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Netflix’s $100 million plan to boost black lenders
We have the first look at a new move to help bridge the racial economic divide in America: Netflix will shift some of its $5 billion in cash to financial institutions that focus on black communities.
Netflix will bank up to 2 percent of its holdings, or about $100 million, with such lenders. It will start with $35 million, split two ways: financing a new fund, the Black Economic Development Initiative, that will invest in black financial institutions; and banking with the Hope Credit Union. (Netflix already spreads its cash among about 30 banks worldwide.)
• The billionaire investor Robert F. Smith proposed that big companies donate 2 percent of their annual profits to black-owned businesses, but this was developed before he aired that idea. Also, this move addresses racial inequality not through charity, but via a routine commercial aspect of Netflix’s business. As the company’s cash pile grows, so might its deposits at banks like Hope.
The idea was hatched in April during discussions about improving diversity within Netflix’s leadership ranks, company executives and others involved told DealBook’s Michael J. de la Merced. The idea of helping black-owned and -run banks emerged, and Aaron Mitchell, a member of Netflix’s recruiting team, took the lead in developing it.
• After encouragement from Reed Hastings, Netflix’s C.E.O., Mr. Mitchell worked with Shannon Alwyn of the company’s treasury division to make it work. (Mr. Hastings and his wife, Patty Quillin, donated $120 million this month to historically black colleges and universities.)
• Mr. Mitchell said that he drew on the book “The Color of Money: Black Banks and the Racial Wealth Gap” by Mehrsa Baradaran, who is now a professor at U.C. Irvine’s law school. Professor Baradaran argues that black-focused lenders are undercapitalized, depriving black communities of opportunities to lift themselves out of poverty: “You need capital to build more capital,” she said.
• The Fed chairman, Jay Powell, deplored “financial deserts” throughout America at a forum hosted last year by Hope, which is based in Mississippi.
The money will have “a tremendous impact” in black communities, said Bill Bynum, Hope’s C.E.O. “Pound for pound, no entity has a bigger impact” than a community lender, he said, pointing to a greater ability to lend to small businesses and aspiring homeowners.
“Putting money where it matters is both good business and good for the economy,” Mr. Bynum added. But he and Professor Baradaran say that more work remains, including similar actions by big corporations and major banks. The combined assets of black-owned U.S. banks amount to “a bad weekend for JPMorgan Chase revenue-wise,” Professor Baradaran said.
Here’s what else is happening
Shell will write off up to $22 billion worth of assets, the latest energy giant to take a huge charge. Its reasons include declining demand for energy in the pandemic and the “ongoing challenging commodity price environment.”
Four big U.S. banks will keep their dividends steady. Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase said last week’s stress tests showed they could maintain their shareholder payouts. But Wells Fargo said it would have to cut its dividend.
Reddit banned a prominent community of Trump supporters, as part of an overhaul of its hate speech policies. The social network said that the subreddit, “The_Donald,” consistently broke rules on harassment and targeting. Elsewhere, the livestreaming site Twitch suspended President Trump’s channel over “hateful conduct,” while YouTube banned several channels, including David Duke’s, for promoting white supremacist content.
Gilead set a price for its coronavirus treatment, remdesivir. The drug maker and federal officials agreed that a standard treatment course would cost $3,120 for patients on private insurance.
One in four American C.E.O.s thinks a full economic recovery is over a year away. The latest survey of corporate chiefs by the Business Roundtable found widespread pessimism. Meanwhile, both the movie theater chain AMC and Broadway theaters have pushed back plans to reopen.
If at first you don’t succeed …
Uber is closing in on a deal to buy Postmates, the food delivery service, for $2.6 billion, The Times’s Mike Isaac and Erin Griffith report. It comes on the heels of Uber’s failed attempt to buy Grubhub.
Buying Postmates would bolster Uber Eats as Uber’s core ride-hailing business is floundering. And it would be a lifeline for Postmates, one of the first gig-economy delivery services, which has struggled amid competition from Uber Eats, Grubhub and DoorDash.
A deal could raise antitrust alarms, with regulators wary of consolidation in the sector. Uber walked away from Grubhub over antitrust concerns. Buying Postmates could attract regulatory scrutiny, too.
On the other hand, Postmates is much smaller than Grubhub, which agreed to sell itself to Just Eat for $7.3 billion last month, or DoorDash, which was last valued at $16 billion.
Deal Professor: Good business
Steven Davidoff Solomon, a.k.a. the Deal Professor, is a professor at the U.C. Berkeley School of Law and the faculty co-director at the Berkeley Center for Law, Business and the Economy. Here, he considers who benefits from public benefit corporations.
Companies are rushing headlong to address social problems, and not just serve shareholders. Last week in a Times Op-Ed, Darren Walker, president of the Ford Foundation, called for companies to serve stakeholders more broadly and “give up their power and privilege.”
What does that mean?
Take Lemonade, the insurer that just filed for an I.P.O. as a public benefit corporation, or P.B.C. These companies have a for-profit motive, but also a social purpose serving other stakeholders. Lemonade would be the second P.B.C. to go public, after Laureate Education.
Lemonade says its social purpose is “to harness novel business models, technologies and private-nonprofit partnerships to deliver insurance products where charitable giving is a core feature, for the benefit of communities and their common causes.”
The company charges a flat fee for insurance. The rest goes to pay claims, with anything left over going to charity. Last year, Lemonade lost around $100 million, on $60 million in revenue, and gave $600,000 to charity.
A regular corporation can do similar things, but younger consumers love this explicit commitment to social causes. The concept also fits with Lemonade’s for-profit side, since its fixed-fee model means it has no incentive to deny claims.
I suspect that Lemonade may be the first of many P.B.C.s to go public. In a study of this issue, I found that venture capital firms have been investing steadily in these start-ups, including the trendy shoe brand Allbirds.
But how do we make sure that money doesn’t simply benefit some pet project of the C.E.O.? In a recent paper, Jill Fisch and I found that we don’t yet have a good answer. Until we do, the for-profit model is the best way to monitor and direct a corporation effectively.
I am all for corporations doing good. But it is easy to take a social position by making broad statements. Will stakeholder governance hold these companies to their promises?
The coronavirus batters Africa’s middle class
About 170 million of Africa’s 1.3 billion people are classified as middle class — triple the number of 30 years ago. But the economic fallout of the coronavirus pandemic could push millions into poverty, including those who have helped drive the region’s economic and political development, The Times’s Abdi Latif Dahir writes from Nairobi, Kenya.
“The ‘Africa Rising’ phenomenon hinges on the continent’s vaunted middle class,” Abdi tells DealBook. He adds:
Across the continent, middle class workers with salaried jobs in sectors like technology and tourism are facing layoffs, while those with small businesses are reducing services or closing them altogether. The two countries with the largest middle-class populations in Africa, Nigeria and South Africa, are expected to be severely affected, Homi Kharas, a senior fellow at the Brookings Institution, told me. “Even those who do not fall out of the middle class will see their incomes and spending reduced,” said Mr. Kharas.
The business of boycotts
In yesterday’s newsletter, we asked whether the advertiser boycott of Facebook was justified, and what effect — if any — it might have. DealBook readers responded in droves. We read every message, and appreciate the feedback. Here’s a selection of responses:
“Kudos to advertisers for taking a stand. Misinformation and hate speech are poisoning our society, and social media platforms like Facebook are the wells.” — Jessica in La Jolla, Calif.
“All of this is craven virtue signaling by companies that are no less profit-driven than Facebook.” — Paul in Carolina Beach, N.C.
“It will be a great irony if the advertisers end up leading the way in demonstrating moral courage.” — Linda in Marlboro, Vt.
“Companies see the current culture war as a perfect opportunity to play up their social awareness P.R. at the same time as cutting costs. Many of these same companies will later lay off many workers. The business of business is business, and that is as it should be.”—Josh in Seattle
“The boycotts are capitalism at work. Consumers are expressing demand for a product, in this case a certain type of information.” — Rich in Kirkland, Wash.
The speed read
• The cosmetics maker Coty agreed to buy a 20 percent stake in Kim Kardashian West’s makeup brand at a $1 billion valuation. (FT)
• Lululemon is to buy Mirror, a home fitness start-up, for $500 million. (NYT)
• Cirque du Soleil, the circus group, has filed for bankruptcy protection. (Bloomberg)
Politics and policy
• The Paycheck Protection Program, the small-business rescue fund, is set to expire today with $130 billion left to lend. (NYT)
• The Supreme Court ruled that the president can fire the head of the Consumer Financial Protection Bureau without cause, clarifying limits on the agency. (NYT)
• The Trump administration halted the sale of some high-tech products to Hong Kong, after Chinese lawmakers approved a law tightening Beijing’s control of the territory. (NYT)
• India banned nearly 60 Chinese apps, including TikTok, amid growing tensions with China. (NYT)
Best of the rest
• Why not apply social distancing to social media? (The Guardian)
• Remembering Madeline McWhinney Dale, the first female officer of the Fed and, later, the president of the first U.S. bank to be majority owned and operated by women. (NYT)
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