P&L: Puzder May Drop Out, BNA's Ognanovich says (Correct)

I want to bring in Nancy Agnanovich. She covers politics, and it's been carefully watching the candidates for uh President elect Donald Trump's cabinet and how the testimonies have been going. So Nancy, can you give us some of the highlights of what we've heard so far. Things are moving ahead, They're just not moving ahead as quickly as Republican leaders

would love um. This morning, Senator Corker's predicted confirmation for Rex Tillerson, even though some Republicans are opposed to him because of his relationship with Vladimir Putin and his positions on some issues related to Russia. Jeff sessions nomination to the Attorney General is moving ahead. The Judiciary Committee appears to be scheduling a vote on Tuesday on that UM Senator's predict he will be confirmed. UM. Tom Price is having a hearing this morning at the Health, Education, Labor

Pensions Committee. I believe that for you just let me break in. It's it because they just want to mention that the Senator Bernie Sanders is currently questioning Tom Price is if you look at the sort of back and forth between Democrats and Republicans, do you see any big

stumbles or any obstacles for any of the nominees. Well, the that we really wondered about was Tillerson, but they appear the Republican leaders appear to be skipping over the committee, or rather, if the committee doesn't approve him, they'll take it right to the floor, where Republican leaders predict that got the votes to confirm him. We haven't hearn a lot about Um, the nominee for for Labor. There's been some concern that his hearing has been postponed UM well

into February. That's one person who I've heard off the record, perhaps could drop out, but otherwise they seem to be going forward, just in a slower way than maybe Mitch McConnell, the Republican leader, had wanted, yeah, when you referred to Tillerson, that's, of course Rex Tillerson, who is the nominee for Secretary of State. I want to talk a little bit more about Tom Price. He's Georgia Representative. Price. He is being

grilled in part on his stock picks. He has been accused of buying stocks in anticipation of certain legislation being passed and profiting when those stocks rose. Have we learned anything further on that issue so far? Today? There's a lot of um, you know, concern about this because this violates the law that prevents members of Congress from engaging

and insider trading. Um. In terms of today, I don't think we're hearing him, you know, say anything to indicate that, you know, acknowledging that this was in violation of the law. The issue there is that he introduced legislation very narrow in scope that was going to help an industry shortly after he allegedly bought a stock. I mean, it all happened in a very short time frame, and Democrats are

really pressing for more information on this. In addition to that, he has traded a lot of healthcare stocks while sitting on powerful committees like Houseways and Means in Budget that have jurisdiction over the health care industry. And so this issue is going to you know, continue to be in the forefront for a while, not just at the Help Committee today, but next Tuesday when he goes before the

Finance Committee. I also want to just touch on Betsy devas she had her confirmation hearing, I believe yesterday, right she was midnight last night. She is Donald Trump's nominee to be the next Secretary of Education, and one of the big stories out of that is that she supports gun possession in schools. Um. I imagine that there was quite a bit said other than that, Um, But can you give us a sort of some highlights. Well, that

definitely would raise so many concerns among Democrats, maybe even Republicans. Um. That is something that we have heard the gun industry say would perhaps cut down on, you know, crimes in the school, but it really hasn't gotten any traction. So this is really, you know, something perhaps that people weren't expecting.

On top of that, she already was raising a lot of concern because these two went before that committee last night for her hearing without having the required paperwork in order, and she has Senator Schumer, the Democratic leader, said five billion dollars in assets, and they haven't seen financial disclosure paperwork yet. And she's also allegedly violated campaign finance laws. So there are a lot of issues there that her

come her nomination raises. Having said that, Nancy, you just quickly procedural roadblocks to this, or the Republicans have got that sewed up well. Procedurally, they're not getting to move them as quickly as they want. For example, Friday after the inauguration, four o'clock in the afternoon, the Senator McConnell wanted to start moving nominations, approving them on the floor, but unless he gets consent from Democrats, he can't bring

them up for votes on Friday. The Senate rules don't allow for nominations to be approved the very same day that they get sent officially got to the Senate. Not happen until next week. Thank you very much, Nancy Agnanovitch, our senior reporter for Bloomberg b n A PM Fox. It is my privilege to introduce a very special guest. We have Ira Milstein in our studio with US senior partner at Wild gatchel uh And who is a professor a law professor at the IRA Milstein Milstein Center for

Global Markets and Corporate Ownership at Columbia Law School. IRA. You wrote a book talking about all of the problems in corporate America today and some of the issues that you see that need to be remedied. What do you think is the number one deficit on corporate boards today the ability to go long term. Uh, that's the big problem. They're all sort of wedded to the capital market, which

is forcing them to go short term. Well, can you give us some examples of specific corporate situations where where they decided to go short term where they should have thought long term. Well, yeah, I can give you a specifical example of where somebody is going long term at the moment, which are general motives they're now thinking about building new plants in the United States and hiring more

people and so on. And whether there's going to be a little hit on the market because they're investing in the future rather than immediate I don't know. I would hope that would be deplauded, but you don't know. I want you to just take us a step back, because people may not recognize the breath and experience of your career. You have represented companies such as General Electric, General Motors. I mean you have really been in just about is

there any boardroom in America? You have not been in Facebook? Facebook? You have? Well, now there's a chance, because maybe we get you and Mark Zuckerberg connected them. I'm available. Well okay, Well, well I'm glad that you use that as an example, because I'm wondering, would you provide an example of how a board shouldn't work to Mark Zuckerberg so he does not fall into that trap. Well, let's put them to

one side. I'd rather not talk about an individual company, but in terms of how boards should not work, it's a problem when there's a family owned or a dominant or a dominant personality that owns most of the stock. That's a problem because the issue of whether or not the stuff he's going to respond to stockholder pressure, whether he's going to respond to other directors is a question. When you're the dominant guy and you really own most of the stock, there's very little let people can do

to shake you up, and that's generally not terribly healthy. Well, which General motors. I mean, has the push to invest in us UH manufacturing and new R and D plans? Has this come from the board? Yeah? I believe so. I think Mary Bara, who is a sensational CEO, is changed the whole tenor of the place and she's very responsive. Are there any other examples of companies that that are doing it the right way with boards that are active

in the correct way. Yeah. I think by looking back at history, I think I Been did it the right way. I think A T and T did it the right way. I think Computer Associates did it the right way. They all took a look at where they were and decided they couldn't stay where they were there to do something different, and in all those cases, those companies took a hit. Um. When we talk about activist board members, I mean they have to come from somewhere. Where are the best activist

board members coming from? Or quit they come from? Now that's a fantastic question. They have to come from. They have to come from some place. And my view is that boards themselves have to dig them up. In other words, the Nominating and Governance Committee of of the board, if it wants activist directors, has to search for and activate them. But what types of people? I mean, is it going to be a carl Icon or is it going to be a professor somewhere now? Professors? You know, I don't

believe in terribly much. I don't think we're terribly good at risk taking. Uh So I think you need people who have a vision, and the primary vision I think you need is somebody who knows right from wrong. That's my primary that's my primary goal because in all these cases, where is the deficiency? Something goes wrong? Take a look at the Volkswagon, take a look at what's happening around us, And in all of those cases you can ask you where was the board? What were they doing? Where they sleep?

Are they paying no attention? I don't know. I wasn't there. I can only make a guess. So I think that wherever you have a natural disaster of some kind in the company, you must ask the question why, why where was the board? Why did it take somebody to come in and shake them up? Why did why did they get into trouble? And where a company falls behind, it gets off the cliff because they weren't modern, you would say, where were they? Why aren't they interested in growth? And innovation.

So I'm looking for people who will stand up to the management, who will ask the right questions, and who will look to do what's good for the whole corporation, not for some individual sharehold Without naming names, can you get provide us an anecdote of board policy or board relationships that you've seen that you have had trouble believing really exists, or you could name names. I can name names.

That's asked. One of my favorites is Drexel. When Mike Milken was sent out to the West coast all alone to do his trading by himself and nobody looking. What was the result the jail sentence, and it was where was the board? Why weren't they looking? Why did they let him go? And why wasn't somebody paying attention to what he was doing. Is there a way for investors to gauge how effective the board is other than just looking at the incremental changes? I mean, is there sort

of a hallmark of a good board. The hallmark of a good board is a performance of the company. If the company is performing well, the chances are there's a good board in there someplace. Although sometimes performing well as

an handicap because you're going to sleep. Uh So, But generally, I mean you're you're feeling is that if the company is doing well, the board is functioning, it's easy to find bad corporate governors because wherever you find a company that got into big trouble, fell off the cliff, didn't go modern, you have to yourself where is the board? Those are areas where the board should have been involved.

Can you give us twenty five seconds on the succession planning that exists or doesn't exist for companies, it varies seconds. It exists, but in some places it doesn't exist. In other than wordplay, Uh, it's it's tough and everybody's got to be willing to play that game, including the CEO. Thank you very much for spending time with us. Ira

Millstein is a senior partner at while gotchall. He is also the author of the new book The Activist Director, Lessons from the Boardroom and the Future of the Corporation. And I also just want to mention that he is the author of many other books called such titles as The Recurrent Crisis in Corporate Governance and the Limits of

Corporate Power. So certainly, uh, someone with a lot of experience knowing what goes on in the corporate board well, especially somebody who has been in the boardrooms of con Ed, Drexel, Burnham, Lambert General Motors. This is somebody with a lot of experience. In other words, go out read the book and we're gonna learn more about the oil business and oil prices. We have Julian Lee. He is the oil strategist for Bloomberg News and he joins us from London. Julian, always

a pleasure to talk with you. I've got to begin by getting your thoughts here about if a club makes a decision that they're going to do something like cut back on the production of oil, and then one of those club members decides to breach this agreement, either surreptitiously or overtly. Uh, what does that mean, especially when you have a competitor breathing down your neck for the biggest market that you're currently so apply. I think it means that we are in the world of normal OPEQ politics.

To perfectly Hones, I think we have to put all this in perspective. You know, this is very early days of the agreement. The agreement came into effect on the first of January, so we're literally just over two weeks. Give people the I just let that for you be a platform. We'll give people the detail absolutely. I mean, we had this agreement. OPEC agreed at the end of November that they would cut output collectively by about one point two million barrels a day from the start of January.

The agreement covered all members of OPEQ, with the exception of Nigeria and Libya, who are allowed to produce at will because both of those were suffering unforeseen disruptions to their production. Iran was given permission under the agreement to raise its output slightly from the level that it was at late last year. All other members were and are still meant to cut back. Um, we're starting to get oil ministers from from all of the member countries saying

that they are implementing these cuts. We are doing some of our own monitoring of of what's going on. We track the tankers leaving the oil export terminals of various Opeque countries and those are showing at the moment a slightly different picture. We're seeing no real cut yet in in h shipments out of Iraq, for instance, But you know, it has to be said, it's early days and when you're tracking tankers, you can only really see a cargo

is loaded when the tanker leaves. Now you know, we we see a bunch of tankers leaving Iraq, if one of them is delayed by a day over half a month, that can make a difference of a hundred and twenty thousand barrels a day to the average export rates. So you know, these figures are going to to I think, show a lot of variation in the early part of any month. Um, we're still going to need to wait

a little longer to see what's really going on. But at the moment we have we have no very hard physical evidence that cuts are being made, but it could equally be argued that we have very little hard physical evidence that they're not either. Well, one thing that we do have some hard evidence about is that shail production in the US has been re accelerating a bit. How does this pressure o PET members. Well, I think this this potentially causes quite significant problems for OPET going forwards.

We had the International Energy Agency, this is the statistical arm of the U. S Department of Energy, who came out with two publications last week. The first of them was their short Term Energy Outlook, which they publish every month, and in that they have revised up their US production

UM and principally that's been an upward revision to shale production. Now, what for me was was key in this revision was that this was revision to historical data for the fourth quarter of twenty sixteen, and they increased that by around a hundred thousand barrels a day UM. That tells me that shale production was recovering even before OPEC did its deal. And not only you know, had OPEC not done its deal, but at that point the expectation for oil prices in

in SEV was round about fifty dollars a barrel. So even with this expectation that prices wouldn't rise, shale producers were still able to boost production. We're now in a situation where prices have risen a bit um. The expectation of analysts going forward is that they will rise further over the course of this year. And what that suggests, sorry, what that suggests to me is that the the i AS forecast of three and twenty thousand barrels a day

of growth this year could be an underestimate. Julian Lee, thank you so much for joining us. Julian the oil strategist for Bloomberg Intelligence in London talking about us shall production, how this could burst opex bubble at least brom woids along with pim Fox this spoomer. All right, I want to know if fifty six billion dollars can be wrong? Well, Netflix has asked Jerry Seinfeld to bring his comedians and cars getting coffee over to Netflix. Give it a park

I guess in their uh star parking lot. Here to tell us a little bit more about this whole thing is a Paul Sweeney. He's our star. He's our director of North American research and media analysts for Bloomberg Intelligence. Uh do you like these kinds of stories, Paul that you know you get sort of weave in by saying, you know, Jerry Seinfeld is going to now do his ing on Netflix. And we're getting ready for the Netflix earnings,

which will be out this afternoon. Right, it's uh, well, one thing we've seen from Netflix is I always joke that Ted Sarandos, who's head of content acquisition at Netflix, is the most popular person in Hollywood because he is buying everything. He has a huge check book, he's opened his checkbook and he's writing huge checks for content all

over the place to Jerry Seinfeld is just another example. UM. So they're going to spend north of six billion dollars on programming, which is compare that to CBS which might spend three and a half to four billion dollars. So UM, just huge amounts on on original content and content they're buying from others. So UM, they are really gearing up for the long term. How can investors look for results from this UH open checkbook with the earnings that come

out later today. Well, it's something that the company has coined as their virtuous circle, which is investments in programming drive subscriber growth. Subscribe growth drives revenue and profits, which funds even more investment capability into content. So the metric that investors have really focused on for this company has

really been net subscriber growth UM. And now since they're a global company, they break it down between domestic U S subscriber growth and international And what we've seen obviously over the last several years, and what's driven the stock over the last several years is the company has been very successful adding subscribers, first in the US UH and now globally, So that is the number one metric for the company is subscriber growth because that funds uh that

or enables this virtuous circle, and if it goes wrong, it becomes a vicious circle. Because these programming uh uh obligations are long term, fixed obligations, and they have obligations of about fourteen billion dollars for programming going out over the next number of years. And in order to pay for those uh programming obligations, they have to continue to grow their subscribers and their revenue in their cash flow. Oh paying for this? Oh come on, Paul, so we

you please stop. You know, that's just so like last century. This sounds like they're taking a leaf out of the book of Jeff Bezos at Amazon. Yeah, it's uh, you know Jeff Bezos in a sense that you know, profits be damned. It's all about growth. And the Amazon investors are clearly okay with that. I think a Netflix investors uh now really want to see profit growth. And if you look at some of the consensus estimates out there, the street is looking for profit to double this year

versus last year and double again in effectively. So what's what's happening at the company is their domestic US business is actually very profitable. Um and a lot of handing over an annuity every month exactly right. I mean just as with Amazon and their Amazon Prime, you get certain privileges, but also you get the daily fare of whatever it is you want, maybe add ons and competition with cable companies off for content? Are they paying the right price

price for this content? I mean right now, there's so much competition. Yeah, it's the cost of content, particularly original content is in fact growing up. They are still the biggest game in town. They have the biggest check book, a relative Yeah, and uh, you know Amazon, and uh, that's a lot of the bad television. That's a lot of television and there's no ratings. You don't know how it's doing. I like comedians and getting no. No, I

didn't mean that, but I just meant that television. But that I'm saying, if you if you have six billion to spend, not all of it is going to be a hit, right, And just why you do this? Right? And and the interesting thing that for Netflix is they never have to They never have a bad joke because they have no ratings. And so Ted Serrandos, he's a rock star because every show in theory is a hit because we have no ratings to know whether they do

well or not. That the only metric that investors really have is our subscribers continuing to grow, and if they are, that presumably is because the programming is working. So all of Netflix shows are being thrown into one basket, and it is a basket that we will get more insight into later today when Netflix earnings come out. Paul Sweeney,

thank you so much as always for joining us. Paul Sweeney us director of Research and senior media Internet analyst for Bloomberg Intelligence, and he joined us from our Bloomberg eleven three oh studio. You know, Pim, I gotta say I love that show and if you look at the sort of YouTube hits, I mean it was going crazy. So you know, maybe Netflix maybe six billion dollars, maybe it was worth it. Thanks for listening to the Bloomberg

P and L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.