Bloomberg Businessweek Weekend - December 21st, 2019

too freaked out, including how one private equity investor. I'm very proud of this story, one big on Lulu Lemon. It's not scary. They came back to fix the company. There were some moments of doubt though, Yeah, but they made a lot of money along the way in terms of those private equity investors. So here's the freak quotient if I may. And this is a story from Austin Carr. It's about Silicon Valley. They're listening in. They are, I mean, we all of us. You and I both have these

devices in our homes. Pretty much everyone we know, I feel like, has a Google and Alexa or whatever it is that's sitting there on your kitchen counter or whatever. Well, apparently that device isn't just listening to you. There are humans who are sometimes listening to you as well. This is going to freak you out there all listening, You're gonna be worried. Plus it's holiday time and we got to visit with two rockets. They stopped by the studio

and it is amazing. They're in all their regalia even and if you check out our respective Twitter feeds you can see them. They're so good at posing. Oh my god, everybody at Bloomberg was so jealous that we had them and they didn't. But first, remember the Bloomberg fifty. We were celebrating that in just the past couple of weeks. Well, we caught up with one of the members of that list, the CEO and co founder of Beyond Meat, Ethan Brown. What about this year surprised you the most? What was

the most challenging? You know, it always is around continue to educate not only the consumer of the media, around just how healthy and how much our company is driven by the human health imperative. If you look at the products we're creating, take the Duncan sausage for example, that product is fifty percent less fat. It has percent less saturated fattent less sodium and has more protein and more iron.

So when you're beginning with a blank canvas and you're able to build a piece of meat directly from plants, you can leave out a lot of the things that you wouldn't want to be consuming on a daily basis, such as cholesterol, and you can lower things like saturated fat, and you can provide the consumer with a very healthy product that they get to enjoy. Yet continue to move the ball forward year every year and making the products

healthier and healthier. So as we get into you'll see us continue to drive toward goals that will enable the consumer to eat what they love, but do it in a way that's healthier for them. We'll talk about that because I feel like that comes up often about maybe this becoming even a healthier product because there is still a fair amount of sodium and so on in it. Do you guys think about doing some kind of reformulating to lower calories, are a lower sodium amount? Is that

kind of in the future. So if you look at the DNA of the company, we are an innovation driven company. We produce all of our products here in the US, and we have our our innovation center here in Los Angeles. We call that Innovation Center of the Manhattan Beach Project. We do that because we're near Manhattan Beach, but more importantly, weren't to voke that sense of urgency and scale that occurred in the Second World War with the Manhattan Project itself.

Were brought together the very best scientists, the best engineers, the best managers and gave him a clear goal, which is to build meat directly from plants. Now, when you're doing that, you're always improving, and we have these parameters we call the fat, flavor, aroma, punters, and texture. We were constantly driving towards making the products better in each area, and nutrition would of course be part of that, but it's also about marketing and helping people understand the products.

So if you look at it beyond Burger, for example, that has sixteen percent daily value of sodium, not sixty but six, which is well within reason for many many meals that folks will consume, such as two flower tortillas or half a couple of mare narrow sauce, etcetera. So a lot of it is just separating the misinformation and hype from reality. This product has an extremely healthy product. It's one that I consume almost daily. It's something I

feel very good about giving to my own children. And so it's really about let's educate consumers about the health of our products and about the process. We're very proud of our process. If you look at how we produce meat from from plants. Instead of running a lot of plant material through animals and the antibiotics that go without other hormones depending on the species of veterinary drugs, et cetera, what we're doing is taking that protein directly from the plant.

We're running it through heating, cooling, and pressure, and that resets the bond so that they take on that fibrous texture of muscle. That's it for me. That's a much better process than one that we can be proud of. We offer complete transparency. You'd be welcome to come to our facilities, knock on the door and we'll give you a tour. People should be able to see where and how their food is made. And we believe very strong

in that principle. And so Ethan, speaking of a different sort of process, walk us through the process of assessing these partnerships. You know, you name checked some of the best known when it comes to you know, fast food. You've also got some partnerships in casual dining. How does that work? Because pun intended, it feels like everybody wants a piece of this market right now, right so you

always want to align yourself with the marquete players. And that's what we've done from the beginning of the company. So when we decided to go into retail way back in two thousand nine, the first company who called was Whole Foods, and then we've been able to clif right out through Kroger, etcetera. But when then you look at our venture history, the first venture firm we worked with the client of Perkins and now we have a great

list including Great Point Ventures and many others. Um But if if you're now looking at the fast food space or a quick serve restaurant space, you also want to adopt the same philosophy. Who are the marquee players and how do you become uh of service to them? And that's what we're able to do. Whether it's McDonald's, whether Subway, whether it's KFC or Duncan. We're constantly looking Carl's Jr. Hearties, etcetera. We're constantly looking to serve the very best partners in

the space so we can grow with them. What's the focus. Is it retail or food service or will it be a split going forward? Our focus is entirely on the consumer. It's our relationship with the consumer that makes the business so special. We listen to what they say. They told us no GMOs, they told us nothing artificial, they said, keep everything natural. So that's what we do um and

that makes it harder. By the way, we would be much easier genetically modified plant material to make it, uh take on the text r and appearance and aroma of of of animal protein. But we won't do that. And so we're constantly focused on what the consumer wants. We'll need to consume where they are. So if it's if it's it's quick ser of restaurants will be there for them. If it's retailed before them. Right now, it's about and

market will tell us which direction. Okay, so it could change going forward, right and that's beyond meat CEO Ethan Brown. For our full conversation, download this week's Bloomberg Extra podcast. We've covered a wide range of topics. I mean, look, this is a company that is in the middle of so many megatrons. It's essentially a lifestyle brand. Yeah, and this is why he's part of the Bloomberg fifty list. But I also think this is gonna be a big

story for as well. Provocative remarks in the magazine this week with the headline the problem with female CEOs isn't that they are female, It's that they are CEOs. This is one that everybody needs to stop and read, and you're going to talk about it after you read it. We've been talking about that big time, So now we're gonna talk about it with the author, Rebecca Greenfield. She runs all of our diversity coverage here. Edwin Rate, the

managing diversity team recently promoted to run that. Congratulations. Yeah, I'm I'm living the truth that I write about women. We have to rise through the ranks exactly. And you really put it out there in this story in a lot of ways and capture a moment that's really important.

Give us the thesis. Yeah. So I noticed something that was happening, which was there are lots of companies that are run and founded by women, but they also have these missions that are you know, we are all for gender equality, and our products are going to create this gender equality, and that's great um, but then there would be these scandals where employees would say, actually, I'm a woman who works at this company, and you are not practicing what you preach um. And we saw this happen

for a few years. We saw it happen at Thinks, which was a company that makes underwear for women to wear whether they're on their period. We saw this happen at Nasty Gal, which was like a retailer for women. And then more recently we've seen it or I wrote about how it's kind of happening at the wing right now, the coworking space, and there's been a huge backlash to these companies because there's this kind of irony I think happening,

or like you're not practicing what you're preaching. So I'm exploring that phenomenon in this piece and saying, yeah, that's going to happen, because women when they become CEOs act a lot like men when they become CEOs. Well, there's so much there's a lot of talk to you. No, I love it. I love it, and you know, I do want to first let's start with some of these are younger company startups, and I think this is a valid point that when you're a startup, like you're costly

putting out fires. I mean that's an element of it. Yeah, definitely. I think when you're a startup, no matter who you are, what you run, what your mission is, you are under a lot of constraints. Right, You get a lot of money and you have to grow really quickly. You're learning how to scale something. And I think what they're learning is when you scale you it's hard to have you know,

feminism be your mission. That doesn't square with creating a big, success full company, and maybe it shouldn't have to, or like, why would we expect that. One of the things that I really took away from this that I thought was such a in many ways profound point. And you're dealing with this every day, as we said running the diversity coverages.

There is a distinct difference, and keep me honest here in the in the telling of this, between the benefits of having women on a board or women in management versus diversity. That seems to be at the core of what you're arguing here, right. Yeah, So I think there's this fallacy that we want more women to lead companies because women are more compassionate than men, They're more ethical, they're more and moral, they create safer workplaces, and that's

just not true. The research has found that's not true. And in fact, that's just another gender stereotype. UM. I talked to a researcher who just put it out there and said, women aren't different than men in the way that they lead. UM And that's the reality. And the benefits of diversity come not because women are different than men, because they're not that different than men, but because they're diverse and that they are different than the ten men who are in the room. And that's what we want

from diversity. We want a mixture of different types of people, different point of views to kind of push back on the type of homogeneous thinking that leads to bad decisions. Well, and that's exactly it. That one of the things that we're all trying to fight as managers in many ways is group think. Right. You know that you have the same experience. You have a great line in your piece that talks about, you know, ten white dudes who all went to the same three business schools, they're going to

kind of think the same way. And so what you need is this diversity of opinion and experience that doesn't necessarily just mean a different sort of group things exactly. And I mean Sally Crocheck has said, I mean that's this is one of her lines that she thinks that that kind of group things exactly what led to the financial crisis. And I should note that Wall Street still looks pretty much the same as it did before the financial crisis. And so I think, yeah, that's that's the

real benefits of diversity. And that's a lot of these companies, these startups are also not diverse. They're just a lot hiring people that are like themselves, other women, their experience, their friends. They hire the people they know, they hire the people in their networks. They often talk about how they hire a lot of women, which is great because you know, most companies don't look like that. So their company is going to be diverse and a group of

other companies, but it can lead to the same group thing. Rebecca, I think this is so important. You and I have had this conversation because I'm very anti like, Okay, you have the women's group, you have the LGBTQ community, like separating everybody into groups, like unless we all work together and really, you know, everything is together, and really think about diversity with all of its different layers. I mean, that's what it's all about, right, that's the goal. Yeah.

I mean I think it can help when you aren't in a company where you're not part of the majority group, to talk to other people about your experiences. Um, that can help you. But I think when everyone's siloed, you're not getting the benefits of someone else having a different perspective. There was a study I talked about in here where it talk Look, you know, there's a body of research going back saying boards with women on them act more ethically.

So people have kind of jumped to the conclusion that women are more ethical, But this researcher I talked to you said, that's not actually what we think is happening. What we think is happening is that somebody's in the room who again is seeing things from a different perspective and is pushing back against the group think that makes unethical decisions, or the group just by having an outside member in it isn't going to be so bold and

doing things that are unethical. They kind of check themselves. And so that's the kind of benefits of diversity that I think we want to see. So one of the things that I think folks might react to when they read the story is the US and we've seen this with me too to some extent, sort of the backlash to the backlash right, and this idea that all right, well, we're just giving up on women running companies now. So that didn't work, So let's go back to where we

were before. Do you worry about that sort of happening in the world. Um, I hope that's not the message of this story is getting across. Um. Men, companies run by men act like this all the time. I can name so many. I mean, there's Uber, there's we Work, There's lots of companies run by men that have similar problems. So I don't think women are any worse than men.

I just think it's a setback for us to set them to this higher standard because when they don't mean it them, you know, they're penalized even more than that. That's Rebecca Greenfield, who drives our diversity coverage in the magazine, remarks provocative remarks in the magazine this week. Yeah, I really liked this because it's a nuanced argument in many ways. Obviously, gender in the workplace different genders in lee leadership is much more complicated than just like, hey, let's have more

women's CEOs. And I think the message here is it's really about good, great leadership if you will not whether you're a man or woman running a company. Shares in Lulu Lemon Athletica. Man, they have been on quite a tear, almost doubling in the past year. And Jason, you know this story, so you wrote this story. It's part of a remarkable turnaround. Well, and it is. And it involves private equity. We talked about private equity a lot in the context of those big, well known names Blackstone, kr

Carlisle and whatnot. This is a firm called Advent. They were in it at the beginning, they got out, made a lot of money. Then they went back in and they did even better. I sat down exclusively with advanced managing partner and chairman David Mustafer, as well as Calvin McDonald, he is the CEO of Lulu Lemon. We caught up at one of the Lulu stores in New York City. How, for lack of better term, sort of broken was it

when you sort of got back in? I mean, I think the business was had its challenges, but at the core the issue was alignment and so part of the power that that private equity can bring is that alignment. And so in this case, we had a situation where the founder wasn't aligned with the board and the management team, and so you've seen some turnover of the senior management. You also didn't have the company uh in sync with

the ability to make investments. They were following Wall Street and thinking about what they needed to do that quarter. And so I feel like what we saw as this fundamental opportunity was to help regain that alignment and put the platform in place so that the company could establish a really strategic proposition, not just here and now, but part of the real opportunity is to help them get out of the penny a share game and make some

of these investments that had been deferred. Right, I want to get to the moment where Calvin, you come into the company, you do have a series of of C e O s um so leadership becomes something at the at the top level that you also have to deal with in terms of the the various issues you have

to address. Firstly, we had a situation where the board really was interested, loves this company and wanted to see its succeed and so in that regard when we came back, we were able to create some of that alignment pretty easily and help create the UM, the ability to put some of these ideas in place, the idea of a

longer term plan. But you're right, I think some of those challenges with the founder made it hard and so UM at the point that UM that the founder exited the company into was in fifteen, we were really able to begin assembling a world class management team and so UH with a CFO who is initially with Stewart now CEO, and then talent along the way, leading to people like Glenn and Calvin and Son and a host of really

world class business leaders. And the exciting part is that this business had that potential, it just needed the opportunity and the the framework. From this point and beyond, it really feels like the business is just getting started. At that moment where you where you do start to dig in, Calvin, I mean, what's what's the opportunity do you see to sort of take it to the next level. So for me, the first assessment was as an opportunity here to be even more than what Lulu Lemon is, not just with

the North American internationally UH. And I think the clear resounding answers absolutely. I mean, the vision we have today is to nite a community of people to live the

sweat life UH. And we're going to express that not just through incredible product that will keep developing because there's so much opportunity in white space for us to develop into, but also through our strategy of events on what we do with our grow initiatives and seeing what Calvin and the team have already done with the manifestation of this some of this next step vision in Chicago and with the membership and loyalty program, you already are beginning to

see some of the seeds of thinking about what the broader vision might look like. And so what does that look like going forward? Because it does feel like we're at a very interesting moment in the world of retail.

We have a huge runway of growth. UM. Not only is our women's business continuing to grow at double digit with a lot of growth opportunity being entering into new categories or we mentioned to and from OTC that doesn't even really in our women's uh category exist uh, and into our omniguest experience with our digital platform and as good as we are, there's a ton of opportunity to even more. This is an emotional brand, and our online continues to be more transactional and then finally, you know,

expanding into markets. We still have a lot of opportunity in North America, not to mention what's happening internationally and in Europe as well as in China. We feel we're early innings and everything we're trying to create, and that's advent Managing partner and chairman David Mussafer and Kelvin McDonald, Lulu Lemon's CEO, we caught up at a store here in New York City. Listen. It's a remarkable tale, candidly that had not been told before. The stock obviously, anybody

who's watching it has seen it rise. But the money behind it, what it took to fix it, that's a whole different story. I think this is a great business school case study, right of a company that was had done so well, had some problems and really came back, and you can look at it at so many different levels well, and it's a well known brand and one that people really keep an eye on for trend setting,

but also for investors. Obviously, issues a big Tech. It is definitely one of the big themes of a future story this week about how Silicon Valley's biggest companies Jason fold millions of people into letting temp workers listen in on their most intimate moments. I'm creeped out. It is a must read for sure. It's the cover story this week. And actually you've got to just look at the cover and you're gonna be really You're gonna be really creeped out.

But you're gonna want to know more. Austin Carr is here to do just that, to tell us more about it, all right, take us back, because this is really about a device or a series of devices that so many of us have in our homes, and they're listening totally. I mean, this is really a big story about how these devices like Amazon Echo and their virtual assistant Alexo, or if you use Apple Syrie or Google Assistant, what

have you. If you have these devices in your home or on your phone, this is a story about how these whole all these things work. And I think they these companies, these tech companies and Silicon Value presented these products and sort of automated they were sort of using machine learning and computers to answer our every voice command, And it turns out there's actually a vast apparatus of

human listeners who are helping to improve these services. When voice commands are submitted to their servers, in some cases, they're actually rerouted to data centers where humans are actually transcribing your every word in order to improve the speech recognition on these services. Yeah, I think there definitely was an assumption that there's just some little robot that's like listening and then spitting things back at me. So tell me about these humans. I mean, what kind of conversations

are they listening to? What are they hearing? Um? Because you guys, you guys talked to a lot of people. We talked to dozens and dozens of contractors and and these are people who are placed everywhere from Ireland to India. UM. In the case of Apple, they relied on a A I T firm in Cork, Ireland, were just you know, dozens and dozens of contractors will be listening in on people's recordings and they told us that they felt deeply uncomfortable listening to this material. Often it was very very

personal information. They were called children in many instances sharing personal information like phone numbers or street addresses, which you can imagine parents concern over that they overheard couples having sexual engaging in sexual activity very private conversations in your

kitchen and bedroom. So really the most sort of alarming thing is just how invasive this is and the fact that the people on the front lines of this behavior, doing this work, who are often the most low paid workers in this supply chain, they found it very alarming

and emotionally unethical. So what do the companies say, Because this has been a story that you guys have been following really through the course of the year, and as Carol said, it probably is one of the defining stories in many ways of twenty nineteen, broadly speaking, the discomfort that we're starting to have with the relationship with technology.

What did the companies say, Yeah, I'm glad you asked about that, because one of the most profound things for us was the disparity between what the contractors were telling us in terms of them feeling very uh that this was very morally dubious, versus what the the tech engineers and executives were telling us when we started reporting this. It was almost like they didn't think this was a big deal. They just didn't anticipate it. They would argue, this was very par for the course in the industry.

Essentially everyone's doing it. Um. They said that this is just really a way of fixing what they called quality assurance issues. They described it as similar to you know, when your app crashes on your Mac, you get the option type you want to report this bug. They just described it as a quote voice bug. Um. At a broader level, they also say that hey, just f y, these systems are only recording when you activate them, and the vast majority of voice commands are actually handled by computers,

with just a small uh number of them needing human input. Input. Now, whether or not that makes you feel more comfortab about using the services, there's no doubt that millions and millions of recordings are still being transcribed by humans. All right, And I'm not going to excuse the companies, But what's the transparency, like when you sign up for things, is it in there in the fine print somewhere that this

might happen originally? Not? I mean, they very broadly um sort of said, you know, this could be used to improve these services. Apple might use it to improve or enhance SIRIE for example, but it didn't explicitly say that humans might be listening. And I think that was a major oversight, if not an intentional one. A lot of the companies that we talked to said that that there sort of stance on this for the past years, especially in the case of Apple or Amazon, was sort of

to um inform, not alarm. In other words, if they did disclose that in their terms and conditions, they might have turned off users from using these products in the first place. Because and I'm glad you you put it in that way, because in a lot of cases, you know, we all call people, you know, and we get that, you know, when we call for customer services something to say, this call may be recorded for quality assurance. It feels like they were just sort of putting it into that bucket.

But that feels when that happens pretty voluntary. And and by the way, you know, you're having a business conversation of some sort, even if you're talking about your bank account or whatever, you're kind of okay with it. And it's very clear, uh, to Carroll's point, this seems not quite on but not not clear um. And also the other issue is that these devices often are triggered accidentally. Um, you know my my fiance, for example, her name is Alexis.

You can imagine that the Amazon Echo we have in our home is triggered quite frequently inadvertently. Now for everyone listening to this or watching it on TV, there Amazon Echo just went on exactly, I apologize that one of us, well, yeah, not the Echo, but but or okay, Google, or if you say hey Siri. There's many ways that these can

be accidentally triggered. And one of the things that the contractors kept saying to us was, hey, you know what, we heard so many instances where the recordings coming through It was so clear that the users had no idea um and what they found most alarming wasn't the more provocative ones, but it was actually the most mundane just you know, one contract contractor described an instance of just a father and son having a conversation after school and

how that it can feel so invasive. You know, they have no business recording this material and let alone transcribing it. Did these workers know what they were going to be do when they were hired exactly? It was unclear at the early days. Some toy not I think it became clear what they were doing is they were going along. But I will just say, these are, you know, not the highest paid workers. And as I said before, this

is emotionally taxing labor um. So when they're doing this firsthand, I think they're realizing as they're going along, Wait a minute, do I feel comfortable with this? Some people compared it to sort of Another person said, this has felt like the Tower of Babel in a way. Um, but at the same time, you know, these aren't the folks that are necessarily on the highest part of the food chain here that they can't just sort of rebel and push back.

They did express concerns to managers and they they some of them just said that they were unreceptive. They said, transcribe everything that comes through. So let me ask you this. I mean again, you guys have been following this so closely, and I know, Austin, you look across the text sphere, often sent to the furthest corners of the world to uh explore this. Where do you think we are sort of in the in this moment of questioning almost existentially

our relationship with tech companies. This feels right at the heart of that. What do you think happens next? You know, I think this is one of the biggest tests that we've seen in the Silicon Valley in the last couple of years. They just went through years and years of the most severe scrutiny from Washington, um all these concerns about everything from Cambridge Analytic to the elections to you know, how much data their minding from our every clique and

Internet browsing habits. And even after all that, they still seem oblivious to the fact that there was something wrong. Was setting up a vast apparatus of human listeners that could legitimately hear the things that we were saying inside of our homes. The government does this, we'd be appalled. We have government, and I think that that's a very especially when you consider that Shoo Me bay Do Ali Baba are turning out roughly three million smart speakers per quarter.

One could imagine China not being so scrupulous about what they could listen into. And we haven't uncovered evidence of that, but there's no doubt that these these devices can be hacked, you know, and I think that's a major concern, and that one that was just a bit naive for tech company not to think we're was there and yet I've got one. You've got them, You've got them, right, I mean the American public. I mean there's a statin here.

By three, they'll be eight billion voice controlled devices out there, one for every person on Earth. I mean, so people are buying up. We love the convenience we do. Are we willing to give up? Are we getting to that point where we're, okay, I'll give up my privacy for this. You know, there's actually a term for that, which is the sort of uh, it's sort of like analysis proalysis. Are just so much privacy concerns, and these things are so integrated with our lives it's hard to give them up.

A few research study actually found that about six of cost Americans are very concerned with data privacy when it comes to smart speakers. At the same time, one fourth of all the U S public owns them. So there's this this this really harsh disparity between our concerns for privacy and the fact that we just, you know what, We're just gonna give up and own a smartphone, own an Amazon Echo and so forth. And it's, uh, it's a sign that customers don't know how to protect themselves.

Are the companies changing anything in terms of with this pushback and the more that you guys and others report on all of this, they have indeed, Um, you know a lot of these companies that they didn't do good enough disclosing these terms to their cost commers. Uh. They've introduced new disclaimers and their privacy policies more often features

for certain services. UH. And Google has said that for Google Assistant, they're actually pausing human transcription, although they did declined to comment on whether they were collecting voice data in other ways, which is interesting. But I think, you know, it's very clear at this juncture that they did not do enough for the past seven or eight years, and especially for a company like Apple. Tim Cook has been out there saying privacy is a human right. How do

they get this wrong? How did they just obliviously build this this this large sort of group of people who are listening in on people's conversations. I feel like that just goes against their their core values absolutely, and you do wonder how oblivious they actually were in many ways. That's Austin Carr great story. We all have these home devices,

we think that nobody's listening. But this story shows you that folks are actual humans are well, and this is really the latest installment in a series of stories that the tech team has been doing that has really sort of brought this to light. And one of the things that I find most interesting and kiddly troubling is most people read this and say, WHOA, I didn't know that was going on. And the tech companies, when confronted with this essentially like, yeah, cool. I mean, we're just trying

to like make the product better. What's the deal. Yeah, we'll see if this changes in specially with Washington watching very closely, with these tech companies are up to. This holiday season will be the first for the Apple Car, the highest profile new credit card in years, and it's pretty exciting for Apple Jason absolutely, and for people who are using it, they seem to be big fans. It's like the sexy new card to have, but retailers maybe not so excited because it's in that category where they

have to pay more. Jenny Seraine here with this New York City to explain the twist and turns of this story are fascinating. Tell us about the heat on the retail side of this. Basically, Visa and MasterCard have several different tiers, and so they have their kind of basic credit cards that maybe don't have a ton of rewards. The next step up for Visa, it's called Visa Signature. For MasterCard is MasterCard World. Um, and they have that

kind of premium premium tier. It's most instantly being ranked in society. Yes we are, yes, c this is no different, um. And and so for Visa it's called Visa Infinite. For MasterCard it's called MasterCard World Elite. And every time you swipe a Visa Infinite or a MasterCard World Elite card,

it costs the retailer a little bit more in swipe fees. Um. And basically it's been years and years of kind of this huge rewards war that's gone on between banks, and so more and more consumers are showing up at the point of sale with these cards, and retailers are like, we've had enough, um, and they're just ready to kind of you know, take this to Visa and MasterCard and say, and here comes Apple joining the part. Here comes Apple. It's a very elite card. Um, it's the MasterCard World

Elite and um, yeah, it's it's expensive for retailers. It's you know, had this huge high profile launch we saw I think it was ten billion in lines extended to consumers and that kind of first month that it was out so very popular. Card um and retailers are just like, this is you know, just another time, another thing that we have to kind of spend money on and and

you know, yeah, to you guys this point, it's holiday season. Um, they're trying their best to compete against the Amazons of the world and this is kind of one more thing

in the negative bucket. Well, when we talked about this story on our radio show, our Daily Radio showed during the week, like I think both of us were like, oh yeah, I didn't realize that there was this incredible tears in terms of designations for credit cards, right, Um, and they come with them different fees in terms of what the merchants paid, but the elite cards, the assumption is all right, this is somebody who probably makes more money and they're going to spend more. So sorry, merchant,

you're gonna pay a little bit more. Yeah, so you'll win in the end. Kind of is a thinking and that I think has historically been what VI said, master Card and the big banks say to the merchants when they complain about this. They say, look, these people come in, they have way more buying power. They're usually um, their average ticket sizes are much bigger than the ticket sizes for those more basic credit cards. UM. And so that's

been kind of the justification over the years. Now retailers have started to come back and say, well, look, if I'm a gas station or if I'm a grocer, people with these high rewards credit cards, they're not actually spending more on groceries. They're not spending more on gas because they have these rewards. And so those kinds of retailers are just like, look, we've reached our breaking point. Our

margins are thin already. We need a break here, right, because this can really essentially eliminate or really dramatically shrink the margin, especially when you're talking about grocery or other places where that margin is already so thin. Yeah, for sure, and so it's um. I mean, grocery is kind of the biggest example. And we actually saw the country's largest grocery, Kroger, take a really harsh stance on this earlier this year UM or last year. They actually banned certain visa card

they banned all visa credit cards from certain stores. Um. And so you're seeing more and more take that stance. Now, Visa and Kroger they've reached an agreement. Kroger is now accepting Visa and all of its stores. But I think this is something we're going to see more and more of grocers and retailers in general just really feeling this pinch.

The other tricky side to this is that, Okay, so these credit cards they have different levels, different designations, right, and as a merchant, you can say, okay, I'm just gonna take the lower tier. You either take it all or you take none. Right. Yeah, So that's the big sticking point right now. Out Um, the rule is actually called honor all cards, so if you take one Visa credit card, you have to take them all. And merchants

hate that rule. They say, you know, we should be able to say we're okay with taking these basic credit cards, but we're not really willing to take these more premium, high end cards. Um. But Visa makes that a rule of kind of accepting any of the cards MasterCard as well. Um. And in two thousand five, the merchants actually it's been it's been fourteen years. Merchants actually took this to court. Um. And it's been kind of rumbling around in the courts

ever since. UM and it kind of remains a sticking point in negotiations for settling that case. Well, and I think we were talking about this as well. I mean, historically this has been an issue with American Express too, because their rates have tended to be higher than Visa MasterCard, right. Yeah. Well, so it's interesting actually, as we've seen this kind of profusion of these elite cards on the Visa and MasterCard networks,

those rates have actually come much more in line. So it's no longer and you know Master am X has actually come down a lot too, so it's actually no longer that much more for merchants, because back in the

day that was the thing. I mean, I remember there were a lot of places but at work in an American Express for many years, and I remember it was such a thing because we would go to places and they wouldn't take the card as they called it, and it would and the merchant or the restaurant or whoever it was would say, listen, the fees are higher for me.

This is why I'm not doing it. Yeah, And so that's um, it's actually it's It's strange, how you know, between amex coming down and Visa MasterCard coming up, it's a lot, a lot closer in terms of the rates that merchants are paying. And so you've seen that in the acceptance. You know, AMX is accepted accepted at almost as place as a Visa and master Card these days.

So where's all of this going? Because what's interesting is we have a ton of guests on our show, our daily radio show, where I think they say, we like Visa, we like MasterCard because they're processing so many transactions and you know, they get a little piece of all of them, but there's so many going on. But I am curious, you know, so they're doing okay, So where's all of this going. It's hard to bet against Visa and MasterCard. I mean, they are just they're so ubiquitous. They are

part of every transaction. Um, so it's hard to bet against them. I mean, I do think that merchants, um, you know, they're starting to kind of really coalesced around this on our all cards thing, So we could it's so hard to guess how it could turn out, but we could see a future where maybe if they went out on this on our all cards role going away where you show up and at the checkout they say, we'll take your basic visa card, but we're not going

to take that Chance card. And that's Jenny's serene. We're pretty sure she never sleeps because she's so incredibly prolific. And this story, I feel like it's gonna be We say this about a lot of things, a very twenty nineteen story, Goldman Apple getting together, and it's a little

trickier than maybe the anticipated. Well this holiday season the first for the Apple card, and I've got to say when this story came out on the Bloomberg terminal, it was among the most read, so everybody was checking it out. The Department of Events had stepped up its scrutiny of Chinese Americans and made growing distress between the two nations and Jason as a result and snaring undeserving individuals. This

story is a troubling one. It is very troubling, and the details, as you get into them, really take you places you don't expect to go. Peter Waldman one of our Projects and Instigations reporters. He wrote the piece. It's in this week's Business Week. Peter joins us from San Francisco. So Peter, tell us what you found. So basically, this is a continuation of work I've been doing all year long on the whole question of whether or not we are overreacting in this country to the threat of Chinese

espionage and specifically the threat of UM theft of intellectual property. UH. This week's Business Week story is about an Army engineer who was harassed essentially by the FBI and military intelligence from the Army. This is a civilian engineer, by the way, UM and ultimately his security clearance was taken away. After over twenty years of stellar performance, including developing UM software system that the n s A uses for communications and

eavesdropping and things like that. And this stellar in science, thist Um lost in security cliance, which essentially forced him to retire now he was of retirement age. It wasn't the biggest body blow, but he was humiliated and he was accused of disloyalty, and he had lots of ties, friends, neighbors who were asked many times if he was a spy for China. He is a Chinese American individual, and he suffered a great deal as a result of this.

I can tell you the end of the story, which essentially is that ultimately the Pentagon decided he was not a spy and was innocent of their suspicions. So it's kind of a sad story. Well, and so this individual Waist sue, I guess the question is, and this goes to how you kicked it off, Peter? You know, are we overreacting? Is this an isolated incident, you know, where folks like Waists are being targeted um in a wrong way, or are we seeing a lot of that happening? So

perhaps both. It's hard to say whether the thousands of Chinese American individuals who have come under suspicion for espionage in some form or another. Maybe it's exporting materials to China that are on some uh list of of stuff that's not supposed to go to certain entities the so called entities list, or outright theft of intellectual property aren't even worse espionage on government secrets. So there are legitimate cases.

There's no question that China is overreaching, that that China, on their part has come to make demands and expectations of overseas Chinese um to work for the motherland when called upon, And that's kind of put a target on people's backs. But in terms of what's happened on this side of the Pacific, the distrust level, and that's the real key word. I think in this story. The level of distrust of Chinese Americans has just sword in recent years.

And colleague in the Bloomberg Data Analytics department, Andrea our Tar, did an enormous job of filtering, analyzing some twenty six thousand cases in the government database of security clearance decisions who gets it, who doesn't, and he found that in the past decade, the rate of rejections of Chinese Americans essentially um for security clearances has gone from something like forty four percent, which was the average of all countries

including other non Chinese countries UH, to over six for Chinese. So uh, it's a real growth in the rate of rejection for that which is a kind of barometer of suspicion, distrust, and essentially difficulty for these American citizens. And I love the perspective that you include your story, Peter, because you say, even people with ties to nations like Iran or Russia,

they fear better than those with ties to China. Yeah, the data showed that they went from rates of fifty to cent or so in the prior decade from two thousand to two thousand nine, they dropped both below fifty in terms of the rejection rate and the rate of rejection for people with ties to China went from that forty four percent average for everyone all the way up to well and Peter, you provide some really nice details in this story, and I have to say much of

it is cinematic in a lot of ways, these interrogations, but also the rulings that have come down, one ruling specifically that repeatedly uses the term coercion tell us how that plays into the suspicion and sort of the overall narrative. So what we are talking about there are the guidelines, the federal guidelines for trustworthiness essentially who should get at a security clearance, and two of the guidelines include categories

called foreign preference and foreign influence. And under those guidelines, um you essentially if you have ties of one sort or another family members, parents, financial ties, you may own property in another country, which many Chinese immigrants to this country do, particularly relatives. Um it can disqualify you just

on its face for security clearance. And the basis of that concern on the part of the in this case the Pentagon, is that you would then be subject to coercion by Chinese agents, Chinese intelligence, who could perhaps go to your family members and say, well, you wanna your pension, you want your salary this month, while you're gonna have to get your relative Joe living in New York or Texas to spy for us. Otherwise, you know, forget your pension for the next year. So that's what's meant by

coercion um. There was another Pentagon study two thousand seventeen study by a branch of the Pentagon that does nothing but study espionage and questions of trustworthiness, and they reviewed all two hundred and nine cases since nineteen forty seven of espionage and espionage related convictions, including economic espionage, and they found that since nineteen eighty there have been something like a hundred and forty convictions for espionage, not a

single one has had coercion as a main motivator of espionage. So it's perhaps a myth that that could happen. Now it's logical, but it just hasn't happened. That's Peter Waldman, Bloomberg News Projects, an investigation reporter joining us to talk about that story. And I think about the implications because house of these heightened trained tensions and really just heightened tensions overall between the US and China and Chinese Americans.

They're getting caught in it. They absolutely are. And again sort of like the story we were talking about as it related to the listening devices, this is essentially the latest in a series of stories that Peter Waldman has been working on. It's about how this tense relationship between the US and China is playing out in maybe some

unexpected ways. Al Right, you know that music. You know what it's all about, because for almost a century you've been hearing songs like that, the Radio City Rockets, they've been part of the American landscape and of course of holiday traditions. A new holiday season underway, helping to kick it off to Rockets joining us in studio Alyssa Lemons and Johanna Richardson there in our Bloomberg Interactor Broker Studio.

I have to be quite honest, Jason knows too. I'm like yuess who's copingodat So Joanna tell us a little bit about what's new and different this year. Remember when some of your colleagues were here. Last year there was a new finale. What are what can people expect this year? Well, we are so excited for this uh this season of the Christmas Spectacular. Each year, our creative team tries to re re event the show in some way to make it more exciting for audiences that come back year after year.

This year, if it's possible, we've made the finale even more impressive. Um. The finale number was introduced last year, and then this year we've really focused on the choreography, the dazzling costumes that the Rockets perform in, and then also the Rockets have a really impressive entrance to the number. I won't ruin it if you haven't seen the show yet,

you'll just have to come and see it. But it is so exciting and I feel like the Christmas Spectacular is one of those traditions that families can come to year after year. It's a different experience every time you come. If you're sitting um, even in the same seats in the house, we have such high energy dance numbers and choreography. There's happening that's done on on the ceiling. Well, this there's something new to experience every time you see the show, Joann,

listen what I wanted to bring in. I went a few times, certainly when my daughter was younger and stuff, and it really is quite an experience and there are what's really great about it is that there's certain traditions that come back every year, but you guys have increasingly embraced technology over the years. So talk to us a little bit about what we can see and on that fright,

because I do feel like right the world, everybody's embracing technology. Yeah, but yeah, I think that's what's great about the Christmas Spectacular is it is that perfect balance of that holiday tradition with still all this new technology that we get in every year. Um, as Joe was mentioning, we have projections over all the walls and race and music hall.

So I used to just be like the first three percent I ums the archways in the theater, but now it goes all the way back to the back of the house, so every seat is getting that full experience and really sucks the audience into each number. They're in Central Park with us there in Times Square with us for numbers. You really get really immersive right in this way, and you know, Joanna Carroll mentioned at the top of

the conversation. I mean, this is a quintessentially sort of New York thing total, And you guys appear not only in Radio City Music Hall obviously for this show, but you're at the parade. You guys, I believe, participated in the World Pride events, uh this year. So, I mean this is something that is is very New York. What is it that sort of connects you to New York other than a hundred years of history of course, Yeah, absolutely. I mean the Rockets first started performing at Radio City

Music Hall in nineteen thirty three. We perform in one of the most iconic theaters in Radio City. It's truly an experience from the moment you walk in the door, especially at Christmas, the decorations are drenching the theater and just from the moment you walk in the door, just the vibe of the theater. You can meet Santa, you can meet a Rocket. We have two live Organs that are playing pre show, And I feel like the Rockets especially are such an iconic staple in New York City.

They represent um, poise, grace, and an athleticism. Um for an all female dance company, and I definitely grew up watching the Rockets before and it was so inspired by these women coming together from all different walks of life. But it's the true epitome of teamwork. What we do on stage is not about one particular dancer. It's about all all thirty six of us on stage, and I just think that's so incredible to be a part of. We'll talk to us a little bit about your trick there.

I mean, Joanna, where are you from? Originally I from Atlanta. I live in Colorado right now, from Dallas, Texas. But I love here and now, so tell us how long? How long have you been dancing with the Rockets? Six year? Your six year? And Joanna, this is my four season, so okay, so let me start with you. I mean, that's a long time to be There's a lot that's changed also the role of women and women in our society, how we're looked at. But I'm just curious about your

road to coming to here. What was it like, Hotely? Was it? Yeah? So I grew up in Atlanta. I trained at my mom's dance studio, and um, it was really important growing up in dance that we had a well rounded training and ballet tap jazz just so you're a versatile performer. And um, that's one thing that I loved about the Rackets so much is it's not just

about one style. It is about the technique of ballet tap jazz, the flexibility and strength to be able to do those I high kicks, which we do over three d per show, up to four shows a day. So the athleticism also was so inspiring. And um, I remember watching the Rackets perform in the mec Sinksgiving Day parade. I finally saw them perform live and he had tears in my eyes and I knew I needed to be up on that stage. And actually took me four auditions

before I was actually cast. So I went back, you know, each time learned something new learned there was something that I needed to work back. Yeah, and my perseverance paid off in fourteen years later and still performing in my dream job. And that's a LISTA Lemons and Joanna Richardson too. Radio City Rockets. They stopped by your studio. It's really fun to catch up with the nice tradition. Oh, it's always the start of the holiday season when the Rockets

stopped by in pursuits this week. We love catching up with Chris Rouser and you know, we've had our gift guide and we know what to buy. I think you have a lot of ideas about what to buy for me, which is fantastic, very high end, very high end, all right good. But also this is the season about giving back exactly, and we've got a guide and some insights into how some very wealthy folks are doing that maybe some tips for the rest of us. Chris is here with us in New York City. How's it going good?

Very well? Um. This is one of our favorite sections of the year, our annual Philanthropy special section, because it makes us feel better about all of the really expensive things that we tell you to do for the rest of what else you could have done with you Yeah, because I think you know, philanthropy for our audiences is a very big part of how of their pursuits of what they do outside of work, and so we all we always want to take a look at it, and this year we wanted to look at it from the

perspective of just like a lot of data and like looking at uh, you know, facts, numbers, and people who look at philanthropy from like a really sort of technical lens. We'll tell us about the Arnold I had never heard of this couple. They're billionaires, but they're showing you maybe how to be a better billity in. Yeah. So they're the Arnolds were very very private until I think this year.

Basically they they made their money first through Enron and then true Centauris and m John Arnold was a legendary energy trader and then his wife is also like a super high powered mergers and exisition's lawyer. Uh. And they

you know, they're on the Bloomber Billionaire's Index. They've got a couple of billion dollars of their own and then they have a couple of billion with their foundation and basically they have they've sort of set out to reform criminal justice, UM also the pharmaceutical industry, and they do it by doing a ton of research. And they're not liberal and they're not conservative or they try not to be, uh, And they just do studies until they find the inequalities

that are out in the system. Hence the data, right, their data driven in terms of what they're going after. And there maybe their approach. Yeah, so they hire experts UM and they really don't go after something you know, it's really important if you have that kind of money that you can't just try to address everything that someone asks you to address. Um. So they've picked the things that they focus on and through studies, they're like really

obsessed with data. So they did this thing one time where they did they redid a hundred different studies from psychological journals to see if they could be reproduced, and only them could, right, So they're like really testing theces all throughout this and and and one of the things that they're focused on is criminal justice reform and bail and parole and they and they think that the criminal justice system is one of the organisms, one of the

systems that knows the least about itself, and so they're trying to get some visibility into that well. And there are some lessons for us mere mortals when it comes to our own giving, and part of it is really know what you're giving to and also focus up a little bit. And you don't have to give to everyone who asked you for money. You need to sort of

put a theme in some parameters around it. Yeah, So the critic this week is about all these these books that came out this year on philanthropy, and ad minute, like, you don't really probably want to read a bunch of books on philanthropy, so we did it for you. And yeah, and you know, one of the main takeaways is like,

really look at why you're giving. And so there's this one book that we looked at called The Ethics of Giving, which basically he says like, Okay, you want to do good, but why and then if you if you explore the philosophical reasons for why you want to do things, that actually can help you get to what you should be

doing with your money. Um. And then you know, there's so much technology now out there that can help you measure the impact of your gift that you can really see how like how much good you're doing, and you can also coordinate with other people. You know, you can see how you're the good that you're doing, or your your money interfaces with other people's money and really make

the most of it. Well, you talked about data before, but there's also a book that is looking at kind of what the technology titans are doing right in many ways in Silicon Valley and how they're disrupting the world

but again using data in many ways. Yeah, exactly, Um, and you know there's even some tips in there to like how how to get your kids interested in philanthropy, like that you know, um, every year on the holidays, make sure they give away three toys or split up the money into you know, if you if they get an allowance to split it up to like for themselves, for saving for the future, and then to give to a nonprofit so they get it in their minds. Early.

I do love what you said about you know that these guys are saying, whether it's the books or whether it's the Arnold's like, don't just give because you've been asked, Right, You've got to kind of do some homework here, because then you're not smart imaged. Also, like, the more you know about what you're doing, the more you're engaged in, the more you care about outcomes, and the more you're

likely to keep coming back. Sometimes people think you should just spread around your giving because, especially if you have a lot of money, people might think like, oh, we

don't want this nonprofit to become dependent on us. But you wouldn't stop going to a restaurant that you liked because you didn't want it to become dependent on you, Right, So, like, you really do want to be engaged well, and this whole notion of philanthropy is R and D that the Arnolds have put out really does, as you say, sort of engage you on a deeper level, and if you know the numbers, you're more likely to go along, all right,

So it's all about giving back. Tell us about the founder of birds Bees, because sounds like this individual is giving back. Yes, So this is to my heart because I'm from Maine. Um So Roxane Quimby is a woman who co founded birds Bees and that company over the

years has been sold. So she had a lot of money that like sort of she came into and she started buying up land in Maine and in other states, and she eventually accumulated eighty seven thousand acres in Maine around Mount ca Tod and was sort of in the center of the state. There's a lot of national parks there and she wanted it to turn into a national park, but the governor of Maine, um it was like a

very conservative Republican who didn't want her to. So it was this long paddle um where she actually sort of started off being like the locals in the area where against her because the paper companies had sold her the land and that was sort of the lifestyle up there, I mean, and sort of still is a big part of the main lifestyle. And she didn't want people to go um hunting or snow machining in the woods and like that. I forget it. If you're in Maine, like

you have people have to be. So eventually she handed it, like the project over her son, who was like a little more charming and who went around and had coffee with people, and they waited out the governor until he left um. And so they actually got Obama to make it into a National monument, which is not the same

as a National park, but they're functionally very similar. UM. And so now there's this amazing, huge amount of wilderness in the center of main and uh they they the old governor wouldn't let them put signs up to it, so you couldn't find it, and now they can. And so now people are just beginning to use it. It's really cool, and it does feel a little bit like a potential model elsewhere because people really are starting to invest, as it were, or to try and give money around

nature in some ways. Yeah, exactly. Well, let's talk about another thing that I think is doing good if you will, and that is the kind of rise in wildlife tourism. But it's not like maybe it used to be, right, it's really changing. Is one company in particular that's playing a big role in this. Yeah, So Airbnb actually recently announced their Animal Experiences, which is which is actually something they've been doing for a while, but they're they're now

making it a big focus. And what it is is like a thousand experiences where you can go and either interact directly with animals, domesticated animals, or you can look at and watch wild animals and they um Airbnb started working with an organization called World Animal Protection to make to make sure they're being really ethical about these experiences and also using them to teach people about conservation and the ethical treatment of animals. This is so important and

it's hard. I mean, it's hard to do, and I mean it was interesting too in reading Nikki Exstein's story about how difficult it is a to identify and be to sort of keep people honest about it because they can easily sort of slip, especially as you go into more and more remote places. You really have to be able to vet and it's not easy. Yeah, and you know, I think a lot of people, a lot of people don't know that the that the experience that they're having

is maybe damaging to wildlife. So you know, Airbnb now won't do anything where marine animals are kept in captivity. So that's no dolphin experiences, you know, And you might not even think that, you know, when you're I don't know in Mexico playing with dolphens that that's a negative experience, but it could potentially be, and the Airbnb has to be very vigilant about it. And it's a big commitment of them, and that's meaningful. I think it's really important.

It's really educating people um and letting animals be in kind of their natural environment. But I just have to say, I love one of the pictures. I want to have cakes with a sheep. I know. Yes, there's one experience where you are allowed to interact with the animals is in Scotland. You can have tea and very rude sheep will him named Hamish, will come up and have tea with you. That when I saw that picture, I was reminded that there's a fine line between like cute and

slightly creepy. It's so cute. It's very much divided people. That's I love it. I love it. I love it. Hey, one last thing I'm speaking of, you know, kind of taking care of things and preserving them. There's a little section in Pursuits this week about Venice. Yes, yeah, so

you know, different ways to put your money to work there. Right, Venice had its highest aqua alta since nineteen sixty six this year last month actually, and um it really did some serious damage, not only because water places were flooded, but the force of the waters actually moved some stonework.

Um and so Save Venice, which is a great organization which has been working to save the try psures of Venice since after that first nineteen sixty six flood um worked with us to sort of explain what they spend money on if you give money to them, so you can, uh, five dollars will get you a day's work from a conservator who like an expert, not just like a cleaning

person who goes in and figures out the issues. And then for one point one million you can renovate a whole basilica and just sort of like everything in between. And there's you know, obviously Titian paintings. Um, there's you know, old mansions that have been damaged, so there's a lot you can do and the money is is like ready

to be spent, right. Yeah, it's interesting too. You know, this has been an area of philanthropy where a lot of interesting people have sort of gotten behind it, just given how important in that city is in in the history of the world. I remember the late Alex Navab, a longtime private equity guy, and he was very committed to that as well. It's important our own Kathleen Hayes just came back from Venice and she was talking about just the absolute grandeur of the place and you do

worry about some of that going away. Yeah. The architects Peter Marino has also been really big on That's the editor of the Pursuit section, Chris Rouser. And that wraps up the weekend edition of Bloomberg Business Week from Bloomberg Radio. Thanks so much for joining us. I'm Jason Kelly and I'm Carol Masser. Be sure to tune into Bloomberg Business Week Radio Live Monday through Friday starting at two pm Well Street time, and if you can't catch us live,

get our daily podcast for the Ride home. Check that out at Bloomberg dot com or wherever you get your podcast, and of course you can get this week's edition of the magazine. It is on newsstands now. Plenty of great holiday reading there for the upcoming week. We'll be back next week right here at the same time. Merry Christmas and happy holiday. This is Bloomberg.