Fortune 1 September 2014

8/9/2019 Fortune 1 September 2014

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HOW POPEFRANCIS PLANSTO RESTRUCTURETHE VATICAN’SSCANDAL-PLAGUEDFINANCES AND

GENERATEMORE MONEYFOR THECHURCH.

HOLYREFORMERMEXICO

OPENS UPTS OIL

BUSINESSBy Jeffrey Ball

SECRETS

FROMGOOGLE’S

STEALTHSKUNKWORKS

By Miguel Helft

WINNEBAGO

RIDES AGAIN By Erika Fry

FORTUNE ’S

100 FASTEST-GROWING

COMPANIES

SHOULD YOU

BUY STOCK IN PRIVATE

COMPANIES? By Jen Wieczner

By Shawn Tully

DISPLAY UNTIL

SEPTEMBER 8, 2014

FORTUNE.COM


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In U.S. cities, 30% of traffic is caused by drivers looking for parking. This

means increased CO2 emissions and less time spent at local businesses.

Streetline, Inc. is solving the problem with innovative technology and

a free app that helps people find parking. Citi provides the company

with financing that reduces up-front costs, making the technology

more practical for cities to adopt. Now, with Citi’s support, Streetline is

expanding globally.

For over 200 years, Citi’s job has been to believe in people and help make

their ideas a reality.

citi.com/progress

© 2014 Citibank, N.A. Member FDIC. Equal Opportunity Lender. Citi and Citi with Arc Design are registered service marks of Citigroup Inc.

The World’s Citi is a service mark of Citigroup Inc.


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ON THE COVER

ph otograph by

STEFANO SPAZIANI

FORTUNE.COM

3

103

Fortune’ s 100Fastest-GrowingCompanies

The public companieswith the most stellarthree-year profit,revenue, and stockgrowth. Our 2014 listbegins on page 112.

By Scott DeCarlo, Douglas G. Elam, VivianGiang, Kathleen Smyth,and Niamh Sweeney

90

The Dramaof Mexico’s(Black) GoldSeventy-six yearsafter nationalizingits oil business, Mexicoinvites foreign compa-nies back to drill.What will it mean formighty Pemex—and forthe nation’s self-image?

By Jeffrey Ball

104

WinnebagoRolls Again

The iconic maker ofmotor homes is onthe rebound. Willbaby boomers restoreit to its full glory?

By Erika Fry

80

GoogleDoes DARPA

The famously innovativesearch company hastaken a page from thePentagon’s radicalideas factory. Here’swhat’s brewing inSilicon Valley’s coolestskunkworks.

By Miguel Helft

66

This PopeMeans Business

The wildly popularFrancis is more than apontiff of the people.He’s an elite managerwho’s reformingthe Vatican’s troubledfinances.

By Shawn Tully

September 1 2014 Volume 170 Number 3


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FORTUNE.COM

4

INSIGHTS

57

Sheila Bair

Why getting rid of thecorporate income

tax makes sense.

58

Becky Quick

Dear Washington:Heal thy taxsystem.

60

Nina Easton

Electoral madness? The GOP is drivingHispanic voters outof the party.

14 MACROCloser Look

Europe’sseparatist storm.

By Vivienne Walt

18 MACROBriefing

The NFL goeslong—way long—on a digital app.

By Daniel Roberts

18 MACROBriefing

Geneticallymodified corn’sswift dominance.

By Robert Hackett

20 MACROWorld’s Greatest

Leaders

Cancer warriorKathy Giusti.

By Geoff Colvin

22 MACROPro-Files

Chicago Bearslegend GaryFencik now aimshigh in the realmof private equity.

By Rich Cohen

29 MACRONew Energy

New York’s$1 billion bet onclean energy.

By Brian Dumaine

32 MACROGlobal Power

Profile

Turnaround proDave Lewis is

Tesco’s new CEO.Will he rethink thesales game?

By Mehboob Jeelani

34 MACRORoad Warrior

Travel tips fromdrummer MarkSchulman, whohas toured withCher, Pink, andStevie Nicks.

By Robert Hackett

37 VE NT UR EHow We Got

Started

iRobot brought usmachines to clean

houses, defusebombs, and diag-nose patients.

Interview by Dinah Eng

42 VE NTURE Verne Harnish

Five ways to getorganized andimprove yourefficiency.

45 TECHCognitive

Computing

Digital Reasoningis using military-

grade tech tohelp banks sensetrouble before ithappens.

By Clay Dillow

51 INVESTMarkets

Should you buystock in privatecompanies?

By Jen Wieczner

8 EDITOR’S DESK

12 LETTERS

120 BING!

September 1 2014 Volume 170 Number 3

illus t r at io n b y EDDIE GUY


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It’s not about how far you go. It’s about how you go far.2015 FUSION + HYBRID.

EPA-estimated range of 567 mi.; 44 city/41 hwy/42 combined mpg, 13.5-gallon tank. Actual mileage will vary. EPA-estimated range of 492 mi.; 22 city/33 hwy/26 combined mpg, 16.5-gallon tank, available 2.0L EcoBoost® FWD. Actual mileage will vary. Range calculation based on fueleconomy.gov.Actual range varies with conditions such as external elements, driving behaviors, vehicle maintenance and lithium-ion battery age.

A 46-mile trip

to watch

your daughter’s

soccer game.

An 86-mile

trip to watch

your son’s

basketball game.

A 123-mile trip

to watch your

other daughter’s

sofball game.

A 12-oot walk

to the couch, because

ree weekends

don’t come that ofen.

http://fueleconomy.gov/http://fueleconomy.gov/


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FORTUNE.COM

6

TAKING A BITEOUT OF APPLE

THIS DOESCOMPUTE

With Fortune.com’s recentredesign, we shuffled a fewthings around. Philip Elmer-DeWitt is still covering the insand outs of Apple every day,

just no longer under the Apple2.0 moniker. You can keep upwith Phil’s musings by headingto fortune.com/ped. Followhim on Twitter:@philiped.

First came Term Sheet. Thenthere was Broadsheet. Sheetis happening again, for thetech crowd. We’re pleasedto introduce Data Sheet, adaily newsletter dedicated to

business technology. HeatherClancy will tell you what’sgoing on in the enterprisetech space: the news youshould know, trends youshould follow, and events

you should attend. Subscribeto Data Sheet by going tofortune.com/getdatasheet.

OUR FASTEST-GROWING COMPANIES LISTLETS YOU KNOW WHAT BUSINESSES AREEXPERIENCING EXPLOSIONS OF GROWTH.ONLINE, WE’LL HAVE EXTENDED PROFILESOF THE TOP COMPANIES, ALONG WITH THE

ABILITY TO SORT AND FILTER DATA. YOU’LL ALSO BE ABLE TO LOOK AT THE EVOLUTIONOF WINNEBAGO RVs THROUGH THE YEARS,

AND TAKE A VIDEO TOUR OF HIGH-END RVs.

NEED FOR SPEED

SEE IT ALL AT FORTUNE.COM/FASTESTGROWING

September 1 2014

Leave the page and head to the screen: Get more from Fortuneon the web and tablet.


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Meet the flavors of the world

emirates.com/us


10/120

andy serwer

Managing Editor

FORTUNE.COM

8

THIS IS MY LAST ISSUE as the managing editor of Fortune. Alan Murray will be the

new editor. I congratulate him and wish him well.

My departure has made me sentimental: I’ve been listening to the Carpenters’

“Yesterday Once More” and some neoclassical Stravinsky, Symphony of Psalms.

(Who wouldn’t?) But mostly, leaving has made me think about Fortune over the

years, my amazing colleagues, and the remarkable work they have done.

I have been editor since October 2006, for 162 issues including this one, but I’ve been at Fortune much longer than that, starting as an intern in December 1984.

Over that 29½ years I’ve worked on thousands of articles—including all those in

my daily blog, Streetlife, which I fired up in 1997. I’ve helped cover three recessions

(including the recent Great Recession), the roaring ’80s, the roaring ’90s, a number

of stock market dramas, 9/11, and seven presidential elections. Then there are the

people we’ve written about along the way: the raiders of the 1980s, the super-CEO

era of Jack Welch and Roberto Goizueta. There’s the great Warren Buffett, and in-

delible people like Steve Jobs, Bill Gates, Marissa Mayer, and on and on. Besides my

colleagues and bosses at Fortune and Time Inc., there were hundreds of incredible

characters and great talents. There’s so much, looking back, I’m just beginning to

sort it all out at this chapter-ending moment in my life.

What will I take away? What did I learn? Here are a few things that have oc-curred to me already:

That you have to balance the idea that nothing really changes with the notion that

everything is changing fast—especially the ever-evolving Internet of everything, the

biggest change-agent to hit the global economy in our lifetimes. While Facebook,

Spotify, Uber, Yelp, and the like—which many of us use multiple times every week, if

not every day—are completely new, really cool, and producing all kinds of au courant

lessons and rules, it doesn’t give anyone a license to engage in illegal, conflicted, or

amoral behavior “in the name of the revolution.” If they do, journalists should call

them out on it.

That with so much information available so easily to so many, hard-nosed report-

ing and critical thinking become more important than ever.

That Watson, HAL, and all the artificial intelligence in the world will never rep-

licate the most important human decision-making, or if the computers ever do, we

will have already been taken over by machines, à la some sort of Will Smith movie.

(By the way, I’ve always loved the phrase “artificial intelligence.” I know a few peo-

ple… Oh, never mind!)

That the only thing that makes any organization differentiated and thereby sus-

tainable is a supertalented group of people—which ultimately can be held together

only by culture. And I’ve come to realize that that’s what Fortune has: a passionate,

creative, collaborative, high-bar culture that nurtures one of the most singular groups

of journalists on the planet. And the

beneficiary of all this has been you, O

reader. Our culture created the envi-

ronment that allowed us to deliver all

that remarkable Fortune storytelling

and content to you. I’m optimistic that

the digital revolution won’t change anyof that. In fact, with all the clutter out

there, it only makes what Fortune stands

for more important.

I’m sure more things will occur to

me at some point, but that’s it for now.

Thanks to everyone who worked at For-

tune during my tenure, and thanks to

all of you who have read our work.

¡Buena suerte, amigos!

September 1 2014

FAREWELL, AND THANKS

photograph by RICHARD PHIBBS


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My business card says Founder.

So everyone thinks all these folks

work for me. Everyone is wrong.

These people carry this business

on their shoulders. Every day.

Good times and bad. No matter

what they are up against.

These people don’t work for me.

I workfor them.

© 2014 Sprint. All rights reserved.


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September 1 2014

FORTUNE.COM

10

FOUNDER Henry R. Luce, 1898–1967

CHIEF CONTENT OFFICER Norman Pearlstine

CHIEF EXECUTIVE OFFICER Joseph Ripp

EDITORS AT LARGE Peter Elkind, Shawn TullySENIOR EDITORS Scott DeCarlo (lists), Andrew Nusca,

Roger Parloff (legal affairs), Jennifer Reingold, Christopher TkaczykSENIOR RESEARCH EDITOR Marty Jones

SENIOR WRITERS Miguel Helft, Jessi Hempel, Michal Lev-RamCOLUMNISTS Sheila Bair, Stanley Bing, John Cassidy, Bethany McLean,

Dan Primack (fortune.com), Becky QuickWRITERS Scott Cendrowski, Beth Kowit t, Tory Newmyer

WRITER-REPORTERS Daniel Roberts, Jen WiecznerREPORTERS Douglas G. Elam (lists), Erika Fry, Colleen Le ahey, Anne VanderMey

CONTRIBUTORS Jon Birger, Susan Z. Callaway, Katherine Eban, Dina h Eng, Kate Flaim,Edith Fried, Scott Gummer, Marc Gunther, Verne Harnish, Paul Keegan, Elaine Pofeldt,

Janice Revell, David Sloan, Lawrence J. Shine, Richard K. Tucksmith, Vivienne Walt (Paris)COPYROOM Carol Gwinn (copy chief ), Ben Ake (deputy), Jonathan Brown,

Maria Carmicino, Judith Ferbel, Lauren Goldstein, Edward Karam, Kathleen KentEDITORIAL ASSISTANTS Nancy La Porte (assistant to the managing editor),

Kelly Champion, Zhang Dan (Beijing)TECHNOLOGY SUPPORT Lamarr Tsufurra (associate director), Arthur Wilson Jr. (manager),

Ian Ahye, Kevin Kelly, Gary Lou, Alex Martinez, Aleksey Razhba, Armando RiveraPRODUCTION Carrie Mallie (associate operations director), Gary Kelliher, Elizabeth Mata,

Mary Michael (managers), Nelson Luk (director, Asia)

INFORMATION GRAPHICS DIRECTOR Nicolas Rapp ART STAF F Michael Solita (art director), Chad McCabe (tablet art director),Rose DeMaria (associate art director)PHOTOGRAPHY STAFF Alix Colow (deputy photo editor), Armin Harr is,Neil Harris (associate photo editors), Michele Taylor (photo assistant),Hildegarde P. Vilmenay (office manager)PREMEDIA Richard K. Prue (executive director), Angel Mass (manager)

FORTUNE.COM

MANAGING EDITOR Megan BarnettDEPUTY MANAGING EDITOR Megan McCarthySENIOR EDITORS Stephen Gandel, Roland Jones, Verne Kopytoff,Heather Muse, Scott Olster, Geoffrey Smith

EDITOR Nin-Hai TsengSENIOR WRITER Philip Elmer-DeWitt

WRITERS Ben Geier, Erin Griffi th, Tom Huddleston Jr., Laura Lorenzetti, JP Mangalindan,Christopher Matthews, Claire Zillman, John Kell, Benjamin Snyder, Phil WahbaINTERACTIVE DESIGNER Analee KasudiaPHOTO EDITOR Jaclyn LoRaso VID EO Mason Cohn (senior producer), Sierra Jiminez (associate producer)

FORTUNE EDITORIAL

MANAGING EDITOR Andy SerwerDEPUTY MANAGING EDITOR Clifton Leaf

SENIOR FEATURES EDITOR Timothy K. SmithSENIOR EDITORS AT LARGE Geoff Colvin, Brian Dumaine, Nina Easton, Adam Lashinsky, Carol Junge Loomis, Patricia Sellers, Allan Sloan, Alex Taylor III

ASS IS TANT MAN AGI NG E DIT ORS Leigh Gallagher, Brian O’Keefe (international editor), Nicholas VarchaverCREATIVE DIRECTOR Brandon Kavulla DIRECTOR OF PHOTOGRAPHY Mia J. Diehl

ADV ERT IS ING SAL ES ATLA NTA / WAS HIN GTO N, D .C. : Greg Bowerman (executive director, multimedia),Lisa Danielczyk (Washington sales director), Anna Ryder, Vornida Seng, Eric Shaver

BOSTON: AnneMette Bontaites, Melissa More (directors), Cailin TraversCHICAGO: Jacie Brandes (executive director, multimedia),

Katie Groon, Sarah Matteson, Gina Milkovich, Laurie Minor, John WinterhalderDALLAS: Jacquelyn Olson (August Media)

DETROIT/CANADA: Shauna Haras (executive director, multimedia),John Wattles (sales manager), Amy Kirk

DÜSSELDORF: Thomas Stickelmaier (director), Christiane PloogGENEVA: Irina Hartmann (director)

JAPAN: Kotaro Aikawa (regional director)LONDON: Tim Howat (director), Christian Cecchi, Kelly Goodwin

LOS ANGELES: Jack Vincent (multimedia director), Lexie Adams, Brad SouvaNEW YORK: Lindsey Kintner (multimedia director), Elsa Della Rocco, Mark Isik, Erik Kelliher,

Tim Mullaly, Matthew Ry ter, Tess Skoller, Chris Wolfe, Steven ZampieriHONG KONG: Judy Fong, Elizabeth Kwong

PARIS: Magali Bois-O’Neill (director), Sandra LitasSAN FRANCISCO: Rick Gruber (executive director, multimedia), Vicki Gomez,

Lindsey Lee, Monica SemblerSINGAPORE: Linda Lim, Karen Mong

INTEGRATED MARKETING Dana Kelly, Hulya Niver (executive directors),Christine Fulgieri, Giselle Aranda, Donatella Zamora (senior managers), Stephanie Andersen,

Michael Hayden, Alex King, Hermela Nadew Asia: Audrey Yeong, Florence Thote, Rosa Chow (senior research manager)

Europe: Phil Cutts (brand development director), Daphne Vandeborre (creative director)DIGITAL PLANNING AND CLIENT SERVICES Karen Szeto (director),

Fabian Fondriest, Colleen Tully

CREATIVE SERVICES Hollie Vose (executive group director), Maryellis Bunn, Jonah Copiaco,Miika Grady, Clarice Lorenzo, Paton Roth, Natalie Ryan, Cindy ShiehLIVE MEDIA Delwyn Gray (senior executive producer), Kristen Leoce (executive director),Janine Lind, Katie O’Connell, Allie Schnall, Virginia Slattery, Elisabet TorrentsCONSUMER MARKETING Eric Szegda (VP, retail), Adam Kushnick (finance dir ector),

Jennifer Levin (director), Courtney Andrews, Laura Applestein, Berkeley Bethune, Eunice Chi,Nancy D’Auria, Nancy He, Alexandra Litv inovsky, Stephanie Moloney, Corey Schneider,Michael Trobagis, Greg WachtelEUROPE: Harvey Gidley (associate circulation director)HONG KONG: Rick Kam, Susie Pattison (directors)CONSUMER INSIGHT Andrew Borinstein (executive director), Joel Kaji (senior director),Mac Dixon (senior research manager), Brian Koenig (senior associate research manager),Rachel Lazarus (associate research manager)PUBLIC RELATIONS Kerri Chyka (executive director), Vidhya Murugesan (senior manager),Daniel Leonard (manager), Kelsey Rohwer (junior publicist), Emmanuelle Saliba (coordinator)FINANCE Wajeeha Ahmed (executive director), Parniyan Gutierrez (director), Arbena Bal,Catherine Keenan, Kari Kus, Daniel Seon (managers), Jason Glassman, Michael Hymanson,Jessica Pirro, Parth VedawalaCONTENT MARKETING AND STRATEGIES Diallo Hall (director of content),Lawrence A. Armour, Alec Morrison (editors), Peter Franco, Gregory Leeds,Cindy Murphy (directors), Ron Moss (associate director), Joel Baboolal,Jennifer Hwang, J. Thomas Lewis, Roger Greiner, Blair Stelle, C. Tasha SterlingPRODUCT DEVELOPMENT Brett Krasnove

FORTUNE.COM

VP, G ENE RAL MAN AGE R Howard ManusBUSINESS DEVELOPMENT Mark Beavers (director) ADV ERT ISI NG O PER ATIO NS Donna L. Clarke (executive director)

THE FORTUNE|MONEY GROUP

GROUP PUBLISHER, NEWS AND BUSINESS Jed HartmanPUBLISHER, FORTUNE Eric Danetz

ASS OCI ATE P UBL IS HER Michael Schneider VIC E PR ESI DEN T, AD VER TIS ING SAL ES , MONEY Tony Haskel

VIC E PR ES IDE NT, D IG ITAL PL ANN ING AND CLI ENT SE RVI CES Brian Maher ASS OCI ATE P UBL ISH ING DIR ECT OR , AS IA Ang Khoon Fong

VIC E PR ES IDE NT, C ONF ERE NCE S Peter Granath

TIME INC.

EXECUTIVE VICE PRESIDENTS Jeff Bair stow, Lynne Biggar, Colin Bodell, Teri Everett, Greg Giangrande, Lawren ce A. Jacobs, Todd Larsen, Evelyn Webster

EXECUTIVE VP, GLOBAL ADVERTISING SALES Mark Ford SENIOR VP, ADVERTISING SALES & MARKETING Andy Blau (finance), Priya Narang (marketing) VP, S ALE S David Watt VP, D IGI TAL Dan Realson VP, C RE ATIV E DI REC TOR Cara Deoul Perl VP, M ARK ETI NG A ND S ALE S DE VE LOP MEN T Cheryl DiMartino

VP, DATA BAS E MA RKE TIN G Mary Wojciechowski VP, M ARK ETI NG A D SO LUT ION S Steve Cambron VP, F INA NCE Lori Dente VP, V IDE O J.R. McCabe VP, R ESE ARC H & I NSI GHT S Caryn Klein VP, D IG ITAL AD O PER ATIO NS Nancy Mynio VP, Y IEL D AN D PR OGR AMM ATIC Kavata Mbondo

CONSUMER INSIGHT Barry Martin (VP)

INFORMATION TECHNOLOGY Colin Bodell (CTO and EVP), George Linardos, Erynn Petersen (SVPs), Linda Apsley, Neil Bailey, Jonathan Fein, Robert Ferreira, Amanda Hanes, Leon Misiukiewicz, Ben Ramadan, Scott Smith, Jimmie Tomei (VPs)

GROUP PRESIDENT Todd Larsen GROUP PUBLISHER Jed HartmanSENIOR VICE PRESIDENT, DIGITAL M. Scott Havens SENIOR VICE PRESIDENT, CONSUMER MARKETING Nate Simmons

SENIOR VICE PRESIDENT, FINANCE Elissa Fishman VIC E PR ESI DEN T, CO MMU NIC ATIO NS Daniel Kile VIC E PR ESI DEN T, CO NSU MER MAR KET ING Lydia Morris VIC E PR ESI DEN T, LI VE M EDI A Lisa Cline VIC E PR ESI DEN T, OP ER ATIO NS Robert Kanell

VIC E PR ES IDE NT, C ONT ENT MAR KE TIN G AN D ST RATE GIE S Newell Thompson VIC E PR ES IDE NT, H UMA N RE SOU RCE S Roxanne Flores DEPUTY GENERAL COUNSEL Amy Glickman


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Make your investing more

TAX EFFICIENT.Create a plan to help defer,

manage, and reduce taxes.

Mobile

Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice.Consult an attorney or tax professional regarding your specific situation.

*Fidelity Investments received the highest numerical score among full-service brokerage firms in the proprietary J.D. Power 2014 Full ServiceInvestor Satisfaction StudySM. Study based on responses from 4,479 investors measuring 15 investment firms and measures opinions ofinvestors who used full-service investment institutions. Proprietary study results are based on experiences and perceptions of consumerssurveyed in January–February 2014. Your experiences may vary. The experiences of these customers may not be representative of theexperiences of all customers. Visit jdpower.com.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

© 2014 FMR LLC. All rights reserved. 684903.2.0

J.D. Power Ranked Fidelity“Highest in Investor Satisfaction with

Full Service Brokerage Firms”*

We can help you take control of how much you pay in income taxes each year by

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FORTUNE.COM

12

ARTFUL DODGERSRe “Positively Un-American” (July 21):

Is the problem with companies leaving

the U.S., or is the U.S. government

failing to provide a competitive and

advantageous marketplace? The gov-ernment, like companies, has to adapt

to compete with low-tax countries such

as Ireland and England.

Matt Gerken

Coral Springs, Fla.

Thanks for continuing to keep the

spotlight on Medtronic and the other

tax evaders. If having your headquar-

ters overseas is such a great move,

then why don’t the executives of the

company move over there as well? Golive in Ireland or wherever, but don’t

be showing your face at the local coffee

shop here in the U.S., where the rest of

us are still paying our taxes.

Harley Reed

Plymouth, Minn.

I am glad when moves like the Med-

tronic deal get some close attention. I

have served on the board of directors

for several corporations, and I have yet

to see any tax-centered moves make

real money for the companies. Not

only are these moves un-American,

but when all of the costs are consid-ered, they are also frequently stupid.

Fred Zimmerman

Minnetonka, Minn.

I don’t understand why writer Allan

Sloan and others believe that corpora-

tions should act altruistically, while

individuals can do whatever they want.

If you want to rail on someone for

not acting in the interests of America,

criticize the people who have driven

manufacturing out of America by in-sisting on buying foreign-made goods

because they are less expensive.

Randy Lowry

Lebanon, Tenn.

CONSUMERS ARE HURTINGThank you, Sheila Bair, for pointing out

what has been obvious to wage earn-

ers for decades (“Corporate America

Needs to Raise Wages. Why? It’s Good

for Business,” July 21). Given the cover

story (“Positively Un-American”) in

the same issue about corporate taxavoidance, the irony is that corporate

interests could easily be aligned with

those of employees if the government

lowered the corporate tax rate.

Conor Carlin

Plymouth, Mass.

It struck me that your publication has

an elegant solution if you are seri-

ous about this matter: Simply include

metrics on the Fortune 500 that list

the lowest hourly wage paid to any oftheir employees and something that

ranks them in the quality of health care

benefits offered. Bosses will fall over

themselves to not be at the bottom.

Paul Rotstein

New York City

HE’S GOT IT RIGHTHow does Intuit stay successful (“Brad

Smith: Getting Rid of Friction,”

July 21)? I recently contacted cus-

tomer support regarding an issue with ViewMyPaycheck. An agent responded

on LiveChat within one minute and

quickly resolved the problem. And he

was pleasant to boot! Note to airlines:

If you’re looking for best practices,

have your employees imitate customer

service reps at Intuit.

Ken Haseley

Rocky River, Ohio

LETTERS TO THE EDITOR

Please include your name, address, and daytime phonenumber. Letters may be edited for clarity and space.

MAILFortune Letters, Time & Life Building, RockefellerCenter, New York, N.Y. 10020

EMAIL [email protected]. Letters sent to this emailaddress may appear in these pages or on Fortune.com.

SUBSCRIBER SERVICES/NEW SUBSCRIPTIONS

For 24/7 service please use our website: fortune.com/ customerservice.You may also call 800-621-8000 or write toFortune, P.O. Box 30604, Tampa, Fla. 33630-0604.

September 1 2014


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Legacy. It’s not just a sedan. It’s a Subaru. Well-equipped at $21,695 †

Beneath the sculpted lines of the all-new 2015 Legacy ® lies the best-kept secret in the

business. Subaru Symmetrical All-Wheel Drive and an astonishing 36 mpg.* Combine that

capability with one of the most spacious interiors in its class,** and you’ve got something

you won’t find in other sedans. Love. It’s what makes a Subaru, a Subaru.

Subaru and Legacy are registered trademarks. *EPA-estimated hwy fuel economy for 2015 Subaru Legacy 2.5i models. Actual mileage may vary. †MSRP excludes destination and deliverycharges, tax, title, and registration fees. Dealer sets actual price. 2015 Subaru Legacy 2.5 i Limited pictured has an MSRP of $26,495. **Based on manufacturer-reported interior volumesaccording to the EPA’s Midsize Car class as of 7/1/14.

It’s always the quiet onesthat surprise you.


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MACROCloser Look

SCOTLAND

Independent before 1707, when the

United Kingdom of Great Britain wasformed, Scotland is putting the

question of whether it should separatefrom Britain to a vote on Sept. 18.

A

FLANDERS

In elections this spring, the nationalist

New Flemish Alliance Party gained anumber of seats in Belgium’s federalParliament but have tabled (for now)

the idea of secession.

B

NORTH CYPRUS

In 1983, the Turkish-speakingpopulation in the north

declared itself a separate nationfrom the Greek-speaking south.

Only Turkey recognizes it.

C

A

B

J

C

L

K I

H

F

DM N

E

CATALONIA

In the 12th century the county ofBarcelona and the Kingdom of Aragon

united and had political sovereigntyuntil the War of the Spanish SuccessionCatalan nationalists still mark the day o

defeat in 1714: Sept. 11.

D

The higher the number, the more realistic the chance of the region seceding

and gaining general recognition of independence, according to experts.

1 2 3 4 5

SCALE

FORTUNE.COM

14

IN THE MOVIE Braveheart, the 13th-century Scottish

warrior William Wallace (in the form of Mel Gibson)

gallops across the green Highlands exhorting people

to fight the English and shouting in Gaelic, “ Alba gu

bràth!” or “Scotland forever!” Seven hundred years

after that conflict, passions are running high again,

as about 5.2 million Scots prepare to make their most

crucial political decision in memory on Sept. 18: whether to declare their independence from Britain.

It’s a vote that could rip apart Europe’s third-biggest

economy and jolt nations across the region. Much as

in Wallace’s time, the issue pits the dreamers against

the doomsayers (minus the bloodshed) and threatens

to end an alliance that has lasted for centuries.

“Scotland has been a nation for a very long time,” says

Duncan Ross, a professor of economic history at the

University of Glasgow. “We should have the right to

decide how to rule ourselves.”

Scottish voters decide this month whether to split from Britain.Catalans in Spain have called fortheir own independence vote soon.

Can the continent weather theseparatist storm? BY VIVIEN NE WALT

The DisunitedStates ofEurope

reporting by PREETISHA SEN and ROBERT HACKETT

graphic by POP CHART LAB


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KOSOVO

Kosovo, now recognized by the U.S.and most European nations as a

legitimate nation, unilaterally declaredindependence from Serbia in 2008.

N

BASQUE COUNTRY

In July the separatist group ETAcompleted the “dismantling” of its

military wing, following through on a2011 pledge for a permanent cease-fire

with the Spanish government. Theterror campaign had claimed at least

800 lives since 1968.

M

REPUBLIC OF SRPSKA

Some predict that this Serbian entity within Bosnia and Herzegovina

could be the next Eastern Europeantrouble spot after Crimea.

E

TRANSNISTRIA

The region, on the border between

Moldova and Ukraine, which has asizable ethnic Russian minority,declared independence in 1990.

The claim is not widely recognized.

L

CORSICA

The Mediterranean island, controlled byFrance, enjoyed a 14-year flash of

independence—in the 18th century. This year the main separatist group

announced a plan to demilitarize.

H

PADANIA

In Italy’s 2013 general election, thelocal pro-independence party in

this northern Italian regiongarnered just 4% of the vote.

K

KURDISTAN

While they have some regionalgoverning authority, the Kurdishpeople—who reside in a regionthat spans parts of Syria, Iraq,Iran, and Turkey—have been

pushing hard for an independent

Kurdistan since World War I.

G

GREENLAND

Greenland residents voted for greaterself-governance in 2008. The

Greenlandic-speaking population seemscontent with the status quo as a territory

of Denmark, which provides theice-covered island with financial help.

FVENETO

Since 2010 cries for Venetian independencehave gotten louder. In March separatist

Venetists claimed a resounding victory in aself-declared referendum.

I

FAROE ISLANDS

The most notorious outbreaks of violence in this autonomousterritory of Denmark are the

annual “dolphin grind,” a massslaughter of pilot whales.

J

DISTINCT

LANGUAGE(S)

INDEPENDENCE

TALKS UNDE RWAY

HISTORY OF

VI OL EN CE

HISTORY OF

INDEPENDENCE

SOME AUTONOMY

NO W

INDEPENDENCE VOTE

SCHEDULED OR HELD

LEGEND


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MACRO

FORTUNE.COM

16

Perhaps so. Yet for Europe the ques-

tion is, At what price? The intense

nervousness over how the Scots might

vote extends far beyond the territory’s

rugged mountains. Many in Europe

fear that Scotland’s independence fervor

could ripple across the continent, wherea number of separatist campaigns have

simmered for years. The hotspots range

from the mountainous Basque region

at the border of Spain and France to the

Mediterranean island of Corsica to the

lowlands of Belgium, where many in the

Flemish majority want to say tot ziens

to their French-speaking countrymen.

Some of these movements have a history

of violence; several more seem merely

rhetorical—and, well, quixotic (inde-

pendent Venice?). But taken together,the sovereignty pushes are yet another

reminder of how tenuous the notion of

one cohesive “European Union” truly is.

The sense of Europe splintering at

the edges has deepened with the soar-

ing popularity of anti-EU parties like

France’s National Front and Britain’s

Independence Party, which want their

countries out of the Union. And even

if Scotland’s independence vote fails,

Britain could be forced to offer Scots far

greater autonomy, including perhapsmore control over their budget—

something that could further compli-cate the EU’s already plodding econom-

ic policymaking. With each new voice

at the table, says Steven Blockmans of

the Center for European Policy Studies

in Brussels, “it becomes more and more

difficult to align everyone’s interests.”

When British Prime Minister David

Cameron agreed in 2012 to a Scot-

tish referendum on independence, the

odds seemed remote that voters would

choose to split from Britain after 300

years of albeit awkward union, aban-doning the U.K.’s modern military and

its permanent seat on the UN Security

Council. Yet as the vote has drawn

nearer, Scots increasingly seem eager

for far-reaching change, with recent

polls putting the ditch-Britain vote at

40%. “People on the yes [for indepen-

dence] side are fighting for something

they believe in passionately, while on

the no side, the feeling is, ‘Why change

countries?’” says John Curtice, profes-

sor of politics at Strathclyde University.“There is an asymmetry of passion.”

Those in favor of independence saythat Scotland should commit a portion

of its North Sea oil earnings to funding

public health, pensions, and educa-

tion—as oil-rich Norway does—rather

than let British lawmakers divvy it up.

Supporters also say they’d evict the

Trident nuclear submarines stationed on

the Clyde River should there be a split.

Sure, a new Scotland would be small.

But it would still dwarf several other EU

countries, including Malta, Cyprus, and

wealthy Luxembourg (pop. 530,000).“This notion that you have to be part of

a big country is just not true in the EU,”

Ross says. “Some of the most successful

EU countries are small, like Denmark.

And if some of our decisions turn out not

to be right, we’ll deal with it.”

Whatever the outcome of Scotland’s

vote, few places will feel its impact as

strongly as Spain’s autonomous Cata-

lonia region 1,000 miles away. With

7.5 million Catalans speaking their own

language and running a large economyin northeastern Spain, the separat-

ist politicians in Barcelona command

huge support. Spanish Prime Minister

Mariano Rajoy has vowed to block Cata-

lan plans for a Nov. 11 independence

referendum and to ignore the results.

So far, Rajoy’s tough talk has helped

stoke separatist feelings in Barcelona,

with pro-independence parties argu-

ing that recession-hit Spain sucks away

Catalan resources. “Catalonia suffers

fiscal drainage of €8 billion to €11 billiona year, if not more, from Spain,” says

Manuel Manonelles, director general

for European and Multilateral Affairs in

Catalonia’s government. Like other Cata-

lans, Manonelles sees answers to their

political frustrations in one far-off place:

Scotland. “The British people are giving

a good example of democratic spirit” in

allowing Scotland’s vote, he says. “We’re

watching the referendum closely.” So,

too, is the rest of Europe. For updates on the Scottish referendum and other EU news, check out

Scots who favor splitting off from Britain “arefighting for something they believe in,” says one

professor. “There is an asymmetry of passion.”

September 1, 2014

Former British cabinet minister Alistair Darling (right) took on pro-independence leader AlexSalmond in a blister ing TV debate on Aug. 5. “If we decide to leave, there is no going back,”said Darling. “There is no second chance.”


19/120

Building you a better network.SM

Visit a Store ATT.COM/network 1.866.MOBILITY

AT&T is thenation’s most reliable

4G LTE network.So you can stream the action from virtually anywhere.

Based on 3d party data re nationwide carriers’ 4G LTE. LTE is a trademark of ETSI. 4G LTE not avail. everywhere. Screen images simulated. ©2014 AT&T Intellectual Property. All rights reserved. All other marks used herein

the property of their respective owners.


20/120

September 1, 2014

Macro

Herbicide-tolerant

Insect-resistant

2000 2005 2010 2014

Both

93%

0

20

40

60

80

100%

U.S. GMOcorn adoption

FORTUNE.COM

18

briefing

There was a time when football was

on Sundays, and only Sundays. Then,

in 1970, the National Football League

began putting games on Monday nights.

By 2006 it had games on Thursdays and

Saturdays too, because, heck, why not?

Now the biggest cash cow in Ameri-

can sports is betting that the broadcast

bunch isn’t nearly big enough—that

fans want football content nonstop. Andthat’s what they get with the league’s am-

bitious new video offering, NFL Now.

Launched in August, the platform

runs on a wide range of devices and of-

fers quick-burst news segments, practice

footage, game recaps, and even old Super

Bowl highlights—everything, that is, ex-

cept the thing fans have most clamored

for: a live stream of current games. The

main app is free, but a $1.99-per-month

premium version promises bonus good-

ies like the entire vault of Hard Knocks,

the HBO/NFL Films reality series.

There’s plenty of competition for

online sports video already. Last fall

Major League Baseball rolled out fancy

new video-tracking technology to caterto statheads. ( Fortune’s parent company,

Time Inc., also launched an app for

sports clips, 120 Sports.) But the NFL’s

effort stands out for two reasons. First

is that the league is truly going all in:

Each of the 32 teams has committed to

sending 150 minutes of video footage per

week to the platform—a deal largely put

in place by Brian Rolapp, EVP of media

for the NFL, and New England Patriots

president Jonathan Kraft, who co-chairs

the league’s digital-media committee.

Second is that the NFL is actually

trying to fit its digital buffet to its users’

taste buds. Taking a page from the

recommendation engines of Pandora,

Netflix, and Amazon, NFL Now claims itcan learn what type of video content you

like best. Such technology is tricky to get

right, of course. If it works, it may well be

the secret sauce that entices viewers. If

it doesn’t, count on seeing so much Tom

Brady training-camp footage that you get

that not-so-great buffet feeling.

It’s harvest time: the moment to reap what gene engineers have sown.

This year genetically modified corn will account for 93% of the crop’s

acreage in the U.S., up from 25% in 2000. Some added genes enable the

corn to produce pest-killing proteins; others shield it against herbicides.

Most of the nation’s corn is “stacked” with both types of modification.

“It’s like bundling TV, phone, and Internet,” says Jorge Fernandez-

Cornejo, a USDA economist. The stacked corn offers better yields (171

bushels per acre, vs. 134 bushels for conventional corn), according to

USDA data. But the war is hardly over. There are indications that pests

are evolving resistance to these tactics already. Who’d have guessed it?

Nature has that whole adaptation thing down cold. — Robert Hackett

ARE YOUREADY FOR

SOME24/7FOOTBALL?

THE GOES

LONG—WAY LONG—

ON A DIGITAL APP.

By Daniel Roberts

GMO CORN: HIGH AS AN ELEPHANT’S EYE

The New England Patriots work out at their practice field next to Gillette Stadium.


21/120

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the whole trip. Because when it comes to power, why let a little thing

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September 1, 2014

MACRO

Sponsored by FORTUNE.COM

20

See the full interview on our tablet edition. Andview this and other great leadership videos on

Why has your foundation

been so much more

effective than most

other disease-focused

charities?

Because we run it like a busi-ness. I took all the business

practices I learned at Merck,

Gillette, and Searle and

brought them to this non-

profit entity. I knew we had

to establish a vision. We had

to write a strong strategic

business plan, and we were

very disciplined about that. I

had to find the absolute best

partners and team to work

with us and then executenot only flawlessly but also

urgently for the patients

we were representing. The

cancer research system was

broken, and somebody had

to fix it.

What was wrong with it?

It was built ages and ages ago.

Back in the day, it was fine

to say all our scientists are

going to work in their singleareas, and we’re going to ask

them to continually publish

to get promoted and to fill

out cumbersome grants to get

funding. Those things are not

exactly nimble, and research

is changing so quickly now.

We were creating all these

islands, and in a very uncom-

mon cancer we needed col-

laboration in a desperate way.

Every medical center wouldsee a handful of myeloma

patients, so you’d never have

one center doing enough to

make a big difference. We

had to bring them together.

And you found a way to

do that?

We did. We started by build-

ing the first centralized tissue

bank in multiple myeloma,

and today that tissue bank

houses 4,000 samples for all

of our scientists to use. Once

we had this high-quality

tissue, which is the name ofthe game in cancer research,

we called the Broad Institute

and TGen [Translational

Genomics Research Insti-

tute] and said, “We want to

sequence our genome.” We

were the first to sequence our

own genome in myeloma.

What are the lessons for

leadership?

The most important thing aleader can do is set the vision

and don’t stray. We said, “We

are a research foundation.

Our mission is to accelerate

cures.” Many times people

came in and said, “Why

don’t you try this on the ad-

vocacy side,” or “Do this on

the policy side.” Every time,

we came back to, “We are a

research foundation focused

on new treatments andcures.” That tunnel vision

helped us tremendously.

Any lessons for thinking

about one’s own life?

Every time I go back to the

Dana-Farber Cancer Institute

to wait for my test results,

and I wonder if I’ve relapsed

or if I’m doing okay, I don’t

think about my company. I’m

proud of everything we’vedone, but at the end of the

day it comes back to family.

I’m still a wife, a mom, a sis-

ter—all of those things. If I’ve

learned anything, it’s to live in

the moment, and the gift that

cancer gives you is, you just

assume I’m only here today,

and I am going to seize that

moment and cherish it.

When Kathy Giusti learned in 1996 that she had multiple myeloma,

a rare blood cancer, she was told she couldn’t expect to live much

more than three or four years. Two years later Giusti, a pharma-

ceutical executive with Searle at the time of her diagnosis, startedthe Multiple Myeloma Research Foundation. Now six new drugs

are approved for treatment of the disease, and the MMRF played

a role in advancing all of them, with more in the pipeline. Life

expectancy for many patients has doubled. Giusti, who has been

in remission since a 2006 stem cell transplant from her twin sister,

talked recently with Fortune about fixing the cancer research

system, lessons for leaders, and more. Edited excerpts:

Kathy Giusti: Cancer WarriorHow one former pharmaceutical execchanged the way that patients and drug companies work together. By Geoff Colvin

wor l d’s gr e at e s t l e a de r s

Giusti at herConnecticuthome in August

phot og raph b y CHRISTOPHER LANE


23/120

Your to-do list is bigger, bolder, and more complex than ever. That’s why we work 24x7 to helpensure the security and availability of the information and systems you rely on to achieve your goals.

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24/120

MACRO

FORTUNE.COM22

Transitions—that’s all life is: story time to blocks, school

to work, retirement to dead. For many former pro athletes,

though, there’s one transition that’s about as disorienting asthey come: the seismic shift from the last season of play to

the first year of “real job.” It’s like a mobster giving up the life.

Just ask one of Chicago’s famed “Hit Men,” Gary Fencik,

who spent 12 seasons roaming the secondary as an All-Pro

safety for the Bears. “I still have fun, but nothing will ever

replace the excitement of football,” says Fencik, now 60. “You

always miss the immediacy and clarity of the game. You go

to work on Sunday, and

three hours later someone

has won and someone has

lost. There are no postponed

meetings, no wait-and-sees.

It’s happened, and either you

were good enough or not.”

Fencik, the Bears’ all-time

interception leader, proved

to be plenty good enough—

and the feat is somewhat

more remarkable given that

his NFL career almost didn’thappen. Coming out of Yale

in 1976, he was taken in

the 10th round of the draft

by the Dolphins and then

cut that August. Fencik

was all set to go with his

backup plan, enrolling in a

junior banking program at

Citibank in New York. But

before heading to Manhat-

A ‘HIT MAN’ AIMS HIGH

For more great business stories in our Pro-Files series,check out both Fortune.com and SI.com.

Pro-Files

a new series

from the

editors of

and

LEGENDARY CHICAGO BEARS SAFETY IS STILL KNOCKING

’EM DEAD—THESE DAYS IN THE REALM OF PRIVATE EQUITY. By Rich Cohen

The interception king atChicago’s Soldier Field in July

photograph by MEGAN BEARDER


25/120

FORTUNE.COM

23

tan, Fencik, who grew up in the Chicago

suburb of Barrington, flew home to see

his folks. While there, the 22-year-old

Ivy Leaguer got a call from Jim Finks,

then the Bears general manager, who

invited him to stop by Lake Forest for a

tryout. (He made quite the impression:The rookie played in 13 games that same

season.) Yet even after signing with his

beloved hometown team, Fencik contin-

ued to plan for that “other life,” the one

he’d begin after hanging up his cleats.

“One of the benefits of going to Yale is I

had roommates, classmates, even team-

mates who were going to med school,

law school, business school,” he says, “so

I never stopped thinking about what I

was gonna do after football.”

The planning took on more urgencyin 1979, when he suffered a series of

minor calamities: breaking his arm

opening day, shredding a knee, busting

up an ankle. He found himself in an

operating room, staring at the ceiling,

acutely aware of his football mortal-

ity. Around that time an old friend and

mentor called and said, “Gary, you need

to start thinking about what happens

later.” Fencik enrolled at Northwestern’s

Kellogg School of Management soon

after. In 1985, as the Bears made theirrun, he was spending two nights a week

studying finance: “’85 was good,” he

says. “I completed my MBA, we won the

Super Bowl, and I met my wife.”

Two seasons later his gridiron days

were done, and it was time to start that

other life. Even with the MBA, and the

Yale pedigree, and all that mental prepa-

ration, however, it was hard to make

the transition. He did some work as a

football analyst—a season doing color

commentary alongside James Brown onCBS, then three more years on Chicago

radio—and tried selling commercial real

estate too. Then, in the summer of 1992,

Wells Fargo recruited him to run its

new investment-management office in

Chicago, the latest outpost in the bank’s

growing asset-management division.

The 38-year-old Fencik was suddenly

a VP at a major bank, and though he

wasn’t tasked with actually managing

any customer’s money—Fencik’s princi-

pal role was business development—he

was now responsible for a territory that

spanned 10 Midwestern states.

A few years later he jumped over to

a private equity firm, Brinson Partners,

then a unit of UBS Global Asset Man-agement. There he met Bon French, a

former investment star at First Chicago

who was one of Brinson’s top dealmak-

ers. French saw in Fencik a “very well-

rounded” guy who “understood deeply

how the investment world works.” Fen-

cik had it all, French says: He knew to a

fine degree how various asset classes—

stocks, fixed-income investments, real

estate, hedge funds, private equity—

meshed together. And he was a natural

at helping clients build portfolios withthe right asset allocations.

So when French became CEO at

Adams Street Partners, a rival private

equity firm, he didn’t wait long before

recruiting the Bears’ power defender.

Fencik, who joined Adams Street in

2000, now heads global business de-

velopment and marketing for the firm,

which has 130 employees and manages

more than $25 billion for institutional

clients. (He won’t discuss specific clients

or financial metrics, he says, becauseof compliance issues. But in March

the firm pulled off a trifecta of sorts:

Three companies that it funded through

venture capital or private equity invest-

ments launched IPOs on successive

days—Paylocity and Borderfree on the

Nasdaq and Q2 Holdings on the NYSE.)

The 6-foot-1 safety, who played with

a famously concussive style, turns out to

have a soft touch with both clients and

co-workers. “Gary is someone who can

ask probing questions without putting

the person on the receiving end on the

defensive,” says French, who marvels at

how well the former pro managed the

transition from tackling to term sheets.

“It is fascinating to me how he can moveseamlessly and easily from one world to

another,” he says. Fencik, for his part, is

quick to credit his successful post-NFL

reinvention to lucky timing. “I think it

would be harder today,” he says. “Unlike

when I was playing, football’s pretty

much a full-time job. I think it would

be even more difficult today to go to

business school while you’re pursuing

an athletic career. I was very fortunate

that my dad was an assistant principal

when I was growing up—education wasalways important.”

Fencik understands why so many

athletes have trouble making a similar

leap. “I can’t speak about every profes-

sion, but when it comes to finance,

there is a period of time when you are

supposed to be paying your dues,” he

says. “Most people do that in their

twenties. If you’ve played 10 seasons of

pro sports, you’re going to be doing it in

your thirties or forties, which is tough

and lonely.” That said, his own days onSoldier Field helped prepare him for

business too. “There are lots of clichés,

but some are true,” he says. “I go to

meetings where they talk about goal

orientation, teamwork, holding people

accountable, and I laugh ’cause it’s like,

‘Well, yeah, I’m back in football.’”

The most important lesson he learned

during his pro career, notably, came not

from succeeding but rather from coming

up short. “At one time or another, most

of us who played in the NFL were the best player on a team,” he says. “Then,

one day, unless you’re a freak of nature

like LeBron James or Walter Payton,

you are no longer the best.” Part of the

answer, he says, is “to study and work

and figure out how to play better than

you are.” But perhaps a bigger part is re-

discovery. “As you get older,” says Fencik,

“you have to learn how to be yourself all

over again.”

September 1, 2014

“I go to meetingswhere they talk aboutgoal orientation and

teamwork,” he says.“And I laugh ’cause it’slike, ‘Well, yeah, I’mback in football.’”


26/120

LET’S GO.

LET’S FIND MORE WAYSTO USE LESS FUEL.

Today, we’re not only working to find more energy, we are helping inspire ways to use less. That’s why for over

25 years, the Shell Eco-marathon has been challenging schools and universities around the world to design, build

and test ultra-energy efficient vehicles. At this year’s event, Mater Dei High School achieved 2,471 miles pergallon with their prototype vehicle, “Supermileage 2.” This spirit of innovation is spreading. In 2015, the Shell

Eco-marathon will move to Detroit, Michigan, a city with a history of mobility engineering and innovation, and an

ideal place to drive the world further toward a sustainable energy future. www.youtube.com/shellletsgo


27/120

September 1, 2014

MACROn e w e n e r gy

FORTUNE.COM29

The solution to global warming is obvious—reduce green-house gas emissions. Accomplishing that goal, however, re-

quires radical action. Few understand that better than Richard

Kauffman, an ex–Goldman Sachs and Morgan Stanley banker

whom New York Gov. Andrew Cuomo appointed last year

as the state’s first energy czar. Kauffman has visions of New

York as a 21st-century clean-tech powerhouse. But for now,

he admits, it remains more of a 20th-century energy dinosaur.

“We’re not on a sustainable path either environmentally or

economically,” says Kauffman of his state. “We’re not install-

ing enough renewables, and we’re not getting the economic-

development boost that a

transition to a new-energy

economy can provide. We

need to rethink what we do.”To kick-start that process

of reinvention, Kauffman

has taken some radical

actions of his own: Earlier

this year he rolled out a

state-owned financing

startup with $1 billion in

assets called N.Y. Green

Bank. The hope is that,

through strategic lending,

the state can give the private

sector the incentive to helptransform New York State’s

power system. If it works,

the project could provide

a template for other states

to follow. According to the

OECD, N.Y. Green Bank is

only the second state-run

institution of its kind in the

U.S. Connecticut launched

a green bank in 2011 but

on a smaller scale, with

$117 million in net assets.New York’s list of energy

challenges is long. It lags

behind California and other

big states in the adoption of

renewables. Last year, for

instance, the Golden State

installed 2,621 megawatts of

solar energy, compared with

New York’s paltry 69 mega-

watts. New Yorkers pay some

of the highest electrical rates

in the nation. At the sametime, the state’s utilities are

struggling. Electricity de-

mand is weak, and the cost

to maintain an aging grid is

rising. The price tag simply

to keep New York’s anti-

quated grid running over the

next decade is an estimated

$30 billion.

Gov. Cuomo has given

Kauffman the clout to make

big changes. As New York’s

chairman of energy and

finance, he has the swayand the budget to push

for change in almost every

aspect of the state’s energy

system. He has already

launched a multifront of-

fensive. Kauffman is push-

ing for regulatory reform

that would encourage the

state’s utilities to run more

energy-efficiency programs

and make smart-grid

investments to reduce loadand the need to maintain

expensive backup power

plants. He’s also pushing for

utilities to invest more in

clean, distributed energy.

Other states have tried

such measures with only

moderate success. Although

wind and solar power are

growing quickly, their share

of the nation’s total power

generation is only about4%. Kauffman is hoping the

Green Bank can push New

York way past that level in

coming years. The bank,

funded by a surcharge paid

by utility customers, aims to

help finance clean-energy

projects throughout the

state. The Green Bank plans

to announce its first invest-

ments this fall.

When he took the energyczar job, Kauffman, 59,

brought with him a strong

belief that the government

was lousy at picking win-

ners and losers. (Consider

the Energy Department’s

disastrous $535 million

investment in solar-panel

maker Solyndra.) He began

searching for private sector

A $1 Billion Beton Clean Energy WITH ITS NEW “GREEN BANK,”NEW YORK AIMS TO BOOSTSOLAR, WIND, AND SMART-GRID TECHNOLOGY. By Brian Dumaine

As the first-ever energy czar of New York State, ex–Goldman Sachsbanker Richard Kauffman has the clout to make major changes.

photograph by REBECCA GREENFIELD


28/120

n e w e n e rg y

September 1, 2014

MACRO

States with the largest growth in photovoltaic solar in 2013 CALIFORNIA 2,621MEGAWATTS

ADDED

421335

237236

146917569

56

ARIZONA

HAWAII

GEORGIA

MASSACHUSETTS

COLORADO

TEXAS

NEW

YORK

NORTH

CAROLINA

NEW

JERSEY

SOURCE: SOLAR ENERGY INDUSTRIES ASSOCIATION

FORTUNE.COM

30

solutions to the state’s energy problems. “It’s going to be

the markets that will give customers what they want,” saysKauffman. “I have no idea what new energy systems are

best. Apple, for example, allows outside programmers to

make apps for its products because that’s the way innovation

happens—you open up competition.”

So the Green Bank will not dole out grants or fund risky

clean-tech startups. Rather, it will offer “gap” financing. That

means providing loans, debt guarantees, and other financial

products to help private sector bankers fund more clean-

tech deals—whether for solar, wind, smart-grid technology,

battery storage, or energy-efficient buildings. Says Douglas

Sims, the director of strategy and finance at the Natural

Resources Defense Council and an adviser on the project:“They will provide comfort to private lenders who want to

employ capital in this space. They’re enablers. To me, that’s

the most radical thing about it.”

While large-scale wind and solar projects can typically

get financing, Kauffman says that there are many smaller

clean-tech projects that are viable but just can’t find the

right debt structure. For example, universities, hospitals,

and municipalities that want to install solar systems or

energy-efficiency technology often have good credit ratings

but don’t have the upfront capital. A bank might be willing

to offer a 10-year loan, but the organizations might need a

15-year loan to make the debt service more affordable. Sothe Green Bank could step in and provide the financing for

years 11 through 15. Another area where it could help is in

solar installation. Companies such as SolarCity, Sunrun, and

Sungevity have little trouble raising financing for residential

customers who have top credit scores of around 700, but

they find it much harder to

raise money for leases orloans for those with scores

of 650—even though these

customers are considered

creditworthy. The Green

Bank could guarantee the

financing on those deals.

Perhaps the biggest im-

pact the Green Bank could

make is in securitization.

(Think mortgage-backed

securities with better due

diligence.) So far the bondmarket has been largely

absent when it comes to

financing renewables.

Why? Big banks don’t like

to dabble in small loans.

The Green Bank plans to

securitize clean-energy

projects—bundling 40 or

50 solar loans, each worth

about $1 million, into one

security and then selling

the $50 million bond toinstitutional investors. That

would open an entirely

new source of capital for

the sector and spur growth,

Kauffman believes.

As promising as the Green

Bank sounds, some in theenvironmental community

worry that even $1 billion

in capitalization won’t be

enough to turn New York

green. After all, energy is an

extremely capital-intensive

industry.

But Kauffman believes

that the first step is for the

Green Bank to show that

it can make money. If the

bank is profitable, it will beself-sustaining, he argues.

And it can leverage that

$1 billion in a way that

would have a significant,

long-term impact on the

clean-tech industry. “We

want to get a market rate

of return and then step out

of the way,” says the energy

czar. “We want to be on the

frontier of new markets,

providing the necessarysupport to get the private

sector fully engaged.” And

if that happens, Kauffman’s

radical plan might make a

real impact.

“We want to be on the frontier of new markets, providing thenecessary support to get the private sector fully engaged.”

—Richard Kauffman, New York State’s energy czar


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LET’S KEEP THE LIGHTSON WHEN SHE’S YOUR AGE.

What sort of world will this little girl grow up in? Many experts agree that it will be a considerably moreenergy-hungry one. There are already seven billion people on our planet. And the forecast is that therewill be around two billion more by 2050. So if we’re going to keep the lights on for her, we will need to

look at every possible energy source. At Shell we’re exploring a broad mix of energies. We’re making ourfuels and lubricants more advanced and more efficient than before. With our partner in Brazil, we’re alsoproducing ethanol, a biofuel made from renewable sugar cane. And we’re delivering natural gas to morethan 40 countries around the world. When used to generate electricity, natural gas emits around half theCO2 of coal. Let’s broaden the world’s energy mix. www.youtube.com/shellletsgo

LET’S GO.


30/120

global power profile

September 1, 2014

MACRO

FORTUNE.COM32

He found an outdated Unilever

product from the 1960s—a toiletseat—that happened to be named

Ariel del Plata, and began an ag-

gressive ad campaign with posters

of toilet seats bearing the name

Ariel. P&G eventually pulled its

product from South America.

According to insiders, Lewis is

also known for successful team

building. He doesn’t drive luxuri-

ous cars and is often seen in jeans

and casual shirts that make him

look like a local “Yorkshire lad.” At Unilever he gave company-

branded rugby shirts to em-

ployees and would host guest

speakers to counsel staff on team

spirit. “No doubt there are strong

threads of creativity running

through his work,” a Tesco execu-

tive told Fortune.

No word yet on any plans to res-

urrect the toilet seat strategy.

With $103 billion in revenue, Tesco, the world’s

second-largest general-merchandise retailer, be-

hind Wal-Mart, and the biggest food producer and

retail brand in the U.K., earned the No. 63 spot on

this year’s Fortune Global 500 list. But lately the

company has been struggling to stay on top. Forthe past two years the retailer has grappled with

falling profits, struggled to stabilize prices, and lost

market share to discounters and online grocers.

Founded in 1919, Tesco has grown to a be-

hemoth of 6,784 stores in 12 countries. It’s no

longer just a grocer, but a giant retailer, with gas

stations, an online marketplace, DVD rentals, and

financial services. In recent years it has diversified

by veering into tech—first with a tablet computer,

the Hudl—and in early 2014 revealed plans to

begin manufacturing a smartphone to compete

with Samsung.Tesco’s new CEO, Dave Lewis, a 49-year-old

strategy expert who hails from Yorkshire, began

his career at Unilever in 1987. While at the con-

sumer products giant he oversaw business seg-

ments in South America, Southeast Asia, and the

U.K. Most recently he was president of Unilever’s

personal-care unit, which includes the Dove

and Vaseline brands and accounts for 40% of its

$66 billion in annual revenue.

When he starts next month, Lewis will be the

first Tesco CEO to come from outside the company,

a surprise to industry watchdogs. “He clearlyknows nothing about retailing,” says Nick Bubb,

an analyst for London-based Retail Think Tank.

“But he certainly knows how to win price wars.”

Price wars—one of the larger issues Tesco

hasn’t solved—continue to plague the industry as

grocery discounters, such as Aldi and Lidl, have

usurped the low-priced market, and fewer shop-

pers return to bigger chains like Tesco.

In May, Tesco reported a 6% decline in annual

profit—its worst performance in the past 20 years—

and the company’s stock has

fallen 46% from a high of $702in 2010. Lewis will have to re-

think its identity since the brand

no longer caters to low-income

shoppers, nor falls in the high-

price category shared by Marks

& Spencer. “He must take some

extreme steps,” says a former

Tesco exec.

While at Unilever, Lewis

made deep cuts to keep costs

low. As part of a restructuring

in 2007, he axed employeesand managed to slash 40% of

expenses, earning him the nick-

name Drastic Dave.

But Lewis has also garnered

praise for his creative approach.

While he was working in South

America, competitor Procter &

Gamble launched detergent brand

Ariel. Lewis mounted a radical

counterattack to lampoon P&G:

Retail’s Newest Strategist TESCO’S BOARD PICKED TURNAROUND PRO DAVE LEWIS AS ITS NEXT

CEO. WILL HE RETHINK THE SALES GAME? By Mehboob Jeelani

Lewis is known forhis approachable

management style.


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road warrior

September 1, 2014

MACRO

Schulman is the author of

Nerve Breakers: Conquering

Life’s Stage Fright.

FORTUNE.COM34

HOTELS SOMETIMESHAVE HIDDEN WI-FITHAT IS LESS POPU-LATED THAN THE ONEEVERYONE ELSE IS ON.

I’LL JUST CALL DOWN AND SAY, “DO YOUHAVE ANOTHER WI-FI,SOMETHING THATISN’T LISTED?” OFTENTHEY DO—THEREWILL BE AN EMPLOYEEWI-FI OR A BUSI-NESS WI-FI THAT YOUCAN TAP INTO.

I DRAW INSPIRATIONFROM EVERY MONU-MENT AND EVERY

STARBUCKS. I REMEM-BER BEING IN PARISWITH FOREIGNER ANDWANTING TO WRITE,SO I TOOK MY IPAD,LAY UNDER THE EIFFELTOWER, AND WROTEFOR TWO HOURS. I’LLOFTEN POP DOWN TO

A STARBUCKS ANDWRITE SOME MUSIC.

SKYPE IS THE GREAT-EST THING. VIDEO-CHAT IS A LIFESAVER.I CAN’T IMAGINE WHATLIFE WOULD HAVEBEEN LIKE 20 YEARS

AGO—TO NOT SEE MYKIDS. GOING THREEMONTHS WITHOUTSEEING MY FAMILYWOULD BE REALLY

VERY CHALLENGING.

I’m on the road sometimes

80% of the year. A tour is

a very well-oiled machine.

My job is easy—I just come

on and play my instrument.

That they can set up the

entire stage in eight hours,

rip it down in three, and do it

in another city back to back

is astounding.

East Coast is that they’re

on the West Coast, so I can

sleep later. Because, let’s

face it, with my lifestyle, I do

have to stay up late.

If there’s a screaming baby on

a plane, I put in my custom-

molded in-ears, turn on a

bit of music, and fall asleep.

They’re molded for my ears,

so they sound fantastic. You

can get an audiologist to

a 20-megabyte download

speed than a perfectly warm

shower and a half-megabyte

download speed.

Clem Burke, the drummer forBlondie, did a study. He put

gadgetry on his body, and

researchers determined that

a drummer who plays two

hours of rock or pop music

can burn as many calories as

a professional soccer player.

After the shows finish, we

usually get a bus that leaves

at about midnight. Depending

on how far it is from the next

city, I could get in anywhere

from three in the morning to

11 in the morning. Then I’ll do

my best to get back to sleep.

Generally, my protocol is I

wake up, have some coffee,

then get to the gym and get

some exercise in.

Sometimes I’ll wake up early

and sacrifice my own sleep

so I can see my 4-year-old

daughter on Skype before

she goes to school. The good

thing about being on the

take the molds and then go

to Jerry Harvey Audio, which

makes custom-molded in-

ears. They sound better than

the top-of-the-line Beats.

A strong Wi-Fi signal can be

more important than a hot

shower because that’s your

lifeline. I always pay to have

the most expensive Wi-Fi. If

they have a premium service,

I always pay for that. And if

it’s anything less than pre-

mium, I ask for my money

back, and they always give it

to me. I would rather have

I’m developing a program

about taking the concept

of innovating as a creatorand using what I know as

a musician to get people

in the corporate world to

learn how to jam and get

into that transcendent in-

novative head space.

Touring With Superstars PROFESSIONAL DRUMMER ANDCORPORATE SPEAKER, HAS BEEN ON THE ROAD

WITH CHER, PINK, AND STEVIE NICKS. By Robert Hackett

A 27-year-veteran touring drummer, Schulman, photographed in Los Angeles, returns to the road with Cher in September.

For travel tips from tour dancer andchoreographer Jamal Story, visit

photograph by KENDRICK BRINSON


33/120

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35/120

2000 20102005 2014*

0

0.5

1.0

$1.5 billion

Annual robot orders

$1.6

VENTURE

September 1, 2014

FORTUNE.COM

37

THE NOTION OF ROBOTS in

everyday life was long the stuff of

The Jetsons and Star Wars. But

Colin Angle, 47; Rodney Brooks, 59;

and Helen Greiner, 46, brought such

inventions into real life through

their company, iRobot. Its Roomba

Aye, RobotsRobotics are

projected toachieve recordsales this year.

How iRobot brought us machines to clean houses, defuse bombs, and diagnose patients. Interview by Dinah Eng

From R2-D2 toPractical Robots

From left: Brooks, Angle,and Greiner with a robotthat can be thrown into aninaccessible or perilouslocation to send backvideo or information.

How We Got Started

* 2 0 1 4

p r o j e c t e d .

c h a r t

s o u r c e : r o b o t i c

i n d u s t r i e s a s s o c i a t i o n

photograph by HARRY GOULD HARVEY IV


36/120

VENTURE

September 1, 2014

FORTUNE.COM

38

built for demonstrations and to inves-

tigate new technologies. Starting the

company was a way to build robots that

would actually be used by people.

Brooks: We started with no clearidea of who our customers would be.

We had no capital, so we did contract

research for people. The three of us

made a good team. Colin did the

electrical, Helen did the mechanical,

and I did the software. We had to move

quickly to come up with new solutions

for our clients. Projects ranged from

making toys for Hasbro to military

robots for the government.

Angle: The name iRobot comes from

Internet-connected robot. We felt that would be the future of the business,

so we changed the company name to

iRobot in 2000. It’s taken us a long time

to realize that dream. In the past year we

came out with RP-VITA, used by doctors

to remotely diagnose stroke patients and

treat those in the ICU and ER.

Greiner: Large companies may do

innovation and disruption in the labs,

but they have trouble pushing it out

into the real world, in part because

it’s potentially disruptive to their own business. When you’re a small com-

pany like iRobot, you really push on

one thing, and that helped us get from

research to mainstream products.

Brooks: At one point I spent a lot of

time in China, figuring out how to do

low-cost manufacturing, which led to

being able to make our Roomba vacuum

cleaner cheaply. In 2001, Electrolux had

introduced the Trilobite, a robot vacuum

vacuum cleaner is well known, but

other inventions have graver functions:

PackBot, a robot used by the military

to defuse bombs in Afghanistan, and

RP-VITA, used by doctors to remotelydiagnose and treat patients. Once funded

with credit cards and savings, iRobot is

now profitable: It generated $487 mil-

lion in revenue and $27 million in earn-

ings last year. The founders’ story:

Rodney Brooks: I grew up in Ade-

laide, Australia. No one in my family

had finished high school, and I was

smart at mathematics, so I became an

academic and got my Ph.D. in com-

puter science at Stanford. I didn’t setout to be a businessperson.

Colin Angle: I grew up mostly in

Schenectady, N.Y. From an early age,

building and creating things was a real

passion for me. I fixed a toilet when I

was 3 years old. My mom was a single

parent, and when the toilet broke, I’d

just read Richard Scarry’s How Things

Work in Busytown, and said, “Mom,

if you read me the words, I’ll fix the

toilet.” Sure enough, I figured out what

was wrong. If I was told to go make the bed, I’d immediately think, How could

I build a robot to do it?

Helen Greiner: I was born in Lon-

don and grew up on Long Island. My

dad brought a computer home in 1978,

when I was 10, and it became mine.

Then I saw Star Wars and fell in love

with R2-D2. He had such personality.

MIT was the only school I applied to,

and that’s where I met Colin.

Brooks: I moved to MIT from Stan-

ford in 1984 to teach, and became the

founding director of MIT’s Computer

Science and Artificial Intelligence Lab.

Angle: In 1988 a friend was going tointerview for a job building robots with

Rod, so I went too. We were asked to fill

out a form about electromechanical de-

vices we’d built. An hour later I had an

epiphany that this is what I love to do.

Brooks: Colin was one of three un-

dergrads I hired, and the project I gave

him was to build a walking machine.

Angle: I built Genghis, a six-legged

walking robot. Rod did the high-level

intelligence, and I built the low-level

software, electronics, and sensing. Ithelped earn Rod tenure, and I won the

Adler Prize for outstanding thesis in

electrical engineering. That was the be-

ginning of a wonderful partnership that

led to building Attila, a prototype for a

rover that could explore another planet,

for NASA’s Jet Propulsion Lab [JPL].

Greiner: During graduate school

Colin and I both worked at JPL one

summer. I had two internships there and

did my master’s work at MIT and JPL.

Angle: One day Rod said, “I’m think-ing of starting a robot company.” I said,

“Okay, I’m in.” So in 1990 we founded

IS Robotics Inc., focusing on building

practical robots. We needed more of a

team, so we brought Helen in.

Greiner: I’d started another com-

pany to commercialize JPL technology.

I thought the opportunity to work with

Colin and Rod was an even better one,

so I jumped in. In academia robots are

how we got started

310-SUGV This remote-controlled machinecan be used for militaryreconnaissance or toremotely view a dan-gerous scene withoutrisking lives.

RP-VITA Say ahhh: This

device allowsdoctors to

see (and beseen) and treatpatients from a

distance.

0510-PACKBOT Used todetect and defuse bombs,it was also used to explorethe earthquake- andtsunami-damaged Fuku-shima nuclear reactor.

ROOMBA iRobot’sbest-known invention,

this circular vacuumnavigates a room on

its own. It also plays arecurring, supporting

role in YouTube vid-eos in which cats are

seen surfing them.


37/120

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VENTURE

September 1, 2014

For a gallery of past and current iRobot products, go to

FORTUNE.COM

40

makers in the Pentagon. She succeeded

in getting contracts that typically wentto companies larger than we were.

In 2003 we brought in Vice Admiral

[Ret.] Joseph Dyer, and Helen moved

to chairman, focusing on partnerships

and acquisitions.

Greiner: People remembered me

because I’m female. I was the robot

lady. People have figured out that

women buy 80% of things in this coun-

try, and not having women involved in

developing and marketing products is

shooting yourself in the foot.Brooks: In 2008, I decided I want-

ed to begin a new venture, so I started

Rethink Robotics. We build factory

robots that a person can learn to train

in just a few minutes. In May 2011, I

stepped off the iRobot board.

Greiner: After 18 years at iRobot,

I wanted to get back to pushing the

boundaries with innovative things, so

I founded CyPhy Works in 2008 and

stepped down as iRobot executive

chairman in 2011. At CyPhy Works, we’re building UAVs [unmanned aerial

vehicles], which are flying robots. Most

people call them drones.

Angle: People are fascinated by ro-

bots because they’re machines that can

mimic life. We’ve gotten the industry to

where it’s starting to fulfill its promise.

Brooks: When I came to the U.S. in

1977, there were three operational re-

search robots in the world. Now iRobot

has delivered millions of robots. That’s a

big change, and I’m very proud of that. Angle: We’re facing an emerging

global crisis of caring for our aging

population, and we need new technol-

ogy to help people continue to live

independently in their homes. I think

that’s the true promise of robots.

Greiner: I’m proudest of the lives

saved by our PackBots and getting ro-

bots into millions of homes. iRobot is

one of the biggest overnight successes

that was 12 years in the making.

cleaner in Europe, but theirs cost 2,000

euros, and ours sold for $200. Angle: The first two or three years,

it was just Rodney, Helen, and me. We

hired five or six people and built slowly

after that. We went 6½ years never

starting the month with enough money

in the bank to make payroll, but we al-

ways made it. There was nothing stable

about anything we were doing.

Greiner: We’d put our expenses on

credit cards and didn’t pay a lot of bills.

Angle: We figured out which suppli-

ers had not put us on a credit hold and went to them for parts. We survived by

getting paid half upfront for building

robots we’d sell to research labs. People

were rooting for us to succeed because

they want robots to live up to the

promise of The Jetsons. At the 12-year

mark, we made about $15 million.

Brooks: That’s when I knew we

were on to something that could be

sustainable. It’s only fairly recently

that we’ve had lower-cost computer

components available. The cellphonemarket has brought down the cost

Documents

Fortune 1 September 2014