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56 COMPANIESTHAT ARE CHANGING THE WORLD

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5F O R T U N E . C O M / / S E P . 1 5 . 1 7

F E A T U R E S

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A leading corporate-ethics guru offers aframework for howmanagers everywherecan lead by example.

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104

The blue-jeans giant isrolling out a “WorkerWell-Being” programfor the 300,000 labor-ers in its global supplychain. But can perksand respect keep work-ers happy and loyal?

The TiesThat Bindat Levi’sBy ERIK A FRY

112

Apple FindsIts CoreBy ADAM L ASHINSK Y

CEO Tim Cook talksabout how the techgiant is embracing itsmission by investingin everything fromeducation to renewableenergy, to yes, world-changing products.

S E P T E M B E R 1 5 , 2 0 1 7

Our third annual listof corporate world-changers. Plus: Sixsmall yet influentialrising stars.

50 CompaniesThat Do Wellby Doing Good

Four Pillarsof MoralLeadershipBy DOV SEIDMAN

ON T H E C O V E R :J A M I E D I M O NP H O T O G R A P H E D B YB E N B A K E R

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Dutch sciences giantDSM reinvented itselfto tackle global prob-lems like malnutritionand climate change.The result: an $8 billioncompany whose stockis at an all-time high.

120

Making aMotownMiracle By MAT T HEIMER

Jamie Dimon had afront-row seat forDetroit’s collapse. Nowhe and JPMorgan Chaseare fueling the city’srevival. Their strategy isa blueprint for rebuild-ing America’s cities.

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7F O R T U N E . C O M / / S E P . 1 5 . 1 7

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126

The founder of theworld’s biggest hedgefund and master inves-tor shares his secretsfor building an organi-zation that’s optimizedfor excellence.

132

CEO Jim Hackett bringsanintellectualapproachand an outsider’sperspective to the job.Here’s how he plans totransform the under-performing automaker.

Ford Finds aNew Leader,by Design By ADAM L ASHINSK Y

138

BOOK E XCERP T

A HedgeFund Titan’sPlaybookBy RAY DALIO

The head honchos ofBig Food are underimmense pressurefrom a hypercompeti-tive retail landscapeand activist investors.No wonder so manyhave stepped down.

Big Food’sMass CEOExodus By BETH KOWIT T

100 Fastest-GrowingCompanies

Facebook (No. 6) andAmazon.com (No. 9)headline this year’scrop. See the full listfor 98 more up-and-comers.

157P A G E N O .

166

Business is booming atthe online marketplacefor consumer credit.And the company’s bigidea—allowing borrow-ers to comparison shoponline—is still gainingtraction.

100 FASTEST-GROWINGCOMPANIES

At Lending-Tree, It’s AllFist BumpsBy SHAWN TULLY

S E P T E M B E R 1 5 , 2 0 1 7

144

Oil giants have longpushed to explore theArctic National WildlifeRefuge, only to bethwarted by environ-mentalists. Trump’svow to open ANWR setsup an epic showdown.

Stalking anElusive Prizein AlaskaBy BOB REISS

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Fortune (ISSN 0015-8259) is published monthly, with extra issues in March, June, September, and December, by Time Inc. Principal office:225 Liberty St., New York, N.Y., 10281-1008. U.S. Subscriptions: $22.00 for one year. Member, Alliance for Audited Media. POSTMASTER:Send all UAA to CFS (See DMM 507.1.5.2); Non-Postal and Military Facilities: Send address corrections to Fortune, P.O. Box 62120, Tampa,Fla. 33662-2120. Canada Post Publications Mail Agreement No. 40110178. Periodicals postage paid at New York, N.Y., and at additionalmailing offices. Return undeliverable Canada addresses to: Postal Stn A, P.O. Box 4321, Toronto, ON, M5W 3G8. GST #8883816 21RT0001.Customer Service and Subscriptions: For 24/7 service, please use our website: www.fortune.com/customerservice. You can also call1-800-621-8000 or write to Fortune at P.O. Box 62120, Tampa, Fla. 33662-2120. © 2017 Time Inc. All rights reserved. Fortune is a regis-tered mark of Time Inc. PRINTED IN THE U.S.A. Subscribers: If the postal services alert us that your magazine is undeliverable, we have nofurther obligation unless we receive a corrected address within two years. Your bank may provide updates to the card information we haveon file. You may opt-out of this service at any time. Mailing List: We make a portion of our mailing list available to reputable firms.

8F O R T U N E . C O M / / S E P . 1 5 . 1 7

f o c u sb r i e f i n g

CONTENTS

D E P A R T M E N T S

B A C K P A G E

12 No Margin, No MissionIncreasingly, capitalism is drivinganother worthwhile enterprise:everyday problem solving.By CLIFTON LEAF

f o r e w 0 r d

f o r u m

55 Made to MeasureA custom-fit suit at a price betterthan a department store’s?That’s the promise of a new breedof suitmakers. By SHEILA MARIKAR

59 Holy GrailsAuction prices for vintage timepiecesare sky-high. When it comes to theSwiss watch market, everything oldis new again. By STACY PERMAN

64 The Gathering PlaceIf you know where to look, theisland of Oahu is full of hiddengems. BY ADAM ERACE

68 From Boom to DoomEntrepreneurs used to worry abouta bubble bursting. Today’s startupproblems are far more complicated.By ERIN GRIFFITH

l a s t b y t e

t e c h

35 Bringing “Hard Science”to the MassesThe brain trust at Breakout Labs arebecoming VCs—and could prove tobe formidable contenders.By ERIN GRIFFITH

38 Dead, but Not ForgottenE-waste recycler ERI fulfills an inte-gral part of the digital food chain.By ROBERT HACKETT

40 Fighting His Way Outof a Paper BagHow British inventor Sir JamesDyson got started. Interview byDINAH ENG

44 Crystal Clear ProvenanceBlockchain technology is set totransform a new market—diamonds.By JEFF JOHN ROBERTS

v e n t u r e

46 A Retailer Finds Its VoiceREI, a mecca for outdoorsyshoppers, has found a new raisond’être. By CLAIRE ZILLMAN

i n v e s t

48 Times Change, But “Green”Funds Keep GrowingEven under a Trump presidency,“sustainable” funds have stayedstrong. Here’s why. By CHRIS TAYLOR

21 Football Absorbs aKnockout BlowAs evidence mounts that the sportis hurting its players, a multibillion-dollar colossus looks ever moredeflated. By TOM HUDDLESTON JR.

26 The Bull Case for Uber’sNew ChiefCEO Dara Khosrowshahi could be theright person to bring Uber back fromthe brink. By ADAM LASHINSKY

27 Big Food Swallowsthe Meal-Kit HypeThe food-in-a-box space is over-crowded, but there’s a reason theindustry giants still want a piece ofit. By JENNIFER ALSEVER

28 Trump’s Break With CEOsIs a Big DealA pro-growth partnershipbetween business and governmentis increasingly out of reach.By ALAN MURRAY

30 Back-to-School ShoppingStill Exists? And How!It’s a digital world, but the fallshopping season is bigger thanever. By JANE PORTER

32 A Back-to-Work Reading ListTen of the most hotly anticipatedtitles of the season. By LAURA ENTIS

176 Coasts of LivingThe U.S. housing market is gettingsqueezed, contributing to a sharprise in costs. Text by BRIAN O’KEEFE;

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rise in costs. Text by BRIAN O KEEFE;graphics by NICOLAS RAPP

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10F O R T U N E . C O M / / S E P . 1 5 . 1 7

FOUNDER Henry R. Luce, 1898–1967CHIEF E XECUTIVE OFFICER Rich Battista

CHIEF CONTENT OFFICER Alan Murray

SENIOR EDITORS Scott DeCarlo (lists), Verne Kopytoff,Geoffrey Smith, Anne VanderMey

SENIOR WRITERS Barb Darrow, Erika Fry, Erin Griffith,Beth Kowitt, Michal Lev-Ram, Ellen McGirt, Aaron Pressman,

Phil Wahba, Jen WiecznerEDITORS Christina Austin (production), Daniel Bentley,

Laura Entis, Stacy Jones (graphics), Rachel King, Polina Marinova, Valentina ZaryaWRITERS Scott Cendrowski, Grace Donnelly (graphics), Robert Hackett, Tom

Huddleston Jr., Sy Mukherjee, Jeff John Roberts,Jonathan Vanian, Claire Zillman (London)

NE WS DESK Stephanie Castillo, Jaclyn Gallucci, Sophia Rosenbaum (editors),Alana Abramson, Aric Jenkins,

Lisa Marie Segarra, Lucinda Shen (reporters)LIST TE AM Rhona Altschuler, Douglas G. Elam (reporter), Kathleen Smyth

CONTRIBUTORS William D. Cohan, Brian Dumaine, Katherine Eban,Ezekiel Emanuel, Dinah Eng, Kate Flaim, Ellen Florian, Verne Harnish, Carol Loomis,

Roger Lowenstein, Rita McGrath, Bethany McLean, Jeffrey Pfeffer, Elaine Pofeldt,Becky Quick, David Sloan, Jeffrey Sonnenfeld, Vivienne Walt (Paris)

INFORMATION GRAPHICS DIREC TOR Nicolas RappART S TAFF Peter Herbert (lead art director), Josue Evilla(art director), Julia Bohan (senior graphic designer)PHOTO DEPARTMENT Kacy Burdette, Armin Harris, Kristen Hom, Shayla Hunter,Michele Taylor, Hildegarde P. Vilmenay (office manager)AUDIENCE ENGAGEMENT EDITOR John BuyssePRODUCER Burcu NoyanVIDEO Mason Cohn (supervising producer), Megan J. Arnold (senior producer),Sara Haralson, Chris Joslin, Ross Kohan, Erika Santoro, Anna Teregulova,Stephen ValdiviaEDITORIAL ASSIS TANTS Kelly Champion, Sharon Lawrence, Zhang Dan (Beijing)COPYROOM Maria Carmicino, Judith Ferbel, Lauren Goldstein, Kathleen Kent

F O R T U N E E D I T O R I A L

EDITOR-IN-CHIEF Clifton LeafDEPUT Y EDITOR Brian O’Keefe E XECUTIVE EDITOR Adam Lashinsky DIGITAL EDITOR Andrew Nusca

E XECUTIVE DIREC TOR, MPW SUMMITS & LIVE CONTENT Patricia SellersFE ATURES EDITOR Matthew Heimer DEPUT Y DIGITAL EDITOR Kristen Bellstrom

SENIOR EDITORS AT L ARGE Geoff Colvin, Nina Easton, Leigh Gallagher, Shawn TullyE XECUTIVE CRE ATIVE DIREC TOR Paul Martinez DIREC TOR OF PHOTOGRAPHY Mia J. Diehl

ADVERTISING SALES GROUP PRESIDENT Karen KovacsDIGITAL S TR ATEGY Andrew Reedman, Thu Phan Rodriguez

BRAND SALES, NE WS AND BUSINESSJody Reiss (executive brand sales director, news and business),

Will Cusack (brand sales director, news and business, N.Y.),Farhad Fozounmayeh (VP, brand sales director, news and business, L.A.),

Leah Root (brand sales director, news and business, Chicago),John Wattles (brand sales director, news and business, Detroit)

CATEGORY SALESLauren Newman (beauty), Ellie Duque (entertainment), Matt Rice (fashion and retail),

Michael Schneider (finance), Heidi Anderson (health care),Alex DeSanctis (home), Nate Stamos (industry/government/tobacco/golf), Scott

Kelliher (technology/telecommunications/auto), Jay Meyer (travel and luxury)SALES OPERATIONS Pearl Collings (chief business & sales operations officer),

Amy Thind (VP, brand lead); for all ad inquiries, email [email protected] MARKE TING Sheyna Bruckner (executive director),

Julie Gu-Scallen (senior manager)ACCOUNT MANAGEMENT Lisa Horstmann

CRE ATIVE SERVICES Orville Clark (creative director,brand marketing, news, business & sports),

Jess Harrison, Mario Paulis (senior integrated graphic designers)LIVE MEDIA Lisa Cline (senior vice president), Delwyn Gray (vice president),

Jennifer Current, Birgit Kiernan, Kim Lovett, Cindy Shieh, Kristin Smith,Virginia Slattery, Amy Winiker

CONSUMER MARKE TING + RE VENUE Eunice Chi (director), Chris Gaydos,Beth Gorry (senior vice presidents), Ann Marie Doherty, Melissa Mahoney, KaranSimoneau, Eric Szegda (vice presidents), Nicole Felix (senior manager), Yuri Kim(associate manager)EUROPE Harvey Gidley (associate circulation director)HONG KONG Rick Kam, Susie Pattison (directors)CONSUMER INSIGHT Andrew Borinstein (executive director), Joel Kaji (executivedirector), Brian Koenig (senior research manager), Rachel Lazarus (seniorresearch manager)COMMUNICATIONS Kerri Chyka (vice president), Ashley Calame (director), KristinMatzen (senior manager), Raina Dembner (manager), Hailey Murphy (publicist)FINANCE Maria Beckett, Alison Fried (senior vice presidents), Wajeeha Ahmed,Wynne Wong (vice presidents), Arbena Bal (director), Paula Esposito, CatherineKeenan (managers), Christopher Santigate (associate manager), Jessica PiroPRODUC TION Carrie Mallie (senior operations director), Valerie Langston (director),Mieko S. Calugay (senior manager), Gary Kelliher (manager), Sara Decker(assistant manager), Aashiq Shaik (specialist)PREMEDIA Richard K. Prue (executive director), Angel Mass (senior manager)BRANDED CONTENT SOLUTIONS Carolina Stavrositu (executive director), GregoryLeeds, Jamie Waugh Luke, Ron Moss, Cindy Murphy, Christiaan Rizy (directors),Joel Baboolal, Melissa Brice, Blair StelleDIGITAL PRODUC T, DESIGN, AND ENGINEERING Shameel Arafin, AleksanderMielczarek, Sean Villafranca

N E W S A N D B U S I N E S S G R O U P

PRESIDENT, FORTUNE Alan MurraySENIOR VICE PRESIDENT AND GENERAL MANAGER, NE WS GROUP Meredith R. Long

VICE PRESIDENT, GROUP SALES DIREC TOR Jorg StratmannVICE PRESIDENT AND GENERAL MANAGER, NE WS DIGITAL Kurt Fulepp

CHIEF MARKE TING OFFICER, NE WS AND BUSINESS Michael JoseloffVICE PRESIDENT, SALES, LIVE MEDIA Peter Granath

T I M E I N C .

CHIEF OPERATING OFFICER AND PRESIDENT Jennifer L. WongE XECUTIVE VICE PRESIDENTS Leslie Dukker Doty, Brad Elders, Lauren Ezrol Klein, Greg Giangrande,

Steve Marcopoto, Erik Moreno VICE PRESIDENT, HUMAN RESOURCES Roxanne FloresSENIOR VICE PRESIDENT AND DEPUT Y GENER AL COUNSEL Steven Weissman

ASSIS TANT GENERAL COUNSEL Andrew Goldberg

INTERNATIONAL Marty Gardner (senior vice president, finance and operations), Jennifer Savage (senior vice president, partnerships,licensing and syndication), John Marcom (senior vice president, brands and sales, international)

Advertising Sales: Khoon-Fong Ang (vice president, North Asia), Tim Howat (vice president, Southeast Asia), Rupert Turnbull (vice president, EMEA)DIGITAL PRODUC T & ENGINEERING Nicholas Butterworth (senior VP), Alex Charalambides, Jon Hawkins, Matt Miritello (vice presidents)

GLOBAL TECHNOLOGY SERVICES Kurt Rao (chief information officer), Adam Days, Amanda Hanes,Hugues Hervouet, Rob Innes, Dan Lo, Keith O’Sullivan, Rajeshwari Ramamoorthy, Ashis Roy, Pradip Tripathy (vice presidents)

My Impossible:With higher unemployment rates among Vets, no one thought it was a good idea to start a recruitment agency solely for them. So, I guess I’m no one.

Jordie Kern, 7 Eagle GroupHiscox Customer

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12F O R T U N E . C O M / / S E P . 1 5 . 1 7

THERE IS PERHAPS no more central component to the free enterprise systemthan the profit margin. That margin allows companies to keep running,growing, and investing in the future. That’s Capitalism 101. And it’s a no-tion that’s worked pretty darn well over the centuries, lifting people out ofpoverty and broadly raising the standard of living.

So you might not be shocked to learn that, increasingly, that sameincentive is driving another worthwhile enterprise as well: Call it everydayproblem solving. A positive operating margin, after all, can encourage acompany to invest in addressing a societal challenge—be it environmental,economic, health-related, or something else—just as it might steer it toselling widgets, or WaaS (widgets as a service).

As Aetna CEO Mark Bertolini framed it to me in a recent phone call,“No margin, no mission.” That, mind you, is not the maxim of some hard-nosed titan of industry, he pointed out, but rather the watchwords of agroup of nuns—in this case, the good Sisters who have helped guide Ascen-sion, the large, not-for-profit Catholic health system, to a comfortableoperating margin year after year.

Companies that embrace that mindset have the power to change theworld. And indeed for the past three years we’ve devoted an annual issueof Fortune to celebrating those who do. Our Change the World list, whichstarts on page 74, highlights 56 companies around the globe, brand-namecompanies and rising stars, that are solving problems, serving others, or

helping the planet—and further-ing their core business aims whiledoing it.

One of those companies isJPMorgan Chase, the $105 bil-lion-in-revenue behemoth, whichis banking big on Detroit (see“Making a Motown Miracle,” onpage 94). As Fortune featureseditor Matt Heimer reveals inhis must-read story, CEO JamieDimon has come to believe thatreviving America’s small busi-nesses and urban neighborhoodswill drive growth—rather thanthe other way around. Matt spentweeks studying Detroit’s batteredeconomy and traveling to thefrayed but still vibrant neighbor-hoods that JPMorgan Chase ishelping to rebuild. Politiciansand policymakers, take note: Thebank’s multipronged assault onRust Belt stagnation is a blue-print for revitalizing many ofAmerica’s hardest-hit cities.

The Detroit project isn’tcharity; it’s a natural extensionof what a bank does: puttingcapital in the hands of peoplewho can grow it. That idea, thatdoing good can be core to one’sbusiness, is also championedby almighty Apple, as executiveeditor Adam Lashinsky discoversin his exclusive interview withCEO Tim Cook (see page 112).Whether it’s Apple’s efforts tomake coding a “second language”or the company’s ambitiousinvestment in digital healthapplications, Cook clearly sees abusiness opportunity in all of it.And that’s a good thing.

CLIFTON LEAFEditor-in-Chief, Fortune

@CliftonLeaf

MOTOWNERDeveloperCliff Brownis one of theentrepreneursbeing financedby JPMorganChase inDetroit.

NO MARGIN,NO MISSION

MA

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IN S

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ability grew. Now you’re ready to make a more lasting impact. A Raymond James financial advisor can help align your LIFE WELL PLANNED.

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1979. Your alma mater put you in a position to succeed. Which also put you in a position to graciously return the favor in 2017.

Everything you love about your smartphone, all the incredible

that make your smartphone so indispensable.

And now, as we lead the world to 5G, we’re about to do the same

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streetlights and a thousand other things that no one’s thought of yet.

Some people call it the Internet of Things.

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qualcomm.com/weinvent

© 2017 Qualcomm Technologies, Inc. All Rights Reserved. Qualcomm is a trademark of Qualcomm Incorporated, registered in the United States and other countries.

© 2017 Sprint. All rights reserved. Sprint Business and Sprint logo are trademarks of Sprint.

Your network should work for your business.Legacy networks just aren’t optimized for the opportunities of today’s enterprises. Sprint’s network is. And it’s ready to work for you.

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T H A N K Y O U F O RC H O O S I N G T H E B E S T

W E A R E V O T E D T H E “ B E S T B U S I N E S S C L A S S O N B O A R D C A T E R I N G ” A G A I N

A T T H E 2 0 1 7 S K Y T R A X P A S S E N G E R S C H O I C E A W A R D S A S W E L L A S

T H E “ B E S T B U S I N E S S C L A S S A I R L I N E L O U N G E ” A N D F O R T H E T H I R D Y E A R I N A R O W

T H E “ B E S T B U S I N E S S C L A S S L O U N G E D I N I N G ”

T U R K I S H A I R L I N E S . C O M

Voted the Best Business Class Onboard Catering at the 2017 Skytrax Passengers Choice Awards

T H E

W O R L D I N

9P A G E S

P A G E

1

21F O R T U N E . C O M / / S E P . 1 5 . 1 7

ATHLETICSIT WAS A FINDING heardaround the sports world.

Researchers at Boston University announced inJuly that they had detected evidence of chronictraumatic encephalopathy (CTE) in 110 donatedbrains of former NFL players. They had studied111. The result suffered from selection bias—thebrains had been donated because those men haddemonstrated symptoms of the degenerativebrain disease—but the report’s ironclad takeawayis that the illness is far more prevalent in pro

Football Absorbsa Knockout BlowAs the evidence mounts that the sport is hurtingits players, a multibillion-dollar cultural andentertainment colossus looks ever more deflated.By Tom Huddleston Jr.

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ESTIMATED NUMBER OF PEOPLEWHO WATCHED THE SUPER BOWL ON TV

NFL REPORTEDCONCUSSIONS INCIDENCE

0

20

40

60

80

100

120 million 2017111.3 MILLION

244

1968 1980 1990 2000 2010 20162012 ’17

0

50

100

150

200

250

300

SOURCE: NIELSEN SOURCE: NFL

Professionalfootball stillcommands amassive audi-ence, thoughSuper Bowlviewership hasslipped slightlyin recent years.A typical sea-son sees morethan 200 offi-cially reportedconcussions.

22F O R T U N E . C O M / / S E P . 1 5 . 1 7

he wants that number toreach $25 billion withina decade. College footballis also a colossus, withESPN paying $7.3 bil-lion over 12 years forthe rights to televise justseven bowl games a year.But the real economicimpact comes from themany ancillary busi-nesses that surround thesport. Fantasy footballis estimated to be worthbillions annually, andESPN and other net-works rake in billionsfrom subscriptions andadvertising. Athleticapparel companies likeNike and Adidas investmillions in licensingand sponsorship agree-ments with the NFL andNCAA, not to mentionthe endorsement dealsfor individual players.

In the near term,industry analysts seefew signs of footballArmageddon. (Boxing,another sport knownfor its brutality, saw

its popularity wane, butonly gradually, over thecourse of decades.) Butthere may be some softspots in the league’sarmor. For starters, TVratings for NFL gamesdipped 9% last year.While that decline couldhave various causes,there’s no equivoca-tion over what’s driv-ing a rash of early NFLplayer retirements. Frompromising San Francisco49ers rookie linebackerChris Borland in 2015,to 26-year-old Balti-more Ravens offensivelineman John Urscheljust days after the Bos-ton CTE report, moreplayers are hanging uptheir cleats over fears oflong-term brain damage.In January, HeismanTrophy–winner Bo Jack-son told USA Today hewould never have playedif he’d known the risks,adding, “There’s no way Iwould ever allow my kidsto play football today.”

Indeed, the NFL’sgreatest challenges areyet to come. Last year anHBO/Marist poll foundthat 44% of parents withsons under 18 were lesslikely to let them playfootball—meaning theNFL’s talent pipeline(and fan reservoir) couldeventually dry up.

The NFL isn’t in de-nial about the problem.It’s working with youthfootball organizationson rule changes aimedat limiting head-on col-lisions, and is spending$1 million at schools topromote flag football,an increasingly popularcollision-free version ofthe sport. NFL officialshave publicly admit-ted the link betweenfootball and degenerativediseases like CTE. AndGoodell touts the NFL’sefforts to improve playersafety, including fundingresearch to curb con-cussions by upgradinghelmets and the fielditself. The league hasalso pledged millions toneuroscience research.

But even a whole-sale rethinking of itsgame play might notfix football’s problem.Fans driven from thesport aren’t guaranteedto return, especially ifdramatic rule changessignificantly alter the feelof the game. That’s theunsettling paradox of thefinancial threat loomingover America’s massivefootball economy. It’sa multibillion-dollargamble no matter whatpath the sport takes.

football players, subjectto years of repeated hitsto the head, than inthe general public. Theunavoidable conclusion:Football’s concussionproblem is far worsethan originally thought.

The results highlightan existential crisis forAmerica’s most popularsport. This fall, NFLfans will have to wonderwhether the next bone-crunching tackle theysee on the gridiron willhaunt their favoriteplayer for years to come.And if it seems likely thatit will, can they stand tokeep watching?

A business empirehinges on the answer tothat question. The NFLemploys thousands ofpeople and is expected topull in $14 billion in rev-enue this year, betweenticket sales, merchan-dising, sponsorships,and massive TV-rightsdeals. CommissionerRoger Goodell has said

CORNEANUMBER OF TRANSPLANTS

50,099

$30,200AVG. BILLED CHARGES

HEARTNUMBER OF TRANSPLANTS

2,725

$1,382,400AVG. BILLED CHARGES

BONE MARROWALLOGENIC

AUTOLOGOUS

NUMBER OF TRANSPLANTS9,284




LUNGSSINGLE

DOUBLE

NUMBER OF TRANSPLANTS673




INTESTINENUMBER OF TRANSPLANTS

49


KIDNEYNUMBER OF TRANSPLANTS

16,804


LIVERNUMBER OF TRANSPLANTS

6,158


PANCREASNUMBER OF TRANSPLANTS

136


0

5

10

15

20

$25 billion

2000 2017

NFIP’sOUTSTANDING

DEBT TOTREASURY

$24.6BILLION

HurricanesKatrina,Rita, Wilma

SuperstormSandy

SOURCE: MILLIMAN, PROJECTED 2017 NUMBERS

SOURCE: GAOSOURCE: RESEARCH PAPER (THOMAS PIKETTY, EMMANUEL SAEZ, GABRIEL ZUCMAN)

TOP 1%58%

194%

TOP 10%69%

113%

BOTTOM 50%129%

21%

U.S. ALL INCOME GROUPS95%

1946–1980

61%

1980–2014POST-TAX INCOME GROWTH

ANNUALNUMBER OFTRANSPLANTSIN THE U.S.AND AVERAGEAMOUNTBILLED

Seeing Trendsin the DataANALYTICS

HE ALTH CARE

THE COST OF TRANSPLANTS

INEQUALIT Y WAT CH

WAGE GROWTH LOOKSGREAT—AT THE TOP

CLIMATE CHANGE

FLOOD INSURANCEDEBT IS RISING

Organ and tissue transplants can be bothhard to come by and extremely expensive.(The cost for the average heart transplantcan approach $1.4million.) More than116,000 Americans are waiting to receive atransplant, and about 20 die each day duringthe wait. Soon, researchers hope that newscience (including advances in harvest-ing organs from pigs) will decreaseprice tags and long wait times.

New research by ThomasPiketty, Emmanuel Saez,and Gabriel Zucmanfound that wages grewmuch faster in recentyears for the highest U.S.earners. That’s a dra-matic departure from thepast: From 1946 to 1980,lower-wage workersmade greater gains.

The long underwaterNational Flood InsuranceProgram (NFIP) will incurmore debt after this sum-mer’s catastrophic flood-ing in Texas. That’s likelyto fuel further debateover whether to privatizethe system—and raisepremiums so that theybetter match the risk.

23F O R T U N E . C O M / / S E P . 1 5 . 1 7

60 YEARS OF ADVENTURE AND DISCOVERY

KHOSROWSHAHIIS AN EX-BANKER(formerly of Allen& Co.), a grownup(he’s 48), andgrounded in themaking-money-matters ethos ofmedia titan BarryDiller, for whomhe has worked foryears. (Diller’s IACcontrols Expedia.)A subtle but im-portant point: Asa Seattle residentand member of the

“old Internet” world,Khosrowshahicomes from outsideSilicon Valley and

its strangely en-titled ways. In otherwords, he can walkthe digital walk, buthe’s not part of theoddly constrict-ing mentality thatmakes it hard forValley denizens tocommunicate withreal people.

HE CAN KEEPA SECRET.When Khosrowshahiwas selected for thejob in August, hisname had appearedon no one’s list oflikely candidates. Ifnot the first choiceof the board (whichwas reportedly hop-ing to hire formerGE chief Jeff Immeltor HPE’s Meg Whit-man), he seems tobring the potentialfor unifying thecompany behindhim and the direc-tors above him.

HE IS WELL-CONNECTED.In addition to beingon the board of theNew York Times,Khosrowshahi is adirector at Fanatics,the sports ap-parel retailer thatrecently attractedan investmentfrom SoftBank’sMasayoshi Son.SoftBank reportedlywants to become aninvestor in Uber too.If so, the new CEOhas Son’s number.

26F O R T U N E . C O M / / S E P . 1 5 . 1 7

HAIL MARY

Amount that Uber drivers have taken home, one month after the ride-hailing giant enabled tipping nationally. But the switch isn’t an unalloyedgood for drivers. When compared with a regular pay hike, tipping is lessfair (race has been shown to be a larger factor in tip size than service qual-ity) and less lucrative. Ask any restaurant worker.

The Bull Casefor Uber’sNew ChiefExecutiveThe world’s largest unicorn hastaken a reputational beatingH ’ yc ld b h i hb fBy y

SCANDAL-PLAGUED UBER

announced it hadselected a new CEO in late August,and while it’s too early to say whetherExpedia chief Dara Khosrowshahiwill save the unprofitable ride-sharingbehemoth from itself, early indicatorsare encouraging. Under Khosrowshahi,Expedia appeared on Fortune’s list ofbest workplaces in tech, and its staff

en—a promising sign forh d about the sexism allega-

h h ve roiled Uber. Investorsh h wshahi, who immigrated to

refugee from Iran at age 9,ore sympathetic face on the

h d h ng company—and help itk money, en route to an IPO.

tatakeken n a a rerepuputatatitiononalal b beaeatitingng..HeHerere’s’s w whyhy D Darara a KhKhososrorowswshahahihicocoululd d bebe t thehe r rigightht p perersoson n totobrbrining g itit b bacack k frfromom t thehe b bririnknk..ByBy A Adadam m LaLashshininskskyy

isis 5 50%0% w womomeeththosose e woworrrrieieddtitionons s ththatat h havavhohopepe K Khohosrsrowowththe e U.U.S.S. a as s a a rrwiwillll p putut a a m moohahardrd-c-chahargrgininststarart t mamakikingng

In his first day on thejob, Khosrowshahisaid he wanted totake Uber public in18 to 36 months.

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27F O R T U N E . C O M / / S E P . 1 5 . 1 7

LUNCH BOX

Big Food Swallowsthe Meal-Kit HypeThe food-in-a-box space is overcrowded andbarely profitable, but there’s a reason industrygiants still want a piece of it. By Jennifer Alsever

BLUE APRON’S June IPO was sodismal, it has cast a pall over the

entire (very crowded) meal-kit industry.But whispers of a bubble haven’t stopped Big

Food players from diving into the $4.6 billionmarket for DIY food-delivery services. In May,Campbell Soup backed Chef ’d with a $10 mil-lion investment while Unilever led a $9 millionfunding round for Sun Basket. In June, Nestléacquired a minority interest in Freshly, leading a$77 million investment round. To pile on, at least

seven grocers have madeinroads in the businessas well, including Kroger,which recently launchedits own meal-kit brand,called Prep+Pared.

As the deals keepflowing, industry watch-ers warn of a comingshakeout—particularlyas Amazon makes itsown foray into the space.But there’s a method tothe food giants’ appar-ent madness. One infour Americans (many ofthem young) purchaseda meal-kit delivery in2016, according to aHarris poll. That appealsto established compa-nies vying with startupsfor attention. “[Mealkits are] a messagingmedium to millennialswith money to spend,”says Howard Waxmanof Packaged Facts. “It’s away to reach them andput their products infront of them.” Add tothat partnerships withgrocers, who can throwbranded products intothe box, and the pricestarts to look a bit morereasonable.

Blue Apron, king ofmeal-kit companies,faltered after its IPOthis summer.

HOLLYWOODWRAPS ONEOF ITS WORSTSUMMERSEVER

THERE ARE some things evenWonder Woman can’t save. OnceHollywood’s best season, the sum-mer box office has cooled of late,as a glut of expensive action mov-ies fizzled. This year Valerian andKing Arthur were among a big cropof flops. —TOM HUDDLESTON JR.

1980 2014

18%

67%AVERAGEPRICE

MARKUP

BUSINESSESHAVEHIKEDPRICES(WAY)UP

MARKET POWER

A BLOCKBUSTER newstudy has foundthat businessesare increasing theirmarkups—thedifference betweenthe marginal costfor a product and itsprice. Study authorsJan De Loecker andJan Eeckhout foundthat the averagemarkup has ex-ploded since 1980(see chart). What’shappening? Toolittle competitionand too much powerfor a few players letscompanies drive upprices without beingundercut, the au-thors say. The result,they argue, is lessoutput, lower wages,and less workforceparticipation. Noteveryone agreeswith the thesis. Butcount on “marketpower” being thenext buzz term inthe economy.

—ANNE VANDERMEY

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SOURCE: JAN DE LOECKERAND JAN EECKHOUT

POLITICS

28F O R T U N E . C O M / / S E P . 1 5 . 1 7

The Trumpteam(clockwisefrom left):Gary Cohn,StevenMnuchin,Wilbur Ross,Elaine Chao.

Trump’s Break WithCEOs Is a Big DealA pro-growth partnership between business andgovernment is increasingly out of reach.By Alan Murray

THIS SUMMER, with his ambiguous re-sponse to the unambiguous situation in

Charlottesville, Va., President Trump completed hisalienation of the congressional leadership of his ownparty, his top military leadership, and his top allies inthe business community. The much-hyped advisorycouncils have been dissolved. Fortune 500 CEOshave publicly distanced themselves from the admin-istration. And Republicans’ hopes for big tax reformmay have to be scaled back.

August’s protests and controversy not only rupturedthe nation’s social fabric, but also greatly reducedany chance that the President and Congress haveof enacting serious legislative reforms. What beganmonths ago as a once-in-a-decade opportunity for aRepublican-led government to make progress on healthcare, infrastructure, taxes, and American competitive-ness has descended into disorder. There is blame to goaround for that—unsteady congressional leadership,an overzealous press corps, a determined political op-position, gun-shy CEOs. But here, as in Charlottesville,the principal source of the problem is clear.

Many CEOs say theywill continue to engagethe administration.And many are close toGary Cohn and DinaPowell in the WhiteHouse, or to cabinetofficers like Treasurychief Steven Mnuchin,Transportation Secre-tary Elaine Chao, andothers. They still be-lieve they can get a farbetter hearing on theireconomic concernsfrom this administra-tion than from the pre-vious one, which theyfelt was often hostile tobusiness.

But the fact that thenation’s leading CEOsfeel they can no longerwork openly withthe President of theUnited States on mea-sures to strengthen theU.S. economy is a sad,counterproductive—and unprecedented—state of affairs.

IN AUGUST, theSan FranciscoFed pinned theblame for slowwage growth

in part onretiring work-ers—whosehigh salaries

are counterbal-anced by the

lower pay newworkers get.But the claimhas skeptics.Other econo-mists point

out that wagegrowth still

looks sluggishif you control

for job title andexperience.Plus, says

Georgetown’sHarry Holzer,

with productiv-ity growing

slowly, premi-ums rising, and

job vacancyrates nearinghistoric highs,

there are plentyof reasons foremployers to

keep a tight gripon the purse

strings.—JANE PORTER

is slowwage

growthboomers’fault?

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Fortune and Time are trademarks of Time Inc., registered in the U.S. and other countries. Fortune/Time CEO Initiative is a trademark of Time Inc. All other trademarks are the property of their respective owners.

The inaugural meeting of The CEO Initiative will bring together the CEOs of companies committed to addressing major social issues as part of their core business strategies.

We will gather in New York to exchange best practices and leadership techniques, develop actionable solutions, and track tangible progress.

For more information:

www.TheCEOInitiative.com

September 25, 2017 | New York City

Partners SupplierKnowledge Partner

Founding Partner The Prosperity Partner

30F O R T U N E . C O M / / S E P . 1 5 . 1 7

IN THE ERA of smartphones, you mightexpect back-to-school shopping for

pens, notebooks, calculators, and other throwbacks tobe going the way of the card catalog. Not so, accordingto data from the National Retail Federation (NRF),which has projected that fall 2017 will be the largestseason ever for school-related spending.

This year, the category is expected to grow morethan 10%, hitting $83.6 billion. Much of that will goto clothes ($10.2 billion, according to NRF projec-

tions), but schoolsupplies like bindersand glue are still goingstrong ($4.9 billion).

There are somechanges, though.The Association ofAmerican Publishersfound that print booksaccounted for 64% ofhigher-ed revenue in2015—and just 59% in2016. Perhaps related:Backpack sales peakedin 2015, accordingto the Travel GoodsAssociation, fallingnearly 10% last yearby volume.

Back-to-SchoolShopping Still ExistsIt’s a digital world, but paper’s not obsolete (yet),and the fall shopping season is bigger than ever.By Jane Porter

THE MOST RECENT corporateearnings season broughtreassuring signs forretailers. The numberssuggest that they’re finallystarting to push back at thebrand-destroying, margin-sapping discountingaddiction among shoppersthat they have helpedcreate for years.

Ralph Lauren said itsmerchandise profit marginrose 2.1 percentage pointslast quarter, thanks to lessdiscounting and betterinventory planning (which

BYE-BYE,DISCOUNTS.HELLO,MARGINS

RETAIL

led to less clearance selling).And Coach reported that in itsmost recent quarter, 45% ofsales came from handbagspriced $400 or more, up from40% a year earlier, a result

partially achieved bygetting out of departmentstores that are full ofon-sale signage. Evendiscount chain Target saidit’s getting customers topay more for many items.

Still, retailers can’tquite declare victory in thewar against discounting:Off-price giants T.J. Maxx,Marshalls, and Ross Storesreported some of the bestresults in the industry lastquarter. Some shoppinghabits are too hard tobreak. —PHIL WAHBA

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Wealthy Russians’foreign assets arethree times higherthan officialestimates saythey are, claims anew NBER paper,which also saysthose offshoreholdings areroughly equal toall the wealth heldby Russians insidethe country’sborders. NewU.S. rules andsanctions hopingto target thecountry’s elitewill have to lookfar outside itsborders.

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32F O R T U N E . C O M / / S E P . 1 5 . 1 7

’TIS THE SE ASON TO set aside that beachynovel and dive into the latest slate of busi-

ness books and tell-alls. This fall will see a slew of releasesby big-name authors hitting the shelves, from HillaryClinton’s 2016 campaign memoir to Richard Branson’s newautobiography. Here, 10 of the most hotly anticipated titlesof the season. BY L AURA ENTIS

YourBack-to-WorkReading List

EXECUTIVE READ

PHOTOGRAPHS BY M I C H A E L C H I N I—T I M E I N C . P H O TO ST U D I O

33F O R T U N E . C O M / / S E P . 1 5 . 1 7

FORGED IN CRISISBy Nancy Koehn

A historian at HarvardBusiness School, Koehnmines accounts of pivotalmoments in the lives of fivefamous figures, includingAbraham Lincoln andFrederick Douglass, to deliverbroader insights about whatleadership should look like.Howard Schultz and MichaelBloomberg are among thebook’s early acolytes.

WORLD WITHOUT MINDBy Franklin Foer

Foer, formerly the editorof The New Republic, setsout to examine how theInternet’s biggest players(Facebook, Amazon, Google)have radically alteredthe way we access andspread information—ormisinformation. Spoileralert: He’s not a fan.

WHAT HAPPENEDBy Hillary Rodham Clinton

It’s a question punditswill be puzzling over for along time. In her new book,

Clinton rehashes the 2016presidential election, easilythe most bizarre in recentmemory. The release isshaping up to be a returnto the public stage for theonetime candidate. She’splanning a national touraround the launch. (Thistime, she’ll go to Wisconsin.)

RESETBy Ellen Pao

In 2012, Pao sued venerableVC firm Kleiner Perkins forgender discrimination. Shelost the case but helpedtouch off what would becomea series of revelationsabout Silicon Valley’s sexist,systematically exclusionaryunderbelly. Now, in her debutbook, Pao opens up aboutwhy she took Kleiner Perkinsto court—and outlinesstrategies for how the techindustry can (finally) start tofix its gender problem.

A WORLD OF THREE ZEROSBy Muhammad Yunus

Yunus pioneered the conceptof microcredit in the 1970sand 1980s and won the NobelPeace Prize in 2006. Sincethen he’s come to believe thatcapitalism today is broken. Inhis new book, Yunus makesthe case for a new system,based on serving humanneeds, not maximizing profit,that should take its place.

FINDING MY VIRGINITYBy Richard Branson

Branson doesn’t really needan introduction, but here’sone anyway: Founder of theVirgin Group, the billionaireserial entrepreneur andinvestor has become aninspirational figure. Now,two decades after hismemoir Losing My Virginity,he’s back with a sequelreflecting on the lessonslearned over 50 yearsin business.

HIT REFRESHBy Satya Nadella

Part memoir, part businessstory, Microsoft CEO Nadella’snew book interweavespersonal memories(including stories from hischildhood in India) withhis strategy for reclaimingMicrosoft’s position as acutting-edge leader in thetech industry.

THE STARTUP WAYBy Eric Ries

In his follow-up toLeanStartup, a manual for

early-stage founders, Riesexamines how the GEs,Amazons, and Toyotas of theworld can use entrepreneurialmanagement to drive growth.

THE FOUR TENDENCIESBy Gretchen Rubin

Our Founding Fathersunderstood that the pursuitof happiness is right up therewith life and liberty as aninalienable right. Rubin madea name and career for herselfhelping Americans get therewith a series of books onhuman nature, most notablyThe Happiness Project. Herlatest delves into a new setof personality profiles (à laMyers-Briggs) meant to helpreaders understand andharness their strengths andweaknesses for contentmentin and out of the office.

UNLEASHING THEINNOVATORSBy Jim Stengel

How do you infuse startupDNA into a Fortune 500company? The questionisn’t new, and yet fewcorporations are ableto crack the code. In hissecond book, Stengel, theformer marketing chief ofProcter & Gamble, lays outhow legacy companies caninject speed, innovation, andnew technology into theiroperations.

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35F O R T U N E . C O M / / S E P . 1 5 . 1 7

STEM SELLERS:The key people

behind BreakoutLabs (from left):

Fishburne,Moore, and

Parthasarathy.

BRINGING‘HARD SCIENCE’TO THE MASSES

After years of connectingscience startups withventure investors, thebrain trust at Breakout Labsare becoming VCs themselves.Here’s why they could beformidable contenders.By Erin Griffith

PHOTOGRAPH BY W I N N I W I N T E R M E Y E R

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36F O R T U N E . C O M / / S E P . 1 5 . 1 7

IN 2010, AS THE DUS T from the financial crisissettled, three women working in disparateparts of the economy noticed that startupsin “hard science” (think biology or chemistryrather than tech) weren’t getting the attentionthey deserved from big investors. They joinedforces with the foundation of Peter Thiel, thewell-known contrarian investor, to launchBreakout Labs, an incubator program to helpsuch companies turn their ideas into viablebusinesses.

Seven years later, those same three womenwant to be the big investors whom they used tocourt. In July they officially launched BreakoutVentures with a $46.5 million fund, to helpthose startups take the next step. “Most of ourcompanies are atoms leveraging bits”—labscience aided by computing power—“and theygenerally take more capital and a longer timehorizon to hit those key milestones,” says LindyFishburne, executive director at Breakout Labsand managing director at Breakout Ventures.Now a science startup can grow from entrepre-neurial infancy to adolescence while staying inthe Breakout family.

In the postcrisis era when Breakout Labs gotits start, investors were leery of backing compa-nies with major “technical risk” (meaning theiridea might be nearly impossible to pull off) or anundefined market (even if they pulled it off, whoknew if anyone would want it?).

To help entrepreneurs leap such hurdles,Breakout Labs offers guidance, connec-tions, assistance securing grants, and up to$350,000 in seed funding. Since 2011 it hasbacked more than 35 companies, includingCortexyme, which is developing therapeuticsfor Alzheimer’s disease, and EpiBone, which isattempting to engineer stem cells into patient-specific bone-tissue replacement. The venturefund, in contrast, will directly invest in thesestartups. (Thiel funded the Labs programthrough his foundation but is not involved withthe venture fund, Fishburne says.)

The thinking behind the fund was simple:Nearly a decade after Lehman Brothers col-lapsed, venture investors and corporate entitiesare now hungry to invest in radical scientificideas again. But most aren’t set up to find youngstartups or properly vet them, and BreakoutLabs has increasingly served as the conduit. “Weare everyone’s first call when someone decidesthey want some frontier tech,” says Julia Moore,

TECH

a former health care executive and private equityinvestor and one of the cofounders. (The thirdis Hemai Parthasarathy, a Ph.D. in neurosciencefrom MIT and former editor for Nature.)

The trio was well aware that, after spend-ing years nurturing startups, its firm couldn’tparticipate in future funding rounds. BreakoutVentures solves that problem and allows itsfounders to do more with—and benefit morefrom—their expertise. It has already investedin some companies that graduated from theLabs incubator, including Modern Meadow, aNew Jersey–based startup that’s biofabricat-ing leather without the need for animals, and3Scan, a company that enables 3D analysis oftumors and organs.

Aside from its deal pipeline and vetting pro-cess, the Breakout team’s most attractive assetmay be its close connection to big companiesthat could become investors, acquirers, or cus-tomers. That’s critical, Fishburne says, becausemost of their startups will ultimately need to sellor partner. “These are not direct-to-consumerplays,” she says. “You’re not going to put it up inthe App Store.” Whether with marketing, distri-bution, regulatory approvals, or simply helping astartup “productize” its breakthrough, corpora-tions are key players in the ecosystem.

Breakout encourages startups to get commer-cial feedback as early as possible. “We want [cor-porations] to be part of the process,” Moore says.Executives from Fortune 500 companies includ-ing General Electric, Johnson & Johnson, RoyalDutch Shell, and BASF have attended BreakoutLabs’ annual showcases and done “portfolioreviews” of its companies. Breakout also has aformal relationship with BD (formerly BectonDickinson), which has provided its protégés withgrants and a vice president–level mentor.

In an industry in which 89% of partner-levelinvestors are men, a venture capital firm runby three women is rare. Of Breakout Labs’ 37companies, 11 have a female CEO or cofounder;at 30%, that exceeds the gender breakdown ofmost venture portfolios. Of Breakout Ventures’companies, one (Cortexyme) has a female CEOand another a female cofounder. Some maleinvestors attribute the tech industry’s genderdisparity to the lack of quality female entre-preneurs, but Fishburne says it hasn’t been anissue: “We’re seeking radical scientific break-throughs built by teams ready to change theworld, regardless of which box they check.”

“mostofourcompaniesareatomsleveragingbits,”saysFIshburne—thatis,labscienceaidedbycomputingpower.

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38F O R T U N E . C O M / / S E P . 1 5 . 1 7

TECHELECTRONIC WASTE is a heap of aproblem. As technology invades

every aspect of our existence, scads of digitaldetritus—phones, TVs, laptops, servers,refrigerators, you name it—get sloughed off. AUnited Nations–affiliated group estimates thate-waste is growing faster than almost any otherwaste type. This year, it’s projected to yield48.2 million metric tons. That’s heavier than theEmpire State Building 100 times over.

The biggest conundrum: what to do with itall? Countries in the developing world tend tohave fewer environmental regulations and pres-ent enticing grounds for dumping. Accordingto an investigation conducted last year by BaselAction Network, a Seattle nonprofit that placedhundreds of GPS trackers on dummy devicesand sent them through U.S. recycling networks,40% of 152 deliveries were exported offshore.The majority wound up in junkyards in HongKong’s New Territories.

“In the U.S. it’s completely legal to load upcontainers full of electronic waste and shipthem to Asia or Africa,” says Jim Puckett, direc-tor of the watchdog group. But this freightingviolates the Basel Convention, an internationalagreement designed to prohibit developed na-tions from dumping hazardous waste overseas.

Some businesses aim to counter this kind ofcross-border trashing. Fresno, Calif.–based ERI,one of the world’s biggest e-waste recyclers,gathers and digests tens of thousands of poundsof refuse daily in three gargantuan shreddersat its plants in California, Massachusetts, andIndiana. The company crunches, crushes,and crumbles what CEO John Shegerian calls“electronic carcasses.” ERI’s machinery convertsthat debris into “liberated commodities,” rawmaterials such as steel, plastic, aluminum, lead,and copper. The company then sells its output

to smelters to be melted down and reused.Unfortunately for e-recyclers like ERI, the

global market for commodities has taken asteep downturn in recent years. That part ofERI’s business has halved as a share of the firm’sgross income since 2012, Shegerian says. (Thecompany will generate more than $100 millionin revenue this year.)

To maintain profitability, ERI has reposi-tioned itself as a secure method of electronicdisposal, capitalizing on growing concernover security. Customers are ready to pay up,Shegerian says, to properly dispose of devicesthat might contain traces of either customer oremployee data or trade secrets.

Plus, consider the threat to national security.Tom Sharpe, vice president of SMT Corp., a firmthat runs quality assurance on computer partsfor the defense industry, warns that counterfeitchips, often salvaged from e-waste in China,have a tendency to reenter supply chains.

“A lot of people like to look at this as dirtygarbage—let’s get it as far away from us as pos-sible,” Sharpe says. “That’s had a boomerangeffect. It’s been coming back at us for some timenow as counterfeit parts.”

Turns out e-waste isn’t just an environmentalmenace, but a cybersecurity one too.

DEAD, BUT NOTFORGOTTENLike the earthworms on a forest floor, ERI fulfills anintegral part of the food chain, paving the way for newgenerations of tech to germinate. By Robert Hackett

ILLUSTRATION BY N I C H O L AS L I T T L E

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MY FATHER DIED when I was 9,and I remember doing thehousehold chores to help mymother. I loathed changing thevacuum cleaner bag and pickingup things the machine didn’tsuck up. Thirty years later, in1979, I was doing chores at homealongside my wife, Deirdre.One day the vacuum cleaner wasscreaming away, and I had toempty the sack because I couldn’tfind a replacement bag. With thislifelong hatred of the way the ma-chine worked, I decided to makea bagless vacuum cleaner.

I had trained as an engineerand as a designer, so how thingswork really interests me. Backthen I was making the Ball-barrow, a wheelbarrow with abig red ball instead of a wheel. Ihad investors for the wheelbar-row, but they weren’t interestedin the vacuum cleaner, so I wentout on my own.

From 1979 to the early 1980s,I worked on developing theCyclone technology and wasgetting further and further intodebt. Thankfully, my wife wasvery supportive. Bankruptcydidn’t worry me because I canmake things, but I did worryabout losing our house. My wifesold paintings and taught artclasses, and we borrowed, andborrowed, and borrowed. Wegrew our own vegetables, and shemade clothes for the children.

I’d always been an entre-preneur, but I never thought of

James Dyson hated the dust-filled bags and loss of suction ofconventional vacuum cleaners. Hissolution, a bagless vacuum, be-came the start of a global companythat today brings in $3 billion a yearselling air purifiers, hand dryers,lighting, hair dryers, and of course,vacuum cleaners.

FIGHTING HIS WAYOUT OF A PAPER BAGHow Sir James Dyson got started. Interview by Dinah Eng

Sir James Dysontinkering

with Dyson’sproprietary

“digital” motors.

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our product, we have a problem. If someonespends $400 to $500 on a Dyson vacuumcleaner, they should enjoy the investmentthey’ve made.

In the end, it was the rejections or outrightthievery of my ideas that galvanized me todo it myself. The recession did not affect us.People have to go on cleaning their homes, andthey buy things that will last longer. What is arelatively expensive vacuum cleaner has donevery well.

41F O R T U N E . C O M / / S E P . 0 1 . 1 7

going into a business with the vacuum cleaner.I just had a passion for it as a product. In theearly 1980s, I started trying to get licensingagreements for my technology.

I wasted so much time and money trying tomeet with those who are now my competitors.Some companies—like Conair and Black &Decker—were quite keen on licensing the ma-chine. The talks went a long way until it got tothe in-house patent counsel, who then blockedit. In a couple of cases, the companies decidednot to diversify their product line, so the talksceased. The people who rejected it did so forno good reason, which told me they were notinterested in technological advances. That gaveme the courage to keep going.

We had a breakthrough in 1986. I got alicensing agreement with a little Japanesecompany named Apex, so we had some incomecoming in. However, Apex wasn’t very success-ful with it. They sold the machine as a nicheproduct called the G-Force for a quarter-millionyen each, nearly $2,000 at the time.

In the early 1990s I decided to make themachine myself, but soon after, other companiesthat I had talked with started making machineslike mine. I ended up fighting legal battleson both sides of the Atlantic to protect thepatents on my vacuum cleaner. It all eventuallygot settled. (In 1991, Dyson and Amway Corp.settled a patent infringement lawsuit. Amwaycontinued to sell its product, and the two sidesbecame joint licensees.)

None of the venture capitalists and bankswould lend me money until 1993, when mybank manager, Mike Page, personally lobbiedLloyds Bank to lend me the money I neededfor tooling. The bank agreed to lend me$1 million, and I was able to go into produc-tion. I got one mail-order catalog to buy it,then another. British department store JohnLewis began selling it, and we got into moreretailers. Within two years it was the best-selling vacuum in Britain.

Once we established ourselves in England,getting to retailers in other countries was easier,but the fact that it sells in England cuts no dicewith people in the United States or Germanybecause every country thinks it’s different. Itdidn’t particularly surprise me because brandsare well known, and people trust them. When anew one comes along, people are suspicious. Butsomeone will eventually take a risk with you.

In 2002 our first customer inthe United States was Best Buy.A buyer there took our vacuumcleaner home for two weeks andtold her boss it really does work.From there, other retailers sawit. Americans recognize successvery quickly.

For the U.S. launch, we filmeda television commercial in myhouse. I took apart vacuumcleaners and explained how thetechnology worked. The vacuumcleaner had notable early advo-cates, such as Friends actressCourteney Cox. The machineeven appeared on Friends on acouple of occasions.

We never had a plan forgoing into the markets wedid. Following a logical busi-ness plan would be boring forme. Instead we develop newtechnology and make productswhere that technology willmake a difference. In 2006 welaunched our first hand dryer,which is better for the environ-ment than paper towels, thendid the Air Multiplier, which isa fan without blades. We did awashing machine with shorterwash cycles for a few years, butwe stopped because we weren’tmaking money on it.

Once the sale is made, myphilosophy is that we con-tinue to be responsible for theproduct. We were the first to goto five-year guarantees, but it’smore than a marketing thing.If anyone has a problem with

TECH

DYSON’SBEST ADVICE

PRODUCT IS KING.Whatever yourproduct is, make sureeveryone in the com-pany understandsthe product. We haveevery employee ontheir first day makea vacuum cleaner—even if you’reworking in customerservice.

BAN MEMOS. Peoplelive off memos andemails and don’tspeak to one another.The real value occurswhen we meet eachother at work, sparkoff each other, arguewith each other.That’s when creativethings happen.Having a philosophyof disliking emails ishealthy.

LISTEN. Create anopen environmentwhere everyone’sinvolved and appre-ciated. If you don’tput people downfor making a sillysuggestion, you canget great ideas. A lotof great new ideascome from sillysuggestions orwrong suggestions.

The V8Absolute

is Dyson’snewest

cord-freevacuum.

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TECHDIAMONDS REPRESENT beauty, luxury,and true love—though some of

them have a dark side. Unscrupulous compa-nies mine “blood diamonds,” and counterfeitersflood the market with convincing fakes. It canbe a challenge to ensure beyond a promise thatyou’re buying an authentic, conflict-free gem.

The blockchain, a distributed computingtechnology that powers Bitcoin and so many

other cryptocurrencies, could be a solution. Atits heart the blockchain produces an indelible,tamper-proof ledger. This new type of record-keeping has been heralded as an efficiencythat could transform industries like shipping,insurance, and finance. But the diamond busi-ness has been one of the first to embrace thetechnology wholeheartedly.

A London-based company called Everledgerhas placed more than 1.6 million diamondson a blockchain. Entries on the digital recordinclude dozens of attributes for each diamond,including the color, carat, and certificatenumber, which can be inscribed by laser on thecrown or girdle of the stone.

“We create a digital twin of the object on theblockchain,” says Leanne Kemp, Everledger’schief executive.

The technology has enabled diamond sup-pliers (and intermediaries like border agents)to replace a paper certification process with ablockchain ledger. The process involves usingcomputer scanning tools to access what Kempcalls a “digital vault” and to determine theprovenance of any diamond.

Everledger is first focusing on industrialsupply chains. “This isn’t about Aunt Jenny’swedding ring,” Kemp says. The company hopesto adapt its technology for retail and consumeruse by 2018, meaning that a Tiffany & Co.shopper might one day be able to use a smart-phone to determine a gem’s provenance.

In the meantime Everledger is adding otherluxury goods to the blockchain. The companytracks bottles of wine using hidden codes addedto them by vintners, allowing anyone to consulta blockchain to see where the bottle originatedand how it was distributed. Everledger is alsoapplying the technology to fine art, a biggerchallenge since even tiny inscriptions can beconsidered destructive. It’s exploring applica-tions with museum and exhibition clients.

All of this hints at the sweeping way block-chain technology could change how goodsmove around the world. The government ofSingapore, for instance, is focusing on muchlarger initiatives than diamonds: global trade.It is building blockchain tools that, if adoptedby shippers and merchants, will be part of anew digital trade corridor for commodities.The effort promises faster, more secure supplychains and consumer confidence—a beautifulluxury, no doubt, for businesses worldwide.

CRYSTALCLEARPROVENANCEBlockchain technology has unlocked a world of possi-bilities in the finance industry. Now it’s set to change anentirely different market: diamonds. By Jeff John Roberts

ILLUSTRATION BY N E I L W E B B

citi.com/progressmakers

Twenty years after the end of apartheid, the path to wealth through

property ownership is still closed to many South Africans. International

Housing Solutions, a global private equity firm, is determined to change

that. Their idea: a fund to build safe, affordable housing for rising

middle class families. Citi’s early support and expertise has helped the

fund grow to finance 27,000 housing units across South Africa. Its success

is being used as a model throughout the continent.

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

make their ideas a reality.

THE KEYS TOA NEW HOMEOPEN ANEW ERA.

© 2017 Citibank, N.A. Member FDIC. Equal Opportunity Lender. Citi, Citi with Arc Design and The World’s Citi are registered service marks of Citigroup Inc.

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A RETAILERFINDS ITS VOICEREI, a mecca for outdoorsy shoppers, has found a newraison d’être. It doesn’t just want you to go to the park—itwants you to protect it too. By Claire Zillman

VENTUREIN L ATE OC TOBER 2016, REI openedits fifth flagship location in

Washington, D.C. Displayed prominently on theback wall of the 51,000-square-foot outdoor-equipment store in the nation’s capital is a neonsign that reads, “For All.”

That message would take on new meaningless than three weeks later when the presidentialelection cleaved the nation in two. CEO JerryStritzke says the words, rather than being just apiece of store decor, have become something ofa battle cry—one that’s recently prompted thecompany to wade into the political fracas.

COMPANY: REI

RANK: No. 28

HE ADQUARTERS:Kent, Wash.

EMPLOYEES:12,000+

THE BUSINESS:A member-ownedoutdoor-specialtyretailer with 151locations acrossthe U.S.

A love of the outdoors appeals to “both Demo-crats and Republicans,” Stritzke says, and it’singrained in the DNA of REI, founded in 1938 bya couple—Lloyd and Mary Anderson—in searchof quality climbing gear. The company activelyencourages employees to spend time outsidewith “Yay Days”—paid time off to spend outside—sizable worker discounts on its gear (30%),adventure trips (50%), and its Opt Outside cam-paign that closes all 151 stores on Black Fridayand pays employees to pass the day in nature.

Those perks are one factorin REI’s 20-year streak asone of Fortune’s Best Com-panies to Work For.

we’re a lot more reluctant,” he says.But that hasn’t kept REI from pursuing

causes beyond the environment. Stritzke saysless obvious issues—like immigration—merit thecompany’s attention too. Inclusiveness and thenotion that everyone is welcome—“we actuallythink that’s consistent with an outdoor experi-ence as well,” he says. (REI came out against thePresident’s travel ban, for example.) “That’s oneof the amazing things about [the outdoors],”Stritzke says. “It doesn’t care how you present,what color you are, what accent you have; it’sreally there for everyone.”

That commitment to theenvironment also galva-nized Stritzke to speakout against the Trumpadministration’s actionson public lands. In Aprilhe wrote that the plan toreview the status of morethan 100,000 acres ofpublic land was a “causefor concern,” and REIlater urged people to filecomments with InteriorSecretary Ryan Zinke,asking him to keep theprotections in place.

In an era when busi-nesses run the risk of get-ting a mean tweet fromthe Commander-in-Chief,Stritzke acknowledges hecarefully considers whatissues to take up. “If wedon’t see a direct impact[on our employees], then

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48F O R T U N E . C O M / / S E P . 1 5 . 1 7

DONALD TRUMP R AN FOR OFFICE lastyear on promises to slash environ-

mental rules and other regulations, arguingthat their benefits weren’t worth the coststhey imposed on business. After his surprisevictory, some investors wondered whether therecent growth of so-called sustainable invest-ing would be lopped off like a mountaintopabove a rich seam of coal. Surely, they thought,companies that placed a primary emphasison social and environmental issues would seetheir stocks suffer.

Since January, the President has been hack-ing away at the regulatory forest—makingprogress there even as other elements of his

INVESTTIMES CHANGE,BUT ‘GREEN’ FUNDSKEEP GROWINGInvestors feared that a Trump presidency would hurt “sus-tainable” funds. But their performance stayed strong—andtheir popularity has soared. Here’s why. By Chris Taylor

ILLUSTRATION BY B E N E D E T TO C R I STO FA N I

INVEST

49F O R T U N E . C O M / / S E P . 1 5 . 1 7

agenda have been stymied in Congress. So howhave mutual funds in the “ESG” space (envi-ronment, social and governance) fared? To riffon an old saying, rumors of their death havebeen greatly exaggerated.

As it turns out, funds in this category havekept up with the market—even as the marketitself has had a strong year. Just as significant:Investors are pouring new money into thecategory at an unprecedented rate. To wit: thenet $3.5 billion of inflows into U.S.-based retailESG funds and ETFs from January to July ofthis year. That surpasses inflows for all of 2015($2.6 billion), and at the current pace will eas-ily eclipse the record $4.9 billion set in 2016.

“This field is global in nature and has a tre-mendous amount of momentum,” says Jon Hale,director of sustainable investing research atChicago-based Morningstar. “In some ways, theelection has actually galvanized ESG investors.”

Those mutual fund figures are only teensydrops in a larger, responsible-investing ocean.When you include big-money investors likepension funds, high-net-worth individuals, pri-vate equity, and sovereign-wealth funds, therewas roughly $9 trillion in ESG assets for U.S.-listed products. There was $23 trillion worth ofsuch assets globally at the start of 2016, accord-ing to the biennial Global Sustainable Invest-ment Review, a 25% increase from 2014.

This trend reflects, in part, the growing ac-ceptance of the idea that responsible corpo-rate behavior pays off for shareholders. (For asubstantial list of examples, see our Change theWorld list, beginning on page 74.) Institutionalinvestors’ thirst for ESG products continuesunabated, says Hale, indicating that this is nota fad but something more lasting and transfor-mative. What’s more, sustainable investing isnot something localized to America but rathera global phenomenon—minimizing the impactof policy changes at the White House. Take theexample of the Paris Agreement: Even if theU.S. withdraws from that climate pact, therest of the world remains on board, and thuspulls corporate practices and investor assets inthat direction.

Demographics—and marketing—are at playhere too. Older millennials are now in theirmid-thirties, leveling up into their prime earn-ing years and starting to control more invest-able assets. In time, they will be on the receiv-ing end of one of the biggest wealth transfers

in history, with inheritances from the babyboomers. As a generation, millennials are es-pecially drawn to the notion of ESG investing:86% of them indicate interest in it, accordingto Morgan Stanley, a level of interest about 20percentage points higher than among boomers.Millennials are also twice as likely to buy a fundif it operates on a socially responsible thesis.

That kind of information is catnip to finan-cial services companies, and more products arebeing rolled out to soak up those socially con-scious assets. A dozen ESG funds or ETFs havelaunched in the U.S. in this year alone, saysHale. There are now 187 U.S.-listed open-endfunds and ETFs in the space, with total assetsof $75 billion.

The bottom line: Environmentally andsocially conscious investors may not be ableto control policy—but they can control wheretheir own money goes. “For the average personwho is concerned about this stuff, who wants toknow what they can do, one of their questionsshould be, ‘How do I use the capital I have?’ ”says Lisa Woll, CEO of the Washington, D.C.–based Forum for Sustainable and ResponsibleInvestment. That may be part of the reasonwhy usage of ESG data on Morningstar’splatform, which is employed by asset manag-ers and advisory firms, has quadrupled sinceTrump’s election.

ON THE PERFORMANCE FRONT, results are encourag-ing. While experts in the space are careful notto promise market-beating returns, they alsopoint out there is no apparent penalty for civic-minded investing. Almost half of large-blendESG funds—a mix of actively and passivelymanaged—have outperformed the S&P 500 sofar this year, compared with only 27% of non-ESG funds, according to Hale. In other words,broadly speaking, ESG investors can expect tomimic the wider market, with the added bonusthat their money is being put to some good.

The next front in the battle for sustainableinvesting may very well be: you. Retail inves-tors still account for a very small share of theESG investing market. That’s largely becausecompanies have been sluggish to incorporatethis trend in their 401(k)s. Few retirementaccounts have a sustainable fund option ontheir menu.

For investment companies, that’s some low-hanging fruit to pluck. “For most people …

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most of their assets are likely sitting intheir retirement accounts,” says Woll. “Thereis more and more pressure to get pension andretirement funds to add sustainable options.”

There is also growing interest in a particu-lar subset of ESG investing known as “socialimpact” investing. Whereas more general ESGfunds might aim for merely avoiding com-panies that they see as bad for society, suchas fossil-fuel companies or weapons makers,social impact funds aim to invest in companiesthat actively try to make the world a betterplace. They also put heavy emphasis on mea-suring that impact and reporting back to inves-tors. (Think of it as the mutual fund equivalentof the way social entrepreneurs approachphilanthropy. Shareholders don’t want merelynice words or thoughts—they want data, andthey want it now.)

WITH MORE ESG FUNDS to choose from, there aresome pitfalls to keep in mind. Some funds havenoble intentions but very short track records,making them hard to handicap. Many ESGfunds are on the small side, and the lack of

economy of scale, along with the extra expensesinvolved in researching and screening compa-nies, can make them slightly more expensivethan non-ESG funds. (The average activelymanaged, large-blend ESG fund carries anexpense ratio of 0.96%, according to Morning-star data.)

That said, these funds have earned respectfrom the experts:

The Parnassus Fund (PARNX) is theflagship of San Francisco–based ParnassusInvestments, one of the longest-standing ESG-oriented fund companies. It boasts one-yearreturns of 21% and has averaged returns of10% annually since its inception in 1984. With$1 billion under management, Parnassus skewstoward reasonably priced “value” stocks—itsholdings have an average price/earningsratio five points lower than that of the S&P500—and it carries an expense ratio of 0.86%.Current top holdings include Gilead Sciences,Motorola Solutions, and Progressive Corp.(The firm also runs a fund called Parnassus En-deavor, whose stock picking relies on some ofthe same screening metrics as the Fortune Best

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TRUMPBUMPSince last year’s election, investors have shown greaterinterest in mutual funds and ETFs that focus on environmen-tally and socially responsible companies.

0

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$6 billion

2010 2011 2012 2013 2014 2015 2016 2017

NET FLOW OFASSETS INTO“SUSTAINABLE”FUNDS

SOURCE: MORNINGSTAR

$4.9

$3.5

Full-yearestimate

As ofJuly

Companies to Work For list; those companiesget high marks for treating their employeeswell, a factor that’s often considered in ESGinvesting.)

It’s possible to do ESG investing with“passive” funds too. Vanguard FTSE SocialIndex (VFTSX) owns a basket of 434 stocks;it has risen 21.6% in the past year and 16.7%annually over five years, with holdings skew-

ing toward tech giants like Apple, Alphabet,and Microsoft. Perhaps most alluring, the$3.3 billion fund has a rock-bottom 0.22%expense ratio.

Socially responsible investing extends be-yond the world of equities as well. In practice,the social impact of fixed-income investmentscan be much easier to measure, since bondsare often tied to specific projects. One attrac-tive fund in that arena is TIAA-CREF SocialChoice Bond (TSBRX). The $1.4 billion fundsniffs out “green” bonds: It will avoid bond is-suances that pay for deforestation or the sink-ing of new oil wells but will happily snap upthose that finance positive projects like solarpanels or electric vehicles. Its holdings are amix of corporate, government, municipal, andmortgage-backed securities, more than 40%of them rated triple A.

Investors have largely abandoned the no-tion that helping the planet or making moneyis an either/or proposition. “Don’t be afraid toask your adviser about how to invest that way,”says Hale. “Five years ago, you might havebeen met with blank stares. No longer.”

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55F O R T U N E . C O M / / S E P . 1 5 . 1 7

FASHION

MADETOMEASUREA custom-fit suit at a pricebetter than a departmentstore’s? That’s the promiseof a new breed of suitmakers.By Sheila Marikar

A deconstructedjacket onIndochino’s form.

PHOTOGRAPH BY TO M S C H I E R L I T Z

PASSIONS

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BESPOKE SUITING once brought tomind cigar smoke and burnishedmahogany, and a gray-haired tailorwith a measuring tape around hisneck and a pin in his mouth. Nolonger. The past few years haveseen a boom in online businessespeddling made-to-measure men’ssuits at off-the-rack prices, as theAverage (nattily dressed) Joe hasshifted from revering luxury labelsto building out his own brand.

“It’s the desire to not look like oneof a million but one in a million,”says Marshal Cohen, chief retailanalyst at market research firmNPD Group.

One company on the crest of thiswave is Indochino, a Vancouver-based firm founded in 2007 byKyle Vucko and Heikal Gani, for-

mer University of Victoria studentswho hated shopping for formalclothing.

Here’s how ordering a suitonline works: Customers followstep-by-step video guides on howto take their own measurementsin less than 10 minutes. (No tapemeasure? They sell one for a dol-lar—it ships for free.) Sartoriallyinclined shoppers can then cus-tomize details like lapels, linings,pocket placement, and mono-grams. The cost starts at around$400 a suit (lower for fabrics thatare on sale), and the finished gar-ment arrives via FedEx within fourweeks, promising a better fit thananything found on the racks of adepartment store.

Last year, Indochino raised

$30 million in new funding fromDayang Group—the China-basedmanufacturer that makes itsclothing as well as garments forRalph Lauren, J. Crew, and BananaRepublic—and it has used some ofthat cash to increase its footprintoffline. “We needed to get awayfrom selling a product and movetoward selling an experience,” saysDrew Green, who stepped in asIndochino’s CEO in 2015. On hiswatch, Indochino has opened17 showrooms in the U.S. andCanada and tripled the size of itsbusiness. “Retail has given us ourNo. 1 channel of new customeracquisition,” Green says.

Green operates under theassumption that while the aver-age guy is loath to try on piles C

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of starched wool-blend in afluorescent-lit dressing room, hemay not want to fork over a fewhundred dollars for something he’snever seen in real life, either. Indo-chino’s showrooms bridge that gap.A shopper can make an appoint-ment for a free, hour-long consul-tation with a “style guide” who willmeasure and walk him throughfabrics, fit, and some of the myriadoptions for customization.

On a recent afternoon at Indo-chino’s showroom in BeverlyHills, one block from Rodeo Drive,a style guide hovered around amiddle-aged man trying on a made-to-measure charcoal-gray suit (cus-tomers have the option of a fittingonce the garment is made). Bolts offabric line silver racks throughout

the shop, a physical manifestationof Indochino’s edge over more tra-ditional suit slingers. “It’s a virtualinventory model,” says Green. “Wecan open a showroom withoutspending hundreds of thousands ofdollars on inventory, at a fraction ofthe cost at which our competitionopens their stores. That’s provided areally efficient way to grow.”

Another growth opportunity:weddings. Wedding wear is Indo-

THECOMPETITION

SUITSUPPLY

Founded in 2000 in Amsterdam,Suitsupply edged into the Ameri-can market in 2011, when the WallStreet Journal pitted a $614Suitsupply outfit against a $3,625Armani suit and called it a draw.Suitsupply’s getups start at $499and can be customized online orat their rapidly expanding fleet ofshowrooms (the U.S. currently has27, with seven more locations setto open soon).

J. HILBURN

With just three showrooms,J.Hilburn, founded in 2007, reliesmostly on a nationwide network ofpersonal stylist consultants whomeet shoppers, at no charge, tomeasure them and figure out howtheir clothes should fit. J.Hilburn’ssuits start at $660, and most fab-rics come from tiny Italian mills.

BLANK LABEL

Launched in 2009, Blank Labelintended to cater to artsy hipsterswho didn’t want to wear clothesfrom the usual suspects. Thecompany’s tailored shirts and suitseparates quickly caught on withmainstream shoppers, and withina year, Blank Label’s revenue was inthe six figures. Blank Label has fiveretail locations; suits start at $750.

chino’s fastest-expanding segment(retail rivals like Macy’s are alsolooking to wedding wear forgrowth), and the second floor ofthe Beverly Hills showroom isdesigned to play host to groomsand their parties, with man-nequins in trendy tuxedos—awhite jacket with black leathersneakers—cushy armchairs, anda foosball table. “The groomsmenusually bring a beverage of theirchoice,” says Shayna Green, theshowroom manager. (Indochinooffers complimentary water andcoffee, not the hard stuff.) It helpsthat 65% of Indochino’s custom-ers are millennials, a demographicthat happens to be attending a lotof weddings. “Millennials reallywant to connect with the productsthat they buy,” says Drew Green.

“We give them the chance to createtheir own brand, the chance toexpress themselves.”

Indochino has expanded intocustom shirting, blazers, and, lastyear, outerwear. But suits repre-sent the bulk of the business, andGreen is focused on meeting thatdemand before wandering too farinto other categories. His goal isfor the Beverly Hills outpost ofIndochino to have as strong a pullas the designer shops that flankit. “We don’t consider our com-petitors retailers that sell made-to-measure or bespoke,” he says.

“Our competitors are those thatsell ready-to-wear.” According toCohen, Indochino and its ilk havetheir work cut out for them. Heestimates that the entire bespoke-suiting business representsless than 1% of the $50 billionmenswear market in the U.S. “Theissue for them isn’t that they havea good transaction and interactionwith the consumer,” he says. “Theissue is the frequency of purchase.The younger generation isn’t buy-ing suits at an alarmingly fast rate.”Bespoke T-shirts, anyone?

[1] An employeeassists a customer

at Indochino’snew showroom in

King of Prussia,Pa. [2] A fitted

blazer, shirt,tie, and pocket

square on Indo-chino’s form.

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59F O R T U N E . C O M / / S E P . 1 5 . 1 7

TIMEPIECES

Newman’s “Paul Newman” Daytona isexpected to fetch a record price for aRolex at auction.

HOLY GRAILSInstagram, blogs, and Internetforums are fostering a newbreed of vintage-timepiececollectors. Auction prices aresky-high and show no signs ofabating. When it comes to theSwiss watch market, everythingold is new again. By Stacy Perman

AMONG VINTAGE WATCH collectors thereare “grail” watches and then there’sthe Paul Newman Rolex Cosmo-graph Daytona. An estimated 4,000were produced between 1963 and1970; the iconic chronograph,with its tachymeter scale on thebezel and a black, white, and red“exotic dial,” earned its nicknamefrom the actor and race-car driver,who owned one of the first in theseries, reference 6239. Today, theseDaytonas fetch head-scratching

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amounts: starting in the six figuresbefore heading north.

In October, the most famousDaytona in existence, Newman’sown, with the inscription “DriveCarefully, Me,” on the case-back(a gift from his wife, the actressJoanne Woodward) is going on theblock in New York. While Phillips,the auction house handling thesale, has given it a modest esti-mate—“in excess of $1 million”—watch insiders say the legendarytimepiece could hammer down foras much as $10 million.

Vintage watches, by some esti-mates, have become a $2 billion to$3 billion market—with the value ofsome watches skyrocketing in recentyears. “I remember in 1990 a dealercame in with hundreds of Daytonas,the good ones from the ’60s,” saysDaryn Schnipper, chairman ofSotheby’s international watch divi-sion. “At the time they were worth$800. There was no market. Nowthey’ve gone through the roof.”Indeed, this past May, an 18-karatyellow gold Paul Newman Daytona,reference 6263, sold for $3.7 millionat Phillips in Geneva.

Monster sales and record-smashing auctions have helped driveinterest, but so too has the Internetand the explosion of dedicatedwatch blogs, forums, and Instagram.Together they form a digitizedglobal blue book: encyclopedic inscope, aiding enthusiasts about whatto know, what to appreciate—andwhat these watches are worth.

The pursuit of the rare and ex-clusive has shifted many collectorsaway from contemporary pieces.According to the Federation of theSwiss Watch Industry, exports sanknearly 10% last year, their worst re-cord since the global recession hit in2008. “Collectors have gotten tiredof wearing the same thing everybodyelse has,” says Eric Ku, a Berkeley-

60F O R T U N E . C O M / / S E P . 1 5 . 1 7

TIMEPIECES

BLANCPAIN FIFTYFATHOMS

First conceivedin 1952, this divewatch was createdfor the French Navy’scombat swimmersand was so namedbecause it couldreach 50 fathoms(300 feet) undersea.Later it becamestandard issuefor the U.S. Navy’scombat swim-mers. A collectors’favorite today, goodexamples from the1950s and 1960scan be had for under$15,000.

PATEK PHILIPPENAUTILUS

Inspired by theshape of a ship’sporthole, thesimple and elegantsports watch wasintroduced in 1976and sold for $2,850,making it the mostexpensive steelwatch at the time.Today a vintage Nau-tilus from the 1970sand early 1980scan sell for over$50,000. In 2015, a1982 platinum anddiamond examplesold at Christie’s for$909,319.

LONGINESCHRONOGRAPHFLYBACK

While the modernLongines is consid-ered a “mall watch,”back in the 1940sand 1950s, thebrand was one of theworld’s premieremanufacturers.Among collectors,its caliber 13ZN—thefirst wristwatchchronograph,launched in 1936, ishighly desired. Someexamples in goldcan still be found forunder $10,000.

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PASSIONS

reference 6062 “Bao Dai” owned bythe last emperor of Vietnam ham-mered down for a record $5.06 mil-lion at Phillips in Geneva. And aswath of collectors are flocking toold-school brands such as Heuer(pre-TAG), Longines, UniversalGenève, and Vulcain.

This outsize retro interest hastrickled upward, as scads of watch-makers are now digging into theirarchives for design ideas to resettheir contemporary collections. Forinstance, this year Omega intro-duced a limited-edition trilogy: theSeamaster 300, the Speedmaster,and the Railmaster, modeled afterits 1957 classics; while VacheronConstantin, in collaboration withwatch site Hodinkee, offered theHistoriques Cornes de Vache 1955Limited Edition, inspired by one ofits 1950s chronographs.

When it comes to vintage collect-ing, there are two watchwords: con-dition and rarity. As one collectorsays, “I’d rather spend $5,000 on aLongines from the 1940s in greatcondition than $25,000 on a Patekin horrible condition.”

The options for enthusiasts aremassive. The well-known, rare, andunique can be found at every pricepoint, offering something for thebeginner, the speculator, and thehigh roller. The marketplace is vast,as is evident in auction catalogs,on eBay, and at many specializedonline sites and dealers. But buyers,beware—the vintage market has itspitfalls, namely: shady provenance,fakes, and Frankenwatches (time-pieces built from non-genuine partsthat can render the piece worthless).

Says Ku, one piece of advice issimply: “Buy what you like. Neverthink of a watch as an investment.It should express your style ortaste, and if you buy something youlike, you’ll be happy every time youwear it.”

based dealer. “New watches havebecome so expensive, and pricescontinue to go up each year, whilespending the same money on vin-tage has proven itself in terms of theresale market, and when it comesto value, it can be a more sounddecision.”

For rarefied collections, vintage

Patek Philippe and Rolex are thebiggest trophies. Take Patek’s highlycoveted reference 2499, introducedin 1951, of which only about 349were made during its 35-year run.In 2012 a platinum version ownedby Eric Clapton broke a worldrecord when it was sold at Christie’sfor $3.63 million. In May a Rolex

62F O R T U N E . C O M / / S E P . 1 5 . 1 7

TIMEPIECES

ROLEX SUBMARINER

The Submariner(reference 6204)debuted in 1953,and two years laterthe British RoyalNavy chose it as theofficial watch forits diving units. Inthe 1960s, explorerJacques Cousteauwore one as did SeanConnery in his roleas fiction’s mostfamous British navalofficer—James Bond.It’s still consideredby many aficionadosas the ultimate toolwatch; depending onthe condition, year,and metal, a vintageSubmariner can befound for between$6,000 and $30,000.

SEIKO GRAND SEIKO

First launched as theofficial timekeeper ofthe Tokyo Olympicsin 1960, the GrandSeiko establishedthe Japanese watch-maker as a genuinerival to the Swiss.Solid, technicallyinnovative, with itsiconic design andhand-finishingdubbed the “GrandSeiko Style,” this isa nice entry-levelcollectible with goodexamples rangingbetween $800 and$1,500.

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PASSIONS

BLACK BOOK

64F O R T U N E . C O M / / S E P . 1 5 . 1 7

If you know where to look, the island of Oahu is full of hidden gems. By Adam Erace

THE GATHERINGPLACE

HAWAII IS A HIKE, and planning a trip therecan be overwhelming—so many islands,

so little time. Start with a visit to Oahu, and place yourselfin the capable hands of Leea Evaimalo, who runs the con-cierge desk at the luxurious, year-old Four Seasons Resortat Ko Olina, just afield of Waikiki’s tourist crush. Here’swhere she sends her guests.

On the windwardcoast of Oahu,Lanikai Beach is ajewel-toned haven.

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The$10,000Day

Best new restaurant:Herringbone openedin August in Waikiki’sInternational MarketPlace, which hasbecome a restauranthotspot since it wasredone two yearsago. Standout dishesinclude lemony whole-fish ceviche, caramel-ized Hokkaido scallopswith sweet corn, andlilikoi (passion fruit)panna cotta.

Emerging neighbor-hood: Situated at theend of Honolulu’s finan-cial district,Chinatownis a melting pot ofcultures, where you’llfind lei makers, fresh-seafood vendors, dimsum restaurants, andantiques stores. Everyfirst Friday, vendorsfrom around the islandset up shop in themiddle of the street.

Cocktail spot:Inspired by the tinybars in Japan, BarLeather Apron,located in downtownHonolulu, seats25 people, max. Thewhiskey selectionis fantastic, as isthe detail-orientedservice.

Under-the-radarmuseum: ShangriLa is the formerestate of heiressDoris Duke. Guidedtours are available ofthe mansion, whichshowcases Duke’svast collection ofIslamic art.

Day trip: Whenguests want to seeanother part of Oahu,I send them to theNorth Shore. Popularlocal spots includePupukea Grill’s foodtruck, famous for itskalua pig quesadil-las,Mokuleia BeachPark, good forswimming and col-lecting rare seashells,andUncle Bryan’sSunset Suratt SurfAcademy.

Island-hopping:I recommend theBig Island, which hasa little of everything:lush valleys, waterfalls,hikeable dormantvolcanoes, even agreen-sand beachthat gets its colorfrom olivine rocks.

Poke pick: When I’mcraving the fish salad,I head toDa Hawai-

We asked Evaimalo to plan a special, singular dayin Oahu: Start by hiring a private chauffeur.First stop: brunch at Chinatown’s ScratchKitchen & Bake Shop, followed by a drive to theKalaeloa Airport, where your helicopter awaits.Take in Oahu’s landmarks and views from abovewhile sipping Champagne, before landingat Kualoa Ranch for a guided horseback ride

through the verdant Ka’a’awa Valley. Afterreturning to the hotel, climb aboard the resort’s75-foot private yacht for a four-hour cruise thatexplores secluded bays along Oahu’s leewardcoast. Once back on shore, end the day on a highnote with a five-course meal, complete withchef-selected wine pairings, at Alan Wong’s inHonolulu.

ian Poke Company,acasual joint outsideWaikiki. Options rangefrom lobster to ikura(salmon roe).

Things to avoid:Steer clear ofDolePlantation, a tour-ist trap, in favor ofKahumana FarmorMa’o Organics,whichoffer more authen-tic Hawaiian farmexperiences.

[1] A craft cocktail at Bar Leather Apron.[2] Antiquing in Chinatown.[3] The Shangri La mansion.

ILLUSTRATION BY M A RT I N L A KS M A N

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TMTo learn more, visit ecolab.com.

The world’s water challenges require the ingenuity

of business. Ecolab is partnering with customers

worldwide to conserve 300 billion gallons of water

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FOR MOREFind previous

editions of A BoomWith a View at

fortune.com/boom.

FORUM

68F O R T U N E . C O M / / S E P . 1 5 . 1 7

W S TARTED this column in late 2015, thegy boom felt like it was in danger of col-utual funds and institutional investorsted the so-called Age of Unicorns bymoney into large, highly valued privatesuddenly investors were in retreat,y bad bets. Talk of valuation mark-

d missed revenue targets, cash crunches,f d acquisitions threw cold water onto

bl ng business. Everyone stopped askingh tion investors had been debating and

f over for the past few years: “Are we in ah b bble?” Nothing had really burst, but it no

f lt bubbly.ly three years and 27 columns later, the

h b bble question is beside the point. Inside

boom-land, there’s a bigger set of issues to fretover. A toxic culture of sexism and sexual harass-ment has moved front and center, thanks to agrowing group of whistleblowers. High-profileinstances of shady startup behavior have causedthe industry to question its “fake it till you makeit” philosophy of hustling your way to success.Uber, the most valuable venture-backed startupin the world, continues to be a shining exampleof dysfunction as its board of directors, cofound-ers, and investors snipe at each other in thepress and through lawsuits over who controlsthe company. In 2017, the startup industry isexperiencing the fallout from years of prioritiz-ing growth at any cost.

Not every startup is unethical, overvalued,toxic, or dysfunctional. But the tech world’s suc-cess stories are now overshadowed by big, vex-ing issues that make the “Are we in a bubble?”question look pathetically myopic. Outsiders areasking things like, Are tech platforms respon-sible for spreading hatred and misinformationin America? Are Facebook, Apple, Alphabet,and Amazon too powerful? Will technologyeliminate our jobs? A few years ago, we won-dered if the tech party was coming to an end.Today we ponder if its hosts are fundamentallymisanthropic.

How did we get here? In part because thetechnology industry injected itself into the worldbeyond its bubble. Software is, as the sayinggoes, “eating” everything from transporta-tion to hospitality, retail to automotive, healthcare to education. In the process, the techindustry inherits the world’s problems. Outrageover mutual funds marking down Uber’s valu-ation feels beside the point when you considerthat as many as 5 million professional driversin the U.S. could lose their jobs to autonomousvehicles. Boom, meet doom.

While not particularly satisfying, it feels fit-ting to end this column’s run on a gloomy note.The “boom” in its name nods to tech industrygrowth; the “view” signals an air of skepticism.Never has the world been more dubious of start-ups and the technology industry than it is today.The tech community could choose to interpretthat stance as an attack. I’d rather it do what it’sknown for—turning problems into opportuni-ties—and fix some of the messes it has made. It’sa chance to actually, maybe, seriously, no joke,make the world a better place.

WHEN WE S

technologlapse. Muhad creatpouring mstartups; burned bydowns, mand faileda blisterinthe questfretting otech bubblonger fel

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Entrepreneurs used to worry about a bubble bursting. Today’sstartup problems are far more complicated. By Erin Griffith

FROMBOOMTO DOOM

ILLUSTRATION BY M I C H A E L G E O R G E H A D DA D

DR. JESSICA WATTMANDirector of Social Innovation;New Markets Advisors; Co-Authorof Jobs to Be Done

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BOB GLAZERFounder and Managing Director ofAcceleration Partners; Author ofPerformance Partnerships

MICHAEL ELLIOTPresident and CEO of the Hammerand Nails Salon Group; award-winning Hollywood screenwriter

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CHANGE THE

74F O R T U N E . C O M / / S E P . 1 5 . 1 7

it in employee attraction,corporate image, educa-tion, engagement, I thinkit pays back,” he says. “It’sstill difficult to explain it toyour shareholders, obvi-ously, but ultimately thepeople that you employ—orthe people you are ableto attract—is actually thebackbone of your success.”

That investment decision,importantly, also seems toget the backing of Unile-ver’s board of directors:“At the board level, at thesenior management level,they are apparently 100%behind this,” Polman tellsme—a proposition tested asrecently as February, whenKraft Heinz made an unso-licited offer for the company.(Polman says that the boardmade clear to the interlop-ers that Unilever’s “businessmodel of longer-term-compounded value creation,by focusing on multiplestakeholders,” is the modelthat the board still believesin—“even when the pres-

you call them sexy?So what’s Unilever’s ap-

peal, then? “According tothe data,” Polman reveals,“60% more or less—I’mrounding it—say it’s theUnilever Sustainable Liv-ing Plan, and the biggerpurpose that we have as abusiness.” The SustainableLiving Plan is the company’sblueprint for growing thebusiness while reducingwaste, water, and energyuse, sourcing raw materialsin a smarter way, helping lo-cal farmers, and striving forother earth-friendly goals.The wide-eyed applicantswho are sending résumés bythe trainload may not pineto sell packaged goods tothe well-packaged masses—but Polman figures, “Theysay, ‘At the end of the day,I’m going to make a differ-ence that is bigger than Icould have done myself.’ ”

For Polman, the invest-ment proposition behindthe Sustainability Planis easy to compute. “Be

HEAD WRITERSERIKA FRYJONATHAN CHEW

WHEN UNILEVER announcedits first-half results for 2017this summer, it had plentyof good numbers to crowabout. Revenue, at 27.7 bil-lion euros ($30 billion),was up a healthy 5.5%,growing well ahead of thecompany’s competitive set.Moreover, it was turningthose sales into a river ofprofit, with earnings pershare up 24% from theprevious year.

But in late August, whenI spoke with UnileverCEO Paul Polman on thephone, it was another datapoint he was most excitedabout: 1.8 million. That’sthe number of people whoapply to the Anglo-Dutchconsumer products giantfor a job each year, with aprodigious share of thembeing millennials.

The company, I shouldpoint out, makes soap. Andantiperspirant. And may-onnaise. Not that there’sanything wrong with thosethings—but, hey, would

CONTRIBUTORS

SYDNEY AGUSCHRISTINA AUSTINCLAY CHANDLERGEOFF COLVINBARB DARROWGRACE DONNELLYROBERT HACKETTMATT HEIMERBETH KOWITTADAM LASHINSKYMICHAL LEV-RAMSY MUKHERJEEAARON PRESSMANLUCINDA SHENANNE VANDERMEYJONATHAN VANIANPHIL WAHBADEBBIE YONGCLAIRE ZILLMAN

INTRODUCTIONCLIFTON LEAF

COMPANIES ARE USING THE PROFIT MODEL TO SOLVE A MULTITUDE OF SOCIETAL

PROBLEMS. HERE’S OUR THIRD ANNUAL LIST OF THE BEST OF THEM.

!!!!WORL D

75F O R T U N E . C O M / / S E P . 1 5 . 1 7

sure is a little higher.”)While the board’s opinion

could one day change,Polman is right aboutone thing: There is ampleevidence to suggest thatcompanies that focus onlong-term sustainabilityoutperform those with ashorter-term outlook. Insti-tutional investors are gettingthe message too (see ourstory on page 48).

Companies not only cando well when doing good,they often do. (We’ll letthe copy editors figure thatsentence out.)

Which is one more reason,if you needed any, to spendsome quality time with thelist that follows—whichFortune put together withinvaluable help from ourpartners at Shared ValueInitiative. The 56 companieson our 2017 Change theWorld list, which includessix smaller rising stars(see page 89), are tacklingproblems obvious and not-so-obvious—from Accen-ture, which is using data toreduce E.R. visits, to DSM, aDutch life sciences company,that is fighting greenhousegas emissions from a notori-ous source: cow flatulence.They include IBM, which ishelping urban high schoolsclose the STEM skills gap,and 23andMe, which isempowering consumers tolearn about their geneticrisks—and the lifestylechoices they can make, insome cases, to lower them.

We explore JPMorganChase’s bold and urgentcampaign to revive one ofAmerica’s iconic industrialcities and Levi Strauss’seffort to make life better forsome of the 300,000 gar-ment workers who make its

IBM

MTR

IAG

SAS

DSM

DELL

IKEA

CH2M

ENEL

YARA

TATA

BKASH

CEMEX

SODEXO

AMCOR

MOBIKE

GO-JEK

TOYOTA

NUTRESAWALMART

ALLSTATE

CJ GROUP

MICROSOFT

WOOLWORTHS

LAND O LAKES

ALIPAY/ANT FINANCIAL

JNJ

GROHE

VOLVO

JETBLUE

CHOBANI

NESTLE

MARRIOTTVANGUARD

UNILEVER

CENTENE

VODAFONE

TENCENT

NOVARTIS

ACCENTURE

JP MORGAN

AMERICANEXPRESS

BENDIGO & ADELAIDE

AIRBNBAPPLE

LEVI’S

23 AND ME

SALESFORCEPALO ALTO NETWORKS

LEAPFROG INVESTMENTS

A S I A

A U S T R A L I A

A F R I C A

A M E R I C A S

jeans. And we seize a rareopportunity to sit downwith Apple CEO Tim Cook,who shares his philosophyon why the iPhone and itsecosystem of apps are apotent force for good.

All of these companies,we believe, are changingthe world—but please readon and judge for yourself.

Measurable social impact: We consider the reach, nature, anddurability of the company’s impact on one or more specific soci-etal problems. This category receives extra weight.Business results: We consider the benefit the socially impactfulwork brings to the company. Profitability and contributionto shareholder value outweigh benefits to the company’s’reputation.Degree of innovation: We consider how innovative the compa-ny’s effort is relative to that of others in its industry and whetherother companies have followed its example.

HOW WE CHOSE THE COMPANIESThe Change the World list recognizescompanies that have had a positive so-cial impact through activities that arepart of their core business strategy. Weprioritize companies with annual reve-nues of $1 billion or more. Fortune writ-ers and editors, with help from SharedValue Initiative, evaluate and rank thecompanies by these three factors:

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THE GLOBALREACH OF A NEWBUSINESS MINDSET

Fortune’s Change theWorld companies stretchacross six continents,and share plenty ofcommon concerns. Hereare some of the arenaswhere companies aremaking an impact:

Expanding economic opportunitiesfor lower-income workers:(No. 1 JPMorgan Chase; No. 38 CJGroup; No. 40 Woolworths).Delivering health care tothe underserved: (No. 4 Novartis;No. 19 Centene).Expanding education to build atech-savvy workforce:(No. 3 Apple; No. 35 IBM).Lowering the world’s carbonfootprint: (No. 2 DSM; No. 34 Grohe)

CHANGETHE WORLD

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BANK PROFITS don’t growwhen the economystalls. And JPMorganChase CEO Jamie Dimonand his colleagues believeU.S. GDP growth won’t berobust again unless thecountry does more to re-vitalize cities hobbled bylost manufacturing jobs.That’s one reason Amer-ica’s largest bank is nowsteering some $250 mil-lion annually into commu-nity-building investmentslike small-business devel-opment, job-skills train-ing, and neighborhood

THIS YEAR, as decimating fam-ine threatens 20 million lives inAfrica and the Middle East, DSMis on the front lines; the forti-fied-nutrition products it helpedthe World Food Programmedevelop reach approximately31 million people every year. Thecompany is also boosting lo-cal economies by enlisting themin the fight against hunger. Af-rican Improved Foods, DSM’sjoint venture with the Rwandangovernment and developmentagencies, produces fortified ce-reals at a plant operated by EastAfricans, from locally grownmaize and soybeans procuredfrom 7,500 smallholder farmers.(For more on DSM’s innovativeproblem-solving, see page 120.)

WITH ROUGHLY a billion of itssmartphones, computers, andother gadgets in circulation,Apple has a larger cultural foot-print than any other techcompany. In an interview withFortune executive editor AdamLashinsky (see page 112), AppleCEO Tim Cook makes the casethat those products are intrin-sically a force for good—fromthe process of their construc-tion (Apple runs its own facilitiesoverwhelmingly on renewableenergy), to their potential as atool for medical research, to the2 million U.S. jobs Apple believesit creates through its “app econ-omy.” The value of this $815 bil-lion company, in other words,goes far beyond its market cap.

32DSMNetherlands

A food-science company takesthe fight against malnutrition tofamine’s front lines.

JPMORGAN CHASEU.S.

America’s biggest bankdesigns a blueprint for urbaneconomic revival.

APPLEU.S.

Serving health, education, andthe climate with some of theworld’s most popular products.

revitalization, and de-ploying a “service corps”of advisers to help thoseinvestments bear fruit. InDetroit, its efforts havecreated some 1,700 jobsand seeded more than100 new businessessince 2014 (see page94); this fall, the bankwill expand the model tomultiple cities. The end-game: A virtuous cy-cle where healthier citiesbreed healthier busi-nesses—in other words,an ideal climate for thebanking industry.

BUILDER, REBUILDERDeveloper CliffBrown at the Coe atWest Village, a realestate project un-der construction in arebounding Detroitneighborhood.JPMorgan Chase hasinvested $150 mil-lion in revitalizing thecity and retraining itsworkforce.

PHOTOGRAPH BY M A RV I N S H AO U N I

CHANGETHE WORLD

78F O R T U N E . C O M / / S E P . 1 5 . 1 7

In 2008, this pri-vate equity firmlaunched a $135million social-im-pact investing fundaimed at emerg-ing markets in Asiaand Africa. Today,the firm’s 17 port-folio companiesreach 111 millionpeople—more than80% of them inlow income brack-ets—with finan-cial and health ser-vices that are hardto access in theirhome countries.Among the Leap-Frog stars: SouthAfrica’s AllLife,the first companyto offer life insur-ance coverage toHIV-positive indi-viduals, and Pe-tra, the largest in-dependent pensiontrustee in Ghana.

There are apps fortracking your cal-orie intake, so whynot for your carbonfootprint? AntFinancial’s Ant For-est app has lured450 million usersin China to do justthat, in fulfillmentof parent AlibabaGroup’s pledge touse financial tech-nology to tackleclimate change.Users earn pointstoward plantingvirtual trees byadopting earth-friendly habits. Thecompany plants areal tree for every17.9 kg of carbonsaved: Over 8 mil-lion will be plantedin 2017. And theengagement keepscustomers loyal toAnt’s widely usedpayment app.

5 LEAPFROGINVESTMENTS

U.K.

Building financialsafety nets in Asiaand Africa.

6 ANTFINANCIAL

China

A tree-plantingapp inspires earth-friendly habits.

SWISS PHARMACEUTICAL giantNovartis has made waves with adrug pipeline that includes oneof the most talked-about exper-imental cancer therapies in re-cent years—a treatment calledKymriah that reconfigures thebody’s own immune cells to be-come aggressive blood-cancerkillers. Kymriah just won a mile-stone FDA approval to becomethe first drug in its class.

Innovation comes in manyforms, and the company hasshown a willingness to applythis same creativity to its drugpricing structure, adhering tothe philosophy that medicinesshould be judged on their worth.The company’s access initiativesin developing nations reflect oneaspect of that thinking: Novar-tis offers treatments for deadlychronic illnesses at $1 per treat-ment per month to governments

NOVARTISSwitzerland

Finding the right balancebetween a potent drug pipelineand people-friendly pricing.

and public-sector customers inpoor countries, as well as edu-cation and screenings in placeslike India, Kenya, and Vietnam.

Novartis has also set out tochange how the biopharma in-dustry and governments ap-proach drug pricing and devel-opment. Its Sandoz unit wasthe first to win U.S. approval ofa “biosimilar” drug—a treat-ment that’s the cheaper genericequivalent of some of the world’smost expensive therapies. No-vartis has several more biosim-ilars marketed in other coun-tries (as well as an FDA approvedcopycat of Amgen’s bestsellingtreatment Enbrel, which hasn’treached the U.S. yet due to pat-ent spats), and three others inlate-stage clinical development.

CEO Joe Jimenez, who re-cently announced that he wouldretire next year, is also cochairfor a global “value-based pric-ing” project that wants to figureout how to best match healthcare costs with patient out-comes. For Novartis, it’s not justa theoretical concept. In thecase of Kymriah, the companywill get reimbursements only ifpatients respond to treatmentwithin a month.

8 MM+Number of trees to beplanted this year as part ofAnt Financial’s energy-saving initiative.

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INDIA 49.7%

GLOBAL AVERAGE 64.0%

INDONESIA 83.5%

BRAZIL 88.9%

UNITED STATES 96.6%

PERCENTAGE OF MOTHERS WHO RECEIVED PRENATAL CARE AT LEAST FOUR TIMES BEFORE BIRTH, 2000–2015

SOURCE: WORLD HEALTH ORGANIZATIONGLOBAL AVERAGE IS FROM 2013

WALMART is using its mammothclout as the nation’s largest re-tailer to push its tens of thou-sands of suppliers to graduallyget rid of controversial chem-icals, like the formaldehyde inwood resin–based products inabout 90,000 household items.And the move has inspired com-petitors, including Target, toalso make similar efforts. So far,Walmart says, its suppliers haveremoved almost all of the pri-ority chemicals from the prod-ucts it sells.

The changes are a logi-cal extension of Walmart’slonger-term sustainabilitycampaign. As of last count,the retailer was successfullydiverting 82% of materials thatused to be considered wasteaway from landfills, comparedwith 64% just a few years ago.And green-consciousnessisn’t incompatible with suc-cess: These initiatives haven’tprevented the retailer fromracking up three years in a rowof growing U.S. comparablesales. The planet-consciouspush is also undoubtedly help-ful at a time when Walmartis looking to broaden its cus-tomer base, particularly amongenvironmentally focusedmillennials.

TESLA MAY HAVE made electricmotors cool, but Toyota madethem ubiquitous. Toyota’s Priussedans are not only the bestselling gas-electric hybrid carglobally, they also “normalized”a climate-friendly technologythat gearheads once viewed withdistrust. Toyota has now soldmore than 10 million hybridsworldwide.

Now, the automaker is push-ing the envelope again, with thefirst mass-produced fuel-cellvehicle, a zero-emissions carcalled the Mirai. There are only39 hydrogen charging stationsin the U.S.. But Toyota is help-ing spur infrastructure develop-ment for the Mirai, an effort thathappily means helping alongfuel-cell technology in general.It’s making its patents royalty-free until 2020 for researchersworking on advancing the tech-nology for other purposes. Sofar, 2,000 of the cars have soldglobally, and the numbers areaccelerating.

Up next: Toyota is developingsolid-state batteries, an elusiveholy grail that could radically im-prove range and safety for elec-tric cars. Toyota says it has plansto commercialize the technologyby the early 2020s. Fossil fuelshave never looked so prehistoric.

SOMETIMES, a low-tech cellphone can be a literal lifeline—especially if you live somewherewhere regular Internet andhealth care access is a luxury.

That’s why global conglom-erate Johnson & Johnson, inconjunction with the nonprofitgroup ARMMAN and the J&Jparent support arm BabyCenter,launched the “mMitra” programin India. Roughly translating to“mobile friend,” mMitra is a freeservice that sends pregnantwomen and new moms in Indiavoice messages that give themhealth updates and helpful in-formation about raising children.This might include data aboutpreventive care, proper nutrition,and other early-childhood healthissues (all delivered in local lan-guages and dialects).

The service is especially use-ful because even low-incomefamilies in the country have atleast one mobile device thatthey share. More than 700,000Indian women have participatedsince the project launched in2014, according to J&J. India’spoorest are getting help fromthe company in other ways, aswell: Its medicine Sirturo, whichtreats drug-resistant tubercu-losis, is being rolled out widelyacross the country.

8 97WALMARTU.S.

The nation’s biggest retailerflexes its muscles to make itssupply chain greener.

TOYOTAJapan

One of the world’s biggest auto-makers leads the charge for azero-emissions vehicle.

JOHNSON &JOHNSONU.S.

Expanding prenatal and earlychildhood care in India.

GENTLE PRESSUREA Novartis healtheducator performs ablood-pressure test inVietnam. The drugmak-er’s outreach in poorcountries helps it de-velop new markets; atthe same time, it workswith governments tokeep costs down.

MATERNITY GAPDespite its rapidly growingeconomy, India lags far behindmany other large countries inprenatal care. Johnson & John-son has helped address thatshortfall with mMitra, whichsends medical advice to preg-nant women and new mothersin remote parts of the countryvia mobile device.

CHANGETHE WORLD

80F O R T U N E . C O M / / S E P . 1 5 . 1 7

THE INVENTOR of blue jeanslaunched the industry’s compli-ance movement 26 years ago,to set standards for how gar-ment workers should be treated.Now it’s pushing apparel mak-ers to do more than just mon-itor factories to help the peo-ple who work there. That meansengaging vendors (rather thanjust policing them) in a proj-ect that Levi’s broadly calls Im-proving Worker Well-Being. Thecompany is agnostic as to whatform that takes—be it super-visor training or a factory cool-ing system—so long as it meetsworkers’ needs. Suppliers arerewarded with less absentee-ism and more productive work-ers, and Levi’s gets better part-ners. The company has alreadyreached 42 of its own vendors(that’s 140,000 workers). Formore, see page 104.

START DISCUSSING big-dataanalytics, and most people’seyes glaze over. But data wran-glers from SAS are putting thattalent to valuable use, wringinginsights out of huge collectionsof information to help humanrights workers, environmental-ists, and educators, among oth-ers. Case in point: Local law en-forcement organizations knowabout every hate crime com-mitted in the U.S., but many arenever reported to the FBI. At anSAS-sponsored event dubbedthe North Carolina DataDive, theAnti-Defamation League gothelp building tools to match on-line news reports with gaps inthe FBI reports. Another groupbuilt a tool to identify storesthat illegally sell tobacco prod-ucts to minors. Big data: It’sgood business, but it’s not justfor businesses.

1 21 1LEVI STRAUSSU.S.

An apparel-industry standardbearer pushes its suppliers to domore for garment workers.

SASU.S.

A big-data giant helps crime-fighters find crucial investigativepuzzle pieces.

THE NORWEGIAN fertilizer com-pany has been lauded for seed-ing a green revolution in Tanza-nia. The firm played a lead rolein the conception of SAGCOT, anambitious public-private part-nership dedicated to revitaliz-ing a 300,000-square-kilometerband of arable but underproduc-tive land—a tract about the sizeof Italy—and boosting the in-comes of the smallholder farm-ers whose livelihoods dependon it. Yara has leaned into thenew market, selling fertilizer, ofcourse, but also offering agri-cultural training; participatingfarmers have seen their yieldsincrease tenfold in most cases.The firm, which also built a$20 million fertilizer terminal inDar es Salaam, Tanzania’s larg-est city, is growing with them; itnow commands close to a 50%market share in the country.

1 0YARANorway

A fertilizer maker helps Tanza-nia’s subsistence farmers makethe most of their land.

In the 1990s,consolidation re-sulted in the clo-sure of almost athird of Australia’sbank branches.Approached byabandoned com-munities, thisbank launched aCommunity Bankmodel in 1998where towns-people could ownand operate theirown branches.Around 320 local-ities now run suchbanks, with almost$165 million dis-bursed from prof-its to local causes.

13BENDIGO &ADELAIDE BANK

Australia

Helping isolatedcommunities runtheir own banks.

IF I HAD A HAMMERCemex’s Yo Construyo(“I Build”) trains peo-ple in sustainablebuilding techniques—imparting skills whilecreating a generationof future customers.At right, Maria Ruiz,a student in a Cemexmasonry class.

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CEMEX, one of the world’slargest suppliers ofcement, concrete, andaggregates, has goneto great lengths to fos-ter sustainable buildingpractices in Latin Amer-ica. Its program, dubbed“Growing,” has reached3 million people. In Mexicoalone, an estimated 6.7%of the homes repairedin the last 20 years havebenefited from Cemex’sgreen building push.

“Growing” is aboutmore than altruism:It also builds a marketfor the company’s prod-ucts. One element of theprogram provides Ce-mex materials for housesand home improvementto families earning lessthan $3 a day. House-holds with slightly highersalaries can obtain loansto finance similar pur-chases. And other Cemexprograms train would-becontractors (and poten-tial future customers) inconstruction and entre-preneurship.

Cemex has also beentackling one of the re-gion’s endemic problems:unsafe stoves. Cemex’sClean Cookstoves areconcrete stoves thathave been installed toreplace dangerous andopen stoves in over80,000 households inLatin America.

1 8CEMEXMexico

A concrete maker helps putroofs over more people’s headsin Latin America.

This year saw the10th anniver-sary of the pay-ments system M-Pesa, launchedby Vodafone andSafaricom inKenya. The plat-form, which letspeople send cur-rency via text mes-sage, has spreadto 30 million usersin 10 nations. Thepartners hope toextend its empow-ering effects withan e-commercesite, Masoko,designed to helpsmall merchantsfind customers.

Think of Go-Jek asUber for motor-bikes. This on-demand deliveryservice—offeringrides, food, beauti-cians, and more—has boosted theeconomies of fa-mously gridlockedJakarta and othercities. Small busi-nesses have seensales soar oncethey’ve regis-tered on Go-Jek’splatform. Its driv-ers, meanwhile,get health bene-fits, vehicle insur-ance ,and safetytraining.

In China, WeChatis a digital nexuswhere consumerspay bills, hail rides,and shop for babyproducts; 938 mil-lion monthly activeusers congregateon the platform.WeChat is now ex-panding into theworkplace: Over20 million usershave applied forleave or reimburse-ments through en-terprise accounts.That’s a valuableservice in a coun-try where workersoften live far fromtheir employers.

16 VODAFONE

U.K.

Extending the e-commerce boom toAfrican merchants.

17 GO-JEK

Indonesia

A motorbike-fueleddelivery servicedrives a boom.

15 TENCENT

China

A ubiquitous appmakes life moresecure for workers.

The more scien-tists study sugar,the more they dis-cover how harm-ful it can be. Nestléhas cut added sug-ars across most ofits portfolio, andplans to cut 5%more by 2020. Ithas also pouredR&D money intochanging sugar’sstructure. By es-sentially creating ahollowed-out crys-tal, Nestlé thinksit can reduce theamount it uses incertain products(including choco-late) by up to 40%.

14 NESTLÉ

Switzerland

Weaning itself, andmillions of custom-ers, from sugar.

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WHEN THE Panama Canal Au-thority insisted that its massivenew locks waste less water thanthe old ones, CH2M helped de-sign and build the solution: clev-erly engineered recycling basins.The firm began developing en-vironmental expertise decadesago, a prescient strategy giventoday’s demand for greater sus-tainability in construction. Cur-rent notable projects includea 20-mile elevated railway onOahu, a 16-mile waterway inDubai, and London’s Crossrailproject. Its environmental capa-bilities were a major attractionfor the Jacobs engineering firm,which recently said it would buyCH2M for $3.3 billion.

BECOMING ENTIRELY carbon-neutral by 2050: That’s what thiscompany, which generates anddistributes energy in 30 coun-tries, has set its sights on doing.In 2015, 46% of the energy Enelsupplied was produced withoutany carbon dioxide emissions.Enel recently created the firstgeothermal plant in Latin Amer-ica (in Cerro Pabellon, Chile). Ithas also been teaming up withsmaller energy innovators: Overthe past two years, Enel has col-laborated on 80 sustainabilityprojects by startups, includinga “Vehicle-to-Grid” hub in Den-mark that channels surplus en-ergy from electric cars back intothe main power grid.

BANGLADESH’S citizens facehuge financial challenges: Morethan one-third of the popula-tion lives below the poverty line,and around 60% have no accessto a bank or other formal finan-cial institution. Enter bKash, nowthe country’s most popular mo-bile financial service provider.It allows people to make pay-ments and transfer money viatheir phones. Some 22% of Ban-gladeshi adults now use bKash,and more than 4.5 million trans-actions pass through the systemevery day. Citizens also benefitfrom bKash’s many competitors;the country’s mobile bankingtransactions topped $20 billionin 2015.

UNILEVER, the food and con-sumer-goods giant behind Dovesoap and Hellmann’s mayo, hasplaced a big bet that it can bestgrow by “making sustainable liv-ing commonplace.” Attemptsto resolve social challenges likefood waste and climate changearen’t side projects: They’re in-tegrated into how its businessesare run, whether that meanscutting back on water use or re-ducing plastic in packaging. Uni-lever’s board rallied behind thatvision this year to help stymiean unsolicited takeover bid fromKraft Heinz; some worried thatthe latter company’s emphasison cost-cutting would under-mine Unilever’s ethos.

SOME PROJECTS of Accenture’sAnalytics and Health and Pub-lic Services teams are liter-ally matters of life and death.In Saga Prefecture, Japan, theconsulting firm analyzed trans-port data and identified inef-ficiencies, helping to shave acritical 1.3 minutes off emer-gency transport times. In Va-lencia, Spain, it reduced hospi-talizations and E.R. visits nearly80% with a predictive analyticssolution that identified patientsat risk of avoidable, repeat trips.And in the U.S., people using dig-ital tools created by Accentureand insurer Aetna achieved 5%to 10% weight loss, helping pre-vent the onset of diabetes.

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CENTENEU.S.

Keeping Affordable Care Actcustomers covered as uncer-tainty narrows their options.

CH2MU.S.

An engineering firm brings ex-tensive environmental expertiseto huge public projects.

ENELItaly

A multinational energy companystrives to lower the world’scarbon footprint.

BKASHBangladesh

Making money accessible byphone in a mostly “unbanked”nation.

UNILEVERU.K./Netherlands

A consumer-goods and foodgiant aims to integrate sustain-ability into, well, everything.

ACCENTUREIreland

Using data analytics to helphealth care providers make life-saving differences.

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19.8%

22.3%

24.3%

24.4%

21.6%

22.4%

10% 30 40 50 60%

SHARE OF ELIGIBLECITIZENS COVEREDTHROUGH ACA HEALTHEXCHANGES, 2016

SOURCE: KAISER FAMILY FOUNDATION

IN MID-AUGUST, about 8,000people in 14 Nevada coun-ties faced the likelihood thatthey’d have no Affordable CareAct health-plan options in 2018.Then, insurer Centene an-nounced that one of its subsid-iaries would serve the state’s“bare” counties. This same sub-sidiary is a key part of Nevada’sMedicaid managed-care pro-gram. Centene is betting it cansucceed in markets that higher-profile insurers have fled in theface of continuing uncertaintyover the ACA. The bet is payingoff financially: Centene reported$12 billion in total revenues inthe second quarter (a 10% year-over-year improvement).

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COVERING THE GAPSThe reach of the Affordable Care Act has varied by state—and uncertaintyabout its future has curbed its expansion. But Centene has remained a keyinsurance provider in many of the states where the ACA’s health exchangeshave enrolled the highest proportion of the population.

ILLUSTRATIONS BY J O N AT H A N C A L U G I

Two years ago,Microsoft CEOSatya Nadellaemailed a newmission statementto employees.Their job, he wrote,is “to empowerevery person andevery organiza-tion on the planetto achieve more.”That empower-ment mission in-cludes lobbyingthe government tofree up broadcastspectrum to bringInternet accessto the 24 millionAmericans whodon’t have it. Theendgame: Micro-soft wants morepeople to benefitfrom software (in-cluding its own)that’s out of reachif they can’t accessthe cloud.

Index funds, whichmirror the stockmarket’s perfor-mance at low cost,outperform thevast majority offunds run by high-priced stock pick-ers. Vanguard in-troduced the firstsuch fund in 1976:Growth explodedfour years ago asinvestors trauma-tized by the finan-cial crisis beganstampeding toindex funds, over-whelmingly Van-guard’s, into whichthey now depositover $100 millionan hour. The “Van-guard effect” hasforced competitorsto cut their costs.The result: morecomfortable re-tirements for mil-lions of people.

25 MICROSOFT

U.S.

Battling to bringbroadband to ruralAmerica.

26 VANGUARD

U.S.

Slashing the costof investing forretirement savers.

BEIJING-BASED Mobike isthe largest among about30 Chinese startups vyingto become China’s domi-nant, dockless bike shar-ing platform. The com-pany, backed by Chinesetech giant Tencent Hold-ings (see No. 15) and Tai-wan’s Foxconn, has raisedover $928 million to fundits vision for sustainableand responsible mobility.

The company encour-ages city dwellers to ditchtheir cars and scootersfor cheery orange bicy-cles, which can be rentedfor less than a dollar perride by simply scanning

MOBIKEChina

Tackling China’s carbon-emissions problem,two wheels at a time.

a QR code on a free app.The system hasn’t beenglitch-free—some cit-ies have reported prob-lems with people throwingthe bikes away or leavingthem in hazardous places.But Mobike now has over100 million registeredusers in 100 cities world-wide, and the World Wild-life Federation estimatesthat the 2.5 billion kilo-meters collectively riddenby users since the ven-ture’s April 2016 launchequates to a reduction of610,000 tons of carbondioxide emissions.

The bike’s sensors,meanwhile, are assem-bling a vast trove of dataabout user habits. Thecompany says the datawill be used to determinebike distribution plansand help governmentsbuild better transportinfrastructure.

0.12¢Average fee paid by inves-tors for every $100 invest-ed in a Vanguard mutualfund—among the nation’slowest “expense ratios.”

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CHANGETHE WORLD

CLIMATE CHANGERSPersistent, severepollution and a grow-ing governmentcommitment to low-emissions transpor-tation have sparked asurge in bike-sharing in China.About 30 startups,including Mobike(above), compete inthe field.

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Australia’s larg-est issuer of motorvehicle insuranceis also the coun-try’s only insurerwith a dedicatedresearch facility,and it puts its find-ings to use to keepdrivers safer. It de-veloped Australia’sfirst system thatrated a vehicle’sresistance to theft;it also offers cus-tomers premiumdiscounts of up to15% if their vehiclehas autonomousemergency brak-ing, technologythat can sharplyreduce fatalities.

In the gig econ-omy, fees chargedby the “platform”companies canmake a big dent inusers’ income. Butpeople who rentout their homes viaAirbnb, the lodgingjuggernaut, keepup to 97% of thecost of the rental(that compareswith 70% to 80%at ride-sharingcompanies). Thatgenerosity em-powers hosts whoneed the money,and it hasn’tstopped Airbnbfrom becomingprofitable.

TCS became India’sbiggest informa-tion services com-pany by servinggiant multination-als. But the com-pany also appliesits software savvyto help India’spoorest farmers.Its mKrishi, a mo-bile advisory ser-vice, gives farmersaccess to custom-ized advice fromagricultural ex-perts to help themdecide what cropsto raise, anticipateweather changes,and predict whencrops will fetch thebest price.

Ikea relies on morethan 1,000 suppli-ers to help produceits globally popularfurniture. Its socialentrepreneurs ini-tiative widens thatcircle to includethe disadvan-taged. The com-pany is workingwith an NGO in Jor-dan that plans toemploy about 200Syrian refugees toproduce goods liketextiles and rugs.Other initiativeprojects employwomen entrepre-neurs in India andfemale immigrantsin Sweden.

29INSURANCEAUSTRALIAGROUP

Australia

Devoting dollars todriver safety.

31 AIRBNB

U.S.

A sharing-economypioneer sharesmore with hosts.

30TATA CONS.SERVICES

India

Putting softwaresavvy to work forsmall farmers.

32 IKEA

Sweden

Expanding a supplychain to help theneediest find work.

ELECTRIC CARS are mov-ing from the fringes tothe mainstream—partic-ularly in China, where thegovernment has offeredbig incentives to encour-age electric-car start-ups. Still, few if any of theworld’s legacy carmak-ers have answered thecall for a greener, cleanerworld quite like Volvo. InJuly, the Swedish-based,Chinese-owned carmakerannounced that from2019 onwards, every newVolvo vehicle would runon an electric motor—ei-ther a purely electric one,or a hybrid—moving awayfrom the internal com-bustion engine.

Volvo’s move marksthe biggest, boldest steptoward a decarbonizedfuture by a combustion-engine car manufacturer,and while sales of elec-tric cars rode past the2 million mark last year,Volvo’s commitment isurgently needed. Around95% of the world’s trans-portation energy comesfrom petroleum-basedfuels, and in the U.S.,motor vehicles accountfor nearly one-fifth ofgreenhouse gas emis-sions. Volvo is reformingitself from a position ofstrength: It sold 534,000cars last year worldwide,up 6.2% from the previ-ous year.

2 8 VOLVOSweden/China

A venerable automobile manu-facturer swears off the gasoline-powered engine.

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GERMANY HAS some of theworld’s toughest sustainabil-ity standards, so a German com-pany that routinely wins awardsin that department is worth not-ing. Grohe, part of Japan’s LixilGroup since 2014, has an ob-sessive approach to eradicat-ing waste and minimizing energyuse. It recycles 99% of the wa-ter it uses in making its kitchenand bathroom fittings. Its smarthome system shuts down a resi-dence’s water supply if it detectsa leaky pipe; and its water filtra-tion systems provide bottled-quality water from the faucetwith a carbon footprint 40%smaller than that of normal bot-tled water. Corporate standardsare maintained by staff train-ing sessions, while suppliers aresubjected to strict audits toensure they meet social andenvironmental benchmarks.

PLENTY OF corporations havebemoaned the shortage ofhighly skilled American workers.Few have gone as far to addressit as IBM. Pathways in Technol-ogy Early College High School,or P-Tech, launched in Brook-lyn in 2011. Its six-year pro-gram blends the traditionalfour-year high school experi-ence with two years of college,so graduates earn associate de-grees in a STEM field. The ap-proach has proven so popularthat some 300 other corporatepartners have adopted it, help-ing launch 70 P-Tech schools inthe U.S., Australia, and Morocco.And IBM’s own P-Tech schools—it’s now the corporate partner ateight—are funneling graduatesinto its workforce. Of 100 gradu-ates so far, 11 now work at IBM;the majority of the rest are pur-suing four-year degrees.

CEO MARC BENIOFF practicallyinvented the modern-day mar-riage of sincere do-gooderismand shrewd marketing for thecorporate good. By instituting a1-1-1 model early on—Sales-force donates 1% of equity, 1%of product, and 1% of employ-ees’ time to charity—he insti-tutionalized a culture of givingback. But the mindset paved theway for acts that also served thebottom line. Case in point: giv-ing away access to applicationsto non-profits, a low-cost way tocreate a pool of potential futurecustomers. Benioff also tappedinto the zeitgeist of younger em-ployees who want to work some-where where they make a dif-ference. Talking up Salesforce’ssoftware and schlepping codeare a lot more interesting whenbalanced with donating time andmoney to cherished causes.

3 5 3 63 4 GROHEGermany/Japan

A plumbing-fixture maker de-votes itself to saving water.

IBMU.S.

A tech leader partners withpublic schools to close the STEMskills gap.

SALESFORCEU.S.

A CEO’s outspoken stances onsocial issues help his companywin the talent wars.

Hong Kong’s MassTransit Railwayruns on schedule99.9% of the time,and commutersenjoy one of thelowest fares in theworld. Remarkably,the railway runswithout direct tax-payer subsidies:Its “Rail plus Prop-erty” model allowsit to profit from de-velopment rightson land along itsroutes. Next up: anew generation oflow-carbon transitprojects, funded inpart by a $600 mil-lion “green bond”issuance.

33 MTR

Hong Kong

A pollution-fightingtransit system willsoon get greener.

THAT ELECTRIC FEELWorkers assemblea Volvo V60 plug-inhybrid automobile ata plant in Sweden.The company haspromised to pro-duce only hybrids andpurely electric carsbeginning in 2019.

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SOURCE: OECD

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1990 20141990 2014 1990 20141990 2013 1990 2014

SOUTH KOREAJAPAN U.S.U.K. MEXICO

6.7%

12.7%

14.5%

17.3%

25.1%PERCENTAGE OF POPULATION AGED 65 OR OLDER

FOR SOUTH KOREANS, age isn’tjust a number, but a problem ina land where the elderly popula-tion is growing rapidly. By 2050,more than half of its workerswill be over 50, and almost halfof those over 65 years today arein poverty. Aggravating this is-sue: Mandatory retirement agesof 55 or 60 are common in thecountry.

Conglomerate CJ Group hasoffered those who are cast outof the workforce a way back in:delivering its packages. UnderCJ Logistics, the company hastrained older people to be deliv-ery agents across most of thecountry’s provinces. Over 1,000jobs have been created, andthe average monthly income is180% higher than that offeredin part-time public-sector jobsfor seniors. CJ aims to expandthis model to those with disabil-ities and low-income popula-tions. “One of the most impor-tant things a corporation can dois to create jobs,” said HeekyungJo Min, a social-responsibilityexecutive at the company.

THE NOTION OF a Silicon Valleyunicorn that collects your ge-netic information makes somepeople reflexively nervous. But23andMe cofounder and CEOAnne Wojcicki makes a strongcase that her firm is about per-sonal empowerment.

The startup won a mile-stone Food and Drug Adminis-tration (FDA) approval this year:Now, 23andMe is allowed to sellits at-home DNA testing kitsdirectly to consumers and pro-vide them with detailed risk re-ports for a variety of conditionslike Alzheimer’s and Parkinson’sdisease—with no prescriptionrequired. For Wojcicki, the tech-nology extends to people theright to know as much as possi-ble about their own bodies. Shepoints out that a huge slice of23andMe customers have madelifestyle changes based on whatthey learn from the company’stests. Users can also choose toshare their data to assist clini-cal drug research. 23andMe saysit now has more than 2 millioncustomers across the globe.

SELF-DRIVING CARS may some-day save us from ourselves,mooting the human error thatcauses most car accidents. Butfor now, we drivers are all toohuman, and still need remindersto stay vigilant.

That’s the premise behindAllstate’s Drivewise app, whichdebuted in 2010. The app syncsup to a telematics device thatplugs into a vehicle’s dashboard.The app tracks risky behaviors,including speeds exceeding 80miles per hour and instancesof “extreme” braking. App us-ers can get real-time alertswhen they go astray, but thosewho don’t want that distrac-tion can check their historieson an online dashboard. If see-ing a scoreboard doesn’t prompta driver to change bad habits,getting discounts for improvingthose habits just might.

Allstate benefits from saferdriving too, of course, thanks tolower accident payouts; it alsouses the data to create newsafety-related products andservices.

UNEMPLOYMENT and agricul-tural challenges have beenpressing issues in South Africaover the last decade. Beginningin 2007, retail and food giantWoolworths took aim at ad-dressing them with the GoodBusiness Journey, a major pivotthat puts the company on a pathtowards sustainability.

Solutions at Woolworths(which has no connection to thesimilarly named U.S. and Austra-lian chains) have been manifold.The Supplier and Enterprise De-velopment program brought inblack- and women-owned smallbusinesses; it gave out almost$2 million in loans to 48 sup-pliers last year. Woolworths hasalso brought 95% of its primaryproduce suppliers into Farmingfor the Future, imparting goodenvironmental practice in acountry that ranks as one of thedriest in the world. In the firstthree years of that program,suppliers have decreased waterusage by 16%, and have halvedthe usage of pesticides andherbicides.

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AGING FASTPeople over age 65make up a growingshare of the popu-lation in most of theworld. But their risehas been particularlysharp in East Asiancountries, and thosecountries’ econo-mies have struggledto absorb their fast-growing ranks of el-ders. South Korea’sCJ Group has beenaddressing the prob-lem by creating morejob opportunities forolder workers.

ALLSTATEU.S.

An auto insurer’s app encour-ages (and sometimes pays)drivers to make safer decisions.

WOOLWORTHSSouth Africa

A retailer helps small businessesand farmers fight drought—including the economic kind.

CJ GROUPSouth Korea

Creating jobs for older workers ina society that often forces themto retire early.

23 AND MEU.S.

Arming people with detailedinformation about their bodies,and the freedom to act on it.

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“Small BusinessSaturday,” the dayafter Black Friday,began as an Amer-ican Expressmarketing idea in2010. But so accu-rately did the cam-paign capture thezeitgeist that, bylast year, 112 mil-lion consumersspent $15.4 bil-lion at local storeson the day, a hugewindfall for smallshops. The smallbusiness focus,which includes aprogram to helpsuch operationswin governmentcontracts, hasgiven AmEx a com-petitive edge: It’snow the leader insmall businesscredit cards, withabout 27% of themarket.

For the 20 millionpeople facing star-vation around theworld, getting foodthat arrives in-tact and ready toendure the worstconditions canbe a matter of lifeand death. Since2015, the Austra-lian-based pack-aging giant Amcorhas been work-ing with the WorldFood Programmeon improving theway aid and food-stuffs are deliveredto the most re-mote parts of theworld. Already, re-vamped packageshousing vital nutri-tional supplementshave saved almost$3.2 million for theWFP, and reducedpackaging wasteby 275 tons.

41AMERICANEXPRESS

U.S.

A financial giantgives a big boost tosmall merchants.

42 AMCOR

Australia

Keeping food safefor those who needit most.

GLOBAL HOSTSWorkers at a train-ing session prior tothe 2015 opening of anew Marriott in Port-au-Prince, Haiti, in2015. Marriott’s com-mitment to hiringand training locallyhas widened its eco-nomic impact in the122 countries whereit operates.

A HOSPITALITY companyis unlikely to succeedif its customer-facingemployees are unhappy.So hotel operatorMarriott has made it atop priority to keep itsemployees engaged.Some 92% of Marriott’sworkforce (now up to140,000 since its mega-merger acquisition ofStarwood) say they areproud to work for thecompany, according toa recent survey by GreatPlace to Work.

What’s more, Marriotthas made it a priority

MARRIOTTU.S.

The world’s biggest hotel chainbuilds a ladder to the top forlower-skilled workers.

to help employeesfeels like they can havecareers there and notjust be grunt workers.Some 50% of Marriottmanagers started outin hourly positions. Thispays off in the form oflower turnover: Of thecompany’s employees,more than 13,000 havebeen with the companyfor 20 years or more;the average generalmanager has been withthe company for morethan 25.

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AT A TIME when immigrationcontinues to be a hot-buttontopic, Chobani and its founderand CEO, Hamdi Ulukaya, havedoubled down on their effortsto help immigrants and refu-gees integrate into U.S. life—even as the company hasweathered physical threats andthe specter of boycotts. Some30% of the yogurt juggernaut’s2,000-employee workforce in

INCLUSIVE CULTUREChobani founder andCEO Hamdi Ulukaya(left) trains workersin a Twin Falls, Ida-ho plant. Chobani’sworkforce includesseveral hundred re-settled refugees.

CHOBANIU.S.

A fast-rising food companyshares the wealth with resettledrefugees.

4 4

Earlier this year,the tech giant thatpioneered build-and-mail-to-ordercomputers be-gan collectingocean-bound plas-tics from beachesand waterways—and recycling thewaste into “trays”for shipping itshigh-ticket con-sumer laptops.The program is ex-pected to keep16,000 pounds ofplastics out of ouroceans; it has alsosaved Dell morethan $1 million,and Dell has bigplans to expand.

A food servicecompany with425,000 workers,Sodexo is a leaderin hiring physicallychallenged peo-ple—an underrep-resented group of-ten overlookedby employers—and has pledgedto make programsfor disabled peo-ple accessible to100% of its work-force by 2025.Sodexo also helpsfarmers with dis-abilities or healthconditions mod-ify their equipmentto address mobilitychallenges.

Agriculture ac-counts for about9% of U.S green-house gas emis-sions; LandO’Lakes wants tobring that figuredown. The nearly100-year-oldfarmer-owned co-operative, whichtouches half of theharvested acres inthe U.S., launcheda new businessunit last year; ituses ag-tech tohelp farmers uptheir efficiencywhile improvingsoil health and wa-ter quality.

The sixth-largestairline in the U.S.can’t help but useenormous quanti-ties of fuel, water,and metals. Butby relying moreon eco-friendlyfuel and recyclingall sorts of waste,from crew uni-forms to planeparts to food, Jet-Blue is reducingits impact on theplanet. The airlinelast year agreed tobuy over 330 mil-lion gallons of re-newable fuel overthe next decade,one of the largestsuch deals yet.

Protecting a busi-ness from hackersrequires more nim-bleness today, andcybersecurity gi-ant Palo Alto Net-works has helpedpioneer a firewallthat gives compa-nies some neededflexibility. Theirtool allows IT prosto control dataflows, analyze traf-fic, and filter andblock threats ac-cordingly. Palo Altois repositioning it-self as a platformfor others to buildsecurity apps—their own plates ofarmor—on top.

Nutresa, the lead-ing processed-food companyin Colombia, hasmasterfully re-duced its environ-mental impact bycutting energy andwater consump-tion and scalingback greenhousegas emissions,helping Colom-bian coffee grow-ers produce beanswith up to 90%less water. It’s alsofighting malnutri-tion by teachingvulnerable farmersto live more sus-tainably off of theirown land.

48DELLTECHNOLOGIES

U.S.

Mailing more goodsin green packages.

47 SODEXO

France

Bringing the phys-ically challengedinto the workforce.

50 LAND O’LAKES

U.S.

Turning America’sfarmers into earthallies.

46 JETBLUE

U.S.

A small airlinesets the pace onrenewable fuels.

49PALO ALTONETWORKS

U.S.

Empoweringbusinesses to fendoff cyberattacks.

45GRUPONUTRESA

Colombia

A greener approachto coffee and icecream.

Idaho and upstate New York wasborn abroad, and of those, sev-eral hundred are resettled ref-ugees. Ulukaya’s efforts go be-yond his adopted home country;the Turkish-born entrepreneurhas also pumped $5 million intoa program to encourage start-ups in his native land.

The Chobani brand, mean-while, hasn’t been hurt by theattention: Annual sales are nowrunning at about $2 billion, andit’s now the No. 1 Greek yo-gurt brand in the U.S. and theNo. 2 yogurt maker overall. Ulu-kaya has thanked his employeesin a very specific way: Last year,he pledged to give away 10%of the company’s shares in theevent of an IPO or a sale, a wind-fall potentially worth hundredsof millions of dollars at currentvaluations.

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Some of the country’s most noteworthy nonprofits owe their fund-raising success to Blackbaud. The company, based in Charleston, S.C.,sells enterprise software that can manage big philanthropic and char-itable projects; it helped power 2014’s ice bucket challenge, in whichthe ALS Association raised $115 million to fight Lou Gehrig’s disease.And its own shares have more than doubled in the last three years.

Using a process called electrochromism, which enables materialsto change color based on its exposure to light, View has created adynamic glass that sharply diminishes heat and glare. That not onlyboosts work productivity, but lowers electricity consumption by upto 20%. Since its founding in 2007, View has supplied windows forover 500 commercial buildings.

When plants are attacked by disease or pests, they produce distinctvisible patterns on their leaves. Peat has created an app for farmers,Plantix, that allows a phone camera to detect the patterns at earlystages, and then sends instructions about specific treatments.In some parts of India, where up to 30% of harvests are lost eachyear to diseases and pests, it has become an invaluable tool.

Seattle-based Tableau specializes in data analytics and visualiza-tion. Partnering with PATH, an international health organization,it helped build a disease surveillance system that has decreasedreported malaria infections in Zambia by 93% since 2014. On tapis a partnership with the World Food Programme on a system thatcould steer food aid more quickly to vulnerable communities.

Through “bug bounty” programs, this San Francisco startup con-nects companies with highly skilled hackers to find software vulner-abilities before they are exploited. Some organizations, includingthe Defense Department, General Motors, and Starbucks, pay forthe services, but HackerOne works pro bono for some of the open-source projects that provide much of the Internet’s infrastructure.

Millions of people can thank this disinfectant manufacturer for theirpotable water. When inserted in contaminated water, Medentech’sAquatabs kill the microorganisms that cause cholera, typhoid, anddysentery within 30 minutes. Some 20 countries and major aidagencies rely on the tablets in emergency and disaster scenarios;the tablets have agricultural applications too.

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C H A N G ET H E W O R L D

RISING STARSBig ideas some-times come in lit-tle packages, andplenty of smallerbusinesses havea big influence ontheir communities,their customers,and the planet.Our Rising Starslist honors com-panies with lessthan $1 billionin annual revenuewhose positiveimpact farexceeds their size.

—SYDNEY AGUS ANDJONATHAN VANIAN

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MASTERCARD CEO Ajay Banga remembers hearingDov Seidman lecture at the World Economic Fo-rum in Davos a few years ago. Seidman was one ofthe more unusual speakers on the agenda—thankspartly to the way he spoke, gliding easily fromhistory to philosophy to the curious anthropologyof Facebook. (Seidman holds a pair of master’sdegrees from UCLA and Oxford as well as a lawdegree from Harvard.) But what made him trulystand out in the cacophony of CEO chatter was thetopic of his remarks: “moral leadership.” His wordswere challenging, surprising, and inescapablyrelevant, Banga thought. Indeed, it was a topic theFortune 500 CEO had wrestled with himself.

When Banga later sought Seidman out, the twosoon found themselves rapt in conversation. Theytalked about the dangers of leading “in a vacuum,”Banga recalls. You may think “you can build a siloand run your company inside there and not worryabout these currents and tides flowing just outsideyour boardroom,” he says. “But sooner or later theenvironment you’re working in will have an impacton you.” As for Seidman, his counsel, importantly,didn’t derive merely from philosophy books butalso from his own business. He’s the founder andCEO of a 23-year-old tech company called LRN,which markets ethics and compliance software andcontent to corporations like Apple and Pfizer.

When I asked Aetna CEO Mark Bertolini andUnilever CEO Paul Polman the same question asBanga—“What is so unique about this corporatewhisperer?”—both answered in much the sameterms: Seidman, they said, has a rare ability to takethe challenges that CEOs and other leaders face intheir day-to-day roles and place them in a broadercontext of decision-making—one that brings intogreater focus the real effects on coworkers, commu-nity, and the enterprise itself.

That seemed reason enough to invite him tooffer Fortune readers a framework for how to leadtoday. Here, his four principles. — CLIFTON LEAF

THE FOUR PILLARSOF MORAL LEADERSHIP

IN AN AGEWHERE THERULES OFENGAGEMENTSEEM EVER TOBE CHANGING,HERE ARESOME GUIDINGPRECEPTS THATHAVE STOODTHE TEST OFTIME.

THE ANIMATING SPIRIT OF BUSINESS

has always been an ambitionto do big things—to buildsomething valuable, to solve adifficult problem, to provide auseful service, to explore thefrontiers of human possibility.

At its essence, therefore, business is about human en-deavor. And for humans to endeavor together, there mustbe an animating ethos and ethic of endeavor.

But it’s getting harder for leaders to foster this ethos, andto lead through it on the way to doing big things. That’sbecause they’re trying to do so in a world that is not justrapidly changing, but in one that has been dramaticallyreshaped. And the world has been reshaped faster thanwe’ve been able to reshape ourselves, our institutions, andour models of leadership.

First, individuals around the world have gone from beingmerely connected a generation ago to globally interdepen-

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morally unmoored, with fewbulwarks to lean on. Trust hasbroken down—between citizensand elected officials, betweenbusiness leaders and employ-ees, between consumers andsuppliers, between people withopposing opinions.

For executives who pridethemselves on facing up to hardtruths, here’s one: No one is ex-empt from this moral crisis andits consequences. Leaders can’tafford to dismiss it or to watchit unfold while privately think-ing, “It doesn’t affect me and mybusiness.” The forces behind itare sweeping, indiscriminate,and unforgiving, and the timeto reckon with them is now.

Only one kind of leadership can respond to this moralcrisis of trust—and that’s moral leadership. It doesn’t come,however, from formal authority. You don’t get it by winningan election, or being named the boss, or locking it up withsupervoting shares. You can’t buy or seize it. Moral leader-ship stems from an authority that must be earned every day.

How? It isn’t easy. But in my years studying leadershipin business, government, and other pursuits, I’ve foundthat the most authentic practitioners, at every level in theircareers, follow certain principles. Here are four guidepostsfor building and sustaining moral authority.

1 Moral Leaders Are Driven By Purpose.True authority is formed when leaders pur-sue—and are seen by others to be pursuing—a

worthy, valuable, and noble purpose connected to humanprogress or the betterment of the world. Purpose is aboutthe fundamental nature of an organization’s endeavor. Themore worthwhile the endeavor, the more it elevates and can

dent today. The behavior of any one person can affect somany others, even those a continent away, as never before.

Second, technology is bringing strangers into intimateproximity at an accelerated pace, affording us richer ex-periences, but also demanding new levels of empathy andunderstanding. When the swipe of a smartphone can bringa traveler into our bed, a handyman into our home, and astranger into our car, how we behave becomes more critical.Social media, likewise, has shrunk the distances between na-tions, between citizens and their governments, and betweenconsumers and businesses everywhere. Any one of us, at anytime, can amplify our sentiments with a tweet or post aboutwho’s good or bad—meting out sympathy and scorn, con-demnation and redemption, to a potentially global audience.

Third, these same technologies are granting us MRI-likevision into the innermost workings of once–opaque organi-zations and even into the mindsets of their leaders.

The forces reshaping the world—interdependence, prox-imity, and forced transparency—have left us disoriented and

Seidman (right) isinterviewed byFortune’s Alan Murrayin Decemberat the Fortune +TIME Global Forumin Rome.

longings, struggles and dreams. Therefore, every decisionis made with consideration of others’ full humanity. Andbecause they see that humanity in others, they’re moreinclusive and better able to listen to and learn from thosewhom they lead.

3moral leaders are animated by bothcourage and patience.Many leaders use their formal authority (their

rank or position in the corporate hierarchy) to keep doingthe next thing right. Moral leaders, instead, focus on doingthe next right thing.

For a CEO or political leader to do the next right thing,it often takes more than intelligence and competence; ittakes courage. It takes courage, for instance, to speak outfor a principle or larger truth, especially when such anaction has the potential to put that leader in an uncomfort-able or vulnerable territory.

But courage isn’t enough. Moral leaders also needpatience. Think of patience as a way of extending trust toothers by allowing them the time to be more thorough,rigorous and creative. Patience allows for reflection andthe chance to consider the broader, longer-term outcomesof any action. While those with mere formal, or top-down,authority often feel captive to the moment and pressuredto act, those with moral authority feel empowered—and,indeed are entrusted by others—to do the next right thing.

4MORAL LEADERS KEEP BUILDING MUSCLE.Authentic leaders don’t stop learning and growingjust because they’ve accumulated formal authority

in an organization. They continue to build moral muscle—Icall it “going to the moral gym”—by wrestling with questionsof right and wrong, fairness and justice, what serves othersand what doesn’t. Their wisdom comes from viewing theworld through a lens that magnifies their own actions; theirmoral authority is enhanced when they frame issues by howtheir own actions impact the greater good.

This isn’t about not making mistakes. We all make them.(A lot.) Rather, it’s about what we do and say after thosefailures and shortcomings. It’s about how authentically weapologize and make amends. Those with moral authoritychallenge themselves—and ask whether the mistake camefrom a deviation of principle or, perhaps, as the direct resultof a misguided strategy. Moral leaders pause. They continu-ally ask if what they’re doing—or what their company ororganization is doing—is compatible with their purpose andmission. Reflecting on their own actions and leadership inthis way builds knowledge and wisdom that can be sharedwith their teams, helping others to see their own impact onthe world around them.

This is all an important part of the shared journey. Itmakes the world better and wiser. And that’s a worthyjourney to be on.

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generate dedication, devotion,and hope. Above all, when lead-ers pursue their purpose in waysthat are bigger than themselves,it creates the space for others toshare in the mission. People whomarry their own sense of pur-pose to a larger one are peopleothers want to join.

Moral leaders see the pathahead as a journey and frameit explicitly as such for thosewhom they lead. In so doing,they leverage what journeys areabout: focusing on the prog-ress, not just on results and thebottom line. Journeys challengeus to be resilient and hopeful,because journeys are hard, long,and curvilinear. They go up anddown, they zig and zag. Journeysforce us to learn, adapt, and ex-periment—and to embrace andlearn from mistakes and failuresas we strive forward. The abilityto do these things together, andto stick together when up ordown, calls forth from us all thatis moral. What makes it moral ishow we journey—how we main-tain hope, truth, and the will tofind our way when we are lost.

2MORAL LEADERSINSPIRE AND ELEVATEOTHERS.

Those with moral authority un-derstand what they can demandof others and what they must

AJAY BANGACEO, Mastercard

“Dov has an ability tobring disparate pointstogether and steer themall back to leadership.”

MARK BERTOLINICEO, Aetna

“It’s good to have some-body who tweaks you,and asks, ‘How did youthink about that action?’”

PAUL POLMANCEO, Unilever

“We need to create moreof an awareness of theleadership skills neededin the 21st century.”

inspire in them. Honesty, for example, can be demanded.But loyalty must be inspired. Moral leaders do not ask forpersonal loyalty. Just like we ask government leaders totake an oath and be loyal to the Constitution, by analogy,moral leaders ask people to be loyal not to them, but ratherto the overall purpose and mission of the organization.

For these leaders, how they wield authority followsdirectly from how they view others. They don’t see directreports but fellow journeyers, animated by hopes and

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Home to the largest concentration of engineering and industrial design talent in the nation, PlanetM conducts more than 75% of all U.S. automotive R&D. And those efforts have resulted in three times the number of automotive patents and more navigation and smart mobility patents than any other state. When it comes to leading the way in innovation, only one state is perfectly positioned in mobility. Michigan. To learn more, go to michiganbusiness.org/planetm

PURE BRAINPOWER

H E R E A R E T W O K I N D S O Fstorefronts on this stretchof Detroit’s West McNicholsRoad: Boarded-up and“Why isn’t this boarded up?”Most of the one- and two-

story buildings are clad in drab paintedplywood or the gunmetal gray of securityshutters. At 10:30 on a Thursday morn-ing, the liquor store on the corner of SanJuan is the only business with noticeabletraffic—unless you count the one beingrun out of the Honda coupe idling at a busstop. The driver is conducting a cash-for-something-in-a-sandwich-bag transactionwith a passerby, both of them obliviousto the horn blasts from the westboundNumber 30 whose space they occupy.

It’s a tableau that epitomizes what peo-ple who don’t live in Detroit imagine when

they think aboutDetroit. It’s thepicture you mightconjure when youread that the city’spopulation hasshrunk by 60%since World War II,or when you see50th-anniversaryremembrances ofthe riots of 1967.

It’s an almost-perfect image of Rust Beltstagnation; the only detail missing fromthe stereotype is that none of the shutteredstores is actually on fire.

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MAKINGA MOTOWNMIRACLE

BYMATT HEIMER

PHOTOGRAPH BYB E N BA K E R

MOTOR CITY VISIONJPMorgan has helpedDetroit make head-way against some direeconomic challenges.“We could do Detroit inthree or four places ayear, and we could do a‘Detroit lite’ in another10,” says Dimon.

JAMIE DIMON HAD A FRONT-ROWSEAT FOR DETROIT ’S COLLAPSE.NOW HE AND JPMORGAN CHASE AREFUELING THE CITY’S REVIVAL.THEIR STRATEGY IS A BLUEPRINTFOR REBUILDING AMERICA’S CITIES .

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But the real Detroit is not a blank canvas for apocalypticvisions of decline—and neither is McNichols Road. Alongwith nearby Livernois Avenue, McNichols is a main arteryof a residential area that has stayed healthy through all ofDetroit’s well-publicized woes. It’s within walking distanceof thousands of middle-income households—and withinsix blocks of two college campuses and a hospital, “anchoremployers” supporting decent-paying jobs.

That’s why a coalition of Detroiters wants to turn thisunlikely tract into an economic hub—part of a “20-minuteneighborhood” where residents could find shopping,restaurants, recreation, and jobs within a short walk fromtheir homes. A developer plans to take over more than100 abandoned houses and renovate or replace them,creating mixed-income housing along a “greenway” parkthat will link the college campuses. And nonprofit groupsare acquiring some of these blank-faced storefronts, aimingto remake them to host small businesses owned by localentrepreneurs who would hire locally—creating opportuni-ties where they’ve long been absent.

A few blocks north, Melinda Clemons shows off a biggerbuilding on a corner lot. This was once a B. Siegel depart-ment store, the centerpiece of a stretch of Livernois knownas the Avenue of Fashion. B. Siegel closed in the 1970s;the last tenant, a dollar store, fled in 2005. But Clemons isoverseeing a project that could turn this vacant hulk into itsown mini-neighborhood: a cluster of 10 sunny two-bedroomlofts, sitting atop a parade of street-level restaurants and

boutiques. Clemons, who spent her toddler years nearby,gestures down a scrappy block lined with diners, wig shops,and clothing stores that hint at the neighborhood’s prosper-ous past and present potential. “You could live here,” she sayswith a grin, “and you’d have all this.”

IT TAKES A VILLAGE to rebuild a city, and the list ofpeople and businesses collaborating on Detroit’srecovery is long. But the planning underway in

Livernois/McNichols, and in a growing roster of otherneighborhoods, reflects the expertise and financial clout ofone corporation in particular: JPMorgan Chase. CEOJamie Dimon’s financial powerhouse is the largest bank inDetroit, with a titanic 65% market share in consumerbanking. Since 2014, the company has been doubling downon that relationship, in a daring experiment to helprevitalize Detroit’s middle-class core.

The bank’s effort, called Invested in Detroit, is aneighborhood-by-neighborhood campaign to revive localreal estate, launch small businesses, and train residents forin-demand jobs—all at the same time, as quickly as possi-ble. “If you don’t have jobs, you don’t have housing,” Dimontells Fortune in an interview at JPMorgan Chase’s New Yorkheadquarters. “If you don’t have housing, people can’t getto their jobs. If people don’t have skills, people can’t buyhomes. You’ve got to make progress on all these fronts.”

Making progress involves a deft dance with carefullychosen partners. JPMorgan Chase isn’t directly paying for

PHOTOGRAPHS BY M A RV I N S H AO U N I

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a thicket of new apartments ora cohort of newly trained truckdrivers—but it’s putting up themoney to make those effortspossible. The bank has commit-ted $150 million to the project,while deploying a rotatingteam to help Detroit’s reform-ist mayor, Mike Duggan, andlocal nonprofits decide whichneighborhoods and industriesto saturate. It’s those stakehold-ers who ultimately decide wherethe money goes. “We have theintelligence that larger orga-nizations may not have,” saysClemons, the Detroit MarketLead at Capital Impact Part-ners, one of the bank’s team-mates. And that intelligenceis steering funds to businessesthat wouldn’t otherwise qualify

for them—for reasons as simple as inexperience, or as com-plicated as Detroit’s legacy of racial discrimination.

The program may lift up the needy, but it isn’t charity.JPMorgan Chase wants to foster businesses with the skillsto pay the bills—with interest. Some 55% of the money ithas distributed to date has been made up of loans, saysPeter Scher, the bank’s head of corporate responsibility.Give a woman a fish, and she’ll eat for a day. Teach her howto fish, and then lend her money to build a fish-and-chipsrestaurant, and you’ve gone beyond philanthropy—you’redoing good while doing good business.

And the business case for investing in Detroit looksincreasingly strong to Dimon. Since the financial crisis,the CEO has become convinced that the gap separatinglesser-skilled workers from good job opportunities has itselfbecome a drag on economic growth, nationwide. Do moreto close that gap—by fostering small businesses and trainingworkers—and you build a virtuous circle, where more peoplewith stable incomes foster greater prosperity. If that meansmore entrepreneurs and would-be homebuyers becomecreditworthy borrowers, JPMorgan Chase wins too. In theDetroit metro area, where the bank has $20 billion in depos-its, “We’re gaining share,” Dimon notes. “Chase is the homebank.” Imagine the returns that those $20 billion could earnin a faster-growing local economy, and a $150 million invest-ment in city-building becomes more than simple altruism.

This summer, JPMorgan Chase gave Fortune a closerlook at the work it’s supporting—a string of small projects

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GETTING A NEW HEARTWest McNichols Road(left) was once thecommercial center ofDetroit’s middle-classBagley neighborhood(below); a JPMorganChase–funded initia-tive plans to turn thestrip into a walkablemini-downtown.

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whose cumulative impact islarge. Scher’s team calculatesthat Invested in Detroit has cre-ated or preserved nearly 1,700jobs, financed about 100 newbusinesses, and reached some15,000 people through trainingprograms. In a city with un-employment above 10%, thosenumbers represent real prog-ress. More important, they’re aproof of concept. Thanks to De-troit, the bank is confident thatthis full-court-press approachis a blueprint that could workacross the country—and in thenext few months, they’ll be tak-ing components of the Motownmodel nationwide.

YOU CAN FRAME themagnitude ofDetroit’s decline with

a single statistical juxtaposition:Today, the city has about675,000 residents, down from1.8 million in 1950. By theEisenhower era, the automakersand defense contractors whohad fueled Detroit’s boom werealready adopting new technol-ogy that enabled them to shrinktheir workforces. Manufactur-ers moved to suburbs or otherstates with ample space for new,more efficient factories, andover time, tens of thousands ofworkers followed the companiesout of town.

Racial discrimination, bakedinto local politics and institu-tions, burdened those whostayed. Many Detroit suburbsmaintained a de facto segrega-tion that kept African-Americanworkers from going where thejobs were. Meanwhile, “redlin-ing” by banks—the practice of

classifying minority-dominated neighborhoods as too dan-gerous for lending—kept black families from building wealththrough home equity, and starved entrepreneurs of capital,even as “white flight” made Detroit a majority-black city.

Civil rights advances in the 1960s and 1970s loweredsome barriers, but the erosion continued. The city took adecisive kick in the teeth from the 2007–09 financial crisis,which not only drove General Motors and Chrysler intobankruptcy, but exposed how many Detroit homeownersheld subprime mortgages. Some 140,000 Detroit homeswere foreclosed on between 2005 and 2014, according toresearch firm RealtyTrac, shredding the city’s already deci-mated tax base and helping precipitate its own bankruptcy.

Among those witnessing this train wreck was Dimon,who’s been doing business in the city since the 1980s.When Dimon became CEO of Chicago-based Bank One,that institution was Detroit’s biggest lender. JPMorganChase inherited that mantle when Dimon engineered itsmerger with Bank One, in 2004. “We’ve been watchingDetroit be an accident waiting to happen for years,” he says.

But Dimon also had a front-row seat for a revival. Detroitbuilt Ford Field, a downtown stadium, to host SuperBowl XL in 2006. That helped spark some downtownredevelopment, and the movement gained momentum in2011, when Quicken Loans CEO Dan Gilbert moved hisheadquarters from suburban Livonia to Campus MartiusPlaza, steps from city hall. Since then, Quicken and Gilbert’sdevelopment company, Bedrock Detroit, have reshaped

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THE CONDUITMelinda Clemons ofCapital Impact, whichsteers funding to busi-nesses that can’t qual-ify for bank loans.JPMorgan Chase hasfinanced a fund thathelps Capital Impactseed real-estate dealsaround Detroit.

downtown, spending some$2.5 billion to acquire and de-velop more than 100 properties.Dan Mullen, president of Bed-rock, describes its philosophy as,“Create enough density in onearea until it busts at the seams,and then that density sells itself.”Other Fortune 500 companies—from car-seat maker Adient toMicrosoft—have been drawn bythe critical mass, establishingoffices downtown, and severalthousand knowledge workershave moved there too.

Visit the central city now, ortake the Quicken-funded “Qtrain” up Woodward Avenue to

the ideological yelling and screaming.” Detroit’s exit frombankruptcy enabled the city to shed some of its elephantinedebt obligations and dedicate more tax revenue to improv-ing the city. Most important: Scher and Duggan found theyshared many beliefs about neighborhood-building and eco-nomic empowerment. By July 2014, JPMorgan Chase hadput $100 million on the table for Invested in Detroit.

Midtown, and you’ll see the kinds of homes, brands, andamenities that white-collar hipsters love. John Varvatos?Warby Parker? Got ’em. An old-fashioned ballpark you canwalk to from your loft? Check. Restaurants where the cock-tails come with a single, huge ice cube? Roger that.

This vision of recovery is buzzy, fun—and incomplete. Ina city where only 13% of working-age residents have a bach-elor’s degree, the benefits of an influx of finance and techjobs only stretch so far. Mayor Duggan is adamant that hedoesn’t want a stratified city. “I’ve studied closely what hap-pened in Washington, D.C.,” he tells Fortune. “My daughterlives in Brooklyn. I’ve studied what happened there. We areadopting strategies so that doesn’t happen.” But how couldyou spread downtown’s recovery through the city’s sprawl ofblue- and pink-collar neighborhoods? How could you keepDetroit’s boom from replicating America’s economic divide?

Duggan had some ideas—and so did JPMorgan Chase.Detroit’s reemergence coincided with a philosophical

shift at the bank. It’s already a formidable donor: In 2016,it gave $250 million to nonprofits. But after the financialcrisis, its leadership began considering how to make thatmoney count for more. Under Peter Scher, it retooled itsgiving to tackle economic insecurity itself—focusing onsmall-business expansion, job-skills training, neighborhooddevelopment, and financial counseling. In 2012, about 40%of JPMorgan Chase’s corporate giving was devoted to thosefour pillars, Scher says; today, it’s 95%. It’s an approachthat leverages what banks already do well—lending peoplecapital, and giving them advice about how to deploy it.

In late 2013, this model was new for the bank. But Dimonand Scher saw in Detroit an ideal laboratory for it. Therewas rare harmony between Duggan—an energetic, bulldozerDemocrat who had just won an election, amazingly, as awrite-in candidate—and Michigan Gov. Rick Snyder, a Re-publican. “All they spoke about was, ‘We need jobs, we needhousing, we need to turn the lights on,’ ” Dimon recalls. “Not

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1 CHOOSE TEAMSWISELY. Detroit’s

mayor, business leaders,and community groupshad agreed on many oftheir main prioritiesbefore Invested in Detroitlaunched. “When you’rethrowing money atsomething, and thepeople aren’t all aligned,it just isn’t going to work,”says CEO Jamie Dimon.

2 DEPLOY YOUR DATA.Detroit has steered

its neighborhoodrebuilding efforts towardstruggling areas that havepockets of economicstrength. JPMorgan Chasebuilt a huge database ofinfo about consumerspending, incomes,schools, and othervariables to help the citychoose its targets.

3 LEND TO THEUNBANKABLE.

Depressed propertyvalues in struggling citiescan make it hard fordevelopers and busi-nesses to get loans.JPMorgan Chase haschanneled funding toDetroit entrepreneursthrough CDFIs, nonprofitsthat can lend to higher-risk borrowers.

DETROIT’SREVIVALRECIPEHERE’S HOWJPMORGAN CHASEHAS TURBOCHARGEDDETROIT’S ECONOMICRECOVERY, ANDHOW THE SAME GAMEPLAN COULD WORKIN OTHER CITIES.

4 BUILD BIGGER.Mixed-use buildings

combining residential unitsand retail can be a kind ofSwiss Army knife for neigh-borhood development:They can host multiplesmall businesses, andthey’re well suited tothe kinds of loft spacesfavored by affluent youngerrenters—the kind who loveto patronize local smallbusinesses.

5 CLOSE THE SKILLSGAP. Many jobs that

pay a middle-class wagedon’t require a collegedegree. JPMorgan Chaseconducted surveys inDetroit to find gapsbetween job supply andavailable workers, thenfunded training programsto fill them.

6 REPEAT STEPS 1–5.Results in Detroit

convinced Dimon’s teamthat its multiprongedmodel works. The bank willbe unveiling relatedinitiatives in several citiesthis fall.

Mayor Mike Duggan(left) at a ground-breaking ceremony for anew Detroit factory.

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IT’S FAIR TO ASK why JPMorgan Chase, a bank thatgenerated $106 billion in revenue in 2016, wasn’talready lending like crazy to Detroit’s entrepre-

neurs. The answer was that it essentially couldn’t—becausethose borrowers weren’t “bankable.”

That fact reflects the self-perpetuating math of Detroit’sdecline. Most banks are required by law to keep “loan-to-value ratios”—the ratio of the loan amount to the estimatedworth of the project it funds—below a certain threshold,typically 80%. But property values in most of Detroit havesunk so far that most real-estate projects easily break thatceiling; by definition, they would cost more to build thanthey would be worth once completed. For similar reasons,entrepreneurs can seldom scrape together collateral fora loan. Quicken Loans didn’t face this problem—its earlydowntown investments were self-financed. And Detroit’sbig corporations can almost always find lenders. But smallbusinesses and local developers are often stymied.

JPMorgan Chase spotted a way around the obstacle.Community development financial institutions (CDFIs)specialize in lending to lower-income communities. They’reusually nonprofits, and the Treasury Department exemptsthem from some rules that govern for-profit banks. CDFIscan take greater risks, accepting higher loan-to-value ratiosand extending relatively lenient payment terms. They canalso lend to entrepreneurs whose credit scores or lack of atrack record would drive banks away. Guided by vice presi-dent of global philanthropy Tosha Tabron, a Detroit nativewith extensive CDFI experience, JPMorgan Chase chosethree as partners. It has since extended more than $50 mil-lion to them through loans and grants—and given them afree hand to get it to the right places.

One such group is the Entrepreneurs of Color Fund,an initiative operated by the Detroit Development Fund(DDF). The fund has loaned $4.2 million since its incep-tion in 2015, to 47 borrowers, “95% of whom could notget a bank loan,” according to DDF president Ray Waters.Waters and his partner groups help them develop busi-ness plans and train them in accounting and marketing,so they’re able to sustain what they build. The biggest haveabout $800,000 a year in revenue—too small to get atten-tion from banks, but big enough to make a neighborhoodimpact. “You open a little taqueria, you’ve got 10 employ-ees who are all walking to work” because they live nearby,Waters says. “How can you feel bad about that?”

CDFI loans typically carry interest rates of 7% or 8%,Waters says, compared with 4% to 5% for a bank businessloan. That reflects both the costs of the additional sup-port the lenders offer, and the greater risk: Default ratesat DDF, at a little over 4%, are more than twice as high asthe 1.35% average for commercial loans. But the nonprof-its’ most successful protégés can grow large enough to be“bankable”—and look like much less risky bets.

Adrienne and A.K. Bennett, mother and son, run their

plumbing and HVAC contract-ing firm, Benkari Mechanical,out of a cluttered cinder-blockbuilding on the city’s northwestside. Last year, Benkari got abig opportunity: The chance towork on Little Caesars Arena,Detroit’s new hockey venue. Butit didn’t have the cash to coverpayroll for the 60-to-90 days be-tween when the job started andwhen the checks arrived—and itwasn’t well established enoughto borrow it from a bank.

The Entrepreneurs of ColorFund extended a $300,000loan to cover the costs—en-abling Benkari to win the bid.The arena work has put Benkarion track for its first million-dollar year in 2017. And havingproved it can skate with the

CHANGETHE WORLD

BUILDING ON THE PASTOlder shops and newneighbors on LivernoisAvenue, the “Avenueof Fashion.” JPMorganChase is helping tofinance new business-es near establishedretail hubs thatsurvived the worst ofDetroit’s slump.

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pros, Benkari is a candidate for some lucrative contracts atfederal buildings downtown. If the momentum continues,will the Bennetts expand their 10-person staff? “If?” retortsAdrienne. “It’s not ‘if.’ It’s ‘when.’ ”

AH, NICE, it’s trash day,” says Dave Blaszkiewicz.“You learn a lot on trash day.” He’s piloting anenormous SUV down a narrow residential street,

just north of the McNichols retail strip. To the untrainedeye, the health of this block of brick bungalows might behard to gauge. Some homes are pristine, some are run-down, some are abandoned “broken teeth.” But most havebig plastic trash bins waiting for pickup in their drive-ways—and that’s a sign of neighborhood strength.

Blaszkiewicz is the president and CEO of InvestDetroit,a CDFI with a focus on real estate and small-business de-velopment; it’s another JPMorgan Chase partner. Workingon the downtown and midtown revivals converted him tothe “density is everything” mantra. Even in neighborhoodsthat look blighted, he says, there’s often enough pent-updemand among residents to kindle a small-business boom.

JPMorgan Chase has invested some $30 million inDetroit-based funds that fuel that kind of growth by spot-ting neighborhoods that could be about to “tip.” The prob-lem: In much of Detroit, the pockets of strength aren’t bigenough, and no amount of investment can lure businessback, at least right now. As Duggan puts it, “I can’t tell theshoe store or grocery store or the coffee shop where to go.”

High on the wish list for Detroit’s CDFIs was a databasethat could help them predict which neighborhoods couldbest take advantage of a push. To build one, JPMorganChase brought in four employees from around the coun-try to flex their data-science muscles. The team gatheredanything they could quantify about neighborhood health—number of sit-down restaurants, transit availability, qualityof local schools. They looked at credit card transactiondata, gleaning insights about spending patterns. And theywent to dozens of neighborhood meetings to learn whatkinds of businesses residents wanted. “It’s like in invest-ment banking, where you rank an opportunity ‘green,’‘amber,’ or ‘red,’ ” says Joyce Chang, the bank’s New York–based global head of research for corporate and investmentbanking, who mentored the team.

The result was a flexible, user-friendly database thatcould shape decision-making. “They did in a month whatwould have taken someone else six,” says Blaszkiewicz.The kinds of assets that the database is designed to detectare on display in the first three eight-to-15-block “micro-districts” targeted by Invested in Detroit—including Liver-nois/McNichols. Within walking distance of the desolatepart of McNichols Road, for example, are two prosperoustracts, Sherwood Forest and the University District, wherehousehold incomes average around $80,000. A short dis-tance north is the Avenue of Fashion. The shoe stores anddress shops on those blocks have a time-capsule air aboutthem—many of the signs are of Motown vintage—but

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they do brisk business, and themomentum they generate couldhelp nearby blocks grow too.

“I didn’t witness the heydayof the city,” says JPMorganChase’s Tabron, who grew upin the University District. Butneighborhoods like hers havesustained a commercial pulse,she says, and “now we’ve gotthis template to expand it.”

IF THAT TEMPLATE has anarchitectural signa-ture, it’s the “mixed-

use” building—boxy newconstruction that combinesresidential units with ground-floor retail. These projects canbe a Swiss Army knife fordevelopment: They can hostmultiple businesses; they’rewell suited to loft spaces thatattract affluent renters; andthey can accommodate afford-able housing. Under currentplans, each of the microdistrictstargeted by Invested in Detroit’spartners will have at least twonew mixed-use hubs.

Capital Impact, Clemons’sCDFI, specializes in theseprojects. The B. Siegel projecton Livernois is one, and on ahot afternoon, Clemons and acolleague take me to another.We pull into a site due to openin November as “the Coe at WestVillage.” It sits about a blockfrom two beloved “anchors” ofthe West Village neighborhood:a barbershop, HeavyweightCuts, and a bakery, Sister Pie.Cliff Brown, a broad-shoulderedman on whom a constructionhelmet looks comically small,shows us around. It’s one of hisfirst projects as a developer, and

he almost certainly couldn’t have financed it with a tradi-tional loan; just under half of the $4 million cost is comingfrom funds backed by JPMorgan Chase.

Construction is still in the drywall stage, but seven of the12 units are leased, Brown says, and the owner of a spinninggym is eyeing the retail space. He shows off the shell of anaffordable-housing unit that will rent for $944 a month. Thestudio has huge picture windows and a balcony, just like itsbigger neighbors in the complex. “I grew up with kids wholived in beat-up housing projects,” Brown says. “When I gotinto construction, I thought, ‘What kind of house would Ibuild for our friends?’ This is that idea in action.”

Of course, $944 a month is a stretch for many in Detroit.Median household income in the city is under $26,000—less than half the national average. Making sure that moreDetroiters have jobs that can keep up with higher rents isa job for Chauncy Lennon. Lennon is JPMorgan Chase’shead of workforce initiatives, and his group’s mandateincludes steering workers without college degrees toward“middle skill” jobs that pay middle-class salaries—jobs thatoften go unfilled because of talent shortages. “A lot of fami-lies and educators have a ‘B.A.-or-bust’ mentality,” Lennonsays. “That’s not wrong as far as it goes, but its not helpingpeople make the best choices.”

In Detroit, Lennon’s team helped spearhead a survey ofthe job market, to identify the gaps between demand andsupply. To date, JPMorgan Chase has invested $15 mil-lion in filling those gaps. Lennon’s group is helping design

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GATHERING PLACESThe Coe at West Village(left) will offer mixed-income housing in afast-gentrifying area;the Metro Detroit Bar-ber College (right) is aBagley neighborhoodanchor that could helpdraw customers to newbusinesses nearby.

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top talent. JPMorgan Chase has cycled more than 80 em-ployees through its Detroit Service Corps to provide adviceand training for a few weeks at time. Those postings arecompetitive, with multiple candidates applying for eachopening. “It’s so much more in touch with what people intheir twenties want to do,” says Chang, the executive whoworked on the neighborhood scorecard.

But most important, three years of progress with In-vested in Detroit has convinced Dimon and his leadershipteam that they’ve assembled the right tool kit for revitaliz-ing American cities. And by the end of the year they’ll haveplanted the flag beyond Michigan.

In August, JPMorgan Chase announced an investmentin BSD, a vocational center on Chicago’s South Side mod-eled after Focus: HOPE. Later in September, the bankwill unveil its support for neighborhood-building projectsin three more cities, to be financed by grants from its ProNeighborhoods Fund. Around the same time, the bankwill launch a new Entrepreneurs of Color fund in the SanFrancisco Bay Area. And another major metro area, to beannounced this fall, will be the next to get the full MotorCity treatment—a multipronged blitz of funding for smallbusinesses, residential development, and job-skills workthat could help rebuild its middle class.

“We can’t do Detroit everywhere,” Dimon says. “Butwe could do Detroit in three or four places a year, and wecould do a ‘Detroit lite’ in another 10.” Figuring out how,and where? “It’s on the list,” he says.

career-themed curriculums at 20 public high schools—andorganizing businesses to hire students for apprenticeshipsand internships in fields like plumbing and hospital work.

The bank is also funding nonprofits like Focus: HOPE, avocational center where students in an “integrated advancedmanufacturing” course work with the kind of robotics toolsused in today’s factories. When Duggan and Scher hosted apress conference in May to announce that JPMorgan Chasewas steering another $50 million to Invested in Detroit,bringing the total to $150 million, they chose Focus: HOPEas the venue. Audience members sometimes had to strain tohear them; they were competing with the metal-on-metalclangor from the shop-class floor.

REBUILDING DETROIT’S neighborhoods is nothing ifnot a long game. The projects in the first threemicrodistricts should be finished by 2021; the

city hopes to build out 10 neighborhoods by 2026. Cultivat-ing jobs to sustain those neighborhoods will take just aslong. Fantasize about a shopping trip to Livernois/McNichols, in other words, but don’t book it any time soon.

JPMorgan Chase’s leaders aren’t fazed by the wait. “A poli-tician has a four-year horizon,” Scher says. “A banker can havea 20-year horizon.” But so far, the bank’s bet is paying off. Itsloans to CDFIs have already reaped returns, with $8.9 mil-lion to date repaid and cycled back into Invested in Detroitprojects; Scher says there hasn’t been a single default.

The project is also helping the bank retain and develop


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CHANGETHE WORLD

THE TIESTHAT BINDAT LEVI’S

BYERIKA FRYPHOTOGRAPHS BYL I V I A C O R O N A

BLUE-JEANS GIANT LEVI STRAUSS ISROLLING OUT A “WORKER WELL-BEING”PROGRAM TO IMPROVE THE QUALITYOF LIFE FOR THE 300,000 LABORERSIN ITS GLOBAL SUPPLY CHAIN.IN A FAMOUSLY LOW-PAYING INDUSTRY,CAN PERKS AND RESPECT KEEPWORKERS HAPPY AND LOYAL?

GARMENT WORKERSin a factory owned bya Levi’s supplier inNazareno, Mexico.They’re passing a ballof yarn as part of ateam-building exercise.

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costly absenteeism and turnover. That would be good forsuppliers, but also for Levi’s, which will get more reliable,cost-efficient sourcing partners—while generating positivevibes that resonate with young talent and with consumerswho want their values reflected in everything they buy.

Take this factory in Mexico, a cut-and-sew facilityemploying 1,200 people in a dusty, desolate town calledNazareno. Ten weeks after team-building activities beganthere, workers, line supervisors, and managers speak of aworkforce transformed. The reason is simple, but powerful:Before, workers were afraid to speak. Communication wasa one-sided exchange, and generally, it involved yelling.Workers didn’t particularly like to come to work. “We hadlots of people complaining their supervisors didn’t have theright leadership style—they were too strong, too blunt, theydidn’t treat them well,” says Oscar González Franch, thepresident of Apparel International (AI), the longtime Levi’svendor that operates the factory.

The peer-led sessions at the facility are organized by aMexican NGO, Yo Quiero Yo Puedo (“I Want and I Can”).Once the group started training supervisors and got themleading the daily exercises at AI, things changed; super-visors began relating to the people they’d been barkingorders at. González Franch says supervisors have gottenbetter at speaking to groups and doing it with respect.(Workers and supervisors told Fortune the same.) “We’reteaching them to be better leaders.”

Though González Franch doesn’t yet have hard data,he sees a difference—not only in the ways his employ-ees relate to each other, but in productivity. He suspectsabsenteeism is down, and he’s optimistic he might havethe formula to reduce the plant’s stubbornly high 30% to

T’S 11 A.M. ON A TUESDAY, and a section ofLinea 1 has left their stations to form aring on the factory floor. As their super-visor stands in the center, the workerstoss a ball of blue yarn back and forthacross the circle, each holding on to asegment of string to create an elaborate

cat’s cradle. As they pass the ball, they take turns makingpromises, telling each other the things they plan to say anddo later. One says she’ll keep her town’s plaza clean. Anothersays he’ll speak up when he feels he’s been treated unfairly.

It may take a moment to recognize the ritual: It’s ateam-building exercise, the stuff of many a corporate re-treat. This team, however, is distinctly uncorporate. Theseare apparel workers, some of the low-wage workhorseswho power the global garment industry. Their voices arenearly drowned out by the thrum of sewing machinesas others around them furiously cut, sew, and assembleLevi’s five-pocket denim pants. Still, as they share thestring, some are laughing; almost everyone looks genu-inely happy.

You’re looking at one, tiny piece of jeans giant LeviStrauss’s ambitious experiment to improve the lives of the25 million men and women in the world’s apparel sup-ply chain—and better its business results in the process.The players from Linea 1 are finishing a 10-week coursedesigned to teach them about health, hygiene, and sanita-tion, as well as communication and critical thinking. Thestring game? That’s intended to make everyone feel person-ally invested in and accountable for acting on what they’velearned. The cat’s cradle is a web of commitments, repre-senting their new connectedness—a physical reminder thattheir bonds are stronger, surer than before.

The Levi’s initiative—“Improving Worker Well-Being,”officially—is about getting an industry to recognize thatworkers aren’t faceless cogs in giant profit machines, butpeople with feelings and needs. “This is about creating aculture that embraces well-being,” says Kim Almeida, whoheads the program. “It’s a mindset shift.”

That may sound squishy, but Levi’s efforts, and thebusiness case for them, all become clearer when you zoomin on one of the vendors that are on board. (Those 42vendors encompass 72 factories and 140,000 workers,almost half of the Levi Strauss supply network.) The goalis to build a network of more productive, better-run facto-ries—with happier, healthier employees and lower rates of

DURANGO

EL PASO

HOUSTONCHIHUAHUA

SAN ANTONIO

200 MILES

MONTERREY

TORREÓNNAZARENO

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I

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IT WOULDN’T BE THE FIRST TIME Levi’s shook things up.Sustainability has been part of its fabric since itsfounding in 1853, as have the progressive valuesthat came to typify San Francisco, the city it calls

home. Privately held and family-owned, Levi’s was one ofthe first companies to desegregate factories, to embracesame-sex marriage, and to educate employees about HIV/AIDS. For years, it has worked to reduce its environmentalpant-print, pioneering ways to wring water and chemicalsfrom the jeans-making process.

But if there’s a pin Levi Strauss wears most proudly,it’s probably the one for its standard-setting role in thegarment industry. The company began moving produc-tion abroad in the early 1990s, around the same time thatbrutal conditions in overseas sweatshops started makingheadlines (Levi’s figured in some of them, due to a scandalin Saipan). This prompted the company to create a codeof conduct for all its suppliers; wherever they were in theworld, they would rise above weak labor laws.

Known internally as Levi’s “Terms of Engagement”(TOE), the document stipulated everything from the mini-mum age of employees to the placement of fire exits. It wasquickly emulated across the apparel business, establishing

40% annual turnover rate. Heexpects these benefits are trans-lating to his bottom line as well.“It’s a win-win situation, believeme,” he says.

González Franch’s aha mo-ment is the sort Levi’s washoping for in 2015, when itdecided to make a commitmentto worker well-being a condi-tion of doing business for everykey partner in its supply chain.It’s a move that’s all the bolderbecause the company is ask-ing every supplier to design itsown game plan—to recognizetheir own workforce’s needs andaddress them however they seefit. Levi’s offers some fundingand guidance, but what it reallywants is to see suppliers like AItake the idea of Worker Well-Being and run with it.

IMPROVEMENTON THE FLYKeny Yair Favela cutsbuttonholes in jeans atthe Nazareno plant. Un-der Worker Well-Being,management has beenquick to upgrade thefactory campus witha soccer field, an ATM,and better fans.

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the Levi Strauss Foundation had funded “worker empower-ment” programming in apparel factories. They’d seen espe-cially good results with programs that focused on life skillsand health. Participating factories had registered positiveoutcomes for workers, who enjoyed improved quality of life,and their businesses—which tallied declines in absenteeismand increased productivity. One facility in Egypt reporteda 4-to-1 return on investment, largely because women, whotypically stayed at home when they were menstruating, hadaccess to education and sanitary pads.

Still, all of these programs had been temporary, lasting12 to 18 months at most. Making them a sustainable part offactory life seemed like Levi’s best next move. The companyhad just begun piloting Worker Well-Being when Chip

a baseline of expectations for factories and the brands theydid business with. It’s now unthinkable that any com-pany—let alone giant brands with now-robust complianceprograms like Nike, Gap, and Adidas—wouldn’t have acode of conduct for their manufacturers.

This was progress, but hardly a solution. Despitefrequent inspections and the armies of auditors enlistedin this cause, labor abuses and poor working conditionshave continued to stain the fashion industry. And wages,depressed by global competition and consumers’ addictionto cheap togs, remain stubbornly low.

As the 20th anniversary of the TOE approached, some atLevi Strauss wondered if there was more they could do. Theysaw promise in another internal program. Over the years,

A LEG UP ON COMPETITORSWorkers “distress” jeans in a plant in Torreón,Mexico. Levi’s hopes that its Worker Well-Being program will boost its bottom line byreducing vendors’ absenteeism and turnover.

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Bergh came to Levi’s as CEO in 2011.Bergh faced big business challenges: The brand had expe-

rienced a precipitous revenue decline and muddled throughthe aughts, and many speculated the venerable company,having lost its way in the age of designer denim, might nevercome back in style. But Bergh, a Procter & Gamble alum,had also been drawn to the company for its purpose-drivenethos. “The company had such an amazing legacy…of notbeing afraid to stick its neck out on important social issues,”says Bergh. He fully supported the well-being initiative: Ifanything, he thought the company needed to think bigger.“If this is going to be sustainable over time,” he recalls think-ing, “we have to prove to the factory owners that this is goodfor their business so they fund it on their own.”

For the next couple of years, the company took its lumps.Compared with the prescriptive, black-and-white world ofcompliance, Worker Well-Being was broadly defined andopen-ended. Levi’s struggled to figure out the right level ofengagement in the process—how much to guide its vendors,how much to give. It became apparent that it had overdonethe former. “We learned we couldn’t come in with a pater-nalistic approach,” says Kim Almeida. “We needed to stepback and listen to vendors.” Then there was the question ofmeasurement: How the heck do you know what’s working?

Still, early signs of progress appeared in pilots in far-flung locations—Egypt, Cambodia, and Haiti among oth-ers. That convinced Bergh, as well as his supply chain chiefLiz O’Neill, that the initiative should be rolled out to all keyLevi’s vendors, and made mandatory beginning in 2020.

Though that would be a huge task, Levi’s had organizeditself in a way that would improve its chances of success.Years earlier, Levi’s had embedded its sustainability teamin the supply chain, putting everyone on the same team. Inother words, the person who is asking a factory to deliver5,000 orders tomorrow is the same person who has askedthem to do it using 50% less water. Now, the team respon-sible for workers’ well-being is similarly embedded. “That’sthe virtue of our structure—all those teams are pulling inthe same direction,” says O’Neill.

WHEN IT LAUNCHED the initiative, Apparel Interna-tional was one of the first suppliers Levi’s called.AI was founded in 1988, a company with 20

seamstresses. Back then, because of U.S trade regulations,only the sewing of jeans could happen in Mexico—thegarments were typically cut and finished in El Paso, Texas.That all changed with the North American Free TradeAgreement, when much of the industry, chasing lowerwages, moved south. Within a few years, Torreón, the cityof 1 million where AI is based, was producing 5 millionpairs of pants per week. For a time, Torreón was describedas the “blue jeans capital of the world.” The boom timesdidn’t last. Many companies, chasing cheaper labor still,moved to Asia, and AI, which once made jeans for a host of

brands including Gap, now works only for Levi Strauss.Nazareno is just over the mountains and across a state

line from Torreón, a 45-minute drive that in its finalstretches turns to rutted unpaved roads that require acertain amount of negotiation with stray dogs, pedestri-ans, and large trucks. AI owns the only factory there, in atown of 8,000 that lacks, among other things, a hospital,an ambulance, and a bank. There’s a railroad track, but nostation; once a day, La Bestia, a freight train known for car-rying U.S.-bound migrants north, blows through.

González Franch has run AI alongside CEO Tomas BelloGarza for almost 30 years, and by their own admissionthe broader well-being of their 4,000 employees wasn’tsomething they’d spent a lot of time thinking about. But asO’Neill and Almeida presented the idea, it resonated withthem. Among Levi’s suppliers, AI was known for its inge-nuity on the environmental front—they’d found new waysto save water, and made a whole collection of jeans sanschemicals—why not innovate on the people side as well?

Still, the duo weren’t sure how to tackle the broad man-date they’d been given. Levi’s had provided them a “needssurvey” to get started, but after circulating it in Nazareno,González Franch and Bello Garza realized it presumed alevel of development (like access to financial services andhealth care) that didn’t exist in the community. Almeidasaw them struggling and sent in Community EmpowermentSolutions, an NGO, to help. “That was the turning point,”says González Franch. AI did a second survey, this onebetter suited to the Nazareno population. They focused onnew workforce improvements, and interviewed more than adozen local NGOs to help with in-factory training sessions.

Today, the peer-led programming in health and commu-nications—the yarn-toss curriculum—is just one aspect ofwhat’s happening in Nazareno. Management has added tothe factory campus a breastfeeding room, a soccer field, anATM (the only one in town), and a sun-protected shed tostore motorbikes. They’ve installed microwaves and griddlesin the cafeteria and facial recognition tech to check workersin for duty (that may sound creepy, but it frees them fromlosing pay to the whims or forgetfulness of supervisors).

By far the most popular improvements have been basicones: cooler water (new water fountains), cooler air (newoverhead fans), and kinder, more communicative supervi-sors. What’s remarkable is that management added almostall these touches in response to employee feedback—adynamic that would have been unthinkable not long ago.

Worker Well-Being has also prompted AI to invest in thetown of Nazareno itself. “We didn’t see the community get-ting up to speed as we thought it would,” says Bello Garza,who like González Franch has become a Worker Well-Beingevangelist. Now, the duo swell with pride when they showoff the work AI has done beyond its factory walls. When Ivisited in late August, we stopped by the city’s only healthclinic, a small concrete building in the center of town. Until

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IT’S INTUITIVE THAT happier employees will be moreproductive employees. What’s less clear is whatmakes them happier: A supportive manager?

Free snacks? More autonomy? Or the thorniest option ofall: higher wages?

That’s a question that Levi’s has more or less assigned toits vendors, sidestepping the elephant-in-the-room issueconfronting apparel companies—just how much peoplein their supply chain are getting paid. Low wages are abrutal reality in an industry in which every innovationseems to drive down prices more efficiently than the last.The minimum wage for garment workers in Mexico is $5a day, a rate that makes tortilla griddles in the cafeterialook a little less generous. If you really want to improveworkers’ lives, why not just pay them more? Levi’s and AIsay that their workers make more than the minimum, plusfringe benefits, and that higher wages didn’t top the listof priorities in employee surveys; Levi’s adds that health,financial inclusion, harassment, and discrimination tendto rank higher.

From that perspective Worker Well-Being is a stepforward. AI may be the current exemplar for what Levi’shopes to achieve—a shift in the way the industry thinksabout its workers and acknowledges their needs. SaysAlmeida, “Worker Well-Being is less a program than ajourney. You start working in a different way when yourealize the value of serving workers.” Still, Almeida is fullof caveats—Levi’s is early in its journey. To help determinewhether it will result in a real improvement in the lives ofgarment workers or in business results, Levi’s has enlistedHarvard’s School of Public Health to rigorously measureand study the initiative.

Levi’s feels good about what it has seen so far. The com-pany has achieved four years of top and bottom line growth,excluding foreign-currency impacts. The fact that its rollouthas coincided with this period would seem to suggest, at thevery least, that the initiative hasn’t hurt, and that Levi’s cankeep implementing it from a position of strength.

Beyond any workforce productivity tailwinds, thecompany says, Worker Well-Being has deepened its rela-tionships with suppliers. And there are always the public-relations benefits: Millennials love this stuff. Chip Berghhopes the rest of the industry will, again, follow Levi’s lead.(As with all the sustainability work it does, Levi’s is open-sourcing its processes and lessons learned.) “This goes waybeyond making a profit,” says Bergh. “We are demonstrat-ing there is an opportunity for companies to redefine theirrole in society, and that’s good for business.”

recently, the state-run center sawonly five people a day; peopleseeking care would line up at fivein the morning. AI provided thecenter an administrator, and acomputer for record-keeping;they set up an appointment lineand posted its phone numberaround town. The doctor nowsees 20 scheduled patients andeight walk-ins per day.

AI also developed a financialmodel to sustain its well-beingprograms—a foundation thatgenerates income by turningLevi’s fabric scraps into goodsthat are sold locally. As we passby a community center where asewing class is learning to makethose goods, and a playgroundthat the company refurbished,González Franch says AI is justgetting started. An ambulanceis next, and a day-care center.The company will soon roll outWorker Well-Being to its remain-ing factories. He ticks throughthe many projects on his WorkerWell-Being wish list—which is tosay, his wish list for his workers.

CONVERTS AT THE TOPApparel Interna-tional president OscarGonzález Franch (left)and CEO Tomas BelloGarza. González Franchbelieves Worker Well-Being is helping thefirm’s bottom line: “It’sa win-win situation,believe me.”


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IN AN EXCLUSIVE Q&A,CEO TIM COOK TALKSABOUT HOW THE TECH GIANTIS EMBRACING ITS CORPORATEMISSION BY INVESTING INEVERYTHING FROM RENEWABLEENERGY TO EDUCATION TO, YES,WORLD-CHANGING PRODUCTS.

“W E ’ R E H E R E T O P U Ta dent in the universe,”Steve Jobs once famouslysaid. “Otherwise why elseeven be here?” If ever a com-pany was self-consciously

focused on making an impact—changingthe world, in the argot of Fortune’s annuallist—it’s Apple.

And yet, for Jobs the dent that he intendedfor Apple to make in the universe revolvedalmost totally around creating new prod-ucts that would change people’s lives. Thoseproducts would be gorgeous and useful andfun and surprising, but rarely “good” inand of themselves. Despite a hippie-dippieveneer and earnest marketing, Apple underJobs was a ruthlessly efficient moneymakerthat largely left social programs to others.

Apple CEO Tim Cook,56, who joined the com-pany in the middle ofhis career and has as-sumed the zealousnessof a convert, is no lesscommercially mindedthan Jobs. And whenasked to explain howApple changes the worldhe answers immediatelywith two words one canimagine Jobs saying too:“our products.”

But Apple under Cook is a company trans-formed in terms of how it projects onto theworld its social awareness and its place in the

APPLEFINDS ITSCORE

BYADAMLASHINSKY

PHOTOGRAPH BYS P E N C E RLOW E L L

Tim Cook, photo-graphed at Apple’sheadquarters in Cuper-tino on Aug. 30, 2017.

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the world. And that’s regardless of whether they’re in tech-nology or not. I think that you don’t have to be in technol-ogy for coding to be very important.

We try to advocate for people’s privacy because we areliving in a world where technology can do lots of things,but there’s things that it shouldn’t do. And so we try veryhard to protect people’s privacy and security and hopefullykeep some of these bad things at bay for them.

So we try to do all of those things in the way that we con-duct ourselves and run the company. But the primary waywe will always change the world is through our products.Because we touch so many more people in that manner.

You say that Apple makes its products for everyone tobe able to use. But Apple’s business strategy is to makepremium-priced, high-margin, high-end products, which iswhy you’re the most valuable company in the world.Well it’s not high margin. I wouldn’t use that word. There’sa lot of companies that have much higher margins. Weprice for the value of our products. And we try to make the

corporate community. Fortune executive editor AdamLashinsky, who first profiled Cook in a 2008 magazinecover story titled “The Genius Behind Steve,” sat downwith the CEO in late March to discuss Apple’s view ofitself as a force for good.

Some of what Cook said is surprising, including whyhe personally rejected the idea of establishing a corporatefoundation. Or that some of Apple’s health care initia-tives—which sprang from apps designed for the AppleWatch—have no discernible model for making moneyand may never.

Cook also paints a picture of Apple’s philanthropicand otherwise commercially beneficent activities as of apiece with the company’s ethos on product development:It tries to do relatively few things so as to better focuson them. Apple’s biggest priorities include renewable en-ergy (it runs its own facilities overwhelmingly on them),education (it is focused on teaching coding from kin-dergarten through community college), and health care(including the $130 million it has raised for HIV/AIDSthrough its PRODUCT (RED) partnership with theGlobal Fund).

Ultimately, Cook sees Apple’s greatest societal contri-bution coming through the 2 million U.S. jobs itbelieves it creates through its “app economy” as well asthe “many millions” more it supports in the rest of theworld. For Apple, everything comes back to its products,about a billion of which are denting the universe at thisvery moment.

Q+AFORTUNE: Has Apple changed the world?TIM COOK: Yes, I think in numerous ways. Ithink the No. 1 way Apple changes the world isthrough our products. We make products for

people that are tools to enable them to do things that theycouldn’t otherwise do—to enable them to create or learn orteach or play. Or do something really wonderful.

So that’s the primary way we change the world. We alsotry to change the world by the way we run the company.And whether that’s being very focused on the environmentand making sure that we have a no-carbon footprint, essen-tially, or running our company on 100% renewable energy.

We advocate for human rights, because Apple has alwaysbeen about making products for everyone. And, arguably, ifpeople are treated as second-class citizens in any part of theworld, then it’s kind of hard to accomplish that objective.

We believe education is a great equalizer. And so we tryour best to bring education to the mainstream. And rightnow our major thrust is in coding because we think thatcoding is the sort of the second language for everyone in

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very best products. And that means we don’t make com-modity kind of products. And we don’t disparage peoplethat do; it’s a fine business model. But it’s not the businessthat we’re in.

But if you look across our product lines, you can buyan iPad today for under $300. You can buy an iPhone,depending upon which one you select, for in that samekind of ballpark. And so these are not for the rich. Weobviously wouldn’t have over a billion products that are inour active installed base if we were making them for therich because that’s a sizable number no matter who’s look-ing at the numbers.

Talk about the economy that exists around Apple.Think about Apple empowering people, particularly de-velopers. The tool that we’re giving developers is not onlya device but the developer kit that goes with the device sothat they can in turn utilize their passion and creativity tobuild their product.

And then the App Store gives them the ability to sell to

Cook giving a speech atApple’s Worldwide De-velopers Conferencein San Francisco lastyear. Between the “appeconomy” fostered byits devices, manufac-turing, and its own em-ployment, Apple says ithas created more than2 million jobs in the U.S.

the world. It wasn’t imaginablethat long ago that you couldsit in your basement and run aglobal business. And so there’sentrepreneurs springing up inevery country in the world anddoing things they want to do.

We also manufacture. Wedon’t do it ourselves but we havethird parties manufacturing forus. We have a ton of companieswithin the United States that dothat; we have a ton of companiesoutside the United States thatdo that. But we create a lot ofjobs in that way. Between theapp economy and manufactur-ing, and then of course our ownemployment, we’ve created over2 million jobs in the U.S.

What’s the corresponding figurefor the world?It’s many millions.

Recently Apple has becomeinterested in health. Is thisa potential moneymaker,or something more altruistic?We started working on theApple Watch several yearsago. And we were focused onwellness. And wellness wasabout activity monitoring andalso about performing somemeasurements of your healththat people were not measuring,at least continually. Like yourheart. Very few people woreheart monitors. So when we gotinto working on the watch webegan to realize that the thingsthat we could do were evenmore profound than that.

We’re extremely interested inthis area. And, yes, it is a busi-ness opportunity. If you lookat it, medical health activity isthe largest or second-largestcomponent of the economy,depending on which country inthe world you’re dealing with.And it hasn’t been constructedin a way where the focus at the

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device level is making great products from a pure point ofview. The focus has been on making products that can getreimbursed through the insurance companies, throughMedicare, or through Medicaid. And so in some ways webring a totally fresh view into this and say, ‘Forget all of that.What will help people?’

One of the things that we’ve learned that we’ve been re-ally surprised and delighted about is this device, because ofthe monitoring of the heart, has essentially alerted peoplethrough the collection of the data that they have a problem.And that spurred them to go to the doctor and say, ‘Lookat my heart rate data. Is something wrong?’ And a not-insignificant number have found out if they hadn’t comeinto the doctor they would have died.

We also discovered, somewhat by happenstance out of ourcuriosity, that the way that research was being conductedwas sort of an old-world kind of thing. People were still put-ting classified ads in to try to get subjects to sign up. We putout ResearchKit [a software developers tool] and made it asource so that people could run enormous-sized studies. Andthere have been studies in Parkinson’s and so forth that liter-ally are the largest studies ever in the history of the world.And we’re just scratching the surface right now. There’s nobusiness model there. Honestly, we don’t make any moneyon that. But it was something that we thought would begood for society and so we did it. Will it eventually lead ussomewhere? We’ll find out. I can’t answer that today.

There’s much more in the health area. There’s a lot ofstuff that I can’t tell you about that we’re working on, someof which it’s clear there’s a commercial business there. And

some of it it’s clear there’s not.And some of it it‘s not clear. I dothink it’s a big area for Apple’sfuture.

Why does Apple not have afoundation the way so manycompanies do?That’s a really good question.We looked at it in some detail.

When?I looked at it in early 2012.And I decided not to do it. Andhere’s why. When a companysets up a foundation, there isa risk, in my judgment, of thefoundation becoming this otherthing that is not connected tothe company. It has a separateboard of directors. They makereasonably independent deci-sions sometimes. It becomes aseparate thing. I don’t want thatfor Apple. I want everybodyinvolved. Because I think thatthe power that we bring, thethings that we can do is becausewe’re stronger—it’s with ourunity there. It’s when we put allof ourselves in it.

We don’t work on that manythings. But we try to put all ofourselves in it.

With the environment we’reworking from the design anddevelopment of our products,the kind of materials that weuse. In manufacturing we’relooking at the renewable energysources. When we put a datacenter in, we want to make surethat’s with renewable energy.On Earth Day we want all ofour stores involved in makingour customers aware of thingsthey can do. We try to get all ofus involved because it makes amuch bigger difference. We canbe the ripple in the pond then.If we had a foundation, myfear was it becomes somethingthat 10 or 12 or 20 or 50 peopledo. And all of a sudden for the

Students at WaltonMiddle School in Comp-ton, Calif., using iPadsto collaborate on aclass project. Apple hasgiven devices to under-served schools acrossthe country through itsConnectED program.Says Cook: “We thinkeverybody should learncoding.”

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120,000, it’s just this separatething out there. People workhere to change the world. So Ithink that should be integralto what the company does. Notperipheral in a foundation.

Did anyone disagree with yourdecision?I got several recommendations,all of which were to set up afoundation. But I think my ownjudgment was when you reallystarted asking the five whys, theyall eventually landed on, becauseeverybody else has done it. Orbecause some people felt that byhaving a foundation it was a sig-nal that you cared. I see that asmarketing almost, and we don’t‘do good’ to market. That’s notwhat we’re about. And I realizethere’s tax benefits with a foun-dation and all that kind of stuff.But look, again my perspectiveis, if you want to do good youmaximize how to do good.

My view, we do a lot moregood with a 120,000 peoplebehind it than we would putting12 people over in a corner tomake decisions. I’m not criticiz-ing people that do that. I thinkmaybe they found a way andmaybe it’s great. But it wouldn’tbe Apple.

Let’s turn to education,which I know was a passionof Steve Jobs.He was very interested in educa-tion as a market, but more thanthat. He was very keen on learn-ing. And Steve was a lifelonglearner, and he knew the valueof it. And he felt that the tra-ditional education approacheswere not working.

And he thought one element of modern education wasthe digital classroom. And so at various stages, in early days,he was pushing Macs in classrooms. Actually pre-Mac hewas pushing Apple computers in classrooms. And then iPad.Because he saw what iPad could unleash, he wanted to getall the textbook guys on the iPad because he saw kids walk-ing with these 50 pounds of books, this little kid that weights50 pounds trying to carry 50 pounds of books. And alsothat the book was flat. That there was nothing exciting. Sohe went out and spent $10 million on one textbook to showwhat was possible.

What we’ve tried to do is take that now to the next step.And our next step was we think everybody should learncoding. Not only because there’s a huge shortage of peoplethat know how to code today, but because we see technol-ogy increasingly horizontal in nature and not vertical. A lotof people think of technology as kind of a vertical like allthe others. I don’t really see that. I see that technology hasbecome very horizontal.

But when we looked at it we found that there were mul-tiple issues. One issue was that coding was viewed as beingfor computer scientists, that it was for a certain type ofstudent, a very technical kind of student. And so we createda new programming language called Swift. And the wholeconcept of Swift is you make a coding language that has theease of use of our products. And so everybody can learn it.Yet, it’s powerful enough to write the most complex appsthat you’d ever want to dream up. And then we thought,well, what else can we do, and so we came out with SwiftPlaygrounds, a curriculum for say K4, K5, sort of in thatage range. And that began to take off. And so then we tooka step back and we made a bigger program for all of K–12called “Everyone Can Code.”

And all this curriculum stuff is free. Anybody can haveit that wants it around the world. We’ve done it in multiplelanguages. And then with things that we’ve learned overthe last year, year and a half or so, we thought, We’re nothitting community colleges. And we need to hit communitycolleges. To our surprise we’ve already got 30 communitycollege systems set up.

Apple has taken a hard line on privacy, relative to othersin the tech industry. Is the industry moving more towardApple’s position?I don’t think there’s very many people that place it at thetop of the list as we do. What I do see is that the broaderuser community, the importance of privacy is increasing.And the importance of security is exponentially increas-ing. And that’s because of all of the hacks, all of the reportsof things that have gone on. You would be hard pressed tofind very many people that haven’t had a problem I think,or heard of a problem from credit cards to whatever.

And so I think people appreciate it more and what Ibelieve will occur, because companies that don’t follow

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customers don’t do very well,and so I think that will meanthat more companies will put ahigher priority on it.

And I hope that happensbecause our data is very private,our personal information isprivate stuff. And also, thesedevices can make your life somuch better, but you want themto be secure.

How do you deal with the factthat many people view iPhonesand iPads as tools of bad socialbehavior, like distractedness andchildren who stare for too longinto a screen?Our whole premise is to infuseour products with humanity.And so if you think about whatthe watch does, other than allthe stuff we’ve already talkedabout from a wellness pointof view, one of the things thewatch does it allows you tohave a curated level of connec-tion without being absorbedin it. And so if you just wantcertain people to be able tomessage you or whatever,you’re waiting for that impor-tant message.

Or there’s some kind of no-tification that you really need,you can do that here and sort ofbe in the moment in a conversa-tion. As opposed to waiting andcontinually picking this thingup to find out.

Also, with iOS 11 [the newestoperating system for the iPhoneand iPad], when you starttraveling, you’re going to findout your phone is not going toaccept notifications when youstart moving in the car. And ifyou pick your phone up, you

can say, “I’m not driving,” and it will give them to you. Andif you want you can go in there and turn that off. But we’retrying to help people protect themselves and help peopledo the right thing.

I think that all companies should do that, to really thinkthrough how their products are used. Using a product issomewhat like eating healthy food. It’s really great. But youcan eat too much of healthy food. And you can use some-thing too much.

The watch also has—I see you’re not using one—butthere’s a breathing app on here. And every so often itwill tap you and prompt you to go through a one-minutebreathing exercise. If you did this just for one week,it’s amazing how you’ll feel at the end of the week vs. notdoing it.

You do it?I do it. Sometimes it taps me at an inconvenient time and Ican’t. But I can go in there and prompt it later. And it’s sortof a “Whooo …” So we really do try to think about all of this.

But surely the problem is bigger than a breathing app ora safety app.It’s the set of many things. If you want to use this 24 hoursa day [he motions to his iPhone], I’m probably not goingto prevent you and probably shouldn’t. Because that’s thecountry we live in. You’re free to do that. But I ought to,as the provider of that, think through some things I coulddo that might be helpful for you. And we really try hardto do that.

Very last thing. There appears to be ample evidence thatmany parts of the public believe that corporations are bad,that they’re not a force for good in the world. You clearlybelieve one corporation in particular is a force for good.Is it a valid concern though on the part of the public and docorporations need to do better?I think that corporations are like anything else in that thereare some that are good and some that are not. So I don’tthink you can paint all with one brush. Just like people.Most people are really big hearted. But occasionally youmeet somebody that’s not. And so corporations are like thattoo, I think. I don’t subscribe to “all are good” or “all arebad.” I think life is not simple like that.

The ultimate objective of Fortune’s list, after all, is tocelebrate companies that are making a positive impacton the world.We will always try to change the world for the better. Thatwas the motivation behind creating Apple when it was cre-ated back in the ’70s. And it’s still the motivation today. It’swhat drives us. We want to do what’s right, not what’s easy.Because a lot of what we do is not easy. And we take somespears along the way. But we always try to do what’s right.

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PROJECT LIBERTY LAUNCHED in Sep-tember 2014 with ambitions aslofty as its name. The project, aspeck of industry just outside tinyEmmetsburg, Iowa, was to be thenation’s first-ever cellulosic etha-nol plant to operate at commer-cial scale. Cellulosic ethanol—a

biofuel produced not directly from corn, a food crop,but from its waste, like cobs and husks—had becomea holy grail in the clean-fuel sector. Its potential forminimizing pollution was huge, but breakthroughshad been elusive: Many companies had quit the ef-fort, or run out of money in the pursuit.

E=MC2

DUTCH SCIENCES GIANT DSM REINVENTEDITSELF TO TACKLE GLOBAL PROBLEMSLIKE HUNGER AND CLIMATE CHANGE.THE RESULT: AN $8.8 BILLION COMPANYWHOSE STOCK IS NEAR AN ALL-TIME HIGH.

HERE’S DSM’S FORMULA FORBALANCING PLANET AND PROFIT.

BYERIKAFRY

DSM, a Dutch nutrition and materials company, hadcracked the bioengineering code. DSM developed theenzymes and yeasts that convert fibrous, woody biomass tofuel; its partner, Poet, a U.S. ethanol giant, had the produc-tion know-how. So momentous was their joint venture thatthe King of the Netherlands and then-U.S. Agriculture Sec-retary Tom Vilsack (as former governor, veritable Iowa roy-alty) came to Emmetsburg for the ribbon-cutting ceremony.

But DSM and its partners had overlooked one thing:rocks. When farmers swept up corn waste, it turned outthey didn’t just get biomass; they also got debris—stonesand pieces of farm equipment and other foreign objects. Allthat flotsam clogged the plant’s equipment, and for its firstcouple of years, Project Liberty was barely functional.

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FUEL CELLSBiomass—basically,farm waste—at a cel-lulosic ethanol plantin Emmetsburg, Iowa.DSM has developed anenzyme to convert bio-mass into cleaner fuel.

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It could have been a deflating defeat—but like manyleading-edge projects that DSM has tackled in recent years,it turned into a figurative win. The plant’s staff engineereda solution, using huge blowers to separate corn parts fromdebris. Project Liberty now produces tanker truckloads ofcellulosic ethanol every week. The plant is short of the part-ners’ eventual goal of 20 million gallons per year. But it re-mains a successful prototype and another planet-consciousinnovation from a little known but transformative company.

Though few recognize DSM by name, the global com-pany’s traces are everywhere. It makes ingredients that gointo scores of branded foods and beverages. Those sameingredients go into animal feed and a host of personal careproducts, from sunscreen to high-end cosmetics. (Thanks

to the latter, DSM owns the world’s largest venomous-snake farm; the venom provides paralytic agents for Botox-like skin creams.) It makes the plastics that make your carsand electronics lighter; paints and coatings that cover yourwalls, floors, and solar panels; and just about every vitaminsold at GNC. Also in its trove: the first fully recyclable car-pet, the world’s strongest fiber (used in bulletproof vests,ocean cleanup nets, and the uniforms of the Dutch cyclingteam); and a digestive aid that makes cows fart a lot less.

The portfolio may seem like a grab bag, but there is acommon theme: DSM is in the business of improving theplanet and the lives of people on it.

That’s the vision that CEO Feike Sijbesma set a decadeago, when DSM was in the bulk chemistry business and

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Sijbesma, a biologist by training, had just taken the helm.He looked at his company’s opportunities in the context ofboth succeeding financially and tackling pressing globalproblems. The world didn’t need another petrochemical“cracker.” What it did need were solutions to malnutritionand climate change. Accordingly, Sijbesma branded DSM’splaybook: “People. Planet. Profit.” And since then, thecompany has channeled its proficiency in applied sciencesin novel, life-enhancing directions.

Sijbesma sees this as good strategy: Purpose draws andmotivates talent, and adapting to a changing world (asSijbesma calls it, “future proofing”) keeps the lights on. It’sin this spirit that the company has undergone a radicaltransformation—swapping out unsustainable businesses formore sustainable ones. Sijbesma took over in 2007: He soonsold DSM’s $2 billion industrial chemicals business and itspharmaceutical unit, while making 25 major acquisitions.Since then, the human and animal nutrition business, withsales of $5.7 billion, has nearly doubled. And by DSM’s mea-sure, products that measurably improve either the environ-ment or human health (compared with competing products)account for 63% of revenue, up from 34% in 2010.

Sijbesma says the world changed for him when he hadchildren. He didn’t want his legacy defined by Ebitda andnet profit, he says: “People will forget those numbers.”Instead, he wanted to be guided by principles that hiscoworkers could rally around. “They are proud if they cansay, ‘Our company is changing the world, making the worldcleaner, the food healthier.’ ”

As of right now, though, he’s succeeding on both fronts.While DSM’s $8.8 billion in annual revenues are slightlyoff where they were a decade ago, the stock is up 61% sinceSijbesma became CEO—and profits have soared recently.Still, success hasn’t robbed Sijbesma of his humility: Heknows that the path to success isn’t often a straight line.

IT WAS INTENDED to be aweapon to fight“hidden hunger” at the

Kakuma Refugee Camp inKenya. The product—a micro-nutrient powder called MixMe—was a simple, low-cost antidoteto the malnutrition and anemiathat afflicted the camp’s 50,000residents. And yet, when theproduct arrived at the camp inFebruary 2009, many residentswouldn’t touch the stuff.

The thing was, MixMe—whichcame in a small, foil sachet—looked a lot like a condom. Andthe sachets were packed in abox with an illustration of aman, woman, and child, a happy(Western-size) nuclear family.This packaging embarrassedsome; it made others suspi-cious—and rumors spread—thatMixMe was a sinister exercise inpopulation control.

Needless to say, this was notwhat DSM was going for. MixMewas the fruit of an ambitiouspartnership with the WorldFood Programme and one ofDSM’s first major forays intorealizing Sijbesma’s vision. “Wehad to learn the hard way thatmaybe all of our Western normsand traditions and practicesdon’t have the same applica-tion in all geographies,” admitsHugh Welsh, DSM’s president inNorth America.

But DSM did learn. MixMenow comes in a larger, less pro-phylactic-like package. The WFPpartnership blossomed: Overthe past decade, products thatDSM helped develop have fedan average of 31 million peopleper year in conjunction with theorganization. And DSM’s Nutri-tion Improvement Program divi-sion, which supplies nutrients toaid agencies and governments,has become a profitable if low-margin business. “Without being

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THE REINVENTORAs CEO, Feike Sijbesmaled DSM’s transforma-tion from a bulk chemi-cal company to one fo-cused on social impact.

SEA SWEEPEREcologists plan to usegiant nets made fromDSM’s ultrastrongDyneema fiber to cleanwaterborne trash, asshown in this render-ing by NGO the OceanCleanup.

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profitable, it’s not sustainable,” says Welsh. “And if it’s notsustainable, it’s not ethical.”

DSM takes pains to reinforce that ethic internally. Since2010 the company has rolled out a remuneration policyfor all its 300-some executives, in which half of short- andlong-term compensation, in the form of bonuses and stockoptions, is tied to sustainability goals. It took about threeyears for executives’ collective mindset to adjust (or foremployees who weren’t on board to depart). But the prog-ress the company has made would have been impossibleotherwise. “For years, we tried to encourage plant operatorsto go to renewable energy,” says Welsh. “When we tied thisrhetoric to remuneration, though—all of a sudden they’revery willing participants.” He points to the company’s vita-min facility in Belvidere, N.J., now powered, in part, by oneof the largest solar fields in New Jersey.

Sijbesma was barely a year into his “People. Planet. Profit.”transformation when the financial crisis hit. The CEOremembers being at home one weekend and thinking, “Ev-eryone has ‘values’ when things are good”; he didn’t want toabandon them just because times got tough. Sijbesma foundhimself fighting a similar battle with investors as well. At theannual shareholders’ meeting in 2010, one man questionedthe resources DSM had dedicated to helping WFP. Sijbesmawas appalled; many of WFP’s donors had already slashed

their contributions, while needs had grown. He refused tospend a penny less on the work. After he said so, applausebroke out, and one woman in the audience stood andcheered, “That’s the kind of company I want to invest in!”

Not that DSM is inflexible with shareholders. In 2014,shares took a beating from the depreciation of the Swissfranc and problems in the vitamin E market. Activist inves-tors, including Dan Loeb, pounced, and some pressed thecompany to break up. While DSM resisted those pres-sures, it did spin off some businesses and implement a newcost-savings strategy. Loeb made a pile of money, and DSMgrew more efficient—profits rose 604% year over year in2016, and 2017 is shaping up to be strong as well—but thecompany never wavered philosophically.

Meanwhile, Sijbesma has emerged as an outspoken ad-vocate of the power of business to do good. In recent years,he has mobilized the corporate community to fight malnu-trition and climate change. He is the longest-serving mem-ber of Chinese premier Li Keqiang’s advisory body of globalCEOs and sits on the board at Unilever, another companythat puts a premium on eco-friendliness. “Many CEOs areso busy with their job problems and advancing themselves,they forget about the wider world and become myopicallyfocused on shareholders,” says Paul Polman, Unilever’s like-minded CEO. “Feike is trying to drive broader change.”

In some cases, DSM’s innovations have outpaced theworld’s readiness for such change. The company faces chal-lenges, for example, in finding a market for Clean Cow, itsbovine flatulence reliever. DSM developed the product inpart on the premise that a tax on greenhouse-gas emissionsis inevitable. (It’s estimated that cows produce as much

as cars.) But for now, the feedadditive, which has to begiven to cattle at every meal,is an added cost that farmershave little incentive to absorb.Governments have expressedenthusiasm, but so far shownno interest in purchasing it.DSM is now courting dairycompanies like Danone, whichwith Clean Cow could touta more sustainable productand drastically reduce its ownemissions.

After a decade at the helm,Sijbesma seems sanguine aboutsuch short-term frustrations.Experience suggests DSM willresolve them: His attitude is,they’re getting there. “I thinkhis values are stronger thanthe setbacks he’s had along thejourney,” says Polman.

VISIONARY}

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registered trademarks of Bayer. For additional product information, call toll-free 1-866-99-BAYER (1-866-992-2937) or visit our website at www.CropScience.Bayer.us.

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126F O R T U N E . C O M / / S E P . 1 5 . 1 7 ILLUSTRATIONS BY M AT T C H AS E

A HEDGEFUND

TITAN’SPLAYBOOK

Bridgewater Associates founder

Ray Dalioruns the world’s biggest and most profitable

hedge fund. In this exclusive excerptFrom his new book, the master investor

shares his secrets for buildingan organization that’s optimized for excellence.

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ONE WINTER DAY IN 1993, Bob Prince, GiselleWagner, and Dan Bernstein—three of Bridge-water’s senior leaders—proposed taking meout to dinner with the stated purpose of “givingRay feedback about how he affects people andcompany morale.” They sent me a memo first,the gist of which was that my way of operatingwas having a negative effect on everyone in thecompany. Here’s how they put it:

What does Ray do well?He is very bright and innovative. He under-stands markets and money management.He is intense and energetic. He has very highstandards and passes these to others aroundhim. He has good intentions about teamwork,building group ownership, providing flexiblework conditions to employees, and compensat-ing people well.

What Ray doesn’t do as well:Ray sometimes says or does things to employeesthat make them feel incompetent, unnecessary,humiliated, overwhelmed, belittled, oppressed,or otherwise bad. The odds of this happeningrise when Ray is under stress. At these times,his words and actions toward others createanimosity toward him and leave a lastingimpression. The impact of this is that peopleare demotivated rather than motivated. Thisreduces productivity and the quality of theenvironment. The effect reaches far beyond thesingle employee. The smallness of the companyand the openness of communication meansthat everyone is affected when one person isdemotivated, treated badly, not given duerespect. The future success of the company ishighly dependent on Ray’s ability to managepeople as well as money. If he doesn’t managepeople well, growth will be stunted and we willall be affected.

Ugh. That hurt and surprised me. I neverimagined that I was having that sort of effect.These people were my extended family. I didn’twant them to feel “incompetent, unnecessary,humiliated, overwhelmed, belittled, oppressed,or otherwise bad.” Why didn’t they tell medirectly? What was I doing wrong? Were mystandards too high?

This looked to me like another one of thosefork-in-the-road cases in which I had to choosebetween one of two seemingly essential butmutually exclusive options: 1) being radically

In 1975, Ray Dalio founded Bridgewater Associates out of his two-bedroom apartment in New York City. Today, Bridgewater is theworld’s largest hedge fund, managing some $160 billion for morethan 350 institutional clients such as pension funds and universityendowments. That growth has been driven by performance: Over thepast four decades, the firm has made more money for its investorsthan any other hedge fund in history—nearly $50 billion throughlast year, according to Bloomberg. Dalio himself has become one ofthe 100 richest people in the world.

Bridgewater has also developed a reputation in recent years asone of the planet’s most idiosyncratic business organizations, with aunique culture driven by Dalio’s personal beliefs—and built on thetenets of radical truth and radical transparency. Dalio has collectedand codified hundreds of “principles” that guide his approach to life,work, and investing.

Until recently, Dalio has preferred to keep his system largelyprivate. But as he nears the end of his career, he has decided to sharehis distinctive methods, and he’s publishing a new book this monthentitled Principles: Life and Work (Simon & Schuster, $30).

In the following edited excerpt from the book, we learn the historybehind Dalio’s decision to compile guidelines for managing his or-ganization and get a window into how he dispassionately evaluatesemployees to ensure that they perform excellently.—Alan Murray

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ing with each other.That began our decades-long process of put-

ting our principles into writing, which evolvedinto the Work Principles. Those principleswere both agreements for how we would bewith each other and my reflections on how weshould handle every situation that came up.Since most types of situations arose repeatedlywith slight variations, these principles werecontinually refined.

The number of principles started small andgrew over time. By the mid-2000s, Bridge-water was beginning to grow rapidly, and wehad a number of new managers trying to learnand adapt to our unique culture—and whowere increasingly asking me for advice. I wasalso beginning to have people from outsideBridgewater ask me how they could createidea meritocracies of their own. So in 2006,I prepared a rough list of about 60 WorkPrinciples and distributed them to Bridgewa-ter’s managers so they could begin to evaluatethem, debate them, and make sense of themfor themselves. “It’s a rough draft,” I wrote inthe covering memo, “but it is being put outnow for comments.”

Over time, I encountered most everythingthere is to encounter in running a company,so I had a few hundred principles that coveredmost everything. That collection of principles,like our collection of investment principles,became a kind of decision-making library.

CONSTANTLY TRAIN, TEST,EVALUATE, AND SORT PEOPLE

Both your people and your design must evolvefor your machine to improve. When you getpersonal evolution right, the returns are expo-nential. As people get better and better, they aremore able to think independently, probe, andhelp you refine your machine. The faster theyevolve, the faster your outcomes will improve.

Your part in an employee’s personal evolu-tion begins with a frank assessment of theirstrengths and weaknesses, followed by a planfor how their weaknesses can be mitigatedeither through training or by switching to adifferent job that taps into their strengths andpreferences.

At Bridgewater, new employees are oftentaken aback by how frank and direct suchconversations can be, but it’s not personal or

truthful with each other including probingto bring our problems and weaknesses to thesurface so we could deal with them forthrightly,and 2) having happy and satisfied employees.And it reminded me that when faced withthe choice between two things you need thatare seemingly at odds, go slowly to figure outhow you can have as much of both as possible.There is almost always a good path that youjust haven’t figured out yet, so look for it untilyou find it rather than settle for the choice thatis then apparent to you.

My first step was to make sure I knew exactlywhat the problems were and how to handlethem. So I asked Bob, Giselle, and Dan whatthey thought was going on. I learned that theypersonally, and many others who knew me well,weren’t as demoralized by me as some othersbecause they understood my heart was in a goodplace. If they hadn’t known that they would havequit, because, as they put it, “I wasn’t payingthem enough money to put up with my crap.”

They knew that I wanted the best for themand Bridgewater, and to get that I needed to beradically truthful with them and I needed themto be radically truthful with me. This wasn’tonly because it produced better results, butalso because being truthful with each other wasfundamental to how I believed we should bewith each other.

What I wanted more than anything else wasmeaningful work and meaningful relation-ships. By meaningful work, I mean work thatpeople are excited to get their heads into, andby meaningful relationships I mean those inwhich there is genuine caring for each other(like an extended family). The more caring wegave each other, the tougher we could be oneach other, and the tougher we were on eachother, the better we performed and the morerewards there were for us to share. This cyclewas self-reinforcing. We all agreed that radicaltruth and radical transparency were essentialto creating this cycle, but since it was mak-ing some people feel bad, something had tochange.

While those people I had contact with un-derstood me, liked me, and in some cases evenloved me, those who had less contact with mewere offended by my directness. It was clearthat I needed to be better understood and tounderstand others better. I realized then howessential it is that people in relationships mustbe crystal clear about their principles for deal-

B OOK E XC E RP T : P RINC IP L E S

Excerpted fromPRINCIPLESby Ray Dalio.Published byarrangementwith Simon& Schuster,Inc. Copyright© 2017 byRay Dalio.

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C. THINK ABOUT ACCUR ACY, NO T IMPLICATIONS.

It’s often the case that someone receiving criti-cal feedback gets preoccupied with the implica-tions of that feedback instead of whether it’strue. This is a mistake. Conflating the “what is”with the “what to do about it” typically leadsto bad decision-making. Help others throughthis by giving feedback in a way that makesit clear that you’re just trying to understandwhat’s true. Figuring out what to do about it isa separate discussion.

D. MAKE ACCUR ATE ASSESSMENTS. People are yourmost important resource and truth is the foun-dation of excellence, so make your personnelevaluations as precise and accurate as possible.This takes time and considerable back-and-forth. Your assessment of how ResponsibleParties are performing should be based noton whether they’re doing it your way but onwhether they’re doing it in a good way. Speakfrankly, listen with an open mind, consider theviews of other believable and honest people,and try to get in sync about what’s going onwith the person and why. Remember not to beoverconfident in your assessments, as it’s pos-sible you are wrong.

E. LE ARN FROM SUCCESS AS WELL AS FROM FAILURE.

Radical truth doesn’t require you to be negativeall the time. Point out examples of jobs donewell and the causes of their success. This rein-forces the actions that led to the results and cre-ates role models for those who are learning.

hierarchical—no one is exempt from this kind of criticism. Whilethis process is generally difficult for both managers and theirsubordinates, in the long run it has made people happier andBridgewater more successful. Remember that most people are hap-piest when they are improving and doing the things that suit themnaturally and help them advance. So learning about your people’sweaknesses is just as valuable (for them and for you) as is learningtheir strengths.

Even as you help people develop, you must constantly assesswhether they are able to fulfill their responsibilities excellently. Thisis not easy to do objectively since you will often have meaningful re-lationships with your reports and may be reluctant to evaluate themaccurately if their performance isn’t at the bar. By the same token,you may be tempted to give an employee who rubs you the wrongway a worse evaluation than he or she deserves. An idea meritoc-racy requires objectivity. Many of the management tools we havedeveloped were built to do just that, providing us with an unbiasedpicture of people and their performance independent of the biasesof any one manager. This data is essential in cases where a managerand a report are out of sync on an assessment and others are calledin to resolve the dispute.

Every leader must decide between 1) getting rid of liked butincapable people to achieve their goals and 2) keeping the nice butincapable people and not achieving their goals. Whether or not youcan make these hard decisions is the strongest determinant of yourown success or failure. In a culture like Bridgewater’s, you have nochoice. You must choose excellence, even though it might be difficultat the moment, because it’s best for everyone.

EVALUATE ACCURATELY, NOT KINDLY

Nobody ever said radical honesty was easy. Sometimes, especiallywith new employees who have not yet gotten used to it, an honestassessment feels like an attack. Rise to a higher level and keep youreye on the bigger picture and counsel the person you are evaluatingto do the same.

A . IN THE END, ACCUR ACY AND KINDNESS ARE THE SAME THING.

What might seem kind but isn’t accurate is harmful to the personand often to others in the organization as well.

B. PUT YOUR COMPLIMENTS AND CRITICISMS IN PERSPEC TIVE. It helps toclarify whether the weakness or mistake under discussion is indica-tive of a trainee’s total evaluation. One day I told one of our newresearch people what a good job I thought he was doing and howstrong his thinking was. It was a very positive initial evaluation.A few days later I heard him chatting away at length about stuff thatwasn’t related to work, so I warned him about the cost to his andour development if he regularly wasted time. Afterward I learnedthat he thought he was on the brink of being fired. My commentabout his need for focus had nothing to do with my overall evalua-tion. Had I explained myself better when we sat down that secondtime, he could have put my comment into perspective.

B OOK E XC E RP T : P RINC IP L E S


133F O R T U N E . C O M / / S E P . 1 5 . 1 7

CEO Jim Hackett brings an intellectual approach andan outsider’s perspective to the job. Here’s how heplans to transform the underperforming automaker.

Ford Findsa NewLeader,By DesignB Y A D A M L A S H I N S K Y

ILLUSTRATION BYC R I ST I A N O S I Q U E I R A

134F O R T U N E . C O M / / S E P . 1 5 . 1 7

a reserve offensive lineman for the Wolverinesin Schembechler’s heyday.)

Having led Steelcase from cubicle purveyorto designer of sleek open-plan offices, Hacketthas a similar transformation in mind for Ford.Mulally kept Ford out of bankruptcy duringthe financial crisis and invigorated the auto-maker, but lately the company’s momentumhas stalled. Its profits have been in decline, itis behind on electric vehicles and self-drivingcars, and its overreliance on the standout F-150pickup truck leaves Ford a laggard in citiesas the world becomes more and more urban.While rival GM’s stock has soared 18% over thepast year, Ford’s share price has fallen 8%.

At a high level—a level where Hackettfrequently dwells—his plan for Ford revolvesaround focusing the company on revenuesources other than making vehicles withinternal-combustion engines. These includeproducing electric and autonomous cars as wellas offering services like the Ford-owned Chariot“micro-transit” system and “curb-management”software that eases congestion in cities. In aninterview, he refers to the opportunities in frontof Ford as a “mobility smorgasbord”—mobil-

SOME COMPANIES take a cookie-cutter approachto selecting their CEOs. They might favorhome-grown talent, for instance, or engineerssteeped in the company’s products, or sales-people who excel at spinning a corporate yarn.The next CEO tends to look like the previousCEO, and will be followed by someone cut fromthe same cloth.

The Ford Motor Co., on the other hand,follows no discernible pattern at all. In thepast two decades alone it has toggled from anoperations whiz (Jacques Nasser) to a youngscion of its founding family (Bill Ford) to anexec who was an automotive neophyte (AlanMulally) and back again to another true-blueinsider (Mark Fields).

With the unexpected sacking of Fields thisspring and the appointment of 62-year-oldformer Steelcase CEO Jim Hackett, Ford hasonce again zigged where before it had zagged.Hackett isn’t a car guy. And unlike Mulally, whohad previously piloted Boeing’s commercialairplane business, he hasn’t run a giant indus-trial concern. Instead, Hackett is as close to anintellectual as the executive suite is ever likelyto see, a strategist obsessed by so-called designthinking as a blueprint for doing business. Asa young CEO, Hackett traveled annually to thechin-stroking TED conference long before itwas cool. Over the years he has drawn inspi-ration from thinkers as diverse as “complexsystems” theorist Geoffrey West of the Santa FeInstitute and the late University of Michiganfootball coach Bo Schembechler. (Hackett was

Shackettwantstoexpandford’sbusinessbeyondjustsellingcarsandtrucks:“wedon’twanttocedethefuturetoanybodyelse.”

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day long. “I could engage him very efficiently,”says Kelley, who also founded Stanford’s famedd.school, ground zero for the study of human-centric design thinking. “It was all ratherJetsons-like,” says Kelley. “I didn’t have that withmy wife, but I had that with Jim Hackett.”

Creepiness of 24/7 workplace cameras aside,the Kelley-Hackett relationship speaks volumesabout how Ford’s new CEO intends to approachhis job. Design thinking is something of a reli-gion among its adherents, and Ford execs woulddo well to brush up on the gospel. At Steelcase,Kelley helped Hackett understand how contem-porary office workers wanted to work. “Theywere building cubicles,” says Kelley. “And it justhit Jim that the future was going to be about ‘we’space as much as ‘I’ space.” Kelley believes de-sign thinking, properly applied, represents noth-ing less than the changing of the culture at anorganization like Ford. “The old way was aboutdisciplines. The new way will be about projectsand understanding what people want.”

Kelley is no mere bystander observingHackett’s efforts at Ford. Hackett retired fromSteelcase in 2014 and served a brief stint asathletic director at his alma mater. (His tenure

ity being a catch-all phrase for nontraditionalrevenues at Ford. Says Hackett: “We don’t wantto cede the future to anybody else.”

As for specifics, Hackett is purposely vaguefor now. This summer he instituted a 100-dayreview of the company. And shortly beforecoming to San Francisco in mid-August for aFord-sponsored conference on the future of cit-ies, he presented his preliminary findings to agroup of 300 top Ford executives in Michigan.Hackett talks in terms of corporate “fitness”and says he wants to speed decision-making atFord. “I have some things that are going to becoming out in the fall,” he promises.

ONE OF THE CLOSES T business relation-ships of Hackett’s career is withthe design firm IDEO, and specifi-cally with its founder, David Kelley.

Steelcase for years owned a controlling stakein IDEO, and Hackett and Kelley were so closethat they constructed what they called a “wormhole” between Kelley’s office in Californiaand Hackett’s in Grand Rapids, Mich. Usingmatching Cisco TelePresence systems, the twohad cameras focused on each other’s desks all

JIM HACKETT

Left: Fordremainsheavily reli-ant on salesof F-150pickups, likethese beingassembledat a plant inLouisville.Below: Char-iot, a SanFranciscojitney servicestartup,gives Ford anew businessin urbanmarkets.

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Ford, which bought Chariot last summer whenit had just 12 employees—it has more than 100now—the startup is a way to make money incities without necessarily selling cars.

Hackett’s hunch is that services like Chariot,bundled together, can constitute a new kind ofvehicular operating system—and that Ford canown it. “We’re working on a market basket ofideas,” he says, around the concept of servicesfor a network of smart vehicles. “It’s going tohave more applications that are really helpful.And the network that it rides on or works inis going to go from just having stop signs andtraffic lights and painted lines to the Internetof things that are sensing the nature of whatenvironments are pinging back and forth toeach other. This isn’t far-fetched at all.”

Far-fetched or not, Hackett will have only somuch time to prove his hypotheses. “Some ofthese business models aren’t currently mak-ing money even though they have tremendousvaluations on the private market,” says BrianJohnson, an auto analyst with Barclays. “It’s notclear he can make money on these.” Instead,investors are looking for signs that Hackett canimprove Ford’s core business by rationalizing itsproduct line, wringing out costs, and streamlin-ing the company’s supply chain. Hackett plansto go public with the first phase of his blueprintin an Oct. 3 meeting with Wall Street.

Already, Hackett is moving decisively. Fields,his predecessor, had maintained Mulally’s“knights-of-the-roundtable” management-teamapproach by having more than 20 top executivesreport to him. Hackett slashed that to eight, andhe deputized two Ford veterans—marketinghead James Farley and operations chief JosephHinrichs—to run two of the company’s mostimportant traditional functions.

That leaves Hackett to think deep thoughtsand also to reposition the automaker to respondto the needs of current and future customers—as opposed to simply designing snazzier carsor sturdier pickups. Ford is 114 years old, andcurrently has about 100 million vehicles on theroad—a captive, installed base, in Hackett’s view,for selling future goods and services. “Becausewe have the intersection of this magic, there’s lotsof different options in the way to move people,unlike in the past,” he says. “So we’re having abroader sense of defining what our options are tomove people that Ford should have a hand in.”And he’s got to keep selling cars and trucks too.

stands out for one major coup: He successfullywooed San Francisco 49ers head coach and fel-low Michigan alum Jim Harbaugh to Michiganto run the football program.) Before leavingSteelcase he had joined the board of Ford, andin 2016 he stepped off it to take a job at the com-pany running “mobility services.” One of his firstacts was to set up Greenfield Labs in Palo Alto,with IDEO as the key partner. (The name is anod to Henry Ford’s outdoor museum in Dear-born, Mich.) There, Ford and IDEO work insecret on future Ford products. After becomingCEO, Hackett hired IDEO to work on a largerengagement at corporate headquarters.

Hackett uses design thinking to informeverything he does. He is using the process of“ideation” and rapid prototyping to review ev-erything at Ford from how it runs its parts andservices organization to how capital is allocatedin the product-development process.

Design thinking isn’t a completely newconcept at Ford. Its Escape “crossover” vehicle,for example, is one of several that has a functionthat allows owners to open a hatch by passingtheir foot under the rear bumper, the better tooff-load an armful of groceries without fumblingfor a key. But IDEO’s Kelley, who won’t divulgewhat projects he’s working on at Ford, predictsa radical change in corporate behavior. “There’llbe a bunch of short prototyping projects,” hesays. “Most CEOs want a polished presentation.Jim wants to see the work really early on so hehas some say over the direction.”

IF THERE IS A CLE AR window into Hack-ett’s vision of Ford’s future, it is inthe downtown San Francisco officesof Chariot, the three-year-old jitney

service started by entrepreneur Ali Vahabza-deh. Chariot operates a commuter service thatcleverly crowdsources routes based on whereriders live and work. Using 14-passenger FordTransit Wagons, it operates in San Francisco,Austin, Seattle, and, as of August, in NewYork City. It caters to individuals as well as tocorporations who want to offer partly or whollysubsidized transportation but aren’t big enoughto operate their own “Google bus” fleet.

Chariot, says founder Vahabzadeh, employsall its drivers, just one of the ways it positionsitself as the anti-Uber. “We don’t want to be aniche business for the advantaged portion ofthe country,” he says. “We’re for the masses.” For

JIM HACKETT

1CHANGE ISN’T SOMUCH GOOD ASINEVITABLEHackett playedfootball forfamed Michiganfootball coach BoSchembechler, andhe’s fond of quotingBo, who believed,“we would eitherget better at whatwe do, or we wouldget worse. Wewould not stay thesame.”

2FOCUS ON USERS,AND PRODUCTS WILLFOLLOWFord sponsorsMotivate’s bike-sharing service inSan Francisco, anddespite being inthe car business,it has searchedfor insights,with designconsultant IDEO,on self-propelledlocomotion.

3BE OPEN-MINDEDHackett says Fordneeds to thinkbeyond cars.For example, he’sstudying urbancongestion woes,including parking,for opportunities: “Ifyou fix parking youmight change theway people actuallymove themselvesaround.”

HACKING HACKETT:THREE OF THENEW FORD CEO’SKEY PRECEPTS

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THE HEAD HONCHOS OF PACKAGED-GOODS COMPANIES ARE UNDERIMMENSE PRESSURE FROM A RADICALLY CHANGING CONSUMER,A HYPERCOMPETITIVE RETAIL LANDSCAPE, ACTIVIST INVESTORS,AND 3G CAPITAL. NO WONDER SO MANY HAVE STEPPED DOWN.BY BETH KOWIT T

E XODU SM A S S CE OBIG FOOD’S

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Bernstein analyst Alexia Howard.Is this coincidence, or evidence of some

meaningful moment in the nearly $1 trillionU.S. grocery industry? The answer may be abit of both. Some of the CEOs were Big Foodveterans just following the normal course ofsuccession as they approached the age of 65.But for years now they had also been under anenormous amount of pressure. “There’s neverbeen a time that’s more challenging for a CEOin the industry,” says David Garfield of con-sultancy AlixPartners. “They’re facing unprec-edented change.” Howard believes the rash ofdepartures is clearly linked to the deteriorationin the broader Big Food climate. The formerindustry executives she talks to are telling her“it’s really changed,” Howard says. “They’rerelatively unbiased at this point, and they’resaying it’s really tough out there.”

For one thing, the old tricks of the trade havestopped working. The outgoing class of CEOsrose up through the ranks during the glory daysof big brands, a period when what Boston Con-sulting Group partner Jim Brennan calls the“model for winning” came simply from econo-mies of scale in manufacturing and advertising,plus an annual boost from population growth.

But over the past decade, this “historicallysafe, stable insular industry,” as Howard deemsit, became much less so. For one thing, shoppersstarted avoiding the center of the supermarket,eschewing the canned and boxed offerings—andthe artificial colors, flavors, and preservatives in-side them—in favor of the perimeter’s fresh fare.Consumers, and in particular those coveted mil-lennials, wanted what they considered naturalgoods. No matter what Big Food does to reen-gineer its products, they can’t seem to convinceshoppers that anything has changed. “Consum-ers have lost trust in legacy food products,” saysHoward. “As a result we’re seeing big packaged-food companies attacked from all sides.”

If one side of the battle is what’s in BigFood’s products, the other is how they’re beingsold. To compete with the aggressive expansionof discounters in the U.S. like German entrantsAldi and Lidl, supermarkets have pressuredtheir suppliers to slash prices. Walmart andAmazon are following the same playbookas they face off in a battle over the future ofretail. Amazon further upped the ante—andthe sleepless nights for Big Food CEOs—whenit acquired Whole Foods this summer for

THE PAS T YE AR AND A HALF has been open seasonfor headhunters in the food industry.

It started back in May 2016 when MarkSmucker became CEO of the family’s namesakejams and jellies maker, replacing his uncle whohad served in the top job for 15 years. Then thatfall, a wave of leadership change began at BigMeat: First Hormel orchestrated a passing ofthe chief executive baton in October, and Tysonfollowed in December. At the end of the yearWhole Foods co-CEO Walter Robb officiallystepped down, leaving John Mackey as thehigh-end grocer’s sole head honcho. That sameday, Paul Bulcke abdicated at Nestlé after eight-plus years on the throne.

As the months progressed so did the depar-tures—and among them some of the industry’slions. Muhtar Kent left his post at the pinnacleof Coca-Cola this spring after more than eightyears on the job; Ken Powell did the same atGeneral Mills at the end of May as he crept upon a decade tenure; and some two months laterMondelez CEO Irene Rosenfeld announcedher plans to retire from the maker of Oreo,Cadbury, and Trident after more than 10 yearsas the head of the $26 billion snacking giant.

By the end of August, 17 CEOs of publicBig Food manufacturers and retailers haddeparted, or announced their intention to, inalmost as many months. “This is a pretty un-precedented situation where you see that levelof turnover in such a short space of time,” says

T“Youhavetoreshapetheportfolio,oryou’regoingtodie,”SaysBostonConsultingGroup’sJimBrennan.

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J.M. Smucker

Mark Smucker

Richard Smucker

TENURE (IN YE ARS)

15CUMUL ATIVE

TOTAL RE TURN TOSHAREHOLDERS

625%CUMUL ATIVE RE TURN

OF S&P OVERTHAT SAME PERIOD

120%

THE SUPERMARKET SHUFFLE

O U T G O I N G C E OI N C O M I N G C E O

Consumer packaged-food companies have gone through a major changing of the guard in the past18 months, with some big-name CEOs in the sector stepping aside. Below, a shareholder report card.

Pinnacle Foods

Mark Clouse

Bob Gamgort**

TENURE

6.8CUMUL ATIVE




40%

Hormel Foods

Jim Snee

Jeffrey Ettinger

TENURE

10.8CUMUL ATIVE




114%

Tyson Foods

Tom Hayes

Donnie Smith

TENURE

7.2CUMUL ATIVE




151%

Dean Foods

Ralph Scozzafava

Gregg Tanner

TENURE

4.2CUMUL ATIVE




73%

Hershey

Michele Buck

John P. Bilbrey

TENURE

5.8CUMUL ATIVE




100%

Coca-Cola

James Quincey

Muhtar Kent

TENURE

8.8CUMUL ATIVE




125%

General Mills

Jeffrey Harmening

Ken Powell

TENURE

9.7CUMUL ATIVE




96%

Mondelez

Dirk Van de Put

Irene Rosenfeld*

TENURE

11.5CUMUL ATIVE




151%

Nestlé

Mark Schneider

Paul Bulcke

TENURE

8.7CUMUL ATIVE




99%

BIG FOOD ’S MASS CEO E XODUS

*ROSENFELD: RETURN CALCULATED THROUGH 9/1/2017. ROSENFELD WILL STEP DOWN IN NOVEMBER.**GAMGORT: RETURN IS CALCULATED FROM FIRST DAY OF TRADING ON 3/28/2013.

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Amid this backdrop some CEOs were nodoubt encouraged by their boards to leave early,industry veterans say. Tyson, for example, hadsignaled that Tom Hayes would likely succeedlongtime CEO Donnie Smith, but the WallStreet Journal reported that the transition was“expedited partly because of the dimmer out-look on profit.” (Tyson vehemently denies thischaracterization, saying in a statement that thedecision “had nothing to do with the company’sprofit outlook, which was very positive. Whenhis departure was announced, Tyson Foodshad just completed a record year, and we wereprojecting a record fiscal 2017, which we’re ontrack to attain.”)

But others may simply have been worn out.Rosenfeld, who had to deal with two activistinvestors at Mondelez, told Fortune twice inan interview upon the announcement of herretirement that she was happy to say goodbye tothe nonstop nature of the job: “I won’t miss the24/7 fires that have to be fought.” “It’s gettinga lot harder,” says Stonyfield chairman GaryHirshberg, whose company was sold by Danonein August to French dairy Lactalis. “They’re notjust getting forced out. They’re tired. It’s not aneasy business now.” Murray says he was workingwith a public company CEO who had one re-quest: “He said, ‘Al, this is not fun anymore. Getme out of here. Get me out of here elegantly.’ ”

S O WHO COULD BOARDS possibly selectto fill these increasingly challengingroles? It turns out they look a lot liketheir predecessors. Several executivesearch firms said that while boards

are being more rigorous in their search process,they are still for the most part selecting insid-ers. “What surprises me is the board is puttingin people who are part of the existing manage-ment team, who will not depart radically fromthe pre-existing strategy,” says Credit Suisse an-alyst Robert Moskow. Take Coca-Cola’s JamesQuincey and General Mills’ Jeffrey Harmening,who both were at their companies for morethan 20 years before taking the top job. Somecompanies are “comfortable with somebodywho grew up in their culture who is going to bevery loyal and careful,” says Hirshberg. “Thatdoesn’t necessarily mean they’re going to be thebest engine of growth.”

A few companies have broken the mold. Theselection of Hayes, who joined Tyson in 2014

$13.7 billion. It promptly slashed prices on keyitems the day the deal closed. This has all leftlegacy CEOs with some dire choices. “You haveto reshape the portfolio,” says Boston Consult-ing’s Brennan, “or you’re going to die.”

T HE ONLY THING more worrisome to BigFood CEOs than consumers’ newpenchant for green juice is 3G Capital.The Brazilian private equity group isthe specter looming over the industry.

When 3G acquired Heinz and subsequentlymerged it with Kraft, it immediately implement-ed what Fortune’s Geoff Colvin has describedin these pages as a “blitzkrieg of cost cutting.”Kraft Heinz now has the highest margins amongits Big Food brethren, proving to some thatmanagement teams should be able to increaseearnings despite the sector’s intense pressures.“Companies have been on edge ever since,” saysAndrew Hayes of executive search firm RussellReynolds Associates. “They’re concerned thatthey might be the next victim and have tried to3G themselves to preempt it.” The $58 billionUnilever found itself in the eye of the 3G stormwhen Kraft Heinz made an unsolicited bid forthe Anglo-Dutch company in February. ThoughUnilever’s board roundly rejected the overture,the company did later move to cut spending andimprove profitability. But in the packaged-goodsrealm, the Brazilian threat remains. 3G is “ableto cut costs in a very unemotional and clini-cal way,” explains food industry veteran AlanMurray, who has operated in both the Big Foodand startup worlds. Since much of the industry’smanagement has come up through the ranks,“they cannot cut as brutally,” he says.

If legacy food companies don’t adopt the3G model themselves, activist investors haveshown they will do what they have to in orderto force the company’s hand. Nelson Peltz’sTrian has agitated for change over the years atCadbury, Heinz, PepsiCo, Danone, and Mon-delez, where Bill Ackman’s Pershing Square hasalso held a stake. Jana Partners pushed for ashake up at Whole Foods, which led the grocerto its deal with Amazon. Meanwhile DanielLoeb’s Third Point recently disclosed a stakein Nestlé. “There is no quadrant or zip codein the industry that’s off-limits to activists,”says Garfield of AlixPartners. Even the biggestcompanies with the most cherished brands arenow fair game.

“They’renotjustgettingforcedout,”saysStonyfieldchairmangaryhirshberg.“they’retired.it’snotaneasybusinessnow.”


than myself,” Schultz told me this spring.This new batch of CEOs may want to prepare

itself for a shorter tenure at the top. “The paceof change is increasing so much,” says GauravGupta of strategy firm Kotter International.“What business needs today and five years fromnow are going to be dramatically different.”Murray believes that will lead to a second waveof CEO turnover in which the next generationisn’t made quite so much in the same mold. “The60-year-old guy passes the baton to the 50-year-old guy who’s grown up at the same school. Canhe effect the changes that need to take place?”he posits. “The patience is now much shorter.”

When that second wave comes, there’s con-cern there won’t be the talent to fill it. The BigFood slump has made the industry’s companiesfar less sexy for graduating MBAs. They’ll nolonger be the innovative place to go. And evenworse, this new crop of young guns might noteven be interested in their food.

through its acquisition of Hillshire Brands,was considered more radical than going witha company lifer. Mondelez surprised industrywatchers with its pick of Dirk Van de Put, CEOof Canadian frozen french-fry company McCainFoods. And Nestlé’s new CEO, an outsider andhealth care executive, was considered a shockingand bold choice.

The industry, however, is still thinkingmostly inside the box. “If we compare Big Foodto retail, retail is a sector that’s on fire, and it’sburning. Therefore they’re bringing in peoplefrom the outside who can really take a differ-ent view,” says Greg Portell, lead partner in theretail practice at A.T. Kearney. Howard Schultzof Starbucks, which hasn’t even suffered closeto the trials of the rest of the industry, hand-picked tech veteran Kevin Johnson to replacehim. “I think I had my own private moment ofrealizing I honestly believed that Kevin wouldbe better suited to run the future of Starbucks

Mondelez’sRosenfeld an-nounced inAugust shewould stepdown as CEOthis fall. She be-gan her reign ashead of Kraft,where she spunoff the NorthAmerican gro-cery business in2012 to createthe globalsnacking giantwith remainingpowerhousebrands likeCadbury, Oreo,and Nabiscocrackers.

BIG FOOD ’S MASS CEO E XODUS

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For more than 40 years,pro-oil interests have beenpushing to explore the pristineArctic National WildlifeRefuge—only to be thwartedby environmentalists.But President Trump’s pledgeto open up federal landsfor drilling has set the stagefor an epic showdown.

stalking an elusive PHOTOGRAPH BY W I L L KO E P P E N

145F O R T U N E . C O M / / S E P . 1 5 . 1 7

prize in Alaska By BOB REISS

ILLUSTRATION BY M A RT I N L A KS M A N

146F O R T U N E . C O M / / S E P . 1 5 . 1 7

pristine place. You can’t have both. No compro-mise,” says Robert Mrazek, a former New Yorkcongressman and chair emeritus of the AlaskaWilderness League.

The argument for exploring in ANWR gainedtraction as U.S. oil production dropped pre-cipitously throughout the 1980s and ’90s andthe early 2000s. In recent years, however, theso-called fracking boom has caused oil produc-tion to surge in the U.S., from a low of around5 million barrels per day in 2008 to well over9 million barrels daily this year. America is nowgushing out so much crude that in 2016 Con-gress lifted a 40-year-old ban on exports.

This time last year, drilling in ANWR nolonger seemed like a major issue to many.

That changed in January with the inaugura-tion of Donald Trump, who promised duringhis presidential campaign to pull back restric-tions on the oil and gas industry and encourageexploration. In April, President Trump signedan executive order to expand offshore drilling,including in the Arctic, and open up protectedfederal land. He’s pledged that America willachieve “energy dominance.” And his adminis-tration has identified ANWR as a top priorityin the hunt for new sources of U.S. oil.

So the 40-year fight is back on.We bounce, landing on the short runway in

Kaktovik, a dot on Alaska’s Arctic coast andthe only village located in ANWR. Residents inpickup trucks or four-wheelers wait to unloadsupplies, or collect relatives coming home fromdownstate. It’s June and, offshore, tumbled iceis visible in water black as coal. To the south,snow-topped mountains sit mirage-like againstthe gray sky, across grassland that looks spongyand brown. This is what ground zero looks like.

Over the years, tens of millions of dollars havebeen spent on the battle for ANWR—for lawyers,lobbyists, fact-finding missions, public meet-ings, and ads highlighting the refuge’s isolatedvalleys and remote rivers. ANWR’s 19.3 millionacres make it four times the size of Massachu-setts—mostly protected wilderness, blocked fromdevelopment. But the 1.5 million-acre coastalplain, known as the “1002 area,” where Kaktovikis situated, can be drilled if Congress okays it.

How much oil is really here? Nobody knowsfor certain. But allegedly there are four to 12 bil-lion barrels of recoverable oil, “the mean being10.3 billion, a very sensible estimate,” says MarkMyers, the former director of the U.S. Geological

AS THE 19-SE AT Beechcraft breaks from the clouds over the northeast-ern coast of Alaska, the oil industry’s long-cherished prize comesinto view. At first glance, you’d never think that the Eskimo villageand brown tundra below would represent the “longest running,most acrimonious environmental battle in American history,” asnaturalist Peter Matthiessen once called it. But it’s not what’s on topof the ground that Big Oil covets—it’s the billions of barrels of crudeoil that may lie below.

For more than four decades, Alaska’s congressional delegation andtheir oil and gas allies have been pushing to drill here in the ArcticNational Wildlife Refuge, or ANWR. And more than once they’vealmost succeeded. (The devastating Exxon Valdez oil spill in PrinceWilliam Sound on the southern coast of Alaska in 1989 was a majorsetback.) There’s a simple reason for their persistence: ANWR is “thelargest unexplored, potentially productive geologic onshore basinin the United States,” the U.S. Energy Information Administrationreported in 2000.

It’s also one of the rare pieces of unspoiled wilderness left in theworld—home to polar bear dens and caribou calving grounds—and re-mains much the same as it was 10,000 years ago. That’s why environ-mentalists have fought so fiercely over the years to protect it. “ANWRis an American Serengeti. You can have the oil. Or you can have this

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1002 AREA

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ACTIVE LEASESAREA

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TRANS-ALASKA PIPELINE

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TRANS-ALASKA PIPELINE

A R C T I C N A T I O N A LW I L D L I F E R E F U G EA R C T I C N A T I O N A LW I L D L I F E R E F U G E

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production has fallen below 500,000 barrels.“We’re basically hanging on, waiting for newsupply,” says Thomas Barrett, president of theAlyeska Pipeline Service Co., which operates theTrans-Alaska Pipeline System.

In the spring, Alaska’s two Republicansenators, Lisa Murkowski and Dan Sullivan,introduced new legislation to open up ANWR.To Murkowski, the state’s senior senator andthe chair of the Energy and Natural ResourcesCommittee, the effort to unlock ANWR for oilexploration is the continuation of a “multi-generational fight,” as she calls it, that startedwith her father, Frank Murkowski, who onceheld the same senate seat she now holds.She remembers writing a research paper onthe refuge in college, in the 1970s, when herfather was pushing to open it. Murkowskialso recalls her astounded son, then a sev-enth grader, asking on the day of a “big” 2005refuge vote in Congress, “Mom, you haven’topened ANWR yet? I’ve been hearing about it

Survey under President George W. Bush, whichmade the estimate. Myers is one of a handfulof people who’ve ever seen the results of thelone exploratory well drilled in ANWR—a jointproject by BP and Chevron back in the mid-’80s.The report may be the most closely held secretin Alaska. There’s no shortage of rumors aboutwhat it shows, though. Back in Anchorage,people trade tales of a massive field that couldprovide a windfall in new oil royalties.

Alaska could use the money. Listen to Alas-kans, and you can feel their desperation—in theirhomes, offices, from commuters passing An-chorage’s rooftop ConocoPhillips sign, in radioreports on the $3 billion state deficit. Oil helpedbuild the state. The oil industry employs a thirdof its workers. And the Alaska Permanent Fund,created with oil royalties, pays each resident anannual dividend—just over $1,000 last year.Alaska once supplied 20% of U.S. oil, but now it’soutput is dwindling. From a high of more than2 million barrels per day in 1988, Alaska’s daily

“anwristheamericanserengeti.youcanhaveoil.oryoucanhavethispristineplace.youcan’thaveboth.”

The 19.3 million–acre Arctic NationalWildlife Refuge covers an area four timesthe size of Massachusetts. Pro-oil interestswant to explore the “1002 area” aroundKaktovik on the Arctic coast, which couldyield billions of barrels of crude.

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sistence culture. Buy food? A pound of meat inKaktovik’s store costs $27. A loaf of white breadis $6. Protecting wildlife here is daily survival,many people say.

But the flip side, which has all eight villagesof Alaska’s North Slope seesawing back andforth in perpetual angst about drilling, is thatoil tax revenue pays for borough schools, old-folks homes, streetlights, plumbing, and eventhe lawyers who have helped stop—over theyears—federal or corporate efforts to halt whalehunting or to allow offshore drilling alongwhale migration routes. The idea of offshoredrilling can be terrifying here. Onshore is moreacceptable to Iñupiats.

Elders in North Slope villages grew up burn-ing whale blubber for heat, they tell me, chop-ping ice for drinking water. That changed afteroil was discovered at Prudhoe Bay in 1968, andthe Iñupiats created the North Slope Boroughas an entity to tax big oil. If the oil dries uphere, so do basic amenities.

The debate takes place at dinner tables, com-munity meetings, and on the Internet. Fight it?Or pray for it? Oil worsens climate change vs.oil creates jobs.

I’m warned to watch out for polar bears—two were spotted yesterday in Kaktovik—asI walk over to meet Mayor Nora Jane Burns.The village is a collection of one-story homesset on pilings to keep them from melting intopermafrost. Front yards are testimonials topeople who value outdoors; filled with snow-mobiles, drying caribou or bear skins, boats forwhale hunting. The new school—paid for by oiltaxes—looks impressive.

Mayor Burns, 59, is a gray-haired, whale-hunting crew member whose family, she says,gets half their diet from the wild. At one timeshe supported drilling. But after watchingextraction around the nearby village of Nuiqsut,she changed her mind. “Nuiqsut has been highlyimpacted,” she says. “Their hunting has changed.They must go extra miles to harvest animals.They suffer more respiratory disease. If our eco-system is destroyed, what will we eat? Oil?”

A five-minute walk brings me to a smallerwooden building where Eddie Rexford, 59, alsoa hunter, is angry for the opposite reason andtends to represent the viewpoint of many Iñu-piats. He pokes maps on his wall delineatingland inside ANWR. Rexford is vice presidentof the “Kaktovik Iñupiat Corporation,” estab-

my whole life!” She lost that vote.With Trump in power and Congress under

Republican control, Murkowski feels that 2018will be the best chance for success that the pro-ANWR-drilling movement has had in 25 years.But one wrinkle is that Murkowski herself hasrecently clashed publicly with President Trump.In July, Murkowski defied Trump and SenateMajority Leader Mitch McConnell and cast a keyvote against the Obamacare repeal bill. Trumpimmediately went after her on Twitter, writingthat she “really let the Republicans, and ourcountry, down yesterday.” Adding, “Too bad!”

To finally win on ANWR, Murkowski willnow have to not only smooth things over withthe President but also overcome an organized,determined resistance by the environmentalcommunity. In the native communities aroundthe refuge, not all of the citizens that Murkows-ki represents are rooting for her to succeed.

NO ONE UNDER the age of 45 inKaktovik has memory of any timewhen outsiders were not battlingover the refuge’s 1002 area. That’sthe part of ANWR which mightbe opened—it’s also their primaryfood supply as both a hunting

ground and the basis of a proud Iñupiat sub-

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U.S. FIELD PRODUCTION OF CRUDE OIL

ALASKA SHARE

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2010

518,000

U.S. TOTAL:9.1 MILLION

BARRELS PER DAY

“firsttheygiveustheland,andthentheytellusyoucandonothingwithit,”saysonenativecitizenwhofavorsdrilling.“ourlandisheld hostage.It’sanotherinjustice.”

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water harbor by exploding atomic bombs nearthe Iñupiat village of Point Hope. Alaska politi-cians liked that idea. Residents fought it off.

Now, Rexford fumes, the U.S. governmentwon’t allow the Iñupiats to drill on their ownland. “First they give us the land, and then theytell us you can do nothing with it. Our land isheld hostage. It’s another injustice.”

AREFUGE IS NO T like a national park,which has paved roads and uni-formed rangers and lodging andgroomed trails. You can’t hunt ina national park. You can in a ref-uge. There are souvenir stands ina national park. Forget the moose

logo T-shirts in ANWR.That’s because America’s refuges are dedi-

cated to “wildlife conservation over humanuse,” says Greg Siekaniec, Alaska RegionalDirector of the U.S. Fish and Wildlife Service,which manages ANWR. Siekaniec opposesdrilling in the refuge. The ecosystem comes

lished by the Alaska Native Claims Act of 1971,in which the U.S. government—rather thancreating reservations for natives—formed tribalcorporations, and gave them land. Tribal mem-bers are stockholders and get dividends annu-ally. The Kaktovik Iñupiat Corporation owns92,000 acres of surface land in ANWR, so ifoil is found there, members will share royaltieswith a larger native company—the Arctic SlopeRegional Corporation (ASRC)—which ownssubsurface rights. Rube Goldberg seems tohave designed federal land policies in Alaska.

ASRC has even sold an oil lease to Chevronand BP on tribal land—but under federal law,no drilling can happen unless the entire 1002area is opened. Which angers Rexford.

We spend a few minutes discussing well-documented injustices perpetrated on NorthSlope natives since the Russians sold themto the U.S. as part of Alaska in 1867. Whaler-brought flu wiped out whole villages in the1800s. In the 1950s scientist Edward Tellerarrived in Alaska with a plan to create a deep-

Sen. LisaMurkowski ofAlaska, shownhere in 2015 ar-guing against theObama admin-istration’s plansto protect a bigswath of federalland from drilling,has spent hercareer trying toopen up ANWR foroil exploration.

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limit ANWR’s development to only 2,000acres, or “the size of Dulles airport,” SenatorSullivan tells me. That would include airports,roads, warehouses, and even pilings on whicha pipeline might be built. Add in tribal landthat could also be drilled if ANWR opens, and94,000 acres in all of the 19.3 million could beopened to development, and hundreds of thou-sands of acres could be leased for exploratorydrilling. Legally, exploration and extraction aredifferent things.

After Murkowski’s ‘no’ vote on the Obamacarerepeal, Trump reportedly directed Interior Sec-retary Ryan Zinke to call Murkowski and Sul-livan and express his displeasure. The InteriorDepartment’s Office of Inspector General subse-quently opened an investigation into whetheror not Zinke had threatened the senators withreprisals—and then closed it when the Senatorsdeclined to participate. Murkowski and Zinkehave both downplayed the disagreement. As ofnow, the fences appear to be mended enoughfor Trump and the Alaskan contingent to workon pushing through ANWR legislation.

The Senate bill sidesteps a need for a newenvironmental impact statement by recogniz-ing one made years ago as valid. And by mak-ing the effort part of the budgetary process—asit appears they intend to do—the Republicansmay greatly increase the odds of its passage. Ifthe ANWR provision is attached to a budgetreconciliation bill, it would require just 51 votesto pass in the Senate, or 50 votes with Vice

first, he asserts. Not people. And how manypeople actually come to ANWR? Between 1980and 2011, roughly 1,000 visitors hiked or raftedthere annually, says Fish and Wildlife’s Jen-nifer Reed, ANWR’s public use manager. “Plusmaybe 500 more we don’t know about, sinceyou don’t have to sign in. Recently we’re seeingan extra 1,500 people a year in Kaktovik to seepolar bears. The bears are coming ashore ingreater numbers as sea ice melts.”

Only a handful of outsiders had ever visited oreven heard of the area in 1960, when PresidentDwight Eisenhower’s administration establishedan Arctic Wildlife range “to preserve uniquewildlife, wilderness, and recreational values.”Under President Jimmy Carter, Congressenlarged the area, changed the name to ANWR,and postponed the decision on whether or not todrill for oil in the 1002 area.

There have been efforts to open up ANWR tothe oil industry pretty much ever since. In 1987,President Ronald Reagan’s Interior Depart-ment recommended that the coastal plain beopened to drilling, and in 1989 a Senate com-mittee approved a plan—just before the Valdezran aground in Prince William Sound, spilling10 million gallons of crude oil and ending anychance of passage that year. In 1990, as Kuwaitioilfields burned during an Iraqi invasion, globaloil prices skyrocketed, and Frank Murkowskiproposed an amendment to the defense appro-priations bill to open the refuge. He lost. In themid-1990s, with the Republicans in control ofCongress, both houses passed a budget includ-ing a provision to open up ANWR. PresidentBill Clinton vetoed that part.

Next round: President George W. Bushincluded the opening of ANWR as part of hisenergy plan, but it was opposed by Demo-crats and by some Republicans, such as Sen.John McCain. “If they found oil in the GrandCanyon, I don’t think I’d drill in the GrandCanyon,” McCain said at the time.

President Obama tried to lock up the coastalplain, making it protected wilderness, andfailed.

Last November, after Trump’s surprise vic-tory, “we thought, ‘Here we go again,’ ” saysKristen Miller, interim executive director ofthe Alaska Wilderness League in Washington.Strategy sessions on both sides started withinhours of the election. .

Senate Bill 49—on the table now—would

In late April,President Trumpsigned an ex-ecutive order toexpand offshoredrilling in the Arc-tic and to open upmore federal landfor oil and gasexploration.

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massive facility run by BP, Exxon, and Conoco.Senator Murkowski is among those arguing

that drilling now will have a minimal environ-mental impact. “The effect is imperceptible onthe surface,” she says. “The caribou don’t knowit’s there. People flying over don’t know it’sthere. The technology has advanced so much,but people can’t let go of their old images.”

Prudhoe Bay is the epitome of that image.It’s basically a large-scale industrial park ontundra, a massive complex of gravel mounds—“pads”—on which rest pumps, warehouses,housing, and roads. Experts estimate that ifcurrent technology had existed when it wasbuilt, the facility would move the same amountof oil at 20% to 50% of its size.

Point Thomson, by contrast, is smaller andless built-up. The building doors open intopolar bear cages—steel enclosures to protectworkers in case a bear is outside. Staffers wearprotective eye gear when driving, since flyingrocks routinely break windows. Nearby I spot afew caribou on the tundra, ducks, even a fox.

Exxon uses directional drilling at PointThomson, meaning that lines extend outwardfrom a single well, enabling the tapping of hy-drocarbons miles away, and cutting down on thenumber of wells formerly needed to tap a field.

I stand before a two-story, cube-shapedbuilding inside of which sits a pipe going down13,000 feet. Then it makes a turn and contin-ues out for two more miles, and sucks hydro-carbons. The Exxon guys tell me they’ve hadmarksmen shoot bullets at pipeline-thick steelto test Iñupiat fears that hunters might acci-dentally puncture it. They boast about cariboumonitoring by satellite and their bear radar.

Scanning the horizon, all I see is tundra andopen water for miles. There’s plenty of nothing.

THE ARC TIC IS melting as the earthheats up. It was warmer from 2011to 2015 than at any time since1900, when record taking withinstruments began. In Eskimo vil-lages, elders have stopped teachingyoung men to hunt because they

fear that the ice is changing so fast that old les-sons won’t apply. In Norway this May, I visitedNy Alesund, the northernmost permanentresearch settlement on earth, where the AustreBroggerbreen glacier lost six feet of depth in2016. In Svalbard, the global seed vault, con-

President Pence voting to break a tie.But don’t expect ANWR’s defenders to roll

over so easily.Maps shown to Fortune by ANWR explora-

tion proponents outline a teeny area slated fordevelopment at the edge of the 1002 area. This,they claim, is the entire extent of the potentialfootprint.

Maps shown by environmentalists like PeterVan Tuyn, by contrast, portray an enormousspiderweb of interlocking roads, pipes, gravelpits, and warehouses across the entire 1002area. He doesn’t trust the likes of BP and Chev-ron, or Alaska’s politicians, to be caretakers ofthe area’s wildlife.

Van Tuyn and I meet in his Anchorage office,beneath photos of bears and moose. He’s anaffable, passionate ex–New Yorker and hiker,who received a “hero of the Arctic” award fromthe Alaska Wilderness League a few years back.His clients have included the Gwich’in steeringcommittee—an Alaska/Canada Athabaskin na-tive group opposed to opening ANWR—as wellas the Sierra Club and the Audubon Society.

“There may be endangered species concerns,”Van Tuyn says, anticipating legal challengesto opening the refuge. “There may be marine-mammal protection concerns. Polar bears aremarine mammals, and they den on land. A lotof issues come into play. The bill claims to beenvironmentally sound. It’s blatantly not.”

Van Tuyn adds, “The 2,000-acre thing is themost disingenuous thing ever in Congress.”

EX XON’S REMO TE Point Thomsonoil and gas facility sits on thecoastline of the Arctic’s BeaufortSea, 60 miles from ANWR. Ona June day it is 26 degrees, thecoldest spot in the U.S., accordingto the TV news. Point Thomson

sends up to 10,000 barrels per day of ultra-light oil into the Alaska pipeline, and it is herethat ANWR oil would probably flow. “You canalmost throw a snowball from ANWR to PointThomson,” Senator Sullivan tells me. Connect-ing the two places, he adds, is a no-brainer wayto limit development.

I’ve come here in search of, well, nothing.Nothing is key, because pro-development

people argue that this place is a good example of“small-footprint” development; what you’d see ifANWR opened. Nothing like Prudhoe Bay, the

whyistheoilindustrysointerestedinanwr?becausetherefugeis“thelargestunexplored,potentiallyproductivegeologiconshorebasinintheunitedstates.”

A L A S K A

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runabout and we bounce up a steep incline tohis caribou hunting camp.

Arctic Village, Swaney’s home, is a Gwich’inNative American settlement of roughly 200 inthe Brooks Range foothills, 146 miles south ofKaktovik, near the southern end of ANWR. Theporcupine caribou herd provides almost 80% ofthe diet of the Gwich’in, after passing each yearduring the longest migration of any animal onearth—2,700 miles in a loop between NorthernCanada and Alaska. The herd of 180,000 laborsover mountains and across ice-covered streams,swims rushing rivers, and moves relentlesslyalmost 20 hours a day, as they have for 10,000years. The range is huge, but calving occurs ina small part of it—specifically, in the 1002 area,where cool ocean breezes protect them from theprincipal cause of calf mortality: mosquitoes.The fear is that development will push theminto more dangerous spots.

The caribou have no idea that they constitutea political football. But they’re part of the rea-son that Sen. Maria Cantwell of Washington,the ranking Democrat on the Energy Commit-tee, opposes developing the area. “ANWR isone of the most unique places on earth. Peopletravel the world to see intact ecosystems like

structed in deep permafrost to preserve samplesof world crops, was closed for repair becausepermafrost around it is melting. “This was notanticipated,” staffers told me.

In Alaska, ice melt has opened the sea-lanesoff Kaktovik. Cruise ships now pass on theirway in or out of the once iced-over NorthwestPassage. The open-water season has increasedby one to three months since the 1970s, theArctic Council recently announced. Russia isbuilding Arctic military bases and will beginshipping natural gas to Asia this fall throughthe Bering Strait, “waving at us as they go by,”says Mead Treadwell, Alaska’s former Lt. Gov-ernor and the former head of the U.S. ArcticResearch Commission, venting his frustration.The message: Russia is assuming prominencein the region while in the U.S. Arctic policy—over building icebreakers or not, over whetherto sign international treaties governing sea bot-tom, over whether to drill for oil or gas—getsbogged down in arguments in gridlock.

The effects of the changing climate are ap-parent inland as well.

It’s near midnight—the dawn of a new dayin the Arctic—as Charlie Swaney hits the ac-celerator on the camouflage-patterned Honda

A patrol chases apolar bear out ofKaktovik, Alaska.As the sea icethey rely on forhunting sealsrecedes, owingto warming inthe Arctic, thebears are comingashore in greaternumbers insearch of food.

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Without more information on the develop-ment: “Impact unknown.”

Down in Arctic Village I sit with SarahJames in her small home. James and Presi-dent Bill Clinton shake hands in a photo, neara “No whining” bumper sticker stuck to thefridge. James, 74, has traveled to Europe andthe Earth Summit as an ambassador of theGwich’in. “If you drill for oil here, you will bedrilling into the heart of our people,” she says.

James was given a lifetime job by G’wch’nelders back in 1978, at a tribal convocation, shesays. “The leaders gave four of us authorizationto go out and educate the world. They said, ‘Thisfight is going to be huge. We’ll need help.’ Theysaid, ‘You are going to do this for the rest of yourlife.’ ” In the late 1980s, she lived in D.C. for ayear, working with the Alaska Wilderness Leagueand “eating a lot of Subway sandwiches.”

With President Trump in the White House,says James, “everyone asks me what is going tohappen to the Gwich’in people if they developthe refuge. I still have hope. But I don’t knowthe answer.”

HOW TO FIND balance? Where’s theline between jobs and nature,natural heritage and new capital,energy and human culture? Howmuch oil—even if you believe indevelopment—is enough?

Some perspective comes fromRichard Glenn, vice president of lands for theArctic Slope Regional Corporation and a drill-ing proponent. He’s a renaissance guy—pianoplayer, scientist, whale hunter. It’s quite possible,Glenn suggests with a bemused smile, that thefight over ANWR will go on for another 40years. Indeed, Alaskan cynics have been knownto say that the principal industry associated withANWR is not oil but the lobbyists and fundrais-ers on either side.

It’s also possible, he reminds me, thatit’ll turn out in the end that there’s no oil inANWR, if it ever does open up. It wouldn’tbe the first time an expected find turned dry.“We’re like two people arguing over the con-tents of a closet,” says Glenn. But neither knowsexactly what the prize really is.

Bob Reiss is the author of The Eskimo andthe Oil Man and was the Anchorage Museumwriter in residence in June 2017.

this,” says Cantwell. “We don’t need the oil.”Swaney, 60, is a lanky, muscled man with a

quiet assertiveness and a habit of repeating thelast couple of words of a thought. He movedhere 30 years ago and married into the com-munity. Like other residences in Arctic Village,his lacks running water. The toilet is a bucket.Drinking water is filtered from the river. Heatcomes from a wood-burning oil-drum stove.

But he’s not interested in the promise of oilmoney. “Fifty years from now the oil will begone, even if they find it. If they drill ANWR,caribou will be gone too,” he tells me.

Arctic Village is one of eight Gwich’in com-munities along the caribou route. Unlike NorthSlope Iñupiats, the Gwich’in rejected nativecorporations, instead forming the Gwich’inSteering Committee to fight ANWR develop-ment. They regard the caribou calving groundas holy, barred from visitation.

“People up north chose money over subsis-tence,” Swaney says, shaking his head. “Badidea. You lose power up north and you willfreeze to death. If we lost electricity, we’d stillhave our woodstoves to keep us warm.”

From our perch at his camp, Swaney scansthe valley below and points out ways that theclimate is changing things here. The spruceforest used to be more expansive. New willowtrees provide cover for more moose. He pointsout oval patches on the grass below that aredried up lakes, due to permafrost melt. Ani-mals that depended on these lakes are watch-ing their drinking water dry up, he says.

And what if oil development adds morestress on the caribou? What if oil wells causethe herd to calve elsewhere, or to change theirmigration route so they no longer pass close tothe village?

It could be the last straw, he frets. Whichcauses me to remember a talk with scientistJason Caikoski.

Caikoski, an Alaska Department of Fish andGame biologist, has monitored Alaska cariboufor years. When I asked him whether the Prud-hoe Bay development affected the “Central”caribou herd there, he explained that the herd,“grew from relatively few to an all-time high,and then declined. We don’t know what effectthe oilfield had on that.”

When it comes to predictions about theporcupine herd, “The bottom line is, we don’tknow the scale of footprint,” Caikoski said.

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A L A S K A

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EVERYBODY LOVES an up-and-comer.Whether in sports, music, or even busi-ness, there’s something undeniablyexciting about a fast-rising, fresh face.For this, the 31st edition of Fortune’s listof Fastest-Growing Companies—whichreveals the top three-year performersin revenues, profits, and stock returns(the methodology is explained onpage 162)—we present 100 companieson the ascent. For an in-depth look atone of the brightest of these corporatestars, LendingTree, see page 166. Butfirst, explore the full list of high achiev-ers on the pages that follow.

list By Scott DeCarlo,douglas g. elam, and kathleensmyth text by Sydney Agus, ChristinaAustin, Robert Hackett, Beth Kowitt,Adam Lashinsky, Michal Lev-Ram,Andrew Nusca, Brian O’Keefe,Jeff John Roberts, and Jen Wieczner

F O R T U N E F A S T E S T - G R O W I N G C O M P A N I E S

ENERGY

TECHNOLOGY

FINANCIALS

HEALTH CARE

INDUSTRIALS

RETAILERS

MINING

OTHER

NUMBER OF COMPANIES IN EACH SECTOR(1997–2017)

35

27

15

13

2

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8

1997 2000 2010 2017

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1 1 NATURAL HEALTH TRENDSRolling Hills Estates, Calif. 112 7

2 PAYCOM SOFTWAREOklahoma City 231 2

3 10 LENDINGTREECharlotte 177 3

4 8 ABIOMEDDanvers, Mass. 88 11

5 MIMEDX GROUPMarietta, Ga. 88 10

6 3 FACEBOOKMenlo Park, Calif. 67 19

7 27 NETEASE 1

Beijing 35 55

8 ELLIE MAEPleasanton, Calif. 43 42

9 AMAZON.COMSeattle 121 6

10 ARISTA NETWORKSSanta Clara, Calif. 49 38

11 AMN HEALTHCARE SERVICESSan Diego 61 26

12 SILICON MOTION TECHNOLOGY 1

Kowloon, Hong Kong 55 33

13 NV5 GLOBALHollywood, Fla. 28 78

14 HESKALoveland, Colo. 73 15

15 26 BANC OF CALIFORNIASanta Ana 48 39

16 19 BEAR STATE FINANCIALLittle Rock 93 9

17 WALKER & DUNLOPBethesda, Md. 51 36

18 VEEVA SYSTEMSPleasanton, Calif. 45 41

19 AKORNLake Forest, Ill. 97 8

20 33 DYCOM INDUSTRIESPalm Beach Gardens, Fla. 72 16

21 PACIFIC PREMIER BANCORPIrvine, Calif. 34 58

22 HOOKER FURNITUREMartinsville, Va. 38 52

23 11 TAL EDUCATION GROUP 1

Beijing 20 97

24 GRUBHUBChicago 67 20

25 IES HOLDINGSHouston 319 1

26 CENTURY COMMUNITIESGreenwood Village, Colo. 51 35

27 CENTENESt. Louis 30 72

28 2 VIPSHOP HOLDINGS 1

Guangzhou, China 63 24

29 CENTERSTATE BANKSWinter Haven, Fla. 56 31

30 ESSENT GROUPHamilton, Bermuda 34 61

31 29 MOLINA HEALTHCARELong Beach 56 32

32 NEXSTAR MEDIA GROUPIrving, Texas 125 5

33 CONSOLIDATED-TOMOKA LANDDaytona Beach, Fla. 63 25

34 62 INTERCONTINENTAL EXCHANGEAtlanta 60 29

35 TUCOWS 2

Toronto 61 27

Nearly a decade after the financial crisis, the banking busi-ness is surging. A host of fast-growing regional and com-munity banks made financials the best-represented sectoron this year’s list, followed closely by tech.

THE MONEY’S IN THE BANKS

For an explanation ofFortune’s methodology,go to the end of the list.

E A R N I N G S P E R S H A R ER A N K

2017 2016

Three-yearannual growth

rate (%) Rank

†Through the quarter ended April 30, 2017.1 Incorporated in the Cayman Islands. 2 Incorporated in the United States.

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54 73 2 273 64 7 5A

51 47 17 359 67 5 98

29 44 23 422 81 3 85

52 36 37 445 79 4 66

15 58 7 264 28 46 54

11,542 50 12 30,288 31 38 32

1,860 63 4 6,253 59 10 19

45 45 22 380 52 12 97

2,582 22 68 142,573 44 18 229

231 44 24 1,222 34 31 44

112 28 54 1,929 47 15 14

111 36 35 571 36 29 13

12 49 14 243 63 9 19

14 18 87 133 112 1 57

113 40 26 634 30 40 24

19 58 8 95 6 89 17A

142 24 62 640 51 13 11

92 35 40 582 34 30 100

183 55 10 1,102 0 95 22

163 20 80 3,076 42 20 17

41 38 32 194 38 27 21

27 34 43 586 39 24 16

115 46 18 1,043 65 6 78

57 47 16 537 7 86 53

117 16 99 781 40 23 16A

50 79 1 1,039 4 90 9

717 53 11 45,378 28 44 16

300 64 3 8,581 –17 100 19

64 24 61 261 31 36 18

241 48 15 483 23 54 14

105 40 28 18,343 16 71 33

76 35 41 1,388 7 88 19

28 41 25 91 8 84 15

1,555 31 50 5,873 22 56 22

14 15 100 215 64 8 31

The two-year reign of this multilevel marketer of health and beauty productsmay be ending. Sales in Hong Kong, its primary market, have plummeted lately.The Oklahoma City payroll processor has been winning bigger customers andadding online HR and other financial applications, like tax-filing services.In its nine years as a public company, the online loan broker has delivered a47% average annual return to shareholders.Maker of the first artificial heart, Abiomed’s revenues have been racing on salesof the Impella heart pump for patients with heart failure, a growing market.A designer of a kind of modern medical alchemy, MiMedx creates tissue graftsfrom recovered placentas that are used to treat soft-tissue wounds.Still growing fast, Facebook has thrived by packing its platforms with mobileadvertising and by building up acquired franchises like Instagram and WhatsApp.This Web 1.0 Chinese Internet company—founded in 1997—has surged withonline growth in China by offering services including advertising and games.Low interest rates and robust home sales had been buoying this maker of loan-origination software for years—before sluggish sales bashed its stock in July.The online retail giant has become a dominant purveyor of web-hosted softwareservices. Its purchase of Whole Foods promises to make it a grocery titan too.A Cisco killer run by a former top Cisco executive, Arista is benefiting fromnimbler execution and better technology than its archfoe.This health care staffing company has been on a shopping spree—completingthree acquisitions in 2016, including an executive search firm.The smartphone boom has propelled the biggest supplier of a key componentof NAND flash, a data storage tech that doesn’t require power to preserve data.A nearly 70-year-old engineering and consulting services firm, NV5 gets morethan half of its revenue from public and quasi–public sector clients.Heartworm and digital imaging products have bolstered sales at Heska,a maker of veterinary diagnostic products primarily for dogs and cats.Recapitalized in the aftermath of the financial crisis, the Banc of Californialaunched foreign-exchange services and new banking teams last year.Buying Metropolitan National Bank in 2015 has boosted the community bankcompany, which operates 48 locations in Arkansas, Missouri, and Oklahoma.The country’s eighth-largest commercial and multifamily mortgage servicer isstriving to nearly double its revenue to hit $1 billion by the end of 2020.Veeva, a cloud-computing company focused on products for the life sciencesindustry, is now expanding into servicing other sectors like manufacturing.Specialty drugmaker Akorn produces generic and branded prescription drugsin hard-to-make dosages like oral liquids and injectables.A major push for fiber-optic networks in homes and offices is behind the stellargrowth at the Florida telecom service provider.The 34-year-old bank has lately been consolidating the California community-banking market, acquiring a company every year since 2011.Hooker, a Virginia-based maker of home and office decor, cited a postelectionrun-up in economic confidence to explain its surging sales earlier this year.More than 20 million students in education-hungry China now utilize TAL’sin-person and online education programs.Since merging with Seamless four years ago, the online food-ordering power-house has expanded its service to more than 1,200 U.S. cities plus London.Formerly Integrated Electrical Services, IES provides industrial infrastructureservices in a range of areas—from mining to snow removal.A comeback in housing demand has allowed the Colorado homebuilder to tapinto thriving markets in Nevada, Texas, and, more recently, Charlotte.Centene’s 2016 acquisition of Health Net made it the nation’s top Medicaidprovider and helped boost its annual revenue by nearly 80%.This Chinese online bargain retailer has seen its number of active customersand total orders more than double in the past three years.A takeover spree—five deals in three years—grew its reach to 78 branches; twomore acquisitions in August made it Florida’s largest community bank.Founded amid the 2008 housing crisis to insure mortgage lenders and inves-tors against loan defaults, Essent is thriving in the current real estate boom.A major Obamacare insurance player, Molina ousted its CEO and CFO—bothsons of its founder—in the spring and saw its stock spike.The Texas telecom company has been broadcasting lots of good news to inves-tors lately—like its handsome EPS growth of 125% in the past three years.A real estate company, Consolidated-Tomoka’s holdings include income proper-ties and more than 8,100 acres of land in the Daytona Beach, Fla., area.Investors have been bidding up the stock price of Intercontinental, whose hold-ings include the NYSE and several futures exchanges.The Internet is a big place, so selling website addresses is a solid business forTucows, the world’s second-biggest domain name registrar and reseller.

T O T A L R E T U R NThree-year

annual rate*(%)

P/E, currentfiscal year

profits (est.)

Past fourquarters†

($ millions) Rank

r e v e n u eR E V E N U EThree-year

annual growthrate (%) Rank

N E T I N C O M EPast four

quarters†($ millions)

* Through June 30, 2017. The S&P 500 returned 9.6% annually over the same period. (Company returns lower than that of the S&P are bolded.)AP/E estimates for the current fiscal year are not available. The figure shown is the trailing 12-month P/E ratio.

F A S T E S T - G R O W I N G C O M P A N I E S

F O R T U N E

SAN FRANCISCO

CEVA

Nvidia

Facebook

Ellie Mae

Gilead Sciences

TriNet

Lam Research

VeevaSystems

Arista Net.

AlignTech.

Heritage Commerce

IntegratedDevice Tech.

SAN DIEGO

LOS ANGELES

Microsemi

BofI

PreferredBank

PacWest

TRI PointeMolina Healthcare

Bancof Calif.

NaturalHealthTrends

SkechersPennyMac

AMN Healthcare

PacificPremier

NUMBER OF LISTED COMPANIES PER STATE

1–2 3–4 5–6 6–8 240

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36 NVIDIASanta Clara, Calif. 43 45

37 NUTRISYSTEMFort Washington, Pa. 61 28

38 CIRRUS LOGICAustin 33 65

39 UNITED FINANCIAL BANCORPGlastonbury, Conn. 65 23

40 41 PATRICK INDUSTRIESElkhart, Ind. 37 53

41 BSB BANCORPBelmont, Mass. 77 14

42 16 JINKOSOLAR HOLDING 1

Shangrao, China 66 22

43 MICROSEMIAliso Viejo, Calif. 130 4

44 LEGACYTEXAS FINANCIAL GROUPPlano, Texas 41 46

45 7 SKECHERS U.S.A.Manhattan Beach, Calif. 53 34

46 76 AMERIS BANCORPMoultrie, Ga. 35 57

47 15 SKYWORKS SOLUTIONSWoburn, Mass. 47 40

48 43 PACWEST BANCORPBeverly Hills 38 50

49 CAMBREXEast Rutherford, N.J. 43 43

50 REGENERON PHARMACEUTICALSTarrytown, N.Y. 38 51

51 MEDIDATA SOLUTIONSNew York City 67 21

52 CEVAMountain View, Calif. 40 49

53 AUTOHOME 1

Beijing 29 76

54 21 UNIVERSAL INSURANCE HOLDINGSFort Lauderdale 26 82

55 CRITEOParis 34 60

56 68 ULTA BEAUTYBolingbrook, Ill. 28 80

57 TRINET GROUPSan Leandro, Calif. 80 13

58 83 TRANSDIGM GROUPCleveland 69 18

59 13 AERCAP HOLDINGS 3

Dublin 30 71

60 53 NORWEGIAN CRUISE LINE HOLDINGS 4

Miami 41 47

61 86 HERITAGE FINANCIALOlympia, Wash. 35 56

62 59 SIMMONS FIRST NATIONALPine Bluff, Ark. 33 62

63 17 GILEAD SCIENCESFoster City, Calif. 58 30

64 META FINANCIAL GROUPSioux Falls, S.D. 21 93

65 91 ALMOST FAMILYLouisville 32 68

66 23 YY 1

Guangzhou, China 32 69

67 INTERDIGITALWilmington, Del. 71 17

68 48 BOFI HOLDINGSan Diego 34 59

69 PENNYMAC FINANCIAL SERVICESWestlake Village, Calif. 30 70

70 69 BANK OF THE OZARKSLittle Rock 29 77

It’s a tale of two sprawling metropolitan areas. In the BayArea and Silicon Valley, growth is all about the tech industry,and semiconductor companies are heavily represented onthe list. In Greater Los Angeles (plus nearby San Diego),banking and health care are surging.

NORCAL VS. SOCAL GROWTH

When it comes to growth companies, the Golden State is thegold standard. California has 24 companies on this year’slist, or nearly a quarter of the total. That’s up from 19 in thepast two years. And it’s more than three times as many asFlorida, which ranks No. 2 with seven companies on the list.

CALIFORNIA, HERE THEY COME



2017 2016


rate (%) Rank

†Through the quarter ended April 30, 2017.1 Incorporated in the Cayman Islands. 3 Incorporated in the Netherlands.4 Incorporated in Bermuda.


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1,965 17 91 7,542 101 2 53

40 16 97 596 49 14 29

261 28 53 1,539 40 22 16

51 35 38 246 11 79 16

60 27 55 1,289 33 33 18

13 23 63 67 19 64 19A

234 45 21 3,354 –12 99 14

216 20 82 1,760 20 60 17

94 39 29 382 15 74 18

240 23 65 3,673 25 51 18

81 26 58 359 32 35 18

915 22 71 3,353 28 45 18

338 46 19 1,117 7 87 16

87 16 94 501 42 19 21

963 33 45 4,979 20 61 45

34 18 85 486 22 55 99

15 16 96 77 45 17 61

186 61 6 885 10 82 25

105 35 39 696 29 43 8A

78 39 31 1,915 13 76 30

446 22 72 5,096 46 16 31

79 21 75 3,135 11 80 36

590 17 92 3,360 20 59 24

1,085 62 5 5,071 0 94 9

622 25 60 4,947 20 63 15

39 26 57 171 22 57 20

95 37 33 444 13 77 16

12,637 32 48 29,101 –4 96 9

48 32 47 247 32 34 16

17 18 86 671 41 21 20

266 57 9 1,255 –8 98 14

315 16 95 653 19 66 21

132 36 36 447 9 83 12

72 45 20 1,251 3 91 7

307 39 30 866 14 75 15

The market for graphics chips is booming, and Silicon Valley’s Nvidia hasn’tmissed out on the fun, rewarding investors with a three-year return of 101%.New diet programs to slim down its customers have helped Nutrisystem fattenup its profits to the tune of a three-year annual EPS growth rate of 61%.Soaring demand for its audio and graphics processing chips has caused theTexas “fabless” semiconductor supplier’s stock price to double in four years.The owner of New England’s United Bank reported record revenue and earningsper share this year thanks in part to strong loan growth.This RV outfitter built its post-recession resurgence on some 30 acquisitions incomplementary businesses, such as makers of home and office furnishings.Once a sleepy savings bank, this 132-year-old Massachusetts institution isemerging as a regional powerhouse.The Chinese solar power developer’s sales leapt 30% to $3.1 billion last year,but concerns about oversupply might dim investors’ ardor.A spate of acquisitions along with growth in its defense and aerospace busi-ness has kept this California semiconductor company humming.Revenue blows into LegacyTexas from dozens of bank branches in the northernpart of the Lone Star State, and generous dividends blow out to shareholders.Investors have come running to the footwear company thanks to big revenuegains driven by strong overseas sales.Ameris Bank bought up banks on the cheap in the Southeastern U.S. to help itvault up the list from No. 76 last year.Makers of smartphones, wearable gadgets, and Internet of things devices sharean appetite for the semiconductor manufacturer’s radio-frequency chips.PacWest Bancorp has grown its top line through savvy acquisitions such asCU Bancorp, owner of L.A.’s California United Bank.The N.J. biotech has grown on strong demand for its pharmaceutical ingredi-ents. It has been expanding facilities in the U.S., Italy, and Sweden.With four FDA-approved drugs, this biotech firm based in Tarrytown, N.Y., hasseen its share price surge as much as 40% this year.As complexity grows for clinical trials and studies, Medidata, which makescloud-based software to help automate them, is profiting handsomely.Bluetooth. LTE. 5G. DSP. CEVA licenses its intellectual property for these tech-nologies to top companies like Apple and Intel, and the royalties are rolling in.Autohome, which lets dealers advertise new and used cars on its website for afee, is riding in the fast lane thanks to rising car ownership in China.One of the largest property and casualty insurers in Florida, Universal is nowlooking beyond the hurricane-threatened Gulf Coast for growth.The French online ad targeter is benefitting from an expanding base of adver-tisers entranced by its effective algorithms.The cosmetics and personal care purveyor is gaining market share thanks to alarge network of profitable stores outside the declining shopping mall market.TriNet, which makes HR software for small and medium-size companies, hasbeen adding customers in droves and outperforming expectations.High-flying TransDigm designs, produces, and supplies aircraft componentsand soars with proprietary products its customers can’t get anywhere else.The largest independent aircraft-leasing company, which specializes in “mid-life” aircraft (about seven years old), is benefiting from new-model backlogs.Norwegian’s 2014 acquisition of Prestige Cruises helped it generate recordrevenue. Dry-docking its ships for upgrades is making them more profitable.The regional bank, which services the Pacific Northwest, finished its last fiscalyear with a 10% increase in net loans—four percentage points over its projection.Launched in Arkansas in 1903, Simmons now operates across four states, withmore than 150 locations, and has $9.1 billion in total assets at its disposal.Hepatitis C treatments are an integral part of the biotech’s product line. Recentapproval for a competitor’s comprehensive Hep C drug adds new pressure.Founded in 1954 with just $10,000, this once-tiny South Dakota bank companynow has more than $4 billion in assets.The health and hospice provider got a big boost in sales due to its $129 millionpurchase of a majority stake in another caregiving leader, CHS Home Health.This China-based live-streaming site has a fast-growing user base—more than122 million monthly users and counting.Royalties from wireless patents have charged up the IP company’s sales. Up-coming implementations of 5G networks should juice them again.Bank branches are so 1999. Coincidentally, that is the year the mostly onlineBofl Holding—which operates just one branch—was launched.Founded by the former No. 2 at the now-defunct mortgage lender CountrywideFinancial, this lender is facing some new headwinds: a slowdown in home sales.Shares of the community bank recently tumbled 12%. Why? Its vice chairmanand president abruptly resigned, sparking concerns about the bank’s health.


annual rate*(%)


profits (est.)


($ millions) Rank






GILE

AD S

CIEN

CES

CIRR

US

LOGI

C

LAM

RES

EARC

H

DYC

OM IN

DU

STRI

ES

NET

EASE

TRAN

SDIG

M G

ROU

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EBIX

MER

CAD

OLIB

RE

AMAZ

ON.C

OM

TAL

EDU

CATI

ON G

ROU

P

PATR

ICK

IND

UST

RIES

SKEC

HER

S U

.S.A

.

ULT

A BE

AUTY

ALM

OST

FAM

ILY

BOFI

HOL

DIN

G

NOA

H H

OLD

INGS

NUMBER OF YEARS COMPANIESSPENT ON THE LIST(ONLY 4 YEARS OR MORE SHOWN)

CURRENT STREAK3 1 3 2 2 2 1 1 1 4 4 3 2 2 4 4

8

7 7

6

5 5 5 5

4 4 4 4 4 4 4 4

16

2//

FO

RT

UN

E F

AS

TE

ST

-G

RO

WIN

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OM

PA

NIE

S//

SE

P.1

5.1

7

71 ARGANRockville, Md. 22 92

72 57 MARTIN MARIETTA MATERIALSRaleigh, N.C. 40 48

73 LCI INDUSTRIESElkhart, Ind. 33 64

74 CHURCHILL DOWNSLouisville 29 74

75 ENTEGRISBillerica, Mass. 50 37

76 EBIXJohns Creek, Ga. 28 81

77 87 WESTERN ALLIANCE BANCORPORATIONPhoenix 24 87

78 JAZZ PHARMACEUTICALSDublin 83 12

79 51 ORBOTECHYavne, Israel 25 84

80 HOMESTREETSeattle 30 73

81 NATIONAL GENERAL HOLDINGSNew York City 20 96

82 75 TYLER TECHNOLOGIESPlano, Texas 29 75

83 MERCADOLIBRE 2

Buenos Aires 17 99

84 28 LAM RESEARCHFremont, Calif. 32 67

85 TRI POINTE GROUPIrvine, Calif. 43 44

86 12 NOAH HOLDINGS 1

Shanghai 17 100

87 ILGMiami 25 86

88 PREFERRED BANKLos Angeles 20 95

89 MKS INSTRUMENTSAndover, Mass. 23 88

90 TRISTATE CAPITAL HOLDINGSPittsburgh 33 63

91 ALIGN TECHNOLOGYSan Jose 23 90

92 CUSTOMERS BANCORPWyomissing, Pa. 25 83

93 SERVISFIRST BANCSHARESBirmingham, Ala. 18 98

94 BRIDGE BANCORPBridgehampton, N.Y. 22 91

95 HERITAGE COMMERCESan Jose 23 89

96 77 GRAY TELEVISIONAtlanta 32 66

97 INTEGRATED DEVICE TECHNOLOGYSan Jose 37 54

98 THOR INDUSTRIESElkhart, Ind. 25 85

99 PINNACLE FINANCIAL PARTNERSNashville 21 94

100 78 HOME BANCSHARESConway, Ark. 28 79

Achieving the kind of growth thatlands a company on our list isn’teasy. What’s even harder? Sustain-ing it. Of the companies on thisyear’s edition, Gilead takes the titlefor most total appearances witheight, despite falling off a few yearsago. Four companies tied for thelongest current streak: four years.

GROW FAST. RINSE.REPEAT.


2017 2016


rate (%) Rank


†Through the quarter ended April 30, 2017.1 Incorporated in the Cayman Islands. 2 Incorporated in the United States.

2017 FASTEST-GROWING METHODOLOGY: To qualify, a company—domestic orforeign—must be trading on a major U.S. stock exchange, report data in U.S.dollars, file quarterly reports with the SEC, have a minimum market capitaliza-tion of $250 million and a stock price of at least $5 on June 30, 2017, and havebeen trading continuously since June 30, 2014. Companies must have revenueand net income for the four quarters ended on or before April 30, 2017, of atleast $50 million and $10 million, respectively, and have posted an annualizedgrowth in revenue and earnings per share of at least 15% annually over the

F O R T U N E

SE

P.1

5.1

7//

FO

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UN

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PA

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S//

16

3

79 40 27 775 19 65 16

423 21 76 3,874 20 62 26

137 19 83 1,754 29 41 18

113 22 69 1,300 28 47 28

113 18 84 1,226 17 69 22

98 16 98 306 57 11 20

272 27 56 779 27 48 17

408 18 88 1,528 2 92 21

79 23 66 804 29 42 14

61 32 46 581 15 73 17

157 50 13 3,877 7 85 12

124 22 70 776 24 52 53

155 22 73 961 39 26 63

1,430 16 93 7,215 30 39 13

175 26 59 2,374 –6 97 10

93 30 51 380 27 49 18

287 36 34 1,622 11 81 23

38 21 74 137 33 32 18

152 20 77 1,549 31 37 15

30 20 81 153 21 58 20

219 17 90 1,151 39 25 50

86 34 44 363 12 78 11

84 20 79 241 38 28 21

35 35 42 155 15 72 17

28 23 64 107 23 53 18

64 32 49 842 1 93 16

110 18 89 728 19 67 21

338 20 78 6,605 25 50 14

139 29 52 510 18 68 18

183 23 67 540 17 70 18

The Maryland-based holding company’s portfolio includes an engineering andconstruction company, as well as a tech wiring firm.This building materials supplier operates in more than half of the U.S. Businessin the Southeast, particularly in North and South Carolina, has been robust.LCI supplies parts for recreational vehicles and trailers. It has made more than40 acquisitions in the past 15 years.The company that runs the Kentucky Derby has expanded to casinos, and itsportfolio includes the leading American online wagering company.This Massachusetts electronics-parts supplier works with cell phone, computer,and other device makers, as well as car and drug manufacturers.Ebix is a 41-year-old provider of software and other solutions to insurers withoffices across the world in Brazil, New Zealand, and India, among others.Operating primarily in Arizona, California, and Nevada, the bank exploits profit-able niches such as financing for hotel franchisees.Jazz, which became an Irish company after its merger with Azur Pharma in2012, has a drug portfolio focused on narcolepsy and hematology.Orbotech’s tagline is the “language of electronics,” and the Israeli companysupplies solutions that enhance the manufacturing of tech, like circuit boards.This bank has been in business since 1921 and offers services in the PacificNorthwest, California, and Hawaii, where it continues to open new branches.An insurance-market dislocation finds National General Holdings, which offerspersonal lines insurance, in a plum position—particularly its auto segment.Tyler Technologies makes software and services for local governments, and it’sbooking deals all over the country as municipalities seek efficiency.MercadoLibre, a Latin American e-commerce company akin to Alibaba of China,is seeing sales soar as the region’s economy begins to grow again.As computer chips make their way into everything, Lam Research, which sellsequipment that chipmakers use to build microscopic features, benefits.Residential homebuilder TRI Pointe (Maracay, Pardee, Quadrant, Trendmaker,and Winchester homes) has been outpacing guidance on new home deliveries.A flood of new millionaires in China has lifted the Shanghai-based wealth man-ager, which now plans to open branches in Canada and Australia.ILG, a major player in the time-share industry, manages more than 250 vaca-tion resorts in 80 countries as a licensee for brands like Hyatt and Westin.Founded in 1991 to cater to Chinese-Americans, Preferred today is one of Cali-fornia’s largest independent banks, with an increasingly diverse customer base.MKS provides equipment and systems to help optimize the manufacturing ofhigh-tech products like semiconductors, flat-panel screens, and solar cells.Formed a decade ago to serve middle-market businesses in three main mar-kets—New Jersey, Ohio, and Pennsylvania—the bank is now in New York too.Smiles are a booming business for Align, which makes 3D scanners used byorthodontists as well as the popular Invisalign clear teeth-straighteners.Since 2009, the assets of the Pennsylvania community bank company havegrown from $250 million to more than $10 billion.From its base in Birmingham, this bank with a creatively spelled name servescustomers around the Southeast. Its 2Q net income jumped 28% over last year’s.The parent of Bridgehampton National Bank operates some 40 branches,mostly on Long Island, and dates back to 1910.What better place to be a bank than smack dab in the middle of Silicon Valley?That’s the case for Heritage, which earned a record $7.4 million in the 2Q.The demise of TV has been greatly exaggerated. Gray owns or operates stationsin more than 50 markets that reach nearly 10% of U.S. television households.Located in San Jose, Integrated serves its tech neighbors by providing semi-conductor solutions for a range of products.Thor is a power player in the RV industry, manufacturing motor homes andtrailers under brand names such as Airstream, Land Yacht, and Four Winds.Pinnacle Financial Partners’ acquisition of three competitors within a calendaryear exemplifies the growth of this Tennessee-based bank.The acquisition of Stonegate Bank, announced earlier this year, will add 25branches in Florida and over $3 billion in assets to Home Bancshares.


annual rate*(%)


profits (est.)


($ millions) Rank






three years ended on or before April 30, 2017. ¶ Companies that meet these criteria are ranked by revenue growth rate, EPS growth rate, and three-year annualized total return for theperiod ended June 30, 2017. (To compute the revenue and EPS growth rates, Fortune uses a trailing-four-quarters log linear least square regression fit.) ¶ The overall rank is based onthe sum of the three ranks. Once the 100 companies are identified, they are then reranked within the 100, using the three equally weighted variables. If there is a tie, the company withthe larger four-quarter revenue receives the higher rank. ¶ Excluded are real estate investment trusts, limited-liability companies, limited partnerships, business development com-panies, closed-end investment firms, companies about to be acquired, and companies that lost money in the quarter ended on or before April 30, 2017. In addition, Fortune excludescompanies that have announced intentions to restate previously reported financial data, if these errors appear to have a significant impact. Also, Fortune excludes companies that lostmoney in the quarter ended May 31 or June 30, if the loss represents a deterioration in business conditions. The data are provided by Zacks Investment Research. The data checkingprocess was aided by information provided by S&P Global Market Intelligence and Lexis Securities Mosaic.


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166F O R T U N E . C O M / / S E P . 1 5 . 1 7

LendingTree founder and CEO Doug Lebda with Lenny the spokespuppet at the company’s headquarters in Charlotte.

PHOTOGRAPH BY J E R E M Y L A N G E

167F O R T U N E . C O M / / S E P . 1 5 . 1 7

at lendingtree, it’s all fist bumps—andhypergrowthBusiness is booming at the onl ine marketplace forconsumer credit , and its stock has soared 120%this year alone. Better yet: The company’s big idea—allowing borrowers to comparison shop onl ine—is sti l lgaining traction. By Shawn Tully

DOUG LEBDA DOESN’T ENJOY telling people that they’re beingstupid. For that, the founder and CEO of LendingTree, thebooming online loan platform, typically turns to his friendLenny. An irreverent personality, Lenny is more than happyto explain how you just got fleeced on your mortgage, andin blunt language. A typical Lenny-ism: “Taking the first

mortgage offer you get is like marrying the first person you kiss.”It softens the blow that Lenny is small and green, with a big, open

smile. Oh, and that he’s a puppet. LendingTree hired Jim Henson’sCreature Shop to create the wisecracking character in 2013, andsince then Lenny has appeared in a series of TV ads for Lebda’scompany. “The idea was that Lenny could be more obnoxious thana real person, and tell people point-blank that they’re idiots not toshop around” says Lebda.

Lenny’s message appears to be getting through to consum-ers, who are flocking to Lebda’s online marketplace for consumercredit. Despite a sluggish U.S. economy and stagnant loan market,LendingTree’s revenue jumped 62% in the first half of 2017 vs. theyear before. The company’s revenues from connecting custom-ers with competing mortgage lenders—which accounts for justunder half of its business—grew by 28% in the first six months of2017 despite a 4.2% overall decline in U.S. mortgage originations.


168F O R T U N E . C O M / / S E P . 1 5 . 1 7

shopping for a lower rate. And when borrow-ers succeed in securing a home loan after fourmonths of shuffling reams of paperwork, theiroverwhelming reaction is frequently gratitudeto the lender for providing the funds to close.The whole “relationship” system discouragescustomers from shopping for the best prices.

Lebda aims to put the customer in charge.“We want to change the balance of power,” hesays. “Today, customers feel thankful for gettinga loan, as if the lender had done them a favor.We want the banks to come to you. That meansmaking them compete directly by puttingtheir offers side by side, so that customers canchoose on what really matters in this busi-ness—prices measured in rates and points.”

To grasp LendingTree’s potential, it’s essen-tial to understand its mechanics. LendingTree

does not make loans. It’s a searchengine that matches customers withlenders via its online marketplacesfor a wide array of loans. For ex-ample, people seeking mortgagesvisit LendingTree.com, where they’reguided through a series of around 20prompts calling for such informationas credit scores, the loan amount re-quested, and the proposed percentagedown payment. Within moments ofhitting the submit button, two pagesof quotes pop up from a minimum offour, and maximum of five, lenders.This writer invented a profile usinga better-than-average credit scoreof 700 and received 11 quotes fromfour lenders on a mythic $300,000mortgage—five on a 30-year fixedloan, four on a 15-year, and two on afive-year adjustable-rate mortgage,or ARM.

The spread in pricing boldly illustrates theimportance of bargain hunting. The best dealwas 4.362% on the 30-year with an upfront fee(defined as “points”) of $3,430. A rival was of-fering 4.689%, or 33 basis points more, with ahigher fee. The differences were similar for theno-fee loans, competing quotes ranging from4.625% to 4.375%. Choosing the lower numberon the no-fee loan would save a borroweralmost $4,000 over the first five years.

LendingTree generates revenue by sellingleads. Every time one of its 400 lenders pro-vides a quote for a customer seeking a mort-gage, that lender pays LendingTree a fixed fee,whether it eventually writes that borrower a

And LendingTree’s fees from non-mortgage products—franchisesencompassing personal loans, credit cards, and home equity—faredeven better, rocketing up 112%.

Such explosive growth has propelled LendingTree’s stock intothe stratosphere. As of late August, its shares had soared 120%this year, to $223. Since going public in 2008, LendingTree hasmultiplied shareholders’ money 30 times, delivering annual re-turns of 47%. Its nine-year record ranks third among all compa-nies with market caps that now exceed $2 billion, trailing mostnotably the 50.1% annual gains at Netflix.

Thanks to this potent combination of business expansion andinvestment returns, LendingTree ranks No. 3 this year on Fortune’s100 Fastest-Growing Companies list. But if you ask the CEO, thereis plenty more growth to come for his two-decade-old company.Lebda, who has personally made $500 million on LendingTree instock and options, justifiably claims that his brainchild is helpingto lead a revolution in the way consumers buy financial services.“Lending is way behind every other industry in entering the DigitalAge,” he tells Fortune.

LendingTree offers consumers thesame kind of platform for evaluatingloans that, say, Expedia provides forhotels and eBay proffers for sundryproducts. Though money is the larg-est and purest of commodities, wherechoices should logically be based almostentirely on price, borrowers do far lesscomparison shopping online for loansthan they do for pretty much any othertype of product—even though the big-gest purchase of most families’ lifetimeis a mortgage-funded home.

A recent study by the ConsumerFinancial Protection Bureau found that47% of all homebuyers don’t comparemortgage offers before choosing alender. Yet the potential savings are gi-gantic, because the offers vary so widelyin interest rates and points. A Lending-Tree survey found that customers whoreceived five quotes on its platform for a typical 30-year home loanof $223,000 witnessed a difference of 52 basis points from the high-est to the lowest quotes. Taking a 4.0% vs. a 4.52% rate would savethe borrower $24,000 over 30 years.

The more consumers become aware of that math, the biggerLendingTree’s future growth could be.

T0 LEBDA, THE LOOMING digital disruption in financial servicesis as much cultural as financial. Today, getting a mortgageis the least web-enhanced of any big purchase. In the newera of tight credit, folks are extremely unsure of winningapproval for a home loan. Hence, consumers still relyheavily on lending officers recommended by their real-

tors or financial advisers to steer them through the labyrinthineprocess. Choosing someone whom their realtor swears by trumps

“Wewanttoturnthetables,”sayslebda.“Today,customersfeelthankfulforgettingaloan,asifthelenderhaddonethema favor.”


0

50

100

150

200

250

$300 million

LENDINGTREE MORTGAGE REVENUE

2012 2013 2014 2015 2016 2017

0

500

1,000

1,500

2,000

2,500

3,000%

S&P 50089.4%

LENDINGTREE

2,943%

STOCK PRICE CHANGE SINCE IPO

AUG. 2008 JAN. 2012 AUG. 2017

$220

EST.$269

$76.2

TOTAL U.S. MORTGAGE ORIGINATIONS

2012 2013 2014 2015 2016 2017

EST.$1.7

$2.0$2.1

0

0.5

1.0

1.5

2.0

$2.5 trillion

SOURCES: LENDINGTREE; S&P GLOBAL

NEW LOAN REFINANCE

169F O R T U N E . C O M / / S E P . 1 5 . 1 7

mortgage or not. The fee is determined in anauction similar to Google’s system for sellingclicks. The lenders bid for a place among thefour or five slots depending on which types ofcustomers, and how many, they seek to reach.

For purchase loans, the fees range from $3to $35 per quote, or “match.” “If a lender wantsvery large volumes, say they want to be guaran-teed 2,000 matches a month, they would payhigher fees,” says Neil Salvage, LendingTree’spresident. If a small lender seeks customers intargeted areas, such as four zip codes in NorthCarolina, they’ll also pay higher fees. Gettingreferrals on the most creditworthy borrowers,those with high incomes and 800 credit scores,and the most likely candidates to qualify for themortgage, also commands a premium.

Though it’s a growth machine, LendingTreeis far from a digital giant. It forecasts revenuesfor 2017 of just under $600 million, a figuretoo low to secure a place in the Fortune 1000.What excites shareholders, it seems, is howrapidly it’s gaining traction, and its role intransforming the way Americans shop formoney. Since 2013, loans generated fromLendingTree leads have soared from 0.5% ofthe total U.S. mortgage market to an estimated1.4% in 2017. So although the total mortgagemarket has shrunk from $1.9 trillion in 2013to a projected $1.7 trillion this year, Lending-

Tree’s dollar volumes have more than doubled, from $9.6 billion toa yearly pace of $22.5 billion.

Those numbers make LendingTree by far the industry’s domi-nant player. Lenders now originate 4% of their mortgages fromonline comparison-shopping platforms, and the figure is growingfast. LendingTree’s portion, meanwhile, accounts for over one-third of the sector. The remaining two-thirds is divided amonga number of rivals, including Bankrate, QuinStreet, and Zillow.LendingTree is also the leader in home equity, a separate categoryof home loans, where its market share has multiplied 19 times, to1.9% since 2013.

What gives LendingTree its edge? Its scale is a big advantage.As the industry’s pioneer, LendingTree’s been building a powerfulbrand for two decades, far longer than its current rivals. It cyclestwo-thirds of its revenues into advertising, with big chunks goingto TV spots and securing top placement on Google. “The heavy adspending gives us a ‘flywheel’ effect,” says Lebda, using an anal-ogy from business strategist Jim Collins. “The more we advertise,the more leads we can generate for lenders. And the more leadswe generate, the more lenders join our network. That adds morerevenues, which generates more advertising. The flywheel keepsspinning faster.” LendingTree also attracts customers by rankinglenders based on reviews from its multitudes of borrowers: Forexample, its biggest lender, Quicken, gets 4.0 out of 5 stars. Thoughlenders don’t like getting publicly bashed by customers—a majorreason that some of its rivals don’t provide ratings—they tolerateLendingTree’s ratings because they need its leads.

In the past couple of years, Lebda has aggressively diversified intounderserved, high-growth areas such as credit cards and personalloans. Non-mortgage products, in fact, now account for 53% of

170F O R T U N E . C O M / / S E P . 1 5 . 1 7

LendingTree’s revenues. The company has been especially successfulwith personal loans. It’s a rare lending category that’s growing fast,and banks struggle to make money in personal loans, leaving thefield wide open to digital newcomers.

LENDINGTREE’S TWO-DECADE HISTORY is a primer in the art of sur-vival. In 1994, Lebda was seeking a loan to purchase a condoin Pittsburgh. “I looked up the rates in the newspaper,” herecounts, “but the banks didn’t offer the rates as advertised.”So Lebda invented a platform where lenders would presentreal, actionable quotes online instead of the typical teaser

rates that he’d encountered. Two years later as a 26-year-old MBAstudent at the University of Virginia’s Darden School, he launchedthe precursor to LendingTree.

Lebda’s startup initially prospered as the first company ever toprovide online comparison shopping for financial services. But thedotcom bust hammered lending, and in 2003, Lebda sold Lending-Tree to Barry Diller’s IAC for a handsome $734 million. (“That’sprobably a lot more than it was worth,”Lebda remarks.) He rose to becomepresident of IAC in 2006, overseeingthe growth of such brands as Ticket-master and Home Shopping Network.But in 2008, LendingTree was reelingonce again, this time from the financialcrisis, and IAC planned to spin it off.Lebda’s mentor at the company wasGE legend Jack Welch, who served asa consultant for IAC. “Jack walked intomy office and said, ‘You’re crazy if youdon’t take your creation back when theysell it,’ ” Lebda recalls.

He took the advice. And in a reversalof fortune, the financial crisis causeda big shift in the mortgage market,hugely benefiting LendingTree. Banksretreated on home loans, issuing fewpurchase mortgages, and relying on thebooming refi market for fresh busi-ness as rates plummeted. Refis are alot more automated, more web-friendly, and easier to close thanmortgages for purchase. So aggressive newcomers like Quickenand LoanDepot captured big shares of the refi market from themajor banks. Unlike the banks, Quicken and LoanDepot relied oncomparison-shopping sites for their leads. “It was the refi boom thatlifted the nonbank correspondent lenders that got many of theircustomers from LendingTree,” says Jeff Douglas, founder and CEOof Wyndham Capital in Charlotte, one of the new wave of lenders.Wyndham gets more than half its customers for its $1.8 billion inannual originations via referrals from LendingTree.

Today the market is shifting once again—and this shift presentsthe biggest showdown yet between the new digital model epito-mized by LendingTree, and the traditional, realtor-and-branch-driven channel to landing a mortgage. In this new, rising-rateenvironment, customers are shunning refis, in part because so

many folks already refinanced their homesat great prices. Now, lending for purchase isrebounding, and the banks need those pur-chase volumes to compensate for the fall in theprevious staple: refis. In the past, banks soughtto generate their own leads for purchase loans,relying on realtors and advertising. “We didn’thave any of the top 10 banks on our platformin 2013,” says Lebda. “They were anything butearly adopters.”

To drive growth now, LendingTree is aimingto attract far more business both from the on-line lenders that have fueled its recent expan-sion and the traditional holdouts—big bankssuch as JPMorgan Chase, Bank of America,Wells Fargo, and Capital One. And the changein the mortgage mix is luring the latecom-ers. “The banks aren’t generating sufficient

organic volume in their branchesnow,” says Lebda. “It’s like a Marriottor Hilton when demand is low, theygo to Expedia for the extra custom-ers.” Now most of the major banks arepaying fees to obtain matches fromLendingTree.

Lebda predicts that the more thebanks automate their clunky lend-ing process, the more business willflow to the comparison-shoppingsites, and especially LendingTree.The easier the process becomes, theless power the branches, real estatebrokers, and relationships will exert.“The banks are saying, ‘People aregoing to the Internet. We need tocatch this wave,’ ” he says. The banks,he reckons, are likely to gravitate toLendingTree because it can generatethe highly targeted customers theyneed far more cheaply than serving

them through branches and running theirown ads on Google.

Still, Lebda isn’t necessarily counting ona boom in fees from the big banks to liftLendingTree. He plans to grow either way. Inhis view, the old relationship model will fadeas customers move to comparison shopping onthe web, as they have in everything from hotelsto airlines to books. If branch-heavy lendersdon’t move rapidly onto the digital market-places, he says, his big customers, the Quickensand LoanDepots, will simply keep poachingtheir traditional customers.

And the banks can’t say they weren’t warned.Lenny told them all along.


“You’recrazyifyoudon’ttakeyourcreationback,”GElegendJackwelchtoldlebdawhenIACspunofflendingtree.


Since last December, a year before the 2017 Fortune Global Forum

will take place in Guangzhou, the city has been holding road shows

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opportunities and technological trends in this southern Chinese

city. The promotions, initiated in Beijing and rolling across Paris,

Hong Kong, New York, Washington D. C., Tokyo, Singapore, Taipei,

Chicago, Munich, London, Shanghai, San Francisco and Barcelona,

have created an upsurge of global media coverage on China's

innovations, uplifting Guangzhou's image to a new high.

The promotions also provided the right interface for the world to

learn about opportunities in China, especially amid an era of global

economic downturn and a rise of trade protectionism. Sir Peter

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more and more European enterprises now hope to make forays into the

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enterprises only knew Shanghai and Beijing in the past. But now, they

are looking for a new region with more opportunities.

Through the Fortune Global Forum promotions, major international

enterprises also have become aware of the southern Guangzhou district

and port of Nansha , which is both a pilot free trade zone and part of

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Cai Chaolin, director of the forum’s Executive Committee, announced,

“Nansha will become an investment hot bed for industrial movers and

shakers.”

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Guangzhou’s promotion in New York and Washington. The video

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landmark Canton Tower, the International Convention and Exhibition

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performance of 1,000 unmanned aerial vehicles (UAV). These and

other scenes combine to present the world a beautiful, dynamic, open

and friendly city.

Matching this lovely image of the city are Guangzhou's high

rankings in global listings of various city matrix.

Roadshows tell Guangzhou story

FORTUNE, FORTUNE GLOBAL FORUM, FORTUNE GLOBAL 500 and ᅥ are trademarks of Time Inc., registered in the U.S. and

other countries, and are used by permission.

SPONSORED CONTENT

WHEN GUANGZHOU MEETS FORTUNE

In June 2017, Guangzhou was ranked 40th out of 361 global

cities in the World Urban System Rankings, released by the

Globalization and World Cities Research Network (GaWC),

becoming a first-tier international city for the first time.

In March 2017, Guangzhou was named the top Chinese city

of opportunity for the second consecutive year in a study by

the Chinese Cities of Opportunity, released jointly by PwC

China and China Development Research Foundation.

In March 2017, Guangzhou was listed for the first time by

the Global Financial Centers Index (GFCI), compiled by Z/

Yen and China Development Institute, ranking 37th as an

emerging global financial center.

In December 2016, Guangzhou retained its top spot among

Chinese cities in the China Sustainable Cities Report 2016:

Measuring Ecological Input and Human Development,

released by the United Nations Development Program.

The report showed that Guangzhou achieved a balanced

development and the highest level of comprehensive

development among Chinese cities.

Over the past six years, Guangzhou has ranked first five

times in Forbes’ China List of Best Cities for Business.

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OURLY WAGE TO BE ABLE TO AFFORDO S TWO-BEDROOM APARTMENT WITHOUT

S MORE THAN 30% OF INCOME ON HOUSING

8 2 14 16 18 20 22 24 26 $30 +

MINIMUM HOA MODEST TSPENDING M

$8 12Miami

Boston

Bangor

Newark

Naples

Durham

Roanoke

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Richmond

Columbia

Savannah

Portland

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Baltimore

New Haven

Charleston

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LAST BYTE

176F O R T U N E . C O M / / S E P . 1 5 . 1 7

THE U.S. HOUSING marketis getting squeezed. In July,according to the NationalAssociation of Realtors,housing inventory declinedfor a 26th straight monthon a year-over-year basis.Shrinking supply, in turn, iscontributing to a sharp risein housing costs. The medianhome price in July was 6.2%higher than last year. But it’snot just home sales that arebeing affected. Rental pricesare soaring as well, particu-larly in metropolitan areas onboth coasts. That’s shrinkingdisposable income and im-periling growth. A study lastyear by the McKinsey GlobalInstitute found that housingshortages cost Californiamore than $140 billion annu-ally in lost economic output.—BRIAN O’KEEFE

COASTSOF LIVING

GRAPHIC BY N I C O L AS R A P PSOURCE: N AT I O N A L LOW I N C O M E H O U S I N G C O A L I T I O N

The groundbreaking research that recently led scientists to interrupt hepatitis C’s replication could help blaze the trail in tackling a host of deadly viruses.

Welcome to the future of medicine. For all of us.

BIOPHARMACEUTICAL RESEARCHERS HAVE UNEARTHED TREATMENTS THAT ARE ERADICATING HEPATITIS C.

ZIKA, YOU’RE NEXT.

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2017

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