TIME Education

The War on Teacher Tenure

A still life showing 4 red apples in a row. The apple second from right is rotten.
A still life showing 4 red apples in a row. The apple second from right is rotten. Danny Kim for TIME

It’s really difficult to fire a bad teacher. A group of Silicon Valley investors wants to change that

This story original appeared in the Nov. 3, 2014, issue of TIME.

On a warm day in early June, a Los Angeles County trial-court judge, Rolf M. Treu, pink-cheeked beneath a trim white beard, dropped a bombshell on the American public-school system. Ruling in Vergara v. California, Treu struck down five decades-old California laws governing teacher tenure and other job protections on the grounds that they violate the state’s constitution.

In his 4,000-word decision, he bounded through an unusually short explanation of what was an unprecedented interpretation of the law. Step 1: Tenure and other job protections make it harder to fire teachers and therefore effectively work to keep bad ones in the classroom. Step 2: Bad teachers “substantially undermine” a child’s education. That, Treu wrote, not only “shocks the conscience” but also violates the students’ right to a “basic equality of educational opportunity” as enshrined in California’s constitution.

It was the first time, in California or anywhere else, that a court had linked the quality of a teacher, as measured by student test scores, to a pupil’s right to an education. What happened next was predictable: the educational establishment hit DEFCON 1. State and national teachers’ unions decried the ruling as part of a subversive effort to destroy labor unions and pointed, truthfully, to the fact that the lawsuit was launched and underwritten by a Silicon Valley muckety-muck who lives in one of the fanciest ZIP codes in America. Others painted Treu, who was appointed by Republican Governor Pete Wilson, as a brazen partisan. Meanwhile, U.S. Secretary of Education Arne Duncan and former D.C. chancellor of schools Michelle Rhee praised the decision for challenging the “broken status quo.” Other education reformers, including former CNN anchor turned education activist Campbell Brown, pronounced it the most important civil rights suit in decades and filed two copycat cases in New York.

On some level, these reactions were premature. Treu’s decision holds no precedent-setting power and won’t affect any California law unless an appeals court upholds the ruling sometime next year. Both the state and the teachers’ unions have appealed and are awaiting a trial date. But on another level, the Vergara case is a powerful proxy for a broader war over the future of education in this country. The reform movement today is led not by grassroots activists or union leaders but by Silicon Valley business types and billionaires. It is fought not through ballot boxes or on the floors of hamstrung state legislatures but in closed-door meetings and at courthouses. And it will not be won incrementally, through painstaking compromise with multiple stakeholders, but through sweeping decisions–judicial and otherwise–made possible by the tactical application of vast personal fortunes.

It is a reflection of our politics that no one elected these men to take on the knotty problem of fixing our public schools, but here they are anyway, fighting for what they firmly believe is in the public interest. David Welch, the 53-year-old engineer and businessman behind Vergara, is the least well known of a half-dozen tech titans who are making the repair of public education something of a second career. In the past 15 years, Microsoft’s Bill Gates has poured billions into everything from helping states write and implement the Common Core State Standards to building a new history curriculum. Facebook’s Mark Zuckerberg has dropped $220 million on public schools in Newark, N.J., and the San Francisco Bay Area, while Netflix’s Reed Hastings has spent millions more on buttressing the charter-school movement in California and beyond. For the past four years, PayPal’s Peter Thiel has been divvying out dozens of $100,000 “scholarships” to kids who are willing to ditch university in favor of “self-education.”

This latest batch of tech tycoons turned education reformers follows in the footsteps of a long line of older magnates, from the Carnegies and Rockefellers to Walmart’s Waltons, who have also funneled their fortunes into education-reform projects built on private-sector management strategies. While this newer class of tech philanthropists are in some ways similar to the older generation, they also come to school reform having been steeped in the uniquely modern, libertarian, free-market Wild West of tech entrepreneurship–a world where data and innovation are king, disruption is a way of life, and the gridlock and rules of modern politics are regarded as a kind of kryptonite to how society ought to be.

“Life in a Silicon Valley operation is, O.K., we need to change something. How do I create an agent of change?” Welch explains, sitting in a windowless boardroom at the Cupertino, Calif., headquarters of his company, Infinera, which makes fiber-optic communications technology. “But here you have the most important aspect of society, in my mind at least–the ability to educate our children–and it’s incapable of change. It’s failing, and it doesn’t want to acknowledge that it’s failing, much less do anything about it.”

“Why Isn’t Anyone Fixing This?”

Of all the Silicon Valley tycoons you might expect to make headlines, Welch is near the bottom of the list. Even in the geeky back alleys of Palo Alto, his name doesn’t always ring a bell. He doesn’t give TED talks, he doesn’t headline coding conferences, and his company is hardly a well-known brand. The unassuming father of three, who has bushy eyebrows and the well-ironed, air-conditioned look of the well-to-do, earned a Ph.D. from Cornell in electrical engineering and made his many millions working at two startups in Silicon Valley. Neither a Democrat nor a Republican, he clearly prefers a world of concrete facts to taking sides. “I don’t believe in putting on a jacket that says I’m red or blue,” he says. “I believe in identifying the topics that are important to me and then figuring out the right way to talk about them.”

As the youngest of seven children growing up outside Annapolis, Md., Welch went to public school and then to the University of Delaware. He didn’t think much about how the system actually functioned, or malfunctioned, until his own children were born in the ’90s and went on to have “some public experiences and some private-school experiences.” (Welch, as a rule, doesn’t talk about his children’s lives.) He then became involved in the NewSchools Venture Fund, which invests in charter schools and other entrepreneur-led education ventures targeting under-served students, and StudentsFirst, the controversial nonprofit founded by Michelle Rhee. But even by the early 2000s he’d homed in on what he saw as the root of the systemic failure of California’s public schools: the state’s laws on teacher tenure and other job protections, which are among the strictest in the country.

It seemed crazy to Welch that teachers in California receive tenure–permanent employment status designed to protect them from unfair dismissal–after less than two years on the job and that principals are often required to lay off the least experienced teachers first, no matter which ones are the best. It seemed even crazier to him that in some districts it takes years and tens of thousands of dollars to fire a teacher who isn’t doing a good job. Welch remembers asking a big-city California superintendent to tell him the one thing he needed to improve the public-school system. The answer blew Welch away. The educator didn’t ask for more money or more iPads. “He said, ‘Give me control over my workforce,'” Welch said. “It just made so much sense. I thought, Why isn’t anyone doing something about that? Why isn’t anyone fixing this?”

In early 2010, Welch decided, as he puts it, to “jump off the cliff” and do something about it. His first move was to meet with Kathleen Sullivan, a constitutional lawyer whose name is sometimes whispered to be on the Democrats’ short list of nominees for the U.S. Supreme Court. He pitched her what was at the time a rather unformed idea. “I said, ‘Here’s my premise–if children are being harmed by these laws, then something, somewhere, is being done that’s illegal,'” Welch says. After about six months, Sullivan and a small team of lawyers in San Francisco delivered a draft of the legal theory that would become the foundation for Vergara.

Welch’s next move, in April 2011, was to hire a jack-of-all-trades public relations firm, which is now called Rally. It launched a nonprofit, Students Matter–branded in the bright yellow and black of a No. 2 pencil–that was tasked with two missions. The first was to build a coalition of supporters and funders and create a public campaign surrounding the case. The second was to find a team of lawyers who were willing to reverse engineer a lawsuit on the basis of an untested legal theory on behalf of plaintiffs who didn’t yet exist.

Building on Brown

Before states began passing tenure laws in the early 20th century, a teacher could be fired for holding unorthodox political views or attending the wrong church, or for no reason at all if the local party boss wanted to pass on the job to someone else. But what began as a popular idea has become increasingly controversial as countless stories of schools and districts being unable to fire bad teachers have populated the news. In a story that hit headlines in 2009, the L.A. Unified School District was legally barred from firing a teacher who told an eighth-grade student who had recently tried to slit his own wrists to “carve deeper next time.” Episodes like that help explain why even in California, where the electorate votes overwhelmingly Democratic and is often sympathetic to unions, recent polls show that voters are skeptical of tenure.

Part of Students Matter’s job was to take this commonly held but abstract idea–that tenure and other job protections do not serve the public-school system–and essentially personify it in the form of students on whose behalf the case would be filed. Among the nine plaintiffs, who ranged from elementary-school to high-school age, were Beatriz and Elizabeth Vergara, sisters from Pacoima, Calif., who were 15 and 16 years old when they took the witness stand this year. Beatriz, the lead plaintiff, testified about three of her middle-school teachers, describing them as apathetic, verbally abusive or simply ineffective. “It was always loud in there, and [he] would even sleep during class,” Beatriz said of her sixth-grade math teacher. “He didn’t even teach, and he couldn’t control his class. I couldn’t hear anything because of how loud it was.”

Gibson, Dunn & Crutcher, a white-shoe firm based in Los Angeles, then built the case on a foundation of Brown v. Board of Education–the 1954 U.S. Supreme Court decision that ruled that separate is not equal–and California Supreme Court cases from the 1970s and 1990s. Each of the California cases interpreted the equal-protection clause in the state constitution to mean that one group of students should not receive an education inferior to that offered to another group. For example, in a 1992 case, Butt v. State of California, the California Supreme Court found that when a school district with a budget shortfall decided to save money by dismissing students for summer vacation six weeks early, it violated the state constitution, since students at the schools with the shorter school year received an education that was inferior to that of students at schools with full school years.

The argument in Vergara v. California took that same idea but added a controversial twist. Instead of examining the equality of students’ educational opportunities by comparing discrete facts–like the amount of time spent in class or the amount of funding a school receives per student–Welch’s lawyers made the case that the court should compare the quality of students’ in-class learning experiences. They argued that students who are stuck in classrooms with bad teachers receive an education that is substantially inferior to that of students who are in classrooms with good teachers. Laws that keep bad teachers in the classroom, they concluded, therefore violate the equal-protection clause of the state constitution. They also argued that poor and minority students, who are more likely to be in classrooms with bad teachers, endure a disproportionate burden, making the issue a matter of civil rights as well.

Happily for Welch’s lawyers, their innovative argument happened to coincide with a flood of new academic research on teacher quality that could serve as evidence in court. A three-year study led by Harvard education expert Thomas Kane, with funding from the Bill & Melinda Gates Foundation, found that a bad teacher, as measured by his or her students’ test scores, could set a student’s educational progress back by 9.54 months. In December 2011, another study, by Harvard University’s Raj Chetty and John Friedman with Columbia University’s Jonah Rockoff, looked at school records, test scores and tax returns for 2.5 million children and young adults from the past two decades. Using a controversial tool called value-added measures (VAM) to control for factors like race and poverty rates, they found that replacing a poorly performing teacher with an excellent one could increase students’ lifetime earnings by $250,000 per classroom. “The fact that we could show how students were actually harmed by bad teachers–that changed the argument,” says Marcellus McRae, an attorney on the case.

The Vergara trial began in January of this year and stretched over two months in court. More than a few times, teachers and administrators called by the defense to represent the position of the teachers’ unions found themselves in cross-examination inadvertently buttressing Students Matter’s case instead. As Judge Treu later noted, nearly every witness agreed under oath that competent teachers are among the most important components of a child’s in-school educational experience and that “grossly ineffective teachers substantially undermine the ability of that child to succeed in school.” The trial ended March 27, and on June 10, Treu handed down his tentative decision.

In his 19 years on the bench, Treu’s opinions rarely made news, but this one would be an exception. If roughly 1% to 3% of California teachers are in the bottom 5% of competence, Treu wrote, citing witness testimony, that means there are between 2,750 and 8,250 such teachers currently in California classrooms. That population, Treu wrote, “has a direct, real, appreciable and negative impact on a significant number of California students, now and well into the future for as long as said teachers hold their positions.” In the law office near the courthouse, Welch and dozens of supporters erupted in celebration, hugging and kissing and crying.

What Comes Next?

The Vergara decision has been the source of outsize drama in California’s election cycle this year, playing out on stages both small and large. The battle for state superintendent of public instruction–not the kind of race that usually garners the big bucks–has already attracted as much as $10 million from state and national teachers’ unions on one side and wealthy donors on the other. Union-backed incumbent Tom Torlakson, who has decried the Vergara decision as a soulless attack on teachers and vowed to see it overturned on appeal, is now within a hairbreadth of losing to Marshall Tuck, a Silicon Valley–backed reformer, who has celebrated Vergara as a major win for California kids. Tuck’s deep-pocketed supporters spent $4.5 million in just the first two weeks of October. Meanwhile, Governor Jerry Brown, who is up for re-election in November and counts the teachers’ unions among his biggest political backers, has negotiated a careful middle road. While he has dutifully appealed Treu’s decision in the case, he was careful to avoid earning the ire of the Silicon Valley set. “Changes of this magnitude, as a matter of law and policy, require appellate review,” Brown’s office wrote in the notice of appeal, an exercise in blandness.

But the Vergara case, despite topping out–so far–in a lowly state trial court, reaches well beyond California’s border. In New York, Campbell Brown’s Vergara-style lawsuit, along with a similar suit filed by the New York City Parents Union, has become yet another political lightning rod and ignited discussions among activists who are impatient to file a similar case in other states like Connecticut, Oregon and New Jersey.

The debate over Vergara and its copycats highlights the broader landscape of education reform in a time of highly polarized politics, gridlocked legislatures and soaring inequality. When traditional avenues of reform seem increasingly impassable, those with vast amounts of money or simply an ingenious legal theory–or both–can seem like the only forces capable of effecting change. Some, like Welch, believe that’s part of the natural growth, disruption and innovation of a healthy society, and he applauds the “bold actions” of the wealthy few. “Thank God that people like Bill Gates and the Walton family feel the moral responsibility to put their assets toward what they think is right,” he says.

But others worry that the means of reform are as important as the ends. Michael Petrilli, who runs the Thomas B. Fordham Institute, a conservative education think tank, says that while he generally does not support teacher tenure and job-protection laws, he is concerned that the recent spate of education litigation in California and New York sets an adversarial tone at a time when reformers need teachers to buy into other large-scale reform efforts, like implementing the Common Core State Standards in classrooms. Fellow conservative Michael McShane, an analyst at the American Enterprise Institute, also pointed to the problem of using litigation to solve civil rights issues. “Courts are really good at saying, ‘That’s unconstitutional. It’s out,'” McShane says, but in the wake of such decisions, there’s usually a flood of related cases that require the courts to act as arbiter of the minutiae of a developing policy. “If it’s now unconstitutional to allow a ‘grossly ineffective’ teacher in the classroom, then that raises more questions. How do you define ‘grossly ineffective’? Using what measures?” After all, judging a teacher’s quality can be tricky business. During the Vergara trial, one of the plaintiffs described her middle-school teacher as ineffective and undeserving of tenure; that same teacher had been previously named Pasadena’s Teacher of the Year.

Testing Wars

The question of how to judge a teacher’s value gets to a fundamental irony in the national war over education reform today. Welch’s unexpected victory in Vergara, which hinges on the necessity–and feasibility–of measuring a teacher’s effectiveness, comes just as a broad range of educational experts have begun to question the validity of the tests and evaluations on which those teacher-effectiveness measures are based.

American policymakers’ love affair with quantitative accountability tools is relatively new. It wasn’t until 1994 that the Clinton Administration began requiring states to develop their own standardized tests for some subjects, and in the early 2000s, President George W. Bush doubled down on that initiative with No Child Left Behind. The Obama Administration built on that foundation, using Race to the Top funds and No Child Left Behind waivers to encourage states to use test scores to evaluate teacher performance. Today, most states have teacher evaluations that already are or may soon be tied to tenure, layoff decisions and merit-pay bonuses.

This two-decade trend has not, of course, been free of controversy. But what began with protests over “high-stakes testing” and cheating scandals in various public-school districts in the mid-2000s has morphed in the past six months into an outright mutiny, driven in large part by the controversial rollout of Common Core State Standards, which are linked to new state curriculums, more-difficult tests and new teacher evaluations. Teachers in Florida, Colorado, New York, Texas and Tennessee have filed lawsuits against their states, alleging unfair testing expectations; in New Mexico, teachers have burned their evaluations in protest, demanding better in-class support and job training instead. Many argued that policies focusing on cold, statistical measures fail to take into account the messy, chaotic reality of teaching in communities where kids must contend with poverty and violence.

A growing number of studies appear to support that point of view. In April, the American Statistical Association released a statement questioning whether VAM, the methodology that undergirds the Chetty study, adequately measures a teacher’s total value to a student’s education. In May, the American Educational Research Association found a “surprisingly weak” correlation between teachers’ VAM scores and their actual skills, as evaluated by surveys and expert observations. In July, the Department of Education found that VAM scores varied wildly depending on what time of day tests were administered or whether the kids were distracted. Even the Silicon Valley reformers appear willing to dial back the emphasis on testing and evaluations, at least for a bit. In June, the Gates Foundation called for a moratorium on tying consequences to evaluations based on Common Core standards until 2016, and in August, the Education Department announced that states could delay using student test scores in teacher evaluations for two years. This month, the Council of Chief State School Officers and the Council of the Great City Schools called for state and district leaders to cut back on unnecessary testing and test preparation.

David Welch says he’s undeterred. While he’s received an informal crash course in the unforgiving politics of education reform in this country in the past year, the back-and-forth doesn’t interest him. “I look at this as my responsibility to help and improve the society I live in,” he says. “And I’m willing to fight that battle as long as I have to fight that battle.”

TIME Silicon Valley

IBM and Twitter Sign Pact to Turn Tweets Into Better Business Decisions

“Businesses have only scratched the surface of what is possible”

Computing goliath IBM has signed a deal with Twitter to use tweets to make smarter business decisions.

The agreement will let IBM’s 10,000 consultants access the some 500 million tweets the social-media firm sees each day, the Wall Street Journal reports. Together, the companies will build new services to assist various industries in gauging public opinion on brands, products and ideas, as well as forecast prospects for business development.

“Businesses have only scratched the surface of what is possible,” Twitter CEO Dick Costolo told an event announcing the accord in Las Vegas.

IBM has been keen to collect on innovations in the world of big data, this summer announcing a deal with Apple to develop new applications for corporate clients. Meanwhile, Twitter has also been intent on beefing up its revenue sources, buying data firm Gnip this spring to give its advertisers better analytics packages.

[WSJ]

TIME Companies

Apple Doesn’t Sell Bose Headphones Anymore

Apple Posts Record Quarterly Earnings
Six-year-old Emma Cordell listens to a new iPod on display at the Apple Store July 14, 2005 in San Francisco, California. Justin Sullivan—Getty Images

In the competition between headphone makers Beats and Bose, actions may speaker louder than words

Apple has stopped selling Bose headphones and speakers at its Apple Stores, nearly five months after agreeing to buy one of the company’s main competitors, Beats Electronics.

Bose merchandise is now unavailable at the Apple Online Store, and 9to5Mac reported that Apple Retail stores no longer have Bose inventory available.

Bose and Beats, the latter of which was founded by rapper Dr. Dre and acquired this year by Apple for $3 billion, sell similar technology in a comparable price range. The two companies have had an often acrimonious relationship — Beats settled a patent dispute with Bose out of court last week. The NFL is sponsored by Bose, and several players have been fined for wearing Beats at NFL games and other league-related events.

Apple still sells competing headphone brands like Sennheiser and Urbanears, so its exclusion of Bose’s merchandise may be a pointed jab.

MONEY sharing economy

New York Attorney General Says Airbnb Is Making Millions on Illegal Listings

Airbnb
Justin Sullivan—Getty Images

A report from the state Attorney general claims Airbnb has made $40 million on illegal rentals, and that 70% of Airbnb's New York City listings violate the law.

If there’s one thing that divides New Yorkers, it’s Airbnb. As New York Magazine’s definitive feature on the do-it-yourself hotel service pointed out, the city is split between those who see Airbnb as an innocent way for New Yorkers to transform their overpriced housing assets into some extra scratch, and those who blame the company for turning their apartment buildings into unregulated crashpads for rag-tag out-of-towners.

On Thursday, New York Attorney General Eric Schneiderman provided the anti-Airbnb camp with more fodder when he accused Airbnb of making $40 million on illegal listings over the past three and a half years. As The New York Post writes, that number is based on a new report from Schneiderman’s office that also estimates 70% of Airbnb’s New York City listings are illegal.

Under New York state law, renters are allowed to sublet their apartment on Airbnb (assuming their lease permits it), but must be physically present while subtenants are there. Conventional landlords, meanwhile, are barred from leasing an apartment for fewer than 30 days — precisely to prevent residential buildings from being turned into unregulated hotels. The Attorney General’s report, which looked at Airbnb bookings from the start of 2010 to June of this year, says the vast majority of the site’s listing are not private citizens monetizing a spare room, but lessors renting out multiple apartments at a time.

Specifically, the Attorney General’s office found more than 100 landlords who used Airbnb to rent out more than 10 apartments each. These owners alone accounted for 47,103 reservations and took in almost $60 million in revenue. One particularly ambitious landlord accounted for 272 unique listings and made $6.8 million off 3,024 reservations. Schneiderman also complained that Airbnb users rarely, if ever, pay the city’s 14.7% hotel occupancy tax and the site has not tried to collect that tax from any of the transactions reviewed by his office.

Concerns over illegal listings are not a new issue for Airbnb. In September, New York Magazine reported on the ongoing fight between the company and New York State Senator Liz Krueger over regulations for the nascent apartment sharing industry. While Airbnb argues that their service enables average folks to pay their rent, the Attorney General’s office has countered that the site’s average “power-user” is making $500,000 a year renting at least 10 different residencies. “[They're] hardly making ends meet,” a spokesman for the office told the magazine.

Airbnb responded to the report by urging regulators against overreaction. “We should not deny thousands of New Yorkers the chance to share their homes, pay their bills and stay in the city they love,” said the company in statement to the Post. “We need to work together on some sensible rules that stop bad actors and protect regular people who simply want to share the home in which they live.”

 

 

TIME Silicon Valley

In Silicon Valley, You Can Forget Aging Gracefully

HP CEO Meg Whitman Visits China
ChinaFotoPress—ChinaFotoPress via Getty Images

Getting old isn't easy, especially in tech

Nature abhors the old, Emerson said. In 2014, we can add: so do technology investors. Because in the tech sector, where innovation and growth are worshipped and rewarded with obscene valuations, the esteemed companies that helped establish Silicon Valley and shape the Internet are not being allowed to age gracefully.

HP is breaking into two, despite years of its CEO saying this wouldn’t happen. eBay’s spinning off PayPal, after its CEO insisted this made no sense. Both companies knuckled under shareholder pressure. Now Yahoo is facing pressure to cash out of Alibaba and merge with AOL. That follows Dell going private and IBM ditching its low-end servers. There are even investor rumblings that Microsoft would be better broken into pieces.

Spinoffs, breakups, LBOs and shotgun marriages aren’t uncommon among aging, troubled companies. But the wave of events hitting companies once considered blue-chip tech firms is unprecedented. Only a decade ago, most of these companies were at the top of their games. Even today, many are so profitable they annually pay out billions, if not tens of billions, to shareholders through dividends and buybacks. And while many of these companies have been undervalued by investors for years, they are now being treated as if they are entering a period of advanced decay.

In sectors like utilities or retail, slow growth is tolerated as long as a healthy profit margin is maintained. But in tech, profits aren’t enough without growth. And there is plenty of growth among the younger generation of tech giants like Google, Facebook, and LinkedIn. The gap between long-in-the-tooth tech giants and lithe, growing companies is getting wider by the year. While the latter are driven by innovation the former are pushed around by shareholder demands.

Tech investors have always been growth-oriented, but now it’s becoming an obsession. And why not? As the network effects long promised in the early years of the Internet finally kick in, growth at a successful startup can mushroom from seed round into large cap in a few years. Airbnb, Uber and WhatsApp were all founded about five years ago and today are valued at $10 billion, $18 billion and $22 billion, respectively.

Often, the new generation of successful startups push to stay out of public markets as long as possible to avoid the public scrutiny, quarterly earnings parades and exposure to shareholder activists that are plaguing the likes of HP, eBay and Yahoo. The world of secondary markets and venture investing have evolved to accommodate them, allowing institutional investors who can afford substantial stakes to become investors while the startups remain private.

Yet there’s a cautionary lesson here that startup founders should consider: The same forces that are accelerating tech growth curves are also accelerating the time to maturity. Grow big enough and companies will need to draw on public markets for financing. To meet quarterly targets, they need to maintain billion-dollar businesses even when they stop growing. That limits the ability to find new, financially risky areas of innovation. Soon enough, dividend and buyback programs are rolled out to placate antsy investors. That, as we are seeing this year, only placates them for so long.

No one is demanding a dividend from Google, or calling for Facebook to spin off Instagram. Both are delivering growth that often surpasses investor expectations and rewarded with rising stock prices. Others like Netflix and Amazon are getting a pass by investing profits into future growth. But as much as HP talks about, say, developing a mass-market 3D printer, investors only look with disappointment at the slow-growth business of PCs and IT services.

There are a few companies founded before the dot-com boom, notably Apple and Amazon, that have so far been able to buck the trend. But they may not be able to stay ahead of the curve for long. The campaign to pressure Apple for more dividends has halted because Tim Cook keeps promising new product categories like the Apple Watch. Amazon has lost nearly a quarter of its value in the last nine months amid concerns its spending is outpacing its promised growth.

For now, Apple and Amazon are anomalies among companies more than 20 years old that are promising more growth in coming years. That’s leaving their CEOs independent enough to pursue blue-sky innovations. But age catches up to all companies. And these days, companies in the tech sector are growing old faster than ever.

MONEY Careers

Microsoft’s CEO Wasn’t the Only Male Exec to Say Something Clueless About Women This Week

Microsoft Satya Nadella gives a lecture about dream, struggle and creation at Tsinghua University on September 25, 2014 in Beijing, China.
Microsoft CEO Sayta Nadella isn't smiling after his comments about women in the workplace were universally panned. ChinaFotoPress via Getty Images

Yesterday, Microsoft's CEO said something really wrong about women. But he's just one of a number of tech executives to make similar gaffes in the last few days.

Updated—3:52 P.M.

This has not been a great week when it comes to equality in the workplace. On Thursday, Microsoft CEO Satya Nadella made waves when he advised women against asking for pay bumps. “It’s not really about asking for the raise,” he told a mostly female audience at the Grace Hopper Celebration of Women in Computing, “but knowing and having faith that the system will actually give you the right raises as you go along.”

By Thursday night, Nadella was in full damage-control mode, renouncing his previous statement in an email to Microsoft staff. “If you think you deserve a raise, you should just ask,” he wrote.

It’s good that Nadella acknowledged his mistake, but the gaffe shows how many in the business world still have difficulty understanding the prejudices faced by their female colleagues. And as our colleague Margaret Magnarelli points out, “he still doesn’t realize it’s not as simple as ‘just asking’ for us.”

What’s more, the Microsoft chief wasn’t the only boss even in the past few days to make clueless comments about how women should behave in the workplace. Earlier at the same conference, a group of male execs from Facebook, Google, GoDaddy, and Intuit participated in a panel purporting to offer tips on how both men and women could help stamp out tech’s bro-centric culture. A video of the event is available here, and Readwrite gave the blow-by-blow.

It did not go well. Here are a few of the most most off-base observations:

“It’s more expensive to hire women, because the population is smaller.” – Mike Schroepfer, CTO of Facebook

Actually, it’s not. While Schroepfer was trying to say that it’s more expensive to recruit women because they are underrepresented in computer science, it’s been widely reported that women make 78% of what men make. This is the so-called gender pay gap.

And yes, the gap persists even in the supposedly meritocratic tech world: According to a recent analysis of Census data, men with a graduate or professional degree working in Silicon Valley earn 73% more than women with the same degrees working in the same industry.

While some of the pay gap is explained by factors like experience level and industry choice, economists Francine Blau and Lawrence Kahn found that even when you control for those factors, 41% of the gap remains “unexplained.”

In fact, at a conference last month, Australian tech mogul Evan Thornley made the opposite point: that women are “Like Men, Only Cheaper.” That quote comes directly from his slideshow. “Call me opportunistic,” he elaborated, “I thought I could get better people with less competition because we were willing to understand the skills and capabilities that many of these women had.” Thornley later apologized.

“The only thing I would add is speak up … Speak up, be confident.” – Blake Irving, CEO of GoDaddy

This isn’t bad advice by itself — studies have shown that women who self-promote and negotiate harder do end up with with higher salaries — but like Nadella’s email to employees, it fails to acknowledge that women are often punished when they do speak up. “Assertive or competitive qualities are usually associated with men, and are thought to be essential for successful leaders. But for women, they can be a landmine,” said Daina Middleton, global CEO of Performics, in an interview with Fast Company.

Need evidence? Economist Linda Babcock ran a study where she videotaped men and women asking for raises using the exact same script. Viewers of the tape agreed that the man deserved the raise. But they did not like the woman who asked for the exact same thing, in the exact same way.

“People found that to be way too aggressive,” Babcock told NPR. “She was successful in getting the money, but people did not like her. They thought she was too demanding. And this can have real consequences for a woman’s career.”

Other data suggests that women entrepreneurs also get turned down more often than men do. One study found that investors are more likely to accept pitches from male entrepreneurial teams than from female teams — even if they’re making the exact same pitch. In another study, business school students read a prospectus for a mock company. In some versions, the CEO was listed as male; in others, the CEO was female. The students were four times more likely to recommend the company led by the male CEO.

“It will be twice as hard for you … but you can make a big difference in your company.” – Alan Eustace, senior vice president of search at Google

True, but unfortunately women are often absent from the kind of high level positions that would allow them to “make a big difference.” Only 4.8% of Fortune 500 CEOs are female — and those 24 women represent a record high.

Women already know it’s at least twice as hard for them to succeed. They just wish business leaders would do something about it.

To Eustace’s great credit, he acknowledged the panel’s issues on Twitter and made a great suggestion for future male allies.

 

TIME Tech

Tech Firms Desert Powerful Right-Wing Group After Climate Change Spat

Silicon Valley distances itself from the American Legislative Exchange Council

Google wasn’t the first major tech company to leave powerful conservative activist organization the American Legislative Exchange Council (ALEC) over its position on climate change, but it seems to have been the one that set the other dominoes falling.

After Google Executive Chairman Eric Schmidt said Monday that the company would no longer support the group, which opposes environmental regulations and has said climate change could be “beneficial,” Yahoo, Facebook and Yelp all issued statements indicating that, for unspecified reasons, their memberships in the group would be allowed to expire.

Microsoft had already quit the organization in August, according to the liberal group Common Cause which monitors ALEC, after a Boston-based investment group raised questions about the company’s support in light of ALEC’s opposition to federal renewable energy programs.

The group is known for creating model legislation that promotes free market and conservative policies, which it then works to pass in state legislatures around the country. On energy policies, it has sponsored initiatives to curb the authority of the Environmental Protection Agency and opposed federal programs aimed at increasing the production of energy from renewable sources.

It has been extraordinarily effective at getting legislation passed, particularly in the last several years, and has become a favorite target of progressive groups, much like the billionaire industrialist Koch brothers, who are themselves reputed to be major ALEC supporters. ALEC did not respond to multiple requests for comment from TIME. In response to news that Google would be pulling its support, ALEC CEO Lisa Nelson said in a statement, “It is unfortunate to learn Google has ended its membership in the American Legislative Exchange Council as a result of public pressure from left-leaning individuals and organizations who intentionally confuse free market policy perspectives for climate change denial.”

The most recent wave of departing Silicon Valley companies haven’t explained their decisions to leave ALEC, but the news comes after intense lobbying from liberal and environmental organizations. “We reevaluate our memberships on an annual basis, and are in that process now,” Facebook said in a statement. “While we have tried to work within ALEC to bring that organization closer to our view on some key issues, like net neutrality, it seems unlikely that we will make sufficient progress and so will be unlikely to renew our membership in 2015.”

Similar spurts have happened in the past. According to records kept by ALEC watchdog The Center for Media and Democracy, in 2012 both Coca-Cola and Pepsi announced a parting of ways with ALEC. The same year McDonald’s announced it was revoking support for the group and Pepsi followed the next day with an announcement that it too had cut ties with the group.

The Guardian reported in 2013 that ALEC was facing a “funding crisis” following the departures of a number of member firms.

MONEY Tech

Why This “Tech Bubble” Isn’t Like the Last One

Sure, Silicon Valley is booming, but this isn't 1999

Venture capital investment—that is, money flowing into companies before they go public—is on a tear in the technology sector. At least in nominal terms, investments are at levels not seen since 1999. The comparison to the turn-of-the-millennium is a bit less impressive adjusted for inflation, but the recent trend remains boomy. (Hat-tip to Business Insider for pointing us to this data.)

image(32)
SOURCE: PwC/NVCA Money Tree Report

So how is this boom different from last one? To borrow from blogger Joshua Brown, if it’s a bubble, it’s “a rich man’s bubble.”

Not only are you and your friends (mostly) not getting into the excitement by chasing hot IPOs — such as this week’s public offering from the Chinese e-commerce giant Alibaba — you also aren’t sharing in the boom in a much more tangible way. The late-1990s boom was a pretty great time for job seekers.

fredgraph

Remember the last boom: The build-out of the Internet was part of a high-pressure economy with plentiful jobs. New web retailers were opening warehouses and distribution centers, and fiber optic cable was going in the ground (much too fast, it turned out). In my own little corner of the world, newspapers and magazines were setting up big digital newsrooms that ran alongside still staffed-up print teams. Information technology was raising productivity in surprising places—big-box retailers reaped many of the gains—and for a time business was so competitive that employers had to share more wealth with workers. Unemployment dipped below 4%.

The latest influx of cash, and the speed with which companies are burning through it, in Silicon Valley has a lot of people worried we’re in a new bubble, perhaps fueled by the Federal’s low interest rates. A few months back, BI’s Joe Weisenthal made the contrary case: Venture money isn’t flowing as strongly into other industries, so this isn’t only about cheap money burning holes in investors pockets. Rather, something’s going on specifically in tech: With a fairly small investment in resources and people, a tech company with a great idea can quickly scale up to be a huge business. Think Whatsapp, or for that matter Facebook, which become a giant media company by leveraging free content provided by its users. Investing in these ideas is a high risk lottery, but great for the investors who win it.

The flip side is that it doesn’t seem to be much of a jobs engine outside of the expensive parts of northern California, or unless you count odd jobs from Task Rabbit. Do we have a bubble? Maybe. Maybe not. Do we have a well-balanced economy? No.

TIME

Rich Guy Philosophers Hit Silicon Valley

Peter Thiel is only the latest in an old trend

For some time now, there’s been a tendency on Wall Street for rich guys to become philosophers – think George Soros and his reflexivity thesis, or Ray Dalio and his little red book of self-criticism. Now, that trend seems to be coming to Silicon Valley – witness PayPal founder and investor Peter Theil’s new book Zero to One, which, among other things advises young people to drop out of college to do tech start ups (this from a guy with double Stanford degrees). While I agree with Theil’s advice that people should think different (a la Steve Jobs) to really come up with ground breaking innovations, I fear that this book may herald a new era of tech gurus who imagine themselves public intellectuals simple because they’ve made a lot of money.

Joe Nocera and I discussed the topic on this week’s WNYC Money Talking, along with where the tech industry itself is headed in the wake of Apple’s new product announcements.

 

TIME technology

Net Neutrality Advocates Turn Up the Volume

Top Congressional Democrats join a coalition of Internet businesses and activists in fighting to ensure Internet service providers treat all web content the same

A vast coalition of Internet businesses and activists, as well as two top Congressional Democrats, launched a series of loud new public relations campaigns Wednesday in support of “net neutrality,” the notion that Internet service providers (ISPs) must treat all web content equally, no matter the source.

Senate Judiciary Committee Chairman Patrick Leahy (D-Vermont) and House Minority Leader Nancy Pelosi (D-Calif.) called on the Federal Communications Commission Tuesday to prevent ISPs, such as Comcast, Verizon or Time Warner Cable, from treating web content differently.

Their appeals came just a day before the Internet Association, Battle for the Net, and the American Sustainable Business Council launched new campaigns Wednesday calling for the FCC to pass new Open Internet protections.

While Leahy, Pelosi, and the advocacy groups are not all united behind one solution, all have slammed the FCC’s current proposed rules on net neutrality, which were first presented in April and may be finalized as early as this year. The public comment period ends Sept. 15.

The FCC’s proposed rules have been sharply criticized for allowing web companies to pay ISPs to deliver their content more quickly and in higher quality than companies that do not pay for faster service. Internet advocates argue that allowing such “paid prioritization”—widely known as Internet “fast lanes”—would give the richest incumbent companies, which can can afford to pay a premium, an unfair advantage over struggling start-ups and mom-and-pop operations that often operate on shoestring budgets.

Others worry that such fast lanes would fundamentally undermine the Wild West-style free market of ideas and commerce on the Internet, where you don’t have to be a billionaire to attract millions of new customers overnight to your site.

FCC Chairman Tom Wheeler has insisted repeatedly that paid prioritization would help vital new industries that rely on lightning-fast download speeds, particularly in the e-medicine and online education spaces, to make their way online. Leahy will hold a Congressional hearing next week on the subject.

The Internet Association, an umbrella group uniting Silicon Valley’s biggest, most powerful tech giants—including Google, Amazon, Facebook and Ebay—launched a new campaign Wednesday afternoon. It includes a video and an online comic demanding better net neutrality protections. The association also submitted formal comments (PDF) to the FCC warning the agency to ignore the “flawed arguments of broadband gatekeepers that seek to control speech on the Internet, censor content, and segregate the Internet into fast and slow lanes.”

The Internet Association’s position on net neutrality is particularly important in the public dialogue because its member companies are mainly large incumbents that could theoretically benefit from paid prioritization deals edging out their smaller competitors. Instead, these large companies have insisted that the Internet marketplace must remain friendly to the tiniest start-ups, which are often the source of “the next big thing.”

Meanwhile, another coalition of Internet advocates convened Wednesday behind a different, similar campaign, Battle for the Net, which is also critical of the FCC’s proposed rules and calls for better ones. Battle for the Net includes 27 progressive advocacy organizations, including the American Civil Liberties Union and MoveOn.org, as well as dozens of tech companies, including Twitter, Tumblr, Netflix, Kickstarter, Etsy, and Vimeo.

Those companies, along with thousands of smaller websites, took part in a “day of action” Wednesday in which they displayed on their home pages an icon symbolizing a slow-loading website. When visitors click on that icon, they are invited to sign the Battle for the Net’s letter to the FCC and to contact their member of Congress.

While the Battle for the Net coalition’s gripes are similar to those of the Internet Association, the Battle for the Net goes farther in pointing at a specific solution. It, along with Pelosi, asks that the FCC categorize ISPs as a “Title II” industry, a move that would give the agency legal jurisdiction to strictly regulate the companies that own the Internet “pipes” — or the fiber that the Internet runs on. The Internet Association, while leaving what is known as the “Title II option” on the table, has stopped short of actively advocating for that end.

The debate over net neutrality is at this point intrinsically intertwined with a discussion of the Title II option, which itself hinges on a rather arcane detail in administrative law. In January, the D.C. Circuit Court of Appeals overturned the FCC’s previous rules on net neutrality on the grounds that the agency does not have legal jurisdiction over ISPs since they do not fall under “Title II” of the regulators’ statute. Public advocacy groups, like Free Press, which organized Battle for the Net, argue that the FCC should simply fix that problem, since it’s up to the agency to decide how it categorizes different industries.

But here’s where the discussion really heats up. Big ISPs, like Comcast, Verizon and Time Warner Cable, as well as their trade associations, have said that the Title II option, which would allow the FCC to treat ISPs like telephone companies, would unleash a storm of suffocating regulation. They say that if they are regulated “like public utilities,” they would have no incentive to invest hundreds of millions every year in researching and developing new technologies, much less maintaining and improving the network of pipes and wires that connect American homes to the World Wide Web.

Advocates for the Title II option say the ISPs, which enjoy monopolies and duopolies in most American cities and towns, should be regulated strictly, but argue that categorizing ISPs under Title II would actually lead to fewer regulations. The categorization would allow the FCC to pass a simple, blanket, easy-to-enforce rule on net neutrality for all ISPs, they say, rather than going at it piecemeal. Some advocates say that by avoiding the Title II option, the FCC is wading into unnecessary red tape. The agency’s current proposed rules call for the formation of a special ombudsman office within the FCC where federal bureaucrats would manually review when web companies paid ISPs for premium service.

The issue of net neutrality rocketed into national headlines earlier this year after Netflix accused big ISPs, like Comcast and Verizon, of deliberately slowing down streaming speeds and causing streaming videos to buffer. After Netflix paid the ISPs a fee, the download speeds increased. ISPs say such deals are only fair now that a handful of companies, like Netflix and Google’s YouTube, dominate the majority of web traffic during primetime hours.

It’s unclear when exactly the debate surrounding net neutrality will end. The FCC could finalize its proposed rules on net neutrality in the next few months or, if public pressure mounts, it could be forced to return to the drawing board early next year. President Obama, who has been a vociferous advocate for net neutrality–and a critic of “fast lanes” on the Internet–has stopped short, but just barely, of condemning the FCC’s proposed rules.

With rising populist anger, a raft of new PR campaigns, and Silicon Valley tech firms set to be major political campaign contributors in 2016, something’s likely to break soon.

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