Once again in the spotlight, Facebook is facing regulatory scrutiny regarding its data privacy practices. After a Wall Street Journal media report revealed that Facebook collects users’ personal information from third party apps, New York Governor Andrew Cuomo is stepping in to order an investigation. These data include sensitive information such as one’s weight, blood pressure, and even ovulation status. In a statement, Facebook claims that the Wall Street Journal’s report instead focuses on how third-party apps are handling user data to create ads and that Facebook is actually making a conscious effort to track and remove data that should not be shared with the company.

As regulatory and public stakeholders become more concerned over data privacy, Facebook continues to struggle to instill confidence in this issue. Just a year ago, in early 2018, the Federal Trade Commission initiated an investigation into claims that Facebook improperly shared information that belonged to 87 million users with British political consulting firm, Cambridge Analytica. This time, Facebook is under the probe of two New York state agencies, New York’s Department of State and Department of Financial Services.

This is an unprecedented move by New York’s Department of Financial Services. The department usually stays clear from direct supervision of social media companies. However, its role in data privacy is growing as the financial sector faces digital privacy concerns. For example, the department is expected to implement the country’s first cybersecurity rules to govern state-regulated financial institutions. These rules would apply to players such as banks, insurers, and credit monitors.

The increasing role of New York’s Department of Financial Services in monitoring entity compliance in spaces such as digital privacy and cybersecurity reveals the many ways various industries are taking advantage of social media. The prevalence of social media and the troves of user data associated with it will continue to raise privacy concerns. As a result, more and more state regulatory agencies, who have previously stayed clear from social media, could find their work necessarily overlapped with and influenced by social media and thus the corresponding data concerns. As this reality becomes more likely, Facebook will find itself dealing with new stakeholders and new regulatory players. The omnipresent role of social media across industries could enable new state agencies to put pressure on companies such as Facebook to hold them accountable for their management of sensitive data. Furthermore, it could also present opportunities for companies such as Facebook to work with new stakeholders on regulation and policies that promote greater user confidence and trust, thus creating a win-win situation for both regulators and corporate players.

Facebook Strikes Again

On February 26, 2019, Chevron announced its $5 million donation to Catalyst, a global nonprofit that works with companies to improve the retention and success of female employees by focusing on the role men can play in changing workplace culture. This donation is the largest in Catalyst’s history and will go toward the nonprofit’s Men Advocating Real Change program (MARC), which aims to empower men, especially male executives, “to engage in workplace inclusion through research-based programming and an online community to continue the conversation” around improving gender diversity. This initiative is targeted toward men because they “hold the vast majority of leadership positions among Fortune 500 companies,” and thus are in the best position to advocate and implement real change.

CEO of Catalyst Lorraine Hariton says this project provides men who are unsure how to help increase diversity and inclusion with important tools to “advocate for women within the workplace.” Some of the specific “trouble spots” targeted by the project include “work processes, practices, and interactions,” such as unconscious bias and stereotyping, which work against gender inclusion in the workplace.

Chevron began working with Catalyst two decades ago, but the oil and gas company’s recent record-breaking donation could suggest a “turning tide within the energy sector,” an industry that has long lagged behind in promoting gender equity in the workplace. Furthermore, it appears that working with MARC has led to improvements at Chevron. Since 2010, the percentage of women on the company’s board has increased 30 percent, and female membership on its management committee has increased from 11 to 20 percent. Chevron CEO Mike Wirth credits an increase in innovation at the company to improvements in diversity, calling the “business case” for initiatives like MARC “compelling.” However, although female hiring in the oil and gas industry has been increasing in recent years, companies are still in need of more women, especially in top executive roles. Chevron and its counterparts in the energy sector still have a long way to go before gender parity is visible on the horizon.

Chevron Pushes for Greater Workplace Diversity with $5 Million Donation

In 2013, the U.S. used surveillance beacons in network devices and shipped them around the world. Now, the U.S. is accusing Huawei, a Chinese telecommunications equipment and consumer electronics manufacturer, for posing the same threat to the U.S.

As the demand for 5G networks grows, tensions between Huawei and the U.S. has intensified. The issue with 5G signals is that it raises two privacy concerns: first, 5G requires more cell towers, which will be able to see where you are more precisely; secondly, more user data will be collected. The U.S. takes issue with Huawei given its possible ties to China. Currently, Huawei is the world leader in manufacturing 5G equipment, and it sells this equipment cheaper. Additionally, Huawei’s founder and CEO once held a high rank in the engineer corps of China’s People Liberation Army; whereas, other Chinese companies, such as Lenovo, have not drawn the same scrutiny given their lack of clear governmental ties.

The U.S. has pressured both its allies and carriers within the U.S. The U.S. provides many carriers with government contracts, and, as a result, many U.S. telecom firms have decided not to sell Huawei mobile devices rather than jeopardizing their contracts.

On February 28, Huawei took a full page ad in the Wall Street Journal inviting U.S. media to visit its firm to “clear up ‘misunderstandings’ created by the U.S. Government.” And, it seems as if Huawei’s approach may be working as the United Arab Emirates have stated that it would use Huawei in its networks. However, some European allies are hesitating at the idea of banning Huawei completely. Nevertheless, the U.S. is not without allies; Orange, the largest telecom operator in France, has “ruled out” using Huawei equipment in its core 5G network, as well as Australia and New Zealand.

Ultimately, experts are split as to whether Huawei is a security threat. However, many argue that given the trade relationship between the U.S. and its best customer, China, both the Chinese government and Huawei are unlikely to risk losing their business relationship to a bug or piece of hardware that would likely be found.

Huawei – Friend or Foe?

Last month, the Trump administration implemented sanctions on Venezuela’s state-owned oil company, Petroleos de Venezuela (PDVSA), in an attempt to support the opposition in toppling President Maduro’s government. The sanctions prohibit U.S. companies from engaging in further business with PDVSA, which provides approximately 90% of Venezuela’s hard currency. Additionally, the sanctions freeze all PDVSA assets located within the United States. Citgo Petroleum, the U.S. based refining arm of PDVSA, is currently undergoing a change of control and its future, along with that of the broader Venezuelan economy, remains unclear.

At a macro level, the sanctions directly impact existing pricing dynamics across global oil markets. Heavier sour crude, the kind of oil that Venezuela sells to U.S. refineries for the production of gasoline, typically trades at a lower price than that of lighter grades due to the additional costs undertaken by its purchasers to refine it. Given these sanctions and other restrictions in supply, heavy oil is now trading at a higher price than its lighter grade counterparts and U.S. refineries are paying a premium. As a result, U.S. oil prices are up approximately 5% and the global benchmark for oil is up 8%. Despite these identifiable increases, most industry analysts do not see the sanctions as the direct cause. Instead, they point to the culmination of decreasing output in Mexico and Canada, instability in Libya, and the OPEC-plus cuts.

While some media focus has been on the sanctions themselves, the more pressing issue is the humanitarian crisis occurring within Venezuela’s borders. Since Maduro came into power in 2013, the Venezuelan economy has halved and the supply of basic necessities – such as medicine and food – has severely diminished. Although the U.S. implemented these sanctions with the intention of helping Venezuelan people by halting Maduro’s plundering of the country, the PDVSA sanctions could cut oil exports by two-thirds and lead to a further 26% contraction in Venezuela’s economy. With Maduro still in power, and the sanctions in place, the Venezuelan people can only brace themselves for further economic weakening until a new administration is established and the sanctions are lifted.

U.S. Oil Sanctions on Venezuela – Helping or Hurting

Last October, amidst many rumors, ride-sharing firm Lyft finally selected its underwriters and began the process of filing for an IPO. JPMorgan Chase & Co., Credit Suisse Group AG, and Jefferies Group LLC will lead the offering. Valued at $15.1 billion earlier this year, Lyft’s valuation is projected to surpass that number. Investors will be better able to gauge whether Lyft is worth the $25 billion valuation it is seeking after the company makes its IPO filing public.

In contrast, Lyft’s top competitor, Uber, has also considered an early 2019 listing, receiving proposals valuing the company up to as much as $120 billion. Unlike Uber, which has a global presence, Lyft is “squarely focused on the booming American ridesharing market.” While Uber has dipped into new areas such as delivery (Uber Eats) and shipping (Uber Freights), Lyft has shied from such untested markets. This “presents a much clearer growth story to investors.”

Based on their S1 form filed to the SEC, Lyft had an annual revenue of $2.16 billion and $911 million loss in 2018. Compared to the previous year, Lyft has shown steady growth in numbers, up from a $1.06 billion revenue and $688.3 million net loss in 2017.

Despite this upward trend, there are concerns of numbers manipulation to upsell the IPO. The Wall Street Journal has noted that “when Lyft launches certain promotions for riders, it books the ride’s full price as revenue, not the discounted price,” instead recording the difference as a “sales and marketing expense.” Furthermore, Lyft’s largest investor Rakuten calculated the company’s market share numbers to be 30% higher than what market research firm Second Measure stated.

Apart from Uber, technology companies Airbnb, Slack, Palantir, and Pinterest also aim to make a showing this year. Lyft plans to pitch to investors by mid-March and allow public trading until the end of the month. If all goes well, this first major technology company IPO of the year could lay the groundwork for many successful IPOs to follow. Given the Federal Reserve Chairman Jerome Powell’s suggestion that the Fed does not intend to raise interest rates any time soon, coupled with the current bull market, now is a prime time to IPO. However, if the first one to break the ice fails, the pack of technology companies following Lyft may yet hold back and wait for calmer markets.

Lyft IPO – Leading the Wolfpack

Silicon Valley has unequivocally changed the landscape of the auto industry. In 2010, asking a stranger to give you a ride home was nobody’s favorite transportation option. Yet, in 2019, ride-hailing services like Uber and Lyft are a leading transportation choice. Even more disruption is inevitable as Google, Uber, Lyft, and others race to become the first driverless car operator.

This disruption has forced traditional car manufacturers to adapt to keep up with Uber and other innovators. Rivals Daimler (Mercedes-Benz) and BMW have agreed to a $1 billion joint venture. The companies believe the project will be a “global gamechanger” that “maximize[s] [their] chances in a growing market.” Daimler and BMW hope to fend off companies like Uber by focusing on five areas: “car-sharing, ride-hailing, parking, charging, and multimodal transport.”

Interestingly, Daimler and BMW are not alone. Collaboration among global automakers has increased as Google and Uber have pressed them to be on the forefront of auto technology like autonomous driving systems and electric vehicle platforms. For example, Ford and Volkswagen have not only agreed to build vehicles together, but also jointly “investigate” the development of next generation vehicles. General Motors, SoftBank, and Honda announced a similar joint effort.

Ultimately, cooperation among these rival car makers is an encouraging sign. After nearly 150 years of combustion engines, market forces are compelling car manufacturers to commit significant capital to innovation.

Rival Auto Makers BMW and Daimler Forced to Cooperate

CBRE, a worldwide leader in real estate services, launched a new business called Hana, eager to cut a piece of the coworking business pie. It aims to distinguish itself from companies like WeWork and its smaller peers like Knotel and Industrious by offering landlords an opportunity to maintain relationships with their tenants.

Coworking companies, such as WeWork, make their money through rental arbitrage by purchasing or renting commercial spaces from property owners, transforming them, by adding features such as cafés, communal spaces, and offices, then renting the space to clients at higher prices on a short-term basis. Their target markets typically include startups, work-at-home professionals, independent contractors, and remote freelancers seeking to avoid working in isolation. Landlords take companies like WeWork as tenants because they attract startup culture, facilitate short term leasing with multiple tenants, and can add to property value by making traditional 9-to-5 office buildings more vibrant.

However, coworking company profits stem also from larger company clientele, generating disconnect between landlords and the companies they usually court. CBRE’s Hana takes advantage of this disconnect through partnerships with landlords that enable them to maintain their relationship with tenants. Therefore, owners wanting to share in the profits of the flexible office market can partner with Hana, effectively cutting out intermediary companies like WeWork. Under this alternative model, owners will co-invest with Hana in building the workspaces; Hana will manage them for a fee; and they both would share in the profits.

Indeed, the transition from arms-length leases to partnerships in the coworking sphere is not entirely new. WeWork and Industrious have begun using co-management agreements, a staple in the hotel industry, where landlords might pay for renovations and then split the profits equally. Still, however, lenders feel more comfortable issuing debt on a property with a long term lease, a reason why management agreements have not gotten much grip in the U.S., according to Granit Gjonbalaj, WeWork’s real estate development officer. It is exactly this mismatch of long term commitments supported by short-term rentals that gives WeWork a going concern issue, the same exposure that pushed IWG’s Regus into bankruptcy in 2003. It’s possible that some landlords have refused to rent to WeWork because of concerns about its long-term viability.

CBRE’s Hana is betting that its partnership business model coupled with its deep relationships derived from its commercial real estate services, investment management services, and development services will give it a competitive edge in obtaining landlord business. While lenders still might prefer a long-term lease before issuing debt on a property, this may change as underwriting standards begin to better understand coworking income streams.

CBRE Takes on WeWork

Markets reached their highest peak this week since November of last as President Trump postponed a planned tariff hike against Chinese imports, a signal to some that a trade-deal between the two economic powers is close at hand. The President himself announced his optimism regarding the prospects of reaching a deal, though warned that an agreement may still not be possible. Many credit the long trade-spat between the two countries with slowing global economic growth since its inception, and some fear that its effect on U.S. GDP or inflation could expedite or worsen a possible near-recession. Contributing to this market rally has been the Federal Reserve’s recently dovish stance on interest rates and the weakening of the U.S. dollar to certain emerging market currencies, the latter of which is positive sign for global trade prospects; a higher relative dollar value makes debt in those countries, which is held in U.S. dollars, more expensive to service.

Still, whether a deal happens and whether that deal accomplishes the goals set out by the Trump administration is another matter. The purpose of any such deal, according to the administration, is to provide more rigid protections against intellectual property theft and curb technology transfers that threaten U.S. national security interests and industrial, technological leadership.  However, with recent signs that China is pushing for market growth, rather than deleverage to reduce the risk of its current debt position, the extent to which China will concede to any such regulations that run contrary to the goals of its Made in China 2025 initiative may be dubious. If they do, will that trade-deal framework be sufficiently rigid or realistically enforceable enough to be practically effective?

Moreover, questions emerge concerning the President’s intent underlying this delay announcement, especially coming off of President Trump’s inability to secure funding for a National Border Wall and Emergency Declaration. Is the President posturing – using the inevitable market boost that accompanies the announcement to boost support?  Whatever the case, how trade-talks proceed in the coming months could have a profound effect on global markets and international trade-regimes in the near-future.

Stocks Rally Following Tariff Delay, but a Trade Deal is No Sure Thing

Last week Microsoft employees published an open letter calling on the company to cancel its $480 million HoloLens contract with the U.S. Army. The employees claim that Microsoft is failing to inform engineers “on the intent of the software they are building” and demand greater transparency. In the letter, Microsoft employees call on the company to cease working on “any and all weapons technologies,” to create a public “acceptable use policy,” and to create an “independent, external ethics review board” to enforce compliance with such a policy.

Chief Legal Officer Brad Smith previously defended Microsoft’s work with the military in an October blog post, stating that “the people who defend our country need and deserve our support” and that withdrawing from the weapons technology market would reduce Microsoft’s ability to shape how technology is used.

The Microsoft protest follows the trend of tech employees speaking out against contracts with the U.S. government. Last year, Google announced it would not renew a contract with the military after thousands of employees protested the company’s involvement in a Pentagon program that used artificial intelligence as weaponry. A few weeks later, employees from Google, Salesforce, Amazon, and Microsoft demanded that their companies end contracts with Immigration and Customs Enforcement (ICE) and other government agencies in response to evidence of family separation at the border.

As employee activism becomes the norm in Silicon Valley, tech companies are grappling with how to respond. On one hand, yielding to the open letter’s demands could lead to a slippery slope where Microsoft is overly beholden to its employees’ political views. On the other hand, more transparency from Microsoft might attract and retain top tech talent, especially as views of the industry turn negative and the public is more cognizant of the “double-edged sword” of technology. Microsoft’s response to the letter will set an important precedent for how far the company is willing to be pushed by its employees.

“We did not sign up to develop weapons” – Microsoft Workers Protest Army Contract

The retail apocalypse saga seems to be continuing as some of America’s biggest and most historic retailers file for bankruptcy and close up shops. On February 18th, long-time discount shoe retailer, Payless ShoeSource, filed for Chapter 11 Bankruptcy, less than two years after it filed for its first one.

The reasons for Payless’s downturn are many, including a computer malfunction during a critical 2018 back-to-school sale period, general inventory overstock, and more. However, per usual, many are quick – perhaps too quick – to conclude that Payless’s story, like other retail failure stories, is due simply to the boom in e-commerce giants like Amazon that has replaced traditional shopping in brick and mortar retail stores.

But this e-commerce narrative seems to be far from a complete explanation. TJX, operator of TJ Maxx and Marshalls is absolutely booming – it hopes to open up more than 1,000 additional stores throughout the US and Canada. Nordstrom and Home Depot also showed robust earnings in 2018, thanks in large part to their brick and mortar locations. There are numerous other retailers across industries that are faring extremely well in the physical space.

The younger generations of consumers, particularly Generation Z (“Gen Z”), warrant examination, as they have largely been deemed responsible for the downturn in retail shopping in physical stores. Gen Z is the first generation that essentially has not lived without cellular phones. Gen Z’s purchasing power is also substantial. It will almost definitively be the largest generation of consumers by 2020 and already accounts from $29 billion to $143 billion in direct spending annually. Its members have been defined by the infamous “instant gratification” label. And, contrary to expectations, “when it comes to shopping, Gen Z consumers are far more traditional – and substantially more patient – than many thought.”

A survey released by Euclid shocked many when it showed that Gen Z actually prefers to shop in and purchase from brick-and-mortar stores than online. For example, when asked if Gen Zers would prefer to purchase makeup straight from their smartphone or in a store, a resounding 72% signified that they would still prefer to purchase in a store despite the fact that 94% of millennials purchased makeup straight from their phone. So what can retailers like Payless do to feed this preference?

There’s no single answer, but a key will be understanding the distinct facets and preferences of the generation in the shopping context. Studies repeatedly find that Generation Zers deem personal relationships – which extend to brands – extremely important in informing their purchasing habits, along with transparency, convenience, and more.

The lesson that should be learned is that brick-and-mortar stores are not dead. Gen Zers actually want a physical shopping experience. Accordingly, retailers like Payless need not abandon the brick-and-mortar model, but they need to supplement their models by integrating elements like the convenience or experiential shopping that these young shoppers seek. If retailers like Payless can find avenues to translate these shopping preferences, they may be able to tap into the tremendous purchasing power of the young generation.

Brick-and-Mortar Retailers’ Unlikely Hero – Generation Z