Change of Guard in the House of Mouse: Disney’s Longtime CEO Steps Down

Bob Iger, Time’s 2019 Person of the Year, surprised many on Wall Street and in Hollywood when he abruptly ended his tenure as CEO of The Walt Disney Company. Iger was Disney’s CEO for almost 15 years and oversaw massive changes while at the helm. When Iger assumed leadership in 2005, the company was stagnating from slow growth, but Iger spearheaded major Disney initiatives by expanding Disney’s existing theme parks and launching Shanghai Disneyland. Iger also oversaw Disney’s acquisitions of Pixar, Marvel, Lucasfilm, and 21st Century Fox, effectively transforming the company into a multimedia giant.

Iger delayed his retirement several times in recent years, but many expected him to remain as CEO until his employment contract expired in December 2021. The recent launch of Disney Plus – Disney’s streaming solution to changing consumer-viewing habits – may have provided Iger the needed cover to step down. Note that Iger will still remain at Disney and serve as Executive Chairman of the Board of Directors until the end of his 2021 contract. Iger reports that his resignation was planned for months and the strategic move allows him to focus more on the creative side of Disney’s businesses. Regardless, analysts hope that Iger’s residual role at Disney will allow for a smoother transition.

Disney’s incoming CEO is Bob Chapek, who previously served as the Chairman of Disney’s theme parks and consumer products businesses. Chapek has been at Disney for over twenty-seven years and is seen by some as a more operationally-minded, bottom-line, “numbers guy.” Other sources hail Chapek’s promotion as a logical next step due to the operational expertise needed to oversee Disney’s various product lines and expansions. Chapek most definitely has lofty expectations and big shoes to fill in a company whose stock price quintupled during Iger’s reign.

Whether Disney can continue its global entertainment dominance remains to be seen. In the meantime, Chapek’s management abilities for over 200,000 employees are already being tested as COVID-19 has forced the closure of Disney’s theme parks in Shanghai and Hong Kong. As for what the future holds for Iger, pundits predict future political aspirations and perhaps some well-deserved time on his sailboat.

Change of Guard in the House of Mouse- Disney’s Longtime CEO Steps Down

NTSB Calls for Regulation of Tesla Autopilot

As stated on the Tesla website, Autopilot functions to steer a vehicle within a clearly marked lane and to match the speed of surrounding vehicles in order to avoid collision. The driver remains in primary control, unlike in a complete self-driving system that entirely replaces human operation. Safety experts believe that Tesla’s current Autopilot system is insufficient in educating drivers and warning them not to rely too heavily on the Autopilot function. The function could encourage drivers to disengage from the task of driving, thus causing severe accidents.

In 2018, Walter Huang, an Apple engineer, was killed in a tragic crash while driving his Tesla Model X with the Autopilot system engaged. His vehicle failed to detect obstacles at 71 miles per hour and crashed into a traffic barrier. The driver ignored the system alert while playing a game on his phone. Unfortunately, Mr. Huang was not the first fatal case that Tesla’s Autopilot system has been involved in. In 2016, Joshua Brown was killed while driving a Tesla on Autopilot that was unable to avoid a turning truck. This was the first case raising concerns about the technical limitations of the Autopilot system.

The National Transportation Safety Board (“NTSB”) has released documents in its probe into four cases, including the two cases mentioned above, showing that Tesla’s Autopilot is unable to monitor whether drivers are engaged in active operation. The NTSB recommended that Tesla install driver monitoring safeguards to avoid misuse of Autopilot. For the sake of consumers and automakers, the NTSB also urged the National Highway Traffic Safety Administration (“NHTSA”), the main regulator for U.S. auto safety, to set rules for similar autopilot systems. The NHTSA has yet to take any proactive action or respond.

The NTSB also criticized the semi-autonomous system for misleading complacent drivers who are inclined to overestimate the new function’s capability, partially due to misunderstanding of appealing terms such as “Autopilot,” “Super Cruise,” and “Drive Pilot.”

Recently there has been vigorous debate regarding new regulation of Autopilot. Not only do these autonomous vehicles have the ability to alter the legal landscape, but the US has lagged far behind its European counterparts in this regulatory space. To comply with  Europe’s higher standard, Tesla had to update its Autopilot system by adjusting the steering angle and lane-change system, per Regulation 79. Approved in 2019, Regulation (EU) 2019/2144 places specific requirements on automated vehicles involving intelligent speed assistance, emergency lane‐keeping systems, driver attention warning and advanced driver distraction.

As the number of autonomous vehicle-related accidents increase, US regulators are reportedly starting off with a proposed rating system; however, no specific timetable or framework has been addressed. It is uncertain how long consumers will have to wait before a rating system is actually put in place.

NTSB Calls for Regulation of Tesla Autopilot

Coronavirus Highlights Apple’s Risky Reliance on China

Apple has revealed that the coronavirus is harming the company’s bottom line. In the wake of the disease outbreak and subsequent lockdowns across China, Apple warned that it will miss revenue expectations for the first quarter of 2020.

Apple CEO Tim Cook has bet big on China, and that bet has largely paid off. As Apple’s second largest consumer market and the anchor of the iPhone supply chain, China has been invaluable to Apple’s soaring market value. This is why Cook has continued to lean into the Chinese market despite several major setbacks and concerns raised by Apple’s operations team and investors. First, there was the spate of suicides and allegations of abhorrent working conditions at Chinese factories run by Foxconn. Next, there was the fallout from tariffs disputes. Now, there is the coronavirus.

Whether the epidemic will force Apple to shift its strategy in China remains to be seen. On one hand, a clean break with China may be impossible. Apple has started to experiment with moving production elsewhere, but has struggled to find a comparable source of reliable, cheap labor. Furthermore, employing millions of local workers has helped Apple gain favor with the Chinese government, which wields immense influence over how global brands are perceived in the nation.

On the other hand, Apple might not have a choice. Despite the company’s assurances that “Apple is fundamentally strong, and this disruption to our business is only temporary,” the coronavirus shows no signs of slowing down. The uncertainty surrounding the disease combined with pressure from executives and shareholders who want better resiliency and long-term sustainability may lead Apple to follow in the footsteps of rival smartphone-maker Samsung and downsize its operations in China.

Apple’s enormous cash balance of over $200 billion means it can likely weather a short-term storm. However, the coronavirus has highlighted the extent of Apple’s dependency on China and renewed questions about the long-term viability of that strategy.

Coronavirus Highlights Apple’s Risky Reliance on China

Supreme Court Challenge to the Affordable Care Act Slated for October

Earlier this week the Supreme Court granted certiorari to hear the latest case aimed at thwarting the Affordable Care Act (ACA).  The case, California v. Texas, challenges the constitutionality of the entire ACA based on the viability of the individual insurance mandate, a central part of the act. The foundation for the individual mandate, which functions as a tax on those who do not purchase health insurance, is rooted in Congress’ taxation power. However, in 2017, Congress passed legislation that reduced the individual mandate to zero dollars, seemingly disabling its function as a tax. Without this taxation authority, Texas now argues that the ACA is unconstitutional as a whole.

The 5th Circuit majority affirmed the federal district court ruling that the individual mandate is unconstitutional, but failed to specify if other key provisions would be dismantled by this decision (notably the popular protections for those with preexisting conditions). Meanwhile, the dissenting judges expressed their view that the ACA did not require the individual mandate to survive this challenge.

Upon review, the Supreme Court will likely address the issue of severability – whether the individual mandate can be excised from the ACA, leaving the remaining provisions intact, or if the individual mandate is so integral to the act that the rest of it must fail if the individual mandate does. Thus, the Court could rule one of three ways after hearing this case in October: it could invalidate the entire ACA as unconstitutional, invalidate only the individual mandate while upholding the remainder of the act, or it could overrule the 5th Circuit’s decision and declare the individual mandate constitutional, preserving the entire act.

The implications of this decision will have a sweeping effect on the landscape of the American healthcare system. While the total elimination of the ACA may be welcomed by the current administration, the act is at its all-time highest rating, with 55% of the public supporting the law. Given the uncertainty this lawsuit presents about the future of the healthcare system, it is likely to stoke political discourse as the nation prepares to vote in the upcoming presidential election.

Supreme Court Challenge to the Affordable Care Act Slated for October

 

Ninth Circuit Tears Down Equal Pay Act Loophole

For many women in America, discovering their male coworkers are paid more for the same job is not a novel experience. The gender pay gap – now a difference of about 21 cents per dollar – is perpetuated by employment practices that rely on valuing women’s salaries based on their past earnings. Historically, companies have used female plaintiffs’ past earnings as a defense in suits brought under the Equal Pay Act (“EPA”). On Thursday, the Ninth Circuit ruled in Rizo v. Yovino that defendants may not use prior pay rate as an affirmative defense to EPA claims.

As for the facts, the plaintiff, Aileen Rizo, was hired as an experienced math consultant by the Fresno County Office of Education at a salary well below that of her male counterparts and less than the male entry-level employees. After learning of the stark pay discrepancies, Rizo filed suit under the EPA. The EPA offers four exceptions for which a man may be paid more than a woman for “substantially similar” work: “(1) seniority; (2) merit; (3) the quantity or quality of the employee’s work; or (4) ‘any other factor other than sex.’” The defendants argued that female salary history is encompassed in the fourth exception. However, the court reasoned that the fourth exception is exclusively relevant to value-driven factors, and thus, past pay is irrelevant under this exception. This ruling closes a “loophole that perpetuated gender inequities,” allowing employers to justify discrimination by pointing to a past injustice and using it to avoid liability.

But not all jurisdictions follow the Ninth Circuit’s approach. Currently, there is a circuit split on the issue, which may prompt the Supreme Court to intervene. The Ninth Circuit’s holding is joined by the Second, Fourth, Sixth, Tenth, and Eleventh Circuits. The Seventh and Eighth Circuits, however, have found the language, “factor other than sex,” to include past pay. As a result, companies should proceed with caution and have an understanding of their jurisdiction’s ruling on the issue. That being said, best practices indicate cause for removing the practice entirely.

Recently, many companies have taken active steps to address the gender pay gap. A vast number of companies have removed salary history questions from their interview process and implemented standard metrics that determine salary based on the prospective employee’s value creation rather than the amount they were previously paid. Some states ban the inclusion of pay history questions altogether. As for the EPA’s regulatory regime, businesses may be held liable regardless of their intent. Thus, this places pressure on businesses to maintain an annual internal auditing system to identify any potential gender pay discrepancies and implement reasonable corrective measures.

The Rizo ruling functions to narrow the exceedingly broad definition of “factor[s] other than sex” and set a higher standard for business hiring practices. Companies must now look toward preventative measures to ensure equity for their employees and new hires. Hopefully, courts will continue to demand pay equity regardless of past injustice.

Ninth Circuit Tears Down Equal Pay Act Loophole

Richest Person in the World Gives Away a Thirteenth of Net Worth for Climate Change

Jeff Bezos, the richest person in the world, announced via Instagram that he will commit $10 billion to fight climate change. The $10 billion accounts for one thirteenth of Bezos’ $130 billion net worth.

People tend to compare the spending of Jeff Bezos with that of Bill Gates, a tech mogul who was once the richest person in the world. Gates is as well known for being a philanthropist as he is for being a Microsoft co-founder. Not only has Gates himself given billions of dollars to charitable efforts, but he has encouraged fellow billionaires to do so as well. Warren Buffet, for example, has devoted 50% of his wealth to “The Giving Pledge” initiated by Gates.

By contrast, Bezos has historically given only 1% of his wealth to charity. The news has instead noted the record amounts he has paid for other things, such as for a Bel-Air mansion worth $165 Million and a divorce settlement of $38 billion. But his contribution to climate change comes at a record amount, as well.

Despite the overwhelming excitement following the unveiling of Bezos Earth Fund, a group of climate experts has raised concerns about the potential that Bezos’ wealth can manipulate the planet’s future, and have urged Bezos to take a hands-off approach to his fund.

And despite the fund being an act of personal giving, the public is projecting its concerns about Amazon onto the fund. This demonstrates the public’s distrust of big tech, even while its leaders are increasing their CSR and ESG efforts. Much of this is understandable; indeed, Amazon’s own carbon emissions equate to burning almost 600,000 tanker trucks worth of gasoline.

Richest Person in the World Gives Away a Thirteenth of Net Worth for Climate Change

Silicon Valley Leaders Are Worried About Bernie Sanders

Silicon Valley is known for being disruptive in the technology industry and stimulating social change. However, tension is mounting as Bernie Sanders, an independent senator from Vermont, begins to edge out his competition in the 2020 presidential race. Leaders in the Silicon Valley are worried that Sanders’ position is too extreme and that voting for him is a vote in favor of socialism. The views of employees of big tech companies – who are in favor of Sanders and want to see significant economic and social change – seem to be diametrically opposed with the views of their bosses, who want a “moderate” Democrat at the helm.

Venture capitalists and executives seem to be on the same page. They are saying “anyone but Sanders.” A partner at the venture capital firm, Menlo Ventures, recently said, “I’m trying to balance what socialism means versus four more years of Trump, and honestly it feels like which is the worse of two evils?” He further stated that “eighty percent [of his colleagues in the venture capital industry] are thinking the same thing, but many do not speak out.” Another prominent venture capitalist said, “I would certainly vote for Trump over Sanders.”

Sanders has taken a strong position against tech elites. Specifically, he has taken a stance against Apple for not paying enough taxes, and called for Google to be broken up because it is “too big” and “anti-worker.” The Silicon Valley is where technologists come in hopes of developing a “unicorn” startup to be valued at or above $1 billion. Technology company leaders are concerned about their wealth when Sanders says, “billionaires should not exist.” Sanders has also proposed that corporate taxes be raised to 35% and for earlier taxation of stock options.

Self-proclaimed “moderate” Democrats – or so called “common sense” Democrats – and tech leaders in the Silicon Valley, had been primarily supporting Pete Buttigieg (who recently ended his campaign). Mr. Buttigieg’s campaign was financed by an extensive list of Silicon Valley titans including: Reed Hastings, the CEO of Netflix; Ben Silbermann, the CEO of Pinterest; Reid Hoffman, a co-founder of LinkedIn; and John Doerr, a prominent venture capitalist, according to Federal Election Commission filings. Many of them have since moved on and are supporting Joe Biden. Eric Schmidt, Google’s former CEO, also donated to Mr. Biden’s campaign.

Other Silicon Valley moguls like Larry Ellison (founder at Oracle) and Peter Thiel (prominent venture capitalist) have staunchly supported Republican Candidates. In fact, Ellison recently hosted a fund-raiser for President Donald Trump which caused serious backlash at his company.

There seems to be a schism between those who lead tech companies and their employees. The way Silicon Valley votes is crucial because there is a vast amount of talent, capital, and influence packed in the region. One could argue that tech employees are the gears that turn the Silicon Valley engine and that their voices are most important. Alternatively, tech leaders’ position on presidential candidates should not be viewed as one concerned with mere personal gain, but instead an exercise of their seasoned opinion about what policies (endorsed by certain candidates) are most favorable for producing successful, high-growth companies. As the 2020 presidential election carries on, one hopes that whoever takes the helm will close the chasm between tech leaders and their employees.

Silicon Valley Leaders Are Worried About Bernie Sanders

Ransomware Attacks Grow, Crippling Cities and Businesses

Recent years have witnessed several attacks on governments and businesses by Ransomware, a malicious software that can encrypt and control computer systems. Although authorities have not released broad statistics regarding trends, the FBI stated that these attacks are becoming “more targeted, sophisticated, and costly.”

Interestingly, before 2019, these attacks were known to target only businesses and individuals. Of late, Ransomware attacks on public-facing institutions is a growing concern. There is a significant threat to public safety, essential utilities, and the backbone of the economy of the city. According to a report by Emsisoft, a security firm, in 2019 Ransomware interrupted 911 services, delayed surgical procedures, and made it tough for emergency response officials to access medical files, scan employee badges, and view outstanding warrants. The report also suggests that in that year, 205,280 organizations submitted files that had been hacked in a Ransomware attack — a forty-one percent increase from the year before.

Slower than average adoption of new technology and a stagnant culture of trivializing cybersecurity are some reasons for the increasing vulnerability of public institutions. The abundance of personally identifiable information (PII) also make city services and hospitals big targets for such criminal activities. This was seen in the recent attack on New Orleans, which led the city to declare a state of emergency. What is worse is that even mitigation strategies such as buying cyber insurance can misfire and have a negative impact. Cyber insurance signifies larger anticipated ransoms. For example, last year, the Florida cities of Lake City and Riviera Beach paid ransoms of about $500,000 and $600,000, respectively. This has led many to emphasize the need to avoid paying ransoms to criminals in the event of an attack. According to data from Coveware, the average payment to release files spiked to $84,116 in the last quarter of 2019, more than double what it was the previous quarter. More so, in December 2019, this figure jumped to $190,946.

Along with entire city governments, several small businesses have suffered tremendous losses from recent Ransomware attacks. Concerns that many small towns in swing states will see more attacks by state-led actors in the wake of the Presidential election in November remain at large. Such attacks on smaller cities are a way to test systems, and motivations for these attacks are wider than mere extortion. However, it can only be hoped that attacks in the past serve as a reminder to enforce greater cybersecurity across public and private facing institutions in the United States.

Ransomware Attacks Grow, Crippling Cities and Businesses

Austin, Nashville Rank at Top of Hottest U.S. Job Markets

The Wallstreet Journal ranked Austin, Texas as the top city for job market growth along with Nashville, Tennessee coming in at second place. Rankings were based on “the unemployment rate, labor-force participation rate, job growth, and labor-force growth and wage growth.” Apple and Amazon have made recent moves to the southern states, creating a growing number of technology jobs. Austin and Nashville are well known for their vibrant nightlife and great food, but now these two cities are luring young professionals away to begin their careers in places other than larger coastal markets.

In 2019, Apple began construction on a $1 billion corporate campus in Austin, Texas, demonstrating its commitment to expanding in the Lone Star State. In an article written by CNN, the campus “is expected to open in 2022, will initially house 5,000 employees, with the capacity to grow to 15,000. It will run on 100% renewable energy, including from solar power generated on-site, according to the company.” Amazon is also building a new campus which will spark more growth in Nashville due to the company’s goal of hiring 5,000 new employees.

According to the job market rankings, the Bay Area still sits among the top ten, but places like Austin and Nashville can be more attractive in some cases. One of the main differences between California and Texas, for example, is the cost of living. As of 2017 in Austin, “the median house price is $289,000 with a 3-year appreciation rate of 25.2%.” When young college graduates are making decisions on where to work, housing costs can play a major role in the decision-making process. In an article written by MarketWatch, other features luring people to the south are noted, such as “well-known universities…and an intangible cool factor.” Nashville has Vanderbilt University in the heart of the city and Austin is the home of the well-known University of Texas.

A lot of companies are moving to the south for many reasons. The San Francisco Business Times wrote an article stating, “the corporate exodus out of California is bad. It could get worse. There’s no plan to stop it – and the Lone Star State hopes there never will be.” Making the move to the country’s large cities like Austin and Nashville can have many more benefits than just escaping high taxes.

Austin, Nashville Rank at Top of Hottest U.S. Job Markets

How Big Companies Won New Tax Breaks from the Trump Administration

President Trump signed the Tax Cuts and Jobs Act (TCJA) into law on December 22, 2017. The law brought about drastic changes to federal tax laws—so much so that the Act is recognized as the largest tax code overhaul in thirty years. American companies constantly pursue methods that allow them to pay taxes lower than 35%, such as using techniques like ‘Double Irish with a Dutch Sandwich.’ In order to tackle this, the law slashed taxes for big companies, aiming to induce them to invest more in the US rather than piling their profits in various tax havens. But no good deed goes unpunished. The budget deficit subsequently increased by more than 50%.

TCJA created a single corporate tax of 21%–as compared to the previous 35%–and  abolished the alternative minimum tax. Unlike tax breaks for individuals, these provisions do not expire.

Rather than paying their fair share of taxes, huge US companies move their profits to countries where tax rates are considerably lower, such as Luxembourg, Bermuda, and Ireland. Lawmakers came up with two tools to tackle this problem and to deter companies from moving capital offshore: the Base Erosion and Anti-Abuse Tax (BEAT) and the Global Intangible Low-Taxed Income (GILTI). BEAT aimed to impose an additional 10% tax on payments that companies send to their foreign affiliates. GILTI would apply a  10.5% tax on offshore earnings. But lobbyists got the best of lawmakers and shut down these proposals before they were ever enacted.

The first victory came for international bankers, who were trapped from all sides. American regulators require international banks to keep their American divisions sufficiently capitalized to sustain huge losses in the event of a crisis. To comply with these regulations, foreign branches of banks provide loans to American divisions, which incur interest. BEAT aimed to tax interest payments from American bank divisions to foreign branches. But Treasury Secretary Steven Mnuchin was successfully convinced by lobbyists to call off these tax impositions, and other major exemptions which were also granted to international banks.

Lobbying against GILTI proved to be equally fruitful. GILTI predominantly targeted tech and pharmaceutical companies, who rely on profits borne from patents. These companies sell their rights in patents to subsidiaries in low taxing countries. The subsidiaries then charge heavy licensing fees to American divisions, causing US profits to fall while tax haven profits rise. GILTI targeted companies that were using this tax loophole. Naturally, the companies responded. United Technologies, Anheuser-Busch, Comcast, and other giants dispatched lobbyists and demanded a “High-tax exception.” After only a few months of lobbying, the Treasury Department made an announcement in June 2019 that it would create the company-requested exception.

Now, two years after this intensive overhaul of federal tax law, the consequences are becoming vivid. While companies are still moving their profits to lucrative tax havens and enjoying profit hikes as a result of various tax cuts and exceptions, the government is collecting billions fewer from corporations. Indeed, the Organization of Economic Cooperation and Development observed that the United States experienced largest drop in tax revenues in 2018.

How Big Companies Won New Tax Breaks from the Trump Administration