B2| Saturday/Sunday, August 17 - 18, 2019 ** THE WALL STREET JOURNAL.**
ford M.B.A. candidates in the ne-
gotiations class he was teaching.
The future leaders of American
business were too trusting.
About 95% of M.B.A. students
were routinely placing themselves
in the upper half of the class when
rating their ability to size up the
trustworthiness, reliability and
honesty of fellow classmates. More
than three-quarters put them-
selves in the top 25%, while 20%
placed themselves in the top 10%.
Mr. Kramer said he hasn’t up-
dated his study of M.B.A.s in sev-
eral years. Pew Research Center
data indicates today’s younger set
is more jaded and skeptical than
students from a decade ago, in fact.Regardless of how the data
shakes out in 2019, overconfidence
still carries potentially disastrous
consequences. Just look at how
many accomplished engineers and
scientists left good jobs to join
Theranos. The defunct blood-test-
ing company, founded by Elizabeth
Holmes, is accused of perpetrating
Silicon Valley’s biggest fraud be-
cause few people bothered to ver-
ify Ms. Holmes’s claims.
The ability of executives at
WorldCom or Enron to pull the
wool over our eyes is the stuff of
legend, but we often forget that
misplaced trust happens every day
in the normal course of business.
And it’s sometimes those we trustmost who make the biggest errors.
Alan Greenspan, the former
Federal Reserve chairman, was re-
vered in the finance community
before the Great Recession. During
a 2008 appearance before a con-
gressional committee, he pinned
the crisis partially on misplaced
trust in financial institutions that
failed to put the public first.
“Those of us who have looked
to the self-interest of lending insti-
tutions to protect shareholder’s
equity (myself especially) are in a
state of shocked disbelief,” he said,
calling his hands-off governance
philosophy a mistake because it
assigned too much trust to flawed
executives.
The consequences of misplaced
trust can vary. Mr. Madoff’s vic-
tims incurred upward of $65 bil-
lion in losses. Theranos employees
lost jobs; investors lost millions of
dollars; board members and advo-
cates lost their reputations. The
consequences for Mr. Wexner, who
wrote recently that he is embar-
rassed by Mr. Epstein’s deception,
are still unclear.
Alexander Stein, a human-be-
havior expert and founder of Dolus
Advisors, consults on white-collar
misconduct and said we get duped
because we “outsource trust.”
“It becomes less about who we
trust and more about what we
trust,” Mr. Stein said. “It’s not the
person, it’s the image of the per-
son, or the persona and the
brand.” Ms. Holmes is said to have
courted people—including former
Secretary of State George Shultz
and top executives of Walgreens—
with penetrating blue eyes that
rarely blinked, an unusually deep
voice and a wardrobe of black tur-
tlenecks that evoked Apple Inc. co-
founder Steve Jobs.
He said Mr. Epstein built a co-
alition of “co-conspirators” with
the help of mansions, private
planes, good looks and savvy con-
versational skills.
Mr. Wexner wasn’t available for
comment, and he has rarely spoken
publicly about Mr. Epstein. At Har-
vard, a decade ago, he owned up to
making bad judgment calls that at
the time didn’t seem unethical, but
in hindsight were clearly ill-ad-
vised. Following a moral compass
can be tough and complicated, he
said, but necessary.
Even the most moral among us
make mistakes that have shad-
owed us. This is tough for Mr.
Wexner, who spent much of his
time and fortune trying to carve
out a legacy that doesn’t resemble
Mr. Epstein’s.
When asked what he wanted to
be known for, Mr. Wexner recently
said he doesn’t want to be remem-
bered as the guy who created the
sexiest thongs or comfiest hip-hug-
gers. “No one remembers who sold
the most togas in Rome,” he said.
He has spent decades giving away
millions to various causes, including
Ohio State University, the United
Way and children’s hospitals.
But Mr. Wexner acknowledged
in the same talk that there’s a flip
side: “People remember the great
villains more than they remember
the great heroes.”THE SCORE
THE BUSINESS WEEK IN 7 STOCKS
J.C. PENNEY CO.
The hand-me-down is going mainstream. Tradi-
tional retailers J.C. Penney and Macy’s said during
earnings announcements this week that they will
start selling secondhand clothes in partnership
with resale marketplace thredUP Inc. as department stores
continue to lose shoppers to newer forms of retailing. J.C.
Penney shares gained 2.2% Thursday after its earnings
announcement.
JCP
2.2%PERFORMANCE OF RETAIL STOCKS THIS WEEK
Source: FactSetRealRealMacy'sJ.C.Penney
S&P1005%Mon. Tues. Wed. Thurs. Fri.A CEO WhoTrusted theWrong Man
Les Wexner was once warned that he was too naive. Now he says Jeffrey Epstein stole from him.
ON BUSINESS| JOHN D. STOLL
Leslie Wexner was
among the pathfind-
ers for American
business in China in
the 1970s, shunning
the official channels
in Beijing for Shang-
hai, making big investments on es-
sentially a handshake.
“I just met a businessman
somewhere, and he trusted me,
and I trusted him, and we started
doing things,” Mr. Wexner, the 81-
year-old founder of L Brands Inc.,
said in a talk at Harvard’s Center
for Public Leadership.
If trust helped make Mr. Wexner
a retailing legend, though, it is
tormenting him now. Mr. Wexner
had a personal and professional
relationship with accused sex traf-
ficker Jeffrey Epstein, the dis-
graced financier who hanged him-
self in jail last week. That
relationship was crucial in build-
ing the wealth and prominence Mr.
Epstein used to exploit young
women.
How could a man who amassed
billions selling bras, bluejeans and
bath salts to women put so much
trust in Mr. Epstein for two de-
cades? Mr. Wexner claims his for-
mer associate misappropriated
vast sums of money.
It’s a question that brings into
focus the role trust plays in Amer-
ican business. Long seen as nearly
as essential as money for the
economy, it is as powerful as it is
dangerous. Trust serves as the se-
cret sauce in every transaction,
business plan and employment ar-
rangement. But, behind every
Ponzi scheme, market meltdown
and corporate fraud lies a serious
case of misplaced trust.
Roderick Kramer, a social psy-
chologist teaching at Stanford’s
Graduate School of Business who
has long studied trust and busi-
ness, explained the downside to
me. Most successful business folks
are risk takers, he said. Risk re-
quires trust, and leadership types
tend to overestimate their ability
to size up people or situations.
Harry Wexner was no psycholo-
gist, but in a quiet moment on a
Florida beach long after his son
had become a success, he warned
Les that he had to be careful not
to be too gullible.
“What I’m worried about is
you’re optimistic, you think the
world is full of goodness,” Harry
Wexner said, encouraging him to
brace for disappointment. “You’re
just optimistic and naive.” Recall-
ing the story years later during a
recorded interview, Mr. Wexner
agreed with his father.
Mr. Kramer wrote about this af-
ter the financial crisis and the Ber-
nie Madoff Ponzi-scheme scandal
in the second half of 2008. He de-
scribed interactions between Stan-
Business leaders tend to
overestimate their
ability to size up people
or situations.
Leslie Wexner, top, the 81-year-old founder of L Brands, had a personal and
professional relationship with accused sex trafficker Jeffrey Epstein, the
disgraced financier who hanged himself in jail last week.EPSTEIN: ASSOCIATED PRESS; WEXNER: ASTRID STAWIARZ/GETTY IMAGES FOR FRAGRANCE FOUNDATIONVIACOM INC.
Viacom and CBS Corp. are
getting back together. Thir-
teen years after the two
companies split they agreed
Tuesday to merge in an all-
stock deal that would reunite
the media empire of mogul Sumner
Redstone. The combined company is val-
ued at roughly $3 0 billion, combining Vi-
acom properties such as MTV, Nickel-
odeon, Comedy Central and the
Paramount film and TV studio with
CBS’s broadcast network and Showtime
premium network. However, it would
still be much smaller than rivals. Viacom
shares gained 2.4% Tuesday while CBS
shares added 1 .4%.
VIAB
2.4%the year-earlier period. China’s
purchases of U.S. farm products
last year dropped by more than
half from 2017, according to the
Department of Agriculture. Deere
said it expects equipment sales in
Brazil to strengthen in the com-
ing months as farmers there re-
spond to higher demand for com-
modities from China to replace
U.S. exports.
Deer’s quarterly sales of trac-
tors, harvesting combines and
other farm equipment fell 6%
from a year earlier, as profit from
the farm-equipment business
dropped by 24%, the company
said.
Beside trade uncertainty,
Deere said rainy weather that de-
layed spring planting of crops
and weakening equipment sales
in Canada also contributed to
falling equipment sales in the
quarter.
An outbreak of African swine
fever in China that decimated
hog herds and reduced demand
for feed also affected sales, the
company said.
“In the United States, 2019 has
been a volatile year for farmers,
particularly through the Corn
Belt,” Deere Chief Economist
Luke Chandler said during a call
with analysts.Deere expects about $3.2 bil-
lion in profit and a 4% increase in
equipment sales this year, which
includes its construction-equip-
ment line, down from previous
estimates for $3.3 billion in profit
and a 5% rise in equipment sales
in 2019. It is the second straight
quarter that Deere has pared its
outlook.
The company cut production
of farm equipment this spring to
lower inventories at its dealer-
ships. Deere said Friday it would
initiate additional cost reductions
to improve the efficiency of its
operations.
The company said factory pro-
duction of high-horsepower mod-
els of tractors would be about 5%
below retail sales volumes for the
rest of the year.
Deere’s stock closed up 3.8% at
$149.23 as part of a broad market
rally Friday.
Shares are lower by 3.7% since
the start of the year, compared
with a nearly 14% increase in the
S&P 500 index.
In Deere’s third quarter ended
July 28, profit declined to $
million, or $2.81 a share, from
$910 million, or $2.78 a share,
last year. Excluding one-time
items, the company made $2.71 a
share. Net sales of equipment fell
3% to $8.96 billion.
Analysts were expecting $2.
a share in earnings on sales of
$9.4 billion.
—Kimberly Chin
contributed to this article.Continued from page BVERIZON COMMUNICATIONS
INC.
Verizon is saying goodbye to
Tumblr. The telecom giant has
agreed to sell the blogging
website to the owner of on-
line-publishing tool Word-
Press.com. Automattic Inc. will
buy Tumblr, which once fetched a pur-
chase price of more than $ 1 billion, for
an undisclosed sum that The Wall Street
Journal reported isn’t material to Veri-
zon. Automattic’s CEO says he sees the
site as complementary to Word-
Press.com. “It’s just fun,” he said of Tum-
blr. “We’re not going to change any of
that.” Verizon shares rose 1.2% Tuesday,
one day after the deal was unveiled.
VZ
1.2%BLACKROCK INC.
The world’s biggest money
manager now owns some of
America’s best-known brands.
BlackRock said it purchased a
stake in the company that
controls Sports Illustrated,
Nine West and Aéropostale. The deal
was the first for a new BlackRock pri-
vate-equity fund known as Long Term
Private Capital, part of an effort to bulk
up alternative businesses that lock up
money for longer and charge higher
fees. BlackRock’s stake in Authentic
Brands Group LLC is worth roughly
$87 5 million, according to The Wall
Street Journal. The deal was announced
Sunday and shares fell 2.3% Monday.
BLK
2.3%RITE AID CORP.
Rite Aid found someone will-
ing to nurse the pharmacy
chain back to health. The
company appointed Heyward
Donigan as chief executive
Monday, saying her experi-
ence leading health-care companies
would help Rite Aid confront competi-
tion that has damped sales and caused
job cuts. Shares of the third-largest U.S.
pharmacy chain have plunged more than
50 % this year. Ms. Donigan is now one
of 33 women leading the largest 500
U.S. publicly traded companies by reve-
nue, according to corporate-research
firm Equilar. Rite Aid shares fell 2.4%
Monday.
RAD
2.4%APPLE INC.
Apple received an early
Christmas present from Presi-
dent Trump when the White
House on Tuesday announced
a delay in some planned tar-
iffs on Chinese-produced
goods. “We’re doing this for Christmas
season, just in case some of the tariffs
would have an impact on U.S. custom-
ers,” Mr. Trump said. The tariffs, includ-
ing 10 % levies on mobile phones and
laptop computers, were originally set to
takeeffectonSept. 1 and would have
seriously hampered Apple’s annual
iPhone launch that typically takes place
in late September. Shares gained 4.2%
Tuesday.
AAPL
4.2%GENERAL ELECTRIC CO.
Fraud at General Electric?
That’s what Harry Markopo-
los, the accounting expert
who raised red flags about
Bernie Madoff’s Ponzi scheme,
is claiming. In a research re-
port posted online Thursday, Mr. Marko-
polos alleged that General Electric has
masked the depths of its problems, re-
sulting in inaccurate and fraudulent fi-
nancial filings with regulators. A GE
spokeswoman said GE stands behind its
financials. “The allegations we have
heard are entirely false and misleading,”
she said in an email. General Electric
shares plummeted 11% Thursday.
— Francesca Fontana
GE
11%Deere Says
Farmers
Scale Back
The yearlong trade
dispute with China
has hurt agricultural
equipment sales.