The FBI and the Cybersecurity and Infrastructure Security Agency say China has been targeting commercial telecommunications infrastructure in what they describe as a broad and significant cyber espionage campaign. The joint announcement came three days before President Biden’s meeting with Chinese President Xi Jinping in Peru. 

The FBI and CISA said the People’s Republic of China (PRC) targeted multiple, unnamed telecommunications companies and stole customer call records, private communications of individuals who work in government or politics, and also obtained information that was subject to U.S. law enforcement requests pursuant to court orders. 

In the announcement, they said they expect to discover the extent of the network breach is even larger as the investigation continues. 

During their meeting, the White House says President Biden will emphasize maintaining military-to-military communications at all times and the importance of responsibly managing the world’s most consequential relationship. 

Straight Arrow News spoke with Congressman Dusty Johnson, who sits on the House Committee on the CCP, about cyber espionage and how President Biden should address it with Xi. 

Ray:

What should his message be? 

Rep. Johnson: 

Clearly, every single day, China is looking to undermine our country and cyber security attacks are a huge part of that. The President has got to be clear with Xi Jinping that we do not seek a hot or cold war with China, but acts of aggression cannot be ignored. I would like President Biden to display some strength. One thing we know about Donald Trump is that he will certainly display strength.

Ray: 

This, as you alluded to, is a pattern of behavior. How do you have diplomatic relations with a country that does this on a regular basis, perhaps even, maybe even daily? 

Rep. Johnson: 

I do know the tendency is to say ‘They’re bad people, we want to quit talking to them’. That makes the world a whole lot more dangerous. Those are the sort of petty fits and tantrums that China will throw. We do something they don’t like so they quit picking up the red phone that link our two militaries. Engagement keeps the world safer. Engagement gives you a mechanism to be able to tell China when their behavior is totally unacceptable. And so listen, it is important we have lines of communication open. But we need to make it very clear with China that we’re not going to be bullied around, period.

Ray: 

And then finally, this particular attack targeted personal information, even call logs. Why should an everyday American care if somebody in China has your call logs?

Rep. Johnson: 

China, the Chinese Communist Party, they are experts at using data, piled upon data, piled upon data to put together some really exquisite weapons that we don’t even fully understand the capabilities of. But we know that no enterprise in the history of humankind has ever been able to use data as a weapon like the CCP has. And so listen, I don’t know what they’re all doing it. I know they clearly find some value with it if they’re going to spend tremendous resources in constantly probing our defenses to get in and steal that information.

Simone Del Rosario: There’s a lot to talk about today, so I want to bring in Mary. Lovely. Mary is the Senior Fellow at the Peterson Institute for International Economics. Mary, it is lovely to have you this morning.

Mary Lovely: Thank you. Great to be with you this morning, Simone.  

Simone Del Rosario: And can you give us a little bit of idea of what your current research is? And one of the big reasons we brought you one, you have a lot of research on China tariffs. Tell us about it.

Mary Lovely: Yeah, my research focuses on US China trade flows and trade relations, and also on the Chinese economy. Obviously, with the election, this being an election year, I’ve done a lot of work on tariffs and what they might mean for consumer prices, for who pays the tax burden, especially as president elect Trump has talked about replacing some of the income tax with tariffs revenue. Yeah,

Simone Del Rosario: And he’s proposed a lot of tax cuts. Several things on his proposal list are in nature inflationary. Tax cuts. We are going to be seeing increased spending. And then, of course, tariffs,

Mary Lovely: Yes, of course. Tariffs would certainly be, you know, number one on my list for what’s going to be inflationary. He’s promising them at high rates, so on China, 60% and we can talk about kind of which goods and services are that really, is that really going to affect, and he’s promised them quickly, so we may see them, you know, as early as q2 of next year. And of course, his expectations, people know that’s coming, that will be built into expectations for prices and rates.

Simone Del Rosario: Would you expect companies to be raising prices ahead of President elect Trump even going into office.

Mary Lovely: I think that companies want to raise prices when they feel consumers are able to accept them. So it may be when they’re bringing out a new model, or when they’re just refreshing their price list for customers, if they’re dealing with industrial. Customers, or if they think the economy is moving ahead really well, and we may see the economy growing a little bit faster. It’s already doing really well, but a lot of President Elect Trump’s program is, in fact, expansionary. One reason why we’re worried about inflation. And so if the economy is growing well, people’s incomes are rising, firms may feel more comfortable passing those along even preemptively.

Simone Del Rosario: We know that President-elect Trump is promising big tariffs. This has been a cornerstone of his economic policy. And look, when he says something, believe him, he’s, you know, he showed us his first term, he had things in place. He said, I’m going to do this. And then he did it. So he has talked about tariffs. I’ve talked to a lot of economists on all sides of the aisle. And, you know, some people are saying, Well, I think he’ll end up doing something more targeted. We’re going to work off of, you know what he’s told us, He wants across-the-board tariffs, and he wants really high tariffs on China and perhaps Mexico as well might come into play. So that, all being said, what are you expecting the tariff landscape to be like? Do you expect it to be as high as his campaign promises? Do you expect there to be a little bit of moderation in what happens? What are you expecting?

Mary Lovely: Yeah, this is a great question Simone, and I think, you know, we’re all trying to look into the crystal ball and make some some guesses here, right? Because, you know, there’s a lot of factors that will go into what he actually does. A lot of people also say he’s a deal maker, so we may see him threatening these terrorists but not actually carrying them out, even the people that he’s beginning to appoint and reports, although not you know that he wants to offer an important position regard related to international economic policy, to Ambassador Robert Lighthizer, who was his trade representative in the first term, we expect tariffs will be right at the top of the menu regarding the tariffs on China, where former President Trump, as Candidate Trump, promised a flat 60. I expect we’ll see action quite quickly, and that is because he’ll tack these on to the original, what’s called the section 301, case against China. That was the legal authority that gave him the power to put those tariffs on, starting back in 2018 some folks may remember a couple of months ago, President Biden put 100% tariffs on Chinese EV imports, and that was done under the same authority, even though EVs had nothing to do with the original 301. Case, so President Trump can come in and have a pretty clear runway to put tariffs on China. The 10% across the board is a much harder thing. He is likely to have control of both houses in Congress, so he Congress ultimately has the power to tax. He may have to get authority from Congress to do that. This is quite unusual for us to start raising tariffs across the board on allies like, you know, Great Britain, Japan, South Korea. It’s a whole different kettle of fish.

Simone Del Rosario: Let’s focusing on the China aspect for a little bit. We’ve heard from Trump’s campaign that these tariffs are not going to raise inflation? They point to his first term. Say, look, we already did this. We already put tariffs on China. You all said there was going to raise inflation, and it didn’t. So should we believe that? No. And why is this different? Or is it not different.

Mary Lovely: Right, because basically what we do is we look at the prices of things when they come across the border, and we say, Are these higher? Are they higher by the amount of the tariff? And the answer is, the price that we paid the foreign exporter, ie the Chinese manufacturer. Extra didn’t change, and then we paid the tax. So the answer is, every study found that the importer paid 100% of the new tax. Now was all of that passed through to the final consumer? Well, that’s a long road, because a lot of these products that we get from China are inputs, things that manufacturers use, so something like a small electric motor that’s then used in a, you know, a a metal fishing boat, for example, little boat you might take out with your dad or your granddad to fish. That boat has content in it that comes from China, and we all know that, and those prices go up, and then it gets reflected in the alternate price. So we have to track it through that, you know, complicated route. Even goods that come across the border seem simple. They’re going to go on the shelf and Target or WalMart, but then we get retailing costs on top. So some of that was passed through right away to consumers, and some wasn’t. Companies have to decide, do I take a little bit of profit, don’t turn turn away my customers, make sure they keep coming to my store, or do I pass it all through now? Because I really don’t have the ability to bear it myself. And what we saw was it was partial pass through to consumers, but that whole process was really short cut by the pandemic. So what will happen in the long run is we don’t have good information from the Trump one tariffs, but we do know that those costs were paid by Americans somewhere along the value chain. So I think that staying that is foreigners who pay it is just simply not supported by any evidence. It’s sort of wishful thinking. There’s another part to this, which I think may be less well appreciated by folks, which is that not only is most of what we get from China used by US manufacturers, and the higher costs hurt them, and we have documented evidence that it led to layoffs in companies that used a lot or a decrease in employment in a lot of places that used a lot of these inputs, but a lot of the bundle is electronics and things like laptops, cell phones, game systems, your Apple Watch and these were not taxed at all. So if he’s talking about a six flat 60, it’s going to go on these consumer electronics. And it’s going to be huge, because you’re not actually going some things are already taxed at 25 you’re going to see it’s an incremental tax. It’s going to be a huge tax. And so that makes me think that maybe he might back off a bit, or do it in stages.

Simone Del Rosario: We are already hearing companies look to this new reality and see how to move forward. Autozone CEO told analysts they’d raise the prices ahead of tariffs, like they are. They are saying, I don’t know if it’s the quiet part out loud, they’re just saying it. We’re if these tariffs come down, we’re gonna have to raise it. And actually, we think they’re coming down, so we’re gonna go ahead and probably raise our prices before it even happens. Other companies are saying, we’ll wait for the policy, but yes, then we’re still going to have to raise prices. Steve Madden said that they were going to cut the amount of goods they were importing from China and rely more heavily on different partners. Part of tariff policy is adjusting, you know, trade relationships. So do you think that these Trump tariffs will, in turn, bring manufacturing back to the United States or take it away from China?

Mary Lovely: Well, I think it will take it away from China. We did see a decrease in the US purchases of goods that were taxed. That makes sense, right? You put a tax on one store, you go to another store, but we saw most of that stuff move to other countries, and we had to pay higher prices for it, because they’re just not as good at making it, or they had to create a factory out of nothing. So went to Vietnam. It went to Thailand. Very little of it came back to the United States. And that’s because you think about the products that are being made. Do you think that you can make a table cloth, a lot of, you know, T shirts, a US, you know, and pay a living us wage and still pay still, you know, compete with something from Bangladesh or Kent or Lord or Vietnam. The answer is, No, you can’t. So we are going to see higher prices. We’re not going to see a little a lot of jobs. Now, if he goes to 60% some companies will come back Absolutely, or will get foreign investment in the United States. And that’s another reason why we might see higher inflation, because we’re going to see some foreign investment in the United States. People will say that’s the tariffs creating jobs, yes, but it’s going to be at much higher prices, which means that you won’t be able to buy something else. Else, and that’s, that’s the part that I think is more difficult to grasp, the idea that if I have to spend a lot more, you know, buying apparel, buying, you know, clothes for my kids, well then I can’t spend it at the grocery store. I can’t spend it on local services like eating out. And we’ve traced through that and on net, the tariffs are job losers. There’s just no way around the evidence. Now people are okay with that, because, as you mentioned, part of the idea is to move supply chains away and reduce our dependence on China. It’s true, it’s an important goal, but it’s going to be costly, and we shouldn’t pretend that it’s all sunshine, it’s going to be lower prices and more jobs, because it just doesn’t make sense economically, that that’s how it will happen.

Simone Del Rosario: And would China retaliate? And what, what would that look like? And how would that affect us?

Mary Lovely: Well, if China retaliates, obviously it’s going to make it harder for US companies to sell abroad, and us is the second largest manufactured good exporter in the world. We haven’t talked a lot in this election about how we are actually an export superpower, so that will make it harder for US companies. How China retaliates is really hard to guess. Last time they bit, did a bit of tit for tat, and we may see that. I think if, if President Trump goes ahead with tariffs, broad based, 10% 20% on our friends and allies included, we will see swifter retaliation. Everyone is going to be caught. Has been calling President Trump, polishing up their golf games, trying to make nice, hoping that this doesn’t come. And I think we’ll see an awful lot of diplomatic activity before that. But in the end, if we do go through and actually levy those tariffs, I think we will see retaliation. We’ll have to, because these countries, you know, can’t let the US do this without, you know, making it clear that they protest.

Simone Del Rosario: Given everything you’ve laid out, I’m hearing very clearly prices are going to be going up. Should the Fed be moving accordingly and stop cutting its rate in anticipation that there are going to be inflationary pressures coming, because multiple parts of his policies suggest that.

Mary Lovely: You know, I really don’t know what the Fed will do or what they’re looking at and why there can, but I think it’s the probability of the cut has gone down, and that even if they do cut, we’re likely to see rate increases in 2025 lots of the Trump program, the tax cuts, as I mentioned, more foreign investment into the United States, the deportations, which will hurt on the supply side, all point in one direction, which is higher inflation.

Ray Bogan: In Michigan, Wisconsin, Nevada and Arizona, Donald Trump won the presidential vote while the Republican Senate candidate lost. This is going to have a big impact on the balance of power in Washington. How did it happen? Well, here to explain is one of our nation’s preeminent pollsters, Professor Darren Shaw from the University of Texas at Austin. So, Professor Shaw, I just mentioned the results in those four key states. How did that happen?

Daron Shaw: 

Well, I think in political science, we’ve been enamored with the notion of polarization, that voters identify as Republicans or Democrats and that they really dislike the other side. And so there’s very little ticket splitting. This is the theory, right? I’m gonna vote for the Republicans up and down the line, or I’m gonna vote for the Democrats up and down the line. That’s kind of been our orientation with respect to elections over the last decade plus. Well, here we have an instance in which at some number of voters, a decisive number of voters, split their tickets between Trump and the Senate candidates. I think the most obvious explanation is that in these races, not all of them, but in most of them, Michigan was the exception, Democrats were the incumbents. So the Democrats walk into the race with higher levels of name recognition. Voters prefer to vote for somebody they know over somebody they don’t know. And in each of those races, Michigan included, the Democratic candidates had significantly more money to spend.

So you’re talking about Republicans across the board, whether it’s Sam Brown, I guess Kari Lake is the exception in Arizona, but Sam Brown in Nevada, McCormick in Pennsylvania, et cetera, these are candidates who were challengers. And they needed to familiarize the electorate with who they were. And while they were trying to do that, they were facing, especially in the case of Nevada, which I think is the exemplar here, hundreds of millions, not hundreds, tens of millions of dollars of negative advertising being dropped on their heads as voters are getting to know them. So in the summer you saw splits of 10 to 15 points separating where Trump was versus Harris compared to where the Democrat was versus the Republican Senate candidate. As the campaign wore on, those differences diminished significantly, but not entirely. So you ended up in each of those states with a slight gap, but not a huge gap between where Trump was running versus the Republican candidates. So voters did mostly come home, but not enough to save the Republicans in those races.

Ray: 

So elections have become very nationalized over the last few cycles in the sense that there’s some instances where maybe big donors, congressional leadership, and maybe even the media kind of make it try to seem as though it’s not about a candidate, it’s about a majority. And that’s all they focus on is the majority. But based on these results and what you seem to be telling me right now, and correct me if I’m wrong, is when voters go to the polls, they don’t look at it like that.

Daron Shaw: 

Yeah, there’s some evidence and it’s a little little moth eaten right now. It is to say it’s about a couple decades old that voters actually like to what we call policy balance. So if they vote for a Republican, sometimes they’re they say they’re concerned about, you know, handing over the reins of government to a single party and so they vote to balance, sort of policy balancing is the notion when they vote. I think that’s after the fact rationalization. I don’t think voters actually do a lot of that.

But what you saw in each of these states was Republicans trying to nationalize the election, because Trump was running very strong in these different states, to say, well, they may say they’re moderate, Gallegos in Arizona or Jacky Rosen in Nevada may say they’re moderate, but they’re going to end up voting with Kamala Harris 100 % of the time or 95 % of the time to basically minimize state and local issues and to, draw national level forces, because they thought that advantaged them.

The Democrats were, I think in almost all these states, largely trying to say, ‘Well, I’m going to work for the people of state X. And I’ve got a record doing that. And with the exception of Slotkin in Michigan, all of them were incumbents. And they managed to do that. So I do think what the evidence is is that you’re right. Nationalization exists, it basically kind of drives up almost all the difference between Senate and presidential candidates. But you can still affect an advantage of a couple of points by positioning yourself as distinct from the national party working for the people of a given state or jurisdiction.

Ray: 

You know, as I mentioned, this is going to have a big impact on the balance of power. These four races that we’re discussing is the difference between Republicans having a nearly filibuster proof majority with 57 seats. Instead, they’re on track to have 53, which I guess you could kind of describe as a slim majority. Have you ever seen split ticket voting have this big of an impact on the power aparty will wield in Washington. this case, Republicans will have to be a lot more bipartisan to pass legislation.

Daron Shaw: 

Really good question. I’m sort of racking my brain historically to think of an instance in which, know, essentially states that voted one way for president. Well, I think historically it actually did used to happen quite a bit, but it didn’t affect the balance of power the same way that seems to be now for the reasons that you mentioned. In other words, the seats in the states in which they vote one way for presidential, but the other way for Senate, those are really disappearing. You know, the West Virginians of the world or the Montanas. Those were instances in which there were real outlier candidates, Manchin or Tester. Those people are essentially gone and Sherrod Brown in Ohio, same kind of deal. But very narrowly decided states, it does seem to be possible that you can kind of be on the out party and still win a Senate seat in those places. And those states are very likely to flip next time around too, right? I mean, the Trump majority may not last as long as 2026 because it was so narrow in some of these battleground states. But yeah, you’re right. You’re talking about a bunch of them because these are the 2018 Senate seats that came up a big time Democratic year. And in a year where it was more equal, those people were all the chopping block. And the fact that the Democrats basically kind of split those states or even won most of them actually, if you’re counting precisely, it is going to have profound implications. And if you get, I’m not predicting this, but if

One or two of these individuals retires, pardon the Republican jury, retires, goes to the Supreme Court, runs for president or something like that, takes themselves out. That Republican majority comes into peril immediately. You’re also the starting point for 2026, which is midterm election and the majority party is always at risk in the midterm election. There’s going to be even a larger target on the backs of some of those Republican candidates defending seats in 2026.

It’s not only important for the immediate policy implications, but it’s also important because the Democrats don’t need to flip seven seats next time around. They only need to flip three.

Ray: 

And then finally, let me ask you, you sit on a decision desk and you are a part of the team that’s behind the scenes, that’s getting data from all over the country and projecting who is going to win each state. I’m curious, we got our results a lot faster this election than we did in 2020 when it was Trump v. Biden. Did you notice any states doing anything better to help us get those results quicker? Did they count mail-in ballots in a more efficient manner? Was there anything that took place that you can put your finger on that says, that’s why we know the results so much sooner this time around?

Daron Shaw (08:10)

Yeah, I think mechanically the issue that occurred was that the Republican party in general, and Trump in particular, encouraged their voters to vote by mail and to vote early. And you might ask, well, what does that have to do with the counting of the votes? What it meant was is that the outstanding votes didn’t vary as much by mode. In other words, in a lot of states where Biden had had an 80 to 20 edge in the mail-in vote in 2020, that edge was, 60-40 or 55-45 this time around. That meant that the shift in the vote as late votes were counted, as provisionals, as all these other votes came in, wasn’t going to change the result nearly as dramatically. And we knew that going in. The 2020 situation created an environment, particularly in places like Pennsylvania, where you knew that 100,000 vote deficit could disappear because there was going to be such a strong tilt to the mail-in ballots that were going to be counted.

This time around, we suspected, and it turned out to be true pretty quickly, we had confirmatory data both from the poll and then from the vote count, those differences weren’t gonna be as significant, right? You weren’t gonna see those sorts of shifts. As for mechanically, I think it’s pretty clear. A couple of states went to a system where two things happened. They insisted on receiving the ballot by election day, that was one, as opposed to a postmark by election day. That helped. And then the processing of the mail-in ballots,

places, jurisdictions that allowed their election administrative boards to process. So vote counts are a two step process. You or I vote by mail, they get the ballot and they have to do a signature check to make sure it’s us. When that’s done, that’s processing. They put the vote into the count pile. And then on election day, they can count. Allowing states to pre-process that mail and vote eliminates one of those steps so that by election night, you can just count the votes.

That seems to be extremely effective. And I know there are people who say like, yeah, what about people who turn in their ballot a day ahead of time and it doesn’t get received by the election registrar? That’s always the downside of this sort of arrangement. And that’s why Arizona and Nevada and California and actually Alaska are still counting votes at this point. I think you’re gonna see a movement away from that to allow pre-processing and to insist upon receiving the ballot by election day.

[Simone Del Rosario]

As President-elect Donald Trump prepares for his next four years in the White House, he has a new potential conflict under his wing of businesses he didn’t have his first time around: Trump Media.

Back in 2017, his real estate empire was the biggest focus of ethics experts.But now he’s billions of dollars richer from the publicly traded company behind Truth Social.

Trading under DJT, Trump Media has seen some wild stock swings this week. 

After jolting high up on Trump’s election victory, the stock fell 20% to start Thursday’s trading day. 

Trump is the company’s majority shareholder with an estimated 57% stake. 

But will he have to divest before taking over the Oval?

Your guess is as good as mine, that’s why we tapped the former Chief White House Ethics lawyer under President George W. Bush, law professor Richard Painter. 

Richard, thank you so much for joining us. This is some unchartered territory, at least when it comes to the president here, what do you anticipate that Donald Trump will need to do with that 57% stake that he has in Trump media?

Richard Painter:

I believe it would be best if President elect Trump were to divest from the Trump media and let the company be sold and owned to and owned entirely by public shareholders, and change his name so it’s not affiliated with the President of the United States. I legally he can keep ownership of the company, but it is problematic to have a president or other powerful politician with a controlling stake in a media company. Having an independent media is very, very important. And furthermore, as president, he will have control over the Federal Communications Commission. He will be able to fire the commissioners of the Federal Communications Commission probably certainly be able to fire the chairman of the commission and determine the policies of the Federal Communications Commission, and it’s clear conflict of interest for the president united states to perform those executive functions while owning a substantial stake in a media company, whether it’s social media or any other

Simone Del Rosario:

Okay, so you hit on a lot of things in there, and I just want to go back and detail specifically a couple of different things. You said that you think it would be best for him to divest, but does he have to, or can he legally keep that stake.

Richard Painter:

There is no requirement that the President divest from his social media company or any other business interest, no legal requirement, so long as he is not receiving payments from foreign governments that would be prohibited under the Emoluments Clause of the Constitution. Every other executive branch official other than the President, the Vice President, is bound by criminal conflict of interest statute that would make it a crime, potentially a felony, to participate in any government matter there’s a direct and predictable effect on their own financial interests. For example, a Federal Communications Commission Commissioner who also had a stake in a media company that would be flat out prohibited under federal law could be a criminal offense, but the President of the United States, who could fire a chairman of the Federal Communications Commission or otherwise shape the policy of the FCC, is not bound by that same criminal statute that being said, every other president, Other than President Trump, has voluntarily refrained from having financial conflicts of interest with their official duties. And just as in 2017 when he took office for the first time, when many of us called for Donald Trump to divest his business holdings that could conflict with official duties, we’re asking for the same here, although his business interests are significantly expanded now, eight years later, not only with truth social, his social media company, but with his family investments in crypto and other ventures.

Simone Del Rosario:

Yeah, Trump is famous for putting his name on things right the Trump Organization, you can see it all around the world. And now to your point that you made earlier, his name is specifically on this company, Trump, Media and Technology Group history would show that he would have no interest in removing his name. Why do you think that he should?

Richard Painter:

Well, let’s get I think there’s serious conflicts of interest here with respect to the role of the executive branch in regulating the media, in particular, social media, the Biden White House already has engaged in a policy I think is very unwise of trying to put pressure on social media companies with respect to their content. I wish the Supreme Court had ruled against the Biden administration in that case, they did not. And now Donald Trump is coming into office, and we have no idea what his administration is going to want to do, putting pressure, not on all the social media companies, including Facebook, owned by Mark Zuckerberg, who apparently is at odds now with President elect Trump, and it’s just a very bad situation. But. To have the president of the United States who is in charge of the executive branch that regulates media and social media, and issues pertaining to media, concentration of power in the media, all these issues dealt with by the Federal Communications Commission, by the Justice Department, by other agencies, to have that same president of the united states also have an enormous stake in a social media company. This is, I think, an untenable conflict of interest.

Simone Del Rosario:

Why is it criminal for cabinet members, but not for the President or the Vice President? Before talking to you, I was looking at, you know, any kind of precedence here, and coming up with a lot of Cabinet members who were divesting their interests in companies recently. In the Trump administration, we had former Secretary of State, Rex Tillerson, who had, you know, hundreds of millions of dollars worth of stock in Exxon Mobil, further back with your when you were with George W Bucha administration. We had Henry Paulson, who was the treasury secretary and former CEO of Goldman Sachs, who had to divest holdings. So why is it criminal if Cabinet members don’t do that? But it’s okay for the vice president and the president to maintain their holdings?

Richard Painter:

The problem is that the criminal conflict of interest statute 18, United States Code 208, applies to every executive branch officer other than the President and the Vice President. That’s the way the statute is drafted. The statute also does not apply to members of Congress who are infamous for buying and selling stocks while working on legislation that affects their underlying financial holdings. The President, the Vice President, and members of Congress, the elected officials, do not have to comply with the financial conflict of interest statute because that’s the way it was drafted by Congress, of course. And I think this is a big problem, every other president has voluntarily refrained from having conflicts of interest in the Bush administration, President George W Bush sold off financial interest that could conflict with his official duties because the people in his cabinet were bound by criminal conflict of interest statute, and the feeling in the Bush White House was that the President should adhere to the same standards as everybody else, Hank Paulson, the Treasury Secretary, I worked with him when he came in out of Goldman Sachs, and I helped arrange for $600 million where the Goldman Sachs stock to be sold. He indeed even avoided a capital gains tax on that. There’s a certificate of divestiture that one can get from the Office of Government ethic saying, well, the ethics lawyer told me I had to sell it so you don’t have to pay the capital gains tax. You roll over the proceeds, the 600 million, in this case, into other conflict free assets, such as mutual funds or Treasury securities or whatever it is, and then only pay the tax when you sell the rollover property, maybe years down the road, if ever so, divestment has been the approach for every Cabinet member. If Elon Musk comes into the cabinet or into any government position, he will have to either recuse from matters that affect his financial holdings, or he will have to sell off those financial holdings. Elon Musk, for example, could not become the chairman of the Federal Communications Commission and regulate social media, and get involved in regulating social media while holding on to his interest in Acts. It would be one or the other, because the criminal conflict of interest statute would apply to him. Well, the problem is that statute doesn’t apply to the President. It should, but every other president has understood the seriousness of this issue and has avoided financial conflicts of interest, and I’m calling upon President elect Trump to do the same.

Simone Del Rosario:

It’s very interesting. I want to talk on Elon Musk for a little bit, because it’s not just that he has x obviously, the company that makes him rich, Tesla, so you’re saying that he wouldn’t be able to be involved in policies that would affect the electric vehicle market. Or could he in an advisor role if it weren’t a cabinet position.

Richard Painter:

Elon Musk could not be a federal government employee of any type, this statute applies to every federal employee, including special government employees only work part time. So Elon Musk would be bound by the criminal conflict of interest statute. The only way for him to avoid that would be to be a government contractor, like with the defense companies or contractors, and have a consulting firm that was a contractor for the government. That is a loophole, and we have a lot of financial conflict or conflicts of interest embedded in our government contractors, whether the military contracting companies or others, and perhaps Elon Musk may choose to take advantage of that loophole and simply become a contractor, but if he. He starts to have an office in the in the White House or in an agency, or he’s given a title that implies that he’s an appointee of the President. Well, then he’s inside the government, and he would be bound by that criminal conflict of interest statute, whether it is matters that pertain to social media and his ownership and X or electric vehicles transportation and his ownership interest in Tesla Elon Musk would have to decide whether to recuse from any and all those matters or divest his financial interest. And if he doesn’t want to do that, he’s going to have to stay out of the government.

Simone Del Rosario:

Can he work for the government for free? Is that a way around?

Richard Painter:

No. It doesn’t matter whether you get paid or not. If you are working for the government and you’re pointed by the by the president or by anyone else in the government to government position, you are bound by the criminal conflict of interest statute whether or not you get paid. But if you’re a government contractor, contracting with the government, a consulting firm, a defense contractor, I mean, that is a context in which that could work. But it has to be very clear, you are a contractor. You’re not being appointed by the President, and I don’t know whether that relationship would be commensurate with Elon Musk, I won’t say ego, but self assess this sense of self esteem.

Simone Del Rosario:

Yeah, it’ll be interesting to see how the two of them navigate their relationship over the next four plus years. He was certainly pivotal in Trump’s re election. Let’s get back to dj t is there a middle ground between doing nothing and divesting? Could Trump put his shares, put his stake in a trust? Well, there

Richard Painter:

always is a middle ground for the President and the Vice President, because the criminal conflict of interest statute does not apply to that. So they can come up with all sorts of arrangements to make it look like they’re voiding the conflicts of interest. Donald Trump in 2017 said there was turning management of his businesses over to Assange. He had a big press conference, he’s standing there with a bunch of brown paper envelopes in front of him and saying, Well, these are the documents that convey the properties to my sons. Well, he didn’t convey ownership to his sons, just the management of the properties. If he were cabinet member, that wouldn’t fly. That wouldn’t solve the conflict of interest problem, but he’s the President of the United States, so the statute doesn’t apply to him anyway. So the brown paper envelopes could have been stuffed with toilet paper for all I know, it wouldn’t matter, because you know he’s the president, and he can say the statute doesn’t apply to me, and G I say I’ve got a blind trust here, when it’s not so blind, I gotta say it’s ridiculous to argue you got a blonde trust when you know exactly what you put in it. And there’s a point I made 2017 you can’t put the Trump Tower in a blonde trust and then pretend you don’t own the Trump Tower. It’s sitting right there in fifth 1000. It says Trump Tower on it. It’s gonna be the same thing for DJT media company or any of his other holdings. So the question is, does he really want to avoid conflicts of interest, or doesn’t he? And I’m asking the President Elect, once again, as I did eight years ago, to observe the conflict of interest statutes that apply to everybody’s working for him, but technically don’t apply to him.

Simone Del Rosario: 

Professor Richard painter, former chief White House Ethics lawyer, we really appreciate your thoughts Today.

Richard Painter: 

Well, thank you very much for having me.

[Simone Del Rosario]

Apple’s expected to report its biggest revenue jump in two years when it releases its latest quarterly earnings after the bell Thursday.

Expect a lot of conversation about Apple Intelligence, the company’s AI offering.

But it’s the gangbuster iPhone 16 sales that are pushing revenue higher.

In the three weeks following the 16’s release, sales in China were 20% higher than sales for the iPhone 15 a year earlier. And customers are increasingly trading up to the more expensive models.

The iPhone is now in second place in the smartphone market share in China, after falling to third earlier this year, according to IDC.

Apple may be depending on China to juice sales, but it’s reportedly trying to reduce reliance on the nation when it comes to manufacturing.

Apple exported $6 billion worth of Indian-made iPhones from March to September, according to Bloomberg. That’s an increase of around 33% from the year earlier.

Joining me now to discuss is Doug Guthrie, a China scholar at Arizona State University who worked for Apple, advising executives on China from 2014 to 2019.

Simone Del Rosario | Business Correspondent 0:01
So Doug, it’s an area that Apple’s been struggling of late. So what’s behind the increased sales of iPhones in China?

DOUG GUTHRIE | ASU PROFESSOR OF GLOBAL LEADERSHIP 0:09
this is never just about what the consumer market wants, but it’s usually also about what is the government promoting, and whether that’s subtly or very explicitly. And you know, there are a lot of interesting things going on with us China relations right now, but also US China and technology relations. And so, you know, we’ve seen Intel get dinged by China and then invest 300 million in Chengdu. And we’ve seen number of other things happen that that really sort of signal those kinds of pressures. And my guess is that really what’s happening right now is that, you know, Apple is Apple’s in China for the long run, like Apple is married to China. And I’ve said this many times to you guys, and I’ve said this many times in Brent, but you know, Apple doesn’t just work with Foxconn, and can then exit to Foxconn and Chennai. Apple works with 1600 factories in China, and they’re very much deeply embedded, not just to get access to the excellent production that the Chinese factories do, but also in terms of really embedding what we call tacit knowledge into those Chinese factories. And you know, when I was at Apple, we did a deal many years ago that that really got the government to think that we’re not just spending labor, but we’re actually getting acknowledgement for all of the tacit knowledge that our operations managers are passing on to Chinese officials or to Chinese firms and and so you know that ended up being key to the deal that was done that that got us more access to Chinese firms than we ever thought we would, but my guess is that Apple is continuing to push that line. I’m not an insider there anymore, but it’s very clear that Tim Cook and the executive team really continue to be committed to the idea that Apple’s married to China, and they are continuing to push the idea that we’re here, and we’re continuing to train the operations managers and the task and so then when we get to the question of consumer behavior, we always think, well, people are just buying the best product for the cheapest value that they can get. It. That’s not how it works. In China, people buy what products are promoted by the government. And so my guess is that this is a signal that Apple’s doing things right and in good space with the government right

Simone Del Rosario 2:41
now. Yeah, we saw the government kind of thwart, I guess, that consumer behavior toward Apple, when it was saying, oh, people can’t bring these iPhones into work anymore. And we had, you know, kind of a wall, if you will, go up. And that really hurt apple. So is it your interpretation that that has kind of eased that tension? Yes.

Doug Guthrie 3:01
And you know, I remember that day very well. It was about a year ago. I think it was September 23 2023 and you know, the Chinese government suddenly said, you know, oh, you know, we’re not going to allow Chinese government officials or anybody who works for the government to use iPhones. And my sense during that time was not that they were calling apple out as much as they were sort of providing a test case for international markets. Because I don’t know if you remember Simone, but what happened on that day was Apple shares dropped 200 billion. Yeah, right. I mean, we saw a huge plunge. And so I think it was just like a little flexing of muscle for app for China to be saying like, you guys are married to us. And if we, you know, this is a small thing, because not that many Chinese officials actually use iPhones. So I was just, I was fascinated at that moment when that happened. But I think it was sort of a test case, just flexing muscles and the Chinese government saying, like, here’s what we can do, guys. What do you think of this? And my guess is that, you know, I remember a couple months later when, you know, Apple was called out by the Department of Justice in the United States. And, you know, there was, you know, some some issues going on there, where was Tim Cook. He was on a plane to Shanghai, and he was, you know, going to Shenzhen, to, you know, celebrate the opening up the R and D centers that you know. So I think it’s very clear, like, Okay, guys, we’re here. We’re here with you. We’re here. And so my guess is that I’m not an insider on this anymore, but my guess is that relationship is continuing to evolve and and I think right now the government is sort of rewarding Apple saying, like, okay, so you guys are partners with China. We’re here, and you’re developing tasks and delivering tacit knowledge for us and like, let’s just keep going.

Simone Del Rosario 4:44
Yeah, at the same time, we are seeing Apple move or pick up manufacturing outside of China. We’re seeing a lot of activity happening in India. I mentioned it before we brought you in. How is able? How is Apple able to do this? And how does it affect that relationship?

Doug Guthrie 4:59
Yeah, well, the India question is really interesting. So India is just the first and most important piece of this. You know, back when I was with apple from 2014 to 2019 there was a lot of effort to develop and just sort of show that we could develop relationships in places like Vietnam. Now, Vietnam is not really a competitor of [China], because Vietnam is a country of 95 million people, and probably in the sort of what we would view as the parallel to the floating population. That’s the migrant labor force, force in China, which is 350 million problem people. Probably in Vietnam, there’s maximum of 15 million. And so it’s just not a competitor. But India is right. India is a country that is equal in size in terms of its population, and has equal numbers of, you know, size of migrant labor population and poor people. And so India is a real interesting threat. And so when Foxconn built a plant in Chennai, and suddenly iPhones could be assembled in Chennai, you know, I think it was, again, a signal to the market, like, hey, you know, yes, we’re married to China, but we have other options now, just to be very clear, part of the reason that Apple is the most profitable company in the world is because it works with 1600 suppliers in China, not just Foxconn. And so, you know, it would take 30 years to build the manufacturing supply chain in India that exists in China, and the Chinese government knows this. But I think when we were viewing this, and when Foxconn was building a plant in Chennai, there was an argument to the Chinese government, like, okay, like, we want to be partners, let’s be partners. But if we’re not, let’s continue to, you know, we’ll continue to develop this, and maybe we will be out of here in a couple, in couple of decades. Now, the interesting thing that’s going on with China and India right now is the resolution of the border dispute. This is, to me, Simone a big deal because Xi Jinping really wants to position himself as the leader of the bricks nations, yeah. And so, you know the idea that, like, Okay, we have a border dispute with India, and we’re in competition with India over, you know, where Apple is producing its products and whether or not the manufacturers, but it may be the case that there is a big play here that is about collaboration and coordination. And it may be the case that the resolution of this boarding border dispute just within the last couple of days, I think, signals that maybe, you know, this is a moment where there’s a big pivot away from the west and Xi Jinping and Modi and others thinking like, okay, you know, you guys can do your g7 thing over there, and we can be at the kids table at the g20 but like, we’re bricks, is bigger than you thought. And so I think it’s a really interesting time to watch this, because my guess is what we’re going to see is more collaboration and coordination between China and India.

Simone Del Rosario 7:51
And with that in mind, does Apple, you know, more publicly moving into India and trying to diversify away from China? Does does that become less important in the eyes of the Chinese government if they’re going to cozy up closer to India? Do they see that as a win for the region?

Doug Guthrie 8:09
Yes, my guess is that the answer is that it becomes a win for the region. So rather, my, you know, again, you know, I’m not sitting next to Xi Jinping, so I don’t know exactly what he thinks, but I know some of the people who are advising him, and they’re thinking very strategically about the region. And so my guess is what they’re thinking is like, Okay, we could have this competitive thing in which we’re always threatened by the idea that, you know, Foxconn and Apple are going to go produce in in India, or we could be coordinating the region so that the BRICS nations are the most powerful group of nations in the world, and so therefore we need to collaborate and coordinate. And so my guess is what we’re going to see. So Foxconn, you know, Taiwanese company building plant in Chennai. We’re probably going to see a lot of Chinese companies. So Foxconn is here in their final assembly plant. Taiwanese Pegatron, a Chinese company final assembly. They do the same thing with Fox potcom. My guess is that Pegatron and a lot of the other components companies are going to start building factories in India. And so I think it’s going to be a really interesting thing to see how the coordination and collaboration goes on here.

Simone Del Rosario 9:15
It’s a whole new future. Doug Guthrie, thank you so much always for your comments. So

Doug Guthrie 9:19
amazing to be here with you guys. You guys do amazing work, and I’m so thankful. Thanks.

[Jack Aylmer]

WHEN IT COMES TO POWER – TEXAS STANDS ALONE.

FOR ALMOST A CENTURY THE LONE STAR STATE’S GRID HAS REMAINED ISOLATED FROM THE REST OF THE COUNTRY. MAINLY TO AVOID REGULATIONS FROM THE FEDERAL GOVERNMENT.

BUT AFTER NUMEROUS CHALLENGES IN RECENT YEARS—

RANGING FROM HURRICANE FORCE WINDS

TO DEADLY WINTER STORMS – 

TEXAS IS READY TO CONNECT WITH THE NATIONAL POWER GRID…

WITH THE GOAL OF PREVENTING FUTURE MASS OUTAGES. 

[Pete Kohnstam]

“Texas is being connected to the rest of the grid … you have to hope that that helps a lot with balancing the challenges that they have … I think the ability to inject 3000 megawatts, essentially, into the system is, is tremendous.”

[Jack Aylmer]

PETE KOHNSTAM IS A SALES DIRECTOR AT NEXANS – A GLOBAL FIBER-OPTIC COMPANY THAT WORKS WITH THE SAME TECHNOLOGY BEING USED TO PLUG TEXAS IN TO THE REST OF THE COUNTRY. 

HE SAYS THIS 360 MILLION DOLLAR EFFORT WILL NOT ONLY BE BENEFICIAL FOR TEXAS- BUT WILL ALSO HELP BRING MORE RENEWABLE POWER TO THE REST OF THE COUNTRY.

[Pete Kohnstam]

“Texas has the highest amount of wind generation in the US by a significant margin, they are powerhouse for renewable energy. And so what this link will allow to happen is export of some of that excess renewable energy to states that don’t have such good resources, but also allow those resources in the east to support the Texas grid when they have challenges.”

[Jack Aylmer]

TEXAS UTILITY OFFICIALS ALSO SAY THAT WHILE THEIR NEW TRANSMISSION LINE WILL LINK THEM TO THE NATIONAL GRID-

THE STATE’S POWER SYSTEM WILL REMAIN INDEPENDENT.

AVOIDING THE FEDERAL OVERSIGHT THAT TEXAS ORIGINALLY SOUGHT TO GET AWAY FROM WHEN IT FIRST REMOVED ITSELF FROM THE U.S. GRID BACK IN THE 1930’S.

[Pete Kohnstam]

“This means that Texas retains its independence. It does not become part of the federally regulated transmissions, which is very important for the residents.”

[Jack Aylmer]

HOWEVER, BRINGING THIS PLAN TO FRUITION COULD TAKE A WHILE.

KOHNSTAM ESTIMATES IT COULD TAKE AS MUCH AS A DECADE TO GET UP AND RUNNING.

[Pete Kohnstam]

“I mean the permitting processes can take multiple multiple years. The lead time for the equipment is probably five years, and then construction time for the line will be, I guess, two to three years. So I, I would suggest that 10 years is a good window. I’m sure the developers are looking to improve on that significantly.”

[Jack Aylmer]

HOW LONG IT WILL ULTIMATELY TAKE FOR THIS PROJECT TO BE COMPLETED REMAINS TO BE SEEN-

BUT EXPERTS ARE STILL ENCOURAGED BY ITS POTENTIAL TO IMPROVE ENERGY INFRASTRUCTURE ON BOTH A STATE AND NATIONAL LEVEL.  

TO LEARN MORE ABOUT THIS STORY AND OTHER ENERGY RELATED TOPICS- DOWNLOAD THE STRAIGHT ARROW NEWS APP AND SIGN UP FOR ALERTS FROM ME- JACK AYLMER. 

[Simone Del Rosario]

Starbucks’ freshly-brewed CEO Brian Niccol has the “venti” task of getting the coffee shop giant back on track.

The company released preliminary fourth-quarter earnings which show how deep the Starbucks slump is. 

For the third straight quarter, overall same-store sales fell, this time by 7%. That’s the biggest drop since the COVID-19 Pandemic.

Same-store sales in China fell by 14%, but it’s the 6% decline in North America that’s most troubling for the chain.

Brian Niccol: People love Starbucks, but I’ve heard from some customers that we’ve drifted from our core, that we’ve made it harder to be a customer than it should be, and that we’ve stopped communicating with them.  As a result, some are visiting less often.

Simone Del Rosario: Niccol, who took over as head barista in September after serving 6 years as Chipotle’s CEO, announced the “Back to Starbucks” commitment.

Brian Niccol: At Starbucks, Coffee comes first. Through product development, marketing, and in-store experience, we need to remind everyone that we are, and always have been, Starbucks Coffee Company.

Simone Del Rosario: So does that mean yay or nay to the singer-songwriter CDs?

Joining me now to discuss is Robert Byrne, Senior Director, Consumer Research with Technomic.

Brian Niccol been on the job for about six weeks now that he has had time to figure out the company a little bit. What do you think he really needs to tackle first?

Robert Byrne: Well, to me, as a consumer, the biggest challenge that you see when you’re in a Starbucks or waiting in line at the drive thru or ordering via the app and in the store to pick up your your drink is the is the operational component of it, getting inside those stores, understanding how you can get those stores to service all those different channels. We’ve taken to calling that omni channel, because you have orders coming from all these different directions, in a way that’s more efficient. My best guess as to his first thoughts. And part of the reason that he is the person that they hand picked as the next person to lead the brand is because he was very successful in creating two separate make lines in Chipotle stores, essentially one that satisfies one order flow and one that satisfies that in store order flow, which makes for speed on both counts, it adds bulk to your labor costs. It certainly is going to be difficult in some of those smaller square foot units, but you got to figure it out if you want to service customers and your guests specifically, in those three ways, you can’t do anything with that issue until you figure that piece out. So it’s all about operations and all the fun stuff, the marketing, the things that we see on a daily basis, and, you know, the changes to the menu. I think that comes second.

Simone Del Rosario: Okay, why is the app and the mobile ordering and all of this specific to Starbucks? Why has it been so frustrating for customers?

Robert Byrne: Synchronization is very challenging for a restaurant operator, particularly during those times when you have bottlenecking. You have a lot of orders coming in at the exact same time. And we know Starbucks orders tend to come with a high degree of customization. Every single order is different. You can’t make five of the same thing and expect to turn around and serve that to your guests. Every single drink is handcrafted. That’s kind of a huge point of differentiation for the brand. So when the team gets, you know, gets all these orders coming in at the drive through, through the app, inside the store, all the same time, and people are descending upon the store waiting to pick up their order because they ordered it while they were on the train on the way into the city 1520, minutes ago. What do you mean? It’s not ready yet? That’s a problem. That synchronization. It becomes a problem. A colleague of mine actually wrote a story about spending a morning in his local Starbucks one day, not that long ago. And as a gentleman who writes for restaurant business, and he he talked about how, you know, when he first got there was before the rush, and it was all calm and cool. And, you know, he walked up to the counter, nobody was flustered. Great. He sat down, sure enough, before too long, the rush started, and he said it wasn’t too long before a customer got out of control and had to be shown the door. Yeah, and this is the result of somebody ordering through the app. Their drink wasn’t ready when they got there, and they expected it to be ready when they got there. And, you know, nobody walks away with a good taste in their mouth.

Simone Del Rosario: The last thing a food service industry business wants is for people to be leaving with a bad taste in their mouth.

Robert Byrne: I mean, I kind of use that, that phrase on purpose.

Simone Del Rosario: I’m all for the puns here. Bring them on. Let’s talk about the experience in Starbucks. It’s one of the things that Nicholas said he’s really wanting to target what is the current experience, and how is he able? How is he going to be able to create a different environment in Starbucks stores that might be more reminiscent of what people used to experience decades ago.

Robert Byrne: I think it’s staff. I think that’s the thing that needs to happen. Starbucks has had a very contentious relationship with their, their, you know, all of their team members over the past couple of years. That’s no There’s no mystery there. And. And it’s, it’s, it can be a grind for those baristas and for those people working the register and working the counters, especially when you have that flow working through so the staffing solution is, I don’t know how they get around, just increasing headcount in any store, especially during those rush times. If you’re going to have two separate make lines for this order flow versus that order flow, or whatever the collection is, where you know you can kind of dance between one and the other. You need more bodies and more hands in order to be able to do that. And one of the things that he said with their their sort of surprise early earnings release that we just got, was this idea of that drink being hand delivered to each guest. That’s the piece that’s missing here. That’s the part where the experience becomes commoditized, and you could be getting your coffee from anywhere, but if somebody is handing it to you a green vapor and is handing that to you with the smile, with the have a great day. You know, particularly if it is that first interaction that you’ve had in the morning as a guest, that’s huge. That goes so far in that individual’s day. It builds the loyalty that you expect. And the honest to goodness, truth is that Starbucks is the lowest rated quick service restaurant out of about 70 quick service restaurants that we track, the lowest rated for affordability. So if price is not where you’re going to win, from a value perspective, knowing that consumers are value conscious, you’ve got to win somewhere else, and experience is a great way to do it. And I think there’s been some, I think they lost sight of that.

Simone Del Rosario: It is something that he has had success with at Chipotle. I’m sure Starbucks is hoping they will bring that in there, they’re hoping he’s, you know, the fresh face and the golden ticket to be able to do all that, even if he’s commuting by a private jet to get to work. That said, one of the things that he doesn’t have a ton of experience with from his time at Chipotle is that international experience, and that is just such a big thing for Starbucks, especially over in Asia, is he able to do broad stroke changes in the North America business that apply elsewhere? Or does he really need to be thinking about these markets differently? I’m curious how you think he handles that.

Robert Byrne: I think you absolutely need to think about these markets differently for two reasons. The competitive space is very different in these markets here in the US. You know, you do have the growth of some of these, you know, direct competitors to Starbucks, seven brew, Dutch Bros, some of these, more drive thru oriented chains that are growing at an incredibly fast pace, and they’re doing it in a way that’s different than how Starbucks did it, you know, with their little neighborhood shops, sometimes on kitty corner from another location, just that, that fortressing of their markets that they did drive through, and the experience makes it very different for a younger consumer. So there’s that, there’s that that’s going on here. If I were to suggest that you were to try to apply those broad strokes to what’s happening in China, you would not get a positive result. There’s a very different food service culture in these countries. We do research in 23 countries outside the US, consumer and Company Research and some other menu trend work and and one thing that I always see when I look at how consumers deal with their restaurants in Asia, you know, and particularly with different types of restaurant concepts growing in Asia that are direct competitors in that beverage space, there is a very different way that people interact. It’s far more tech centric than what we have here in the US, far more tech centric. Think about the sort of legacy delivery channels that are available in a lot of places in Southeast Asia, where they’re just these scores and scores of bicycle delivery drivers, and it’s just a very different landscape.

Simone Del Rosario: Do they fix things at home before they fix China?

Robert Byrne  9:53

I think so. This is because this is where the you know, if you’re. Struggling with international markets. This is where those those exchanges are. I know markets are global, but if you can show that you’re making good strides in your home market, then the amount of patience that investors are going to give you on a global scale is much higher, because they’re going to be able to say, Okay, well, they fixed what’s happening in their own backyard. Now let’s see what they can sort of take that same approach to to addressing the market in the way that it needs to be addressed, which may be different, but learning the lessons that you learned from fixing what’s happening at home in your own kitchen, your own whatever you in your own dining room, whatever you want to call it.

Simone Del Rosario: Yeah, Robert, do you have a really out there, disruptor level idea for Starbucks, something that they may never do. But you think you know what? This could be a game changer if Starbucks were to do this idea that I’ve never heard anyone else talk about,

Robert Byrne: Wow. Okay, well, one of the things I have to say, one of the things that I’ve always taken issue with as a consumer is as the marketplace becomes more and more digital and more and more app focused and more and more geared toward that loyalty guest, that loyalty program member, I’d like to see somebody do away with This idea of that being the key that unlocks discounts, the key that unlocks frequency and loyalty in the mind of the restaurant brand, so that you know, you have more of an inclusive idea of what you know, what consumers can get, what consumers can access, regardless of their level of frequency with your brand. Because we know a large part of Starbucks problem is not necessarily problem is not necessarily with their core. Their core is pretty loyal, right? It’s everybody outside that core, the concentric circle. How do you open it up to them? How do you get them to see that? No, we’re the same Starbucks that you maybe don’t know so well but love, but you want to get to know us better. So the out of the box thinking is taking the focus off of the app, taking the focus off of the loyalty program, running completely counter to what the rest of the industry has been doing for the past five, maybe even 10 years. So is there an example of a brand that’s doing this in a more commoditized way, or some way that doesn’t necessarily impact me as a consumer, if I’m not a joiner, if I don’t want your emails and your text messages about, Hey, did you forget to buy your coffee if I don’t want that stuff? And there are a lot of us out there who don’t, right, I have heard that this brand seven brew that I mentioned earlier has a program that doesn’t really operate like a program. You simply give your phone number every time you pick up your order, and I believe it’s every 10th, maybe 11th, 12th. Coffee is free. That’s all you’re doing, is you’re giving them your phone number every time you place an order. You’re not filling anything out. You’re not having to maintain any points or a bank or try to think about where those points can go. You’re just, you know, very straightforward away every 10th, 12th, whatever it is, 15th, drink is free. I don’t care that you don’t know my birthday. I don’t care that you’re wishing me a happy birthday. But recognizing that my purchases on a regular or routine basis have value to you in some way that’s very concrete, is super meaningful to me as a consumer. So, so that’s that’s my thinking. Do I believe they’re going to do that? No, not, not for a second. That guest data that they get from the app, from the programs, far too valuable for them to want to give it up. But that’s my pie in the sky dream.

Simone Del Rosario: Well, I appreciate you sharing it with us. Robert Byrne, Senior Director doing consumer research at Technomic. Thank you so much.

Robert Byrne: You’re very welcome. Thank you.

Simone Del Rosario: Boeing is looking to take flight after moving on from its worst quarter performance since COVID-19 halted travel worldwide. And they’re doing so with a new captain in the cockpit.

Kelly Ortberg: We’re clearly at a crossroads. The trust in our company is eroded. We’re saddled with too much debt. We’ve had serious lapses in our performance across the company, which have disappointed many of our customers. But by the same token, we have great opportunities ahead.

Simone Del Rosario: The challenges facing the company are countless. A Boeing-made satellite that exploded in space this week exemplifies the kind of year Boeing has had.

As it swallows a $6 billion quarterly loss, I want to bring in Richard Aboulafia, a top-flight aviation analyst and managing director at AeroDynamic Advisory.

Richard, for you, what was the most important thing that Kelly Ortberg said today?

Richard Aboulafia: Well, he said what had to be said the importance of changing the culture and getting out there and restoring the links between people at the top and people who are engaged in the company’s core business of designing and building planes. It was very refreshing, frankly, to hear that and good to hear.

Simone Del Rosario: Did you hear a specific plan, or did you hear sentiments?

Richard Aboulafia: Well, here’s the problem. Yeah, there was a big gap between what he said, which was exactly in line with what needs to be said, and what’s been happening so far? You know, it’s still a Baffler why they’ve gone down this path in terms of dealing with the strike. Why hasn’t there been more frequent engagement with the union? Why was the last offer submitted in the way that it was, and also in the middle of it, the announce, the announced plans to, literally, according to the Latin term, decimate the company by getting rid of 17,000 out of 170,000 workers, at a time when you think they would need more resources to build planes rather than fewer. So there seems to be kind of a gap between stated intentions and and reality So far.

Simone Del Rosario: He did make a comment about the culture issue of Boeing that stuck out to me. He essentially said that the culture that needs changing at Boeing came from people who are no longer with the company. Do you think that that is accurate?

Richard Aboulafia: It’s more than accurate, you know, I mean, it doesn’t I mean, my God, you look at the devastation inflicted on this company by, you know, some of the previous CEO, certainly the last CEO, Dave Calhoun, but also, you know, Jim McNerney in the 2010s I mean, they regarded the business of building plans as something that they kind of dragged on the back of their shoe walking out of the executive washroom. It was just not a priority. Money management was effectively the only thing that mattered to them. My real concern, I mean, you had, frankly, a close to worst in class board of all time that put up with a very bad situation for far too long. Some of them need to be swapped out very badly. And similarly, you had people in fairly senior positions at Boeing Commercial and elsewhere who also, frankly, need to be replaced. And one of the big mysteries of of Kelly Ortberg reign so far is that he hasn’t parachuted in the sort of people we expected him to people he knew from Rockwell Collins and elsewhere. It would be really good to see some new blood replacing these folks.

Simone Del Rosario: Did you get the hint in here, in this conversation, from him, that he is looking to do that. He did mention external people and having that outside perspective.

Richard Aboulafia: Yeah, he did. So we’re going to be waiting and watching and hoping, because they really need some new blood. The biggest personnel change he’s made so far is firing Ted COVID from the defense side. And I actually thought Mr. COVID was, was, you know, an improvement. So I, you know, I was kind of baffled by that, whereas, you know, it’s pretty clear they need some replacement people and senior positions elsewhere that haven’t been dealt with.

Simone Del Rosario: Let’s move on to some of the money management. We heard a lot about how Boeing is beholden to certain defense contracts, and Ortberg said they can’t really walk away from those contracts, despite profitability issues. How concerning is that, as they’re trying to turn their financials around?

Richard Aboulafia: You know, pretty concerning, but we kind of all knew that this was the case back in the 2010s under McNerney, they’d had this sort of strategic decision to use ample and endless cash flow from the jetliner business to subsidize money losing defense contracts that were fixed price. The Pentagon, of course, was happy to say, Oh, you want to subsidize our weapons systems, wonderful, and give them those contracts. But now the bills are coming due, and because of inadequate resources, they are having an even harder time executing on those programs. I guess the upshot is that it places an even greater emphasis on, well, restoring their only truly profitable programs, which, of course, are jet miners, led by the 737, Max.

Simone Del Rosario: He talked about, you know, the core mission at Boeing, the commercial and the defense, where should Boeing be trimming the fat? He did say something to the line of, they’re better off doing less and doing it better than doing more and not doing it well. So what needs to go at Boeing?

Richard Aboulafia: I was kind of baffled by that, to be honest. Okay. I mean, they’re doing a very ambitious jetliner production ramp, cutting people from jetliner programs not going to happen. Similarly, defense, you know, it’s those resource constraints that have made bad contracts even worse. So I can’t imagine getting rid of people there. Is there enough overhead to get rid of 17,000 people? This is a company that abolished their strategy department back six months ago. If anything, I would be bringing on more people. Is there some fad to cut? Sure, but I just don’t see where it comes from.

Simone Del Rosario: It sounded like he was talking specifically, if I were to go into like, the corporate world, we would call them middle managers, right from what he’s hearing, the people on the ground are saying, there is too much overhead. They’re not able to get as much done. Is that the interpretation that you were getting from this,

Richard Aboulafia: I guess. But again, I have my doubts, because, you know, resources are necessary. Are some of those middle management managers concerned with, you know, quality oversight and checks on jetliner production and whatever? Some of them are some of them aren’t. This takes work, but again, the idea of getting to 17,000 redundancies given the challenges the company is facing, I just don’t know how that happens.

Simone Del Rosario: Does that plan still stay in effect? If the strike is over, and you know, it’s more, you know, back to business as usual at Boeing, or do they rethink that, because that layoff announcement came in the middle of the strike?

Richard Aboulafia: Yeah, that’s exactly right. Right? And so we’re all asking ourselves, that was it one of those, my God, we’ve got to prepare for a siege and outlast these guys, and therefore, you know, cut lots of jobs or and therefore it goes away when the strike ends, or was it a strategic and rational decision to get rid of all these jobs? I sure hope it’s the first

Simone Del Rosario: As far as what Boeing has taken on. Are there programs that they should drop, but, you know, taking people out of it? Are there just avenues that it’s like, this is not the best use of our time and resources. It’s distracting, and we’re not doing what good job. Well,

Richard Aboulafia: you know the nature of these defense contracts. You can’t just walk away from them, right? You sign them their firm, fixed price. You You know it’s an awful situation, and some of them, but I think the Casey 46 is up to 8 billion in losses or something, but not much you can do space. I’m sure if they could find a buyer, they would sell it. No question, can they find a buyer? Maybe parts of it? Can they walk away from it realistically? I don’t know. The answer, doing it. You know, one thing they did just a couple weeks ago was decide to End production of the KC 46 is analog, the commercial analog, the 767, freighter after 2027 I’m I guess that was done for good reasons, but that was the one obvious one that I would look at. Other than that, I’m not so sure what they could get rid of.

Simone Del Rosario:  Richard Aboulafia, Managing Director of aerodynamic advisory. Thank you so much for your thoughts today.

Richard Aboulafia: My pleasure, thank you.

Simone Del Rosario: Just as Boeing machinists started a strike, we published an in-depth interview titled, “Boeing: The perfect story of what’s wrong with America’s economy?”

In that interview, leadership expert Gautam Mukunda took us through a master class on what’s gone wrong at Boeing over decades and what it’ll take to fix the culture. That interview gained a lot of traction, with Boeing employees telling us Mukunda hit the nail on the head. 

Since then, things at Boeing seem to have only gotten worse. 

Boeing’s had a pretty terrible last month, from the strike costing the company $1 billion per month to announcing plans to lay off 10% of its workforce to securing financial lines to take on even more debt to try to avoid a credit downgrade. 

Keep in mind, new CEO Kelly Ortberg has only been on the job about two months. 

With everything at Boeing even more up in the air now, I wanted to welcome back Gautam Mukunda for another chat. 

Gautam Mukunda, thank you so much for coming back and talking to us. It’s been a crazy month for Boeing since we last spoke.

Gautam Mukunda: Simone, always a pleasure. Yes, it has. Things are not going better so far for them, and that’s tough.

Simone Del Rosario:

I first wanted to get your reaction to how their new CEO, Kelly Ortberg, has been handling his duties with this strike going on.

Gautam Mukunda: Yeah. So let’s start. He started off by hitting exactly the right note, right? He came in, he said, Look, I’m going to be in Seattle, because Seattle is where the planes are made, and all my predecessors have been working in Chicago and DC, and that just doesn’t make sense, right? We got to get this fixed. And so that was, that was exactly the right way to start. And I thought that was a really good sign. Since then, the strike has happened, and I fair to say, I’m concerned. I don’t think this is Ortberg so much as Boeing operating the way that it has always operated for the last generation or so, but it may be time for him to step in. And so if we go over what happened, right? So the machine is struck, and in terms of any strength you got to understand the underlying conditions. And the underlying conditions here are that for a generation, Boeing’s unions have been the people saying, You guys are flying this company into the ground, right? You have sacrificed engineering excellence in order to in order to maximize short term profits. You are treating your people badly. You are driving out the best employees, right? The unions have been the one saying, raising the warning so the warning signs over and over and over again. That only now has you know other people caught up that they were right. And I think you have to frame it in that context. This isn’t the same as other strikes, where that is just that, it’s just pure Mike, purely about money. Or, you know, maybe you have problems with unions and other areas. This is different. This is an organized organization whose unions have been desperately trying to save it for a generation, while management is trying to destroy, you know, if they were trying to destroy it, they would act about the way that they have and so, partly as a consequence that, and partly because the culture that under that drove a lot of these changes at Boeing, the culture that really involves sort of squeezing the workers and the people who actually, You know, we’re actually building the planes to the maximum possible extent. And I just right, I want to, I want to highlight a particular thing, because it’s just so telling, um, Jim McNerney, the CEO of Boeing, and previously, the CEO of 3m Ge, you know, GE trained product by Jack Welch, all that sorts of things. Was asked when he was CEO of Boeing, was he going to retire at 65 as the rule said that they should that a mandatory retirement age 65 and mcnerney’s answer was, why would I do that? The heart is still beating and the employees are still cowering. That was the quote right now. He went and apologized for that a few weeks later and said, Oh, I didn’t mean it. Come on. You don’t make jokes like that if you’re not revealing a culture. Right? Jokes tell you a lot about the culture. And so the unions at Boeing don’t trust management. They don’t trust management even a tiny little bit. Right? This is a company where you have unionized engineers who have gone on strike, not even machine right? Engineers. Can you think of another unionized engineering workforce in the world. And so here that when this has happened, the then when they finally reached that point, Boeing’s management has done a couple of things right. So first is their offer, the 30% offer they made, the offer is not unreasonable, but instead of making it in a way where they did it in cooperation with the union leadership, they went directly to the workforce, basically thinking they could bypass union leadership and override them, and they lost like 93% of the workers voted against them, 93% and then once the strike happened. 

Simone Del Rosario: let’s talk about that part of it. There was an agreement between the negotiating team and Boeing leadership, that’s what they brought to the workforce. And then, you know, the workers didn’t like the agreement, no, to the surprise of many, but then, because we talked before this all happened, and you had thought that the Kelly ortberg Hire was going to be a big culture shift. You believe in CEOs having the ability to be able to change a culture in a place like Boeing and Kelly Ortberg is coming in an engineer who understands what they do, understands how to build planes, and you felt like this was an opportunity for Boeing, and then we saw them do something that felt very reminiscent of before, where they clearly aggravated the Union by publishing the second offer, and there was a ton of backlash based off of that. I have to ask, do you think that that was Kelly Ortberg? Do you think that that was people who are, you know, have been in Boeing for a long time? Where, where does the buck stop?

Gautam Mukunda: So the buck always stops with the CEO. Yeah, always right. He isn’t he that he is in charge, he or that he is the leader, right? The but when Harry Truman was president united states, said the buck stops here. That’s just as true for CEO, more true for CEO, in some ways, but I doubt it was his decision, right? Because this is just too much the way Boeing has traditionally operated and orbor has the what I said, I want to be very specific, was ortberg had the opportunity to change the culture. That doesn’t mean that he will. It just means that he could, if he wanted to, and that’s going to be a multi year process, and this will be the first step. And I really think that I can totally see how this would be. You know, labor negotiations are not generally handled by the CEO. He’s got plenty of things that he’s got to manage, including Boeing’s horrific legal difficulties, which they’re still going through. But this is probably, this is probably now time for him to step in. And I’m gonna, it’s important to note that touch labor, the people who actually sit around and, you know, actually manufacture the planes. Those costs only account for 5% of the total cost of manufacturing an airplane. So if they were to double labor costs, which no one’s proposing that they’re going to do that, that would be from five to 10% that’s still there’s a lot of room to play here. So this isn’t just about economics. I would really strongly urge Boeing leadership to realize that if the employees shouldn’t be cowering, and you know, you would have been, you would have been better off all the people the senior ranks of Boeing who are paid, after all, in equity, right? They’re primarily the biggest chunk of their compensation is equity. So Boeing, which I think over the last few years, has been the second worst performing stock in the s, p5 100, trailed only by Intel, they would all be better off if they had listened to labor a little bit more. So my suggestion would be that when they come back to the table, which they have to do soon, this strike is costing Boeing a billion dollars a month a month, right? And they need that capital to build the new airplane like they have to do, what they suggest is that this is not just about a financial negotiation. There’s also something about shared power here that they need to say, like, look, we need to bring labor, and we need to bring engineers, and we need to bring the unions. We need to bring them in, and their voice needs to be incorporated in management that could go as far as offering them a board seat. And, you know, the counter is always that labor in such a you know that this is a problem. Makes companies harder to manage Boeing. Could you like, like, could they possibly have done a worse job than the people who have run Boeing for the last 25 years? Right? Like, What’s your theory as to how labor, including labor on the board, would have done worse? Because it’s hard for me to imagine what worse would look like for this extraordinary, iconic American company. I think it’s time for them to realize that cultural resets don’t happen from small chain steps they take from happen from you need big steps. You need to, especially you need to start with a big step. And this is probably time for that one.

Simone Del Rosario: It seems like the deal breaker situation for the workers is the pension plan you mentioned. You know, the dollars and cents of the offers aren’t that far apart. That is the one big thing that’s been left off the table so far. Do you foresee Boeing caving to that? Do? Does the labor union have enough of the upper hand in this?

Gautam Mukunda: So the labor union definitely has the upper hand, and Boeing is acting like it doesn’t, but this just isn’t plausible, right? I mean, it’s a tight labor market for everybody, for the highly skilled machinists who are what you know, Boeing needs more than anyone else in the world. It’s really tight. It’s an extraordinarily tight labor market. Boeing is in a financial loop, like every card is against Boeing. The pension request is a difficult one, but I just know, right, that the pension contributions are based off the salary. So when Boeing is offering a 30% increase in pay that that rolls over into the pensions as well. So they are so even if they are not offering sort of what the debate is over the divide the defined benefit contribution of the pension right, where they were just getting the same amount all the time, and defined benefit pensions are going away. There start that many of them left. I suspect that that is a good that is a negotiating thing, where if Bo if Boeing comes back and says, We can’t give you that, it’s just not practical. No one gives that anymore, but we’ll give you 35% and we’ll give you a voice in governments, which they haven’t offered yet. That’s a very different conversation.

Simone Del Rosario: let’s talk a little bit about the finances of what’s going on at Boeing right now. At the same time that they’re trying to negotiate with the machinists, they’re also trying to plague hit investors and protect their credit rating, which is, you know, very much at risk at this point, as they’re in the second month of this strike. We’ve seen the reports about potentially raising $15 billion in, you know, stock sales and whatnot. What do you think about what’s coming out on the financial side of what they’re doing at the same time?

Gautam Mukunda: Yeah, so they’ve, they’ve gotten a ten billion revolving credit, additional revolving credit facility. And I. They know they haven’t actually touched the ones that they already had. So that’s ten billion additional, and they have registered with the SEC for a mixed capital offering both on both equity and debt of as high as $25 billion which is a lot. Of course, Boeing was already carrying $60 billion in debt. One might say that the gigantic stock stock buy buybacks that they’ve done over the last 25 years where they’ve spent hundreds of billions of dollars on that. Maybe that money could have been better used, but I guess it’s too late now. Um, so Boeing needs that capital, and it needs that capital. I mean, again, the strike is possibly a billion dollars a month. So it needs that capital quite pressingly, if they keep going along this route. But more than that need. They need it because those are the kinds of numbers that you talk about that you have to spend to develop a new airplane right gear. Building airplanes is unbelievably capital intensive, and that’s the place where they’re going to deploy it. I do not doubt that they will be able to raise the capital they need, at least partly because of the implicit government backstop that Boeing has, as you know, the a centerpiece company of American manufacturing. But I think they would be well, well suited. It’s time to announce a strategy, right? They’ve announced layoffs, 10% layoffs, but we don’t know what the guiding principle is here. We don’t know what they’re trying to do. Are they going to get rid of their space efforts, which have been floundering, to put a model lay in the ISS and go all in on commercial are they going to continue to think about defense, where, again, they’ve been struggling, but like, I don’t know what Boeing strategy is, and if I don’t, the markets do either. So it’s probably time for them to say and to make a really clear picture of what that is. If they do that, then back out right? Commercial Aviation is not going to go away. It is an incredibly important industry. It is an important, important industry with enormous barriers to entry, and Boeing is one of the only two players in it at the top scale. Even if you believe that Chinese aviation is coming, and I do, but it’s not clear to me that that’s going to challenge Boeing and Airbus in like the near future. That is a recipe for a company that should make enormous amounts of money, if you analyze right one of two players in a industry with high barriers to entry that’s a very profitable industry. So Boeing can make the case why they can be profitable. They can be worth investing in, but they have to make it.

Simone Del Rosario: Let me ask you this. You’re in Kelly ortberg’s ear. What are you telling him to do? What are the top three things that he needs to do immediately?

Gautam Mukunda: He’s got to settle the strike, and at least he’s got he should, he should meet with the union leaders directly, right? It’s time for him to go, passes by, pass the negotiators, and say, you know, I’m the CEO going, but I’m new, right? I wasn’t here all the awful things that my predecessors did to you, I didn’t do them. Give me a chance, and we’re going to make this happen. First, right? And even if that doesn’t resolve the strike immediately, it will at least indicate the seriousness and start to prepare the cultural damage. Second, he’s got to announce what their strategy is, right? What are they going to do? It almost certainly involves a new airplane. It’s hard for me to imagine a successful voting strategy that doesn’t he’s got to tell us what that new airplane is going to look like. It’s going to be what market’s going to explore, what their timeline is, and what they’re going to commit to making it not just a rehab, not just a rehash of older planes, but a new one. And I’ll add to that, and he needs to make it very, very clear that they are not going to do the 787, strategy of outsourcing everything. This is going to be an airplane that Boeing builds that’s done internal to Boeing in the way that they did with the triple seven. And they’re going to do it right? They’re going to start doing it now before the last remnants of that capability go away. And third, he’s going to have to announce what his cultural change plan is for Boeing, right? That if the problem there has always has been this incredible over Focus, focus on short term profits and the willingness to essentially squeeze workers and make them sacrifice everything to hitting schedules and initial and deadlines and the quarterly numbers. He’s going to have to lay out what that cultural change project looks like. There are lots of blueprints. I would point him, for example, towards what Cynthia Carroll did at Anglo American but there are lots of others that has happened. You know, people have done it before. It is incredibly hard. But you know, if the job, if the CEO job, was easy, then, then, then they wouldn’t be paid that much, right? If you don’t want to do hard jobs, don’t take that one.

Simone Del Rosario: Gautam Mukunda. Thank you so much for your thoughts today. 

Gautam Mukunda: Thank you.

Simone Del Rosario: A former intern at Nike started his new role as CEO this week. Elliott Hill took the reins after the surprise retirement of CEO John Donahoe.

Nike’s facing a major sales downturn and struggling stock price. It’s down 53% from its 2021 high. That decline all happened on Donahoe’s watch. Will 1988 intern Hill, who spent decades climbing the company ladder, spark a turnaround?

I want to bring in Gautam Mukunda, leadership expert and author of “Indispensable: When Leaders Really Matter.”

Gautam, Elliott Hill started up this week. First of all, I just wanted to ask, what did you think? What did you think of the hire?

Gautam Mukunda: I think he was great. Um, Nike is a special company. The the there was the line in, in sort of sporting goods, was that other companies make shoes, and Nike is a religion, um, and so as, as a dedicated non runner, I’m I, I’m definitely an atheist in this religion, but I recognize the power of the brand. And so Nike drew back on its heritage and said, What made Nike great was the sort of special commitment of its people, its executives and its customers to Nike. Let’s get one of the people who was crucial in creating that and crafting it, and say that, let’s go back to that, to where we were.

Simone Del Rosario: I wonder if they had offered Elliott hill the job in 2020 Do you think Nike would have had the four years that it had?

Gautam Mukunda: It’s hard for me to imagine. My guess is they would not have had the initial short term spike that they got when they bumped up their when they sort of bumped up their short term numbers with all the different ways that they did, because he would not have done that. But then, equally, they would not have had the crash that followed when those tactics stopped working. I imagine most Nike shareholders would take the net, net of that and went out and just, I’ll say, like the evidence there is the particular decisions that led to this disaster for Nike. It’s not, it’s not retrospective to say that they look bad. People in Nike, people in the industry, were saying at the time, wait, this does not make sense, right? So the crucial if there are lots of crucial ones, you know, cutting back on innovation, not doing new products, taking successful old products that they re-released, and essentially writing them into the ground. But if you’re going to pick one thing where you’re sort of wait what’s going on here. One of Nike’s biggest strengths was its dominance of the retail chain, where, if you went into, for example, a Foot Locker or the most important shoe retailer in America, most of the shoe, maybe not most, but a huge plurality the shoes you were going to see would be Nikes. This was enormously important, right? But essentially, there were all these new entrants into the industry who were trying to get into this business, and they didn’t have shelf space because footlock was just more popular to sell Nikes, more more profitable. Fort Lauder sold Nikes. So when, when Nike chose to pull back from these retailers to open up the shelf space, right? The theory somehow was that customers would follow Nike, and they would buy on the website, and Nike would be able to sell at higher margins. I’m like, nobody. Very few people who are actually in the industry thought that made any sense. They thought people are gonna go to footlocker, and yeah, you’ve got your hardcore people who would never wear anything but a Nike, but that’s not most of them. And Foot Locker wasn’t gonna leave its shelves empty. It was gonna find all these new entrants. And now those entrants are established. They have their own fans, they have their own brands, they have their own cultural cachet. It’s not clear to me that that extraordinary level of dominance is ever coming back, really

Simone Del Rosario: Let’s talk about that, because before Hill, you know, took the reins officially. Obviously, that just happened this week. They got on the call and told people that they were going to stop relying so much on their retro styles and really lean into the innovation factor at Nike. Do you think that that is the proper direction? Of course, this wouldn’t be a direction that hill specifically has talked about, because it was before he entered I assume it’s something they talked about in the interview space.

Gautam Mukunda: I mean, I’m sure, but it, I mean, it makes sense as a proper direction, because it’s kind of the only direction, right? So the specific product that that drove Nike’s revenues into the ceiling and then crashed was the panda dunk, which is truly a wonderful name, right? It was a, it was a black and white sneaker that had been very popular in the 80s that they reissued and became huge. It was sort of on it was on the feet of influencers all like you basically couldn’t open on Instagram without seeing people wearing panda dunks. The Nike issued model after model, version after version of this to the extent that I think less than three years after the reissue, a sneaker Convention voted the panda dunk, the worst sneaker of all time, right? I mean, in a weird way, this is an achievement, but it’s probably not an achievement that Nike. So that strategy clearly had not, you know, not just hit its limits, but they crossed so far beyond its limits that. They were that those part. So what’s left? Right? You can’t we have demonstrated that we cannot perpetually recycle our old things. So we got to go New, and that means innovation. But innovation in the case, it’s not just technology. Or what made Nike special was not just that they had better. You know, it’s not that the shoes were better. Again, I’m not a runner. I have no idea. Like, that’s the story they tell you, what story every company tells you. But what made Nike was the storytelling, right? That Nike meant something in the in the 90s, when Michael Jordan was the face of Nike and the face of sports and whatever, I remember reading that the back of Michael Jordan’s head was more recognizable around the world than Bill Clinton’s face, right? That this was that is how iconic he was. And you cannot imagine Michael Jordan without Nike as just as you cannot imagine Nike without Michael Jordan. So that level of cultural dominance may be impossible in the modern world, but the ability to tell those kinds of marketing stories about who we are and who and what we’re special, right? That is something that Nike wasn’t able to do, that no one else that in a way that no one else could, but it is something you do when you live, eat and breathe the culture of sporting goods. You have got to be that. You got to be immersed in that, to be able to do that properly. And bringing Elliot hill back is bringing someone back. Who is that? Who’s made it? You gotta love the fact that his LinkedIn starts with intern.

Simone Del Rosario: I love it. Yeah, yeah. No, great. I ended when we reported on him getting the job. I had said, you know, the stock is up on news that Nike is hiring its 1988 intern to be to lead the company. Are there a lot of successful non founder CEOs who have spent their entire careers at one company?

Gautam Mukunda: Oh, yeah, sure. So Boeing spent. Boeing spent a long time where, with the promoting CEO after CEO who were like that, GE up until Jack Welch. You know his Jack Welch’s predecessor, Reginald Jones, was considered the greatest CEO his generation. He was a career, career GE guy for most of his life. In fact, most great, long lived, great companies operate this way, in general? Well, the business, the academic research on sort of companies that live for a long time is they hire almost exclusively internally, because hiring external people is a risk, right? Whenever you do it, you’re taking a big risk because you don’t know them as well as you might otherwise. Will. Both of my, both of my first two books are actually on this question of why it is when you’re choosing leaders, should you go on inside or outside, or what happens when you do outside? You do outsiders? And so, yes, I want to know, right? If you think about the companies that have lived forever and have defined America, you know, a lot of American capitalism, think companies like McKinsey or Goldman Sachs or, you know, like there is no path to being CEO that doesn’t involve being an insider. It simply does not exist. They, you know, if you said, if you asked McKinsey if they were going to make their next Managing Director, they’re going to hire their next managing director from Booz Allen or Bain or BCG, like, it’s not that they would laugh at you. They wouldn’t be able to comprehend the question, right? But like that is so foreign to the DNA of the company, that they would do it. And it is not an accident. It is those companies like that, because they have such a powerful story and a culture that makes them who they are, that never make that choice.

Simone Del Rosario: It’s interesting, you know, you talk about these huge companies that have shaped the fabric of the America corporate landscape, and Nike is certainly one of those in the apparel business. But at this point, we’re seeing it be lapped, in some ways, by much smaller, more nimble companies who are taking, you know, working with a lot less resources and kind of doing the most with it. We look at, you know, how Hoka and on are the go to running shoes for run clubs all over the country. It’s not Nike. We look at viori on the apparel side of things, where people are gravitating toward that, and that was really boosted by a lot of social media influencers. How does Nike who is such a it’s such a well known brand. Everybody obviously knows who Nike is. Has preconceived idea about what the company is. How does Elliott Hill reinvent Nike in this new age of consumerism?

Gautam Mukunda: So I think what you said is exactly right, but it’s both a is both a threat to Nike and also its advantage, right? But everyone knows what Nike is. Nike means something to people, and that means something is Hoka can be the shoe of choice for running clubs, but Hoka doesn’t mean something in the same way. Yet. I’m sure they aspire to that, but they don’t have the history yet to have that sort of emotional, emotional ties. You know, one of my best. Friends, a serious runner, things like that. She will never wear anything but a Nike right? Because her whole career is running. That’s what she’s that’s what she thinks of. So what I would say, what Ellie knows are saying, is, when you think about Nike, sort of doing what made it such a successful company, that doesn’t mean doing the same things that it did. It means doing things in the same spirit that it did. So if you’ve got the resources that those other companies don’t, right, you can use those resources to develop technologies that they cannot and actually create products that are performance based better than them. That is within Nike capabilities, because we know that, because it’s done it before, right?

Simone Del Rosario: You can use your marketing it now with the marathon shoe. So that’s right,

Gautam Mukunda: Right, and which are genuinely right, like objectively, genuinely higher performing shoes that are able to cut marathon times right? That’s not just a marketing story. That is actually technology story. You are able to get the sort of globally iconic athletes who other companies probably cannot get right that matters. These, the major, major athletes are sort of the only, might be the only figures right now who kind of transcend popular culture. You know, Taylor Swift and LeBron James are probably the only two people in America who are universally recognized and have, you know, very positive Q scores. So I’m pretty sure Taylor Swift is not going to endorse Nike, but they got LeBron. And so that matters, and that is the story they can tell themselves about they not themselves, but the market, about how, yeah, you can be a niche player. You can be, you know, you can be a niche player with one of these shoes. And that’s fine. They may not have the gigantic, you know, concentrate, market concentration that they had in the past. But if you want to associate yourself with the people who define sports, that’s still Nike.