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December 27, 2021 ○ DOUBLE ISSUE

ant i b
the ezos

How Shopify
played nice with
small businesses,
ditched the office, To b i L ütke
CEO
and became the
Everywhere Store
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 December 27, 2021

 Chicago Realtor Dale

Taylor says a White man
once flashed a gun at a
Black client of his and
said he’d “better think
differently” about moving
into his neighborhood

3
PHOTOGRAPH BY LAWRENCE AGYEI FOR BLOOMBERG BUSINESSWEEK

FEATURES 48 The Merchant Is Always Right

Shopify has thrived by inverting Amazon’s e-commerce model

54 Hands Off Our 6%

Realtors are so sorry about the racism. But they’ll keep the commission, thanks

60 Lock-Picking for Fun and Glory

Ethical break-in artists bring quality control to the security industry
  CONTENTS Bloomberg Businessweek December 27, 2021

 IN BRIEF 9 Wall-to-wall omicron ○ More Manchin melodrama  COVER TRAIL

 OPINION 10 The Democrats can build a better “Build Back Better” How the cover
gets made

 REMARKS 12 Covid reveals the CDC’s data problems ①

“This week is our annual
Good Business issue.”
BUSINESS 17 Drone mania raises concerns about Chinese espionage
1 19 Trying to make all those blue face masks a bit more green
“Ah, yes. ’Tis the season
to do more than just
make money—but also,
probably, to make more
TECHNOLOGY 26 College towns are a sidewalk robot’s paradise money, too.”
2 28 Alexa, stop gabbing and just tell me the time “Exactly! We’ve got a
30 In India, Ola’s e-scooters are stalled great story on Shopify.
Those Canadians
outfoxed Amazon,
FINANCE 33 Sustainable yada yada, equitable yada yada yada got small businesses
3 35 The crypto industry can’t keep up with the hype
through Covid, and went
fully remote. Plus we can
36 What does your credit score say about your driving? photograph the CEO.”

“Now that is good

business.”
ECONOMICS 39  Iran’s running out of water. Tehran’s running out of ideas
4 ②

“Strangely, he resembles
a certain Amazon CEO.”
4
“But he’s the anti-Bezos.”

“Good headline. But no

hyphen. Like ‘Antichrist.’”

“You sure … ?”

[The Copy Desk

debates hyphens for
four days. Sources
are cited, passions
rise, tempers flare.]

“OK, Copy says we need

the hyphen.”

“Yeah, but we’re Art.

42 It’s North vs. South in the EU’s fight over finances We are the Antihyphen.”

POLITICS 44 Stonewalling the Jan. 6 committee seems to be working

5 46 Cybercrime may be North Korea’s most lucrative industry

 PURSUITS / 67 Philanthropy: New approaches to inequality

GIVING SPECIAL 71 Elon’s baby bro wants the blockchain to reinvent donation
72 Not flying? Nonprofits can use your points and miles
73 Getting buzzed while giving back
74 Rethinking charity galas in the Covid era
75 A beautiful butter dish that serves a beautiful mission

 LAST THING 76 Millennials just can’t catch a break

ECONOMICS: HASHEM SHAKERI

How to Contact Bloomberg Businessweek

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bloombergbusinessweek/ TWITTER @BW  INSTAGRAM @businessweek Businessweek
THE RISE OF
BENGAL TIGER
  IN BRIEF Bloomberg Businessweek December 27, 2021

By Benedikt Kammel

○ President Joe Biden is

○ Global ○ Leftist Gabriel ○ Elon Musk has
fighting to revive his
coronavirus cases Boric prevailed in sold enough Tesla
have topped
276 million, almost
Chile’s presidential
elections. $2t shares to reach a
target of reducing
his stake in the EV

5.4m
“Build Back Better” plan.
The White House is maker by 10%.
considering scaling back his
program after West Virginia
people have The blowout victory on Dec. 19 Senator Joe Manchin said
died, and more over conservative José
Antonio Kast left investors
he couldn’t support it in
its current form.  10
than 8.8 billion worried that Boric’s policies,
including higher taxes,
vaccine doses increased social spending,
and more regulation, will
The move is part of a plan to generate
cash to cover an estimated tax bill
have been given. upend one of Latin
America’s wealthiest
of more than $10 billion on stock
options the founder and CEO is due to
economies. exercise.
① In the U.S., the highly infectious
omicron variant accounts for more than
73% of all new cases.
○ EV startup
② The timing of this latest surge is
quite bad for holiday travel: Scientists
estimate air passengers are at least
○ “This is a big Nikola will pay
a $125 million
win for us and a
twice as susceptible to transmission.

③ The good news: A South African penalty for

study showed there’s a much lower risk
of hospitalization with the variant. making allegedly
④ Nonetheless, January’s World
Economic Forum in Davos has been
canceled for a second year. It will now
big win for the misleading
statements.
9

take place in early summer.

⑤ The Biden administration will get

4 million courses of Covid treatments
by Jan. 31, including an antiviral
from Pfizer that regulators just gave
emergency authorization and one from
Merck expected to be greenlit soon.
⑥ The president also extended the
pause on student-loan repayments by
another three months.
American labor
movement.”
Former CEO Trevor Milton deceived
investors about technological
advancements, in-house production
Dan Osborn, a union representative for Kellogg workers, reacted to an agreement capabilities, and truck reservations,
reached with the cereal maker on Dec. 21 that gives employees cost-of-living the SEC said on Dec. 21. Nikola neither
raises and ends one of the longest-running strikes this year in the U.S. admitted nor denied wrongdoing.

○ Oracle agreed to buy

○ Spain’s
BORIC: JORGE VILLEGAS/GETTY IMAGES. NIKOLA: COURTESY NIKOLA. MALAYSIA: VINCENT THIAN/AP

Cerner, which provides

Christmas lottery, medical-records systems,
El Gordo, “the for more than
Fat One,” handed
out €2.4 billion
($2.7 billion) in
$28b
The biggest deal in
the business-software
prizes. A €20
company’s history, the
stake in the acquisition should bolster
winning number, Oracle’s cloud-computing
and database businesses.
86148, earned
€400,000.
○ In Malaysia, torrential mid-December rains closed roads, disrupted shipping, and
displaced more than 61,000 people (like this family near Kuala Lumpur). The rainfall
roughly equaled a month’s average in a nation already prone to natural disasters.
 December 27, 2021
 BLOOMBERG OPINION

○ At least 40
private homes in
How Democrats Can
the U.S. have sold Get to an Even Better
for more than ‘Build Back’ Plan
$50m
so far this year—a
Tempers flared the week before Christmas
over “Build Back Better,” the Democrats’
record, according stalled tax-and-spending plan, as talks
between Senator Joe Manchin (D-W.Va.)
to appraiser and President Joe Biden appeared to break
Miller Samuels. down. After Manchin told Fox News on
Dec.  19 that, despite numerous revisions
intended to accommodate him, he still
couldn’t support the measure, the White
○ The Turkish House said Manchin had reversed himself
lira rallied. and insinuated that he wasn’t to be trusted.
Now negotiations seem to have resumed,
Price of 100 lira in USD albeit with an added dose of acrimony.
Manchin’s support is indispensable in
9/1 a 50-50 Senate, with Republicans united
$12.05 against the legislation. Anyone who’s run
a business knows that calling someone a
10 liar isn’t a productive tactic during a diffi-
12/22 cult negotiation. (Experienced politicians
$8.03
should know that, too.) Yet despite this
glitch, agreement remains feasible—and the
right kind of package could, even now, be a
big win for the Biden administration.
Manchin has certainly tried his col-
leagues’ patience, finding new things to
The currency rebounded sharply after object to at every stage and saying a lot less
President Recep Tayyip Erdogan
announced measures to protect
about what programs he’s for. Yet on one
investors against declines in its value. thing he’s been both consistent and cor-
rect: Ambitious spending bills need to be
responsibly financed. According to official
○ Richard Rogers
estimates, the 10-year cost of “Build Back
has died. Better” has been trimmed over the past few
months from more than $3 trillion to about
$2 trillion, with the outlay almost entirely
covered by higher revenue. But the plan’s
designers keep disguising its true fiscal
implications. To lower the apparent cost,
this means either raising far more in taxes,
which Democrats are reluctant to do, or nar-
rowing the spending priorities and making
“Build Back Better” somewhat less “trans-
formative,” which they’re equally reluc-
tant to do. By refusing to make this choice,
Democrats have convinced themselves that
an affordable and honestly accounted plan—
one that might still be bold and enormously
valuable—would be a letdown.
A bill that costs about $1.8  trillion
would still be very big by historical stan-
dards. It could pay for the plan’s most vital
measures—including more than $550  bil-
lion to accelerate the transition to clean
energy—while leaving more than $1 trillion
for other programs.
That would be about enough to pay for
the plan’s proposed changes to the child
tax credit (an increase of $1,600 for chil-
dren under the age of 6 and $1,000 for older
kids, with payments expanded to cover fam-
ilies with little or no income) on a perma-
nent basis instead of the single-year basis in
the current plan. Or it could pay for smaller
increases together with permanent new
support for health-care, child-care, and
pre-K programs.
Only by the warped standard Democrats
have set for themselves could such a pack-
age be seen as timid.
Biden needs to move the discussion in
this direction as soon as possible. There will
still be disagreement, it goes without saying.
Forced to choose among competing priori-
ties, Democrats will find themselves quar-
reling over what matters most. But choosing
ROGERS: GETTY IMAGES. DATA: COMPILED BY BLOOMBERG

The British architect, who designed
the iconic headquarters for Lloyd’s of
London, the Millennium Dome, and, with
Renzo Piano, the Centre Pompidou in
Paris, passed away on Dec. 19 at the
age of 88. Rogers turned buildings
inside out, exposing service towers,
pipes, escalators, and even toilets to
make structures that resembled giant
industrial machines.
they terminate many of the new spending
commitments inside the planning window
while, despite their denials, plainly intend-
ing for the outlays to continue. If the pro-
grams stayed in place, the 10-year cost would
be roughly $5 trillion.
Manchin has objected to this gim-
mickry all along, saying that spending pro-
grams intended to be permanent should be
financed on the same basis. He’s right. But
among competing priorities is what good
government is all about.
Judging spending and revenue on the same
basis, as Manchin advocates, would at least
allow honest compromises to be reached.
That’s better politics than telling voters that
compromises aren’t necessary—then getting
angry at the senator from West Virginia when
he refuses to go along.  For more commen-
tary, go to bloomberg.com/opinion
  REMARKS
Low-Visibility Mission
12
○ Data-tracking failures at the CDC
are fueling political support for an
overhaul of the agency
○ By Drew Armstrong
PHOTO ILLUSTRATION BY 731; PHOTOS: GETTY IMAGES (2)
A year into the Covid-19 vaccination campaign, the U.S.
government still faces data shortcomings that cloud its vision
of who’s getting vaccinated and at what rate.
The record-time development of the shots was a (mostly)
American triumph. Now vaccines are plentiful in the U.S.
and offer meaningful protection for those who get them. But
in another way the U.S. has lagged. America’s public-health
 REMARKS Bloomberg Businessweek
authorities have struggled to monitor the rollout of vaccines
and to track how effective they are.
The most recent example: The Centers for Disease Control
and Prevention has been overcounting the number of
Americans who’ve received at least one dose of vaccine. The
agency’s data are far off from what many states have been
reporting on their own, meaning there are millions more
unvaccinated than its numbers show.
That issue followed another a few weeks earlier. After
the U.S. cleared Covid shots for kids age 5 to 11 at the start of
November, it took the CDC almost three weeks to publish data
on how many children had been vaccinated. In the meantime,
an impatient White House started its own ad hoc data collec-
tion effort, assembling vaccination numbers for the age group
from states and vaccine providers, according to people famil-
iar with the matter.
Those problems are just the latest. This spring the U.S.
stopped counting many vaccine breakthrough cases, infor-
mation that was critical for deciding how and when to roll
out boosters. And the government still lacks complete data on
the race and ethnicity of vaccine recipients, despite the Biden
administration making equity a cornerstone of its rollout.
After two years of rising case counts and more than 800,000
deaths, there’s broad agreement that U.S. public-health sys-
tems need an overhaul, just as the Sept. 11 attacks and the 2008
financial crisis paved the way for national security and bank-
ing reforms. The push is being led by influential persons in
public health and in Congress who aim to better prepare the
government for the next infectious-disease threat the world
will confront.
The slow-to-arrive kids data felt like déjà vu. I’m one of the
people who run the Bloomberg Vaccine Tracker, our news-
room effort to tally every Covid vaccine going into arms around
the world. When we began the project in December 2020, our
team of journalists would reach out to states and foreign gov-
ernments each day and produce a count of how many doses
had been administered. It was laborious, complex work, but
we figured the CDC and the World Health Organization would
quickly put us out of business.
That didn’t happen.
The CDC took months to catch up to data that was being
published independently by states. Entities such as the WHO
didn’t have real-time access to data on vaccinations and ended
up relying for several months on third-party sources for infor-
mation, according to a person familiar with the organiza-
tion’s efforts. The situation was an echo of the first year of the
pandemic, when nongovernment sources such as the Covid
Tracking Project and Johns Hopkins University were the go-to
resource for data on the virus.
Robert Redfield, director of the CDC during the Trump
administration, says the agency’s inability to provide seem-
ingly basic information on the virus bothered him. “I was
quite embarrassed that everybody quotes Johns Hopkins or
Bloomberg,” he says. “Why aren’t they quoting CDC?”
There’s no obvious reason the data on child immunizations
December 27, 2021
should have been difficult to collect or disseminate. The
vaccines were cleared for use in children on Nov. 2; a few days
later a handful of states began publishing their own numbers.
And for months the CDC had been putting out detailed data
on the ages of people who’ve been vaccinated.
But a little over two weeks after the shots were cleared,
there were still no numbers from the CDC. Instead, the White
House announced its own tally: 2.6 million 5- to 11-year-olds
had gotten a dose. When the agency eventually published its
own data, there were several discrepancies between its statis-
tics and what states were reporting. A White House official,
expressing frustration, described the CDC’s child vaccine data
at the time as “useless,” since it was several days behind real-
ity on the ground.
In a statement, the CDC said that it’s working with states,
local jurisdictions, and the health system to improve and speed
the flow of data but that the huge variety of sources could cre-
ate slowness and errors. “While CDC data provides a wide-
angle lens to look at vaccination across the country, we know
that states and local health departments have a wealth of infor-
mation and have always referred reporters there for the most
up to date data,” the agency said.
It added that the vaccination data for 5- to 11-year-olds pre-
sented challenges because of a new dose amount and new vac-
cine providers. The agency said that as it was sorting out those
issues, it helped the White House model a national number. 13
In many ways the CDC’s ability to gather and publish timely
numbers on the pandemic has improved. The agency now has
a website rich with statistics, providing an invaluable resource
for the public, researchers, and policymakers.
But the delayed child vaccine data and the miscount of mil-
lions of vaccinated people are only the latest data problems
from the agency. In late spring the CDC stopped collecting
information on mild breakthrough infections—just as the delta
variant was beginning to spread widely. It had to rely on Israeli
government data for information on how quickly the effective-
ness of vaccines was waning and the need for booster shots.
And the government has race and ethnicity data for only about
70% of vaccinations, even though states have published such
data on their own, covering more than 90% of shots. (Vaccine
trackers at Bloomberg News and Kaiser Health News both offer
demographic data covering more people than the CDC does.)
Being slow to produce information in the middle of a health
emergency isn’t just a pandemic problem. Redfield recalls an
episode from early in his tenure at the agency. He’d almost
lost one of his children to a drug overdose, from cocaine laced
with fentanyl, and he wanted a report on the opioid epidemic.
“I got a wonderful briefing,” he says. “And afterwards I asked
the simple question, when was the data through? And they
said, ‘Through March 2015.’ And I said, ‘But it’s April 2018.’ ”
He adds: “When I became CDC director, I was excited about
making an impact on the human condition and public health.
I didn’t realize I was becoming a medical historian.”
In Congress, Senators Richard Burr, a North Carolina
Republican, and Patty Murray, a Washington Democrat, are
  REMARKS
drafting legislation to make broad changes at the agency.
The pair, who lead the U.S. Senate Committee on Health,
Education, Labor and Pensions, hope to introduce a bill after
Congress finishes dealing with the Biden administration’s Build
Back Better package.
A key part of any new law will be increasing funding for
the CDC or rethinking how it spends existing dollars, along
with how much of its budget should be funneled to state
public-health departments. The lawmakers also want to over-
haul the way health data gets collected and reported.
Among some legislators, former agency heads such as
Redfield, and state public-health officials, there’s also talk that
the culture needs to change. One often-heard criticism is that
the agency is too academic. It has tended to “agonize over
having perfect, clean data,” Burr said at a Nov. 4 hearing with
current CDC Director Rochelle Walensky. “By the time we get
their data, it’s too late.”
Another White House official, who spoke anonymously
because they’re not authorized to comment publicly on such
matters, says there’s a sense that while the CDC is a useful
center of knowledge, it’s not “operational,” meaning it’s not
capable of mounting an on-the-ground response. Those types
of tasks—such as executing quarantines, ramping up testing
capacity, or running disease surveillance—might be better han-
dled by another part of the government.
14 Walensky has said she’s working to make changes at the
agency, whose a little over 10,000 employees are based mostly
in Atlanta. “One of the things I think we’ve done since I’ve been
here is try and understand what are the questions people are
going to be asking a month from now or two months from
now,” she said at an event hosted by the Atlantic in September.
The agency now gets faster updates on vaccine effectiveness
from studies it’s commissioned, for example. Walensky, the for-
mer chief of the Division of Infectious Diseases at Massachusetts
General Hospital, also set up a unit to focus on disease forecast-
ing. The new Center for Forecasting and Outbreak Analytics is
meant to give the agency better information on future threats
and is being led by people hired from outside the agency—an
effort to get around the CDC’s too-academic culture, accord-
ing to a person familiar with the effort.
Redfield says a CDC overhaul will require a substantial
○ Walensky
○ Burr and Murray
investment, anywhere from $25 billion to $50 billion: “This is
not some hundred million here, a hundred million there.” As
recently as a few years ago, he says, the agency was still getting
reports from some local agencies by fax. “We’ve never given
the American public the public-health system that it needs—
more importantly, that it deserves.”
The problems aren’t just at the federal level. In January 2021,
as the U.S. vaccine rollout was getting under way, public-health
officials in California saw something that worried them. Despite
months of planning, the state’s numbers were lagging.
It didn’t make sense. Health workers in the field were say-
ing immunizations were moving quickly. But according to the
data, California was slower than other states in administering
the still-meager supplies of vaccines being shipped by the fed-
eral government.
So officials began to investigate. The culprit, it turned out,
wasn’t vaccine hesitancy or bottlenecks at hospitals. It was a
button. On one of the computer programs the state was using
to feed records into a central database, the “submit” button
was buried at the bottom of the screen and easy to miss. A
message went out to vaccinators: Hit “submit.” Within days
the numbers began to turn around.
It was a face-palming oversight with serious repercussions.
One of California’s biggest health-care systems, Sutter Health,
had been focusing those early vaccinations on older, vulner-
able people. Supplies were tight, and Sutter quickly used up
what it had. But the state wasn’t sending more—and doses
were being delayed.
“The state thought they had vaccine, but they didn’t,”
says Paul Markovich, chief executive officer of Blue Shield of
California, the health insurer that would end up being brought
in to take over management of the state’s vaccine program. He
says there were “a number of glitches” in the state systems that
could have caused the problem.
BURR AND MURRAY: BLOOMBERG. WALENSKY: BLOOMBERG
“We had people who were 80-plus years old not getting
their second shot,” he says. A Sutter Health representative con-
firmed that the system had briefly paused first-dose appoint-
ments and also second-dose appointments.
“When you have the most virulent virus we have seen in
a century tearing its way through your population, it’s crit-
ical that you get the people who are the highest risk,” says
Markovich. “You’re potentially costing people their lives,
because the vaccine is not going to the people it should.” 
—With Riley Griffin
YO U G O TH E DI STA N CE
F O R YOU R B U SIN ES S.
S O D O WE .
Every business is on a journey. Whether you’re expanding your clientele
or hiring new employees, Dell Technologies Advisors are here to help with
the right tech solutions. So you can stop at nothing for your customers.

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of their respective owners. 570541
 1

B
U
S
I
N
E 17

S
Is This Drone S
Really a Spy?
China’s DJI rules the global market for unmanned aerial vehicles.
That has the U.S. worried about national security

To his 80,000 YouTube subscribers, Indiana
college student Carson Miller is a content creator
who reviews drones. As the U.S. government sees
it, Miller and thousands of other Americans who
purchase drones built by Shenzhen-based SZ DJI
ALEX SEGRE/ALAMY
them, illustrates why the Chinese company is the
world’s leading dronemaker and controls more
than half of the U.S. market. “If tomorrow DJI were
completely banned,” Miller says, “I would be pretty
frightened because I don’t know too many other

Technology Co., may be unwittingly aiding Chinese great options.”

intelligence agencies. Miller, who bought his first Critics of DJI warn that the dronemaker may be Edited by
DJI model in 2016 for $500 and now owns six of channeling reams of sensitive data to Chinese James E. Ellis
  BUSINESS
intelligence agencies on everything from critical
infrastructure like bridges and dams to personal
information such as heart rates and facial images.
But to Miller, consumers face plenty of bigger
threats to their privacy. “There are apps that track
you on your smartphone 24/7,” he says.
That attitude is a problem for American offi-
cials who are seeking to end DJI’s dominance in the
U.S. On Dec. 16 the Biden administration blocked
American investment in the company, a year after
President Donald Trump prohibited it from sourc-
ing U.S. parts. Now lawmakers from both par-
ties are weighing a bill that would ban federal
purchases of DJI drones, while a member of the
Federal Communications Commission wants its
products taken off the market in the U.S. altogether.
In many ways, DJI has become the poster child
for what many believe to be a much wider national
security threat: the Chinese government’s ability
to obtain sensitive data on millions of Americans.
“Each new piece of information, by itself, is rela-
tively unimportant,” Oona Hathaway, a professor at
Yale Law School who served in the Pentagon under
President Barack Obama, wrote in Foreign Affairs,
referring to surveillance and monitoring technol-
18 ogies. “But combined, the pieces can give foreign
adversaries unprecedented insight into the per-
sonal lives of most Americans.”
In the drone world, no company is more pro-
lific than DJI: It commands more than 50% of the
U.S. drone market, the FCC said in October, and
research firm DroneAnalyst estimates that the
Chinese company sells about 95% of the unmanned
aerial vehicles, or UAVs, targeted at consumers—
those priced from $350 to $2,000.
In 2019, Trump signed a bill prohibiting the mil-
itary from purchasing Chinese-made drones and
drone components. A year later the Commerce
Department put DJI on its Entity List, which bars
U.S. suppliers from selling to it without an exemp-
tion. Republicans with presidential ambitions such
as Senators Tom Cotton and Marco Rubio have
co-sponsored the bipartisan American Security
Drone Act, which would ban all federal pur-
chases of DJI’s drones. The Senate’s top Democrat,
Majority Leader Chuck Schumer, has pushed simi-
lar restrictions in a separate bill.
DJI could face more trouble soon. Brendan Carr,
one of four FCC commissioners, said in October
that the regulatory body should consider a ban
on approvals of DJI’s equipment, citing the “vast
amounts of sensitive data” collected by its drones.
In an FCC statement, Carr warned that DJI may
be a “Huawei on Wings,” referring to the Chinese
telecommunications giant the U.S. has sought to
Bloomberg Businessweek December 27, 2021
hobble with sanctions over spying concerns. FCC  DJI’s share of the
global commercial
Chairwoman Jessica Rosenworcel declined through drone market
a spokesman to comment on Carr’s call for restric-
tions on DJI. 75%
Any moves by the FCC to stop approvals of DJI’s
equipment would cripple the company’s opera-
tions in the U.S., according to Conor Healy, gov- 50
ernment director for surveillance-research group
IPVM. “Eventually they just wouldn’t have anything
left to sell in the U.S.,” Healy says. “We’re creating 25
this situation where the Chinese can’t sell gear to
the world, and vice versa.”
DJI declined to answer questions from 0
Bloomberg News about its data policies or mar- 2018 2021
AS OF 6/30
keting strategies. The company also didn’t com-
ment on the recent blacklisting by the U.S. DJI
spokesman Adam Lisberg referred to a statement
the company issued in 2020 when the Commerce
Department put DJI on its list of companies pro-
hibited from purchasing from American suppliers
without an exemption.
“DJI has done nothing to justify being placed on
the Entity List,” the company said then. “We have
always focused on building products that save lives
and benefit society. DJI and its employees remain
committed to providing our customers with the
industry’s most innovative technology.”
The company has already reduced its reliance on
foreign suppliers of chips, motors, and cameras, says
David Benowitz, head of research at DroneAnalyst
and a former DJI employee. “They saw the writing
on the wall,” he says. “DJI is in its own space where
it owns most of the things it relies on.”
Whether being added to the blacklist barring
U.S. investment has much impact on the closely
held company is up for debate. In August, DJI told
investors—which have included venture capital
firms Sequoia Capital China and Accel Partners LP—
that getting added to the Entity List had no material
impact on sales and operations in North America,
according to a person familiar with the situation
who asked not to be named discussing a private
matter. DJI earned $914 million in 2020 on revenue
of $3.25 billion, the person says.
As a private company in a competitive indus-
ILLUSTRATION BY DEREK ABELLA. DATA: DRONEANALYST
try, DJI doesn’t disclose details about its financial
and market performance, spokesman Lisberg said
in response to a request for comment on its com-
munication with investors and last year’s earnings.
Amid rising concerns about Chinese surveil-
lance, in 2019 DJI introduced its Government
Edition drones, designed to ensure that photos,
video, and other data never leave the device.
The information, it said, “therefore can never be
shared with unauthorized parties including DJI.”
 BUSINESS Bloomberg Businessweek December 27, 2021

The company has since offered users a Local distributors. Most U.S.-made commercial drones,
Data Mode that prevents the transmission of all he says, could cost as much as 30% more and offer
drone data over the internet. “DJI is committed fewer features.
to protecting drone user data, which is why we Yet worries about DJI drones transmitting
design our systems so drone users have control images of air bases or power plants to Chinese intel-
of whether they share any data with us,” it said in ligence are overblown, says Kay Wackwitz, chief
a July 2020 statement. executive officer of Drone Industry Insights, a con-
Klon Kitchen, a security expert at the American sulting firm in Hamburg. To Wackwitz, the fears
Enterprise Institute, says that despite DJI pledges, appear to be just a pretext “to push the Chinese
the devices aren’t secure. “These drones are one manufacturers out of the market.” —Bruce Einhorn
update from being noncompliant,” Kitchen says. and Todd Shields, with Yuan Gao, Zheping Huang,
Information could flow through drone-control apps and Colum Murphy
that suck data out of users’ mobile phones, he says.
THE BOTTOM LINE China’s DJI controls more than 50% of the
DJI’s efforts to address such concerns face a drone market in the U.S. New American government curbs on
major hurdle: Western governments’ mistrust investments in the company are the latest efforts to clip its wings.
of Beijing. China’s National Intelligence Law
requires businesses and organizations to assist
in espionage—and to keep those activities secret.
Governments should assume Chinese spy agen-
cies will find value in information gathered by DJI’s In Search of
drones, says Andrew Shelley, director of Aviation
Safety Management Systems Ltd., a New Zealand A Greener Mask
advisory firm that works with government clients.
“For the average recreational user who might be
taking selfies on the beach, it’s probably true that
DJI is not interested in their data,” he says. “But col- 19
lectively, the Chinese government is interested in
our data. We don’t understand just how much of
a threat that is.”
The concern over security risks from DJI’s
drones is starting to hurt, mostly in the lucrative
market for corporate customers. The company’s
share of the $2 billion global commercial drone sec-
tor dropped to 54% in the first half of 2021, down
from 74% in 2018, according to DroneAnalyst.
DJI’s fightback strategy is fairly simple: Insulate
the company from sanctions, build products that
are better and more affordable than anything on
the market, and win over the next generation of
users. Last year, DJI started a new education divi-
sion, offering a small drone priced at $240 as well
as software to help schoolteachers instruct young
students on basic coding. In October the company ○ Expanded use during the pandemic has companies racing to
enlisted cinematographers—including three Oscar develop biodegradable face coverings
winners—to promote a drone with new stabilization
technology and other advanced features. Other
devices include one that can stay in the air for as Since the beginning of the pandemic two years ago,
long as 46 minutes and another for crop-dusting global production of face masks has rocketed to
that “can cover 40 acres in an hour.” 129 billion a month from just an estimated 8 billion
The lack of alternatives to DJI is a concern for in all of 2019. While they’ve helped protect humans
local police departments that receive some fund- from Covid-19, the masks—which today are mostly
ing from Washington. They could be hindered by made from plastic fibers that can take hundreds of
rules banning federal spending on DJI equipment, years to disintegrate—are a threat for creatures that
says Luke Goldberg, president of Chatsworth, Calif.- dwell in streams, rivers, and oceans. Almost 1.6 bil-
based Enterprise UAS, owner of several drone lion of the face coverings likely ended up in the
  BUSINESS
seas in 2020, based on a conservative assumption
by the marine conservation nonprofit OceansAsia,
which estimates about 3% of masks made that year
ended up as litter. Out in the open, their fibers
break up into microplastics that are impossible to
collect far more quickly than plastic bags, making
them a bigger threat than plastic bags, according to
a University of Southern Denmark study.
“Plastic pollution was already one of the great-
est threats to our planet before the coronavirus
outbreak,” United Nations official Pamela Coke-
Hamilton said in a report from the organization’s
Conference on Trade and Development. “The sud-
den boom in the daily use of certain products to
keep people safe and stop the disease is making
things much worse.”
To address that problem, dozens of manufactur-
ers around the world are working on biodegradable
masks. Some are made from new plastics said to
self-destruct in a few months. Others use a plastic
substitute made from corn starch, sugar cane, and
other sugars. And a few are even embedded with
seeds that germinate into meadow flowers.
“Biodegradable masks will be a big market with
a lot of demand from governments who are seeing
20 what a big problem mask pollution is becoming,”
says Francois Dalibard, chief executive officer of
Groupe Lemoine, a French company that manu-
factured 500 million face masks this year. “The first
ones to offer it will have a big advantage.”
U.K. startup Polymateria Ltd. has patented a for-
mula that uses about a dozen chemicals—rubbers,
oils, desiccants—added to plastics during manufac-
turing. The mix can be adjusted to create soft plastic
fibers used in masks, thin films for food packaging,
or more rigid materials used to make cups or drink
pouches. The products can be customized to self-
destruct after a certain time, with the additives help-
ing turn the plastic into a wax that’s fully digested by
natural bacteria and fungi in about a year.
Polymateria worked with BSI, the U.K.’s
national standards body, to create what it says are
the industry’s first standards for measuring the
biodegradability of the most littered type of plas-
tic, polyolefins. Plastic products can be certified as
meeting the standard by laboratories around the
world by measuring how much plastic has been
reduced to a harmless wax and testing to make
sure no hazardous substances are left behind.
Although several companies offer certifica-
tion for biodegradable plastics, verifying claims
that a plastic material is biodegradable is diffi-
cult. “Biodegradation of plastics is a complex
process that depends on both the material itself
and the conditions of the environment in which
Bloomberg Businessweek December 27, 2021
it takes place,” says Nicole Grobert, chair of the
Group of Chief Scientific Advisors to the European
Commission. To assess whether a polymer is bio-
degradable, it’s important to develop “coherent
standards for testing and certification, assessing
the biodegradation of plastic products in specific
environments. Currently such standards for test-
ing and certification do not exist.”
That hasn’t stopped companies from trying.
Thai petrochemical company Indorama Ventures
PCL has licensed Polymateria’s technology and is
planning to use it in fibers it’s designing for mask
makers. The company says it’s in discussions with
Group Lemoine and mask makers in India and
Malaysia to supply the new biodegradable material
for those manufacturers’ face coverings. “We’ve
looked for a long time for a solution like this that
doesn’t leave any microplastics,” says Prashant
Desai, Indorama’s fibers chief innovation officer. “The sudden
The company says it’s testing the biodegradable boom in the
masks against the U.K.’s BSI guidelines for biode- daily use
gradability, and initial tests of the material have of certain
passed the standard. products to
The Canadian Shield in Waterloo, which man- keep people
ufactures millions of units of personal protec- safe and stop
tive equipment weekly and contracts with the the disease is
Canadian government to supply face shields, is making things
having trouble keeping up with demand for its much worse”
BioMask. The biodegradable mask incorporates an
additive that allows for microbes and enzymes to
“eat away at the treated plastic” once in the land-
fill. The company says its certified mask, excluding
the ear loops and nosebridge, biodegrades 6.5%
in 45 days and was tested under conditions simi-
lar to a landfill setting. The masks from Canadian
Shield don’t turn into a digestible wax and aren’t
tested for biodegradability in an open-air situation
where masks might be littered.
While disposable medical masks can cost less
than 5¢, the cheapest biodegradable masks run
about 30¢ each and are often much more expen-
sive. The makers of planet-friendly masks say they
need higher demand to help bring down costs. In
Hong Kong, mask retailer ReMatter is selling more
than 1 million medical masks monthly and has
introduced a certified biodegradable mask that will
decompose completely after five years in a land-
fill. At 55¢ each, they’re priced 80% higher than
the company’s other premium masks, which fea-
ture Disney characters or stylish colors aimed at
fashionistas. ReMatter, which sells online and at its
specialty shops in Hong Kong, is marketing the cov-
erings to corporations and schoolkids. “We’d like to
bring down the price a bit more so more people are
willing to try it,” says ReMatter founder Alex Lee.
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 “A big part of that is education. We want to make
people aware of their choice and how it affects the
environment. We are doing˛talks at schools and
teaching children why this is important.”
Critics say pitching masks and other plastics as
biodegradable is an irresponsible marketing tactic
that could encourage littering. And even with addi-
tives to make them biodegradable, masks can still
produce microplastics if they simply break down
22 into small pieces but stick around, says David
Newman, managing director of the Bio-based and
Biodegradable Industries Association, a U.K. indus-
try lobbying group.
Those concerns haven’t stopped entrepreneurs
worldwide from trying new ideas, including find-
ing solutions for masks that might end up as litter.
A Dutch company called Marie Bee Bloom sells rice
paper masks with hundreds of flower seeds pressed In Vietnam, ShoeX, a footwear manufacturer-  Mask material being
made using Polymateria
between the layers. If they end up in a park or a turned-mask maker, sells what it bills as the biodegradable plastic
flower pot, the paper soon disintegrates, allowing world’s first face covering made from coffee. The technology at Indorama
Ventures’ Avgol
the seeds to sprout. Marie Bee Bloom’s staff of 30 mask features woven coffee yarn for its outer Nonwovens plant in
has made about 70,000 masks this year—by hand— layer and a biodegradable filter made with coffee North Carolina

which are sold for about €2.6 ($3) each across
Europe. Although the masks don’t have medical
certification, that’s in the works, says Marianne
de Groot-Pons, the graphic artist who started the
company. “Nobody wanted to wear masks, they
were being littered on the streets, and I wanted to
change the story and message around masks,” she
says. “The masks we have to wear can turn into
something beautiful that’s good for the planet.”
Indian startups have also adopted the idea, put-
ting seeds of tomatoes, okra, and other vegetables
beans and silver nanotechnology. In Florida, Elo
Industries Inc. sells a disposable mask it says is
made from bioplastics including corn and cassava.
And in the U.K., the Pure Option website carries
masks made from corn-based plastic and sustain-
able paper.
“We need masks to be reusable where possible,
but many of us will still use and prefer disposable
ones,” says Yeen Seen Ng, founder of think tank
Centre for Research, Advisory and Technology,
which advises Southeast Asian governments on
COURTESY INDORAMA VENTURES

into face coverings made from recycled cloth—
though some critics say there’s a risk of seeding
invasive species if the masks hitch a ride on an air-
plane. De Groot-Pons insists her seeds aren’t inva-
sive, just ordinary blooms such as poppies, corn
flowers, and petunias.
sustainability plans. “We need biodegradable mask
innovation and technologies to tackle the pollution
challenge.” —K. Oanh Ha
THE BOTTOM LINE An estimated 1.6 billion disposable masks
ended up in the world’s seas in 2020. So the face coverings could
join plastic bags and bottles as major global waste threats.
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 These May Be
2

T The Droids You’re

E Looking For
C
H
N
26
O
L
O
G ○ Sidewalk delivery robots find
a niche on college campuses
administrator whose office is a long walk from most
of the campus’s cafes, comes over and taps on her
phone. “It’s supposed to play me a song,” she says,

Y Robot 509 from Starship Technologies is both

patient and skittish. The autonomous machine,
which resembles a Yeti cooler crossed with a
Waymo minivan, moves around like a mammal near
the bottom of the food chain. It freezes up in crowds
and, even when utterly alone, scoots forward in
halting spurts, seemingly suspicious of fallen leaves.
A few days after Thanksgiving, Robot 509 ferries
some cargo across the campus of James Madison
University in Harrisonburg, Va. It stops on a
deserted road, waiting for about a minute before
finally scooting across, then trundles over a stretch
of pavement and some railroad track before com-
Edited by
ing to a full stop.
Joshua Brustein Rachael Haberstroh, a James Madison
watching skeptically as the entire top of the robot
swings open. As 509 serenades her with Adele’s
Easy on Me, she reaches in and grabs a large, iced
Starbucks drink.
Robots designed for sidewalk deliveries have
existed for years, drawing both suspicion—San
Francisco banned them in 2017, before creating a
program to allow some testing—and ridicule from
those who see them as another Silicon Valley solu-
tion in search of a problem. Near-term expecta-
tions for all kinds of autonomous vehicles have
fallen recently, after several years of unrealisti-
cally optimistic projections and a string of road
fatalities. But sidewalk bots have begun to gain
momentum in certain environments. A few thou-
sand pedestrian-speed delivery robots are in oper-
ation, a figure that will at least triple in 2022 if the

leading bot makers hit their goals.
One particularly promising market has been U.S.
colleges, whose cloistered campuses provide an
easier technical challenge than chaotic downtown
business districts, and whose students make up an
ideal customer base, given their constant hunger
for both snacks and novelty.
Robot 509 is one of about 50 Starship robots
serving James Madison, one of 22 colleges where
PHOTOGRAPHS BY GREG KAHN FOR BLOOMBERG BUSINESSWEEK
the company now operates. Students pay $1.99
per delivery. Kiwibot, another sidewalk droid
startup, signed a deal in August with Sodexo SA
to deploy 1,300  robots on 50 of the campuses
where the food service provider runs the dining
halls and cafes. Kiwibot has several pricing struc-
tures, but it generally charges $1,300 per robot, per
month—which works out to less than $2 an hour.
Yandex NV, in Moscow, operates 50 robots at Ohio
State University.
The economics are promising compared to
Bloomberg Businessweek December 27, 2021
human-staffed delivery services, which have long  James Madison
University has about 50
struggled to turn a profit. DoorDash Inc., which Starship Technologies
controls about half of the U.S. market for food autonomous robots
rolling across campus
delivery, fulfilled 816 million orders last year, post-
ing about $3.50 in revenue for each. To make those
deliveries, DoorDash relies on about 1 million deliv-
ery people. Despite using controversial strategies
like classifying workers as independent contractors
to keep labor costs low, it still ends up losing almost
$2 per transaction.
Each of Starship’s 1,200 robots costs about as
much as a high-end laptop, can run for 18 hours on
a single charge, and often operates for days with-
out any human interaction. “The hourly wage of a
robot is zero,” says Starship Chief Executive Officer
Alastair Westgarth. “So I can do a milk run and do
it profitably.”
 A Starbucks
employee loads a
sidewalk droid with an
order for delivery
27
In November, DoorDash unveiled DoorDash
Labs, an in-house research and development unit
that’s already secured two patents for an autono-
mous delivery pod. One of its main competitors,
Uber Technologies Inc.-owned Postmates, spun out
its own robotics unit, Serve Robotics, in March. The
company expects sidewalk droids to handle 5% of
U.S. food deliveries by 2026.
Dense urban areas or even sidewalkless sub-
urbs may prove beyond the navigational capabil-
ities of most robots for years, says Sagie Evbenata,
senior research analyst at Guidehouse Insights.
Even if they do figure out the technical challenges,
drones or larger delivery capsules that can
  TECHNOLOGY
travel on the streets may work better in large
cities. “The use-case is quite limited,” Evbenata
says. “I still think we’re several years away from it
being mainstream.”
The companies making sidewalk drones
respond to such skepticism by pointing to other
use cases. When they’re not serving Ohio’s col-
legians, Yandex’s robots are shuttling packages
around Moscow for Russia’s postal service. The
devices, which the company has been working on
since 2018, are arguably the largest and toughest in
the market: Each can carry six large pizzas and two
liters of soda. With snow tires or tank treads, they
crawl across snowbanks and curbs. Their batteries
can be swapped out in seconds, avoiding down-
time for charging.
“It’s basically a small electric car,” says Artem
Fokin, head of business development for Yandex’s
self-driving division. “If we look 10, 15 years down
the road, it’s a business that’s tens of billions of
dollars,” he says, “and that’s just in our service-
able market.”
Amazon.com Inc. began planning its own last-
mile delivery bots about the same time as Yandex
did. Today the company has an undisclosed num-
28 ber of robots—dubbed Scouts—scooting around
Atlanta; Franklin, Tenn.; Irvine, Calif.; and the
outskirts of Seattle, each one big enough to carry
the vast majority of Prime orders. Amazon says
its strategy is not to replace human couriers but
to increase capacity so delivery times don’t suffer
when demand spikes.
The bots are learning their worlds quickly, their
algorithms adjusting and improving on every trip.
In Europe, Starship bots are already delivering
groceries, and Westgarth expects the company to
deploy almost 3,000 new robots in 2022.
But even in the relatively safe learning environ-
ments of college campuses, Starship’s robots are
encountering challenges. Students occasionally
sit on them after a few too many White Claw hard
seltzers. That often—but not always—breaks them.
More commonly, people delay deliveries by stand-
ing in front of the robots to pose for selfies.
Mostly autonomous is also not quite the same
as fully autonomous. The machines periodically
require humans to clean, repair, or charge them.
Robots are programmed to ping a human helper
when in need of such assistance, but sometimes
those people are sitting in service centers thou-
sands of miles away.
Bot 509 is out on its last Starbucks run before
the dinner rush, methodically rolling across
a street on the edge of campus, when one of its
co-workers zips by. The speedy bot comes upon
Bloomberg Businessweek December 27, 2021
an abandoned Bird electric scooter, veers right
and drops halfway off the curb with a harsh plastic
crunch. It spins its wheels to no avail.
Students stream by, paying as little attention to
the stranded appliance as they do to the moving
versions. Finally two young women put down their
books and drinks. Each taking an end, they heft the
robot back onto the sidewalk. The students pat the
machine as if it were a dog, and it continues along
on its tentative way. —Kyle Stock
THE BOTTOM LINE College campuses are ideal environments
for sidewalk robots, with their pedestrian-friendly design and eager
consumer base.
Alexa, Why Are You
Still Here?
○ Amazon is good at selling smart speakers but
is struggling to keep users engaged
Each holiday season since 2015, Amazon.com
Inc. has counted on selling a lot of its Alexa voice-
controlled smart speakers. For almost as long, it’s  Share of users of each
Alexa device who use it
known that the devices would have trouble holding each week, according
customers’ attention even into January. According to an internal Amazon
document
to internal data, there have been years when 15%
to 25% of new Alexa users were no longer active in
their second week with the device.
Concern about user retention and engagement
comes up repeatedly in internal planning docu- 74%
ments that Bloomberg Businessweek viewed. The
documents, which covered 2018 to 2021, detail Devices with a screen
Amazon’s continued ambitions for Alexa, including
plans to add more cameras and sensors that would
allow the devices to recognize different voices or ILLUSTRATION BY PATRICIA DORIA. DATA: INTERNAL AMAZON.COM DOCUMENT FROM 2020
determine which rooms users are in during each 66%
interaction. They also reveal the roadblocks the
company sees to realizing these goals. Last year,
Amazon’s internal analysis of the smart speaker Echo
market determined that it had “passed its growth
phase” and estimated that it would expand only
1.2% annually for the next several years.
The market for Alexa devices extends beyond 56%
just smart speakers, and Amazon disputes many
of the metrics cited in the documents, saying they
Echo Dot
are either outdated or inaccurate. In an emailed
statement, Amazon spokesperson Kinley Pearsall
said the company was as optimistic about Alexa as
it had ever been. “The fact is that Alexa continues
 TECHNOLOGY Bloomberg Businessweek December 27, 2021

to grow—we see increases in customer usage, and

Alexa is used in more households around the world
than ever before,” she wrote. 
Amazon views one of the main barriers as con-
cerns about privacy, sparked by revelations that
Amazon workers review snippets of audio to help
improve the software, along with some high-profile
blunders, such as an incident in which a person’s
device sent recordings of conversations to a contact
after misinterpreting a series of phrases as com-
mands. The other hurdle is an even more basic chal-
lenge: People simply don’t find Alexa that useful.
Amazon’s first Alexa device, the cylindrical
Echo speaker, was a runaway success. Facebook,
Apple, Google, and other companies released their
own versions, and analysts made enthusiastic pro-
jections about voice control prompting a shift in
computing akin to the migration from desktops to
mobile devices.
The company’s goal with Alexa was to pull users
into a deeper relationship with its services, allow-
ing Amazon to profit in various ways. Sales have
been significant: Last year the company deter-
mined that 25% of U.S. households have at least one
Alexa device; among Amazon Prime households,
it’s 27%. But most Alexa users in many years ask 29
their voice-powered devices only to play music, or
set the timer while they cook, or turn on the lights.
Amazon employees noted in a planning document
for 2019 that new Alexa users discover half of the
features they will ever use within three hours of 2019 said that despite Amazon’s efforts to add
activating the device. features to Alexa, there wasn’t an overall increase
“Did they overestimate in the short term? in user engagement.
Sure,” says Greg Gottesman, managing director Amazon has also recruited Alexa itself to nudge
and co-founder of startup studio and investment consumers to use the system in new ways. In
company Pioneer Square Labs. Still, he’s bullish on recent years the devices have begun suggesting
Alexa and the voice technology boom it pioneered. new requests people could make, in the process
Like most technologies, he says, “it takes time to of fulfilling whatever function they actually did
marinate. We’re still early. Five years from now, request. Annoyed customers have struggled to
10 years from now, people will be using Alexa for turn off the feature. (There’s no easy way to do so,
much more than those three things.” but fiddling with settings can significantly reduce
Amazon employs more than 10,000 people to the unwanted chattiness, according to an article
work on Alexa, and the documents projected its published on the tech news website CNET in June.)
fixed costs to be $4.2 billion in 2021. For such a “Almost every day after I ask quick things, I get, ‘By
costly division, Alexa’s prospects for generating the way, I can recommend birthday gift ideas so
revenue are unclear. In 2018, Amazon projected it you can buy more things from Amazon! Wouldn’t
would lose $5 per device in 2021 and said it hoped you love to hear that??’ ” an Alexa user complained
to improve that to a $2 profit per unit in 2028. The in a recent Reddit post. “No, Alexa, the answer has
company says its goal is to make money when peo- always been no. Just tell me the temperature.” That
ple use Alexa to access other Amazon services. kind of frustration might explain why some peo-
It’s focused on new ways to get users to interact ple unplug their speaker and toss it into a closet.
with Alexa, such as in-home devices with screens, —Priya Anand
Alexa-enabled headphones, and applications for
THE BOTTOM LINE Amazon’s internal analysis of its Alexa
cars. Amazon also continues to tinker with how business shows high user attrition rates, a slowing smart speaker
Alexa interacts with customers. A document from market, and little in the way of near-term profit.
 ○ Trouble at such a high-profile project is a bad sign for India’s electric vehicle industry
Ola Electric Mobility Pvt Ltd., the Indian startup
that’s pledged to build the world’s biggest electric
scooter factory, distributed a handful of brightly
hued bikes to customers in December at its factory
in Chennai, complete with drummers and a saxo-
phonist to mark the occasion.
The proceedings couldn’t obscure Ola’s inability
so far to live up to its lofty ambitions. The goal of
this high-profile startup was to have the $330 mil-
lion facility making 15% of the world’s e-scooters by
summer 2022. Bhavish Aggarwal, Ola’s founder, has
described the scooters as a way to spark the coun-
try’s electric car industry. “It’s a vehicle we’ve engi-
neered ground-up so India can get a seat at the world
EV table,” he told Bloomberg News earlier this year.
30
But mass production of its e-scooters, already
delayed several weeks, is likely to be pushed back
to at least January, say people familiar with its oper-
ations, who asked not to be identified because the
information isn’t public. While the Bengaluru-based
company is pledging to fulfill the rest of the orders
by February, the people familiar with Ola say it’s
making only about 150 vehicles a day. At that pace
it’ll be hard to complete the 90,000  orders the
company says it has on its timeline. Its body shop
is running at half capacity, and its paint shop isn’t
operating, the people say. The issues may compli-
cate the plans of Ola’s parent, ANI Technologies Pvt
Ltd., for an initial public offering in Mumbai in 2022.
India, the third-biggest emitter of greenhouse
gases on the planet and home to some of its worst
air pollution, has set a goal to reach net-zero carbon
emissions by 2070. This would require a huge shift
to EVs, which make up just 1% of overall annual auto
sales, compared with 30% in some parts of China.
Ola declined to disclose production numbers, cit-
ing confidentiality, but says its performance mea-
sures up well against those of rivals. “We had a
minimal delay of two to four weeks instead of much
longer delays (months and up to a year) that are
common in the industry,” Varun Dubey, the chief
marketing officer, said in an email. He attributed the
holdups to the semiconductor shortage, which has
hobbled automakers globally.
Some scooters Ola has managed to make have
had mechanical problems. Pradeep M, a YouTuber
who reviews cars on the channel “Pradeep on
Wheels” and has tested the scooters, says some
slowed down and eventually came to a complete
halt when accelerated to their top speed of 115 kilo-
meters per hour (71 mph). He also says the use of
a horizontal rather than vertical suspension at the  Electric share of
motorized two-wheeler
rear—to make room for storage—leads to a bumpier sales in select markets,
ride. In the email, Dubey disputed the critique of the 2020
suspension. He acknowledged some software issues
with the scooters Ola provided to reviewers but said Mainland China
they’ve been addressed. 68%
The pressure of meeting delivery targets is get- Global average
ting to the top management at Ola, the people 37
familiar with the company say. Local media have South Korea
reported several key departures, including the 14
chief financial officer, chief operating officer, and Vietnam
general counsel. (Those executives didn’t respond 14
to requests for comment made via LinkedIn.) Taiwan
10
The stumbles of such a high-profile effort to boost
India’s EV market is worrying to some. “Quality Europe
6
issues are more prevalent in the low-speed elec-
tric two- and three-wheeler segments in India,” India
says Komal Kareer, an analyst at BloombergNEF in 1
New Delhi. They’re “flooded with small players that
directly import vehicle components from China.”
Ola’s struggles illustrate a vulnerability of
Indian vehicle makers, many of whom rely on
an import-and-assemble model, says Anthony
de Ruijter, a senior associate at U.K. investment advi-
sory Third Bridge Group Ltd. India imports 70% of
its EV parts from China, a situation that hinders the
development of a reliable, indigenous supply chain,
which is critical for mass production.
DHIRAJ SINGH/BLOOMBERG. DATA: BLOOMBERGNEF
Customers waiting for their orders from Ola
have begun to complain on social media. “It’s never
a great look for anyone if you’ve got a consumer
base that’s not happy with delivery timelines,” says
De Ruijter. “This is going to be an issue for the sec-
tor, not just Ola Electric.” —Ragini Saxena ○ Aggarwal
THE BOTTOM LINE Supply chain issues have caused an
ambitious attempt to manufacture electric vehicles to fall behind
schedule, and questions abound about quality.
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 Bloomberg Businessweek December 27, 2021

The Greenwashing F
Detector
I
○ A data-driven investor
analyzes how executives
talk about sustainability and
as natural language processing and machine
learning to figure out what companies are really
up to. “I became frustrated with what the ESG data
providers were doing,” says Moniz. “A lot of the
N
A
time they’re just relying on yes-or-no answers to
finds a lot of hot air
questions like ‘Does this company have a human-
rights policy?’ That data is extremely stale and
backward-looking.” He thought he could do a bet-
As sustainable investing becomes more mainstream
on Wall Street, companies are doing everything
they can to present themselves as eco-friendly and
ethically run. But the environmental, social, and
ter job collecting the data on his own.
A Bloomberg Businessweek investigation pub-
lished in December showed that rather than reflect-
ing companies’ sustainability efforts, ESG ratings
N
governance (ESG) ratings that money managers rely
on don’t always do a good job of cutting out the
greenwashers—businesses that talk a good game
but don’t match it with action.
tend to focus narrowly on risks to shareholders. So
a company could have high carbon emissions but
still get a decent ESG score if stricter regulation of
its business appears unlikely. Moniz, too, is looking
C 33
Andy Moniz, a London-based data scientist at
Acadian Asset Management, says he’s not only fig-
ured out a better approach, he can make money
trading on it. He’s using sophisticated tools such
out primarily for investors’ interests in his analy-
sis. But even based on that kind of metric, ESG rat-
ings fall short, Moniz says. (Bloomberg LP, which
owns Bloomberg Businessweek, sells sustainability
E
ILLUSTRATION BY KATI SZILÁGYI

Edited by
Pat Regnier
  FINANCE Bloomberg Businessweek December 27, 2021

ratings and data to the investment industry.)

At Acadian, a quantitatively driven fund with
more than $100 billion under management, Moniz
analyzes reams of data about companies to identify
hidden ESG risks. Some of it is unconventional: For
instance, his software searches through transcripts
of executives speaking at shareholder meetings, con-
ferences, and on analyst calls for signs of evasive-
ness, vagueness, or a refusal to answer questions.
It’s an approach grounded in psychology literature.
He gives the example of Albert Chao, presi-
dent and chief executive officer of Houston-based
Westlake Chemical Corp., who earlier this year was
asked by an analyst to explain Westlake’s decarbon-
ization strategy. “This issue is very important for
the company, its employees, and the whole world,”
Chao replied. “We want to do our part as much as
we can. … And I know to get to zero net emissions,
that’s a tall order. And a lot of work is being done
on that. But I think with still a lot of progress to
come out, and we are very conscious of it.” That
meandering response was flagged by Acadian’s
algorithm as a “non-answer.”
Then there’s Russian miner Evraz Plc, whose
then-CEO, Alexander Frolov, was asked in August
34 how he planned to reduce the company’s carbon
footprint. “We have lots of opportunities, let’s say, to
capture it and utilize, which we are not doing at the
moment,” he replied. “And I guess this would lead to
significant reduction of greenhouse … there are dif-
ferent strategies, but there is potential on both sides than they seemed to be and made money betting  Moniz hunts for
trading ideas in
to reduce greenhouse emissions in the future.” This, against them. There’s no such straightforward trade odd corners
says Moniz, is a classic example of vagueness, which for greenwashing because, even when companies
he says is depressingly common among companies. are found to be inflating their sustainability creden-
Companies today put most of their ESG informa- tials, there’s no guarantee their shares will go down.
tion into carefully worded sustainability reports, but In fact, history suggests hedge funds have benefited
nuggets are to be found in these, too, says Moniz. He by investing in sin stocks ESG investors won’t touch.
points to the Polish coal-fired electricity company Moniz and his team focus only on those envi-
Ze Pak SA, which claimed in a recent presentation ronmental, social, and governance issues that their
that by 2029 it would achieve “climate neutrality”— analysis suggests will feed into the bottom line. “Our
an even more ambitious target than net-zero— investment process is purely designed to enhance
without providing any clues as to how it planned risk-adjusted returns, and in that way we don’t treat
to do so. “We are ahead of the goal of European ESG as any different to any other dataset,” he says.
Union climate neutrality (2050) by 20 years,” the It’s a mindset Moniz developed on Wall Street at the
company declared. Ze Pak, Westlake Chemical, and likes of Citigroup Inc. and Deutsche Bank AG, where
MONIZ: LUCY RIDGARD FOR BLOOMBERG BUSINESSWEEK

Evraz didn’t respond to requests for comment.
Recognizing red flags when they’re right in front
of you isn’t too difficult. The challenge lies in build-
ing a system that can trawl through millions of doc-
uments from disparate data sources relating to
thousands of companies, as well as teach itself what
to look for. Even harder is translating that system’s
findings into investment returns. In the lead-up to
the financial crisis, a handful of investors figured
out that mortgage-backed securities were riskier
his role was to hunt for profitable trading signals in
places others might not look. One project involved
building a portfolio that mirrored the trading of
executives in their own company’s stock. Another
saw him comparing how large the CEO photos were
on annual reports—and how frequently they were
updated—as a test for egotism and therefore manage-
ment quality. (The results were inconclusive.)
Moniz turned his attention to the “G” in ESG for
a Ph.D. in 2015, when he developed a program that
 FINANCE
graded companies by the language used on the job
review website Glassdoor.com. (In corporate jar-
gon, governance refers to how well a company is
run internally.) The resulting paper, which was pub-
lished by the New York Federal Reserve, found that
companies whose staff members are both content
and find their work challenging will outperform.
Acadian scores companies on metrics includ-
ing greenwashing, corporate culture, labor rela-
tions, and whether management is focused on
the long term. The data are fed into a larger com-
puter model that makes decisions on what shares
to buy and sell. Companies that are badly run are
downgraded, not because they’re unethical but
because Moniz’s analysis indicates that the quar-
tile with the best governance scores has outper-
formed peers by 9 percentage points annually
over the past decade. Acadian’s Global Equity
funds returned 19.2% in 2020, beating the MSCI
World Index by 3.3 percentage points.
To boost its chances of success, Acadian has
started engaging with companies for which it
has identified ESG issues. Last year, for example,
Volkswagen AG was named by a human-rights group
as having exposure to forced labor camps in China’s
Uyghur region. After VW issued a statement denying
the report, Acadian’s algorithm hunted through the
company’s documents, news reports, transcripts,
and alternative data sources to come up with a
detailed chart of all its vendors and customers. The
analysis suggested VW did have one remaining sup-
plier from the region—something the company said
it would look into. Volkswagen says in a statement
that it “found no evidence” of forced labor in its sup-
ply chain in China, and that “no parts” from any
company mentioned in the report are used in its
vehicles. “This wasn’t about ESG for the sake of it,”
says Moniz about why he flagged the potential issue.
“If the company became embroiled in a scandal in
the press, it would have impacted the share price.”
Regulators have started waking up to the short-
falls of ESG ratings. Authorities in the U.S. and the
U.K. are introducing more standardized sustainabil-
ity disclosures. The International Organization of
Securities Commissions, an umbrella group for the
world’s regulators, published a report last month
decrying the industry’s “lack of transparency” and
proposing greater scrutiny. Moniz isn’t worried that
such moves might undermine Acadian’s edge. “The
key question still remains: How credible are com-
panies’ targets and commitments?” he says. “Talk
is cheap.” —Liam Vaughn
THE BOTTOM LINE Computers can search though reams of
transcripts to find hints of vague or evasive talk. Moniz says that
can be a sign that a company is ignoring ESG-related risks.
Bloomberg Businessweek December 27, 2021
Crypto Keeps
Br e ak in g
○ In an industry plagued by glitches and hacks, a $15 quintillion data
error is just another day
Cryptocurrency made a giant leap in 2021, expanding
well beyond its niche among geeks and Redditors.
Wall Street strengthened its embrace, with Morgan
Stanley Chief Executive Officer James Gorman
declaring it no fad. Tokenmania invaded pop cul-
ture, from entertainment and gaming to high-end
auctions. Major League Baseball umpires wore the
logo of crypto exchange FTX on their chests.
Yet the industry often failed to get basics right,
plagued by the same problems that have dogged it
from the start: trading glitches, infrastructure sna-
fus, hacks, and other crypto weirdness. Back when 35
digital tokens fetched a pittance these could be dis-
missed as a sideshow. Now, cryptocurrencies are
worth real money—more than $2 trillion, assuming
the tally isn’t garbled by a data error.
Just this month, CoinMarketCap, a go-to source
for crypto prices, spewed out incredibly wrong
data for the entire market. Bitcoin prices exceeding
$800 billion were displayed on its website, which “How did it
valued all tokens in circulation at $15 quintillion— feel to be a
about 660,000 times U.S. gross domestic product. trillionaire for a
The company, owned by digital-asset exchange couple hours?”
Binance, responded in typically arch crypto fash-
ion, with meme-filled tweets. “How did it feel to
be a trillionaire for a couple hours?” read one, fol-
lowed by the tears-of-joy emoji.
The incident blew over, and even market players
affected by the gaffe seemed willing to forgive and
forget. “It’s honestly just one of the things that is
indicative of an emerging industry,” Coinbase Global
Inc. President Emilie Choi said in a Dec. 15 inter-
view at the Bloomberg Technology Summit. Crypto
believers argue that snags are expected in an indus-
try that’s still in its early days and will find its footing.
Although the CoinMarketCap incident didn’t
appear to hurt anyone much, that wasn’t the case
in other instances. Automatic safety features like the
U.S. stock market’s circuit breakers aren’t common
in crypto. In October a trader’s algorithm went hay-
wire, sending the world’s biggest cryptocurrency
  FINANCE Bloomberg Businessweek December 27, 2021

down about 87% before it shot back up. In early
December, Bitcoin saw a plunge of as much as 20%
when traders imprudently tried to sell too much
amid thin weekend trading—a downside of 24/7/365
crypto markets.
Some disruptions left investors unable to trade
at all. When Bitcoin fell more than 10% on May 19,
both the Coinbase and Binance exchanges suffered
outages. Bitfinex faltered on Sept. 30.
Then there were moments when the blockchain
infrastructure that powers crypto posed problems. A
blockchain network called Solana broke for 17 hours
in September, disrupting a corner of crypto known
as decentralized finance. Separately, a project built
on Solana—Pyth, which counts major Wall Street
traders as contributors—encountered software bugs
in September that caused the service to erroneously
report a 90% plunge in the price of Bitcoin.
“These are absolutely problems that need to be
solved, but I think that there are pretty straightfor-
ward solutions to a lot of them,” said Sam Bankman-
Fried, co-founder of FTX, one of the biggest
exchanges, on Bloomberg’s What Goes Up podcast.
Other asset classes have had technology drama
over the years. Squirrels used to be a nightmare
36 for stocks, taking down Nasdaq’s market by caus-
ing a power outage in 1987 and then again in 1994.
The infamous 2010 flash crash, which briefly wiped
out $1 trillion in market value, badly spooked Wall
Street. Since a 3½-hour New York Stock Exchange
outage in 2015, though, it’s been mostly smooth sail-
ing for equities market infrastructure, evidence that
a regulatory crackdown got traders and exchanges
to make their software more resilient.
Crypto has much less oversight, meaning the
industry mostly gets to decide what, if any, safe-
guards to implement. Crypto was initially forged by
finance that some weird stuff is inevitable. There was
the person who sold a Bored Ape Yacht Club non-
fungible token for far less than they’d intended—for
$3,066 instead of about $300,000—because of a typo.
In the stock market, that might have been blocked
by something called a fat-finger check.
Much of crypto is built on the idea of no-take-
backs—once a transaction happens on the block-
chain, it’s supposed to be a done deal. Passwords
protecting crypto assets have to be guarded care-
fully; it’s far easier for hackers to swipe them, and
therefore your coins, than it is to get at dollars sit-
ting in a bank account with insurance backing it up.
And don’t lose track of them—some digital tokens
are literally lost in garbage dumps, on mouldering
hard drives. That raises a question: Is that too much
to expect of crypto holdouts, creating a big hurdle to
mainstream adoption? —Nick Baker and Olga Kharif
THE BOTTOM LINE Crypto may have been embraced by
Wall Street in 2021, but it’s still a long way from the standards of
reliability and safety most investors expect.
Is Car Insurance
Pricing Unfair?
○ Regulators are pushing back against using
credit scores to rate drivers

PHOTO ILLUSTRATION BY 731; PHOTO: TODD BANNOR/ALAMY. DATA: CONSUMER FEDERATION OF AMERICA
people who mostly didn’t have professional finance
experience and may not have appreciated what it
takes to build systems that can handle fast-paced
trading. Robert Zagotta used to work at CME Group
Inc., the biggest U.S. derivatives exchange, and is
now CEO of the crypto exchange Bitstamp US. He
thinks others in the industry don’t sweat technol-
ogy hiccups. “I do not think our competitors think
it’s critical to their success,” he says. “But based on
my experience in traditional technology, I know it’s
coming. It will be in 2022 and 2023.”
Hacks are also a big problem in crypto, which The ubiquitous three-number credit score is a
is deeply connected to the internet—making it vul- powerful force in U.S. finance—and everyday life.
nerable—whereas in conventional finance comput- Banks use scores to determine who gets a loan,
ers are often walled off. Hackers recently stole about landlords rely on them to choose who rents an
$130 million from BadgerDAO, while customers of apartment, and auto insurers in some states depend
crypto exchange BitMart lost about $150 million. on them to decide who’s riskier. Now the insurance
Crypto culture is so different from traditional industry and Washington state regulators are at
 FINANCE
odds over whether the scores are a fair measure to
figure out who’s a good driver.
Mike Kreidler, a Democrat who is the state’s
elected insurance commissioner, has been push-
ing for a rule to temporarily ban the use of credit
scores in setting auto rates, as well as rates for
homeowners’ and renters’ coverage. He says he’s
aiming to minimize the impact of the economic dis-
ruptions brought on by the pandemic, but his con-
cern about the use of the scores is broader. Kreidler
says they tell an insurer more about whether the
consumer is rich—and potentially a more lucrative
customer who might buy more coverage—or poor,
which unfairly disadvantages consumers who are
already financially stretched and disproportion-
ately hurts people of color. “It is not a predictor
to how you drive a car, it is not a predictor to how
you maintain your home,” he says. “Rich people
don’t file claims as often as people who are poor. It
doesn’t mean that they’re better drivers.”
The use of credit scores in car insurance isn’t
new, but the racial protests of 2020 have cast a spot-
light on how large institutions and systems can per-
petuate inequality, even when rules don’t seem
discriminatory on their face. Before the advent of
telematics, devices in cars that help insurers track a
customer’s driving, insurers had to cobble together
measures to try to figure out who was a good risk
and who was a bad one. Companies say there’s a rea-
sonable correlation between a good credit score and
a good driver, making it a useful factor to analyze.
In 2007 the Federal Trade Commission produced a
report saying credit scores were effective predictors
of claims risk, but it also acknowledged it couldn’t
establish a causal link between the two.
Insurers argue that consumers should want pre-
dictive factors to be used in setting auto rates, and
that without considering credit, some drivers with
high scores will end up paying higher prices. Mark
Sektnan, vice president for state government rela-
tions at the American Property Casualty Insurance
Association, says the industry has supported mea-
sures to protect consumers facing hardships, such
as a big life event like divorce. “The industry is
constantly evaluating tools to make sure they’re
accurate, and they’re very conscious of the social
implications,” Sektnan says.
The Consumer Federation of America (CFA)
said in a report this year that premium data for
Washington drivers shows that safe drivers who
have poor credit scores pay 79% more on average
than a driver with excellent credit and a similar
record. “For every discount that was handed out
under credit scoring to a good driver, there was a
good driver who was paying a tremendous penalty,
Bloomberg Businessweek December 27, 2021
not because of their driving record but because of
their financial record,” says Doug Heller, an insur-
ance expert with the CFA.
California already prohibits insurers from using
credit scores. Texas, the second-most populous
state, limits them. Insurers there can’t refuse to
insure a customer if their credit score was harmed  Average annual auto
insurance premium for
by a temporary loss of employment or other a 35-year-old good
major life event. Colorado recently enacted a mea- driver in one Seattle
ZIP code
sure requiring insurers to justify the use of some
data, such as credit scores. Colorado Insurance
Commissioner Michael Conway says the rule would Excellent credit
encourage more scrutiny of the data but isn’t an $664
immediate ban on its use. Fair credit
In the spring of 2021, Washington state’s Kreidler $910
issued an emergency ban on the use of credit scores Poor credit
for insurance. It was overturned in October by a $1,212
judge who said Kreidler hadn’t shown the issue was
urgent enough to bypass the normal rule-making
process. Now Kreidler is trying to get a three-year
ban through the state watchdog’s regular procedure.
Drivers, insurance agents, consumer advo-
cates, and insurance industry groups packed a
virtual public hearing on the issue in November.
Some drivers complained they had already seen
an increase in their rates because of the emergency 37
action, and said they were losing the advantage of
a high score that they had worked hard to get. In
a statement in September, Kreidler said insurers
were sometimes telling customers that a premium
increase was entirely a result of the new rule but
often other factors were at work. He’s asked insur-
ers to provide details about how the loss of credit “It is not a
scoring has affected customers. predictor to
This is all happening as the auto insurance how you drive
industry is seeing a lot of flux in its pricing models. a car, it is not
Insurers benefited at first when the Covid-19 pan- a predictor
demic swept through the U.S. Shutdowns across to how you
the country led to fewer, albeit sometimes more maintain
severe, accidents. Some of the big publicly traded your home”
auto insurers have seen losses creep up in recent
quarters as drivers got back on the roads and the
cost of replacement car parts rose amid supply
chain bottlenecks and increasing inflation.
The CFA’s Heller argues that what matters more
is the societal impact of using credit scores. “If
the data showed that a new drug lowers choles-
terol but it also causes cancer, we don’t use the
drug,” he says. “And structural racism is a socie-
tal cancer, so even if credit scoring has a correla-
tion to insurance, its side effects are unacceptable.”
—Katherine Chiglinsky
THE BOTTOM LINE Insurers use credit scores as a way to
predict the risk of claims. A regulator in Washington state says this
punishes good drivers who happen to be poor.
 Bloomberg Businessweek December 27, 2021

Iran’s Water Crisis E

C
O
N
O
M 39

I
C
S
 Paddleboats on the
Zayandeh Rud river

Climate change has exposed decades

HASHEM SHAKERI

of policy failures, igniting protests

Edited by
Cristina Lindblad
  ECONOMICS
It was a gushing river that turned the ancient
town of Esfahan into a cultural jewel that twice
served as capital of the Persian Empire. Today,
as it trickles through Iran, the Zayandeh Rud is a
barren battleground.
Thousands of Iranians flooded the dusty
riverbed last month to protest against the state’s
management of water resources during the worst
drought in decades. Videos on social media showed
baton-wielding security forces moving into the
crowd, leaving some with bloodied faces, including
a middle-aged woman cloaked in a black chador.
Deadly clashes also took place this summer in the
province of Khuzestan, 180  miles away, where
decades of oil drilling have drained wetlands and
degraded the once-fertile soil.
“Our drinking water is getting worse, and the
farmers are losing their livelihoods,” says Tahereh,
an environmental activist who participated in the
Esfahan protests and asked that her full name not
be used for fear of reprisal. “I can’t forget the smell
of the breeze that used to lift off the river when I
walked to school as a child. Now I can only sense
and feel it in my dreams.”
As Iran’s standoff with the U.S. intensifies, sup-
40 port for the country’s leaders has sunk to record
lows, reflecting frustrations over their response to
crippling sanctions, including a crackdown on dis-
sent. Now a long-brewing water crisis, the result of
decades of unchecked industrial expansion, could
eclipse Tehran’s fight with Washington over how
to revive the 2015 nuclear deal as the most press-
ing problem facing the government.
Climate change is exposing the weaknesses of an
economy built on oil extraction and unsustainable
agricultural practices. As the planet gets hotter,
Iran is likely to experience more extended peri-
ods of extreme high temperatures as well as more
frequent droughts and floods, according to a 2019
study published in the scientific journal Nature.
“Without thoughtful adaptability measures,” the
researchers wrote, “some parts of the country may
face limited habitability in the future.”
State-run news agencies carry daily headlines
about huge drops in rainfall, dam failures, and
depleted reservoirs. The semiofficial hard-line Fars
News has warned that more than 300 towns and
cities face acute water stress. Government meteo-
rologists estimate 97% of the country is affected by
drought, while one academic estimates 20 million
people have been forced to move to cities because
the land is too dry for farming.
Many dams registered record levels of evapo-
ration this year, triggering power outages at the
height of one of the hottest summers on record. The
Bloomberg Businessweek December 27, 2021
snowfall that accounts for almost three-quarters
of the water that flows into the Zayandeh Rud
dropped almost 14% from 2017 to 2020.
The changing climate is exacerbating the conse- “You can’t
quences of earlier government decisions. Lobbying encourage
by local politicians in the wake of the Islamic people to look
Revolution of 1979 turned Esfahan into a major at water as
steelmaking hub, straining its water resources. The this big pool
Zayandeh Rud started drying up two decades ago that’s there for
after engineers diverted its flows to support indus- everyone to
trial plants outside another city. use and then
Even as supplies dwindle, Iranians with access tell them they
to water continue to overconsume: A resident of have to treat it
Tehran on average uses three times more water like a precious
than a person in Hamburg. Even in the middle of resource”
a drought, gardens, public parks, and landscaping
in Iran’s capital are verdant. Spraying pavements
to cool them down remains a common practice.
Authorities have refrained from imposing water
rationing or other restrictions because of the risk
of sparking further unrest, says Susanne Schmeier,
an associate professor of water law and diplomacy
at the IHE Delft Institute for Water Education in
the Netherlands. “There are 130,000 illegal wells
that are known of, but there is no effort to plug
them,” she says.
While most officials accept that there’s a prob-
lem, some high-placed clerics have helped spread
conspiracy theories (one that’s circulated for
several years is that Israel is stealing Iran’s rain
clouds) or claimed the water shortage can be fixed
only by praying for rain.
In a televised interview on Dec. 5, President
Ebrahim Raisi said officials had been instructed to
“get to the heart of the problem and work on it,”
adding that “we’re not at a dead end.” Several gov-
ernment commissions have been established, but
no detailed plans have been published.
Soheil Sharif, a pistachio farmer in the cen-
tral Kerman province, traces the roots of the cri-
sis back to the revolution. Newly isolated from
the West and facing invasion by Iraq, Iran’s lead-
ership wanted self-sufficiency and food secu-
rity. They encouraged villagers to start farming,
providing them with heavily subsidized water. A
dam-building spree followed.
They “said the U.S. wanted to make us depen-
dent on their wheat imports, and they told every-
one they could dig wells,” says Sharif, whose farm
sits on land with good freshwater access. But some
of his neighbors with land closer to the desert
plain found that the deeper they dug for wells,
the saltier the water became, until it was undrink-
able and unsuitable for growing crops. Sharif is
also one of the rare farmers who’s adopted drip
  ECONOMICS
irrigation methods to deliver water directly to
his trees, and only when they need it. Most of his
peers have grown reliant on flooding their fields or
using wasteful sprinkler systems. (A government
campaign in the mid-2000s to encourage drip irri-
gation failed.)
“The problem is fundamentally about how
the economy is managed,” Sharif says. “You can’t
encourage people to look at water as this big pool
that’s there for everyone to use and then tell them
they have to treat it like a precious resource.”
Facing criticism of its water policies, Iran’s
leadership has blamed U.S. sanctions. At the
recent COP26 climate summit in Glasgow,
Scotland, Ali Salajeghe, the vice president for envi-
ronmental affairs, argued that the sanctions have
prevented Iran from taking steps to protect the
environment. It’s true they’ve had some impact:
Various European projects to develop Iran’s water
management systems, including two underwrit-
ten by Germany’s development agency, have been
halted, according to Schmeier of the IHE Delft
Institute. In 2014 more than $7.6 million in fund-
ing from the Global Environmental Facility meant
for biodiversity protection was also blocked.
Yet whenever sanctions have eased, such as in
2016, policymakers have focused on modernizing
the oil industry and launching big infrastructure
projects, including river dams, as the fastest ways
to boost employment and growth. “By prioritizing
accelerated development, partly to prove defiance
to Western coercion and with self-sufficiency as a
regime objective, Iran resorted to high resource
use to sustain its diminishing economy,” says
Shirin Hakim, a researcher at the Centre for
Environment Policy at London’s Imperial College.
“Sanctions cannot be blamed for this outcome,
but it is evident that they have acted as a catalyst.”
Kaveh Madani has been warning about the dan-
gers of mismanaging the Zayandeh Rud for almost
two decades. Madani, who was deputy head of
Iran’s Department of Environment under mod-
erate former President Hassan Rouhani, recalls a
model he developed while studying in Sweden in
2005. Built to assess potential solutions to alleviate
the river’s dryness, it showed that even diverting
water from neighboring provinces wouldn’t help.
“It was shocking to me,” Madani says. “I ran
the model many times thinking there was a mis-
take until I realized that more water supply will
MIDDLE EAST IMAGES/REDUX
promote further growth,” increasing demand and
creating “a vicious cycle that will worsen the situ-
ation in the long run.”
Madani is now a research professor at City
College of New York, having left Iran in 2018 after
Bloomberg Businessweek December 27, 2021
being repeatedly arrested by intelligence forces
who were deeply suspicious of officials with foreign
ties and Rouhani’s efforts to improve Iran’s relations
with the West. They treated environmentalism—
once a benign civil society cause—as something
akin to a national security threat.
In early 2018, nine environmentalists were
arrested and charged with spying. All of them have
denied the charges. One of those detained, a prom-
inent professor named Kavous Seyed Emami, died
in jail. Iran’s judiciary said he committed suicide,
but his family has strongly rejected the claim.
Ayoub, a 30-year-old activist from Khuzestan,
says water scarcity amplifies existing grievances.
The oil-rich province was the site of the most vio-
lent crackdown in November 2019 as demonstra-
tions swept through the country; protests still occur
with some frequency. The area’s residents have
long resented domestic and foreign powers who
came to extract the crude hidden deep under their
41
land, destroying marshlands and fertile soil while  Protesting water
shortages in Esfahan
excluding locals from the profits, says Ayoub, who on Nov. 19
declined to give his full name for fear of reprisal.
Ahmad Midari, Iran’s deputy welfare minister,
told state television that the government made “big
mistakes” because it wanted to develop cheaper
onshore oil fields “with little concern for the envi-
ronment.” He said local politicians would acquire
permits from the Department of Environment in
Tehran through lobbying and nepotism so they
could drain large sections of the Hoor al-Azim wet-
lands to dig oil wells.
  ECONOMICS Bloomberg Businessweek December 27, 2021

In April 2019 major floods inundated dozens
of villages and destroyed hundreds of homes, in
part because Hoor al-Azim and other wetlands can’t
absorb the rainwater like they used to. Many of the
farmers who lost wheat crops in that disaster took
part in protests this summer when drought reached
Khuzestan. At least nine people were killed when
security forces opened fire on protesters, accord-
ing to Human Rights Watch.
Iran’s water stores may never be replenished.
The country needs to overhaul not just its water
management policies but the economy as a whole,
says Madani. He says the government should invest
in projects that will give farming communities eco-
nomic alternatives, raise awareness about environ-
mental challenges, and substantially modernize
the agricultural sector. Iran is “in denial,” Madani
says. “It keeps thinking it can mitigate or spend
its way out of the problem instead of adapting.”
—Golnar Motevalli, with Jeremy Diamond, Laura
Millan Lombraña, and Arsalan Shahla
THE BOTTOM LINE In the midst of the worst drought on
record, Iran’s authorities have not implemented water rationing or
restrictions on illegal wells, for fear of angering the population.

At Odds Over Fiscal

Orthodoxy ○ Battle lines are being drawn in Europe over whether
to reinstate limits on debt and deficits

42 Europe’s policymaking class is readying itself for

a clash that may reverberate for years to come.
The huge public-borrowing binge needed to fund
spending during the Covid-19 crisis is forcing a
rethink of the European Union’s rules governing
debt and deficits, exposing a political fault line
over economic theory.
Italian Prime Minister Mario Draghi and French
President Emmanuel Macron are pushing to free
their economies from the EU’s pre-pandemic stric-
tures. They face resistance from leaders of north-
ern countries, who pride themselves on appearing
more fiscally responsible—as well as institutional
inertia. The quarter-century-old Stability and
Growth Pact is contained in a treaty, so any amend-
ments would have to be ratified by 27 legislatures.
With the European Central Bank having just
completed a contentious revamping of monetary
ILLUSTRATION BY DEREK ZHENG. ALESSIA PIERDOMENICO/BLOOMBERG

policy, the outcome of this next battle will define

the scope of fiscal action for the coming decade,
and perhaps the EU’s growth prospects as well.
“Many in southern Europe believe that there
should never be a real return to rules,” says Mario
Monti, one of Draghi’s predecessors and a former
EU commissioner who was present for discussions
when the regime was agreed to in the 1990s. “High
government deficits, largely financed by the ECB,
are seen as the key engine for growth,” says Monti,
whose own view is that structural reforms should
take precedence.
The Stability and Growth Pact was forged at the
dawn of the euro at the behest of the Germans, who
sought a means to enforce spending restraint on their
more profligate neighbors to the south. It caps deficits
at 3% of gross domestic product and debt at 60% of
GDP. Violators are subjected to hectoring and fines.
The rules were devised during a time when leaders
could not possibly foresee that governments would
be able to borrow at today’s historically low interest
rates, which is why economists now often describe
the pact as an unnecessary straitjacket. In 2021 the
 ECONOMICS
Rogue States
Debt-to-GDP ratio
Italy France Germany Euro area
Limit set in the Stability and Growth Pact
150%
Forecast
100
50
2009 2020 2023
DATA: EUROSTAT, EUROPEAN COMMISSION AUTUMN FORECAST
European Commission activated an “escape clause”
in the agreement, freeing countries to spend extraor-
dinary sums to salve the human and economic pain
of Covid. Nations must now agree on what will hap-
pen when the suspension ends in 2023.
The so-called frugals want only limited changes
to the original rules. Their view is that the ECB’s vast
purchases of government bonds as part of the pan-
demic rescue effort have made governments overly
dependent on central bank support.
“We need consolidation of fiscal policy going for-
ward, to relieve the ECB from this burden, and to
increase the resilience of the euro area,” says Lex
Hoogduin, a professor at the University of Groningen,
who was an adviser to the ECB’s first president, Wim
Duisenberg, and later a chief economist at the Dutch
central bank.
Another camp, led by the Italians and the French,
and including Spain and others, argues the pact’s arbi-
trary constraints act as a brake on economic growth
and contribute to making debt loads unsustainable.
Those with long memories will recall how, in its early
years, its limits proved too strict even for Germany.
Such views reflect the economic consensus crys-
tallized by the Greek debt crisis of the last decade,
in whose wake the International Monetary Fund
issued a mea culpa, saying stringent austerity mea-
sures imposed as a condition for debt relief had wors-
ened the country’s predicament. “It is investment
that will favor growth, and growth that will acceler-
ate debt reduction,” French Finance Minister Bruno
Le Maire said on Dec. 14, articulating the prevailing
philosophy for advanced-world economies.
Lars Feld, formerly a member of Germany’s panel
of economic experts and a professor of economic pol-
icy at the Albert-Ludwigs-University of Freiburg, says
such ideas have gone too far. “It’s the same old line.
I really cannot hear it anymore,” he says. “I don’t
think the German government should buckle, and
Bloomberg Businessweek December 27, 2021
it should ask instead what is being done to reduce
the debt burden.”
Germany’s new finance minister, Christian
Lindner, is a fiscal hawk. But so far he’s played a
diplomatic game, telling Le Maire on Dec. 13 that
“we see both sides.”
Draghi, whose heroic, “whatever it takes”
defense of the euro during his tenure as ECB pres-
ident gives him enormous stature, has repeatedly
○ Macron
condemned the current pact, saying its rules are
“obsolete.” He and Macron sealed a bilateral treaty
on Nov. 26 pledging more intense cooperation in a
host of areas, including fiscal policy.
His disdain is reflected in his government’s pro-
posed budget for 2022-24, which doesn’t envisage a
return to 3% deficits. This provoked a Nov. 24 call
for “caution” by the EU Commission, a view that
finds favor north of the Alps. “It was right to react
quickly in the pandemic,” says Gertrude Tumpel-
○ Draghi
Gugerell, an Austrian former member of the ECB’s
Executive Board. “But we need to bring back spend-
ing to more normal levels.”
Among the proposals for changes is one from the
economists at the European Stability Mechanism,
the euro area’s crisis lender, who suggested in a
paper published in October that governments con- 43
sider a higher debt ceiling of 100% of GDP—the 60%
limit has been long surpassed by all the major econ-
omies, including Germany’s—and a more flexible
approach to deficit limits.
The European Fiscal Board, a panel of EU advis-
ers, advocates allowing for a slower pace of debt
reduction while recognizing the continuing need
for “clear and recognizable numerical goal posts”
such as the controversial 3% budget deficit rule.
Another EFB idea under discussion is a clause that
would provide leeway for green investment, echo-
ing the sort of policy Germany is pursuing.
Discussions will be long and contentious. France,
which is about to assume the rotating presidency
of the EU, plans a summit in March, though the
commission is also preparing to buy time by pro-
posing interim fiscal targets for 2023.
The criteria “were hard to apply before—imagine
now, with the new high debt levels?” Paolo Gentiloni,
the EU commissioner for the economy and finan-
cial affairs, said at a conference on Nov. 28. “We
will discuss it a lot in the coming months, but in
the meantime, ignoring the issue would be a grave
mistake.” —Alessandra Migliaccio, Jorge Valero,
and Catherine Bosley, with Kati Pohjanpalo and
William Horobin
THE BOTTOM LINE Some call the European Union’s quarter-
century-old Stability and Growth Pact a relic from another era, but
“frugal” nations are still wedded to it.
 Bloomberg Businessweek
P Shutting
O
L th
I
T ○ Trump allies are undermining
Congress’s investigation into
44
I the Jan. 6 insurrection
Almost a year after the Jan. 6 Capitol riot, close
C allies of former President Donald Trump are stone-
walling the congressional panel investigating the
insurrection. Despite compiling evidence and
sharing vivid glimpses of how key figures in the
S Republican political and media worlds responded
as the attack unfolded, the House committee has
so far been thwarted in its efforts to get firsthand
accounts from Trump’s inner circle about what the
president knew and did that day.
That insider testimony may never arrive. A suc-
cession of Trump partisans has been trying to stall
the investigation with a legal battle that’s unlikely
to be resolved anytime soon.
In November, Steve Bannon, once Trump’s
chief White House strategist, earned a rare crim-
inal charge of contempt of Congress for refusing
to testify before the committee. Others have since
followed his lead. Trump’s last White House chief
of staff, Mark Meadows, initially cooperated with
committee investigators, sharing thousands of
documents and communications from the day of
the attack.
At a Dec. 14 hearing, Representative Liz Cheney,
a Wyoming Republican and the committee’s vice
chair, read a series of explosive text messages from
Meadows’s phone. (Among them: “We need an
Oval address. He has to lead now. It has gone too
Edited by
far and gotten out of hand,” Trump’s son Donald
Amanda Kolson Hurley Trump Jr. texted.)
December 27, 2021
But Meadows came under heavy criticism from
Trump’s allies and broke off cooperation. His
refusal to testify resulted in the House voting to
hold him in criminal contempt of Congress, refer-
ring the matter to the U.S. Justice Department.
Republicans close to Trump say such outright
resistance is the new standard of loyalty to the for-
mer president. “Bannon’s position of strength is an
example to others,” says Boris Epshteyn, former
White House special assistant to Trump. Michael
Cohen, Trump’s estranged former lawyer, agrees
that stonewalling by key witnesses is “designed to
please a party of one.”
The list of notable Trump allies declining to
cooperate is growing longer by the week. On
Dec. 17, Roger Stone, a longtime Trump confidante,
appeared before the committee to assert his Fifth
Amendment rights in response to questions. In an
interview with Bloomberg Businessweek beforehand,
Stone slammed the committee as “a partisan witch
hunt.” John Eastman, a conservative attorney who
advised Trump on ways to overturn the 2020 presi-
dential election, has sued Verizon Communications
Inc. and the House committee to prevent investiga-
tors from obtaining his cellphone data.
People outside Trump’s immediate circle are
also defying committee summonses. Republican
Representative Scott Perry of Pennsylvania said on
Dec. 21 that he’ll refuse a request to appear before
ANNA MONEYMAKER/GETTY IMAGES (3)
the panel. Faced with a subpoena, far-right radio
broadcaster Alex Jones sued the committee and
said he intends to plead the Fifth like Stone.
Bannon has been explicit about his desire to
sabotage the investigation, even as he faces the
possibility of jail time, warning that his contempt
charge will boomerang on Democrats and become
  POLITICS
he Door
“the misdemeanor from hell” for Attorney General
Merrick Garland, House Speaker Nancy Pelosi, and
President Joe Biden. It has, at the very least, proved
a headache for the committee because Bannon and
others have used the courts to delay their reckoning.
Bannon has invoked Trump’s claim of executive
privilege as the reason he won’t testify. Meadows
has signaled he’ll do the same. Trump’s own
efforts to thwart the committee are also dragging
out the probe, even though his legal argument for
doing so is seen by experts as shaky at best.
In October the former president sued to block
the National Archives from handing over his White
House records related to Jan. 6, claiming the doc-
uments and communications are protected by his
executive privilege—even though he’s no longer in
office and Biden waived it.
Kimberly Wehle, a professor at the University of
Baltimore School of Law, says the limits of execu-
tive privilege are evident in the U.S. Supreme Court
ruling that forced then-President Richard Nixon
to hand over audio recordings of his Oval Office
conversations in the Watergate investigation: The
court said Nixon’s privilege claim was outweighed
by the public’s right to information. Wehle expects
that precedent will apply to Trump.
“When you’re talking about a bloody insurrec-
tion that’s looking more and more like a deliber-
ate, planned effort to sway the election to the loser
and take it away from the American people, Nixon
is a pretty good authority for holding that even if
Meadows or Trump have executive privilege, it’s
waived here,” Wehle says.
Trump suffered a setback on Dec. 9, when
the U.S. Court of Appeals in Washington ruled
he’d provided “no basis” for overriding Biden’s
Bloomberg Businessweek December 27, 2021
on the Truth
assessment of the executive branch interests  Stone on Dec. 17
prior to his appearance
at stake. before the House
“The events of January 6th exposed the fragility committee
of those democratic institutions and traditions that
we had perhaps come to take for granted,” the unan-
imous three-judge panel said in the ruling affirming
the committee’s right to seek the evidence. 45
But even unfavorable court rulings may not pro-
duce the testimony the committee seeks. Trump
has vowed to take his case to the Supreme Court.
Lawyers close to the case say it’s likely to end up
there, with the legal fight over executive privi-
lege already proceeding along two parallel tracks—
Trump’s case and Bannon’s—and possibly soon a
third (Meadows’s). That process would take months
to play out, and it could well outlast the committee.
Many Trump allies are betting Republicans will
win control of the House in November and shut
down the investigation once they’re in power,
denying the panel the firsthand accounts from
Bannon and other key figures that it seeks. Experts
see few options for heading off this scenario.
“It just takes way too long to adjudicate these
things, and there are too many layers of appeal,
especially when you’re on a ticking clock like the
committee is—it can just take too long,” says former
federal prosecutor Jennifer Rodgers. “It’s a tactic
that Trump and his allies have really taken advan-
tage of through the whole Trump administration.”
For Republicans intent on undermining
the Jan. 6 probe, it’s one that may prove effec-
tive during the Biden administration, too.
—Joshua Green and Erik Larson
THE BOTTOM LINE Defiant Trump loyalists are shifting the Jan. 6
battle from Congress to the courts, slowing the process down to the
extent that the legal cases could outlast the probe itself.
  POLITICS
A Hacker Army Keeps
North Korea Afloat
Kim Jong Un marked a decade as supreme leader of
North Korea in December. Whether he can hold on
to power for another 10 years may depend on state
hackers, whose cybercrimes finance his nuclear
arms program and prop up the economy.
According to the U.S. Cybersecurity &
Infrastructure Security Agency, North Korea’s
state-backed “malicious cyberactivities” target
banks around the world, steal defense secrets,
extort money through ransomware, hijack digi-
tally mined currency, and launder ill-gotten gains
through cryptocurrency exchanges. Kim’s regime
has already taken in as much as $2.3 billion through
cybercrimes and is geared to rake in even more,
U.S. and United Nations investigators have said.
The cybercrimes have provided a lifeline for
the struggling North Korean economy, which has
46 been hobbled by sanctions. Kim has shown little
Bloomberg Businessweek December 27, 2021
○ Kim Jong Un is increasingly
reliant on cybercrime to
prop up an ailing economy
interest in returning to negotiations that could
lead to a lifting of sanctions if North Korea winds
down its nuclear arms program.
Money from cybercrimes represents about
8% of North Korea’s estimated economy in 2020,
which is smaller than when Kim took power,
according to the Bank of Korea in Seoul. (The bank
for years has provided the best available account-
ing on the economic activity of the secretive state.)
Kim’s decision to shut borders because of Covid-19
suspended the little legal trade North Korea had
and helped send the economy into its biggest con-
traction in more than two decades, according to
an analysis by Fitch Solutions Inc.
Kim’s regime has two means of evading global  Portraits of Kim Il
sanctions, which were imposed to punish it for Sung and Kim Jong
Il, late rulers of North
nuclear and ballistic missile tests. One is the ship- Korea, in a university in
to-ship transfer of commodities such as coal: A Pyongyang
DAVID GUTTENFELDER/AP PHOTO. DATA: BANK OF KOREA
 POLITICS
North Korean vessel will shift its cargo to another
vessel, or the other way around, and both vessels
typically try to cloak their identity.
The other is the cyberarmy. Its documented
cybercrimes include attempts to steal $2 billion
from the Swift (Society for Worldwide Interbank
Financial Telecommunication) system of finan-
cial transactions. North Korea has also illegally
accessed military technology that could be used
for financial gain, according to a UN Security
Council panel charged with investigating
sanctions-dodging by the government.
North Korea “is not afraid to be brazen and
destructive in order to achieve the task at hand,”
says Jenny Jun, a nonresident fellow at the Atlantic
Council’s Cyber Statecraft Initiative, who’s
researched North Korea’s cyberoperations and
cyberstrategies. “And this sets it apart from some
of the other, more careful—and therefore more
restrained—nation-state hackers.”
The government has deployed malware called
AppleJeus that poses as a cryptocurrency trading
platform to steal funds from people who try to use
it. Since 2018 various versions of the malware have
been used to target more than 30 countries. From
2019 to November 2020, AppleJeus hackers stole
virtual assets valued at $316.4 million, accord-
ing to UN and U.S. investigators. By comparison,
North Korea’s coal exports are capped at $400 mil-
lion a year under global sanctions.
Targets of the regime include central banks, the
militaries of the world’s most powerful countries,
and corner ATMs. It even tried to hack Pfizer Inc.
for Covid vaccine data. South Korea said hacking
attempts directed at it by its neighbor increased
about 9% in the first half of 2021 from the second
half of 2020.
The money North Korea gets from cybercrimes
likely helps it to “fund government priorities, such
as its nuclear and missile program,” the U.S. Office
of the Director of National Intelligence said in an
unclassified report in 2021. The cyberprogram
poses a growing threat, the report said, warning
that the North Korean government probably has
the expertise to cause “temporary, limited disrup-
tions” of some critical infrastructure and business
networks in the U.S.
Ji Seong-ho, who defected from North Korea
to South Korea, where he’s now a member of the
national assembly, says cyberactivity development
under Kim is advancing rapidly. “The cybercapabil-
ity in North Korea is bound to get more advanced,
and the money it earns from hacking is likely to dra-
matically increase in the next decade,” says Ji, who
sits on the assembly’s foreign affairs committee.
Bloomberg Businessweek December 27, 2021
One of Kim’s top priorities when he took
power was stepping up cyberwarfare capabilities.
Operations under North Korea’s Reconnaissance
General Bureau have grown significantly since
then. At present it has more than 6,000 members
in its cyberwarfare guidance unit, also known as
Bureau 121, according to assessments in U.S. and
South Korean unclassified defense reports.
The bureau’s four main divisions include
Bluenoroff, with about 1,700 hackers, “whose mis-
sion is to conduct financial cybercrime by concen- “The fight
trating on long-term assessment and exploiting against North
enemy network vulnerabilities,” said a 2020 U.S. Korea’s illicit
Army report on North Korean military capabilities. activities is
The Andariel group has about 1,600 members, who like a whack-
look at computer networks and try to find vulnera- a-mole game”
bilities, according to the same report.
The U.S. government has been going after
alleged North Korean agents, filing criminal
complaints against people who, it says, illegally
obtained confidential data from Sony Pictures
Entertainment Inc. in 2014 and stole $81 million
from Bangladesh’s central bank in 2016. (North
Korea has denied any involvement in those hacks.)
And in September programmer Virgil Griffith,
a U.S. citizen, pleaded guilty in federal court to 47
offering North Korea advice on how to use crypto-
currency to launder money and evade sanctions.
Because North Korea’s hackers operate under
the auspices of the isolated state and are rewarded
at home for their thefts abroad, there is little that
can realistically be done to punish those respon-
sible. Counterstrikes on the country’s web infra-
structure are limited because North Korea has few  North Korea real GDP
under Kim Jong Un,
connected devices and its cellphone data network annual change
is mostly cut off from the rest of the world. “The
fight against North Korea’s illicit activities is like 4%
a whack-a-mole game—cracking down will lead to
displacement rather than cause [the regime] to
stop or focus on legitimate economic activity,” the
Atlantic Council’s Jun says. 0
Kim is using his sparse resources to invest in
information technology training, sending experts
abroad. He sees them as crucial for his survival,
according to Kang Mi-jin, a North Korean defec- -4
tor who now runs a company in South Korea that 2012 2020
watches the economy of her former home.
“The hackers consider what they are doing as
being directly related to the fate of the Kim regime,”
she says, “and what they are doing is likely to be one
of [its] major sources of income.” —Jon Herskovitz
and Jeong-Ho Lee
THE BOTTOM LINE Cybercrime accounts for about 8% of North
Korea’s economy, and with sanctions cutting Kim Jong Un off from
legitimate trade, he’s unlikely to reduce his dependence on it.
 oo

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Bloomberg Businessweek December 27, 2021

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Tobi Lütke transformed the Canadian

upstart into an e-commerce giant by
being the anti-Amazon. How long can
the formula keep working?
By Brad Stone
 Bloomberg Businessweek
ast February e-commerce company Shopify Inc. replaced
L the “Ottawa, Canada” dateline that began its press releases
and earnings reports with a strange new one: “Internet,
Everywhere.” The geographical shift came at the insistence of
Shopify’s founder and chief executive officer, Tobi Lütke, who
tends to view such matters through the prism of cold, hard
logic. In May 2020, only a few months into the pandemic,
he’d made the early, seemingly rash decision to terminate
the leases on Shopify’s offices in Ottawa and six other cities,
declaring that his entire 7,000-person workforce would remain
virtual—forever. Shopify, he concluded, was now omnipres-
ent, located with its employees and customers in the digital
ether. His senior execs were perplexed at the strange phras-
ing, but they knew better than to argue.
The dateline thing may be a bit pompous and a little too
cute, but after an almost two-year run that’s turned the quiet
enterprise-tech company into a global e-commerce power,
Lütke has earned some creative license. Since he started
Shopify 15 years ago, the company has sold software that
allows about 2 million merchants worldwide to run websites—
free from the complicated embrace of Shopify’s chief rival,
Amazon.com Inc. For $30 to $2,000 a month, Shopify offers
sellers more than a dozen services to run an online store,
from the actual e-commerce website to inventory manage-
ment to payment processing.
Its technology now undergirds the websites of giant retail
chains such as Staples Inc. and Chipotle Mexican Grill Inc.;
recently ordained public companies that grew up on the
platform, including shoemaker Allbirds Inc. and medi-
cal scrubs maker Figs; and the retail side-hustles of Kylie
Jenner, Taylor Swift, Lady Gaga, and other celebrities. But
the company’s biggest impact has been at the smaller end
of the scale, in the vast constellation of mom and pops, ven-
ture-capital-backed startups, influencer mini-moguls, twee
entrepreneurs, merch heads, and more obscure outfits,
like Offlimits—a two-person New York City startup trying to
reinvent, of all things, breakfast cereal.
What Zoom was to corporate America during the early
days of the pandemic, Shopify was to small-business owners,
many of whom had never sold a single product online until
it became the only way they might stay alive. At the time,
Shopify, a little-known company powering some 600,000
merchants, was more likely to be confused with the music
service Spotify than synonymous with e-commerce. But when
businesses everywhere had to close en masse, Shopify armed
them with the tools to become instantaneous online stores.
While Amazon’s reputation as a vampiric partner to mer-
chants was reinforced in 2020 by sellers’ testimony in front of
a congressional subcommittee investigating Big Tech, Shopify
suddenly emerged as their biggest ally.
The global quarantine boosted the company’s market cap-
italization from $46 billion in early 2020 to $174 billion today.
GETTY IMAGES
In 2020 its sales jumped to $2.9 billion, an 86% increase from
2019. Over the recent Black Friday / Cyber Monday weekend,
Shopify merchants brought in $6.3 billion in sales, a 23% rise
December 27, 2021
from a year earlier. Now Canada’s most valuable company,
it accounted for 8.6% of U.S. e-commerce sales in 2020, well
behind Amazon’s 39% but ahead of Walmart and EBay, accord-
ing to EMarketer. “The pandemic just turbocharged them. It’s
ridiculous,” says Rick Watson, an e-commerce consultant and
host of Watson Weekly, a podcast about online selling.
As the success of Zoom, Peloton, and other pandemic
breakouts starts to fade, Shopify is working furiously to
keep its momentum going and weave itself into the zeitgeist.
Recently it hired a veteran of Kanye West’s Yeezy brand to
run a new influencer program, opened a slick entrepreneurs’
hub in Manhattan, teamed with the actual Spotify to help
musicians become merch machines, and rolled out a feature
that allows shopkeepers to sell unique digital artworks—“I am
creating NFTs,” tweeted Martha Stewart, now a Shopify mer-
chant, in October, tagging the company. Pharrell Williams,
who sells his skin-care line on Shopify, is a fan, too. “If you’re
able to come up here and be part of this platform, you’re
in great, great, great company,” the producer-rapper-singer-
entrepreneur told a group of business owners over Zoom at
the company’s annual conference in October.
Lütke, who decided to develop the underlying tools to build
retail websites after shuttering his online snowboard store
when he was 24, is now Canada’s second-wealthiest person,
according to the Bloomberg Billionaires Index. In the insular
circles of tech and retail, he’s become a popular and recog- 49
nizable figure—41 years old, whip thin, Bezos bald, and never
without his trademark pageboy cap (until recently, when he
abruptly stopped wearing it amid the ceaseless quarantine). “It
was defensible when I actually went outside at times,” he says.
In a sense, Lütke and his colleagues are the opposite of Jeff
Bezos’ army of techno-capitalists. Amazon, which has enjoyed
its own Covid-fueled boom, celebrates the almighty customer.
It will happily risk alienating small businesses by knocking off
their products or soliciting new competition, if it means low-
ering prices and accelerating shipping times. Shopify, on the
other hand, has a romantic view of the merchant—its exec-
utives rapturously extol the virtues of “democratizing com-
merce” and “making entrepreneurship cool.” If Amazon’s
devotion to customers and an infinite selection earned it the
nickname “the everything store,” Shopify, as its new dateline
suggests, wants to be the everywhere store.
A few years ago, Lütke sensed there was an advantage in
contrasting Shopify with its widely feared competitor, remark-
ing, “Amazon is trying to build an empire, and Shopify is try-
ing to arm the rebels.” But it’s difficult to argue you’re still an
insurgent force when you have a Death Star-size market cap. To
keep the rebel alliance intact, Lütke has to make Shopify more
useful to the world’s largest retailers, while helping smaller
ones caught in the grip of supply chain shortages and inflation.
At the same time, he has to contend with growing pains
at home, including C-suite turnover and questions about
whether Shopify should get into the most laborious parts of
e-commerce, like shipping. Winning over hordes of retailers
by giving them a simple and sturdy online presence, it turns
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out, was the easy part. “I have huge blind spots just because, find nondeterminism more interesting than determinism.”
I mean, I grew up as a nerd, programmed all day long, and Before the pandemic, like a lot of tech CEOs and investors,
spent my entire 20s building Shopify,” Lütke says during a two- he read Nassim Nicholas Taleb’s Antifragile: Things That Gain
hour interview at his one-person office in Ottawa. “I have some From Disorder and became fascinated by chaos engineering,
catching up to do about how everything kind of fits together.” the idea that allowing for both unanticipated calamities and
intentionally introduced failures can make people and orga-
rying to talk to Lütke about pretty much anything is a nizations stronger. “Nothing can become truly resilient when
T perilous journey into an intellectual labyrinth built out of everything goes right,” Lütke says.
management books and discursive thoughts. His current fix- He couldn’t resist testing the theory on his own company.
ations include the concept of the Trust Battery, which is how Among other quirks, he’s wary of needless gatherings, so he
he gauges his confidence in employees, along with the hypo- started periodically exploiting “god mode” on his employees’
thetical that one of the most critical pieces of technology, the calendars and deleting regularly recurring meetings. Then, in
web browser, couldn’t be introduced today because Apple 2017, he sent everyone home to work virtually for a month, just
Inc., Google, and other app store owners wouldn’t allow it. In to see what would happen. The experience, partially depen-
any Lütke discussion, you’ve got to be ready for sentences like dent on Skype, was lacking. “The tools were terrible,” he says.
“I know how to exoskeleton my time” and “I fundamentally Shopify eventually moved into 10 floors in an Ottawa sky-
scraper. A go-kart track snaked through
Lütke has become a small-business savior while more than tripling Shopify’s market cap
one floor. For a while there was a collec-
tion of gallery-size portraits depicting
Lütke and the rest of his early executive
team wearing Napoleon-era military rega-
lia. The office also had a virtual-reality
game room, pingpong room, and yoga stu-
dio. Employees said it was a great place to
go to work every day.
50 But Lütke wasn’t over his obsession
with remote work. As an early contribu-
tor to Ruby on Rails, an open source pro-
gramming language, he’d collaborated for
years with people he’d never met in per-
son. And Shopify’s headquarters may as
well have been located off the grid when
it came to trying to recruit experienced
execs and hotshot engineers who would
pick up and move to the Canadian capital
(average low in December: 18F).
When the pandemic sent his thousands
of employees home, Lütke decided to
solve all these problems at once. Shopify’s
fancy offices, he decried in May 2020, just
as e-commerce sales were taking off amid PHOTOGRAPH BY ALEX BLOUIN AND JODI HEARTZ FOR BLOOMBERG BUSINESSWEEK

quarantine, would close forever, and the

company would be a digital company—
headquarters: Internet, Everywhere.
Lütke was only too happy to turn
inward. He rented an apartment near his
home and transformed it into that office
for one, accented with old snowboards
and an original Macintosh computer.
His recruiting efforts immediately got a
boost. Shopify hired one executive from
Facebook and another from Slack; both
have remained in Silicon Valley. Others
who’d moved to Toronto relocated back
to the U.S. to be closer to family—and
Bloomberg Businessweek December 27, 2021

Pandemic Wins sunlight. “For the first time meant for broad distribution, it was leaked to the media and
Change in stock price in our 15-year history, our criticized by outsiders as unduly harsh. Lütke doesn’t disavow
Amazon Shopify global talent pool was not his memo but says, “I have to probably look at my messages
limited to who is willing to once over, you know.” (Says his wife, Fiona McKean, of her
300% move to Ottawa, Canada, or husband’s emotional intelligence, which she says has come a
Toronto or wherever, but long way since they met 20 years ago playing the online fan-
rather who wants to come tasy game Asheron’s Call from different continents: “You can’t
in and help with the future logic your way through cultural upheaval.”)
of commerce,” says Lütke’s But Lütke wasn’t budging on his principles and, during the
200 extroverted frontman, Harley crises of 2020, moved to exert more of a grip over his com-
Finkelstein, the company pany, not less. In the fall, Miller, the chief product officer, left
president and a telegenic vet- after nine years; Lütke swiftly absorbed his responsibilities.
eran of Canada’s Shark Tank Four other senior execs, including the chief technology offi-
knockoff, Dragons’ Den. cer and top HR exec, also exited over the next few months, as
100 Not everyone was happy. bonds frayed and internal camaraderie dissolved. If Shopify
Some employees loved the was going to navigate out of a “new box that we don’t under-
tightknit culture and frater- stand yet,” as Lütke wrote in the leaked memo, he was going
nizing of the physical office. to have to be firmly at the helm.
“I was legitimately opposed
0 to it and thought it was the n 2015, after 10  years of tidy growth, two milestones
1/3/20 12/17/21
DATA: COMPILED BY BLOOMBERG
dumbest idea,” says Kaz
Nejatian, a Facebook alum
I propelled Shopify into the stratosphere of online retail: its
IPO and an inexplicable decision by Amazon to essentially sell
who joined Shopify in 2019 as its website-building division to Shopify for a meager $1 million.
vice president for merchant Up until that spring, Lütke had been reticent about raising
services. Nejatian, who felt Shopify’s culture was dependent on money. He flew to Silicon Valley a few times during Shopify’s
in-person collaboration, eventually came around—but others early days, sleeping in hostels and biking to visit venture capi- 51
did not. “I was into the humans and the people I worked with tal firms. Not a lot had changed since those first few fundraising
at Shopify,” says Craig Miller, who was chief product officer attempts. When Lütke and Finkelstein, then the chief operat-
at the time. “I remember thinking that it felt like a giant loss.” ing officer, started making the rounds on Wall Street, few pro-
There were other unanticipated consequences. Extending spective investors had heard of Shopify. “We just said, ‘If you
his CEO arm virtually into discussions, and sometimes rep- bought something on the internet and it wasn’t on Amazon but
rimanding underlings for mediocre work in his blunt way, the experience was good, it was a Shopify store,’” Lütke recalls.
earned Lütke the internal nickname “Tobi the Tornado.” He When Shopify went public that May, its stock was boosted
says the moniker is “a little bit irritating” and challenges any- by the ineptitude of industry giants that had once dominated
one “to point out the moment I raised my voice.” But that’s just this corner of the enterprise software market. Yahoo Inc.,
it: You can’t gauge the volume of an online comment. “Slack which offered retailers its own tools, was distracted by inter-
exacerbated things,” Miller says. “In a company with thou- nal turmoil. Another market leader, Magento, which offers
sands of people, they can all see Tobi laying into someone.” open source software to build online stores, had been acquired
Then, amid the global protests in May 2020 stemming from by EBay Inc. and later spun out and bought by Adobe Inc.
the killing of George Floyd, remote Shopify employees rushed IBM, Salesforce, Oracle, and others offered similar services
to express their emotions on Slack. Lütke had long encour- but mostly to big companies, not the small businesses that
aged a diversity of perspectives, with company values such wanted to quickly and cheaply hang a shingle on the internet.
as “conformity kills creativity” and “act like an owner.” On a An even more critical event came a few months after the
channel called #belonging, employees debated various issues IPO. Amazon also operated a service that let independent mer-
related to race and inclusivity. But when someone discovered chants run their websites, called Webstore. Bang & Olufsen,
an emoji of a noose had been uploaded to the Slack, accord- Fruit of the Loom, and Lacoste were among the 80,000 or so
ing to a report at the time by news site Insider, the discussion companies that used it to run their online shops. If he wanted
got heated, and Lütke decided it was becoming a dangerous to, Bezos surely had the resources and engineering prowess
distraction. Rather than use it as a moment to open up dia- to crush Shopify and steal its momentum.
logue with his staff, he converted the channel into read-only. But Amazon execs from that time admit that the Webstore
Then he wrote an internal memo to senior execs, declaring service wasn’t very good, and its sales were dwarfed by all the
that Shopify “is not a family … and not the government. We can- rich opportunities the company was seeing in its global market-
not solve every societal problem here.” Although the memo, place, where customers shop on Amazon.com, not on mer-
which predictably contained esoteric references—this time, to chant websites. At the time, the company was also developing
Lewis Carroll and concepts in electrical engineering—wasn’t house brands such as Amazon Basics, and Webstore sellers
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had to get comfortable with the possibility that the tech giant Mainly, though, what Amazon missed was the sheer
might see their success and knock off their best products. It number of entrepreneurs ready to put their business notions
was a “fox-in-the-henhouse problem. Merchants were sleep- into action. These were self-starters such as Emma Mcilroy,
ing with one eye open,” says a former Amazon executive who who left a career at Nike Inc. in 2013 to start Wildfang, a fash-
worked on Webstore, who spoke on condition of anonymity ion brand with a mission to “disrupt gender norms.” Before
because he wasn’t authorized to speak publicly about the issue. the pandemic, Mcilroy operated stores in Los Angeles, New
In late 2015, in one of Bezos’ periodic purges of under- York, and Portland, Ore., as well as an online storefront using
achieving businesses, he agreed to close Webstore. Then, in Magento, which tended to crash during the traffic surge every
a rare strategic mistake that’s likely to go down in the annals holiday season. “Black Friday used to be my worst week of
of corporate blunders, Amazon sent its customers to Shopify the year. I didn’t sleep,” she says.
and proclaimed publicly that the Canadian company was its In October 2020 she switched to Shopify and closed the
preferred partner for the Webstore diaspora. In exchange, underperforming New York store, in SoHo. Now her business
Shopify agreed to offer Amazon Pay to its merchants and is predominantly online and growing. “I talk to a lot of entre-
let them easily list their products on Amazon’s marketplace. preneurs, and if I could give them just one piece of advice, it’s
Shopify also paid Amazon $1 million—a financial arrangement that I wish I had gone to Shopify eight years earlier,” Mcilroy
that’s never been previously reported. says. “It would have made my life so much easier.”
Bezos and his colleagues believed that supporting small
retailers and their online shops was never going to be a large, uring the first few weeks of the pandemic, Lütke warned
profitable business. They were wrong—small online retailers D employees in a virtual town hall meeting about the dan-
generated about $153 billion in sales in 2020, according to AMI ger to merchants like Wildfang. “Every single time that there is
Partners. “Shopify made us look like fools,” says the former a crisis, the biggest losers are small and medium businesses,”
Amazon executive. he recalls saying. “They are always wiped out, because they
For Shopify the deal paid immediate dividends. On the have the least amount of adaptability.” The company’s new
day it was announced, the stock price leapt so dramatically— mission, he declared, was to help sellers survive the tumult.
from $7 to $23—that the company got requests from Finra, a Shopify did that, but now many sellers are again in distress.
52 U.S. regulatory authority, asking for more information on With supply chain problems plaguing the global economy, even
the agreement. (Finra later dropped the matter, Shopify the largest retailers are having trouble getting merchandise
says.) Amazon’s endorsement also gave Shopify new credi- from manufacturers to customers’ homes in anything resem-
bility. Only later would Amazon realize its mistake and view bling a timely manner. Amazon, of course, has an advantage
Shopify—and the incipient trend of brands selling directly to here: a well-honed logistics network devoted to ferrying prod-
consumers—as a critical threat to its dominance. ucts across oceans and among about 930 warehouses around
Merchants, it turned out, were not only eager to pay $30 the world, then delivering packages right to people’s door-
a month for a basic Shopify subscription, they’d also happily steps. Shopify sellers sound desperate for this kind of support.
pony up for all the extra trappings that helped them sell more “I don’t know why Shopify hasn’t done more,” says Patrick
stuff: for example, access to apps made by other companies Coddou, co-founder of 11-employee Supply Co., which oper-
for the Shopify app store, which let them send marketing texts ates a men’s grooming-product website. “It sure would be nice
and emails to customers or put reviews on their sites. When if they did something to help us compete against Amazon.”
a large merchant uses one of those apps, Shopify takes a cut. For years, Lütke toyed with the idea of getting into the
In 2016, Shopify introduced a lending service to help small gritty business of fulfillment. In 2019 the company introduced
companies that otherwise wouldn’t get the time of day from what it called the Shopify Fulfillment Network, which con-
a traditional bank. The program, like one that Jack Dorsey’s nects merchants with privately owned fulfillment centers
Square (now called Block) had started two years earlier, lets offering Amazon Prime-level reliability, as well as shippers
vendors start their companies by buying inventory and hiring including United Parcel Service Inc. and FedEx Corp. Shopify
employees. In return, borrowers pay a percentage of their sales promised to invest $1 billion over five years to expand the
to Shopify until they pay off the principal and related fees. In service and paid $450 million to acquire a robotics startup
November the company said Shopify in Massachusetts, 6  River Systems,
Capital had lent a total of that makes the same kind
$2.7 billion to merchants “Shopify made us look like fools,” says of robots that roam the
since inception. a former Amazon executive floors of Amazon ware-
Similarly, Shop Pay, houses. To observers it
a competitor to PayPal Holdings appeared Lütke was ready to buy
Inc. that it introduced in 2017, lets shoppers store credit cards warehouses, employ blue-collar workers, and start moving
as they go from one Shopify merchant to the next. Shopify col- pallets and packages around the real world.
lects up to 2.9% of every sale plus 30¢ per transaction; it’s now But it hasn’t happened, and Shopify still largely leaves
one of the fastest-growing online payment tools in the U.S. the last mile to its merchants. In January 2021 it hired an
 Bloomberg Businessweek December 27, 2021

operations executive from Amazon named Nitin Kapoor—

who left after nine months. (Kapoor declined to comment.)
Lütke says logistics “is a tough nut to crack for byte compa-
nies”—meaning firms that have gotten comfortable writing
software, with none of the headaches of employee injuries
and high-profile union campaigns. If a ruthless, Amazon-style
efficiency is required to run such a network, Lütke says, “then
I don’t think we’re going to succeed. We’ll do it differently,
because we don’t want to show up like this.”
It’s also true that Amazon has mastered a kind of oper-
ational efficiency Shopify never had to cultivate. Instead,
Shopify executives claim improbably that rapid delivery of
the kinds of boutique products its merchants sell isn’t that
important to shoppers. “My guess is that is not going to hold
water,” says Mark Mahaney, head of internet research at
Evercore ISI. “Over time, if someone delivers you a product
within a day, and someone doesn’t, you will go with the solu-
tion that gets you the product in a day. I think that will be a
big challenge to Shopify.”
Back in the virtual world, Lütke has struck deals with
social media companies from Pinterest to TikTok, allowing
sellers to better advertise and sell things on the sites where
internet users spend the most time. But sellers who adver-
tise on social networks are getting hurt on the other end, too.
With Apple changing the rules around data tracking and user
privacy on iPhones, Facebook ads have become more expen- 53
Finkelstein often fronts for Shopify in the media, a spotlight Lütke avoids
sive and less effective, squeezing small businesses. Because of
the switch, Supply’s Coddou says, his company was unprof- as a worthy rival,” he says. “If they knock it out of the park and
itable this summer for the first time in its six-year history. make it super easy to start new businesses on it, then I’m like,
Shopify could lessen the blow if it helped its merchants find I actually accomplished my mission.” He says he’s up for being
customers more directly—as Amazon does with every search the underdog again—perhaps to reclaim the mantle of the rebel
on its website. But here, too, Lütke has been treading care- alliance. It’s an attitude he might need in light of a 13% drop
fully. While Shopify launched a search feature on its Shop in Shopify’s stock price over the past month, as investors fret
app in 2021, it positions itself as a neutral broker. The way the over the prospect of sluggish post-lockdown online sales and
company sees it, if a customer searches for cosmetics, and inflation. “For all the years that I’ve done Shopify, people have
Shopify sends them to Rihanna’s Fenty Beauty website instead very consistently underestimated the size of the internet and
of, say, Kylie Cosmetics, Shopify could be facing some angry the size of retail,” Lütke says. “It’s just very big.”
Kardashians. So its search results prioritize brands that cus- For now he’s focused on continuing to build a company
tomers have already purchased from, or lists them at random. untethered to any physical place, though he concedes that
But if a competitor figures out how to send torrents of Shopify’s tumultuous year might’ve been easier with after-
PHOTOGRAPH BY ALEX BLOUIN AND JODI HEARTZ FOR BLOOMBERG BUSINESSWEEK

buyers to its sellers, and then takes over the headache of
shipping once they make a sale, Shopify’s 2 million mer-
chants could easily defect with just as much enthusiasm as
they’ve flocked to it over the past decade.
ne of those competitors could—once again—be Amazon.
O Since late 2017, former company executives say, it’s
been working on a project, internally code-named Santos,
that would let retailers run independent sites off Amazon.
They say the division is trying to recapture the opportunity
Amazon squandered when it shut down Webstore. It’s nestled
within the Amazon Web Services cloud computing unit, the
former domain of Bezos successor Andy Jassy, and could pre-
miere as soon as next year. (Amazon declined to comment.)
Lütke sounds a bit fatalistic about that. “I think of Amazon
work rituals like going for drinks. “The internet hasn’t figured
out how to make communities self-heal past a certain point,”
he says. He also doesn’t rule out the possibility of one day
reversing his position, hunkering down in new offices, and
writing “a fun mea culpa.”
More pressing, though, is reconnecting with senior Shopify
executives, including some he’s still never met in person.
This fall he invited his management team to the Opinicon,
a rustic 1880s-era hotel and resort he and McKean bought
and painstakingly restored in 2015, about 80 miles from their
home. During the day, the Shopify execs played laser tag. At
night they talked around a bonfire. And for the first time in
months, like the old days, Shopify wasn’t Everywhere, but
in a more conventional location, its leadership concentrated
near Ottawa, Canada.  —With Michael Tobin
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54
Bloomberg Businessweek
y About All t
Are Sorr he
Dis
altors
Re
The National Association of Realtors wants to make amends. As long as it doesn’t
have to talk about that 6% commission
By
Illustration by
he awkward Zoom call is now a staple of office life, but
T even by that low bar, this one in November 2020 was
painful. A middle-aged White man with a gold pin on the lapel
of his gray suit stared into the camera: Charlie Oppler, presi-
dent of the National Association of Realtors and chief execu-
tive officer of Prominent Properties Sotheby’s International
Realty, with 15 offices in northern and central New Jersey.
Oppler was speaking at a diversity and inclusion summit, an
occasion marked with a mea culpa—and not a small one. The
NAR, America’s largest trade group, issued a formal apology
for decades of racist policy that excluded non-White people
from owning homes.
Real estate agents helped create today’s deeply segregated
communities. In the 1930s they provided the raw neighbor-
hood intelligence, using starkly racist language about “negro-
blighted” districts and the “infiltration of undesirable racial
elements,” that aided in the creation of the infamous red-
lining maps denying federally backed loans to people of color.
They came up with the idea of loading property deeds with
December 27, 2021
cri
mi
na
tio
n
55
Peter Robison and Noah Buhayar
Michael Kennedy
restrictive covenants that kept Black people out of the most
desirable neighborhoods. The NAR’s predecessor organiza-
tion opposed the Fair Housing Act of 1968, which barred dis-
crimination in home sales. In case that all sounds like ancient
history, multiple instances of members airing racist views on
social media in 2020 led the group to adopt a formal code bar-
ring hate speech.
“Many may not realize just how far-reaching this systemic
housing discrimination was, particularly for African
Americans,” Oppler said on the call, before asking, “Bryan,
can you speak to that a little bit?” The camera shifted to the
group’s first director of fair housing policy, Bryan Greene,
who had worked for 29  years at the U.S. Department of
Housing and Urban Development.
As one of the top federal officials in charge of enforcing
the Fair Housing Act, Greene once stayed late at HUD’s offices
in Washington writing a speech commemorating the law’s
32nd anniversary, then walked to a nearby hotel to hail a cab.
The driver turned him down after seeing he was Black;
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Greene sued in federal court and won a settlement.

Now he had the unenviable job of explaining a cen-
tury of civil rights struggles to his audience, most of
whom looked a lot like Oppler (78% of NAR mem-
bers are White). After a high-level summary—he men-
tioned that Black people were once excluded from
membership in the NAR—Greene concluded that “it’s
a tough history” but “we have turned the corner.”
Trade groups often shift with the political tides,
but the NAR’s apology and awareness campaign
amounted to a backflip worthy of an Olympic diver.
The group had largely supported the administra-
tion of Donald Trump, hosting him at its 2019 legis-
lative summit, where the onetime property developer
drew cheers as he touted his distaste for govern-
ment bureaucrats and said the gathering felt like
“home.” The internal fallout from the group’s apol-
ogy—two weeks after Joe Biden defeated Trump in
the presidential election—has mapped the divisions
in American society. Some NAR members have called
for even bolder systemic changes, including reduc-
tions in commissions for minority home-
buyers and sellers, and others have
expressed outrage over what they
see as the empowerment of “can- “It’s a tough history”
56 cel culture.”
The open brawling comes at
an awkward time for the NAR, whose
1.6 million members account for the lion’s
share of U.S. real estate agents. (The group has trade-
Greene, the National Association of Realtors’ vice president for policy advocacy
marked the word “Realtor” to refer to its members,
and its members only, thank you.) Nothing is more central to would have kept the cooperative system in place while
its mission than protecting the commission of 4% to 6% that requiring greater transparency about costs. The Biden
agents typically take on American home sales. In this pan- administration ripped up the deal in July, however, and
demic year of soaring sales, commissions in the U.S. are fore- sought documents from the NAR showing how the association
cast to top $100 billion for the first time. Yet the commission enforces the mandatory offer of compensation to buyer bro-
is under threat as never before. kers. (The group sued in federal court in September to block
Consumers have filed class-action lawsuits in Illinois what it called the “unprecedented breach” of the earlier settle-
and Missouri, challenging the NAR on antitrust grounds. ment.) A Biden executive order also directs the Federal Trade
Separately, the U.S. Department of Justice’s antitrust division Commission to investigate “unfair tying practices or exclusion-
is pursuing an investigation of its own. The heart of the mat- ary practices in the brokerage or listing of real estate.”
ter is the Realtors’ control of the Multiple Listing Service, or The Realtors’ commission is coming under scrutiny not
MLS, where 89% of sellers in the U.S. listed their homes in the only because of its potentially anti-competitive aspects but
year through June. It’s an essential data source feeding into the also for the way it perpetuates an unequal system. Historically
maps of newer digital services such as Zillow Group Inc. and Black neighborhoods get far less attention than those that
Redfin Corp. Before listing a home on the MLS, sellers must typically command higher prices, according to Elizabeth
agree to participate in the “cooperative compensation” system, Korver-Glenn, a sociologist at the University of New Mexico
in which two agents, one for the seller and one for the buyer, and author of the 2021 book Race Brokers: Housing Markets
split the commission from the sale proceeds. Commissions in and Segregation in 21st Century Urban America. She followed
the U.S. averaged almost 5% last year, according to the pub- seven real estate agents for a year in the Houston area and
lisher and consultant RealTrends. They’re less than 2% in coun- found racial segregation so prevalent that it seemed “nor-
tries including Ireland, the Netherlands, Norway, Singapore, mal, even natural.” This was in part because of the commis-
Sweden, and the U.K. sion. “White agents assumed that White individuals were
The same month Trump lost the election, the Justice wealthy or would bring them the most profit, because they
Department reached an agreement with the Realtors that thought these individuals could either pay more for homes
 Bloomberg Businessweek
GREENE: PHOTOGRAPH BY SCHAUN CHAMPION FOR BLOOMBERG BUSINESSWEEK. DIFANIS, MCGRIFF: PHOTOGRAPHS BY LAWRENCE AGYEI FOR BLOOMBERG BUSINESSWEEK
Difanis led the committee that banned hate speech by Realtors
or had homes that would sell for higher prices,” Korver-Glenn
writes. “White agents also viewed White individuals as requir-
ing the least amount of work, with the smallest chance of
work-related headaches. These agents then provided more
and better service to White consumers.”
Biden has backed a goal of adding 3 million new Black
homeowners by the end of the decade—an effort the NAR also
endorses. It’s hard not to wonder: How will that happen if their
ultimate client is the seller?
reene makes frequent appearances at conferences
G alongside his old HUD colleagues in support of down
payment assistance, increased housing supply, and improved
access to credit for minority homebuyers. The real lightning
rod for the Realtors, however, the one who’s drawing most of
the culture-war flack, is Matt Difanis, a Re/Max LLC agent from
the farm country of Champaign, Ill., who headed the commit-
tee that crafted the ban on hate speech. The ban encompasses
slurs based on race, color, religion, sex, handicap, familial sta-
tus, national origin, sexual orientation, or gender identity.
Realtors can be expelled from the NAR if they use such lan-
guage at work or even on their personal social media feeds—
real-world examples of which Difanis dutifully provided last
year in a YouTube video explaining the new policy. Speaking
from a comfortable suburban home, soft lights glowing on a
bookshelf behind him, Difanis unleashed a sampling of the
bile he’d seen agents post on Facebook. He also described a
December 27, 2021
Pippion McGriff, first female Black president of the NAR’s Chicago affiliate
video posted by an agent brandishing an assault rifle—and
then read the speaker’s racist rant, right down to the N-word.
Although the new policy drew praise from many who com-
mented on his YouTube post, Difanis also heard from Realtors
who told him the new rules made the group look guilty and
defensive. Other Realtors said it was foolish to court discontent
among members when the group is facing multiple antitrust
actions. Still others said they’d be withholding their support for
the group’s lobbying arm. Some are particularly incensed that 57
the code applies to their personal accounts, not only business.
“I enjoy being controversial, and I enjoy exercising my rights
of free speech as an American,” says Christopher Fountain, a
Realtor in Greenwich, Conn., who’s lobbed barbs in his blog
about Biden, gender identity, and the trade group’s effort at
what he calls reeducation.
Difanis is not who you might expect in this role; his father
was a Republican judge and his mother the daughter of a
Southern Baptist minister from Mississippi. But he brings the
passion of the converted, describing how his eyes were opened
in part by delving into the redlining maps the federal Home
Owners’ Loan Corp. produced in the 1930s. The University of
Richmond’s Digital Scholarship Lab has made them accessi-
ble online, and they still have the power to shock. “Trend of
desirability continues downward as population becomes more
and more Negro,” reads the summary for one neighborhood
on Chicago’s South Side. Such views were informed by federal
loan officers’ interviews with real estate agents.
Difanis says he was disgusted to learn that “the people who
sat where I sat were responsible for creating a mandate for
housing discrimination and economic destruction inflicted on
the Black community.” Until 1974, the Realtors condoned and
encouraged segregation through a clause in its code of ethics
that barred agents from introducing “detrimental” influences
into any neighborhood. In other words, professional ethics a
generation ago—when the parents of today’s Black homebuy-
ers might have been acquiring homes and wealth to pass on
to their children—dictated that Realtors not show them homes
in what all agreed were “the better areas.”
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Difanis credits his awakening to

friendships he’s made with Black Realtors,
one of whom, Nykea Pippion McGriff, last
year became the first female Black presi-
dent of the NAR’s Chicago affiliate. Difanis
says he listens to Black talk-radio hosts and
since June has missed only one Sunday at
a Black church in his hometown. After a
neighborhood cleanup on Chicago’s South
Side in July, he joined Pippion McGriff and
another Black agent, Turqueya Wilson, for
lunch at Nando’s, a South African fast-food
place a short walk from the headquarters of
civil rights leader Jesse Jackson’s Rainbow
Push Coalition.
Pippion McGriff described a showing she
held for a $600,000 property in Irving Park,
a prosperous neighborhood on Chicago’s
northwest side, at which a White agent
asked, “How did you get the listing?” Wilson
cited her frustration at trying to purchase a Wilson says a real estate company suggested she partner with a White man to get a franchise
franchise from a major brand, only to have
the company steer her toward having a White man as the man- The same month in 1985 that Taylor bought his own first
aging partner—an echo of the history of the first Black Realtor, home—a 1,300-square-foot bungalow in Matteson—five White
Ben Slayton of Los Angeles, who had to be sponsored by a families on the block moved out. “I watched that White flight
58 White man before he was allowed to join the association in happen,” Taylor says. As a Realtor he also saw how the indus-
1964. “You needed a White rent boy,” Difanis said with a laugh. try was contributing to it. One developer built identical homes
There was only one time they all flinched, drawing their in Matteson and the nearby town of Frankfort, according to
chairs back even farther than social distancing norms dictate. Taylor. The developer, he says, instructed agents not to show
That was when the Realtors’ commissions and their poten- Black families the ones in Frankfort.
tially market-distorting effects come up. There’s nothing fixed Racism was brutally apparent at times. Once, in New
about any agent’s compensation, Difanis said, before remark- Lenox, Ill., a White neighbor came out and asked a Black
ing that they all take antitrust laws seriously and never col- client of Taylor’s if he was considering moving there—then
lude with each other. flashed a gun and said, “You’d better think differently.” Other
times it was subtle: In the town of Homewood and the Beverly
ifty years ago, Matteson, a middle-class suburb of 19,000 area of Chicago, groups of fake buyers conspired to waste his
F south of Chicago, was almost all White. By the mid-1990s time. “They figured if they kept me occupied, it would keep
it was just about evenly divided between Black and White. If the community stable,” Taylor says.
that sounds like a desirable turn, it wasn’t perceived as one by White families continued to leave Matteson, and by 2019
the town’s leaders. it was 81% Black. A mall that had long been a suburban des-
These leaders, many of them Black, were painfully aware tination closed and the last of it was demolished that year,
of studies suggesting that home prices didn’t appreciate as leaving acres of blacktop with Illinois prairie sticking through
quickly in primarily Black neighborhoods. So they commis- it. Other strip malls emptied during the Great Recession and
sioned an ad campaign to retain and attract White residents, never regained tenants. “This is what segregation does,” Taylor
which the local branch of the NAACP called insensitive. Some says, gesturing to a row of abandoned storefronts.
residents thought the ads made the city look desperate. Others He left Matteson for Frankfort almost 20 years ago. Homes
hated the idea of acknowledging White flight. in Matteson have sold this year for an average of $232,000, he
Dale Taylor was a young Realtor then, living in Matteson. says—little more than half the $459,000 average in Frankfort,
Today, at 62, he’s perpetually upbeat, one of those middle- which is 82% White. The highest sale in Matteson fetched
aged people completely comfortable with smiley-face emojis $470,000; in Frankfort, five homes have topped $1 million and
in texts. His grandparents had moved from Georgia in the one went for $2.1 million.
Black migration of the 1920s, and his parents built a home
in Harvey, another Chicago suburb, in 1962. An uncle built he racial wealth gap has been stubborn. In 2019 the typical
one, too, but it was firebombed before completion; he fin-
ished it with the insurance money.
T Black family had just over one-tenth the net worth of the
typical White family, in part because of the value of their
 Bloomberg Businessweek December 27, 2021

“I watched that White flight happen”

In addition to supporting
the down payment assis-
tance and appraisal initia-
tives, the NAR and Greene,
who’s now the group’s
vice president for policy
advocacy, last year cre-
ated a new diversity train-
ing curriculum called ACT
to address potential bias
among Realtors. Difanis in
Champaign says four of his
past five hires have been
Black women.
Another Illinois city,
Evanston, in March became
the first in the U.S. to offer
reparations to Black house-
Taylor, who’s sold homes in the suburbs south of Chicago for three decades, has watched inequity shape cities
holds specifically to redress
homes. The gulf in homeownership also persists: About 74% past housing wrongs, pledging $400,000 raised from a tax 59
of White families own a home; among Black families, it’s 44%. on marijuana and donations. Marguerite Martin, a Realtor in
The Biden administration’s plans for social spending— Tacoma, Wash., sees that as timid considering the damage.
passed by the U.S. House in November but stalled in the To make a difference, she says, reparations should involve
Senate—include $10 billion in down payment assistance, provid- government, real estate agencies and associations, and lend-
ing $20,000 or more for first-time, first-generation homebuy- ers—with agents perhaps contributing a share of their com-
ers. Biden has also formed a task force under HUD Secretary missions. “We have to make a commitment as an industry
Marcia Fudge to address bias in home appraisals. The NAR that we owe this money and now we have to give it back,” she
has said it supports both efforts. The group formally agrees says. Martin recalls a conversation with one of the NAR’s diver-
with the administration that systemic racism has denied Black sity consultants, who asked her why more agents didn’t work
households perhaps the most important opportunity to pass in Black communities. “Because they’ll make less money,”
down wealth. she responded.
Simply acknowledging that isn’t enough, in the view of Greene says the NAR hasn’t considered making reparations
experts such as Jenny Schuetz, a Brookings Institution senior or changing the commission structure. (The latter, the group
fellow who studies housing. “It may be that [the Realtors] in contends, offers substantial benefits to buyers, who don’t need
general see the need to shore up goodwill among elected offi- to pay their own agent in cash—even if their share of the com-
cials,” she says. “My bigger concern with the Realtors is that mission is ultimately baked into the sale price.) “This is a
PHOTOGRAPH BY LAWRENCE AGYEI FOR BLOOMBERG BUSINESSWEEK (2)

it’s a cartel that protects its hold on the industry.” complex issue that goes beyond just the real estate profes-
Similarly, Jacob Faber, a sociology professor at New York sional,” Greene says. “Pretty much every aspect of American
University, says major institutions across America have been life in some way has contributed to the inequality we have
“doing this performative wokeness to in some ways admit today. We did acknowledge, the NAR, our role in discrimi-
past wrongs but not do anything substantive to address nation and segregation throughout this past century.”
them.” He says it’s useful for organizations with fraught histo- Taylor, the Realtor from Matteson, tells the story of a
ries, such as the NAR, to publicly admit their past—“but their fellow agent who managed a real estate brokerage in the
solutions just fall short.” He conjures an example of someone Chicago suburbs. The company moved across the state line
stealing a Microsoft stock certificate in 1980 and putting out a to Indiana because, the friend told him, “they didn’t want
press release now that says, “I’m sorry I took this from you. to deal with the minority buyers that they’d be dealing with
I’m going to take a training to encourage me not to take any- in Illinois.” The friend was anguished about it. “ ‘This is not
thing more from you.” right,’ ” Taylor remembers him saying. “I said, ‘Hey, it’s real
The next step after an apology, of course, is atonement. estate.’ ”  —With Ann Choi
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Popular locks that secure offices and other commercial and residential properties could be vulnerable

The

Et
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Lock-Picker

Dominic Villeneuve figured out a simple way to bypass a widely used door lock, and
he told the manufacturer how he did it. A year and a half later, he’s telling the world
By Adam Bluestein
Photographs by Alexi Hobbs
Bloomberg Businessweek
arly one morning in June 2020, Dominic Villeneuve woke
E up and went to his basement workshop to play with a
new toy. A friend had given Villeneuve, the director of cyber-
security and infrastructure for a midsize insurance company
in Drummondville, Quebec, a lock from a door in a build-
ing he was renovating. It was a good one: a Schlage CO-100
commercial-grade, keypad-operated deadbolt, which retails
for about $400 and carries a Grade 1 security rating, the highest
bestowed jointly by the American National Standards Institute
and the Builders Hardware Manufacturers Association.
The locks on most homes are Grade 3, maybe 2. Grade 1
locks are tested to withstand, among other things, 1 mil-
lion open-close cycles, eight blows starting at 80 joules (com-
parable to a jackhammer), and five minutes of grinding with
a bolt saw. All of the CO-100’s electrical and mechanical parts
are also certified by the Underwriters Laboratories for resis-
tance to wear and tear, weather, and abuse. But Villeneuve
knew he could unlock it without the keypad code. He knew
he could beat it.
In his day job, Villeneuve analyzes and blocks malware
attacks on his company’s network. Smaller financial-service
companies and insurance businesses such as his are a pre-
ferred target of hackers, because they often have personal
and financial data stored in undersecured networks. His
favorite part of the job is playing “red team”—attacking his
employer’s network with the tricks and gadgets of a better-
than-average hacker—to find vulnerabilities. (“Penetration
testing” is the technical term.) This also includes looking for
ways to covertly access an office or computer and, say, plant
a spy pen that has a camera or a USB keylogger to steal logins
and passwords. “Every security I see, I try to bypass or find an
unexpected way to open it,” Villeneuve says. “It’s in my DNA.”
Villeneuve’s father taught him how to assemble and disas-
semble carburetors when he was 5. Soon, he was taking apart
everything in the house. He started picking locks as a teen,
practicing on old padlocks and the door of his family home,
using paperclips and filed-down Allen keys. At some point, he
acquired a photocopied book purporting to be a declassified
CIA field manual on lock-picking.  LockPickingLawyer has no qualms about exposing the illu-
Today he’s part of a subculture made up of software types,
tinkerers, survivalists, locksmiths, and lawyers and other pro-
fessionals who enjoy the same three-dimensional puzzles. (He’s
also co-founder and co-minister of a reform Baptist church in
his town.) Members gather for meetups and “sport-picking”
competitions that showcase undetectable—“nondestructive,”
in lock-picking parlance—methods of opening locks for which
they don’t have keys or codes. “It’s better than chess,” says
Marc Weber Tobias, a lawyer, security consultant, and well-
known lock-picker. “It’s tactile, it’s intellectual, and there are
some locks you’re just not gonna open.”   that if a lock was “not so inviolable as it has hitherto been
Interest in recreational lock-picking has surged during the
pandemic: What better way to get through being stuck inside
than with hours of online tutorials? For inquiring minds, the
endless corners of YouTube and Amazon.com provide access
to information and tools that until recently were generally only
December 27, 2021
available to locksmith guilds, cat burglars, and safecrackers.
“In the old manuals on safe manipulation, there’s always a note
at the end saying, ‘Now that you’ve read this book, make sure
you destroy it,’” says Michael, the principal of e-commerce site
Sparrows Lock Picks, who goes by only his first name profes-
sionally. “Now everything is posted on YouTube.”
This has helped enthusiasts master the art of the bypass
at dazzling speed, accelerating an age-old cat-and-mouse
game between lock-pickers and makers as locks are bypassed
and videos of triumphs spread online. (The r/lockpicking
subreddit, with about 169,000 members, maintains a belt rank-
ing of hundreds of locks; those who crack the hardest ones are
black belts.) Pickers are playing red team en masse, exposing
weaknesses in products that people trust to keep them safe.
It’s forcing manufacturers in what analysts at Verified Market
Research call the global physical security industry—a market
of at least $125 billion—to live up to their own standards. The
relationship between the two camps is uneasy.
One of the most famous names in the community is
LockPickingLawyer. In spring 2020, he had about 200,000 sub-
scribers to his YouTube channel, and today he has more than
3.6 million. The retired attorney, who lives in the Washington,
D.C., area and asked that his real name not be used, has made
almost 1,400 demos, many with hundreds of thousands of
views, in which he dissects everything from cheap padlocks
to high-security deadbolts to explore their inner workings.  61
Among other thrills, viewers can watch him best a ubiqui-
tous Schlage doorknob lock with a “low skill” attack in about
five seconds, open an RFID gun safe with a fork or a spoon, and
bypass an allegedly tamper-proof Chinese keypad lock with a
Swiss Army knife and a paperclip. LockPickingLawyer’s friend
and neighbor, Bosnianbill, who retired from uploading videos
in September, had posted more than 1,900 demos since 2007
and has more than 560,000 YouTube subscribers. The Lock
Noob, an up-and-comer from the U.K., has over 80,000 sub-
scribers to his channel, which focuses on beginner and inter-
mediate lock-picking. His almost 20-minute Learn Lock Picking:
EVERYTHING You Need to Know! video has 1 million-plus views. 
sion of security lockmakers sell. “I understand people who
think that secrecy is desirable in the security community,” he
says. “But the secrecy of locksmiths and security profession-
als for literally hundreds of years is the reason why our secu-
rity is so bad. There are very few widely used, consumer-grade
locks on the market that would even put up an adequate level
of resistance to nondestructive entry methods. Consumer edu-
cation can do nothing but improve that situation.” 
This isn’t a new idea. In 1868, Connecticut locksmith and
inventor A.C. Hobbs wrote in Construction of Locks and Safes
deemed to be, it is to the interest of honest persons to know
this fact, because the dishonest are tolerably certain to apply
the knowledge practically; and the spread of the knowledge is
necessary to give fair play to those who might suffer by igno-
rance.” The question is: How do you spread the knowledge
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without empowering the dishonest?
The rules of ethical disclosure are complicated. In a delib-
erately vague example, LockPickingLawyer describes finding
a “zero-skill exploit that could be executed by anyone with
a small piece of knowledge” on a lock that law enforcement
uses widely. He says he emailed the company that made it,
and the company ignored him. He emailed again, giving it a
year to patch the problem before he went public. “I just ran
out the clock on a year, and I publicized it,” he says, leaking
his findings to locksmiths groups. “I don’t want to create any
dangers or exploits that would be used in the field. However,
if a company is not willing to change their product, there’s
only so much I can do.”
In most of the U.S., it’s legal to possess lock-picking tools,
as long as they’re not used in crimes. On covertinstruments
.com, for example, LockPickingLawyer sells a 20-in-1 set called
the Covert Companion for $90. Law enforcement tends to
apply the “kitchen knife theory,” Michael says. “It’s fine until
you point it at someone and start yelling.” Still, sport-pickers
and security experts note that few criminals ever bother to
pick a lock. According to 2019 FBI Uniform Crime Reporting
statistics, about 38% of burglaries involved nonforced “unlaw-
ful entry,” and only about 4% of these incidents involved lock-
picking. Most home burglaries are sloppy, forced jobs involving
screwdrivers, crowbars, and hammers. In commercial burglar-
62 ies, the latest trend is to smash a stolen vehicle through a wall.  “Cool, it sounds easy,” she responded.
Which isn’t to say that locks don’t matter. When lock-
picking is used in a crime, it’s often on a high-value target.
The Watergate break-in, for instance, hinged on successfully
picking a 4-pound brass lock securing a stairwell. If there’s
something valuable to protect, a well-made lock is table stakes.
Generally, lock quality goes up with price—and even with the
videos available online, or bypasses revealed at annual hacker
conventions such as Def Con, discovering quick and easy ways
around a Grade 1 lock remains rare. But not impossible.
n his orderly basement, surrounded by 3D printing equip-
I ment that he uses to make parts and prototypes of lock-
picking tools, Villeneuve considered the CO-100. He was hoping
to add it to the overflowing box of locks he’d defeated.
A humdrum-looking piece of office hardware, the CO-100,
introduced in 2011, is a simple, rectangular steel box with a
lever handle and a 12-button keypad. It’s not connected to
the internet, so it can’t be reset remotely like a smart lock. It
has to be programmed with a three- to six-digit PIN by some-
one with physical access. The CO-100 typically comes with a
traditional keyed lock, too, should the owner need to over-
ride the PIN. Allegion, which owns Schlage, touts the lock
in marketing materials as durable, affordable, and “versa-
tile enough to use anywhere.” And the CO-100 and similar
CO-200 models are widely used—in offices, commercial facil-
ities, schools, and multi-unit residential properties. Allegion
doesn’t break down sales information by product, but these
models are perennial bestsellers.
Villeneuve could have gone directly at the keyway. But it
December 27, 2021
was more interesting—less tedious—to find a way to manipulate
the internal mechanism directly. Removing the CO-100’s cover,
Villeneuve homed in on a lever beneath the keypad that, when
pulled, slid open the deadbolt. Replacing the cover, he consid-
ered how to pull the lever from the outside.
He tried using a magnet to see if it would move a critical
spring, but the one he had wasn’t strong enough. Then he
looked for openings that might let him slide a tool inside.
He could get a thin wire through the edge of the keypad but
couldn’t pull the lever with it. And he didn’t like that it left a
tiny mark—it was not a truly nondestructive method. Next, he
tried a tiny drain hole at the bottom of the lock housing, there
to let moisture escape. When the lock is attached to a door,
the hole is almost unnoticeable. Villeneuve started probing it,
first with thin strips of metal, and then with various-size zip
ties, until he found a fit. Then he cut a notch into one end of
the zip tie to hook the lever.
At about 6 a.m., two hours after he started working on the
lock, he pushed his homemade tool through the drain hole,
caught the lever, gave a gentle tug, and the lock sprung open.
When he reinserted the zip tie and pulled again, it locked.
It worked again, and again, and again. Bursting with energy,
Villeneuve worked out in his home gym and showered. He
could barely contain his enthusiasm at breakfast when he
revealed yet another hack to his wife. He says she was unfazed.
At his office that day, Villeneuve walked down a hallway,
passing a dozen or so CO-100s on doors. He stopped at one,
pulled out his zip tie, and unlocked it in about five seconds.
It’s one thing to execute a bypass under controlled condi-
tions, another to do it in the wild. And another altogether to
do it with a tool that costs basically nothing and was every-
where he looked, since zip ties are used to wrangle computer
cords. “I’ve found many vulnerabilities in my life,” Villeneuve
says. “But this one is so easy, and so dangerous, that it’s dif-
ferent from the others. Even if an alarm goes off, police will
find no trace of an infraction.”
A search on the internet and dark web convinced him that
he’d found something new, and as a self-proclaimed “ethi-
cal” lock-picker, he reached out to Schlage. Founded in San
Francisco in 1920 by German immigrant Water Schlage, the
company had some important early patents; five years later,
it was making 20,000 locks a month. When Ingersoll Rand
Inc. acquired the company in 1974, it was the largest manu-
facturer in the city.
In 2013, Schlage and the rest of Ingersoll Rand’s security
technology business was bought by Allegion. Headquartered
in Dublin, the company has 30 global security brands. It
took in $2.7 billion in revenue in 2020, and its stock price has
climbed from about $80 in early 2019 to about $125 today. In
North America, Allegion is the No. 1 maker of products that
control how people enter and exit buildings—locks and lock-
sets, doors and door frames, hinged door closers, push bars,
electronic access systems, and more. Unlike software manu-
facturers, who make it easy for hackers to report bugs, most
Bloomberg Businessweek December 27, 2021

“I’ve
found many
lockmakers don’t have a formal channel to vulnerabilities a challenge, he wrote Kasper, adding, “I cannot
receive tips about vulnerabilities. Villeneuve in my life. But imagine picking it in the field.” The new retro-
says it took him a few days to find someone to this one is so fit plug, he said, was “a very good fix” that he
take down the details of his discovery.  easy, and so couldn’t bypass in a nondestructive manner.
On June 27, 2020, he sent an email with the dangerous, that “Frank is a very great guy,” Villeneuve says.
subject line “Major vulnerability in CO-100 it’s different Their interaction reflects an evolving model
(maybe CO-200)” to Allegion’s head of public from the in the industry, which is inching toward the
relations. He attached two videos demonstrat- others” détente software makers have with so-called
ing his bypass. “I want to be honest and give you white hat hackers. In that system, monetary “bug
the opportunity to offer a fix to your clients before bounties” encourage hackers to report weak code;
someone found it and make it public on Internet,” wrote good bug catchers spin their skills into consulting work.
Villeneuve, whose first language is French. “Fifteen years ago, we were the most hated guys in the
Two days after he sent his email, he was put in touch with industry,” says Tobias, the lawyer and security expert, who
Allegion’s global director of cybersecurity, Frank Kasper. has a string of legendary bypasses. “Now they realize we’re
In emails, calls, and video chats, Villeneuve explained the their best asset. Lock-pickers see things in a different way
bypass. He taught Allegion engineers how to duplicate it and than engineers at lock companies. They care about how to
brainstormed fixes. On July 10, Kasper wrote that engineers make things work. We look at how they can break.”  
were working on a snap-in part to plug the drain hole that For a decade at Def Con, the annual hacker convention in
wouldn’t require removing locks from doors. At the end of Las Vegas, Tobias owned Big Lock in an embarrassing string
August, he sent Villeneuve a prototype. Three days later, of demonstrations. In 2007 he bested Medeco’s high-security
Villeneuve wrote back to say he’d removed the part in about M3 with a “bump key,” or custom blank, and a paperclip. In
10 seconds with a handmade tool. 2013 he beat Kwikset’s bestselling SmartKey with a screw-
In early December, Kasper wrote Villeneuve with good driver and a piece of wire. Eventually the manufacturers
news. His engineering team had redesigned the CO-100 and cried uncle. Tobias has consulted for most of them, includ-
related products to address the drain hole problem. But Kasper ing Swedish conglomerate Assa Abloy AB (owner of Medeco,
wrote that delivery was delayed because of supply chain Arrow, Mul-T-Lock, and Yale) and Allegion (which also owns 63
issues—“parts are in transit from our supplier in China to our Steelcraft, a maker of doors and door frames, and Kryptonite,
manufacturing facility in Mexico.” On Feb. 25, 2021, Kasper which produces bike locks).
shipped Villeneuve the redesigned lock and another version In an October email to Bloomberg Businessweek, Allegion
of the snap-in retrofit part. Villeneuve was pleased with both. said it evaluates the security of its products in many ways,
Although he still managed to pick the keyed component, it was including “extensive third-party assessments” and “external
reports of potential vulnerabilities.” But,
Villeneuve
Tobias says, “you’re going to get sued
if someone is raped, robbed, or killed
because of a problem you knew about.”
All it takes is one person on YouTube to
expose the known flaw.

n March, Kasper and Villeneuve

I discussed a consulting arrangement.
Villeneuve would test new Allegion locks
and confidentially report vulnerabili-
ties. He didn’t want money in return;
he just wanted a shot at the hardest puz-
zles that one of the world’s top lockmak-
ers could throw at him. But in mid-July,
Kasper wrote that managers had nixed
the idea. Still, he said he wanted to send
Villeneuve the occasional product to
“hack” in the future. 
It was now more than a year since he’d
reported the issue with the CO-100. The
redesigned lock and retrofit part had been
ready since February. Where, Villeneuve
wondered, was the public notification?
 oo
s
G
s
d Busi ne
Bloomberg Businessweek
When were customers going to know?  a matter of time before another person figured it out, too, and
He expressed his frustration to Kasper, though he says
he “never made an ultimatum. I just wanted them to do the
right thing.” On July 16, 2021, Kasper wrote that he’d talked
with upper management, and “you got their attention.” He
scheduled a Zoom meeting with Villeneuve and an Allegion
attorney to revisit the consulting idea—possibly an attempt,
Villeneuve thought, to buy time. The lawyer assured him
there were “actions under way to notify customers about the
fix,” according to video of the call. The next day, Villeneuve
wrote Kasper to decline the gig, citing the complications of
working for a U.S. company in Canada. (Schlage is now head-
quartered in Carmel, Ind.) But he said that he was “glad to
hear you say that you are ready to make a fix available.”   mean that the bypass is hard to do, just that they don’t have
In August, with no news from Allegion about notifying the
public, Villeneuve considered announcing the vulnerability
himself. But he decided against it, because he wanted cus-
tomers to have access to the retrofit first. Tobias says he’s seen
people demand that lockmakers pay ransoms up to $50,000 to
keep a vulnerability under wraps. But for ethical lock-pickers,
it’s about the recognition. “If you stand against a big company
to make it fix something, that marks you as an ethical lock-
picker,” Villeneuve says. “When you give a talk at a security
conference and people Google you, they see what you did, and
that gives you a lot of credibility.” But it’s important to be first.
64 The bypass Villeneuve discovered was so obvious, it was only
Villeneuve uses specialized picks and “tensioning” tools to bypass a lock  …
December 27, 2021
posted a video to timestamp the discovery.  
In the October email to Businessweek, an Allegion spokes-
person confirmed but downplayed the issue: “Importantly,
the mechanical vulnerability is not due to normal opera-
tions or daily use of the lock, but occurs when a unit is inten-
tionally manipulated in an unusual way.” The spokesperson
added that “replicating the vulnerability requires a custom-
ized tool and an individual who understands the mechanics
of the lock—so it’s not easily mastered.”
Villeneuve says that’s laughable: “I’m proud that I’ve mas-
tered the manipulation of a zip tie. The fact that a bunch of
their engineers were not able to find how I did this does not
a hacker’s mindset.”
The spokesperson wrote that Allegion emailed a bulletin
titled “Schlage CO Series Mechanical Security Enhancement”
in July. It went to “customers and distributors who have
potentially vulnerable units” purchased before February
2021, including the CO-100, CO-200, CO-220, and CO-250. The
alert urged all lock owners to install the retrofit part, which
the company would send out free—but only upon request. 
It’s not clear who saw the bulletin. Contacted this fall,
eight locksmiths and distributors from across the U.S. who
sell Schlage products said they were unaware of a problem. “In
fact, in the past few months, we’ve seen an increase in CO-100
…  and another one that’s been removed from a door
Bloomberg Businessweek December 27, 2021

locks” sold, wrote Patrick Duff, director of multifamily and

hospitality industry sales at GoKeyless in Miamisburg, Ohio,
which installs as many as 15,000 locks a year nationwide. 
Villeneuve says that no one from Allegion mentioned the
bulletin to him and that the insurer he works for wasn’t noti-
fied. There’s no trace of it online. Allegion emailed the bulle-
tin to Businessweek; after reviewing it, Villeneuve noticed one
photo included was a still from a video he’d sent the company.
The spokesperson declined to disclose how many peo-
ple got the bulletin, or how many retrofit parts have been
shipped, saying “it could negatively impact the safety of our
customers.” The company defends the notification, which
it says was posted to a closed-network client portal that
Villeneuve says he can’t access and Allegion wouldn’t pro-
vide a link to. The spokesperson adds: “These customers can
ultimately help to remediate issues for commercial-market
products. The portal is not intended, or even relevant, for
the general public.” (In December another spokesperson said
“we’ve received numerous requests for the simple, no-charge
solution offered in the bulletin; so we are confident … custom-
ers and distributors have received the information.”)
Villeneuve is vehement: The onus is on the company, not
customers, to spread the word. “I understand they don’t have a
way to reach their millions of clients personally, but why don’t
they just send a bunch of fixes to every distributor, and after
two weeks, make a public announcement?” he asks. “When 65
there is a recall for a cell battery getting on fire with no rea-
His kit for competitions and “penetration testing” at work
son, they do some public announcement and provide a free
replacement battery at local shops. In this case, they have a for a few dollars on the Sparrows Lock Picks site, but that’s
cheap fix for an easy-to-do hack, and no one knows about it.” not a substitute for the company taking action.
Regardless of how wide a release the Allegion bulletin got, Finally, on Dec. 10, Villeneuve decided it was time to go
that the subject line flags an “enhancement,” not a major public: Allegion’s retrofit part was available, as was his. He
security issue, is potentially confusing. “At the very least, it released an almost five-minute-long video documenting
would make me ask myself, ‘Why did they do this?’ And more the discovery on his DHack Security YouTube channel, and
importantly, ‘What happens if I don’t do this?’ ” says Duff, of within five days it had 3,100 views. Lock Noob posted a reac-
GoKeyless. Without a broad public alert or recall, Villeneuve tion video to Villeneuve’s, which itself got almost 4,000 views
says, consumers can’t know if they’re buying the improved in that span. “It’s not something I would ever have figured
lock or the old one because there’s no indication on the label.  out on my own,” Lock Noob says in his video.
Historically, lock manufacturers have issued public alerts Allegion says the number of affected locks on the market
only after they’ve been sued or someone comes forward to is “significantly lower” than the “millions” of units Villeneuve
expose a problem. The 2004 recall of Kryptonite bike locks claims in his video. The company issued a formal reaction in
that were vulnerable to picking with the round end of a plas- a Dec. 20 email: “Allegion appreciates the beneficial role of
tic Bic pen cost Ingersoll-Rand an estimated $10 million in external researchers and sees them as part of a distributed
replacement costs. In 2011, Kaba (now Dormakaba Holding AG) system that constantly monitors for threats and helps com-
was sued over a vulnerability in its push-button Simplex locks, panies improve products and work to benefit end users and
which the company knew could be hacked with a rare earth public safety. We saw a potential vulnerability, addressed it,
magnet; the lock was redesigned, and a free retrofit issued. and communicated to channel partners and distributors. We
Both companies acted only after people exposed problems feel the best route is to let manufacturers inform customers
that were already well known to security insiders.   rather than sensationalize it.”
What, if any, damage has been done at this point is hard For Villeneuve, going public was less about sensationaliz-
to say. That’s the nature of a nondestructive bypass. Who ing anything than making sure the locks get fixed. “It’s OK to
knows if Villeneuve is the first person to discover the zip-tie find a vulnerability, to make it public, to make some reputa-
trick? Others may have used it, or a similar one, to gain covert tion,” he says. “But if showing the way I handled it motivates
access to offices and properties for years. He’s designed a people to communicate with manufacturers, that’s the goal.
stainless steel version of the drain hole plug that’s available To make things more secure.” 
 Will she always
be this happy?
Live a good life on a healthy planet?
Can sustainable investing protect her future?

For some of life’s questions, you’re not alone.

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Nonprofit leaders and philanthropic

advisers have suggestions on how to battle
inequality in five key areas December 27, 2021
By Mark Ellwood Edited by
Illustrations by Thomas Burden Chris Rovzar

Businessweek.com
 PHILANTHROPY Bloomberg Pursuits December 27, 2021

T
hese last two years have been a stress test for America’s social and
governmental systems, as well as the protections many take for
granted. So far the results haven’t been good: Whether it’s the pan-
demic crushing our health-care institutions, the assault on the sanc-
tity of the election process, protests against police brutality after the
death of George Floyd, or a deadly power outage that spread across Texas, the cri-
ses of 2020-21 have revealed weaknesses that will need to be addressed if the coun-
try is to protect all citizens equally.
Of course, tax dollars are supposed to go toward building and maintaining
many of these systems—but it would take more than a few pages to explain why
that’s not enough. The good news? You can do something. We consulted top phil-
anthropic advisers and nonprofit executives to offer concrete, actionable coun-
sel on addressing structural inequality in five sectors that have never been more
urgent. Here are some fresh ideas, focused locally and at a modest scale, to inspire
you as you consider how to help.

How to Help With …

Health-Care
68 Inequality
Perhaps the most glaring inequity
revealed by the pandemic is the dispar-
ity in outcomes for different racial and
economic communities. In March 2021,
Black Americans were dying at 1.4 times
the rate of White people, according to
data cited by the Covid Tracking Project;
the U.S. Centers for Disease Control and
Prevention’s analysis in December 2020
showed that non-Hispanic Black people
accounted for 34% of deaths from Covid,
despite being just 12% of the population.
The problem is vast, but if you want
to address health-care inequities in your
community, says Aaron Dorfman, pres-
ident of the National Committee for
Responsible Philanthropy, start with
your local health foundation. Formed
when nonprofit hospitals are sold to
for-profit companies—the tax advan-
tages and money accrued in their for-
mer, 501(c)(3) state are required to be
legally fenced from the sale—these orga-
nizations act as independent grant-
makers, offering financial support to
grassroots health-care initiatives. There
are many across the country, from
the Con Alma Health Foundation in
New Mexico, which serves a dual role
as grantmaker and advocate, to the
Missouri Foundation for Health, one
of the state’s largest philanthropic bod-
ies, which successfully sued the governor
in 2021 to expand Medicaid in the state
on behalf of those entitled to the new
support. These foundations are superb
resources to help you decide where to
direct your money. “Most aren’t seek-
ing donations from the public, but see
which nonprofits they’re giving money
to,” Dorfman says. “Those have been vet-
ted by the staff of that foundation and
will be doing good work.”
Melissa Berman of Rockefeller
Philanthropy Advisors says to address
health-care inequity, we must face the
bigger problem of poverty. She flags
GiveDirectly, a nonprofit safety net
that gives money to people in poverty to
spend as they see fit. Originally focused
on overseas donations, it pivoted to the
U.S. in the pandemic. “Free cash can
keep [those in poverty] out of chaos,”
she says. “The idea you can’t trust poor
people is really horrific. They will use
money in an extremely responsible way.”
Also, Berman says, don’t ignore
solutions as simple as ensuring access.
In her work with one U.S. client keen to
focus on health-care inequality in their
own city, they found that insufficient
connections in an underserved area
made it difficult, and sometimes impos-
sible, for people to obtain care. The cli-
ent established two clinics at locations
determined by local bus routes. Two
organizations working on such socially
conscious infra structure? Boston-
based LivableStreets and T.R.U.S.T.
South LA.
Broadband
Access  
The massive shift to remote learning and
working during the pandemic reminded
everyone that high-speed internet access
has become the price of entry to every-
day modern life. “If you do not have
access to broadband, and a computer,
and the comfort to use that computer to
access the internet, you are always going
to be left behind—left out of job, educa-
tion, and health-care opportunities,”
says Danny Fuchs of HR&A Advisors, a
consultant specializing in pro-social real
estate and economic development. “It’s
the foundational issue to inequality in
America in the 2020s.”
Still, according to HR&A, more than
18 million U.S. households live without
it, 13.9 million of them in urban areas;
PHILANTHROPY Bloomberg Pursuits December 27, 2021

three-quarters of that contingent are
people of color.  just helped launch a searchable tool, the
Fuchs and other experts say the bar-
rier to universal broadband centers
on three problems: access, affordabil-
ity, and adoption. The recently passed
Infrastructure Investment and Jobs Act
earmarked $65 billion to address access.
Many rural communities, especially
American Indian ones, remain offline
and in need of the funds. The law also
addresses affordability, with $14.2 billion
to support the Affordable Connectivity
Program, subsidizing broadband access
for the poorest Americans.
This is an arena in which costs
are often artificially high because of
de facto monopolies: For 28 million U.S.
households, according to HR&A, only
a single broadband provider is avail-
able. But much like the arrival of elec-
trical co-ops in the wake of the Rural
Electrification Act 80 years ago, there’s
recently been a rise of challenger inter-
net service providers.
These aim to deploy market pressures
for the social good, such as Cleveland’s
DigitalC, a nonprofit that provides inter-
net access and devices to people, partic-
ularly those in public housing. Or New
York’s NYC Mesh, which places rout-
ers on volunteers’ rooftops in a broad
community-provided network that can
be resistant to power outages. HR&A has
National Broadband Resource Hub,
to find similar organizations in need of
grants and donations.
The third key obstacle is adoption—
even where broadband is available or
cheap, some might struggle to embrace
it. Organizations including Older Adults
Technology Services aim to tackle this,
focusing on familiarizing seniors with the
medium through seminars and volun-
tary tech support. The National Digital
Inclusion Alliance is a great clearing-
house to find other ways
to assist with adoption,
Fuchs says.
Voting
T h e fou r-ye a r- o l d ,
nonpartisan nonprofit
Pizza to the Polls
has raised more than
$1.5 million to send over
70,000 free pies to thou-
sands of polling stations
across 48  states. The
canny goal is to ensure
that those who are reg-
istered actually turn up,
and stay, to vote.
Although food donation was swept up
in politics after the 2020 election, getting
banned in Georgia in reforms passed by
its Republican legislature, there’s a sec-
tor of activism working to get out the
vote that’s neither right nor left.
Unconventional efforts are empha-
sized by nonprofits in this arena, says Joe
Goldman, president of the Democracy
Fund, a Washington, D.C., foundation
with the goal of improving the dem-
ocratic process. “We want to create a
sense that voting is a civic celebration.
A lot of research suggests when you cre-
ate a community celebra-
tion around the voting
process, it boosts turn-
out.” He also points to
TurboVote, a tech plat-
form Harvard alums
set up to turn voter
registration into a
secondslong process.
TurboVote forms part-
nerships with schools
and companies on its 69
service, too. Donations
to parent organization
Democracy Works
support its efforts.
The U.S.’s decen-
tralized, idiosyn-
cratic voting

some umbrella strategies to conditions attached is because it looks like a loss

SHIFT YOUR
THINKING ON
GIVING
 
Jacob Harold is executive vice
president at Candid, a nonprofit
that acts like a social-sector-
specific Google: Its database
powers the search function
on Fidelity’s donor-advised
funds, for example. “The kind
of issues we’re talking about
here? They’re complex and
long term, and they don’t lend
themselves to an overnight
solution,” Harold says. “Part of
the reason some donors really
struggle to put their money
to use is, frankly, that they’re
overwhelmed.” He suggests
help shift your thinking, and
your actions, using lessons
drawn from the world of
private finance.
 
HAVE AN INVESTMENT
THESIS
Consider what matters to you
and be realistic about the
impact you can have. Harold
suggests asking why you care
about a certain issue and what
sort of organization you think
could be effective. “You should
have the clarity to be honest
about the time horizon,” he
says, “or the difficulty or the
entanglement of that issue.”
NIX RESTRICTED GRANTS
Giving money with onerous
something no venture capital
firm would do. At nonprofits
these can become millstones
rather than guideposts. “The
pandemic was the perfect
example of how sometimes
[charities] have to pivot,”
Harold says. “The project you
were funded for might no
longer make sense. But your
hands could be tied because of
the way donors have structured
their gifts.”
 
REEVALUATE HOW YOU
EVALUATE, TOO
Charities are often encouraged
to think more like businesses,
but when they invest funds
for long-term success, they’re
dinged rather than feted
on an annual report. Using
a charity’s recent financial
report as a cudgel to critique
it for directing money to
administration is shortsighted.
 
STRUCTURE GIFTS FOR THE
LONG TERM
Private equity doesn’t expect
immediate returns without
future involvement. Why is
philanthropy different? The
more enduring your relationship
to a nonprofit, “the more they’re
able to plan,” Harold says.
“It creates stability that can
be powerful for donors, too.”
Working with a charity where
you have a long emotional
connection is the most
rewarding experience of all.
 PHILANTHROPY
system made embarrassing headlines
more than 20 years ago because of
Florida’s hanging chads—yet it’s barely
changed since.
Elec tion organiz ation needs
private-sector support in many ways,
says Goldman. The Center for Civic
Design, for example, works with offi-
cials to improve the design of bal-
lots to avoid chadlike controversies.
Power the Polls focuses on recruiting
volunteers to administer poll sites on
Election Day, critical now that political
divisions and intimidation—including
death threats—and the pandemic have
reduced their numbers.
Criminal
Justice
Reform
Lately, when people hear the words
70 “criminal justice reform,” it conjures
such incendiary slogans as “defund the
police” or “blue lives matter.” But when
viewed through the lens of respecting
human dignity and curbing recidivism
while preserving public safety, the issues
draw regular funding from both sides of
the aisle. The Charles Koch Institute, for
instance, views these themes as a key pil-
lar. And a prime mover in the space, the
Laura and John Arnold Foundation, is
staunchly nonpartisan.
In this arena it’s vital for donors
who’ve never been locked up in a jail
to defer to those who have, says Jessica
Love of Arabella Advisors. “If you’ve
had exposure to the criminal justice sys-
tem, you’re best positioned to change
it,” she says. “The people clos-
est to the problem are clos-
est to the solution.” Consider
supporting Clean Slate, run by Sheena
Meade, and the National Council
for Incarcerated and Formerly
Incarcerated Women and Girls,
led by Andrea James. Both women
served prison time before becoming
champions of other former inmates.
Nonprofits like these focus on urban
neighborhoods that are food deserts
Bloomberg Pursuits
and lack infrastructure. The National
Council “plonks down in those types
of areas to build the leadership, particu-
larly of formerly incarcerated women,”
says Chloe Cockburn, who runs Just
Impact Advisors. “It’s doing hyper-
local organizing to build this plan of
what it calls reimagined communities.
Our focus needs to be on the people
in neighborhoods and what they need
to thrive. They’re doing everything
from hydroponic farming to fighting
prison construction.”
Just Impact makes grants to such
groups. “Why can’t people reinte-
grate into society? It’s because it’s end-
less pounds of flesh being extracted,”
Cockburn says. Initiatives that work to
break this cycle are crucial. The Ban
the Box campaign fights for legislation
preventing private employers from ask-
ing about criminal history; two years
ago, Colorado became the 13th  state
(plus Washington, D.C.) to pass it. Since
2001, Bard College has operated the
Bard Prison Initiative, which has con-
ferred more than 600 degrees to stu-
dents studying while incarcerated. This
changes opportunities upon release.
Faith-based groups, too, cham-
pion redemption. Al Mueller of philan-
thropic adviser Excellence in Giving
recommends Better Together in Florida,
where congregations mentor and hold
job fairs for formerly incarcerated peo-
ple. The WorkFaith Connection in
Houston provides coaching as well. “If
you can reduce recidivism, we’re bet-
ter off both financially and on a societal
basis,” Mueller says.
December 27, 2021
Oil and Gas
Dependency
Fossil fuel dependency is arguably the
toughest of all structural inequalities
to address, explains Love—sitting at the
intersection of infrastructure, energy
policy, and social justice. “It takes a lot
of money to have an impact on climate,
because it’s such a huge problem,” she
says. “So it’s best to focus on something
at the end-user level that’s ambitious
and also feasible.” Rewiring America
is one such organization, co-founded
by MacArthur “Genius Grant” recipi-
ent Saul Griffith. Its mission is to tran-
sition the 70 million American homes
with gas lines to rely solely on electric-
ity. Each electrified home, its data say,
would save an average of $377 per year—
44% of those households being low- or
moderate-income.
The intersection of social inequal-
ity and fossil fuels is another import-
ant area, Love says. In Pennsylvania, for
example, data from Food & Water Watch
showed that in 2018, 85% of the state’s
power plants were located in neighbor-
hoods where the low-income and Black
family rate was higher than the state
median. “The direct impact of emis-
sions from those plants is felt by those
communities,” she says. Look to organi-
zations that operate within such areas to
improve conditions if you want to make a
tangible, immediate difference. The Hive
Fund for Climate and Gender Justice
funds groups primarily led by women of
color in the U.S. South that work to mit-
igate the impacts of fossil fuel.
Jacob Harold of the social-sector
search platform Candid stresses that
pressuring policymakers to act is an
unavoidable obligation in this arena,
and he says the best such organiza-
tion to do so is US Climate Action
Network, on whose board he sits. It
formed about three decades ago as
the first coalition of nonprofits work-
ing to address climate change. “Over
time it has evolved significantly to
bring a very explicit justice lens to
the climate crisis,” Harold says.
 PHILANTHROPY Bloomberg Pursuits
Kimbal Musk’s
DAO of Donors
Elon’s brother wants to create a
community on the blockchain to
efficiently dispense cash to good
causes. By Scott Carpenter
When Kimbal Musk began telling the online cryptocurrency
community in September that he was thinking of starting a
crypto venture, he says, it urged him: “You gotta do a coin!”
Musk, who sits on the boards of Tesla Inc. and SpaceX,
told them he wasn’t going to create a digital currency. But the
crypto enthusiasts couldn’t understand. Their response would
always be: “But you’re still doing a coin, right?”
He’s not. But at the end of November, Elon Musk’s younger
brother inaugurated the Big Green DAO, or “decentralized
autonomous organization.” An offshoot of Big Green, the
Colorado-based school gardening nonprofit he founded in
2011, the DAO is a sort of digital foundation that plans to take
money from donors and dispense it according to a strict set of
rules encoded in blockchain technology. If it works the group
could provide an easier, faster way for small nonprofits to get
funding from big donors that are otherwise out of reach. The
DAO, which was launched with $1 million in funds from Musk,
will be required to distribute an ambitious percentage every
quarter, starting with at least 20% in the first quarter of 2022.
Put simply, a DAO is a community bound together by rules
written into the blockchain, so financial transactions and other
ILLUSTRATION BY 731
interactions don’t need to be monitored by a government or
third party. All votes and key transactions involving group
members are publicly tracked and verifiable. DAOs recently
got attention when a group called ConstitutionDAO tried and
December 27, 2021
failed to buy a copy of the U.S. Constitution. (It was outbid by
billionaire Ken Griffin.)
The Big Green DAO’s main innovation is that it allows both
donors and grant recipients to cast votes to decide who gets the
group’s money and how much of it. Each donor receives a gov-
ernance token, and when funds are given to a new nonprofit,
that recipient gets one as well. Each of the tokens, which are
run on the Ethereum blockchain, has a voting power of one.
In theory, then, the more funds the DAO distributes, the more
votes will be cast in subsequent rounds of funding. And since
local nonprofit organizations often have the most knowledge
about which other nonprofits operate best in a given space,
Musk hopes the DAO’s money will increasingly find its way to
the appropriate local groups—perhaps ones otherwise over-
looked by deskbound bureaucrats at big philanthropies.
“Money will be trackable, votes will be transparent, in a way
that doesn’t happen with the traditional philanthropic system,”
says Mat Markman, who helped design the Big Green DAO’s
structure alongside Musk. And even if you give more money,
you still only get one token.
“The plus that I see here is that the organizations that are
actually doing the work have a voice in making decisions about
where the funds go,” says Melissa Berman, president and chief
executive officer of Rockefeller Philanthropy Advisors. As an
example, Musk points to Big Green, which he started to provide
learning gardens for underserved schools. “We’re in Boulder, 71
Colo., and we know all the nonprofits here.”
The problems in philanthropy that Musk’s DAO is trying to
address are well known. Foundations and charities are often
bureaucratic and top-heavy, failing to understand the commu-
nities to which they give. After an earthquake crippled Haiti in
2010, for example, the American Red Cross was inundated with
almost $500 million in funding. But officials struggled to find
the right groups to support, and a study by NPR and ProPublica
showed a large portion of that was eaten by management fees
while leaving little evidence of long-term impact.
Musk is hardly the first to try to find another way. Billionaire
MacKenzie Scott, one of the world’s richest people, has been
emailing multimillion-dollar surprise checks to nonprofits. Yet
while her stealth-mode philanthropy has earned her praise
from some, it’s also deprived grantees of a way to get her atten-
tion through a traditional application process.
A DAO could address this issue while also making the
grant-giving process itself easier and faster. Big foundations
often don’t have the time to write lots of small grants that are
appropriate for more modest or local groups, so it’s tempting
to write only big grants to organizations with the infrastructure
to handle them. Musk argues this may exclude the most effec-
tive grassroots ones. But if the review work is performed by a
network of nonprofits, the individual burden is lifted. (Grant
seekers, hopefully nudged by token holders, still need to sub-
mit an online application to the Big Green DAO.)
“One of the key issues in philanthropy is equity and jus-
tice,” says Berman. “And that applies not just to the results that
we want to see but to the ways decisions are being made.” 
 PHILANTHROPY Bloomberg Pursuits December 27, 2021

Miles That Go Further

How to donate loyalty points to a good cause. By Ramsey Qubein

Are you still grounded by the pandemic? Don’t let your earnings—they come with the upside of avoiding expiration.
credit card points and airline miles lay idle—consider using Some loyalty programs still have cutoffs: American AAdvantage
them philanthropically. miles largely disappear 18 months after the last activity, for
Nonprofits tend to fall into two camps when it comes instance, and Alaska Mileage Plan balances get deleted after
to using points and miles. Some swap them for cash dona- two inactive years. Giving some away restarts the clock.
tions; others redeem them as intended, Any donation is better than no dona-
for flights or hotel rooms. It generally tion, especially from companies such
takes about 25,000 miles to book a domes- as United Airlines or Marriott that offer
tic flight; the American Red Cross will use
such donations to send volunteers for hur-
ricane or wildfire relief.
Airlines, which typically require a
minimum donation of 1,000 miles, main-
25k
The average miles needed
holiday-season matching. But if you’re
uninspired by your loyalty program’s offi-
cial list of partners, other organizations
that rely heavily on points and miles have
programs to take them off your hands.
to send a Red Cross
tain partnerships with a large handful of Here are three to consider.
volunteer to the Gulf Coast
72 nonprofits to make those transfers sim- after Hurricane Ida The Make-A-Wish Foundation might
ple and secure. (American allows dona- be the best known. During the pandemic,
tions of less than 1,000 miles if the organization paused travel-related
you give your entire remaining wishes (trips to Walt Disney World, say,
balance; JetBlue’s floor is 500 or an elephant rescue center) but continued to orga-
points.) Marriott Bonvoy part-
ners with the National Park
Foundation and Unicef, which
uses points to serve meals
for hungry children. Alaska
50k
What it roughly took to get
nize grants closer to home. It restarted domestic trips
for fully vaccinated families this fall.
Since its inception in 2014, Give A Mile has pro-
cured 780 “flights of compassion” to people visiting
a terminally ill loved one. The organization primarily
Airlines’ donations to Medical someone from Habit for Humanity accepts Air Canada/Aeroplan points and United miles;
Teams International provide to Haiti to rebuild after the others can make cash donations to help cover taxes
lifesaving care to disaster survi- August earthquake and fees associated with award tickets.
vors and refugees. (It can take Miles4Migrants sup -
75,000 miles to get a volunteer ports domestic travel for
from the U.S. to Ethiopia, where MTI delivered sup- a s yl u m - s e e ke r s wh o’ ve
port amid a refugee crisis and the pandemic.) Delta
Air Lines miles go to international nonprofits such as
Habitat for Humanity, which this year used the gifts
to get rebuilding volunteers to Haiti after the earth-
quake in August.
75k
The miles Medical Teams
landed in the U.S. It normally
redeems about 232,000 miles
a day, but that number has
jumped tenfold as the orga-
nization scrambles to help a
International might need
Points and miles go furthest when they’re redeemed long, vetted list of Afghan ref-
to send a volunteer to
for flights or hotel beds. Charities that are less depen- Ethiopia during its current ugees. Mexican transborder
dent on travel are more likely to convert points and refugee crisis flights and regional flights
miles to dollars, though that causes their value to to help immigrants released
decline sharply. (Think 10,000 Hilton points for a $25 from U.S. detention centers
gift to Team USA.) Others may apply your contributions to are other common requests. Besides miles from many of
offset administrative travel instead. the major programs, Miles4Migrants accepts unused travel
Although none of these contributions are tax-deductible— vouchers and credit card points from American Express,
the IRS classifies points and miles as corporate gifts, rather than Capital One, and Chase. 
 PHILANTHROPY Bloomberg Pursuits
Our Better
(Drinking)
Angels
At a new bar in Houston,
the more you drink, the more
you help local nonprofits
By Kate Krader
Mary Ellen Angel is an expert at mixing a Southside. The
blend of gin, lime juice, and mint, with a splash of simple
syrup, is a bestselling cocktail at Angel Share, her congenial
bar in downtown Houston. The drink, which goes for $12,
ILLUSTRATION BY LILLI CARRÉ
does more than deliver a well-balanced, citrusy-sweet blast
of booze. It also helps support a local charity.
For every drink or dish bought at Angel Share, custom-
ers get a ticket and a chance to vote for one of four rotating
501(c)3 nonprofits. The charity with the most tickets at the
December 27, 2021
end of the month gets the bar’s profits, minus operating costs.
November’s winner, based on votes cast in October, was
the Houston Area Women’s Center: Angel wrote the nonprofit
a check for $10,002. In October it was the Women’s Fund for
Health Education and Resiliency, whose mission is to educate
girls and women about physical, mental, and financial health.
It received a $10,212 check. “We have outreach to over 12,000
girls and women in non-Covid times,” says Linda Rhodes, the
executive director of the Women’s Fund. “You can imagine,
this is a very welcome gift.”
Champions for Children, which supports the Texas
Children’s Cancer Center, got $10,611 after winning in
September. “The money means a huge opportunity for us to
keep going,” says Tatum Martens, its president. “It’s also rec-
ognition; someone who gets a drink before an Astros game
has an opportunity to learn about us and get involved.”
Angel Share is not the first philanthropic watering hole
to sit in the space on Congress Street right off Market Square
Park. It’s a new incarnation of Okra Charity Saloon, a bar
that gave away more than $1.3 million with a similar strategy
after opening in December 2012. Angel was its longtime gen-
eral manager until March 2020, when the pandemic forced
the bar’s closure. The owners, who included venerable bar-
tender Bobby Heugel, sold it to her for $10. “I could have
made it any kind of bar,” she says. “But if someone sells you
a bar for $10, you have to make it a charity bar.” 73
In June 2021 she opened Angel Share, using the term for
the bit of distilled spirits that evaporates during aging in
wooden casks. (It also plays on her name, of course.) She
updated the décor with artwork that honors singer Dolly
Parton, who she says has “a great heart.”
As Okra, the bar routinely wrote bigger checks, including
one for $45,000 in 2013 to Houston Habitat for Humanity. Angel
says business is slowly picking up, but it’s not back to pre-
pandemic levels. She’s highlighting women-oriented charities,
motivated in part by the September 2021 Texas Heartbeat Act
that banned abortion after six weeks. “We tended to stay away
from political issues at Okra,” Angel says. “I feel strongly here.”
She’s continued the legacy of serving well-made drinks,
including Old-Fashioneds and nitro espresso martinis, as well
as a large selection of bourbons and whiskeys. Beef jerky, buf-
falo chicken wraps, and housemade potato chips with sour
cream ranch appear on the food menu. Angel plans to increase
these offerings, including brunch service, to raise check aver-
ages. She’s also considering expanding. “I’ve been hearing
from people in other cities, like Austin and New Orleans,” she
says. “They ask, ‘How do I start a charity bar?’ ”
To win the October charity round, Rhodes of the Women’s
Fund says her staff met at Angel Share for weekly happy
hours, which also helped spread the word to other patrons. At
the check presentation ceremony in November, about 15 peo-
ple from the fund showed up at the bar, and they turned it
into a celebration. “We had a chance to vote for the next
round of winners,” Rhodes says. “You feel inspired to vote,
and we did.” 
 CRITIC Bloomberg Pursuits December 27, 2021

brand to dress the chairwomen and sponsor the event. This

year, says steering committee member Arielle Patrick, they’ve

How Covid set out to find a brand founded by a person of color. She her-
self is one of the few Black people among the Frick’s leading
patrons. “The fact I’m in the room is progress,” she says.

Changed the Even before Covid, the Museum of the City of New York—
on the edge of East Harlem—had retired its old-school gala,
where for decades august New York names like Rockefeller and

Party for Good Roosevelt studded the lists of hosts in a fancy offsite ballroom.
In its place, Whitney Donhauser, the museum’s director, has
set out to hold events that reflect and attract the city’s diverse
population. Clint Ramos, the Filipino-American set designer
New trends in the gala circuit show for Slave Play, headlined a symposium on how Covid is chang-
ing New York, held at the museum.
New York’s donor class is finally As for speeches: They can surprise. In December former
catching up with the times Goldman Sachs boss Lloyd Blankfein gave a stirring talk about
By Amanda Gordon wealth inequality at the UJA-Federation of New York’s Wall
Street Dinner. Events for God’s Love We Deliver, the Whitney
Museum of American Art, New 42, and Alvin Ailey included
Covid-19 made the gala go away. Then it came back. But during land acknowledgments, paying respect to the fact that the city
the pause, when Black Lives Matter protests shook the U.S. of Manhattan was built on Native American territory.
and health-care inequities were thrown into the public eye, It’s even more transformative when grassroots organiza-
some things changed. tions find their footing in
You might say the break the competitive fund-
took the society raising world. The
74 circuit—long made Knowledge House,
up of mostly a nonprofit in the
wealthy, mostly South Bronx that
white donors—and trains low-income
shook it woke. people for higher-
Take the most paying tech careers,
famous ball of all, held its first gala
the Met Gala, which in October. “Last
Anna Wintour brought year was tumultu-
back in September. At ous. We weren’t
the celebrity-crammed sure the Knowledge
event, which sup- House would be able
ports the Costume to continue,” says
Institute at the Antoinette Gregg,
At the Met Gala (from left): Olympic fencer
Metropolitan Museum Miles Chamley-Watson, designer Kenneth its development
Nicholson, race car driver Lewis Hamilton,
of Art, Representative stylist Law Roach, singer Kehlani, designer manager. “A lot
Alexandria Ocasio- Jason Rembert, track star Sha’Carri Richardson, of people had
designer Edvin Thompson, and model Alton Mason
Cortez’s “Tax the Rich” been diverting their
dress got all the attention, but others made statements. money to other types of causes. But then, George Floyd hap-
Formula 1 race car driver Lewis Hamilton used the table he pened, and all these corporations started saying, we’re going
was hosting as a platform to elevate Black menswear design- to help people do the work.” The organization raised 88% of its
ers including Kenneth Nicholson, Edvin Thompson, and Jason annual goal in a month and a half, with the gala as a focal point.
Rembert. The food, too, was a canvas for raised consciousness, Not every gala has been remade for the moment. In some
featuring only plant-based dishes. cases, the circumstances of Covid have amplified certain visu-
Of course, these gestures are more surface than substance. als of inequality; commonly, gala guests take off their masks,
MIKE COPPOLA/GETTY IMAGES

But since these sorts of galas support New York’s cultural icons, while servers must keep them on. Darren Walker, president
what donors are thinking about can trickle down to affect what of the Ford Foundation, says there’s no choice but to press
millions see when they go to a museum or performance. on. “We have to push for more diversity in who is being hon-
The Frick Collection’s Young Fellows recently met to brain- ored and who is invited and who is on the boards,” he says.
storm about their March 2022 ball. Usually they court a fashion “Because we serve diverse communities.” 
THE ONE Bloomberg Pursuits December 27, 2021

Breaking bread is imprisoned THE COMPETITION offers employment

a foundational act women, trans, and • San Francisco- to those who’ve
of fellowship and nonbinary people. based Formr served time, has
community. The only The stoneware dish trains previously received support
thing that makes it is a little less than incarcerated people from Beyoncé’s
better is … butter. 5 inches wide and to turn construction BeyGood fund.
The $125 Better about 3.5 inches debris into beautiful • Fidalgo Coffee
World butter set tall with its cloche furniture, as in Roasters’
is a collaboration on. It was designed the $299 overLAP Underground Coffee
between two by People’s Pottery laptop desk. Light in the Darkness
Los Angeles Project co-founder • Grant Blvd makes blend (from $15)
organizations, Would Domonique clothing from specializes in
Works and People’s Perkins, who was vintage, deadstock, opening eyes
Pottery Project. incarcerated for and organic beyond the morning
These groups offer more than 13 years. fabrics, such as the cup. The company
paid job training and The knife, made of cotton twill used shows what
social support to black walnut, was in its $138 five- reintegration looks
people experiencing designed by Would pocket backpack. like by employing
homelessness, Works program The Philadelphia many who’ve been
and to formerly director Michele Liu. company, which behind bars.

Spread the Love

75
A charming butter holder also offers
employment opportunities to those most
in need. By Matthew Kronsberg
Photograph by Takamasa Ota

THE CASE appearance changes the maker visible, were contributed by architecture
The glaze on the “depending on the which is important by Walrus Oil firm Office42. It’s all
Better World dish brushstrokes of to us.” As much as (motto: “No Walrus proof that support,
includes touches of a the person who’s the organizations Harmed”); the like butter, is best
color called Abolition working on it,” says aid their respective wood itself was when we spread it
Blue, so named to People’s Pottery communities, they, milled in actor Nick around. $125;
evoke the freedom Project’s Daniel too, receive help. Offerman’s workshop wouldworks.com
and possibility of Trautfield, “making The oil and wax before being finished
life after prison. Its the handprint of finishes on the knife at a studio provided
  LAST THING

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With Bloomberg Opinion

Bloomberg Businessweek (USPS 080 900) December 27, 2021 (ISSN 0007-7135) H Issue no. 4725 Published weekly, except one week in February, April, May, June, July, August, September, October and November by Bloomberg L.P.
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Millennials Are Still
The Slow Starters
By Shuli Ren

Millennials, or those born from 1981 to
76 1996, have long been called the gener-
ation of slow starters. One example:
A 2015 report from the U.S. Congress
Joint Economic Committee was titled
Millennials’ Slow Start Down the Road of
Life. And as Bloomberg News wrote in
June: “In almost every way measurable,
millennials in the U.S. at 40 are doing
worse financially than the generations
that came before them.”
But during the pandemic, the gen-
eration that grew up during the Great
Recession has briskly embraced homeownership, account-
ing for more than half of all home purchase loan appli-
cations in 2020. And with the U.S. residential market
booming, millennials are also getting wealthier. As of
June their net worth reached $7.5 trillion, 70% higher than
two years ago, data compiled by the Federal Reserve show.
Real estate accounts for just over a third of their assets.
ILLUSTRATION BY GEORGE WYLESOL. DATA: FEDERAL RESERVE
But millennials still haven’t quite
caught up on wealth creation. Their net
worth accounts for only 5.6% of the U.S.
total, according to the Fed. And with
only 8% of assets in stocks, they didn’t
benefit much from 2021’s rising market.
By comparison, Generation X—the gen-
eration born before them, from 1965 to
1980—has amassed $38.5 trillion in net
worth, up from $26 trillion two years
earlier. Many baby boomers, who on
average have about 30% of their assets
in equities and mutual funds, have been
able to retire early thanks to stock market gains. Total baby
boom wealth, according to the Fed report, is $70 trillion.
The problem for millennials is not poor money
management: They just have a lot of bills to pay. Most sig-
nificantly, many have enormous student loan debt. Also,
down payments for their first home soak up a lot of cash
that could have gone into an S&P 500 index fund. And

given current trends in rent and home prices, many more

○ Share of assets by generation, Q2 2021 ○ HOUSING BOOM
Millennials have stepped
millennials may feel compelled to buy.
 Real estate
up home purchases Government data from the Bureau of Economic Analysis
 Corporate equities and mutual funds during the pandemic,
increasing their wealth.
suggest that housing prices are still fairly tame—they
increased a healthy but moderate 4.2% in October from
Baby boomers a year earlier. But rents rose 12.6% in November from the
21% 29% ○ MARKET MISSING previous year, according to online real estate agent Zillow
Hobbled by student
Generation X
debt, and putting cash
Group Inc., which tracks new leases. Many millennials ben-
26 23 toward down payments, efited from the real estate boom but missed out on 2021’s
millennials haven’t
Millennials
plowed as much of their
stock market gains. They are still the “slow starters.” 
35 8 money into stocks. —Ren is a columnist for Bloomberg Opinion
 ibkr.com/go-global
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Face
the data.
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