Jack Dorsey Has Problems With Twitter, Too

It contributes to filter bubbles, he said. It risks silencing people, he said. And when it’s not silencing them, it might be incentivizing them to behave badly, or basely, he said. His biggest criticism of the social media site he runs was that it could be nudging its users in the wrong directions.

“What does the service currently incentivize?” asked Twitter CEO Jack Dorsey on stage at the WIRED25 summit today. It’s the question he and his whole team are asking themselves right now—about every aspect of the site “Right now we have a big Like button with a heart on it and we’re incentivizing people to want it to go up” and to get more followers, he pointed out. “Is that the right thing? Versus contributing to the public conversation or a healthy conversation? How do we incentive healthy conversation?”

When he co-founded the website 12 years ago, it was meant as a place for friends to share pictures of their lunch. “Now it’s become a place to launch nuclear war,” said Wired editor in chief Nick Thompson. That evolution, from innocuous late-night destination for cryptic jokes to lubricator of social movements to a cesspool of outrage and the platform for geopolitical discourse was not a result of Twitter’s code, Dorsey’s argued. But it was inevitable.

From the second it launched, Twitter was a free app with which anyone could text message the entire world. “Once the world saw that, there was no taking it back,” Dorsey said. “Once they saw it, they needed it. Our job now is to make sure we are actually serving that need.” By which he means the need for a global public square, a place for a global conversation to discuss the most important topics—he cited climate change and poverty as topics that can only be tackled in a global discussion—which he feels it is Twitter’s responsibility to facilitate.

If that means not being an absolutist about free speech, so be it. “We can only stand for freedom of expression if people feel safe to express themselves in the first place,” he said, adding, “A lot of people come to Twitter and they don’t see a service. They see what looks like a public square and they have the same expectation as they have of a public square, and that is what we have to get right.”

Twitter CEO Jack Dorsey (right) on stage with WIRED editor in chief Nick Thompson.

Amy Lombard

To get it right, Dorsey indicated everything was on the table. Twitter, he indicated, may need to be radically changed. He noted right now the service only allows you to follow accounts, not topics. It only allows you to like or retweet. What should it allow you to do instead? He’s not sure, but he’s considering every option.

And he’s open to your ideas. “When we started the company, we weren’t thinking about [any of] this at all,” he said. “One of the interesting things about Twitter has been this amazing experiment in creating with others—the hashtag, the thread, the retweet—have all been invented by the people using our service, not us.” So if you have ideas for how to fix Twitter, make it known. Dorsey is listening.


More Great WIRED Stories

Glen Weyl on Technology and Social Innovation

Social movements have spurred major transformations in society, from the end of slavery to universal suffrage, the rise of labor unions, and universal education. Yet somehow after decades of economic stability, we began to rely on technological rather than social tools to remake the world, says Glen Weyl, a principal researcher for Microsoft.

While technology flourished, we “did not allow our social wisdom and social infrastructure to balance that out,” says Weyl. “I think it’s killing equality and structure of our society, so I think we need to regain that spirit of being open to those fundamental social innovations.”

Weyl spoke at the WIRED25 Festival on Sunday, during a panel that explored the ideas in the book he co-authored, Radical Markets: Uprooting Capitalism and Democracy for a Just Society. The book argues that markets, radically reimagined, are the best place to combine social innovation with technology and then disseminate those changes to the masses.

Kevin Kelly

Amy Lombard

WIRED cofounder Kevin Kelly, who was moderating the panel, asked Weyl why he seemed so confident that the world needs to try his sophisticated, but rather mathematical ideas.

Weyl says his faith in economic theory comes from his own political evolution. At age 10, he was a socialist, but that gave way to Ayn Randian libertarianism in his teens. “By the age of 18, I realized that I had inhabited these two completely contradictory ideologies,” and yet believed in both. For Weyl, the puzzle pieces only fit together when when he was studying for a PhD in economics. Deep inside economics were “all these really powerful ideas for transforming the world,” which “allowed me to reconcile my randianism and my socialism,” he said. Finally he was able to connect “my deep economic theory work back to the passions that I had since the age of 18.”

Likewise, the ideas in Radical Markets will only take root if people reconcile different approaches, said Weyl. Take, for instance, quadratic voting, his idea to solve problems caused by majority rule by allowing people with a strong preference to vote more often on issues they care about, if they abstain from other votes.

Amy Lombard

Technocrats could experiment on quadratic voting, but “they can’t press a button and make this happen and we wouldn’t want them to,” says Weyl. “Activists can hope to build imagination” around the idea, but no one will follow them until they see an opportunity to experiment with it. “Entrepreneurs can build things and find areas where you can use quadratic voting to do ratings of online services or polling or whatever, but they can’t figure out what it should feel like to people in order to make them be able understand it.” For that, we need artists and designers.

Weyl’s hope is that the same diverse, intersecting communities needed to bring about these ideas will, in turn, build a world that better embraces diversity and more flexible ideas around individual and collective identity.

As an example of the interplay between social and technological change, Weyl pointed to blockchain technology, which allows for a decentralized and transparent public ledger. Blockchain may not be the answer to every need, but “It’s a great technology for bringing fundamental social change the world that can sustain liberalism,” he said.


More Great WIRED Stories

Under Armour – You Cannot Fool All Of The People All Of The Time

“I never want to be beholden to a vote of some board or politics or anyone else.”- Kevin Plank

Sometime last month, Under Armour (UA, UAA) posted the latest in a long line of restructuring updates (fifth within a year), with the 2018 restructuring program now running at $200m-$220m (from $190m-$210m). That’s another $10m to the growing pile of one-offs, and at some point, some tough questions will have to be asked. In the meantime, here’s UA’s reasoning behind the latest update:

“Following further evaluation, the company has identified approximately $10 million of cash severance charges related to an approximate 3 percent reduction in its global workforce.”

With the latest update on the board, I think it’s an opportune time to shed some light not just on the latest restructuring attempt, but also the various governance deficiencies within UA which have enabled the never-ending restructuring “one-offs”.

Don’t Trust the Restructuring

With the $10m severance one-off firmly in the guidance, here’s how adjusted guidance gets impacted:

FY18 Pre-update

FY18 Post-update

Op Income (Loss)

$(50)-(60)m

$(60)m

Adj Op Income (Loss)

$130-160m

$140-160m

Adj EPS

$0.14-0.19

$0.16-0.19

(Source: Under Armour)

Here’s how the math works – we have a $10m charge which brings guided (actual) operating income down $10m and (adjusted) income up by $10m – but only at the lower end. Somehow, the market was fooled into believing this was positive.

(Source: Yahoo Finance)

It appears UA has yet again, adjusted its earnings to paint a more optimistic picture. Aside from the fact that the $10m adj op income raise at the low end ($0.02 raise at low end adj EPS) from severance is hardly positive, there’s two key takeaways the market seems to have missed – 1) the top end of guidance was not raised and 2) UA did not update revenue and gross margin guidance. The former likely implies that UA was heading for the low end of its initial guidance while the latter indicates little improvement from the demand side.

But that’s not all. Here’s UA’s last word on the updated guide:

“The reduction in workforce…represents the final component and update to the company’s 2018 restructuring plan”

If that sounds familiar, one only has to look back to the 4Q17 call when management made a similar promise:

“Also, important to note that we anticipate the majority of our restructuring to be completed in the first half of 2018”

Immediately after, UA announced a new 2018 restructuring program which has ballooned from $110-130m to $200-220m as of Sept . Here’s a nice compilation by Macquarie:

Notably, that brings total restructuring costs since 2017 to a staggering $350m at the upper end. Here’s the thing though – UA has been using some form of restructuring as a vehicle to adjust earnings for a very long time now. Pre-2017, explanation for the one-offs ranged from the Dickerson era (“product flow” and “improving customer service levels”) to the Molloy-era (everything from “promotions” to “foreign exchange rates”).

Here’s how the rationale behind the elevated inventory was explained while Dickerson was CFO:

Event

Dickerson-era Updates

2015 Investor Day

“First, on the near term — over the course of the rest of this year and through 2016, we are focused on delivering our products to our consumers more timely, specifically on key seasonal floor set dates. This focus specifically in comparison to some prior years’ challenges will result in elevated inventory growth rates over this time frame to flow product earlier

3Q15

“Switching over to inventory, as we outlined in our Investor Day, over the next few quarters we are focused on delivering our products to our consumers more timely, specifically on key seasonal floor set dates. We anticipate this will result in elevated inventory growth rates over this period to flow product earlier.

4Q15

“Finally, inventory. As we previously stated, our focus is on delivering our products to our consumers in a more timely manner and improving our customer service levels. As a result, we continue to expect inventory growth rates to be slightly elevated above the revenue growth rate in the front half of 2016, with growth rates expected to level off and be in line with revenue growth in the back half of 2016.”

(Source: Under Armour)

Chip Molloy was a lot more straightforward as CFO – here’s how his narrative evolved:

Event

Molloy-era Updates

1Q16

“As previously mentioned, the strategy to improve wholesale, customer service levels resulted in elevated inventory investments beginning in the second quarter of last year. We expect the growth in inventory will be more in line with sales as we begin to anniversary the strategy during the second quarter of this year

2Q16

“Inventory for the quarter increased 30% to $1.1 billion, compared to $837 million at June 30, 2015. As we noted last quarter, we are beginning to anniversary the strategic inventory investments that we implemented in the second quarter of last year, and expect the growth in inventory to remain relatively in line with sales throughout the remainder of the year

3Q16

“In the quarter, gross margin declined more than planned, driven predominantly by higher-than-expected promotions, both the volume and rate of liquidations, and foreign exchange rates. Despite liquidations having been a headwind on margin rates for most of this year, we now believe that our inventory position is healthier and liquidation should not have the same negative impact moving forward”

4Q16

“In our efforts to manage the brand appropriately for the marketplace, we are planning for inventory growth to be higher than revenue growth for the first three quarters of 2017 and coming more in line with revenue growth during the fourth quarter.

(Source: Under Armour)

The difference between then and now is that UA’s restructuring has expanded far beyond inventory one-offs – the asset and labor cost base has also been trimmed substantially.

2Q18

Sep-18

Pre-Tax Restructuring & Related Charges

$190-210m

$200-220m

Cash Charges

Up to $155m

Up to $155m

-Facility & Lease Terminations

Up to $75m

Up to $75m

-Contract Termination & Other

Up to $80m

Up to $90m

Non-Cash Charges

Up to $55m

Up to $55m

-Inventory

Up to $20m

Up to $20m

-Asset Impairment

Up to $35m

Up to $35m

(Source: Under Armour, Author)

But it may not be enough. In a follow-up with an analyst, management disclosed the following – 1) “the full fruits of the new Frisk era” are “not expected to hit full stride until FY20”, and 2) “Construction costs for UAA’s NYC Flagship have been pushed back until at least late 2019 (and potentially 2020).” In other words, FY19 is going to be another restructuring year for UA. That makes it the fifth consecutive restructuring year.

With high-flying expectations already embedded in next year’s consensus expectations ($0.31 FY19 EPS; +63% YoY implied), it will be interesting to see how the market reacts when the news finally hits.

Don’t Trust the Disclosures

Unbeknownst to most, the restructuring update actually came on the heels of a curious letter from the SEC. Here’s the two comments the SEC noted in its letter to UA:

Comment 1:

“You state that as of December 31, 2017, no impairment of goodwill was identified and the fair value of each reporting unit substantially exceeded its carrying value. We also note that your Latin American segment has experienced operating losses in the past three years.”

Comment 2:

“You present a full non-GAAP income statement for the quarter ended March 31, 2018 when reconciling non-GAAP measures to the most directly comparable GAAP measures. Please tell us how your presentation complies with the guidance in Question 102.10 of the Non-GAAP Compliance and Disclosure Interpretations”

The letter (dated May 23 2018) required a response within 10 business days, a window which UA was unable to meet.

“The comment letter requires that the Company respond within ten business days or inform the Staff when the Company will respond. As discussed with Ms. Suying Li, we hereby request an extension to respond by no later than June 15, 2018. This additional time will enable the necessary internal review related to the Company’s response to the comment letter

Now, on its own, this wouldn’t be a big deal. But a look into UA’s SEC correspondence history indicates a curious pattern – barring one occasion, UA has never been able to respond within the allotted window. In fact, UA has almost always needed 20-30 day extensions.

Query Year

Request for Extension

May 2011

?

Aug 2011

?

Oct 2011

?

Dec 2011

?

May 2017

?

May 2018

?

(Source: SEC)

Clearly, the SEC is asking some tough questions.

When they did finally answer though, UA’s (delayed) reply to SEC comment 1 provided some insight into how they’ve been accounting for their international units.

Per UA management, despite the LatAm business posting three consecutive years of losses, “the fair value of the reporting unit exceeded its carrying amount by approximately $130.3 million”. If that boggles the imagination, here’s UA on how they arrived at the estimate – 1) using a DCF model, management has assumed long-term profitability, 2) revenue assumed to grow at sub-41%, 3) gross margins also assumed to grow via higher DTC contribution, 4) SG&A assumed to fall as a proportion of revenue.

All these expectations are fine and dandy but here’s the reality of UA’s LatAm unit – it hasn’t just been loss making at the EBIT-level for three years, it’s been negative for four.

(Source: Under Armour)

Meanwhile, LatAm sales growth has been slowing significantly – 2Q only saw a 7% rise YoY with no sign of a turnaround in margins. Yet, UA has somehow been allowed to input aggressive growth and margin assumptions into the model.

The $130m LatAm “headroom” is especially strange. As I’ve highlighted in the past, almost all of UA’s goodwill is tied up in Connected Fitness (MapMyFitness + MyFitnessPal + Endomondo). Because of the way Plank as Chief Operating Decision Maker (“CODM”) has allocated the goodwill, LatAm’s ~$40+m in goodwill is mainly tied up in Connected Fitness (“CF”) with a tiny portion (~$1m) tied to the actual LatAm operations.

So, it makes sense that UA hasn’t written down any LatAm goodwill – virtually all of it is Connected Fitness-related and thus, unrelated to the operating losses. UA’s response detailing the $130m headroom without clarifying the source of LatAm goodwill is interesting.

To the second SEC comment re non-GAAP P&L, UA said –“We respectfully acknowledge the Staff’s comment and undertake that in future filings we will reconcile our non-GAAP measures to the most directly comparable GAAP measures without presenting a full non-GAAP income statement.”

Now, all this raises some interesting questions – 1) why is UA being allowed free rein to input unrealistic assumptions into the LatAm DCF, 2) are they using similar methods to stave off a major CF goodwill impairment, and 3) why was UA not more forthcoming about its goodwill composition with the SEC?

Most importantly, just what is going on with UA’s auditor?

Don’t Trust the Auditor

UA’s auditor PricewaterhouseCoopers (PwC) has been in place for a while now at ~15 years. There are two ways to interpret long tenures – that they’ve been around long enough to know their way around UA’s accounting or that they’ve been around too long and have gotten too cozy with the company.

If PwC’s recent fees are anything to go by, the UA gig isn’t just lucrative, it gets more and more lucrative by the year. Here’s UA’s audit fees trend:

(Source: Under Armour)

Note the sharp rise in FY17 – audit fees rose ~48% in one year. Including everything else (audit-related, taxes and all other fees to the auditor), UA paid its auditor a grand total of $3.8m in FY17, a staggering 56% YoY pay hike. It also represents an eye-popping tripling in fees since FY12.

Now, there’s a few reasons why this might be the case, with the most innocuous explanation being UA’s growth (unlikely when benchmarked vs similar growth cos). The more likely reason in my view, may be that the audit may be getting more extensive e.g. digging into areas where results are uncertain.

Don’t Trust the Board

While the media fixates on the deficiencies of Tesla’s (TSLA) governance, UA’s is just as bad, if not worse. With Kevin Plank wearing the CEO/ Chairman/ Founder/ CODM hats while controlling the shareholder vote, there really isn’t much governance here at all.

I noted some interesting points on UA’s Board breakdown – 1) Seven out of ten Board members are at or past the age of 60, 2) Only one has accounting expertise, and 3) The members hold a large number of management roles and Board positions elsewhere.

Name

Position

Committee

Age

Accounting Expertise?

Kevin Plank

Chairman/ CEO

46

George W. Bodenheimer

Acting Chairman of ESPN, Inc.

Comp

60

?

Douglas E. Coltharp

Executive Vice President and Chief Financial Officer, Encompass Health Corporation

Audit; Finance (Chair)

56

?

Jerri L. DeVard

Executive Vice President, Chief Customer Officer of Office Depot, Inc.

Comp

60

?

Mohamed El-Erian

Former CEO and Co-Chief Investment Officer of PIMCO

60

?

Karen W. Katz

President and Chief Executive Officer, Neiman Marcus Group LTD LLC

Audit; CG; Finance

61

?

A.B. (“Buzzy”) Krongard

Former Chief Executive Officer and Chairman, Alex.Brown, Incorporated

Audit (Chair)

82

?

William R. McDermott

Chief Executive Officer and Executive Board Member, SAP SE

CG (Chair)

57

?

Eric T. Olson

Admiral, U.S. Navy (Retired) and Former Commander, U.S. Special Operations Command

CG

66

?

Harvey L. Sanders

Former Chief Executive Officer and Chairman, Nautica Enterprises, Inc.

Comp (Chair)

68

?

(Source: Under Armour, Author)

Now, UA’s Board also has a bit of an “old boys club” feel and conflicts of interest are rampant. For instance, Olson, who has served with Krongard on the board of Iridium (IRDM), was recommended by Krongard to the UA Board. Meanwhile, Bodenheimer serves with Plank on a separate Board, which may bias his judgment as an independent director.

The low female representation is telling as well.

Besides Plank, Krongard is the key piece – as lead independent director, he acts as the “liaison between the non-management directors of the Board and the Chairman, CEO and President, Kevin Plank and the other members of our management team.” On the UA site, Krongard is listed as the former CEO and chairman of Alex Brown Inc. But his Alex Brown days do not begin to do justice to Krongard’s colorful history.

In fact, Krongard was at some point the executive director at the CIA, following which he held board positions at Blackwater and ArmorGroup. During his tenure at both these companies, he was no stranger to conflicts of interest, for instance, he was brought onto the Blackwater advisory board while his brother (then State Dept inspector general) was tasked with investigations into the firm. Similarly, ArmorGroup faced allegations of counter-intelligence failures and security breaches during his tenure.

A recent lawsuit (see Andersen et al vs Plank et al) highlights, on April 25, 2016, Krongard sold 16,800 personally held shares of Under Armour stock for total proceeds of approximately $762,849.36.

(Source: Andersen et al vs Plank et al)

The timing of this was highly suspicious considering it came right on the heels of the company raising guidance on April 21, 2016. In fact, Krongard seemed to have sold his shares at the same time as fellow Board members Plank and Sanders (ironically the compensation committee chair). From the lawsuit:

“In total, the 933,600 shares sold by Plank, Krongard, and Sanders, and the $39.8 million received from those sales, within mere days after the Company raised guidance on April 21, 2016, represent approximately 19% of the total shares sold and 11.8% of the total proceeds from such sales by all Insider Selling Defendants during the Relevant Period”

Interestingly, the slew of insider sales also came right before UA’s rapid downfall in 2016 and 2017.

(Source: Google Finance)

It isn’t just the audit (Krongard) and compensation (Sanders) chairs that have colorful backgrounds though, finance chair (Coltharp) also has a controversial history. While at Saks, Coltharpwas relieved of responsibilities for accounting and financial reporting matters… in connection with an internal investigation into improper collections of vendor markdown allowances.” He later joined Healthsouth (now Encompass Health), a company plagued by accounting fraud, where he currently serves as CFO.

Meanwhile, McDermott (CG chair) currently runs SAP, where UA is a client. Although UA’s Board claims the relationship is immaterial and has no impact on McDermott’s independence, it seems strange that all four committee chairs either have controversial backgrounds, conflicts of interest or both.

It will be interesting to see how the addition of El-Erian impacts governance. As things stand, I’m not sure he’ll be making much of an impact anytime soon – per the UA site, he isn’t (yet) on any committee:

(Source: Under Armour)

Besides, there’s only so much one man can do. From what I gather, El-Erian holds so many different roles, it seems unlikely that he will be able to devote the time necessary to address UA’s governance deficiencies. Here’s a list of some of his roles:

Institution

Position

Carnegie Endowment for International Peace

Vice chair

National Bureau of Economic Research

Exco member

Capital Campaign for Cambridge University

Co-chair

King Abdullah University of Science and Technology (KAUST)

Board member

The Pegasus School

Board member

Microsoft Investment Advisory Committee

Chair

Council on Foreign Relations

Member

Allianz

International advisory committee

Allianz

International executive committee

Allianz

Chief Economic Advisor

Investcorp

International advisory committee

Under Armour

Board member

(Source: Author, El-Erian Website, Bloomberg)

Contrary to popular perception, I don’t think the addition of El-Erian is in the best interest of shareholders. Seemingly expert board members such as El-Erian add credibility but only possess tangential expertise and thus, cannot sufficiently challenge management. The busy schedule doesn’t help either and it wouldn’t surprise me if El-Erian ends up nothing more than a symbolic figure on the UA Board.

Don’t Trust Plank

UA’s governance issues really stem from Plank’s lack of accountability. UA’s share class structure (approved by the Board without question) – one-vote-per-share Class A, no-vote per share Class C, and ten-votes-per-share Class B stock – is designed to entrench Plank’s control over UA.

That’s a big problem – Plank is widely credited with promoting an overly aggressive culture within UA and since 2015, has been operating with virtually no check and balance. Here’s a particularly interesting excerpt I came across from a the Andersen lawsuit (see Andersen et al vs Plank et al):

“Within Under Armour, instructions for determining growth forecasts were very simple: take what you sold last year and add 20%. The Company’s “top down” aggression came directly from Plank. Plank’s obsession with the 20% growth streak drove the Company’s revenue growth-at-all-costs strategy.”

Along with UA, Plank also has interests in businesses such as a whiskey distillery, horse racing, venture capital and property development among others. The latter was a major source of controversy due to a related party transaction which occurred in 2016 where Plank (via Sagamore) sold a parcel of land to UA for $70.3m (more than twice the initial purchase price two years earlier).

In response to King’s demand letter dated May 25 2017 (see King et al vs Plank et al), UA came up with the following breakdown to justify the inflated price (note the inclusion of a $31m lease buyout).

Value ($)

Cost

35m

+Lease buyout

30.6m

+Development, planning and carrying cost

6.4m

-Loss to Sagamore

1.5m

Total Purchase Price

~70.3m

(Source: UA Review Group)

Meanwhile, a UA rep, Diane Pelkey has been posting the following PR statement in response to media coverage (see comment section here):

“Kevin Plank never made money on the transaction with Under Armour. In fact, he actually sold the land to the company at a loss. Moreover, this purchase is going to enable the company to develop a headquarters campus that can support the company’s long-term growth plans. The company followed a thorough process in reviewing and negotiating the transaction, using independent advisors, including Ernst & Young, with close oversight of the company’s Audit Committee to ensure the transaction was fair to the company and free of any potential conflicts.”

Very noble of Plank to take on losses to fund the latest UA headquarters. In fact, Plank claims UA faced a “pressing need for ~100,00 sq ft of office space with even more thereafter” as justification for the purchase in June 2016.

Yet, barely a year later, UA disclosed that their cost base was far too large and needed to be restructured – so much for the “pressing need”. From the 3Q17 call:

“Walking hand-in-hand with this is the need to address our cost infrastructure, which is built for a much larger company than we currently are”

In fact, Plank’s secretive Port Covington real estate purchases began in 2012 after his plans to expand UA’s Locust Point HQ was scuttled by the Baltimore Museum of Industry. Here’s Plank’s reaction in a later interview:

“Number one, I’ve got the engine in Under Armour. Number two . . . I can afford to make these decisions, so why am I waiting on [the Museum of Industry] board of directors?”

Through Marc Weller, who heads Sagamore Development (Plank’s property development co), Plank began discreetly acquiring land in Port Covington that year. His intention was twofold – to sell some of the land to UA for its future HQ, and to develop a mixed-use neighborhood anchored by UA’s HQ.

Throughout this period, Plank discreetly made Port Covington acquisitions totaling over 160 acres at ~$114 million.

Per a Baltimore Sun piece:

“The use of names and addresses that didn’t tie back to Kevin was all very intentional,” Weller said. “We wanted to be successful in acquiring as much as possible as quickly as possible.”

Companies discreetly owned by Plank purchased his first Port Covington property at a foreclosure auction.

Plank sold well over $300m worth of stock into 2014, with the massive sales continuing into 2016, likely to fund the Port Covington development.

In fact, his total stock sales since listing came in at well over $700m.

(Source: Insider Monitor, Author)

Per news articles cited in the King lawsuit (see King et al vs Plank et al), “Sagamore is expected to make $400 million from land sales during the multidecade project, according to an analysis conducted for the city.”

Here’s where it gets dicey for UA shareholders – assuming Plank has been funding Port Covington via UA share sales, would that not imply that UA shareholders have been subsidizing the project? The strategic use of UA’s HQ as a focal point of the development also likely contributed to the funding etc yet, all the upside accrues to Sagamore/ Plank.

Other notable related party transactions include UA’s lease for jet aircraft and a helicopter as well as industrial space and hotel accommodation (all linked to Plank/ Plank Industries and yes, all okayed by the Board, no questions asked).

You Cannot Fool All of the People All of the Time

With the spotlight shining firmly on Tesla’s governance deficiencies, investors may want to check out Under Armour as well. UA’s constant use of restructuring vehicles and aggressive assumptions to mask its busted growth model can only last so long before the market sees UA for what it truly is.

From a valuation perspective, UA looks extremely lofty – the “hockey stick” needed to hit FY18 is already well-known, but FY19 consensus looks way too high as well. With UA already writing off FY19, it wouldn’t surprise me if we see a big reset and consensus’ $0.31 FY19 EPS (implying ~62x fwd PE) gets cut in half. In fact, I don’t see UA’s earnings power being any higher than high-teens EPS. And that’s being generous on margins – I’ve assumed flat gross margins and SG&A going forward. Tack on a 30-40x multiple and you’d have to stretch far to get much higher than a MSD-HSD PT for the stock. With a bit of patience, there’s significant downside to be realized here.

It’s hard to say when the market will finally (de-)value UA accordingly – I’d like to think value/ patience is its own catalyst. As the saying goes:

“You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time” – Abe Lincoln

Disclosure: I am/we are short UAA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Why Women Should Get in the Blockchain AI Game

You know that feeling when you go to see an amazing speaker, and the energy just stays with you for days? That’s me, multiplied. I cannot get over the energy and thought inspired by the blockchain event I attended in early August. There’s a pivot happening, in industries where men reign supreme… women are taking the stage more than I’ve ever seen before.

This CXC event was a surprisingly female packed conference – full of powerhouse speakers. And these women are breaking the “story” about a lack of women in tech and lack of women seeking funding. They have found a place where the value of your innovation is rewarded and who you are can be race and gender blind, which is downright amazing.

Female Consumers Need Their Voices Heard

The female half of the population must participate in the technological advances we are making into the future, otherwise Artificial Intelligence and blockchain controls will be put in place without our voices. With women controlling most of the commerce decisions, this would be detrimental to our economy and would create a deeper gender divide in terms of access. As rapper and actor Common said, “You have to be in proximity to something to be a part of the change.”

Molly Bloom Spoke Up In A Big Way

If you aren’t familiar with Molly Bloom, she is an American entrepreneur, speaker, and author of the 2014 memoir Molly’s Game: The True Story of the 26-Year-Old Woman Behind the Most Exclusive, High-Stakes Underground Poker Game in the World!. Molly trained for years to become an Olympic skier, but was injured during qualifications. In 2013, she was charged with running a high-stakes poker game that originated in the Viper Room in Los Angeles for wealthy individuals, sports figures, and celebrities. In 2014, after pleading guilty to reduced charges, she was sentenced to one year of probation, a $200,000 fine, and two hundred hours of community service. Aaron Sorkin turned her book into a film which debuted in 2017.

Reinvention + Perspective + The Big Picture

A self-identified big fan of well intended disruption, Molly spoke about maintaining the ability to take risks or to stay in the game for future good, regardless of failure or setbacks. This messaging, coming from a woman who lost it all and came back, is the backbone of this tech AI, blockchain revolution.

Building the Future

Blockchain is welcoming a brave new world, one of transparency, shining the light on corruption and will be the future’s platform for global good. So for someone like Molly Bloom, or even myself, who is taking the long view now, who is wishing and building towards greater things for the greater good, this is the platform that also makes the most sense, and the one we want to see thrive. And women do this well, take the long view, and I believe that is one of the reasons this conference was so moving, and also one of the reasons we need more female involvement.

Not Your Typical Stoner

Another female we heard from, who nailed her messaging and won the audience over, was Jessica Versteeg, the CEO of Paragon. Paragon is revolutionizing the cannabis industry, with a suite of blockchain based solutions designed to provide stability, verification and legitimacy. This is a path I never considered until I heard her speak, which again, proves out the need for participation.

But Wait, There’s More

Then there was Nina Nichols, Founder of Global Women in Blockchain and Pamela Norton of Borsetta.io , and Monika Proffitt, author of Blockchain 101, and Tricia Martinez of Wala, and Denise Roberson who asked brilliant insightful questions. Look for more to come on these women in Blockchain as I use this platform to push for future platforms and the women (and men) who are acting as the building blocks for the next industrial revolution.

Here's How to Prevent Your Company from Exploding into a PR Fire

The key, of course, is prevention. Companies need a robust system that keeps small problems just that. There must be instructions with clear, concrete steps to prevent smoke from becoming fire. Here are tips on how to help prevent your company from getting embroiled in a crisis:

1. Analyze Your Risks

2. Get Every Level Involved

I’m a believer that every employee should be CEO-ready. Similarly, every employee should be crisis-ready, too. Seek input from every level of your company, from the lowest-level employee up to Chairman of the Board. Have them identify the potential risks they see. Also have them consider how they would fix problems identified by others. Sometimes the solution is simple, but you’d never know it because of a lack of communication across teams. Then, take the opportunity to train every employee on your crisis management plan, including how to identify potential crises before they get to that stage.

3. Monitor and Vet Social Media

Social media is a blessing and a curse to business. It’s a wonderful platform to deepen ties with current customers, interact with new consumers, and develop fans of your brand. Businesses need social media, but it comes with risk. One simple tweet can start a firestorm of controversy. If your company is active on social media, you need someone constantly monitoring your feed. If a customer reaches out with a problem, get on it immediately. Importantly, you also need a variety of people to vet what you plan to publish on social media. Many a well-intentioned tweet has opened the door to unexpected criticism.

4. Have Fire Extinguishers at the Ready

No matter the planning and prevention, no business is perfect. There will be small problems that grow into big problems, and you need a failsafe in place to stop the bleeding. This includes a clear path for employees to escalate information when they see a crisis brewing. If the leader is on an extended absence, you need to know who will assume the leader’s crisis management responsibilities. This also requires regular training of all employees on your plan.

5. Ownership

It’s inevitable that bad things will happen. How you deal with them will define your company in the social consciousness. If the cover-up is always worse than the crime, then the denial of a crisis is always worse than the underlying problem. If you messed up, or sometimes even if it wasn’t your fault, own it. Transparency and honesty will buy you credibility with consumers, even if the rest of your response isn’t perfect.

How Open Plan Offices Kill Diversity and Equality

Why are so many companies (i.e. so many top executives) embracing a strategy that’s so obviously unproductive and which employees almost universally dislike? 

I originally assumed the continued growth of open plan offices (now around 70% of all offices in the U.S.) was a victory of biz-blab over science–the corporate equivalent of anti-vaccination and climate change denial. However, since open plan offices are so obviously stupid, I’ve concluded there must be something deeper at work here–a hidden agenda.

What could it be?

A clue to this hidden agenda may lie in the undeniable fact that while executives want their employees to work in these open plan environments, they almost always secure private offices for themselves.

Another clue may lie in the way that the growth in open plan offices matches declines in work-from-home policies, private offices, and cubicle offices, all three of which offer varying levels of privacy for regular employees which open plan offices totally lack.

The unifying theme is that executives want employees to remain physically visible and constantly on display while simultaneously retaining their own right to remain invisible. This desire must be something that’s highly valuable to top management for them to be willing to pay such a huge tax in productivity and morale.

I’m not talking about a conspiracy. Nobody got together, twirled their metaphorical mustaches, and with a “brou-ha-ha-ha” decided to stick it to their employees. No, what’s operating here is something more subconscious, like confirmation bias. It’s a cultural thing and therefore largely unexamined, like most hidden agendas.

So, then, what deep need does the open plan office serve?

One obvious answer is the need to control the behavior of others–a need to which executives (who are often quite insecure about their ability to lead) are particularly susceptible.

However, while it is no doubt easier to control people when you can constantly look over their shoulders, that kind of monitoring can be done electronically. Since employees have no privacy rights, there’s nothing to stop companies from monitoring their behavior online. Big Brother doesn’t need to be physically present to stick his nose in your personal business.

If the deeper need is not a desire to control behavior, what could it be? Put another way, what benefit to executives get from making their employees physically visible while retaining the right to remain themselves invisible?

A well-documented effect of open plan offices is that constant visibility puts women at a disadvantage by forcing them to expend extra energy focusing on their physical appearance. However, it’s not just women who suffer from being forced into a fishbowl. Open plan environments also put at disadvantage those employees who are overweight, disabled, or in any way fail to conform to American standards of conventional attractiveness, i.e.young, thin, and light-skinned.

For example, open plan offices are vehemently hostile to older workers (Gen-X and above) because as one ages, it becomes increasingly difficult to achieve that cultural standard of conventional attractiveness.

Furthermore, some elements of open plan designs–such the ubiquitous workplace playground slide–are specifically intended to humiliate older workers. To a 20-year-old, using playground slide is merely embarrassing; to a 40-year-old it’s actively humiliating; to a 60-year-old, it’s a recipe for chiropractic appointment.

Rather than attracting millennials, open plan offices help top management eliminate or disempower workers who aren’t young, conventionally-attractive, generally light-skinned and male.–the exact demographic from whence sprang the majority of top managers. While such environments also tolerate young, conventionally-attractive females, the fishbowl-like characteristic of open plan offices guarantees that they’ll kept off-balance and “in their place” by being put constantly on display.

Seen this way, the open plan office, far from being a forward-looking vehicle to create collaboration and innovation, are actually only a manifestation of a traditional 20th century business culture which favors the dominance of older, light-skinned males, a dominance that expresses itself in everything from the demographics of Fortune 500 C-suites to the investment choices of venture capitalists.

That open plan offices tend to reinforce the patriarchy seems less surprising when you consider that the original concept of the open plan office dates not from the so-called “information age” but from the early years of 20th century, when companies–to increase paper-pushing efficiency–started arranging office workers’ desks inside large rooms called “bullpens.” 

Far from being a modern invention, open plan offices have been around for nearly 100 years. Within that history, companies have experimented with other workplace designs like private offices, cubicles, and telecommuting. Those experiments, however, fallen out of favor because those experiments gave employees more privacy, which was an assault on the status quo.

Companies have continued to embraced open plan designs not because they make employees more productive (they don’t) and not because employees find them inspiring places to work (they don’t) but because open plan offices reinforce the status quo–the same status quo that’s kept women and minorities out of positions of power, and that favors a younger, cheaper, more malleable workforce that’s less likely to challenge the dominance of the traditional powers-that-be.

Data privacy rules spoiling fintech boom, says industry group

HONG KONG (Reuters) – Data privacy rules in Asia are limiting the spread of financial technology, an industry body said on Thursday, calling on regulators to set out broad principles rather than precise rules.

FILE PHOTO: A photo illustration shows a USB device being plugged into a laptop computer in Berlin July 31, 2014. REUTERS/Thomas Peter/File Photo

Companies around the world want to make better use of the large pools of data they have to both cut costs and offer additional services. But governments and regulators in Asia and elsewhere are tightening rules on how that data is used.

“Governments in Asia say that they support fintech, and they want fintech firms to enter their market, but data privacy rules are a major stumbling block,” Paul Hadzewycz, senior associate at the Asian Securities Industry and Financial Markets Association (Asifma), told Reuters.

In a report on Thursday, Asifma urged regulators to avoid an “exhaustive and prescriptive list” of rules and set principles that allow companies to operate “confidently across borders and enter new markets.”

Some 13 countries in Asia have data protection rules, Stephen Wong, Hong Kong’s commissioner for data privacy, said at the Refinitiv Pan Asian Regulatory Summit in Hong Kong on Tuesday.

Aside from the privacy rules, companies also face varied, and sometimes conflicting, requirements imposed by financial regulators, privacy commissioners and cyber security bodies in Asia, Hadzewycz said.

Another industry concern are rules that prevent a company from storing customers’ data outside their country.

Vietnam has set rules to force global technology companies like Facebook (FB.O) and Alphabet Inc’s (GOOGL.O) Google to store user data in the country, and India is planning similar legislation..

“Regulators who are bringing in data localization rules are painting themselves into a corner and are hurting their attractiveness as a market to fintech firms,” Hadzewycz said.

Reporting by Alun John; editing by Darren Schuettler

Google Tries a Pixel Price Play to Get Some Market Share but Fails

Google introduced the Pixel 3 on Tuesday. Lots of improvements over the last version, but there’s a curious thing: Reviewers have called it both too expensive and aggressively priced (as in intentionally low, at least compared to competitors).

Here’s Google’s video about the Pixel.

It emphasizes features like taking a picture to shop for something online, improved selfie support and better camera functions, AI assistance, call screening, wireless charging, and more.

Up until now, Google has not even managed also-ran status in smartphone sales. IDC’s Q2 numbers bundle the company’s phone sales into “other.” The Pixel has run less than 1 percent of U.S. market share, as the Wall Street Journal reported early in the year.

Google badly needs substantial lines of business that aren’t dependent solely on advertising, which can go as quickly as it arrives. And its investors need significant spending in things like acquisitions and hardware development to pay off in a big way.

Even with major spending on marketing and a distribution deal with Verizon, Google hasn’t been able to really grab attention. The Pixel 3 seems to be a combination of two types of branding. One is the device itself and says “high.” The other is the price — “low.” They don’t really seem to match up in a bigger context.

With the Pixel 3, it’s a return to form: the smaller phone looks the part of a premium handset and really does just feel like a baby 3 XL. Naturally, the battery is smaller, and the display is a full HD 18:9 panel (a much nicer one) rather than the XL’s denser quad HD, but no one’s going to notice that. The lack of a display notch is probably preferable for most people, and the addition of wireless charging, dual front-facing cameras, improved front-facing speakers, along with a suite of new camera features bespoke the Pixel 3 make this a meaningful upgrade over last year’s phone.

The headline read, “Probably the best ‘small’ smartphone in years”. But then came the pricing kick: “At $800, the Pixel 3 sits a full $180 above an unlocked Galaxy S9 here in the US, and I won’t lie to you: that’s just too much money. Google has jumped the proverbial shark on pricing this year, and I think it’s going to bite them harder than they expect.”

This is a tough conflict to resolve. Not surprising, as pricing is a difficult aspect of branding and promotion. We’ve already seen that many millions of people are willing to buy iPhones that start at $1,000 or more. Apple has staked out the luxury/upper end part of its markets for many years.

Samsung’s Galaxy series have won many converts, but it doesn’t have the cachet to meet Apple’s branding. As Ruddock noted, Samsung has been discounting through 2018, probably to gain more market share. But once that happened, Google was in trouble.

By staking out a price between the two, was Goggle saying that the Pixel was better than the Galaxy but worse than the iPhone, a type of price-quality assumption many people would use? It’s as if Google doesn’t know what it wants the Pixel to be, other than loved. And in marketing, that isn’t enough.

Microsoft to invest in Southeast Asian ride-hailing firm Grab

SINGAPORE (Reuters) – Microsoft Corp is investing in Southeast Asian ride-hailing firm Grab as part of a partnership that the two companies said will allow them to collaborate on technology projects, including big data and artificial intelligence.

FILE PHOTO: A man walks past a Grab office in Singapore March 26, 2018. REUTERS/Edgar Su/File Photo

The companies did not disclose the deal value.

Grab had earlier said it planned to raise roughly $3 billion by year-end, of which it has already raised $2 billion.

Last week, Reuters reported that existing backer SoftBank Group Corp was closing in on a deal to invest about $500 million in Grab as part of the funding round.

Sources told Reuters that Grab is likely to tap strategic and financial firms for the remainder of the funding.

Before Tuesday’s deal, it raised $2 billion in 2018, led by Toyota Motor Corp and financial firms, including Microsoft co-founder Paul Allen’s Vulcan Capital.

Singapore-headquartered Grab has taken its ride-hailing business to 235 cities in eight countries in Southeast Asia in the past six years.

It is looking to transform itself into a leading consumer technology group, offering services such as food and parcel deliveries, electronic money transfers, micro-loans and mobile payments, besides ride-hailing.

Grab will work with Microsoft to explore mobile facial recognition, image recognition and computer vision technologies to improve the pick-up experience, the companies said in a statement on Tuesday.

For example, passengers will be able to take a photo of their current location and have it translated into an actual address for the driver.

Other areas of the five year-agreement include Grab adopting Microsoft’s Azure as its preferred cloud platform and using it for data analytics and fraud detection services.

Southeast Asia, home to some 640 million people, is shaping up as a battleground for global technology giants such as Alibaba, Tencent Holdings Ltd, JD.com, Alphabet Inc’s Google and SoftBank, particularly in ride-hailing, online payments and e-commerce.

Competition for Grab is heating up with Indonesian rival Go-Jek also expanding in the region.

Reporting by Aradhana Aravindan; Editing by Stephen Coates

A U.S. Passenger Allegedly Was So Violent and Disruptive Saturday, Dutch F-16 Fighter Jets Scrambled to Intercept His Plane

It’s been a rough time lately for bad passenger behavior. And if other stories recently haven’t prompted rank and file airline passengers to demand that something more effective be done, perhaps this story will spur action.

Early Saturday morning, an American passenger aboard a KLM flight from Abu Dhabi to Amsterdam reportedly “started screaming and hitting wildly around him,” according to a member of the cabin crew, to the point that the Dutch Air Force sent a pair of F-16 fighter jets armed with air-to-air missiles to intercept the plane.

The story first broke in the Dutch newspaper De Telegraaf over the weekend, and it’s been separately reported by AFP as well.  

Cabin crew said the overnight flight wasn’t crowded, and that the American passenger did not appear to be intoxicated, but that he first attracted attention when he began walking around the cabin while most other passenger were asleep.

Flight attendants asked him to sit down, but he became “aggressive” and reacted “very threateningly from one moment to the next,” a flight attendant said.

Punches were apparently thrown, and several other passengers were “lightly wounded” during the fracas, according to Dutch authorities, including two who “were given black eyes.” 

Military police arrested the American passenger once the plane landed at Amsterdam Airport Schiphol.

“A 29-year-old American man became aggressive after being asked by a purser to return to his seat,” Joanna Helmonds, a police spokesperson, said afterward. “A scuffle broke out and the cabin crew, together with other passengers managed to restrain the man.”

The Dutch police didn’t name the passenger, and said he “came across as disoriented,” and was being held in a Dutch psychiatric institution for observation.

Of course, there’s a happy ending to the story in that the plane landed safely in Amsterdam–on time, no less.

Still, it’s easy to imagine how a simple miscommunication or human error could have led to a much more tragic situation. And it comes after we’ve reported story after story about disruptive passengers on domestic flights who allegedly got drunk, became aggressive, and caused their flights to be diverted:

  • A Southwest passenger who pleaded guilty to charges after threatening to “put [a flight attendant] in a body bag” after being denied a fourth drink;
  • An American Airlines passenger who allegedly got drunk, tried to do pull-ups on the overhead compartment of a crowded plane at 30,000 feet, and became “verbally abusive;” and
  • A Delta Air Lines passenger who allegedly head-butted a flight attendant, again for not being willing to give him more alcohol.

So what’s the solution? Obviously, problem drinking is a big part of many of these situations. And the new FAA law that President Trump just signed does contain tougher penalties for interfering with flight crew on U.S. flights.

But flight attendants are in a tough position: they’re first line safety officers, but they’re also there for passenger comfort. Yes, they serve drinks on most flights, but it’s asking a lot for them also to act as bouncers, or cops.

Personally, I’m old enough to remember what flying was like for a year or two after the September 11, 2001 terror attacks–when, at least in my personal experience, passengers were more likely to keep an eye on each other, and when it seemed like peer pressure likely stopped some people from acting aggressively on airplanes.

Regardless, at 40,000 feet, we’re all in this together. And if I were one of the innocent souls aboard an aircraft where a violent fellow passenger caused enough of a disturbance to result in armed fighter jets intercepting me, I don’t think I’d be taking this lightly.