington, D.C., some 8,000 miles away from Wang’s perch in Shenzhen, had had a little too much to drink and took a friend’s four-propeller drone out for a spin in the wee hours. Inexperienced, he lost the aircraft in the dark and, after a brief search, called off his drunken hunt. By dawn that 1-foot-by-1-foot whirlybird was a global news story and subject of a Secret Service investigation—after crashlanding on the White House lawn. Wang built that robot. He also created the one that a protester used last month to land a bottle of radioactive waste on the roof of the Japanese prime minister’s office and developed the one a smuggler used to sneak drugs, a mobile phone and weapons into a prison courtyard outside of London in March. The idea of people using your product to break laws and social boundaries would give most CEOs nightmares, but the inconspicuous mastermind behind the world’s drone revolution just shakes it off. “I don’t think it’s a big deal,” shrugs the 34-year-old founder of Dajiang Innovation Technology Co. (DJI), which accounts for 70% of the consumer drone market, according to Frost & Sullivan. His company spent the morning developing a software update it blasted out to all its drones, prohibiting them from ﬂying inside a 15.5-mile-radius centered on downtown Washington, D.C. “It’s a benign thing.” Or maybe it only looks that way to Wang because success has inured him to controversy. Last year DJI sold about 400,000 units—many of which were its signature Phantom model—and is on track to do more than $1 billion in sales this year, up from $500 million in 2014. Sources close to the company say DJI netted about $120 million in proﬁt. Sales have either tripled or quadrupled every year between 2009 to 2014, and investors are betting that Wang can maintain that dominant position for years to come. In April the company raised $75 million from Accel Partners at a valuation of $10 billion. Wang, who owns about 45%, is now worth more than $4.5 billion. DJI’s chairman and two early employees are also paper billionaires from the deal. “DJI started the hobby unmanned aerial vehicle [UAV] market, and now everybody is trying to catch up,” says Frost & Sullivan analyst Michael Blades. In the annals of technology it’s not often that one company can grab a dominant position in a market as it makes the leap from hobbyist to mainstream. Kodak caught that rogue wave with cameras. Dell and Compaq
134 | FORBES MAY 25, 2015
caught it with PCs and GoPro with action cameras. Drone skeptics may have laughed at Amazon CEO Jeff Bezos’ vow to use UAVs to deliver packages, but drones are becoming a big deal. Widespread commercial use is already well under way: Drones broadcast live aerial footage at this year’s Golden Globes; relief workers relied on them to map the destruction left behind by Nepal’s 7.8-magnitude earthquake in April; farmers in Iowa are using them to monitor cornﬁelds. Facebook will be using its own UAVs to provide wireless Internet to rural Africa. DJI drones are being used on the sets of Game of Thrones and the newest Star Wars ﬁlm. Now DJI needs to keep stoking the consumer market with better and cheaper ﬂying machines, just as it did in January 2013 when its Phantom drone debuted, ready to ﬂy out of the box at a price of $679. Before then you pretty much had to build your own drone for well north of $1,000 if you wanted a decent ﬂier. DJI faces the headwinds of cheaper rivals and rearguard bureaucrats at the Federal Aviation Administration, which currently has a blanket ban on the commercial use of small drones without exemptions and has been slow to enact meaningful policy. A formidable challenge is brewing in 3D Robotics, a Berkeley, Calif. company cofounded by former Wired magazine editor Chris Anderson and staffed by laid-off DJI employees. Among them is former DJI North America head Colin Guinn, who accused the Chinese company of screwing him over and called 3D Robotics the “David to DJI’s Goliath.” His new company, however, is ﬁghting with more than slingshots—it has raised nearly $100 million. There’s also French manufacturer Parrot, which sold more than $90 million worth of drones in 2014, and a plethora of Chinese copycats eager to drive margins down for all. This year’s Consumer Electronics Show in Las Vegas saw dozens of barely hatched companies zipping their UAVs across Sin City’s cavernous conference halls. With his circular glasses, tuft of chin stubble and golf cap that masks a receding hairline, Wang cuts an unlikely front man for a new consumer tech powerhouse. Still, he takes his role as seriously as when he launched DJI out of his Hong Kong dorm room in 2006. Wang is on a warpath—discarding former business partners, employees and friends—as he seeks to turn DJI into a top-ranked Chinese
MATTHEW MAHON FOR FORBES
Cut out of DJI over control issues, Colin Guinn now heads up sales for 3D Robotics, the strongest challenger in the market.
brand akin to smartphone maker Xiaomi and e-commerce powerhouse Alibaba. Unlike those two, however, DJI may become the ﬁrst Chinese company to lead its industry. Its dominance has earned it comparisons with Apple—not that Wang has much use for the implicit praise. Dashing into his office, he passes a Chinese-language sign on his door that reads “Those with brains only” and “Do not bring in emotions.” The DJI CEO abides by those rules and is a sharp-tongued, head-over-heart leader who works more than 80 hours a week and keeps a twin-size wooden bed near his desk. Wang says he was a no-show at DJI’s April launch of its new Phantom 3 in New York because “the product was not as perfect” as he expected. “I appreciate Steve Jobs’ ideas, but there is no one I truly admire,” he says in his native Mandarin. “All you need to do is to be smarter than others—there needs to be a distance from the masses. If you can create that distance, you will be successful.”
rank Wang’s infatuation with the sky began in elementary school after he started devouring a comic book about the adventures of a red helicopter. Born in 1980, Wang grew up in Hangzhou, Alibaba’s home city on China’s central coast. The son of a teacher turned small-business owner and an engineer father, Wang spent most of his time reading about model airplanes, a pastime that offered more comfort than his middling grades. He dreamed of having his own “fairy,” a device that could ﬂy and follow him with a camera. When he was 16 Wang received high marks on an exam and was rewarded with a long-coveted remote-controlled helicopter. He promptly crashed the complicated device and waited for months for replacement parts to arrive from Hong Kong. Wang’s less-than-stellar academic performance thwarted his dream of landing at an elite American university. Rejected by his top choices, MIT and Stanford, he ended up at the Hong Kong University of Science & Technology, MAY 25, 2015 FORBES | 135
136 | FORBES MAY 25, 2015
HOW’D YOU GET THAT SHOT?
Photographers and ﬁlmmakers are opening up new views of the world by sending drones to places they couldn’t reach any other way. Check out our gallery of amazing drone images at forbes.com/drones.
“A group of whales approached, and I tossed my drone in the air. I had about 15 seconds.” Shot in Hawaii by Randy J. Braun with a Phantom 1 and GoPro.
designs toward four-propeller quadcopters, which were cheaper and easier to program. DJI’s started making more advanced ﬂight controllers with autopilot functions, which Wang then marketed at niche trade shows like a radiocontrolled helicopter gathering in the 70,000-pop. town of Muncie, Ind. in 2011. It was in Muncie that Wang ﬁrst met Colin Guinn, a well-built Texan, whose angular good looks once graced reality TV show The Amazing Race. Guinn, who ran an aerial cinematography startup, was looking for a way to shoot stabilized video from a UAV and had reached out to Wang by e-mail to see if the young Chinese company had a solution. Wang was working on exactly what Guinn needed, a new kind of gimbal that used onboard accelerometers to adjust its orientation on the ﬂy so the video frame remained still despite a drone’s shaky ﬂying. Wang had gone through at least three gimbal prototypes—and one incapable intern—before he had a decent one. Wang ﬁgured out how to connect the drone’s motor to the gimbal so it wouldn’t need its own motor, cutting down on parts and weight. By 2011 the cost to make a ﬂight controller had dropped to less than $400 from $2,000 in 2006. After initially meeting DJI executives in Muncie in August 2011, Guinn ﬂew out to Shenzhen and eventually formed DJI North America, an Austin, Tex. subsidiary aimed at delivering drones to the mass market, with Wang’s blessing. Guinn was given 48% ownership of the entity, with DJI retaining the remaining 52%. Guinn was put in charge of North American sales and much of its English-language marketing, quickly developing a new motto for the company: “The Future of Possible.” The re-
where he studied electronic engineering. He didn’t ﬁnd his sense of purpose until his senior year, when he built a helicopter ﬂight-control system. Wang devoted everything to his ﬁnal group project, skipping classes and staying up until 5 a.m. While the hovering function for the onboard computer he built failed the night before the class presentation, his effort did not go to waste. Robotics professor Li Zexiang noticed Wang’s group leadership and technical understanding and brought the headstrong student into the school’s graduate program. “I couldn’t tell that [Frank] was smarter than others,” says Li, who served as an early advisor and investor to DJI and now owns about 10% as its chairman. But “good performance [at work] was not necessarily comparable with good grades.” Wang built prototypes of ﬂight controllers out of his dorm room until 2006, when he and two classmates moved to the manufacturing hub of Shenzhen. They worked out of a three-bedroom apartment with Wang funding the venture using what was left of his university scholarship. DJI sold his $6,000 component to clients such as Chinese universities and state-owned power companies, which soldered them onto the frames of DIY drones. Those sales allowed Wang to pay for a small staff, while he and the other former HKUST students lived off what was left of their university scholarships. “I didn’t know how big the market could be,” Wang remembers. “Our idea was to just make the product, feed 10 to 20 people and have a team.” The lack of an early vision and Wang’s personality would eventually cause strife within DJI’s ranks. There was constant churn among employees, with some feeling spurned by a demanding boss they felt was stingy with equity. By the end of two years almost all of the founding team had departed. Wang admits he can be an “abrasive perfectionist” and at the time managed to “piss [employees] off.” Yet DJI chugged along, selling about 20 controllers a month. It survived off capital from Wang’s family friend Lu Di. In late 2006 Lu had put in about $90,000—the only money DJI has ever needed says Wang. Endearingly called a “penny-pincher” by DJI’s CEO, Lu managed the ﬁnances and today remains one of the largest shareholders, with 16% worth $1.6 billion, based on FORBES estimates. Also key to DJI’s development was Wang’s best friend from high school, Swift Xie Jia, who, in 2010, came in to run marketing and act as conﬁdante. The man nicknamed “fat-headed ﬁsh” by Wang sold his apartment to invest in DJI and today holds a 14% stake worth an estimated $1.4 billion. With his inner circle in place, Wang continued to build on product offerings and began selling to hobbyists abroad, who were e-mailing him from places such as Germany and New Zealand. In the U.S. Wired editor Chris Anderson had started DIY Drones, a UAV-enthusiast message board, where users advocated for the move from single-rotor
“We were driving to Hana and happened on this random beach along the way.” Shot in Maui by Stacy Garlington with a Phantom 2 Vision+.
RANDY JAY BRAUN
lationship initially went well. Wang remembers Guinn as a “great salesman” whose “ideas sometimes inspired me.” By late 2012 DJI had put all the pieces together for a complete drone package: software, propellers, frame, gimbal and remote control. The company unveiled the Phantom in January 2013, the ﬁrst ready-to-ﬂy, preassembled quadcopter that could be up in the air within an hour of its unboxing and wouldn’t break apart with its ﬁrst crash. Its simplicity and ease-of-use unlocked the market beyond obsessed enthusiasts. Yet things had already started falling apart between Wang and Guinn. DJI’s founder didn’t like that Guinn was taking credit for the development of the Phantom and was calling himself CEO of DJI Innovations, a title that still stands on his LinkedIn page. Sources also say that Guinn would often rush into setting up partnership agreements, particularly one with action-camera maker GoPro, which would have been an exclusive camera provider for DJI’s drones. Wang got cold feet in that deal and went against Guinn’s advice, subsequently angering GoPro, which is now rumored to be developing its own drone. Initially DJI was planning to only break even on the Phantom’s $679 retail price. “We made an entry-level product to prevent competitors from entering a price war,” says Wang. The Phantom, however, quickly became the company’s bestselling product, increasing revenue ﬁvefold with little marketing. More important, it sold around the world, a trend that holds today as the company derives about 30% of revenue from the U.S., 30% from Europe and 30% from Asia, with the remainder from Latin America and Africa. That’s a source of pride for Wang. “Chinese
people think imported products are good and made-inChina products are inferior. We’re always second class,” he says. “I’m unsatisﬁed with the overall environment, and I want to do something to change it,” he adds. By May 2013 DJI attempted to buy out Guinn’s stake in DJI North America, offering DJI Global shares that would have given the American a paltry 0.3% stake, according to court documents. Guinn demurred, pointing out that it was his office’s work that led to 30% of Phantoms being sold in the U.S. DJI did not leave room for negotiation and by December had locked all of DJI North America’s employees out of their e-mails and redirected all customer payments to China headquarters. By New Year’s Eve the employees had been ﬁred and arrangements were being made to liquidate the Austin office’s equipment. DJI ended that year with $130 million in revenue. Guinn subsequently sued in early 2014, though the parties eventually settled out of court in August for an undisclosed amount under $10 million, according to sources. That’s slightly more than what the share-exchange deal would have been worth at the time, given that Sequoia Capital invested a little more than $30 million in mid-2014 at around a $1.6 billion valuation. “To say I had nothing to do with the Phantom would be hilarious, just as it would be to say I was the inventor of the Phantom would be hilarious,” says Guinn, who with many of his former colleagues joined 3D Robotics to take on their past employer.
he greatest threat to Wang’s dominance of the consumer drone market emanates from a sundrenched fourth-story office patio across the bay from Silicon Valley in Berkeley, where the engineers for 3D Robotics spent dozens of hours testing the latest code tweaks in their Phantom-killer, the Solo. Unveiled in April, the black drone whirs and buzzes around the roof with the sound of a thousand angry bees as 3D Robotics CEO Chris Anderson explains how his company is the Android to DJI’s Apple. In admiring his quadcopter’s elegance and simplicity— which took cues from the Phantom—the affable Anderson explains that it is the software, not hardware, that is the key. Unlike DJI’s operating system, which is closed to developers, 3D Robotics made its OS open source to attract the interest of programmers and other companies such as the dozens of Chinese copycats undercutting DJI’s margins with even cheaper drones. If everyone is using our software, says 3D Robotics’ CEO, then we, not DJI, will control the market. “DJI started as a company back in the days when it was just a hobby for me, and to their credit they accelerated brilliantly,” he says. “Right now we’re playing on their home ﬁeld, so we’re playing catch-up.” 3D Robotics, which has funding from the likes of Qualcomm and SanDisk, is well into its game of catch-up and has moved most of its manufacturing capacity from MAY 25, 2015 FORBES | 137
PROPELLERS ARE SPINNING UP DJI came from out of nowhere (a Hong Kong dorm room, actually) to become one of China’s few global consumer technology brands. $1,000
DJI Flame Wheel F330
500 400 300 200 100 0
Annual revenue $500,000 North American revenue $310,000
Revenue $1.1 million North American revenue $560,000
Revenue $4.2 million North American revenue $1.26 million
Sales began in Asian, European and North American markets that year.
Revenue $26 million North American revenue $5.6 million July 2012: creation of DJI North America.
Tijuana, Mexico to Shenzhen. Guinn, who is the company’s chief revenue officer, is also exploring the same retail channels he built up with DJI and developed a partnership to put GoPros on 3D Robotics’ drones. Wang dismisses their chances, sounding something like the big kid on the kindergarten playground. “It’s easier for them to fail,” he says. “They have money, but I have even more money and am bigger and have more people. When the market was small, they were small and I was small, too, and I beat them.” For all the drama between 3D Robotics and DJI, they face a common challenge in shaping public opinion and softening regulators. For every breathtaking video of a humpback whale migration or collapsing glacier taken from a drone, there’s a headline of a UAV being used by ISIS or spying on a neighbor’s hot tub. Legitimate privacy and safety concerns have limited society from welcoming ﬂying robots with open arms, and regulators, particularly the United States’ FAA, have been slow to enact meaningful regulations as a result. “There are no drones in the sky right now, and that is so weird,” says Anderson. “When you talk about a blue sky opportunity, we really are looking at one.” Back in his office in Shenzhen, Wang is foretelling the future of the consumer drone industry, but his explanation is hard to follow as he wields a 450-yearold Japanese samurai sword on a hapless business card. “Japanese craftsmen are constantly striving for perfection,” he says, as the katana carves up the paper into pieces. “China has money, but its products are terrible, 138 | FORBES MAY 25, 2015
Revenue More than $130 million Phantom 1 debuts in January.
Revenue About $500 million
Projected revenue $1 billion Phantom 3 debuts in April.
its service is terrible, and you have to pay a hefty price for anything that’s good.” DJI is a long way from reaching the level of perfection in Wang’s Japanese artifact. The CEO openly acknowledges that his Phantom is “not a perfect product” and that some models have been known to ﬂy away from users because of software malfunctions. “We do have room for improvement,” concedes Wang, who says that he’s adding to DJI’s 200-plus support staff. Wang is also dealing with various levels of corporate espionage. He’s sure that a few of the Chinese drone startups to pop up in the past two years have done so with illegally obtained DJI designs. Wang has had to deal with at least two instances of internal spies, including one where a departing employee took blueprints and sold them to a competitor. That certainly doesn’t help in what Wang calls the “dog-eat-dog society” of Shenzhen, where cheap manufacturing will certainly see drones go the commoditized way of smartphones and laptops. Prices will certainly drop and the “boutiqueness of the market always gets driven out,” says Gartner analyst Gerald Van Hoy. “But DJI will do okay because they’ve established themselves in the market and they have recognition.” Wang doesn’t want to share the skies with others, intent on maintaining DJI’s lead as drones expand into commercial applications like agriculture, construction and mapping. “Our main bottleneck for growth right now is the speed at which we come to realize answers to technical puzzles,” he says. “You can’t be satisﬁed with the present.” F
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FORBES LIFE TRAVEL
Splendor in The Glass Can billionaire Alexander Vik produce a world-class wine at his new luxury resort in Chile? BY ANN ABEL
uring my tour of Viña Vik, Internet entrepreneur Alexander Vik’s latest glamorous South American getaway, a manager told me the Frank Gehry-esque serpentine roof on the hotel was made of titanium rather than gold. That’s because titanium, she explained, has a better thermal capacity to withstand the climate of Chilean wine country. I got the feeling that might have been the only reason. Because otherwise, Vik, the design-minded billionaire whose ﬁrst three hotels put Uruguay’s José Ignacio on the map, spared no expense in developing his new wine resort. Vik’s aim isn’t just to produce a vintage every season but also to make superlative wine. (Hotel staff regularly mentioned a goal of 100 points from Robert Parker.) “I’ve always been interested in the concept of terroir—what made one piece of land a great producer and not its neighbor?” the 60-year-old Vik says. “Wine has inﬁnite grades in quality— it’s not like growing wheat or raising cattle. I thought it would be a good challenge to grow the best wine in South America.” In 2004 Vik, whose mother was from Uruguay, convened a research team to study Argentina, Uruguay and Chile to ﬁnd the best place on the continent to grow red grapes. Two years later they found their answer: the Millahue Valley, which means “place of gold” in the local Mapuche language. “I’m convinced the conditions are as good as anywhere in the world,” says Vik about why he didn’t look beyond the continent. To be sure, researchers took more than 4,000 soil samples across the 11,000-acre plot of land before Vik closed the deal. Then scientists, led by esteemed French-Chilean oenologist 140 | FORBES MAY 25, 2015
Patrick Valette, installed weather stations and researched “all the elements of terroir” to determine the best places among the property’s 12 valleys to plant each varietal for the Bordeauxstyle blend. Two-thirds of the harvest is sold to other wineries, while the grapes that go into the Vik blend are hand-harvested at night by a team of about 400 workers. “We are using the diversity of grapes to make something exceptional,” says Vik. “Maybe 15 Cabernet Sauvignons, 10 Carmenères and 7 Merlots. It’s like a puzzle.” There are plans to eventually bottle second- and third-run wines. But a portfolio isn’t the point. Asked how much he has invested in the project, the famously cagey—and his competitors would say dishonest—Vik tells me he truly doesn’t know. But he scoffs when I ask if he expects the venture to support itself. “Absolutely. [Making it in] the wine world is a slow process. It takes years and years and years” to grow, age, market and distribute wines. (Vik wine retails for $130 in the U.S.) “It’s a long-term investment. But if you succeed, it’s very lasting.” For all the science on display in the wine-
Vineyard haven: Each of the 22 rooms and suites at Viña Vik has a distinct art theme and spectacular views of Chile’s Millahue Valley.
to be ﬂoating over the countryside. The communal living room includes works by Chilean artist Roberto Matta and a diptych from Anselm Kiefer’s “The Secret Life of Plants.” The rooms and suites (which start at $1,200 a night, including meals) vary wildly, but all have a strong point of view. The Vik Suite features art by Antonio Sequi and James Turrell, and the bathroom of the Azulejo Suite has hand-painted blue-andwhite tiles in the Portuguese tradition, depicting a playful panorama of the vineyard. Naturally, winery tours and tastings ﬁgure prominently in the Viña Vik experience, but guests can arrange guided hikes, mountain biking and horseback riding through the vineyards on short notice. There are also massage therapists at the ready in the spa, and yoga classes can be arranged with some preplanning. The main pastimes, though, seem to be eating and drinking. Vik recruited chef Rodrigo Acuña Bravo, who made a name for himself at Casa Lapostolle in the nearby Colchagua Valley, to lead the kitchen. His cuisine is straightforward,
hearty and delicious, making the most of the hotel’s location in Chile’s main growing region, the breadbasket to the world. As for wine pairings, there’s just one: When guests take their seats, servers appear with decanted Vik. (There are whites and a sparkling on request.) The wine turns out to be food-friendly and surprisingly versatile. “We’re satisﬁed with how the wine is developing,” says Vik. “The vines are at a young age but producing great wines. We’re focused on viniculture, on growing the best grapes, but also on letting the grapes express themselves. It’s holistic, organic and very pure. You can drink it with abandon without any consequences.”
“One of the disadvantages of wine is that it makes a man mistake words for thoughts.” —SAMUEL JOHNSON
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making operation, it’s art that rules the hotel, which opened late last year. As with their other properties, Vik and his wife, Carrie, ﬁlled this one with contemporary art and commissioned artists to create installations in each of the 22 rooms. It’s the kind of hotel that only a deep-pocketed visionary could pull off, without answering to investors’ caution. While it shares DNA with his Uruguayan outposts, Viña Vik is a singular hotel. “Estancia Vik is a Spanish Colonial hotel on ranch land that’s all about Uruguayan art and culture,” he explains. “Playa Vik is more contemporary, with 21st-century architecture, and Bahia Vik is more beachy, with bungalows out on the dunes. “In Chile,” he continues, “it’s all about the vineyard.” The main building is perched on one of the prettiest hilltops on the property—with staggering views from every room—as is the restaurant and a slate inﬁnity pool, which appears
LA COMPAGNIE The all-business-class airline (for premium economy fares) with direct ﬂights from Newark to Paris added a new route in April: Newark to London. IDEA
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FINAL THOUGHT “One thing that previous practice doesn’t always make perfect: marriage.” —MALCOLM FORBES
ON MARRIAGE “Happiness in marriage is entirely a matter of chance.” —JANE AUSTEN
“One was never married, and that’s his hell; another is, and that’s his plague.” —ROBERT BURTON
“Marriage is the greatest earthly happiness when founded on complete sympathy.” —BENJAMIN DISRAELI
“No time to marry, no time to settle down—I’m a young woman, and I ain’t done runnin’ around.” —BESSIE SMITH
“He is dreadfully married. He’s the most married man I ever saw in my life.” —ARTEMUS WARD
“Marriage is honorable among all, and the bed undefiled, but the fornicators and adulterers God will judge.” —HEBREWS 13:4
“Who but the rich can afford to get married and set up housekeeping anymore? The answer is nobody, but 2.4 million people got married in the U.S. last year anyway. That’s more people saying ‘I do’ than ever before in the nation’s history, more even than in 1946, after millions of men came home after nearly four years of world war to marry their sweethearts. This year the number of people getting married in the U.S. is expected to hold at the record 2.4 million.”
“Marriage may often be a stormy lake, but celibacy is almost always a muddy horse pond.” —THOMAS LOVE PEACOCK
“Flesh of Flesh, Bone of my Bone thou art, and from thy State mine shall never be parted, bliss or woe.” —JOHN MILTON
—FROM THE JUNE 22, 1981 ISSUE OF FORBES
OTHER THOUGHTS FROM THAT ISSUE: BY GOSH “‘The biggest thrill in Oshkosh,’ recalls Milton Berle, ‘is
to go to the train station and smell the luggage.’ Oshkosh, Wis., has been the butt of many a Vaudeville joke—the quintessential hick town with the Indian chief ’s name. Today, as a manufacturer of brightly colored overalls, Oshkosh B’Gosh Inc. is cashing in on—and somewhat living up to—that hick image.”
PAN AIN’T “Is there anything Chairman William T. Seawell can do to
pull Pan Am out of the power dive? Says he: ‘Here and there you will be unsuccessful, but history has said that if you work like hell, you’ll be successful enough to pull through.’” 152 | FORBES MAY 25, 2015
“I’ve had so many wives and so many children I don’t know whose house to go to first on Christmas.” —MICKEY ROONEY
“The value of marriage is not that adults produce children but that children produce adults.” —PETER DE VRIES
“Husbands are like fires. They go out when unattended.” —ZSA ZSA GABOR SOURCES: THE TIMES BOOK OF QUOTATIONS; THE DICTIONARY OF NATIONAL BIOGRAPHY; PRIDE AND PREJUDICE, BY JANE AUSTEN; ANATOMY OF MELANCHOLY, BY ROBERT BURTON; THE TUNNEL OF LOVE, BY PETER DE VRIES; LOTHAIR, BY BENJAMIN DISRAELI; PARADISE LOST, BY JOHN MILTON; MELINCOURT, BY THOMAS LOVE PEACOCK.
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