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Foreign businesses to UK: solve Brexit or risk £100bn in trade

Business leaders from the US, Canada, Japan and India have told the British government to solve the Brexit issue urgently or put more than £100bn worth of trade at risk.

Lobby groups representing business interests from the four countries took the unusual step of issuing a joint statement on Brexit before the European council summit this week. It came days after Airbus said its investment in the UK would be at risk from a hard Brexit, prompting the health secretary, Jeremy Hunt, to say the Franco-German aircraft maker’s intervention was “completely inappropriate”.

Groups representing corporate giants including Nissan, Bombardier and Facebook expressed their concerns on Monday that Britain was heading towards a disorderly departure from the EU, potentially affecting more than £100bn in trade and putting investment in the UK at risk.

“International businesses who are heavily invested in both the EU and the UK are calling for urgent progress on the key outstanding issues remaining in the talks,” they said in the statement. “Resolving as many of the remaining concerns as possible is becoming more urgent by the day – with the clock ticking towards the October deadline for a final withdrawal agreement.”

The statement was signed by the American Chamber of Commerce to the EU, representing companies including Boeing, Exxon Mobile, Facebook, Dell, Coca-Cola and FedEx. It was also signed by the Canada Europe Roundtable for Business, Europe India Chamber of Commerce and the Japan Business Council in Europe.

The statement said they recognised the complexity of finding a solution for the Irish border, but urged both the EU and the UK to continue to try to find agreement on the issue.

In the meantime, they urged policymakers to “dedicate time and thought at the upcoming summit” to address the remaining issues, including the role of the European court of justice, the future UK-EU regulatory regime and post-Brexit preparedness.

“Reaching agreement on these issues will provide businesses with more confidence that a withdrawal agreement can be agreed and ratified, thereby providing legal certainty for the proposed transition period and avoiding the worst-case ‘cliff-edge’ scenario in March 2019 ,” the statement said.

It reflects a growing frustration in business over the lack of a clear Brexit strategy two years after the referendum.

In the wake of the Airbus comments, BMW said it needed clarity on Brexit negotiations “in the next couple of months”. Car manufacturers are expected to issue a fresh and strong warning over Brexit at a Society of Motor Manufacturing and Traders (SMMT) meeting on Tuesday.

The car industry employs more than 800,000 people in the UK and the Japanese ambassador has warned Theresa May that his country’s firms will quit Britain if a botched Brexit makes it unprofitable to stay.

Koji Tsuruoka told the prime minister earlier this year that if “there is no profitability of continuing operation in [the] UK … no private company can continue operations”.

Both he and the outgoing boss of BMW will speak at the SMMT conference.

Japan’s business interests in the UK include Nissan, Mitsubishi, Panasonic and Honda, with trade with the UK worth £46bn. Nissan, Toyota and Honda began their UK operations in Britain in the 1980s and now build nearly half of all of the 1.7m cars produced in the UK last year.

The car industry is concerned that if the UK does not stay in the single market, it will be hit by costly delays in delivering components from the EU.

America’s import and export trade with the UK is worth around £43bn but it is also a heavy investor in business with a large presence in the UK in tech, pharmaceuticals and transport.

Canada’s business interests in the UK include the Bombardier aircraft wing factory in Belfast, which was recently saved from making thousands of redundancies after winning a legal challenge in a trade dispute with US rival Boeing and the Trump administration.

The UK ranks as Canada’s second most important trading partner after the US with bilateral trade worth CN$27.1bn (£15bn). India’s exports to the UK are valued at around $9bn (£6.79bn) with machinery and clothing among the highest value products.

BigSmall PHOTO

California partners are switching from BIG LAW to small law

Partners have long left large law firms to branch out on their own. But in a legal market increasingly under pressure from a variety of sources, including higher associate salaries, it seems that more and more California-based partners have recently left behind their practices at Am Law 200 firms to start their own shops.

Those that have picked up stakes for new endeavours include Michael Hassen, a former chair of the appellate practice at Jeffer Mangels Butler & Mitchell, who in May formed Reallaw in Walnut Creek, California. John Cermak Jr., a former managing partner of the Los Angeles office at Baker & Hostetler, has launched local firm Cermak & Inglin with former Baker & Hostetler environmental partner Sonja Inglin. And Armen Zenjiryan, a former Jackson Lewis partner in Los Angeles, in June became the co-founder of Burbank, California-based Remedy Law Group. (Zenjiryan declined to comment about his new firm, while Hassen was unavailable by the time of this story to discuss his next enterprise.)

These break-off boutiques from Big Law are often specialized and frequently located in areas where a certain amount of flexibility, whether it be in real estate or hourly rates, is desirable.

“From a business perspective, I felt like it was a good time to start an environmental boutique,” said Cermak, when asked about his decision to leave Baker & Hostetler after more than a decade at the Am Law 100 firm.

Cermak joined Baker & Hostetler in 2007 as part of a mass lateral move from Jenkens & Gilchrist, where he was a member of the now-defunct firm’s board. Cermak cited rate pressure and conflicts with Baker & Hostetler’s other practices as the primary driver for his decision to start his own firm to cater to the needs of his various clients.

“My clients realized that they can get great quality lawyers at smaller firms, there is a lot of rate pressure for in-house counsels,” Cermak said. “We have a long-time relationship with these clients. We have been with them for almost 30 years.”

As clients become more careful about spending, Cermak said setting up his own shop allows him to offer more flexible rates. As associates at large firms are under increased pressure to keep up their billable hours, in part due to salary raises, Cermak noted that a boutique is better suited to training young lawyers interested in a specific practice, such as environmental law.

At the moment, Cermak’s two-partner firm has only one associate. The former Baker & Hostetler partner said he does plan to hire a few more contract lawyers or associates.

While flying solo might appeal to some large firm lawyers, there are also others that seek out a smaller firm atmosphere for the same benefits of flexibility and hands-on experience, but still want less risk.

George Borkowski, a former chair of intellectual property litigation at Venable, last month left his role as senior vice president of litigation and legal affairs at the Recording Industry Association of America to join Coblentz Patch Duffy & Bass as a partner in San Francisco.

“I think that a firm such as 84-lawyer Coblentz Patch is perfectly situated—it can be very flexible, it doesn’t have too much bureaucracy, it doesn’t charge ridiculously high hourly rates,” Borkowski said. “You get a lot more bang for your buck, you pay fees that are somewhat less, but you get representation that I think is even better than most of the big firms because you get individualized attention, you get partners paying attention to your cases.”

Prior to returning to California, Borkowski has spent the past four years at the RIAA, which paid him $380,097 in 2016-17, according to the most recent federal tax filing by the Washington, D.C.-based nonprofit. Before that, Borkowski spent nearly three years as a partner at Los Angeles-based Freeman, Freeman & Smiley.

He began his legal career in 1988 at Mitchell Silberberg & Knupp, where Borkowski was a founder and chair of the IP and technology group during his two decades at that Los Angeles-based firm. Borkowski said he missed being a litigator and that he is excited to help the midsized Coblentz Patch expand its IP litigation practice on the West Coast.

“We do get the job done successfully for clients and we do it in a way that doesn’t break the bank,” Borkowski added.

Bruce Isaacs, a former founding partner of Beverly Hills-based entertainment boutique Wyman & Isaacs who joined Davis Wright Tremaine in early 2015, has also recently left Big Law.

“The clients always want their bill to be smaller,” said Isaacs, now a mediator at Benchmark Resolution Group, which he joined in May after leaving Davis Wright.

For Isaacs, it was a desire to pursue a long-time career interest that spurred his decision to leave the firm for BRG.

“I am 61 years old, and it was time to do something I really felt like doing,” said the veteran litigator about his move to BRG, which was formed last year. Isaacs noted that the new outfit is focused on “figuring out how to solve problems and end litigation.”

BRG’s founding partners included a number of prominent former judges in the Los Angeles area. Isaacs said he felt honoured to become one of the 13 members of that group, which includes nine ex-judges and other experienced litigators.

“I think this company will grow, because I think a lot of the judges that retired are going to want to work here,” Isaacs said. “The retired judges and lawyers are extremely dedicated, they work very hard, and they read every word of every brief and exhibit.“

Drop PHOTO

How two strangers set up Dropbox and made billions

The BBC’s weekly The Boss series profiles a different business leader from around the world. This week we spoke to Drew Houston, founder and chief executive of US cloud storage company Dropbox.

Drew Houston says it felt as if he had just two weeks to find a complete stranger to marry.

Back in 2007 the then 24-year-old was desperate to secure funding to get his idea for a cloud storage business up and running.

One of Silicon Valley’s most prestigious backers of new start-ups – Y Combinator – were prepared to take a gamble on Mr Houston and Dropbox, but there was one catch – they demanded that he get a business partner.

Their argument is that new companies are far more likely to succeed if they have more than one founder, more than one person to make decisions and cope with the workload.

Mr Houston’s problem was that he was a one man band at the time, and for various reasons none of his friends were able to join the business. So he had just two weeks to find a complete stranger to become his co-founder.

“It was like getting an email from the dean of admissions to your favourite college, but the application deadline was in the next couple of weeks, and you need to get married in that time, not just find a date.”

Moving very quickly Mr Houston managed – after a chat lasting just two hours – to persuade a 22-year-old student called Arash Ferdowsi to quit university and join him. Mr Ferdowsi was a friend of a friend, but he and Mr Houston had never met before.

That was 11 years ago. Fast forward to today and San Francisco-based Dropbox is valued at more than $12bn (£9bn). while Mr Houston’s net worth is calculated at $3bn, and Mr Ferdowsi’s at $1.3bn.

Not bad at all for a company that many said would never be successful, and one that Apple’s late Steve Jobs is widely reported to have said he would destroy.

Inspiration for a new business can come from anywhere, and for Mr Houston it was on a bus between Boston and New York in late 2006.

As a recent computer science graduate from the Massachusetts Institute of Technology (MIT) he was intending to use the six or so hours long journey to work on some earlier business ideas. But as he sat down in his seat, Mr Houston realised that he had forgotten the memory stick that contained all the files.

“I was so frustrated because I felt like this kept happening,” he says. “I never wanted to have the problem again, so having nothing else to do… I started writing some code [to find a solution], having no idea what it would become.”

What Mr Houston came up with was the idea for Dropbox – remote storage that users can access online wherever they may be. Within two weeks he had created the prototype, and come up with the name.

Just a few months later Y Combinator expressed an interest, and Mr Houston went back to MIT to meet Mr Ferdowsi, who was studying electrical engineering and computer science at his old university.

Mr Houston, who is now 35, says: “We met in the student centre for an hour or two, then Arash dropped out of school the next week.

“In retrospect this was pretty crazy… I’m sure his parents had a different plan for him, one that involved finishing college.

“But he was really excited to do it. And I don’t know if either of us knew quite what we were getting into.”

Moving into Y Combinator’s base in Silicon Valley, Dropbox launched in 2008.

To attract its first customers Dropbox made promotional videos that it put up on discussion websites such as Reddit and Slashdot. The aim was to get technology sector influencers to start using the service in the hope that they would speak positively about the product, and user numbers would then grow thanks to this word of mouth.

This indeed proved successful, and from 5,000 users on a waiting list, within a few days Dropbox had 75,000 sign ups. Then it went from 100,000 users to 200,000 users “in something like 10 days”.

User numbers rocketed even further and faster when Mr Houston and his team came up with an incentivised referral scheme. This offered existing Dropbox customers more free storage space if they could get a friend to sign up. The other person would also get more free space, and so on.

It attracted millions of new customers, and caught the attention of the late Steve Jobs who made an offer for the business in 2011.

While Mr Houston declined to talk about this, in numerous previous interviews he has inferred that Jobs didn’t take it well when he turned down the offer. Website Business Insider last year quoted Mr Houston saying that Jobs had threatened to “kill” Dropbox following the rejection.

Apple launched its own cloud storage service later in 2011, iCloud, but this didn’t hold back Dropbox’s growth.

Today Dropbox has more than 500 million registered users, of whom 11.5 million pay an annual subscription fee for more storage than you get for free. This includes more than 300,000 paying business customers.

The company floated on the New York Stock Exchange earlier this year, and its market capitalisation – the total value of all its shares – currently stands at more than $12bn. Its annual revenues exceed $1bn, and it has a global workforce of more than 2,000 people.

Technology analyst Ben Wood of research group CCS Insight says there are numerous reasons for Dropbox’s success, such as its overall ease of use and “very importantly the fact it allows people to easily save and share photos, videos, and other big files that email servers are still unable to cope with”.

Mr Houston says that he and Mr Ferdowsi, who remains on the senior management team, continue to work well together.

Regarding his specific role as chief executive, Mr Houston says his current main focus is making sure that staff ignore the success of the recent share flotation, and instead “stay focused on why we are here – making customers happy”.

Cali new PHOTO

Why California’s new consumer privacy law won’t be GDPR 2.0

The consumer privacy law that California’s governor signed into law on June 28 is considered the strongest, most aggressive privacy protection measure in the U.S., according to legal experts.

The new California law, which takes effect on Jan. 1, 2020, will require that companies tell state residents what information the company is collecting and how it’s used. It also gives people options to ask the company to delete or stop selling that information. The law does not prevent companies from collecting people’s information or give people an option to ask a company to stop collecting their information, differentiating it from GDPR.

“The sweeping nature of this bill is really unprecedented in the privacy area, and its impacts are still far from known,” said Dan Jaffe, group evp for government relations at the Association of National Advertisers.

The law contains “broad sweeping definitions of personal information,” said Ron Camhi, managing partner at law firm Michelman & Robinson’s Los Angeles office and chair of its advertising and digital media industry group. That personal information includes standard categories like people’s names, email addresses and Social Security numbers. But it also covers unique personal identifiers: IP addresses; geolocation data; shopping, browsing and search histories; and consumer profiles that are based on inferences from personal information.

The inclusion of unique identifiers — which ad tech firms use to anonymously track people around the web — means that any ad tech firm storing tracking cookies on people’s devices will need to give people an option to ask the company to delete the information collected through those cookies and will also need to ensure that those cookies and any corresponding information aren’t exposed in a data breach, which would make the company subject to a class-action lawsuit.

On the other hand, the law includes a loophole for any personal information that is “de-identified or in the aggregate consumer information,” according to the law. If the personal information can’t be associated with a particular consumer, then it would be de-identified, said Camhi. But it’s not clear whether the types of identifiers that run the online advertising ecosystem are or are not subject to the law, said Mayer.

The law suggests that online tracking cookies and mobile advertising IDs, which are used to collect information about individual devices, may fall under its jurisdiction. However, digital advertising companies may argue that they meet the law’s exemption standard because they aggregate those identifiers into larger, anonymized audience pools.

“All of this is still in flux. But arguably, anonymized information doesn’t allow you to create that [consumer] profile, so that you can’t draw it to [an individual person]. With a cookie situation that’s tied to a device that’s tied to a person, that may not necessarily be the case,” said Donna Wilson, managing partner-elect at Manatt, Phelps & Phillips and chair of the law and consulting firm’s privacy and data security practice.

What’s more clear is that digital advertising companies shouldn’t take comfort that their practices would be exempt from the law. Even if a company claims that it has disassociated the information with an individual person, it will need to ensure that the disassociation cannot be undone and that the data is reconnected to the individual, said Camhi and Wilson.

A week after California’s governor signed the bill into law, many in the advertising industry are still scratching their heads over the possible loophole and defaulting to assuming that there is no loophole because “almost any kind of data connected to some other data is capable of being associated with somebody,” said Jaffe.

Ad tech firm Exponential Interactive buys data from third-party companies to use for ad targeting purposes. “But when we buy it, it is totally aggregated,” said Tim Sleath, the company’s vp of product management and data protection officer. However Exponential Interactive uses cookie IDs to be able to match the aggregated third-party data to its own audience pools in order to target people with ads without accessing the underlying data, such as people’s names or email addresses. That cookie-based matching process likely subjects the ad tech firm to needing to comply with the law, even if it were to somehow remove the cookie-based identifiers from the process.

“If you have a behavioral profile for someone, even if you strip the IP address and cookie ID, that behavioral profile, which I would classify as deidentified, remains personal information under this [law],” said Sleath.

Facebook and Google have already rolled out features required by the law, such privacy settings that categorize the information that the companies collect from people and tools for people to request that information be deleted. The companies claim that they don’t sell people’s information so they don’t need to give people a way to request that the companies stop selling their data. That would help to explain why Facebook COO Sheryl Sandberg said the company supports the California privacy law that has been passed, though the company donated money to the organization opposing a similar ballot initiative.

“For the major online platforms, I think this law will have very little impact,” said Jonathan Mayer, assistant professor of computer science and public affairs at Princeton University and former chief technologist of the Federal Communications Commission.

There remains roughly 18 months until the law takes effect, and since the law was passed by the state legislature instead of by California voters, the details of the law can change before it is enacted. But before the industry can try to get California lawmakers to clarify, if not change, the specifics of the law, it will need to assess the impact of this initial version and identify what changes to request.

“The ANA has more than 2,000 members. We’ve gone out to our members asking how this will impact them. Clearly, we’ve not had time to get that input yet, and people are still trying to figure that out,” said Jaffe.

Stewart PHOTO

Meet the $5bn tech boss who grew up without electricity

The BBC’s weekly The Boss series profiles a different business leader from around the world. This week we spoke to Stewart Butterfield, the founder of technology companies Flickr and Slack.

It is not the sort of upbringing you’d associate with one of Silicon Valley’s heavyweights.

But Stewart Butterfield spent the first five years of his life living on a commune in remote Canada after his father fled the US to avoid serving in the Vietnam War.

The young Mr Butterfield and his parents lived in a log cabin in a forest in British Columbia, and for three years they had no running water or electricity.

“My parents were definitely hippies,” says Mr Butterfield, whose mother and father had named him Dharma. “They wanted to live off the land, but it turns out there was a lot of work involved, so we moved back to the city.”

After the family relocated to Victoria, the capital of British Colombia, Mr Butterfield saw his first computer when he was seven, and taught himself to programme from that very young age.

Fast-forward to today and 46-year-old Stewart Butterfield – who founded both photo-sharing website Flickr, and business messaging service Slack – has an estimated personal fortune of $650m (£500m).

But perhaps in part due to his unusual upbringing he says he tries to live frugally.

“In truth I feel guilty spending too much money,” he says. “As a Canadian that world seems very strange and alien to me.”

Mr Butterfield also puts much of his success down to luck.

Mr Butterfield says that his seven-year-old self was fascinated by the first wave of personal computers.

“I was around seven in 1980, it must have been an Apple II or IIE that my parents bought,” he says. “I taught myself to code using computer magazines.”

Mr Butterfield – who changed his first name to Stewart when he was 12 – learned to make basic computer games.

However, he lost interest in computers while at high school, and ended up going on to study philosophy at the University of Victoria. From there he did a masters in the subject at Cambridge University in the UK.

In 1997 he was about to try to become a professor of philosophy when the internet “really started to take off”.

“People who knew how to make websites were moving to San Francisco, and I had a bunch of friends who were making twice as much, or three times as much, as what professors were making,” he says. “It was new and exciting.”

So Mr Stewart decided to give up academia and move to Silicon Valley.

After working as a web designer for several years he launched an online game in 2002 with future Flickr co-founder Caterina Fake, Mr Butterfield’s then-wife.

The game – called Game Neverending – failed to take off, and the pair were running out of cash. Frantically looking for a plan B they hit upon the idea of Flickr, going on to build the photo-sharing platform in just three months.

“The first camera phones were also coming out, and more and more households were getting internet connectivity, and then stuff happened so fast,” says Mr Butterfield.

Launched in 2004, Flickr was the one of the first websites to allow people to upload, share, tag and comment on photos.

Just a year later the founders sold the firm to internet giant Yahoo for $25m – although Mr Butterfield has since said this was the “wrong decision” as waiting longer could have meant a much bigger deal.

Nevertheless he moved on to bigger things with Slack.

It was 2009 and he and some partners had set up another online game, and again it failed. It did, however, spark a brainwave.

“As we were working on the game we developed a system for internal communication that we really loved,” says Mr Butterfield. “We didn’t think about it, it was very much in the background. But after a few years we thought maybe other people would like it too.”

It formed the basis for Slack, a service that today boasts eight million daily users, three million of whom pay for the more advanced features, and more than 70,000 corporate clients.

Slack enables employees to communicate and collaborate with each other in groups at work, and it has grown rapidly. IBM, Samsung, 21st Century Fox and Marks & Spencer are just a few big names to have signed up. Following a number of investment rounds Slack is now valued at $5.1bn.

Chris Green, a technology analyst at consultancy Bright Bee, says it is rare for an entrepreneur to create something successful out of the ashes of a failed project, and “almost unheard of to do it twice”.

“But if you look at Stewart’s career, it’s not just luck, he’s always been innovating in the background and looking for ways to bring order to chaos,” says Mr Green.

“That’s what Flickr and Slack have both done in their own ways.”

Slack does have competitors, though. Microsoft now offers a rival service for free with its Office 365 package, and start-up Zoom boasts a more expansive offering for about the same price.

“There is immense competition from some big well-funded companies so Slack will need to keep evolving,” Mr Green says.

Big tech firms have found themselves in the firing line for not paying enough tax – but Mr Butterfield says he would be happy for Slack to pay more taxes.

“I’d also like to see a more equitable tax policy. I have no problem paying tax. I don’t think companies are taxed enough, or critically, in the right way.”

Regarding the future, Mr Butterfield says that, unlike Flickr, he has no intention of leaving Slack.

“So many things had to go right get to this position – amazing luck was involved – and I am not so smart that I can just make it happen again,” he says.

“So if I ever wanted to see how far I could take it, this would definitely be the time to do that.”

Maritime Trade PHOTO

The calm before the storm in International Trade?

A narrowing in the trade deficit in back-to-back months means good things for Q2 GDP, but this report is not yet capturing the extent of the steel and aluminum tariffs and survey data about trade is signaling a warning.

Trade Poised to Boost Second Quarter GDP

As the second quarter began, the U.S. trade deficit narrowed as exports increased 0.3 percent while imports declined 0.2 percent in April. After having widened for six consecutive months and now having narrowed in back-to-back months, trade is positioned to be additive to GDP in the second quarter, perhaps substantially so.

Our latest forecast published earlier today (prior to this morning’s trade report) looks for trade to add seven tenths of a percentage point to headline GDP in the second quarter. If that is indeed the contribution from net exports, it would mark the biggest quarterly boost to GDP from trade in more than four years.

Given the preoccupation that financial markets have had with tariffs and the potential for a broader trade war, might the flattering trade numbers be a salve for worried markets that there is nothing to fear in protectionist trade policies? Not so fast, keep in mind that this data is only through April and the broader extension of tariffs to our NAFTA trading partners and Europe was not effective until June. So the only impact observable for those countries in today’s report (and next month’s as well) would be to the extent that those countries scaled back in anticipation of eventual tariffs.

It is also useful to remember that international trade figures evolve with long lead times and a glacial pace. It takes a long time to build trust, relationships and global payment infrastructure between trading partners, and it remains to be seen if those bonds can be broken down more quickly. On that basis, it is unclear how long the shadow of tariffs will be cast on trade dynamics in coming years.

Steel and Aluminum Imports

If there is a storm coming, this might be the calm before it. Imports of iron and steel mill products increased $228 million in April alone and have increased more in the first four months of 2018 than they did in the same period of 2017. Meanwhile imports of bauxite and aluminum increased $44 million in the month. In the first four months of the year, the United States has imported better than half a billion dollars (or roughly 20 percent) more in bauxite and aluminum products than it did during the same period in 2017.

Softening in the Soft Data

U.S. manufacturers still report expansion in both exports and imports, but not to as broad an extent as they were just a few months ago. In the past three months, the ISM imports component has slipped 6.4 points, the largest slowing over a 3-month period since 2014, and the ISM exports component has come down 7.2 points, the biggest 3-month slowdown for this series since 2012.