WEBVTT - Ackman Has Old Data and Incomplete Info in War on ADP, CEO Says 0:00:05.800 --> 0:00:08.719 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:31.560 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Now 0:00:31.600 --> 0:00:33.720 we're going to visit with Carlos Rodriguez. He is the 0:00:33.760 --> 0:00:36.760 president and the chief chief executive of a d P 0:00:37.440 --> 0:00:40.520 and just by way of quick background, in August, Bill 0:00:40.560 --> 0:00:43.360 Ackman's Pershing Square Capital announced that it had taken an 0:00:43.360 --> 0:00:46.720 eight point three percent steak and since then it has 0:00:46.800 --> 0:00:49.839 been in a well proxy battle with a DP. In 0:00:49.880 --> 0:00:52.599 here to tell us more is Carlos Rodrigez. Carlos, thank 0:00:52.600 --> 0:00:54.280 you very much for being here. Appreciate it. Thank you 0:00:54.280 --> 0:00:55.800 for having me. All Right, I'm gonna I'm just gonna 0:00:55.800 --> 0:00:58.920 start you off by um asking you, based on your 0:00:58.960 --> 0:01:02.240 experience in the job and who you've talked to and 0:01:02.360 --> 0:01:06.400 your analysis, do you really believe that Bill Ackman wants 0:01:06.680 --> 0:01:10.640 to make a DP a better company or does he 0:01:10.840 --> 0:01:13.960 just want to make a lot of money and go away? 0:01:14.840 --> 0:01:16.720 I think it's probably little bit of both. Uh. There's 0:01:16.720 --> 0:01:19.400 no question that the business model that he has is 0:01:19.440 --> 0:01:22.520 really about making a lot of money and eventually going away. 0:01:22.560 --> 0:01:24.399 But I think he has some uh done a lot 0:01:24.440 --> 0:01:26.600 of research on the company and certainly has some ideas 0:01:26.600 --> 0:01:28.240 about how to make the company better. So it's probably 0:01:28.240 --> 0:01:31.080 a little bit of both. So do you think that 0:01:31.160 --> 0:01:34.960 he's largely right in his criticisms of a DP. No. 0:01:35.120 --> 0:01:38.400 I think that, you know, some of his information is outdated. UM. 0:01:38.560 --> 0:01:40.600 I think as he's done his research, he's probably spoken 0:01:40.640 --> 0:01:43.360 to some folks that have a perspective of a DP 0:01:43.520 --> 0:01:46.680 that's probably outdated. He um. As you mentioned that, the 0:01:46.720 --> 0:01:49.240 first time we heard from Bill was in August, so 0:01:49.280 --> 0:01:51.040 he hasn't had the benefit of really having a dialogue 0:01:51.040 --> 0:01:53.200 with the company to understand the things we've been working on. 0:01:54.240 --> 0:01:57.080 So let's go over what his main criticisms are. He's 0:01:57.120 --> 0:01:59.800 been saying that a DP has a quote buy not 0:02:00.120 --> 0:02:04.160 build model, whereas he would like to see a more 0:02:04.240 --> 0:02:08.120 innovative spirit. Um. He has some other complaints too, among 0:02:08.200 --> 0:02:11.080 them that board members don't have a big steak in 0:02:11.120 --> 0:02:14.160 the company like himself. He's saying, I have a better 0:02:14.720 --> 0:02:17.799 sense of the interest of shareholders. What's your sense, what's 0:02:17.840 --> 0:02:20.720 your what's your counter to those points? Well, starting with 0:02:20.760 --> 0:02:25.079 the ownership question, all of our directors have been deferring 0:02:25.360 --> 0:02:29.239 the cash comp portion of their fees for many years, 0:02:29.240 --> 0:02:30.840 and some of them have millions of dollars worth of 0:02:30.880 --> 0:02:33.120 ADP stocks. So it's just not I think it's an 0:02:33.120 --> 0:02:35.480 accurate depiction of our board, and there's the stake that 0:02:35.520 --> 0:02:40.320 they have in an ADP. In terms of the innovation point, um, 0:02:40.560 --> 0:02:42.520 you know, we've we've really been all about innovation over 0:02:42.520 --> 0:02:44.200 the last six years, and I think that's one of 0:02:44.200 --> 0:02:47.639 those items where I think we've had an opportunity to 0:02:47.680 --> 0:02:50.040 have dialogue and communicate with Bill. He probably would have 0:02:50.120 --> 0:02:54.040 a different perspective because we've been investing in cloud technology 0:02:54.080 --> 0:02:57.440 over the last six years, We've moved of our clients 0:02:57.440 --> 0:03:00.240 the new cloud solutions. So I think it's really, I 0:03:00.240 --> 0:03:03.960 think again outdated information. It's it's just not it's not accurate. 0:03:04.919 --> 0:03:08.600 What about margins, He's noted that the felt that margins 0:03:08.600 --> 0:03:11.280 were too low in the business. What's That's an interesting 0:03:11.360 --> 0:03:13.600 question because we we meet with investors obviously on a 0:03:13.600 --> 0:03:16.959 regular basis, as you can imagine, and the absolute level 0:03:16.960 --> 0:03:19.280 of our margins really isn't one of the items that 0:03:19.320 --> 0:03:23.799 we've heard a lot about up until Bill uh contacted 0:03:23.880 --> 0:03:27.400 us UM. So we obviously have margin improvement initiative under way. 0:03:27.400 --> 0:03:30.560 We've actually grown our margins by five basis points over 0:03:30.600 --> 0:03:34.120 the last uh five years during my tenure, and we 0:03:34.200 --> 0:03:37.480 have a plan that we've publicly put out there to 0:03:37.560 --> 0:03:39.960 increase the margins by another five basis points over the 0:03:40.000 --> 0:03:42.760 next three years. So I think we're focused on margin 0:03:43.200 --> 0:03:45.320 as Bill is. I think it's really about pace and 0:03:45.360 --> 0:03:47.880 I think the risk reward ratio of how fast you move. 0:03:48.400 --> 0:03:50.320 So there have been a lot of public jobs back 0:03:50.360 --> 0:03:53.000 and forth. I'm wondering on the private side, have you 0:03:53.200 --> 0:03:56.000 sat down with Bill Ackman explained your point of view 0:03:56.200 --> 0:03:59.080 and what was that like if so, we have We've 0:03:59.080 --> 0:04:03.600 had a think professional and cordial conversations. Bill also came, 0:04:04.000 --> 0:04:07.320 myself and our chairman with Bill, and we've also had 0:04:07.640 --> 0:04:09.920 a meeting with the full board of directors where Bill 0:04:10.000 --> 0:04:13.680 came and Uh gave his his the information that he had, 0:04:13.960 --> 0:04:15.960 the research that he had done, and then his his 0:04:16.000 --> 0:04:18.440 opinions about where the company should go. So I think 0:04:18.480 --> 0:04:21.120 the company has been open to dialogue and I think 0:04:21.120 --> 0:04:24.960 it's been professional and cordial. So he went on television 0:04:25.080 --> 0:04:28.760 shortly after Bill Ackman announced his steak and called him 0:04:28.760 --> 0:04:31.920 a used car salesman in a spoiled brat. Your your 0:04:31.960 --> 0:04:34.680 rhetoric is a lot less inflammatory today. Is there a 0:04:34.680 --> 0:04:38.760 reason for that? Um? You know, probably time heals all wounds, 0:04:38.800 --> 0:04:41.520 as they say, So, I think, uh, you know, Bill 0:04:41.600 --> 0:04:44.680 is a significant shareholder, and we obviously are open to 0:04:44.720 --> 0:04:48.440 listening to all shareholders. We do disagree obviously with his 0:04:48.440 --> 0:04:51.000 his perspective on the timing of how fast we should 0:04:51.000 --> 0:04:54.760 be improving our margins, and we also disagree with the 0:04:54.800 --> 0:04:59.080 board disagrees with the candidates that he's proposed as as nominees. 0:04:59.080 --> 0:05:00.960 But you know, we're trying to folk, it's really facts. Now, 0:05:01.160 --> 0:05:04.960 what's been your main objection to the people he's nominated 0:05:05.000 --> 0:05:07.600 in his idea? Well, it's not myself, it's really the board, 0:05:07.600 --> 0:05:11.040 in our nominating governance committee, who interviewed the candidates. And 0:05:11.440 --> 0:05:12.720 you know, we believe that we have a strong and 0:05:12.760 --> 0:05:16.080 independent board. We've added, for example, four new members over 0:05:16.080 --> 0:05:19.160 the last three years, including three with strong technology experience. 0:05:19.200 --> 0:05:22.159 One of them is Bill Ready, who's the CEO of PayPal. 0:05:22.240 --> 0:05:25.880 So We've added some really great talent around technology in 0:05:25.960 --> 0:05:29.240 order to really help us push this innovation movement that 0:05:29.279 --> 0:05:31.480 we have in the company. And so we think we 0:05:31.520 --> 0:05:34.440 have a strong independent board that is very capable as 0:05:34.440 --> 0:05:37.320 a good mixture of tenure and history with the company, 0:05:37.320 --> 0:05:39.320 but a lot of fresh thinking as well. So I 0:05:39.320 --> 0:05:41.840 think the committee, the nominee and governance committee just came 0:05:41.880 --> 0:05:44.440 to the conclusion that there really wasn't any additive value 0:05:44.520 --> 0:05:48.680 from the three directors that builds proposing. Can you describe 0:05:48.880 --> 0:05:51.080 what it was like and where you were when you 0:05:51.160 --> 0:05:54.720 first learned that Pershing Square had an eight point three 0:05:54.720 --> 0:05:57.479 percent stake in your company. Actually, I do remember that 0:05:57.560 --> 0:05:59.000 quite well, and I probably will remember it for a 0:05:59.040 --> 0:06:02.440 long time. I was in my car arriving home about 0:06:02.480 --> 0:06:05.599 to leave on a on a trip, UH and I 0:06:05.640 --> 0:06:08.320 was actually leaving a board meeting, and I looked at 0:06:08.360 --> 0:06:10.200 my my cell phone rang I looked at it, and 0:06:10.200 --> 0:06:13.440 it said Bill Ackman, And so I entered the phone 0:06:13.600 --> 0:06:15.719 and Bill and I had again a professional and cordial 0:06:15.720 --> 0:06:19.640 conversation where he said that he wanted to replace five 0:06:19.680 --> 0:06:22.919 directors of the company and replace me, and that the 0:06:22.920 --> 0:06:25.880 company just needed to move faster, and that he wasn't 0:06:26.360 --> 0:06:28.919 that he had an eight percent stake. He didn't clarify 0:06:28.960 --> 0:06:31.640 at the time that he had only a two percent 0:06:31.680 --> 0:06:34.200 stake and the rest was in stock options, which we 0:06:34.800 --> 0:06:36.840 you know, figured out later down the down the road. 0:06:36.920 --> 0:06:39.680 But um, you know, obviously immediately called our chairman after that, 0:06:40.040 --> 0:06:41.680 and then we had a board meeting to discuss the 0:06:41.920 --> 0:06:44.840 situation and then to talk about next steps. I love 0:06:44.880 --> 0:06:48.559 the idea of cordially discussing, you know, saying to somebody 0:06:48.600 --> 0:06:51.640 I'd like to see removed, and cordially saying, well, I 0:06:51.720 --> 0:06:54.120 disagree with you. I imagine it was quite a quite 0:06:54.120 --> 0:06:56.360 a conversation. Well, it was, I have to admit of 0:06:56.400 --> 0:06:59.120 a surreal moment. But you know it's my job to 0:06:59.200 --> 0:07:01.719 be I think, unemotional, and I think I serve at 0:07:01.720 --> 0:07:04.679 the pleasure of the board and also at the pleasure 0:07:04.720 --> 0:07:07.000 of the shareholder. Carlos Rodriguez, thank you so much for 0:07:07.040 --> 0:07:10.400 joining us. Carlos Rodriguez as President and chief executive officer 0:07:10.640 --> 0:07:14.640 of a d P, which is based in Roseland, New Jersey. ADP, 0:07:14.720 --> 0:07:17.760 of course, is very well known for the employment reports 0:07:17.760 --> 0:07:19.440 that they put out in a regular basis that are 0:07:19.520 --> 0:07:22.400 used as a gauge of the employment market in the 0:07:22.480 --> 0:07:37.960 United States. Well, Chinese President j Ping has warned of 0:07:38.000 --> 0:07:41.239 severe challenges while laying out a roadmap to turn China 0:07:41.280 --> 0:07:45.120 into a leading global power by twenty fifty. He was 0:07:45.160 --> 0:07:48.560 speaking at the twice a Decade Party gathering, and uh, 0:07:48.680 --> 0:07:50.360 we're here to tell us a little bit more about 0:07:50.400 --> 0:07:54.320 it and maybe some analysis is Bill Rhodes. Bill Rhodes 0:07:54.400 --> 0:07:57.280 is the author of Banker to the World, Leadership Lessons 0:07:57.520 --> 0:08:00.520 from the front Lines of Global Finance, and of course 0:08:00.520 --> 0:08:03.160 he is also the president and chief executive of William 0:08:03.400 --> 0:08:06.600 Rhodes Global Advisors. Bill Rhodes, thank you very much for 0:08:06.680 --> 0:08:11.080 spending time with us. Jumping spoke about the Chinese dream. 0:08:11.320 --> 0:08:16.120 Does the Chinese dream include a nuclear armed North Korea? Well, 0:08:16.160 --> 0:08:19.560 I think that, uh. As you remember, Pim, I've been 0:08:19.600 --> 0:08:22.920 saying on your show for the last more than a 0:08:23.000 --> 0:08:26.600 year that the most important political event of this year 0:08:26.800 --> 0:08:29.040 was not going to be the elections in Europe, but 0:08:29.320 --> 0:08:32.880 the nineteenth Party Congress, which, as you mentioned, already started. 0:08:33.480 --> 0:08:37.640 And this sort of crowns Shi Jin Ping as the 0:08:37.760 --> 0:08:40.400 leader at least for the next five years, if not longer, 0:08:40.480 --> 0:08:44.000 because um, if he decides to keep his chief lieutenant 0:08:44.040 --> 0:08:47.400 once she's shun on the Standing Committee of the Pull 0:08:47.480 --> 0:08:49.320 Up Burero, and this will be announced at the end 0:08:49.360 --> 0:08:52.400 of the conference. First of all, how many members will 0:08:52.440 --> 0:08:54.840 be on the Standing Committee of the Pull Up Buro? 0:08:55.120 --> 0:08:58.120 Will it be UH seven as you have now, will 0:08:58.240 --> 0:09:01.079 reduce it to five? And very important whether he'll keep 0:09:01.120 --> 0:09:03.840 one she's shot because once she's shot is A sixty 0:09:03.920 --> 0:09:08.440 nine and the informal day to retire among seniors in China. 0:09:09.679 --> 0:09:12.520 And so if he keeps him on, this man opens 0:09:12.559 --> 0:09:15.960 the door for U Shijun Pain not only to do 0:09:16.000 --> 0:09:19.679 this five years UH to UH two thousand twenty two, 0:09:20.080 --> 0:09:23.200 but opens his door to do another five years, which 0:09:23.200 --> 0:09:25.959 would be something that has not happened since Dong Joe 0:09:26.000 --> 0:09:31.480 Pang and Mouse Tom. So it's very critical in this area. 0:09:31.960 --> 0:09:34.200 I also feel, and as you know, I did an 0:09:34.280 --> 0:09:37.240 up ed on it came out two days ago, that 0:09:38.080 --> 0:09:41.880 China is the only one who can basically halt what's 0:09:41.880 --> 0:09:45.280 going on in UH in Korea with Kim Jong oon 0:09:45.760 --> 0:09:49.400 and this continuous development of missile technology and matching it 0:09:49.520 --> 0:09:54.960 with nuclear capability UH nuclear warheads. And the reason the 0:09:55.080 --> 0:09:57.559 Chinese can do that is they supply almost all the 0:09:57.640 --> 0:10:00.839 oil and gas, and if they cut that off UH, 0:10:00.840 --> 0:10:02.600 and they've taken they've said they're going to cut off 0:10:02.640 --> 0:10:04.640 a little bit, but they need to cut off basically 0:10:04.679 --> 0:10:07.800 all of it, because then the Chinese, the Chinese will 0:10:08.040 --> 0:10:12.199 have the ability to stop the Korean armed forces right 0:10:12.200 --> 0:10:14.880 in their truck. And I think that's what needs to 0:10:14.920 --> 0:10:18.960 be done. UH. And hopefully with his visit UH that 0:10:19.320 --> 0:10:22.240 President Trump is going to make UH in the next 0:10:22.240 --> 0:10:26.000 few weeks to UH China, and he will be the 0:10:26.000 --> 0:10:29.440 most important person to have arrived in China after the 0:10:29.520 --> 0:10:32.520 Party Congress, which is by the way, held every five years. 0:10:32.920 --> 0:10:36.040 So this gives these two the opportunity to try and 0:10:36.120 --> 0:10:40.120 sort out North Korea because the sanctions so far approved 0:10:40.760 --> 0:10:44.200 UH at the United Nations won't do it. Bill Um, 0:10:44.280 --> 0:10:49.000 You're an unbelievably expert negotiator. You have vast experience over 0:10:49.080 --> 0:10:53.360 decades of negotiating debt deals and other deals across the world. 0:10:53.480 --> 0:10:56.840 And I'm wondering, can we talk about what we've gleaned 0:10:57.120 --> 0:11:01.400 from the beginnings anyway of the nineteen National Congress of 0:11:01.440 --> 0:11:05.240 the Communist Party of China, of what China wants its 0:11:05.320 --> 0:11:08.640 role to be as a global negotiator and a global 0:11:08.800 --> 0:11:12.880 force much akin to the US. Well, I think in 0:11:12.960 --> 0:11:16.360 Asia they want to replace the United States as the 0:11:16.440 --> 0:11:21.720 leading military political entity. Uh, that's the immediate goal. And 0:11:21.760 --> 0:11:24.640 as you know, since he took off as five years ago, 0:11:24.679 --> 0:11:28.960 sheijun Ping has substantially upgraded and continues to upgrade the 0:11:29.040 --> 0:11:33.000 Chinese military, whether it be the army, the navy, where 0:11:33.000 --> 0:11:35.880 they particularly upgraded a big time, where the air force, 0:11:36.400 --> 0:11:40.120 and so he wants to be the dominant power there. 0:11:40.600 --> 0:11:42.560 And so this is going to be a challenge to 0:11:42.600 --> 0:11:47.080 the United States. Now what the global uh let's say, 0:11:47.679 --> 0:11:51.240 aspects of this will be is not are not clear. 0:11:51.720 --> 0:11:54.440 But I think the real challenge for shijun Ping within 0:11:54.600 --> 0:11:57.920 China is to handle and to tackle some of the 0:11:57.960 --> 0:12:01.319 economic and financial problems. I mean, the debt has been 0:12:01.360 --> 0:12:04.559 growing way out of line, the debt to GDP. It's 0:12:04.600 --> 0:12:08.880 over and uh if he continues at the same page 0:12:08.960 --> 0:12:12.920 next year, it will go over. Well, this isn't sustainable 0:12:13.040 --> 0:12:16.800 over time, and so uh what it what it does 0:12:16.960 --> 0:12:20.920 is caused distortions in the economy. I mean, the continuing 0:12:21.160 --> 0:12:24.840 funding of the of the state owned enterprises. Uh, you know, 0:12:25.000 --> 0:12:28.880 to a tremendous degree. Uh is not really healthy because 0:12:28.920 --> 0:12:31.880 a lot of these zombie companies UH in the areas 0:12:31.920 --> 0:12:35.520 of coal, steel, shipbuilding, and the former premier of China 0:12:35.600 --> 0:12:39.160 had started to UH Juranji some twenty years ago had 0:12:39.160 --> 0:12:42.200 started the process of trying to weed out some of 0:12:42.200 --> 0:12:45.520 the zombie zombie companies. But this is sort of stopped. 0:12:45.920 --> 0:12:49.160 And what Shi Jinping wants to do is to sort 0:12:49.160 --> 0:12:53.199 of merge the state owned enterprises with some private enterprise 0:12:53.520 --> 0:12:56.199 to make them stronger, but not really to downsize, and 0:12:56.280 --> 0:12:58.680 which is necessary. Then you have a bubble in the 0:12:58.720 --> 0:13:03.160 property and real estate market which needs to be looked after. UH. 0:13:03.160 --> 0:13:06.080 And at the same time you have a similar situation 0:13:06.120 --> 0:13:09.400 with the growing debt of the municipalities. Added to all 0:13:09.400 --> 0:13:12.080 of this, you have a problem with shadow banking, which 0:13:12.120 --> 0:13:17.200 is now from of total GDP of China, and it's 0:13:17.320 --> 0:13:20.440 very lightly regulated, if at all. And so all of 0:13:20.440 --> 0:13:23.040 these things, if they're not dealt with over the next 0:13:23.120 --> 0:13:26.840 couple of years, could really cause a problem economically and 0:13:26.880 --> 0:13:31.439 financially in China. And UH and I think slow growth, 0:13:31.559 --> 0:13:34.199 which as you know, is so important only to China 0:13:34.240 --> 0:13:37.000 but the world. Well, but Bill, I'm wondering if now 0:13:37.040 --> 0:13:41.400 that this important meeting this twice a decade meeting is 0:13:41.760 --> 0:13:45.400 close to being finished. Will China be more aggressive in 0:13:45.480 --> 0:13:48.440 curbing some of that leverage now that there doesn't have 0:13:48.480 --> 0:13:51.120 to be sort of a dance up to the up 0:13:51.160 --> 0:13:54.480 to the meeting. Well, that is my hope and the 0:13:54.520 --> 0:13:58.400 hope of a lot of China followers is that that 0:13:58.400 --> 0:14:02.400 that will happen uh starting next year. Now they've taken 0:14:02.440 --> 0:14:05.520 some steps by putting in a reformer to run the 0:14:05.559 --> 0:14:09.640 Banking Commission, the cbr C, and they will have to 0:14:09.720 --> 0:14:13.040 replace uh The governor of the Central Bank of China, 0:14:13.080 --> 0:14:16.360 the People's Bank of China, who is first rate um 0:14:16.520 --> 0:14:19.720 is Shoa Chuan, because he's already three or four years 0:14:19.760 --> 0:14:22.560 over his retirement and they'll have to replace him the 0:14:22.640 --> 0:14:24.600 end of this year and next year. And the the 0:14:24.640 --> 0:14:29.280 institution that is most respected within China and worldwide is 0:14:29.320 --> 0:14:31.440 the People's Bank of China. So there are a lot 0:14:31.520 --> 0:14:35.120 of things that that Shi Jimping has to do. One 0:14:35.120 --> 0:14:37.440 of the other rumors that's going around and will certainly 0:14:37.440 --> 0:14:42.000 know that in the next few days, is whether Uh 0:14:42.720 --> 0:14:46.800 Hi Jumping will keep his premier, who is Likau Chung, 0:14:47.200 --> 0:14:50.440 And normally the division there is the head of state. 0:14:50.920 --> 0:14:54.360 Uh looks after the political side has a military under him, 0:14:54.400 --> 0:14:57.800 but the economic side is driven by the premier, like 0:14:58.280 --> 0:15:02.040 the famous Juan Ji who was so strong twenty years 0:15:02.040 --> 0:15:05.240 ago and got China into w t O and changed 0:15:05.320 --> 0:15:09.040 the whole economy of the world basically not only of China. 0:15:09.520 --> 0:15:12.320 And there are rumors that that one Shi Shan who 0:15:12.360 --> 0:15:16.280 I mentioned earlier, who's so close to President Shi Jimping, 0:15:16.680 --> 0:15:19.360 might be in that position. We'll know within four or 0:15:19.440 --> 0:15:25.640 five days. Also as part of this very positive aspect 0:15:25.720 --> 0:15:29.760 that s. Jimping is putting forward the China Dream, et cetera, 0:15:30.360 --> 0:15:33.280 they will be announcing uh the third quarter results of 0:15:33.360 --> 0:15:37.080 their GDP on Thursday, and they'll probably show, if not 0:15:37.200 --> 0:15:40.760 seven percent, very close to seven percent, So that'll you know, 0:15:40.880 --> 0:15:42.800 that'll get them off on a on a in a 0:15:42.920 --> 0:15:45.320 very positive way. But they have to start making these 0:15:45.320 --> 0:15:49.080 reforms starting next year without a doubt. Bill Rhodes, thank 0:15:49.120 --> 0:15:51.400 you so much for joining us. As always. Bill Rhodes, 0:15:51.400 --> 0:15:55.080 President and chief executive officer of William R. Rhodes Global Advisors, 0:15:55.080 --> 0:15:58.560 also banker for decades, including a long time at City Group. 0:16:10.040 --> 0:16:11.920 Let's talk about Facebook. There was a story on the 0:16:11.960 --> 0:16:16.320 Bloomberg today that was fascinating looking at how Facebook and 0:16:16.440 --> 0:16:21.600 Google helped anti refugee campaigns in swing states ahead of 0:16:21.840 --> 0:16:25.360 the election in the US last year. Vernon Silver, Projects 0:16:25.360 --> 0:16:28.840 and Investigations reporter for Bloomberg News authored this piece also 0:16:28.920 --> 0:16:31.920 here in the studio Shia Oviday Vernon, can you just 0:16:32.000 --> 0:16:35.280 outline what you found. Basically, what happened is this group 0:16:35.320 --> 0:16:39.720 which is against h immigration refugees, with all these ads 0:16:39.720 --> 0:16:41.920 that they wanted to put on the Internet in advance 0:16:41.960 --> 0:16:45.240 of the elections, targeted key swing states like Nevada and 0:16:45.280 --> 0:16:47.840 North Carolina. And they didn't just buy the ads. You know, 0:16:47.840 --> 0:16:50.040 when you think about Russian interference, you think about people 0:16:50.080 --> 0:16:52.800 who are unknown buying these ads. They went directly to 0:16:52.840 --> 0:16:55.280 the ad sales people at these companies and work with them. 0:16:55.280 --> 0:16:58.080 In some cases, the companies, the big two were helping 0:16:58.200 --> 0:17:01.240 tailor the message for them and even in the case 0:17:01.240 --> 0:17:04.240 of Facebook in one case using these videos which were 0:17:04.280 --> 0:17:06.120 you know, making fun of what happens if the Islamic 0:17:06.160 --> 0:17:09.119 State comes to Paris type of thing, and using them 0:17:09.160 --> 0:17:12.879 to test their products. What's been the reaction from the companies. 0:17:13.920 --> 0:17:16.480 You know, they sell ads, that's that's their jobs. It's 0:17:16.520 --> 0:17:18.359 just money to them. Well, no part of it is 0:17:18.400 --> 0:17:21.119 they can't be sensors either. And it's really it's a 0:17:21.160 --> 0:17:23.880 fine it's a fine line. But why you can refuse 0:17:23.960 --> 0:17:27.399 to accept someone's advertise? Where do you draw the line? Well, 0:17:27.680 --> 0:17:30.600 I want to bring Shira in here, Shira, I'm wondering 0:17:30.600 --> 0:17:34.360 what the implications are for Facebook as these new facts 0:17:34.400 --> 0:17:38.200 emerged that not only did they allow some of these 0:17:38.240 --> 0:17:42.040 political operatives to advertise, but they helped them hone their 0:17:42.119 --> 0:17:47.160 message and experimented with the best most attractive social placing. 0:17:47.200 --> 0:17:50.679 I mean, what's the implication from a regulatory standpoint as 0:17:50.680 --> 0:17:53.280 well as a business one. Well, look, I think we've 0:17:53.520 --> 0:17:56.639 clearly seen this year, particularly since the the U. S 0:17:56.680 --> 0:17:59.560 Election and the presidential election and the fall, that Facebook 0:17:59.600 --> 0:18:04.120 and Google especially are now under a microscope about everything 0:18:04.160 --> 0:18:07.720 to do with their business and particularly the power of 0:18:07.760 --> 0:18:12.320 those two companies to literally influence two billion or more 0:18:12.359 --> 0:18:16.040 people around the world. Right, And they pitch themselves as 0:18:16.520 --> 0:18:19.840 we can change people's minds or influence people to buy 0:18:19.880 --> 0:18:23.680 soda and soft drinks and soda and you know, for trucks, 0:18:24.000 --> 0:18:26.840 and it turns out they may also be vehicles to 0:18:27.600 --> 0:18:31.400 you know, turn people against immigrant groups or to help 0:18:31.520 --> 0:18:35.040 sway elections. In places like Germany. Well, Vernon, I just 0:18:35.119 --> 0:18:36.920 want to come back to this idea of Okay, where 0:18:36.920 --> 0:18:40.480 do you draw the line. I mean, you can't advertise cigarettes, right, 0:18:40.560 --> 0:18:43.440 you can't advertise cigarettes on television. You've got billboards telling 0:18:43.440 --> 0:18:46.880 people not to smoke. There are a variety of advertisements 0:18:46.880 --> 0:18:49.919 and a variety of topics that are not permitted in 0:18:50.280 --> 0:18:53.920 certain venues. What is so difficult If these companies are 0:18:53.960 --> 0:18:56.240 so smart and they have all this great PhD talent 0:18:56.359 --> 0:18:59.680 and all these technical wizards, what's so difficult about saying 0:18:59.720 --> 0:19:01.440 we're going to draw the line of things that are 0:19:01.520 --> 0:19:05.160 obviously not true and things that are really just designed 0:19:05.160 --> 0:19:08.600 to incite people rather than to inform them. Those restrictions 0:19:08.640 --> 0:19:10.560 you just mentioned go back to the point that was 0:19:10.640 --> 0:19:13.760 just made about regulations. These are things that came from 0:19:13.760 --> 0:19:16.560 the outside, and that's the risk to them. Well, okay, 0:19:16.600 --> 0:19:19.639 so political advertising, and this is the issue, right, because 0:19:19.720 --> 0:19:21.919 at what point do you say, well, this is inciting 0:19:21.960 --> 0:19:24.760 people versus this is trying to make a point from 0:19:24.800 --> 0:19:29.800 a political party, Shia. What would happen to say, Facebook's 0:19:29.800 --> 0:19:32.840 ad sales if there was a regulation saying that they 0:19:32.920 --> 0:19:38.679 could not help craft or place prominently political ads. We 0:19:38.800 --> 0:19:40.480 I don't think we really know the answer to that, 0:19:40.600 --> 0:19:45.040 because Facebook does not disclose of the size of their 0:19:45.080 --> 0:19:50.200 revenue from political advertisements or kind of political related advertisements. UM. 0:19:50.600 --> 0:19:53.760 I think the reality is the scale of Facebook. There 0:19:53.840 --> 0:19:58.280 is no single advertiser, or even no single category that 0:19:58.480 --> 0:20:02.040 is a you know, seriously material piece of their business. 0:20:02.080 --> 0:20:05.520 I think Facebook set around the election that political advertising 0:20:05.560 --> 0:20:08.560 was not a top ten ad category for them. UM. 0:20:08.600 --> 0:20:10.639 I am also not sure that we're going to see 0:20:10.680 --> 0:20:14.959 that kind of regulation in the US around political advertising 0:20:14.960 --> 0:20:18.520 on Facebook or other Internet properties. Everything is a little 0:20:18.520 --> 0:20:21.800 bit sort of amorphous outrage against Facebook at the moment, 0:20:21.840 --> 0:20:23.960 but I don't know that I've seen a credible kind 0:20:24.000 --> 0:20:29.760 of legislative proposal. Yeah. I mean, the interesting thing there is, 0:20:29.840 --> 0:20:32.159 you know that it's not in the financials but talking 0:20:32.200 --> 0:20:34.080 to the people on the other end who are placing 0:20:34.080 --> 0:20:36.800 the ads. In the case of the German far right party, 0:20:37.240 --> 0:20:40.119 we were talking millions, we were talking hundreds of thousands. 0:20:40.280 --> 0:20:45.199 This was very small money for a big company like Facebook, 0:20:45.560 --> 0:20:48.560 and yet this was a campaign that helped a far 0:20:48.640 --> 0:20:51.480 right party come to power for the first time since 0:20:51.520 --> 0:20:54.640 the Second World War in Germany. Although you could argue 0:20:55.119 --> 0:20:59.520 that it is exactly because these small fry operations can 0:20:59.560 --> 0:21:03.359 have such a huge reach on Facebook that Facebook has 0:21:03.359 --> 0:21:06.240 attracted the same kind of advertising, the bulk of the 0:21:06.240 --> 0:21:08.399 advertising that it has. So yes, it's small potatoes in 0:21:08.480 --> 0:21:11.240 and of itself, but the platform and the opportunity there 0:21:11.800 --> 0:21:15.160 is really what has attracted so many people. Wonderful story. 0:21:15.200 --> 0:21:18.760 Thank you very much. Verdon Silver, Projects and investigations reporter 0:21:18.840 --> 0:21:21.480 for Bloomberg and of course you can follow him on 0:21:21.520 --> 0:21:24.720 Twitter at v T Silver and our thanks also to 0:21:24.800 --> 0:21:28.000 Shira Oviday. You can follow Shira, our technology gad flyg 0:21:28.040 --> 0:21:43.800 columnist at Shira Oviday. This is Bloomberg, all right. We 0:21:43.880 --> 0:21:45.520 want to get smarter when it comes to what's going 0:21:45.560 --> 0:21:47.359 on in Wall Street. So we have Hugh Son. He 0:21:47.480 --> 0:21:49.960 is our finance reporter for Bloomberg News, and you can 0:21:50.000 --> 0:21:54.080 follow Hugh on Twitter at Hugh Underscore. San s o 0:21:54.280 --> 0:21:58.480 n Alright, Hugh, you are sort of debuting a three 0:21:58.520 --> 0:22:02.000 part series that the Bloomberg has put together about automation 0:22:02.040 --> 0:22:03.679 on Wall Street, and I gotta say I like the 0:22:03.680 --> 0:22:07.479 title of this one. The upbeat bankers who privately worry 0:22:07.520 --> 0:22:11.920 about gutting their staff, do they also worry about gutting themselves. 0:22:12.280 --> 0:22:14.960 I mean, you know, you let them in, and computers 0:22:15.119 --> 0:22:18.600 they have a way of expanding, don't they. I think, um, 0:22:18.640 --> 0:22:20.879 I think top management believes that they will be the 0:22:20.920 --> 0:22:22.639 last to go. Somebody's gonna have to turn off the 0:22:22.720 --> 0:22:25.080 lights at the end of the captain. Huh yeah, yeah, 0:22:25.200 --> 0:22:27.199 I mean you still need decision makers at the very top. 0:22:27.280 --> 0:22:29.320 I think. All right, So tell us about this this 0:22:29.520 --> 0:22:32.840 uh series and what you got at in in the 0:22:32.880 --> 0:22:35.240 first of the of the three parts stores. Well, we 0:22:35.440 --> 0:22:37.520 and everybody else really have been writing about this in 0:22:37.560 --> 0:22:40.400