FORTUNE Features

Why trust matters so much in business

Tom Ziegler, Senior Editor — Fri, 27 Jan 2012 17:02:39 +0000

Our Weekly Read column features Fortune staffers' and contributors' takes on recently published books about the business world and beyond. We've invited the entire Fortune family -- from our writers and editors to our photo editors and designers -- to weigh in on books of their choosing based on their individual tastes or curiosities. In this installment, reporter Caitlin Keating reviews Smart Trust, The Trustworthy Leader, and The Progress Principle, three new books that address the role that trust and related emotional issues play in business success.

FORTUNE -- In business as in private life, all successful relationships run on trust. Yet we often get trust wrong, giving it either too readily or too stingily. From Bernie Madoff to the mortgage industry, con artists have always operated by persuading naïve investors to give their trust. On the other hand, relationships often fail because one or both parties are afraid to give trust.

That's the premise of Stephen M.R. Covey's Smart Trust: Creating Prosperity, Energy and Joy in a Low-Trust World. "[T]hose who live in blind trust eventually get burned; those who live with distrust eventually experience financial, social, and emotional losses," writes Covey, the son of Stephen R. Covey of The 7 Habits of Highly Effective People fame.

Successful companies and people find a middle way that Covey and co-authors Greg Link and Rebecca R. Merrill call "smart trust." For example, eBay's (EBAY) 235 million registered users are mostly strangers to each other. Yet they engage in one million financial transactions a day. According to former eBay CEO Meg Whitman: "[M]ore than a decade later, I still believe … the fundamental reason eBay worked was that people everywhere are basically good."

So how do successful companies manage risk in a low-trust world? Among many other examples, the authors point to Netflix (NFLX), which built a thriving movie rental business on trust. Netflix trusted all customers to mail back their DVDs, occasionally eliminating unreliable customers as a cost of doing business. If Netflix hadn't extended this original trust, they wouldn't have nearly as many subscribers. Less happily, Netflix's business suffered last year when it abruptly changed its pricing structure, which many customers viewed as a violation of trust.

A related topic is how successful leaders inspire trust. Amy Lyman, cofounder of the Great Place to Work Institute, has been studying this question for about 30 years. In The Trustworthy Leader, Lyman argues that trustworthy leaders inspire cooperation from their employees, which in turn produces a strong sense of commitment and loyalty throughout the organization.

While Covey and co. highlight the important of trust in general, Lyman focuses on the workplace. She presents detailed examples from many industries, including healthcare, retail and real estate, using her institute's Trust Index to measure the quality of relationships between employees and their leaders. (Fortune partners with the Great Place to Work Institute to produce our annual list of the Best Companies to Work For. The Trust Index is a pillar of our ranking methodology.)

Finally, Teresa Amabile and Steven Kramer wrote The Progress Principle: Using Small Wins to Ignite Joy, Engagement and Creativity at Work to try and understand how various aspects of an employee's work and personal life affect performance and motivation at work. Amabile teaches at Harvard Business School. Kramer is an independent writer and researcher, as well as Amabile's husband. In the course of their research the authors analyzed nearly 12,000 diary entries from hundreds of employees at many organizations.

Although Amabile and Kramer pile up an impressive mound of data, their conclusions are generally unsurprising. For example, they found that "participants … experienced much more positive emotion when they made progress than when they had setbacks." They also found that happy employees tend to perform better. Strikingly, managers are often clueless about the importance of these "small wins". In a survey conducted for the book, only 35 out of 669 managers ranked progress as the number-one motivator, after recognition, incentives, interpersonal support, and clear goals.

Filed under: The Weekly Read

Men's underwear leaves the Stone Age

Fortune Editors — Fri, 27 Jan 2012 16:25:10 +0000

Entrepreneurs like Tommy John's Tom Patterson are looking to take advantage of a growing market of increasingly fashion-conscious men. First stop: underwear.

By Colleen Leahey, reporter

FORTUNE -- The days of over-sized jeans sagging from the derrieres of men everywhere are no more. Skinny jeans, tailored pants, and fitted oxfords are de rigeur, leaving little room for excess fabric in the undergarment department. Boxers or briefs used to be the only question men needed to ask themselves, but today, the options have grown.

Five years ago, Tom Patterson was a medical-device sales rep by day and an avid-viewer of CNBC's The Big Idea with Donny Deutsch by night. "All of the featured products or services … were created out of personal frustration," recalls Patterson. "I found myself constantly looking around, asking, 'What can I make better?'"

During the financial crisis, Patterson was laid off from a sales job he held for six years. During his down time, he realized that one of the biggest fashion annoyances he faced while he was working was a fabric gut -- that baggy bump just above the belt line caused by a loose-fitting undershirt.

After researching fabrics and designs of the bestselling undershirts at high-end department stores, Patterson came across micro modal. The patent-pending fabric is soft, with properties similar to cotton, but it doesn't shrink or yellow as easily. "I headed to my dry cleaner's with a design and paid him $100. Then ordered 15 more, asking trusted friends to wear them and give me feedback."

With positive reviews in hand, Patterson moved to San Diego with his girlfriend, locked down a manufacturer, and founded Tommy John. Today, the three-year old company offers its wares at stores like Saks (SKS), Neiman Marcus, and Nordstrom (JWN). Revenue over the past year was $1.5 million, up from $900,000 in 2010; Patterson predicts that 2012 revenue will be between $4-6 million. And this week, the company launched a new underwear line for men at Neiman Marcus and Nordstrom.

"Women's underwear is like the Jetson's. It's futuristic, innovative," says Patterson. "But men's hasn't been modernized at all." His company's brief line has a "Quick Draw" fly, which is horizontal rather than vertical, a ventilation zone, and no-rise legs. The fabric also allows stretching that keeps the briefs from riding up the wearer's thighs.

"Most guys have to wear different pairs at work and at the gym. These can be worn in both settings -- and even have a pocket for your iPod," Patterson says.

Patterson doesn't want to stop at underwear. Indeed, he is looking to tackle other men's intimates, like socks and robes. He wants his customers to deviate from the time-honored replenishment model -- buying new underwear to replace the old. Instead, he aims to encourage men (or women) to buy because they want the product, or need it with a certain outfit.

Tommy John is not alone in its quest. Industry giant Jockey is also changing their underwear game with a new "Stay Cool" line featuring Denver Broncos quarterback Tim Tebow as its spokesman.

"Guys are starting to look for functional benefits in underwear," says Jockey Chief Marketing Officer Dustin Cohn. The company's "staycool" line has some of the same breathable features NASA astronauts enjoy in their space suits. "I think guys are catching up to women in intimates. Women are thoughtful about their clothes and what intimates make them look best. Men are becoming thoughtful, too."

Cohn says Tebow was an ideal face for its new line, arguing that he appeals to both men and women. "[Tebow] is an authentic and honest athlete, appealing to the guys. The women like his personality and good looks." With its large consumer base, Jockey certainly wouldn't mind seeing the replenishment model fade.

In recent years, men's fashion in general has undergone a significant shift, says Marshal Cohen, chief industry analyst at consumer market research firm The NPD Group. "Over the past two years, men have become more concerned with fashion than they have been in several decades -- since the '70s."

Today, Cohen says, men's products are being designed for specific applications. "Male consumers are being told this is the style and this is the product you need for X activity." Cohen cites Under Armour (UA) as a good example of a brand that has done a good job avoiding the typical undergarment business model.

As for smaller companies like Tommy John versus behemoths like Jockey, Cohen argues that there's room for both. "There are two windows of opportunity in the market. Be unique and different and market to a higher-end customer. Or be so unique and different that consumer's recognize and want your brand."

So is a Victor's Secret in the offing? Cohen says we shouldn't hold our breath, adding that the men's intimates market, while growing, is still half the size of the women's market.

To be sure, men's underwear is leaving its Stone Age. And small companies like Tommy John should not be taken lightly. "Do I think a small player with a lot of innovation could make an impact on the market? Yes."

Filed under: Secrets of Growth, Uncategorized

One historic recruiting year at Holy Cross

Fortune Editors — Fri, 27 Jan 2012 10:00:26 +0000

Our Weekly Read column features Fortune staffers' and contributors' takes on recently published books about the business world and beyond. We've invited the entire Fortune family -- from our writers and editors to our photo editors and designers -- to weigh in on books of their choosing based on their individual tastes or curiosities. In this installment, reporter Daniel Roberts reviews Fraternity, Diane Brady's chronicle of five young black men recruited to Holy Cross, who went on to lead remarkable lives.

FORTUNE -- When the journalist Diane Brady finally heard back from Supreme Court justice Clarence Thomas about an interview for her new book Fraternity, he told her that, in his view, the media "have been universally untrustworthy" and "often has its own script." He was also sure to note that the reason he was finally agreeing to an interview was simply that, "Father Brooks asked me to do it."

Reverend John Brooks asked Thomas, and a handful of other students, to do a lot of things. First, in 1968, the theology professor and eventual dean asked them to enroll at the College of Holy Cross in Worcester, Massachusetts. In the wake of Martin Luther King Jr.'s death, Brooks, a white academic, decided the school needed to aggressively court promising young black men. The surprising story of that project, and the people that those young men grew up to be, is the very engaging subject of Fraternity. And what the book lacks in refined language or eye-opening quotes, it more than makes up for with its engrossing narrative.

The story is almost too good to be true, an unlikely result of happenstance (or was it kismet?). Of the 20 black men Brooks recruited to Holy Cross, among them would be an eventual Supreme Court justice, star NFL wide receiver, Pulitzer Prize-winning novelist, high-profile Wall Street executive, and prominent defense attorney. And that's not to mention any of the other Holy Cross men discussed, many of which also went on to greatness in their fields (among them Gil Hardy, a Yale Law grad who started his own firm before, sadly, dying in a scuba accident, and Art Martin, who went to Georgetown Law and became deputy attorney general of New Jersey). The faces of the five men on which Brady chooses to focus—Clarence Thomas, Eddie Jenkins, Edward P. Jones, Stan Grayson, and Ted Wells—adorn the book's appealing, yearbook-style cover.

Brady opens her book with a compelling moment indeed, the kind of anecdote a journalist feels lucky to get. On the day of MLK's assassination, she writes, Holy Cross sophomore Art Martin was studying in the dorm when a white student burst in and announced that "Martin Luther Coon" had been shot. It's an alarming, fiery lead-in to a book about racial tension, education, and ambition. Her first chapter utilizes the same moment as a way to introduce the main five, but in these cases it isn't as effective: each section ends with what the student in question decided, or how he felt, after the assassination, and certain phrases repeat themselves to the point of over-saturation: "Later in life, Thomas would refer back to King's death as a turning point," concludes an introductory section on Clarence Thomas. The Eddie Jenkins introduction ends similarly: "Years later… He would still cite King's death as a turning point in his life." Then, Stan Grayson's section ends: "Years later, the investment banker… would still shake his head in sadness when thinking about King's death." The point is made a few too many times.

Brady again lapses into clichéd phrasing when first introducing Brooks: "In an era of black and white, Brooks was unafraid to embrace views that were gray," she writes. But it's possible that such glittering generalities are unavoidable with a story so implausibly inspiring. When you've finished Fraternity, you nearly feel surprised you haven't seen Disney's movie preview for it yet.

Elsewhere, Brady shows strength at the same task of describing individuals succinctly, but uniquely. When she first mentions the president of the college, Reverend Raymond Swords, Brady gives a holistic, vivid depiction of the man in two concise sentences: "Swords, a cerebral and sometimes aloof academic, had come to the president's job reluctantly. Although he had little desire to be in the public spotlight, he wasn't afraid to break with tradition when he felt it was necessary." Indeed, one tradition Swords breaks with is the lack of racial diversity on campus. He gives Brooks a long financial leash with which to recruit the new students—and pay their way—and in so doing, the two of them help lead some students to believe "that the people running Holy Cross might feel as uncomfortable with its overwhelming whiteness" as others did.

Where the storytelling shines is not in any golden, revealing quotes (in fact, for the most part, Brady does not quote so often), but in dramatic moments described from multiple perspectives, and in the tender telling of friendships that were formed, such as when Jenkins and Wells meet on the football field: "They both looked relieved to see a fellow brother on the field… Wells, meanwhile, immediately liked Jenkins's sense of humor… Jenkins came across as a man who assumed the world was full of friendships waiting to be formed."

Similarly strong are the views—gained through careful reporting and, presumably, multiple conversations—of the personal emotional struggles that the new recruits were experiencing when they enrolled at Holy Cross. Wells missed his high school girlfriend, and as Brady puts it, "everywhere he turned, someone was preaching the merits of free love. But he couldn't stop thinking about her." Jones, as well, still harbored longings for a high school crush, and last year wrote in The New Yorker about the love letters he would send her: "I was alone in the wilderness in Worcester, away from Washington, D.C., my home, for the first time, and I needed some shack of a life."

In the book's most striking chapter, "The Walkout," Brady recounts how a December 10, 1969 campus visit by General Electric recruiters was greeted with raucous student protest, in support of an ongoing GE worker strike. After the protest, instead of charging every student that participated (or none), the college brought academic charges against a small handful of people, four of them black students that had only been "peripheral players." In response, the Black Student Union organized a walkout, threatening to quit the college. Reverend Brooks got them to come back, with tears in his eyes, and it is here that the wonderful photographs in the book, including one of Ted Wells announcing the walkout over campus radio, serve perfectly.

Fraternity tells a compelling story of justice, and trust. At the center of the narrative stands Brooks, who continued to be a mentor to the black students in their time at the school, and has remained one to this day, as Thomas's words to Brady make clear. The adult lives of these men intersected in surprising ways. By way of example, just look at Thomas and Wells, who both made wonderful names for themselves in law, but in markedly different ways (one a staunch conservative, the other having served as general counsel to the New Jersey Democratic Party). To think that these two men not only went to college together, but found themselves in the same close-knit group of Brooks mentees, is something indeed.

Filed under: The Weekly Read

"Achtung" meets "Mais oui" in Tennessee

Fortune Editors — Mon, 23 Jan 2012 17:35:30 +0000

Dieter Zetsche of Daimler-Benz and Carlos Ghosn of Renault and Nissan are a cultural and business odd couple. But their working together should terrify their global competitors.

By Doron Levin, contributor

FORTUNE -- This year may be remembered for Franco-German cooperation. While both countries' leaders try to hold the Eurozone together, French car company Renault will be working with the German Mercedes-Benz to navigate an increasingly difficult global auto market.

The chief executives of both firms portray a new style of leadership that conveys multicultural, rather than ethnocentric, viewpoints. "You're going to see more collaboration in different geographical zones, around capacities, around platforms, around engines," Carlos Ghosn, chief executive of Renault and Nissan (NSANY) proclaimed at the North American International Auto Show in Detroit.

Commenting on the January 9 announcement that Daimler's Mercedes-Benz engines will be built in Tennessee by Renault alliance partner, Nissan, Daimler chief executive Dieter Zetsche explained that his company is "systematically broadening our manufacturing footprint in this important growth market." (Zetsche could have mentioned that Mercedes has never allowed a non-Daimler, never mind a non-German, automaker to manufacture a Mercedes engine.)

It's also a relationship born of necessity. Saddled with soaring costs for advanced technology like alternative-fuel propulsion systems as well as new plants in overseas markets, automakers increasingly are joining forces with rivals. And as break-even points rise, automakers increasingly must find new customers in emerging nations with less familiar cultures.

Both companies had been handicapped by lack of worldwide scale and product diversity. Renault's tie-up with near-bankrupt Nissan in 1999 turned out to be a boon. Daimler's failed merger with Chrysler, by contrast, left both weakened. A strategic alliance among Daimler, Nissan and Renault was announced in April, 2010.

Nissan, which is 44.3% owned by Renault, aims to give its Infiniti luxury franchise a lift. Daimler can inject a bit of Mercedes's magic; but Daimler's own luxury-car business can't sustain the entire company for the long-term -- which is the reason for collaboration with Nissan-Renault. Fortuitously, both chief executives maintain a broad, pragmatic view of the world, shaped by multi-cultural backgrounds that are rare among automotive CEOs.

Ghosn, though he carries a French passport, was born in Brazil. He was raised in south Lebanon, educated in Paris, served a stint as a tire executive in the U.S. and led the rescue of the Japanese automaker. Building and selling cars in emerging markets is a focal point of his strategy for Nissan and Renault.

Zetsche, a German citizen, spent much of his youth in Turkey and also served a significant chunk of his career in the U.S. He and Ghosn first met years ago when Zetsche, as head of Daimler's Freightliner truck unit, visited Michelin headquarters in South Carolina to see Ghosn about tires. Unlike come German chief executives, Zetsche is warm, approachable and funny -- and immediately recognizable due to a walrus mustache he's worn since he was a teenager.

Is something more a hand for the two companies? When asked in Detroit if Daimler might increase its 3.1% equity exchange with Renault and Nissan, Zetsche replied "we have a clear understanding that these are independent companies outside of the alliance. We have no intention of a further capital linkage. We share the office and not the bedroom, and that works perfectly well."

These two unusual top-executive management profiles are likely to become less so as global corporations are forced not simply to find customers abroad, but to integrate non-traditional talent into their leadership. Renault and Nissan already have the auto industry's most diverse leadership, in terms of women and foreign nationals, a fact that Ghosn highlighted earlier this month in Detroit. The rest of the world's automakers might want to pay attention.

Filed under: Uncategorized

Can Big Business learn to live with Newt Gingrich? (Fortune, 1995)

Fortune Editors — Sun, 22 Jan 2012 14:30:25 +0000

Editor's note: Every Sunday, Fortune publishes a favorite story from our magazine archives. This week, we turn to a September 1995 item on former Speaker of the House and Republican presidential hopeful Newt Gingrich, whose campaign staged a comeback with a victory in South Carolina's GOP primary race on Saturday.

The leaders of corporate America have never been his biggest fans. But while they still don't want him in the White House, they love the way he runs Congress.

By Ann Reilly Dowd with Madeline Jaynes

FORTUNE -- When Newt Gingrich and his Republican revolutionaries seized control of Congress last fall, delight in many corner offices that Washington might finally move to cut federal spending and roll back noxious regulations was dampened by doubts about whether the new Speaker was up to his responsibilities. Indeed, for most of Gingrich's career, his relations with the men who run America's largest corporations have generally ranged from distant to frosty. To him, the big-business crowd, while sympathetic to his aims, have been too stodgy, too timid, too compromise-prone, and--worst of all--too willing to donate PAC money to the powerful Democratic barons on Capitol Hill. To them, Gingrich has been an intriguing but unnerving upstart: too radical, too quick to shoot from the lip, too self-consciously intellectual--in short, just too weird.

So where do things stand now? Fortune's latest exclusive poll of the heads of America's largest corporations provides the answer: Nine months into the new regime, big business finds itself living happily--though still warily--with Newt. In an August survey of Fortune 1,000 CEOs conducted by the opinion research firm of Clark Martire & Bartolomeo, 93% of 201 respondents voiced approval of Gingrich's performance as Speaker. Most striking, 49% of top executives rose up on their wingtips and said they "approved strongly." By contrast, just 31% of voters--and only 53% of Republicans--in a recent CNN/USA Today Gallup poll held a "favorable" opinion of Gingrich. Insists Kenneth Duberstein, who served as chief of staff in the Reagan White House and now advises a number of major companies: "Corporate America has gone ga-ga over Newt."

Some surely have. Listen to John Snow, chairman of CSX Corp. (CSX) and current head of the Business Roundtable, who exults: "Newt Gingrich offers America a historic opportunity to change the direction of government, to move on a truly pro-growth path. He's a visionary, a strategist, a tactician, a revolutionary--and may go down in history as the most important person in modern times."

How manager Gingrich gets it done (Fortune, 1995)

Fortune Editors — Sun, 22 Jan 2012 14:30:07 +0000

FORTUNE -- If what really wows CEOs about Newt is his ability to get things done, a question naturally arises: How does he do it? By now, most people know Gingrich is a keen reader of books by the like of quality guru W. Edwards Deming and Peter Drucker (whose The Effective Executive is one of Newt's favorites), and a student of the tactics of leaders like the Duke of Wellington and General George C. Marshall.

What's still underappreciated, though, is the extent to which management theory informs almost every act of this bare-knuckle political brawler. Consider the now famous Contract With America. Newt explains its genesis this way: " Prior to the election, our biggest fear wasn't losing, but winning and not having anything to do. So we created the Contract to imprint on members everything they had to do for the first 100 days. After the election, you never discussed it. You just executed. The Contract was designed as a management-training document that was politically useful, not simply as a political document. Nobody has ever figured that out."

Once the new Congress was in session, Gingrich moved quickly to reinvent the way the House works and shift power from the individual committees, which had been run like feudal fiefdoms, to the Speakership. "I believe in very rapid consolidation," he says. One of his first moves was an unprecedented order requiring all committee chiefs of staff to report to the Speaker's chief of staff. At the same time Gingrich went over the heads of senior Republicans and handpicked committee chairmen for their aggressiveness and loyalty.

Gingrich also set up a leadership structure filled with like-minded and battle-tested conservatives whose responsibilities are clearly defined, and with whom he typically meets in two-hour sessions twice a week. Gingrich sees himself as the CEO. "I do vision and strategy," he says. "When people ask me what's happening on the floor, I say: 'I don't know. That's Armey's job.' " Majority Leader Dick Armey, a cowboy-booted economist from Texas, is Newt's COO, the man responsible for the day-to-day operations of the floor. Another Texan, House Majority Whip Tom DeLay, acts as production manager--or as he puts it, "the shoe leather guy" who builds votes. Other top lieutenants tend to things like market research and building coalitions.

This division of labor allows Gingrich to concentrate on the big picture. Thus while the House was doing the Contract, he was focusing on budget strategy. When the House turned to budget matters, Newt was already on to Medicare reform. By the time the House is moving ahead on Medicare, he plans to be deep into his next long-range project: "Systems reform. How do we train the next generation of Congressmen? What is the Information Age process of self-government?"

Colleagues praise Gingrich as a leader who listens, especially to the freshmen whom he considers the heartbeat of his revolution. He's also happy to delegate. It's a running joke in the GOP cloakroom that you don't complain to him unless you want an assignment. But in a crunch, he's not at all shy about throwing his considerable weight around. When Commerce Committee Chairman Tom Bliley, who has close ties to AT&T (T), produced a telecommunications bill in May that would have kept the Baby Bells out of the long-distance business for at least five more years, Gingrich--who instinctively favored a more deregulatory approach, and also figured the Baby Bells packed more collective grassroots clout than AT&T, MCI, and Sprint (S)--insisted that the legislation be revised. His solution held.

Finally, like any good salesman, Gingrich knows packaging pays. Example: As part of the critical campaign to control Medicare spending--an effort Gingrich is personally spearheading--extensive GOP polling has found that seniors don't like the idea of "improving" Medicare. That's because they like the system just fine the way it is. So Republicans who've been trained in Newtspeak talk instead about "saving, preserving, protecting, and strengthening" Medicare. Still, Manager Gingrich insists he doesn't pander: "I don't follow public opinion polls. I use them. There's a huge difference. I know where we have to go. I just want to know what works in explaining it."

Return to Can Big Business learn to live with Newt Gingrich? (Fortune, 1995)

Filed under: Fortune Classic

Rioja: Wine region of the year

Fortune — Fri, 20 Jan 2012 17:52:23 +0000

The northern Spanish wine region takes top honors this year for its diversity of wine-making styles and its unbeatable value.

By Gregory Dal Piaz, Snooth

Photo: Alex Porta/Flickr

Looking back on my reams of tasting notes and experiences, one thing really stuck out in 2011. Rioja is producing some of the finest wines available at prices that can make a Scotsman blush. Rioja is my region of the year for 2011. The northern Spanish wine region has proven that its wine ages as well as any other, and can age even better than many more famous and costly examples. The ability of a wine to age, to improve in the bottle while morphing into something profound, is one of the core elements that makes wine such an attractive and enthralling subject.

Like many wine regions, Rioja went through a rather convulsive final decade of the last century. With massive investments, technological temptation, and a marketplace that seemed intent on replacing all that had come before it with oaken power, it was difficult for many producers to resist the urge to join the modern set.As with almost all wine regions that saw their pendulum swing past their apex, we are now seeing it come back down, perhaps more slowly than on the way up, but without a doubt, Rioja's tides are changing. Let me just state for the record that while I appreciate a good Luddite, I am not myself a practicing member. But having a variety of wine styles successfully implemented in a region is, if nothing else, a safe and secure business choice and one that I applaud.

Not only do I applaud the region for the simple financial advantages it offers, but also because not everyone is cut out to be a traditionalist winemaker. Being an old-school winemaker takes certain attributes, not to mention terroirs (a term for the environment in which a wine is produced), of which there are simply not enough to go around. If we forced all winemakers to make the style we preferred, say "natural" for example, I am afraid that many would fail and the few who succeeded would have the market all to themselves. We would be kicking our collective selves as consumers would be given little choice as to what to drink and would be paying more. With wine made in hyper-traditional and hyper-modern styles and all that falls between, Rioja is able to satisfy nearly all palates.

And the final factor, the keystone of Rioja's choice as Snooth's region of the year in 2011, is simple. It is pricing. I tasted so many $30-and-under wines from Rioja this year that simply blew away almost all other wines at the same price point. Even at higher price points, the values are still there. And at lower price points, there is simply no competition.

Think of what you get when you plunk down $20 on a 2004 Rioja Gran Reserva, for example. You're getting a beautiful wine that has been lovingly aged for you. Yes, part of Rioja's appeal is the regional requirement that Rioja producers age your wine for you, before you even pay for it. This is no futures scam, it's a bureaucratic anomaly.

Rioja is a region you must explore in 2012. The wines are simply too good to ignore and they are continuing to improve. Producers are learning where to join the line with more modern interpretations of Rioja, and even the traditionalists can't argue that they benefit from increasing awareness and improvement of viticultural and cellaring concerns.

Filed under: Snooth on Fortune

Dylan Ratigan's inglorious bastards

Fortune Editors — Fri, 20 Jan 2012 10:00:34 +0000

Our Weekly Read column features Fortune staffers' and contributors' takes on recently published books about the business world and beyond. We've invited the entire Fortune family -- from our writers and editors to our photo editors and designers -- to weigh in on books of their choosing based on their individual tastes or curiosities. In this installment, executive editor Stephanie N. Mehta reviews Greedy Bastards: How We Can Stop Corporate Communists, Banksters and Other Vampires from Sucking America Dry, Dylan Ratigan's prognosis of America's problems, and his prescriptions for fixing them.

FORTUNE -- Just how dumb does Dylan Ratigan think readers of his new book, Greedy Bastards, are?

Ratigan, host of an eponymous MSNBC show, uses the game of Monopoly to illustrate how the banking system functions but first explains to his readers how to dole out the $1,500 each player starts with ("two $500s, two $100s, two $50s, and so on"). He invents games called "Take a Cup" and "Make a Cup" to demonstrate how capitalism works and the difference between traditional banks and systematically important financial institutions, or SIFIs -- banks that are too big to fail -- and riffs on these make-believe games for pages on end.

He even feels the need to explain to his readers what the expression "you get what you pay for" means.

Ratigan himself is no dummy. He's a former Bloomberg editor and CNBC anchor who became a vocal critic of big government and big business following the U.S. financial crisis and subsequent government bailout of banks and automakers. (A cynic might say his conversion to populism was more strategic than religious; when he was on CNBC he wasn't exactly the network's man of the people, and he seemed content to be portrayed as a Porche-driving, frat-boy type.)

When Ratigan isn't over-explaining, he's jumping from one subject to another, prosecuting villains before making the case for why they're "vampires" in Ratigan parlance. A section on education declares the student-loan industry bad guys. Ditto for-profit universities. And banks ("banksters") are baddies for enabling families to take out second mortgages to pay for their kids' college tuitions. His argument: These institutions, with their lobbyists and political contributions, are gaming the regulatory system so that they end up saddling students with worthless degrees and a mound of debt. And then to pay off that debt many of those students become, yes, banksters and vampires. The implication seems to be that the securities industry is bankrupting American families just so it can force its children into indentured servitude as investment bankers.

Even if the reader puts aside this conspiracy theory, the author glosses over a few systemic problems: College tuitions are rising (which is why students and their families take out big loans in the first place) yet a college degree on its own is no longer a guarantee of employment post-graduation. But Ratigan doesn't take on Harvard or Northwestern or Oberlin or any of the institutions of higher education that are contributing to the rising cost of school, other than to insist they become more transparent and provide families with itemized bills showing what they are paying for. Nor does he address the question of whether young people really need to attend college to be successful, an issue that investor Peter Thiel has taken up recently, for example. (Notably absent from Ratigan's unsurprising critique of elementary education -- not enough innovation, mediocre teachers -- is any mention of teachers' unions.)

But the book's biggest shortcoming is its lack of original reporting, a shame, since Ratigan likes to remind his readers of his journalistic bona fides. ("[Treasury Secretary Tim] Geithner wouldn't agree to do an interview with me ... I can understand his choice -- if I were Geithner, I wouldn't want to answer my tough questions either!") Ratigan, justifiably, criticizes big media for often being beholden to political and business interests that buy advertising, and implies that information in the press may not always be reliable because so many academics and experts are funded by corporations. But then he proceeds to grab anecdotes, quotes that support his assertions, and assorted facts from the likes of The Washington Post, The Wall Street Journal, The New York Times -- even outlets Manufacturing News and Tax Notes.

But there's very little in the way of shoe-leather reporting. His section on education, for example, is full of descriptions of innovative programs and quotes from well-meaning folks like MIT's Nicholas Negroponte and Susie Buffett, Warren Buffett's daughter and an advocate for early education. He praises Sal Khan of the Khan Academy, whose innovative teaching videos are widely embraced by parents and even some schools to supplement classroom learning. But he never takes us inside a classroom -- we don't see how and why students struggle, nor do we get a glimpse of his proposed solutions in action. He tells, but doesn't show, us techniques for making learning more accessible and effective. We never hear a child or parent talking about their experiences. Instead, this populist spends a lot of time talking to Ivory Tower types.

The result is a book that is full of anger and passion, but utterly lacking in heart. Again, this is too bad, because there are many personal stories that Ratigan could have found to illustrate the problems caused by banksters and villains, but also to show how to fix classrooms, healthcare, banking and other broken systems. As for whether you should buy Ratigan's book, as Ben Franklin once wrote, "A penny saved is twopence dear." And if you need that expression explained, perhaps Ratigan's book is perfect for you.

Filed under: The Weekly Read, Uncategorized

Egypt's revolution 2.0

Tom Ziegler, Senior Editor — Fri, 20 Jan 2012 10:00:13 +0000

Our Weekly Read column features Fortune staffers' and contributors' takes on recently published books about the business world and beyond. We've invited the entire Fortune family -- from our writers and editors to our photo editors and designers -- to weigh in on books of their choosing based on their individual tastes or curiosities. In this installment, senior editor Matt Vella takes a look at Revolution 2.0, Wael Ghonim's account of how he helped shape Egypt's Arab Spring.

FORTUNE -- Just before midnight on the evening of January 27, 2011, Wael Ghonim tapped out the first few characters of an ominous tweet. "Pray for #Egypt," the 31 year old wrote, before going to predict a brutal crackdown by the government. Moments later, three men emerged from a dimly lit street and pushed him to the ground, gagging him, binding his hands and throwing him into the back of a getaway car. To his family, friends, and thousands of social media followers, Ghonim simply vanished.

Revolution 2.0 is the often harrowing memoir of Ghonim's role in the Egyptian uprising. He describes his unlikely part -- his online activism, nightmarish detention and subsequent public appearances -- in the protest movement that toppled the Egyptian regime last year. Aside from the scrawl in deposed president Hosni Mubarak's personal diary, Revolution 2.0 may be the most detailed account of the disparate currents that propelled the revolution along to its tumultuous conclusion.

Ghonim, an Egyptian native living in Dubai, was a manager in Google's (GOOG) Middle East and North Africa marketing division. He rose to prominence as a critic of the Egyptian regime, in part, by creating "We Are All Khaled Said," a Facebook page named for the 27-year-old Egyptian blogger beaten to death by police in June. The page operated anonymously under the signature "El Shaheed" (The Martyr) and became a rallying point for the antigovernment protests that began on January 25. After his detention two days later, Ghonim's family, friends and co-workers struggled to find him. They eventually discovered that he was being held by Egyptian authorities. Twelve days after being abducted, Ghonim was released. For many, what happened next made him the face of the revolution.

The night of his release he appeared -- highly emotional, his face gnarled in pain and glistening with tears -- on Dream 2, a private Egyptian television station. He confirmed that he was one of the administrators of the Facebook page and said that he had not been tortured while in detention (although in the book he said Egyptian officers threatened to rape him with a stick and interrogated him about anti-government demonstrations). On Dream 2, Ghonim stressed that the Web page simply expressed the feelings of its many contributors and commenters. "This was a revolution of the youth of all of Egypt," he said. "I'm not a hero." Overcome at the thought of the suffering of his fellow protesters, he walked off the set.

As in all revolutionary movements, the Arab Spring has had its defining images. In Egypt, the television picture of Ghonim's boxy frame crumpled into itself, sobbing and apologizing, became emblematic. It humanized the movement, undermining government propaganda that branded dissenters as loafing malcontents. Despite attempting to reject the focus of attention, Ghonim himself became a catalyst, drawing more "everyday" people into Tahrir Square and, ultimately, helping sustain the movement.

Revolution 2.0 is a turn-by-turn account of the events that lead to that decisive evening and the many that followed it. The text jogs through the myriad phases of the protest as well as the online campaigns devised by Ghonim to keep up engagement. The curation of his Facebook page is treated in particular detail. Narrative text is interspersed with important posts, annotated with their respective number of likes and comments. At first, this treatment is jarring, bordering on gimmickry. But as the numbers below each post grow and the events that generated them -- the swell that lead to mass action -- become more dramatic, the effect comes off. Ghonim has managed to construct a compelling historical narrative out of tweets and status updates. (Full disclosure: My girlfriend works for the agency that represents the author.)

Those looking for rumination on the role of social media in popular movements are likely to be disappointed, however. This is a story about revolutionary praxis. Theory is barely addressed. What makes revolution 2.0 so distinctive from revolution 1.0 is only superficially treated, despite a bombastic book jacket that suggests otherwise. Still, this is potent and forceful testimony. Ghonim's story is in many ways the story of contemporary Egypt: a savvy, ambitious youth with deeply held religious convictions and a desire to see his countrymen be free.

Filed under: The Weekly Read, Uncategorized

Truecar is running into roadblocks

Fortune Editors — Wed, 18 Jan 2012 19:18:48 +0000

The innovative Internet startup is carving a new, lucrative niche in automotive retailing -- but not without some difficulty.

By Doron Levin, contributor

FORTUNE -- Truecar, the latest Internet startup to carve a niche in automotive retailing, is running into roadblocks as it tries to expand.

The Santa Monica, California-based company is scrambling to avoid a host of legal and public relations pitfalls so it can expand its car-buying service, which it claims already accounts for some 2.8% of all retail auto sales. That proportion would translate to about more than 364,000 sales a year, or about $110 million in revenue, for Truecar.

As Fortune reported, visitors to Truecar's website can survey information about cars, including recent prices at which similar vehicles sell, and then may solicit quote from dealers. If a dealer makes a sale to a shopper based on a lead from Truecar, the dealer pays the company $300. Other automotive sites, such as Edmunds.com, gain revenue by selling leads to dealers, irrespective of whether those leads turn into sales.

Truecar said it has suspended operations in Colorado after the state opened an investigation in December into whether the company was complying with regulations covering advertisers and whether it had the required licenses to act as an agent for car buyers. On Wednesday, the company said it adjusted its billing practice, dropping the fee and charging a subscription instead, to comply with laws in Virginia and all others prohibiting "bird-dogging," or finding customers for dealers.

At the heart of Truecar's troubles are a multitude of state laws designed to protect the franchises of automobile dealers and to control unbridled competition among dealers to sell vehicles. Some customers have complained to states that the car they expected to buy wasn't available at a dealer, as they expected.

The company has been quick to respond. "Truecar is committed to never putting our dealer partners at risk, which means we will always work closely with regulators to identify a workable solution or suspend service," said Scott Painter, Truecar founder and CEO, in a prepared statement.

Over the past two decades the Internet has become a significant factor in retailing, though more so in categories like appliances and apparel than in vehicles. Franchise agreements stipulate that customers in the U.S. must buy from dealers, rather than online. Hence, ventures like Edmunds.com and Kelly Blue Book have built websites that allow shoppers to find information about cars and prices, as well as to solicit quotes from nearby dealers.

Edmunds and Kelly typically sell sales leads to dealers at a fixed price or through subscriptions, irrespective of how many of them turn into sales. The leads are created when on-line shoppers fill in forms and declare their interest in buying a vehicle. Truecar broke from the more common model by giving leads to dealers free of charge, instead imposing the $300 fee only on those that turned into sales.

Avi Steinlauf, chief executive officer of Edmunds.com said: "Edmunds.com's mission is to inform and educate consumers and to create realistic expectations about the retail process. In the process, we do not impose prices on dealers, we do not create false consumer expectations, and we do not break the law."

Rather than charge dealers according to the number of leads, Edmunds.com recently modified its pricing model. Edmunds.com now sells access to its leads via a subscription fee to its service.

Honda Motor Co. (HMC) has told its U.S. dealers that it will withdraw advertising support monies from any dealers that advertise "below invoice" pricing of its cars. Honda says "below invoice" violates its standard covenant with dealers who accept advertising support.

Honda regards Truecar as an advertising platform and says Honda dealers have used the buying service to advertise below-invoice pricing of Honda vehicles. John Mendel, executive vice president of Honda's U.S.-based sales subsidiary, said "we never tell our dealers with whom they may chose to do business. However. we are passionate about protecting our customers and the Honda Brand and will not support any actions to the contrary."

Penske Automotive (PAG), with more than 150 dealers in the U.S., has elected as a matter of policy not to transact sales using Truecar. Group 1 Automotive, another dealer chain, said it has instructed dealers to stop sharing pricing information with Truecar. According to Group 1, In some instances Truecar gained access to specific descriptions of transactions and precisely the amounts customers paid for cars. Edmunds and Kelly, by contrast, only use an average of a large number of sales to tell visitors to its websites an approximate value of specific models.

The Truecar initiative is under intense regulatory scrutiny in several states and the subject of vigorous debate among dealers and manufacturers. How the numerous hassles are resolved could have a bearing on how customers will shop for their next cars.

Editor's note: A previous version of this story incorrectly calculated the number of annual car sales that Truecar has likely arranged, based on the company's claim of a 2.8% share of the market. This calculation has been corrected.

Filed under: Uncategorized

Bain: A consulting firm too hot to handle? (Fortune, 1987)

Fortune Editors — Sun, 15 Jan 2012 14:30:30 +0000

Editor's note: Every Sunday, Fortune publishes a favorite story from our magazine archives. This week, we turn to an April 1987 item on the management consulting firm Bain & Co., which counts former Massachusetts governor and Republican presidential hopeful Mitt Romney as an alumnus (and former CEO). Romney co-founded the spin-off investment firm Bain Capital in 1984. The following story takes a close look at some of the benefits and pitfalls of the consulting firm's famously aggressive business approach.

Bain & Co. gets its hands ''deep in the trousers of client companies,'' says an executive who knows it well. Maybe too deep, the Guinness scandal suggests.

By Nancy J. Perry with Susan Caminiti

FORTUNE -- On a January morning four years ago, 30 sleek, immaculately turned-out executives sat tensely at a ring of tables in a large conference room at the Hyatt Rickeys Hotel in Palo Alto. They had flown in from all over the world for a regular partners' meeting of Bain & Co., a Boston-based management consulting firm. Their attention was riveted not on a discussion of the firm's revenues but on a speakerphone placed on a table in the center of the room.

Rising out of the ether was the voice of John Theroux, Bain's managing partner in London. He was describing a palace coup in progress at Guinness PLC, one of Bain's largest clients. Ernest Saunders, the Guinness managing director who had hired Bain, was trying to unseat Deputy Chairman Anthony Purssell, the man who had brought Saunders in to head the company. Because it was in the Bain firm's interest to have its man indisputably in charge, Theroux was seeking advice on how to help Saunders consolidate his position.

For the next two hours the partners were canvassed for ideas on how to place Purssell in such an untenable situation that he would have to quit. Ultimately a strategy was devised. ''It was quite cold-blooded,'' recalls a partner who attended. Within the month Purssell was out, and Saunders was alone at the top.

The creator of ''relationship consulting,'' Bain has built its business on the close ties that it develops with chief executives. Among the comparatively few people who know its work, the firm has become noted for the enormous power it wields with clients, for the cloak-and-dagger mystique that surrounds it, and for the shrewd, suave people it employs. Starting salaries in excess of $60,000 lure the sharpest, most presentable MBAs from Harvard and Stanford.

The brainchild of one man, William W. Bain Jr., 49, Bain & Co. has created a new type of management consultant, the quasi-insider, privy to his client's secrets, who works directly with the CEO. to help put into effect the consulting firm's recommendations. As the Guinness affair was to show, it's a concept that can be pushed too far.

Bain's relationship with Guinness began on a damp day in October 1981, when a patrician-looking man appeared, unannounced, at the firm's elegant London offices near Hyde Park. He introduced himself as Ernest Saunders and said that he needed help rather badly. During the previous 10 years, Guinness had diversified into 250 businesses ranging from yacht rentals to a drug made from snake venom. Meanwhile, sales of the company's flagship product, Guinness stout, were declining steadily, and the stock was languishing at 50 pence a share, the equivalent of 81 cents at the recent rate of exchange.

The payoff from Saunders's visit was spectacular. Within two years of retaining Bain, Guinness had sold off 150 companies, imposed one of the tightest financial control systems in Britain, and revitalized Guinness stout. Then, at Bain's recommendation, Saunders began to position the company for the Nineties by diversifying into hard liquor. In rapid succession Guinness acquired two major producers of Scotch whisky: Arthur Bell & Sons and Distillers Co.

By the end of fiscal 1986, profits at Guinness had risen sixfold, to nearly $400 million, and the stock had peaked at $5.75 a share. ''The turnaround at that terrible, awful company was the most beautiful thing I've ever seen,'' gushes a London businessman. ''What Bain did for Saunders was extraordinary.'' It was Bain's finest hour.

Pity the billionaire: How the Right came back

Fortune Editors — Fri, 13 Jan 2012 14:05:17 +0000

Our Weekly Read column features Fortune staffers' and contributors' takes on recently published books about the business world and beyond. We've invited the entire Fortune family -- from our writers and editors to our photo editors and designers -- to weigh in on books of their choosing based on their individual tastes or curiosities. This week, writer-reporter Scott Cendrowski takes a look at Pity the Billionaire, Thomas Frank's latest liberal diatribe.

FORTUNE -- Recently, billionaire hedge fund manager Leon Cooperman published an open letter in which he complained that President Obama was being mean to rich people. A billionaire complaining about class warfare? How tragic, author Thomas Frank probably thought. Excuse the rest of the population whose gripes with Washington's leaders -- who have presided over two decades of growing income inequality, high joblessness, and an unrivaled housing mess -- extend beyond a little hurtful rhetoric.

Such is the cranky mood of Frank's new book Pity the Billionaire, which examines the forces behind the resurgent GOP. Just a year after the worst financial crisis since the Great Depression, in Frank's telling, the Tea Party movement hijacked popular anger by arguing that economic salvation lay in the revival of free-market ideals. It worked. Today, financial reform has barely touched Wall Street. Taxes aren't rising. Corporate America is piling up profits despite high unemployment and weak consumer demand.

"What is new," Frank observes, "is the glorification of this idea at the precise moment when free market theory has proven itself to be a philosophy of ruination and fraud." This is the heart of Frank's grievance: barely a month into Obama's term, in the midst of an economic crisis sparked largely by private-sector greed, conservatives stole the spotlight by arguing that the entire mess was really the fault of government.

In early 2009, CNBC reporter Rick Santelli stood on the floor of the Chicago Board of Trade in early 2009 and ranted against a federal mortgage modification program. He called on the traders surrounding him to stage a Chicago Tea Party. And who were these traders? Frank quotes Santelli: They were "pretty straightforward ... a pretty good statistical cross section of America, the silent majority."

It took deft handling, Frank notes, but Santelli effectively presented the wealthy traders around him as little men standing up to the system. "It was the Right that grabbed the opportunity to define the debate," Frank laments, "using bailouts to shift the burden of villainy from Wall Street to government."

On this point, Frank riffs entertainingly on right-wing TV icon Glenn Beck. Besides detailing Beck's famous on-screen hysterics, Frank takes time to deconstruct Beck's fictional bestseller The Overton Window, in which a progressive PR flak falls for a conservative girl. The novel includes references to government-run internment camps that some conservatives feared the new Obama administration was constructing in 2009.

In a non-fiction afterward, Beck tells readers that a former director of the Federal Emergency Management Agency (FEMA) had actually proposed the idea. He neglects to mention that the FEMA director in question was a close friend of an advisor to Ronald Reagan, and that the emergency scheme was proposed as a way of dealing with antiwar protesters.

Frank's strength as an author has been dissecting right-wing political tactics from a liberal perspective. In his 2004 best seller, What's the Matter with Kansas, he described how Republican strategists persuaded blue-collar Americans to vote against their own economic interests using social rallying cries like abortion and affirmation action.

Frank's analysis of the Tea Party is less successful. He rails, with no clear point, about the moneyed interests at Tea Party rallies. He also overwhelms the reader with details of the movement's commercial efforts, citing a $125 box of Tea Party cigars and a $40 (plus shipping) flag covered with the coiled rattlesnake emblem. But why is it wrong for a political movement to raise money by selling promotional products?

Frank's strident rhetoric can be wearying, and so can his blind spots. There's scant reference to the liberal reaction to the Tea Party's populism. He dates himself by ignoring the Occupy Wall Street movement and by writing obsessively about Glenn Beck, who stepped down from his Fox News post more than a year ago.

In essence, Frank expected a new New Deal to emerge after the financial crisis and was unhappy when it failed to emerge. His book will delight other disappointed liberals. But it's also a road map for everyone who wonders, while watching the hodgepodge of Republican presidential candidates: How the heck did all this happen?

Filed under: The Weekly Read

Fast food goes gluten-free

Fortune Editors — Thu, 12 Jan 2012 10:00:13 +0000

FORTUNE -- What started as a way to accommodate a rare food disease has blossomed into the latest food industry craze. Gluten is a protein that helps make wheat, barley, and other grains chewy. It also makes 0.05% of the population very sick. To address that, food producers started substituting corn, rice, and potatoes for wheat in bread and pasta. Last year $6.3 billion of such products were sold, up 33% since 2009, according to Spin research. Why the growth? The diet-conscious are clamoring for, say, wheatless pizza because they believe it contains fewer calories -- but surprisingly often it doesn't. Even so, some big restaurant chains are now joining in. Subway is testing a gluten-free sandwich roll and brownie at about 800 of its locations and says demand is strong. McDonald's (MCD) offers a gluten-free bun in Spain, Sweden, Finland, and Norway but not in the U.S. Going gluten-free in America isn't risk-free. Those with the disease might accidently be served a regular roll, triggering a lawsuit. Worries aside, this trend has legs: The number of U.S. restaurants with gluten-free menus rose 61% in 2011. --Caitlin Keating

Filed under: Uncategorized

How to build a business magazine in China

Fortune Editors — Wed, 11 Jan 2012 17:08:26 +0000

A lot has changed in China in the 15 years since Fortune's China edition launched.

Interview by Stephanie Mehta, executive editor

FORTUNE -- Fortune China, a licensed edition of Fortune magazine that publishes in Chinese, recently celebrated its 15^th anniversary. Tom Gorman, the magazine's chairman and editor-in-chief and the driving force behind it since its inception, answered some of our questions about the changes he has observed during this time. (See also 15 business people who've changed China from the editors of Fortune China)

What made you think, 15 years ago, that China needed a business magazine?

In 1993, we did a market entry feasibility study for Time Inc. magazines in China. My company had been publishing Chinese language b2b magazines and doing market research in China since 1975 , so we had a ground floor seat from which to witness the dramatic changes before, during, and after the Open Door policy was announced in 1979.

One of our recommendations to Time Inc. in 1993 was a Chinese edition of Fortune. There were two big trends just emerging on the horizon: A huge demand for management information as China transitioned from Soviet style central planning to a hybrid form of market economics; and the emergence of a relatively affluent middle class in major Chinese cities. Both were positive underlying drivers for a magazine like Fortune.

Ironically, in making that recommendation I never imagined we would be the publishers of Fortune's Chinese edition because Time Inc. had not traditionally been a believer in growth through licensing. In the end, some years later, we were offered the first license and enthusiastically accepted.

What has changed most about Chinese business in the 15 years you've been editing and publishing Fortune China?

The changes are so diverse and dramatic it's hard to single out just a few. One favorite data point is that in 1996 there were three Chinese companies on the Fortune Global 500 list, versus 61 on this year's list.

As you look back over the last 15 years, what stories are you proudest of telling?

The common denominator for me is stories which have helped Chinese business leaders do a better job of managing their businesses as well as their personal and family lives, against a backdrop of phenomenal, turbulent change.

One example was an early cover story we ran, translated from Fortune, called : "Why Companies Fail." Haier CEO Zhang Ruimin has said publicly that this article had such an impact on him that he framed that issue of our magazine, and it has remained on his desk ever since.

Another story which I think had good resonance is the cover story we did based in 2010 based on my 4-hour interview with management guru Jim Collins, which we ran in the magazine as well as in video clips on www.FortuneChina.com. Collins' books are big-time best-sellers in China , and the response we got to this series was very gratifying.

How have non-Chinese executives' attitudes about China changed during your 15-year run?

When we launched in 1996, there were some large Western companies whose top management had identified China as an important growth market, but many more were still struggling to understand it. There has been a sea change in the interim, with a majority of larger international companies now considering China to be a market where they must prevail in order to have sustainable success on a global basis.

What is hardest about publishing a business magazine, website and app in China today?

The business magazine segment has become hypercompetitive. When we launched in 1996, there were only three business magazines in China. Now there are hundreds, many with multiple delivery channels in print, online, apps and events. It's crowded and cluttered out there, so it's essential to have a strong brand and remain relentlessly focused on your mission, identity and values, while delivering through a multi-channel network. I remain very optimistic, despite the static.

Do Chinese executives court media attention the way some western executives do?

Most prefer a low profile, although there are a few exceptions to this.

Looking ahead 15 years, what will the Chinese business landscape look like? Will there be more global brands? Will there be more IP protections?

The landscape will be dramatically different. The affluence and modern infrastructure is already moving quickly out to 3^rd, 4^th, and 5^th tier cities in the interior and western parts of China. China's outbound investment will be a bigger story than inbound foreign direct investment into China. China will develop more and better global brands, as she graduates from reliance on low-end exports.

IP protection is already making good progress in high-tech sectors, and it will continue to do so not because of foreign pressure but home-grown needs. The win rate for multinational patent litigation in China is comparable to that of Chinese companies, and higher than the averages in Europe and the U.S. The movie and entertainment sectors' IP environment will take much longer, but improvements will also be driven by domestic demands.

Fifteen years from now how will your customers read Fortune China?

I am convinced that print will still exist and remain a very viable delivery medium, but it will be among a growing range of platforms suiting the needs and tastes of a wide spectrum of consumers.

Filed under: Uncategorized

From Cadillac, a small model with big ambition

mvella1271 — Mon, 09 Jan 2012 16:47:56 +0000

GM's resurgent luxury brand finally has something it's needed for a long time: a posh, entry-level vehicle to fight Audi, BMW and Mercedes.

By Doron Levin, contributor

FORTUNE -- Cadillac's debut of the entry-level ATS sedan at a Detroit gala on Sunday night is the final component in a decade-long attempt to revive General Motors' luxury brand. The Detroit auto maker is bringing to market a full range of models that it hopes will broadly compete with Audi, BMW and Mercedes-Benz.

The ATS will be the lightest and smallest Cadillac when it comes off the assembly line this summer in Lansing, Michigan. It's meant to intercept buyers of the Audi A4, BMW 3-Series and Mercedes-Benz C Class. GM (GM) is aiming the vehicle at customers shopping for their first luxury vehicle as well as those seeking better fuel economy. "The first group we call the 'move ups,' and it's their first chance to make a statement," said Don Butler, head of Cadillac marketing. "The second group, a slightly older demographic, is the 'made its.'"

Buzz around the new model's introduction has been building among auto enthusiasts and car blogs for months. Aaron Bragman, an analyst for IHS Global Insight, said "ATS looks to be the business. It's the closest anyone's come to competing with 3-Series and C Class. It's light weight, it looks good."

Competition in the space is white hot, however. Butler and other GM executives insisted that ATS will best German luxury models in comparison. The four-door, rear-wheel-drive sedan comes with a choice of three engines. A diesel model will be available later. The car also features Cadillac's new CUE telematics system with an interactive screen for controlling vehicle functions and entertainment, designed to emulate the features of an Apple (AAPL) or Google (GOOG) Android device.

The trickiest bit for GM will be to further position the Cadillac brand to compete with German automotive charisma and snob appeal. BMW this year is introducing a new generation of its 3-Series, which is likely to continue its popularity and maintain competitive pressure in the entry-level segment. Mercedes gave its C Class a facelift last year and Audi has been pushing ahead in the U.S. market with aggressive marketing of its models as well.

Cadillac lagged far behind the top German luxury makers in 2011, with total sales of 152,389 vehicles last year, up 3.4% from a year earlier. BMW, the luxury sales leader in the U.S., sold 305,780 vehicles for the year up 14.5%. About a third of BMW's sales were 3-Series or smaller, segments in which Cadillac had no products.

This isn't GM's first try. In an earlier era, Cadillac attempted to lure young buyers with the Cadillac Cimarron, a warmed over Chevrolet Cavalier, followed by the Cadillac Catera, a thinly-disguised Opel Omega imported from Germany. Butler dismissed any comparisons to those models as invidious. "We designed ATS from the ground up," he said.

GM hopes the ATS will also find a market in China, where upwardly mobile consumers have been flocking to the German brands. Until now Cadillac's midsize CTS was the main entry in that market, but it has proved too large for Chinese tastes and pocketbooks. "The ATS with the smaller engine falls below the threshold that would make it subject to a Chinese tariff," said Bragman. (GM's Buick brand, a sleepy favorite of retirees at home, is very strong in China.)

GM hasn't been shy about proclaiming Cadillac "the new standard of the world." With a fully fleshed out model line up, it can finally begin putting its new motto to the test.

Filed under: Uncategorized

Embattled Kodak enters the electronic age (Fortune, 1983)

Shelley DuBois, writer-reporter — Sun, 08 Jan 2012 14:00:18 +0000

Editor's note: Every Sunday, Fortune publishes a favorite story from our magazine archives. This week, as Eastman Kodak prepares for a possible bankruptcy filing, we look back as the company that Fortune called "the slow, deliberate master of the photographic industry" prepared for the fast-paced digital age.

The going was tough for Kodak, even then. This story provides a backgrounder on some of its most innovative technology, as well as the internal issues that kept it struggling, for so long, to keep its head above water.

By Thomas Moore

To illustrate Kodak's kaleidoscope of technologies, Chairman Colby Chandler was photographed with a disc camera like the one he is holding.

Inside the neat, period-piece brick buildings of Eastman Kodak's headquarters and manufacturing plants, spread over 3,000 acres in Rochester, New York, the slow, deliberate master of the photographic industry is whipping itself into a war frenzy. Kodak is arming to take on the combined might of the Japanese, Silicon Valley, IBM, Xerox, Du Pont, and a host of other forces that are threatening its profitability. The $10.8-billion-a-year company has finally decided, after ten years of watching and waiting, to enter the burgeoning electronics and video businesses in a big way. By its annual meeting next spring, if not sooner, Kodak will announce the formation of an electronics division that it has been quietly and carefully nurturing for the past seven years.

The company is counting on products from the new division to lift its sagging fortunes. Competition from upstart film companies has sent its profit margins into an extended decline and it faces an even greater long-run challenge from new technologies. Kodak's plan is to hang on to its markets, and profits, by combining electronics with its optics and film know-how. Down the road, the company plans to use electronics to enter new markets as well, as it already has so successfully with its high-speed copier machines. Kodak's Ektaprint machines have made serious inroads on Xerox's dominance in the top end of the copier business. Three out of every four dollars spent on new research projects next year will go into electronics, and the company is adding ten electrical engineers for each new chemical engineer it hires. The operative word among its executives, after a token protestation about not abandoning photography, is "imaging." Says research director Leo Thomas, 46, "We have a mandate to integrate electronics into the fiber of this company over the next five years."

Talk like that signals a veritable reformation at Kodak. The company viewed its cofounder, George Eastman, as deserving a place in the pantheon of the gods and elevated the chemical film technology he pioneered into a religion. Long after Eastman's suicide in 1932, Kodak clung to his cautious ways. If George didn't do it, his successors didn't either. The company passed up an invention called xerography, leaving the new technology to a then tiny Rochester company called Haloid. Kodak let Polaroid have the instant-camera business to itself for nearly 30 years. Wags joked that Eastman's ghost presided at board meetings.

The conservative strategy paid off despite the missed opportunities, at least through the Sixties. Kodak continually extended the frontier of film chemistry. Its technological edge, coupled with economies of scale from huge production runs, gave Kodak a virtual monopoly in photographic film and paper and made it one of the most profitable blue chip companies in the world.

That approach plainly isn't working anymore. Over the last decade Kodak's profit margins have declined from 15.7% of sales in 1972 to 10.7% last year. But it wasn't until the first quarter of this year, when the company announced a shuddering 73% decline in earnings, that outsiders realized how seriously Kodak's situation had deteriorated. Most of the decline was due to the onetime costs of a special early-retirement program, much of which will be made up in payroll savings during the remainder of the year. But operating earnings alone fell 24%, a decline that continued in the second quarter and may persist for the entire year. The company's stock, once a superstar, has been the worst performer among the Dow Jones industrials lately. In a raging bull market, Kodak has fallen 27% from a high of $98 last October. The stock is at less than half its price of a decade ago.

Kodak's inner peace was rudely disrupted in the Seventies when Japanese film manufacturers broke its lock on the lucrative color film and paper markets, which historically accounted for 75% of the company's profits. The Japanese, led by Fuji Photo Film, improved their production efficiencies and quality to the point where most consumers couldn't see much difference. At the same time, Kodak did little to improve its own productivity in the face of rising costs. When the Japanese began to compete aggressively in price, they not only cut into Kodak's market share but also squeezed its margins. Some analysts estimate that its share of the U.S. photographic paper business plummeted from 92% to 50% during the Seventies. The Japanese gains in the film market came mostly at the expense of secondary companies like GAF, but Kodak is now feeling the pressure as well.

The advent of video cameras and recorders unsettled Kodak's markets even more. Despite being priced much higher than Kodak's latter-day Brownies, video products have been selling faster and faster ever since Sony introduced its Betamax machine in 1975. Home video is now a $3-billion business in the U.S.--already a fifth the size of the photographic industry. For the first five months of this year, according to Mark Obenzinger, a security analyst with Lehman Brothers Kuhn Loeb, shipments of video recorders are up 104% and video cameras 22%. The recorders and cameras don't use any film, of course, and Kodak doesn't make videotape. Photo specialty stores are adding video equipment to their wares to make up for lost sales in conventional photography.

Former Kodak chairman Walter Fallon, the tough technocrat who was heralded at his retirement party this June as the man who made the elephant dance, attributes the company's poor performance to adverse economic conditions rather than false steps. In particular he bemoans the markets outside the U.S., where Kodak makes 40% of its sales and has achieved much of its growth in recent decades.

Kodak's new chairman, Colby Chandler, 58, an amiable Down Easter who drives a pickup truck to work, says profits will recover with the world economy. Wall Street is less sanguine. The first-quarter earnings decline, following a 6% drop in 1982, sent previously upbeat analysts scurrying to their calculators to revise their estimates for the year. Kodak earned $1.16 billion, or $7.12 per share, in 1982. Some analysts now figure it will be lucky to make $5 per share this year--little more than half what they were predicting 12 months ago.

Kodak's record over the last decade suggests that recovery alone won't be enough to restore prosperity. Of four major product lines launched under Fallon, only the high-speed copiers are paying off. The Ektaprint copiers, which receive top marks in quality and reliability, have become the company's fastest-growing product line. Kodak executives say the seven-year-old Ektaprint business, if spun off as a separate company, would make the FORTUNE 500.

The company wasn't so lucky with the Kodamatic instant camera, basically a Polaroid clone that came out just as instant cameras were losing popularity. Analysts doubt that the Kodamatic has made any money for the company. Kodak's president, Kay Whitmore, 51, says the camera's future will depend on whether a new feature that allows users to peel the photo from its bulky chemical backing boosts sales.

A finger touch on the screen activates any of 25 series of blood tests on the Ektachem 700, Kodak's new product for clinical laboratories.

The Ektachem 400, a two-year-old blood analysis machine that uses dry chemical slides rather than liquid solutions, got off to a poor start because it performed only a limited number of tests and proved unreliable. The machine was supposed to preserve Kodak's faltering presence in the health care market. Sales of X-ray film, under pressure from competitors like Du Pont and from filmless scanners, have gone nowhere for three years. The company is hoping for better results with a new blood analyzer, the Ektachern 700. The machine performs 25 series of tests, half again as many as its predecessor can do. An operator can order up a test simply by touching a word on a video screen. The machine can be tied in to computerized patient records and clinical data sources. Kodak foresees smaller versions of the machine for use in doctors' offices.

Kodak's disc camera, launched with much hoopla last year as a replacement for the phenomenally successful pocket Instamatic, has also proved disappointing. The company shipped eight million disc cameras last year, a first-year record for a new camera format. But more than a million of those cameras were sitting on dealer shelves after Christmas. Hot-selling 35mm point-and-shoot cameras are now priced as low as most disc models, and pictures from the tiny disc negatives are grainier than buyers expected. The graininess has cut down picture taking by photo enthusiasts who bought the disc as a secondary snapshot camera. Says Sean Callahan, editor of American Photographer, "The disc has charming cosmetics, but after four or five rolls the quality of the pictures outweighs the convenience."

The disc has sold poorly in Europe and Japan, the two largest markets outside the U.S. and ones that are more accustomed to 35 mm quality. "To say the disc has not met company projections abroad," says one industry source, "would be inaccurate. It's getting murdered."

Kodak denies that sales in those two markets, where its regular cartridge-loaded cameras have never sold well, are worse than anticipated. "The novelty factor has worn off in Europe," says Phillip Samper, 49, the new head of the photographic division. "Now we just have to get out there and move the cameras." The company's research shows 90% of disc users in the U.S. are satisfied with the camera, and that its high "yield rate"--93% of the pictures are printable as opposed to 75% for the pocket Instamatic--more than makes up for the graininess.

The disc's future is being decided this summer. Picture taking is heaviest in summer and dealers gauge the activity to determine their camera orders for the Christmas selling season. But the camera already seems unlikely to enjoy the eight- to ten-year life cycle of its popular predecessors--and may last only half as long. A shorter life would give Kodak less time to recover its development costs, which security analysts estimate at over $ 300 million.

The uneven performance of its new products and the most serious competition in its history have stirred the Kodak elephant into action--even into uncharacteristic flashes of anger. Walter Fallon is said to have pounded the table when he learned that Fuji had snatched the sponsorship of the 1984 Olympic games while his negotiators dithered. If somewhat belatedly, the company has launched a major program to coordinate planning around the world, increase productivity, and reduce costs. Two years ago the company reshuffled some of its foreign production. Many of Kodak's international divisions were manufacturing identical products for their regions, often at higher costs than at the main factory in Rochester. Kodak brought the high-cost foreign manufacturing home--just in time for part of the $55 million in productivity gains to be offset by the strong dollar, which boosted the cost of the products when exported.

This year Kodak instituted a special early-retirement program, announced it was postponing next year's pay raises for six months, and made its largest layoffs in a decade. Says Whitmore, "We are looking less at reducing a given percentage of people than whole functions."

Chandler, who made his mark by leading Kodak's assaults on Polaroid and Xerox, criticizes what he says was an ad hoc approach to product development and has ordered up the company's first corporate-wide strategic plan. "We can no longer be all things to all people," he says. "Kodak is a little like the government in that it takes things on much easier than it can get rid of them."

Traditionally dominated by its technical side, Kodak has given its marketing departments a louder voice, if not the final say, in the company's direction. Kodak's two marketing stars, Samper and Wilbur Prezzano, 42, manager of worldwide marketing, have moved up to the second and third spots in the unofficial line of succession after Whitmore. Kodak has never allowed a marketer to run the company. Gerald Zornow, chairman from 1972 to 1976, got closer than any other, but still was No.2 to Fallon.

Kodak also has abandoned some of its fusty ways and finally adopted tactics that have long been standard procedure at other multinationals. It has created a marketing intelligence group, issued its first significant debt ($275 million of convertible debentures), purchased more than $1 billion in tax-benefit leases, and started hedging its foreign-currency risks in the futures market.

Most important, Kodak has finally decided it would rather switch than fight, and has joined the electronics revolution. Over the last decade the company made sure its research labs kept up to speed with fast-changing video technology. In fact, it developed a video system of its own in the early Seventies. "We had a hell of a good product," recalls Zornow. "We had both a video-movie and a still camera, and the quality of the image was excellent on a TV screen. We killed it off, though, when we found out what the costs were."

To get a window on the video business, Kodak also bought a small California company called Spin Physics in 1972 that specialized in magnetic recording heads for highdensity data storage. But Kodak sat on its video know-how in the Seventies and decided to commit its resources to instant cameras and copiers instead.

The company has now changed its mind. Among other reasons, Kodak was mightily annoyed when Sony, upstaged its announcement of the disc camera last year by unveiling a "revolutionary" video still camera called the Mavica and promising to have it on the market in the U.S. right about now. Kodak knew that current solid-state sensors could not capture anywhere near as much picture "information" as silver-emulsion film. Sony's best sensors last year contained about 280,000 picture elements, compared with the four million-plus needed to match the comparatively poor quality of the ordinary 110-size negative that is used in pocket Instamatics.

The video picture looked all right on a TV screen, but was fuzzy when printed. Given the high cost of the sensors, the camera itself would have to be priced over $1,000, making it too expensive, in Kodak's opinion, for a mass market. But the idea of taking pictures, showing them on a TV set, printing out hard copies, and then erasing the tape to take more, all without having to buy film and send it to a developer, caused quite a stir in the photographic world. The technical problems were lost on a public accustomed to the wonders of electronics.

Instead of ignoring Sony as in the past, Kodak decided to reveal its own electronic imaging capability-and zap Sony's Mavica. Last October at the Photokina trade fair in Cologne, West Germany, Kodak demonstrated a video display unit that allows disc film negatives to be shown in color on a television set. Thomas, the research director, made it a point to give a personal demonstration of the new device to his counterparts at Sony. The video display unit was conceptually inferior to what Sony had in mind: the disc film still had to be sent to a developer and could not be erased. But the demonstration revealed that Kodak had a solid-state sensor with 50% more pictorial capability than Sony's "state of the art" Mavica. "They were very impressed," says Thomas. Today Sony doesn't like to talk about the Mavica, except to say that Japanese newspapers are now experimenting with a black and white version. It has nothing to say about the color version anymore.

That Kodak exhibited its video display unit, which is still under development, was unprecedented for the company. Kodak usually doesn't hint at what it has in the laboratory until the product is ready to sell. Not only did the gesture demonstrate Kodak's strength in electronics, it also showed a new competitive zeal that the company will sorely need in the frenetic electronics business.

Kodak's experiences with electronics haven't all been so positive. It has run into a host of problems with Atex, a manufacturer of electronic publishing systems for newspapers and magazines that it bought in 1981--only its second major acquisition in over 50 years. A typical high-tech success story, Atex was started in 1972 by three entrepreneurs, literally working in a garage, and grew to become the leader in its field, doing $50 million of business a year when Kodak bought it. Since then, the three founding partners and eight vice presidents have departed. Kodak found itself stuck with a system of "dumb" terminals dependent on central computers when the industry was moving to "smart" terminals with computer capabilities built in. Atex is quickly losing its technological lead in the industry.

"The people at Kodak are hardworking but bureaucratic," says Al Edwards, a former Atex vice president who defected to Systems Integrators Inc., Atex's top competitor, because he couldn't abide Kodak's poky pace. "They do not understand the competitive nature of computer technology. You sometimes have to react to the marketplace on a weekly basis. At Kodak, if you came up with an idea, it would be five years before you saw the product."

Edwards estimates Atex shipments will be down about $20 million this year and the company will lose money. Kodak maintains it is still the market leader and that sales will be about the same as the $85 million last year. "Sure, some people have left here and we've had some bad times," says Joseph Quickel, 62, Atex's third chief executive under Kodak. "But that's one of the hazards of the electronics business, and now we've successfully made the transition."

Spin Physics has fared better under Kodak's stewardship. It continues to be a leader in its field, and two of its products will be seminal to Kodak's electronics effort: a new high-density magnetic surface for both tape and computer discs, and a high-speed video system that can play back the action of fast-moving equipment in slow motion so engineers can analyze problems visually.

Spin Physics has been so successful in the magnetic recording business that Kodak, after holding the subsidiary at arm's length for a decade, has decided to embrace it as one of three building blocks of the new electronics program. The other two blocks: a solid-state research laboratory and a facility to design and produce integrated circuits.

One important question about Kodak's electronics effort is whether a big, stodgy company in gray, nonswinging Rochester can attract and hold the notoriously disloyal electronics cowboys who thrive best in Silicon Valley. Kodak has had no trouble recruiting electrical engineers. But finding managers with an electronics background has been tougher. James Lemke, a co-founder of Spin Physics who stayed with the company, was offered a top job at the new electronics division but turned it down because he didn't want to move from California to Rochester. Still on Kodak's payroll, Lemke is helping to set up the Center for Magnetic Recording Research at the University of California at San Diego. The center, supported by Kodak, IBM, and more than a score of other companies, is the country's first pooled research effort in magnetics.

Kodak has yet to name a director for the new division, and hasn't filled other important slots. "We clearly have to attract people into the company who don't exist here now," says President Whitmore. That in itself will be a major departure for Kodak; few if any of its senior executives ever worked for another corporation. Gerald Zornow, for one, doubts that outsiders can successfully adapt to the Kodak culture. "They tried some people from the outside before and it never worked out," he says. "Kodak is like an old family that grows up together, and it is tough for outsiders to fit in."

Venturing into the volatile electronics business obviously is a gamble for Kodak, but the company doesn't have much choice. A competitive electronic still camera is at least a decade away, and electronic imaging technology will probably never fully match the quality of silver-based film. Amateur and professional photography will always be a large business, though possibly a much diminished one. Video has already begun to undercut many of Kodak's consumer and commercial applications. TV news film, for instance, has been eliminated by the immediacy of videotape. To the extent people use the latest generation of small video cameras to shoot movies of the kiddies, still photography suffers.

The biggest question about Kodak is how well it can play in a different and tougher game. Increasingly Kodak will be competing in a business where it is not the worldwide leader, where it does not have a technological edge, and where it does not have a significant cost advantage. And it will not have a unique strategy. The same competitors that have bedeviled Kodak in the photographic business are also going electronic. Fuji, the fastest comer in film, makes videotape. Canon, Minolta, Olympus, and Pentax--companies that bested Kodak in still camera technology--already sell TV cameras.

All corporations must be alert to changes in their technologies and their markets. Its move into electronics, however tardy, indicates that Kodak has the flexibility to adapt to a new world. Considering the company's roots, that's not terribly surprising. The lesser known of its co-founders was a man named Henry A. Strong who decided to gamble that young George Eastman's dry photographic plates might lead to something. Strong made buggy whips.

Filed under: Fortune Classic

Build a better wine cellar

Fortune Editors — Fri, 06 Jan 2012 20:08:43 +0000

Start small by carefully selecting bottles under $30 that will appreciate as they age.

By Gregory Dal Piaz, Snooth

With the New Year upon us, we tend to be a resolute bunch. Many of our resolutions revolve around self-improvement, peace on earth and fitting into old jeans -- those same old unattainable things we like to devote several days of effort to each new year.

But several days of effort could pay off handsomely in new ways for wine lovers. This year could be the year you begin to benefit from a wine collection -- with minimum investment of both time and money.

Make 2012 the year you decide to drink better wine. This is the first installment of the Snooth project to Build a Better Wine Cellar -- for just $2500.

We're beginning our cellar project by taking a look at some of the options available to people at a relatively modest price point: $30 a bottle. I could buy a single bottle of wine and be done with it, building that $2500 cellar in one purchase, but that's neither fun nor helpful, is it?

What I'm hoping to do is help people understand where there is value in cellarable wine and with that, offer some pointers. Simply put, one need not invest exorbitant resources in order to build a cellar that satisfies its primary purpose, to supply maturing wines over the course of several years.

So what does my fantasy cellar look like? Let's break it down by stages and price points:

The $2500 cellar is stage one and consists of six cases of wine broken down as follows: Eight types of wine, three labels for each type, three bottles each, all at less than $30 a bottle.

The $5000 cellar is stage two and includes the $2500 cellar plus: Five additional types of wine, three labels of each type, three bottles each, all at less than $60 a bottle,

The $10,000 cellar is stage three and includes the $5000 Cellar plus: Five additional types of wine, three labels of each type , three bottles each, all at about $100 a bottle.

The $20,000 cellar is the final stage and includes: Five additional types of wine, three labels of each type, three bottles each, all at $200 to $400 a bottle.

$30 bottles

Today, we'll start with our first two types of wine for the $2500 cellar: Rioja and Beaujolais. We want to drink better, we want wines that are representative, we want wines that work with the foods we eat, we want our friends to enjoy our wines, and we want to know something about the wines we share.

We want to find the great values out there -- the real 'wow' wines under $30 that will reward up to about a decade of cellaring, though sometimes a bit less. If you cellar wine, don't be afraid of taking a few risks now and again. A cellar full of your favorite wines is a fantastic treat, a cellar full of your favorite wines and wines you had no idea would become your favorites is even better.

Rioja Reserva: Not only are these wines delicious on release, they are ready to improve in the bottle for years to come. As such, they are ideal wines to begin a cellar with. One of the issues with more expensive wines for the cellar is they often taste bad when young. These Rioja Reservas all exhibit rich ripe fruit and the classic tell-tale oak that is one of the signature elements of the Rioja taste profile.

Three wines I added to my cellar this past year are:

2001 La Rioja Alta Vina Ardanza Reserva Especial $30

2004 Bodegas Riojanas Monte Real Reserva $20

2001 CVNE Vina Real Gran Reserva $40

I've already cheated a bit, sort of, by exceeding the $30 per bottle price, but the net result here is an average of $30 per bottle for a solid selection of cellarable Rioja. Total cost for nine bottles is about $300, with tax and delivery included.

Beaujolias: Like Rioja, Beaujolais may be off many people's radar, but the truth is that the top of the line Cru Beaujolais are getting more attention than ever, and for good reason. Not only are these wines improving, showing lovely nuance, structure and an increasing effort on the part of winemakers to highlight the grapes' and terroirs' unique expression, but they are also proving to be one of the great values in the world of wine, for a little while longer at least.

While we think of Beaujolais as an early drinking wine -- the best are considered on par with some minor Burgundy appellations as to their ability to improve with age, becoming complex, layered and wonderfully expressive. They are ideal food wines.

Three that I added to my cellar this past year are:

2010 Clos de Roilette Fleurie $20

2010 Chanrion Cotes du Brouilly $17

2009 J P Brun Terres Dorees Morgon $18

As you can see, these wines, all clocking in at under $20 a bottle, are real value. Buying three of each gets us to about $200, with tax and delivery.

'Til Next Time...

Two wines selected, six to go, bringing us to a total of about $500 so far.

I'll be back soon with more great selections, but if you have your own favorites, share them in the comments below.

Filed under: Snooth on Fortune, Uncategorized

A leadership book from a real leader

Fortune Editors — Fri, 06 Jan 2012 17:56:51 +0000

Our Weekly Read column features Fortune staffers' and contributors' takes on recently published books about the business world and beyond. We've invited the entire Fortune family -- from our writers and editors to our photo editors and designers -- to weigh in on books of their choosing based on their individual tastes or curiosities. This week, senior editor-at-large Geoff Colvin reviews Taking People With You: The Only Way to Make Big Things Happen, a hands-on guide to leadership from Yum Brands CEO David Novak.

FORTUNE -- Pity the aspiring manager who wants to become an excellent business leader. His or her bookshelf creaks and buckles under the weight of leadership books that authors crank out seemingly without limit or shame. But readers of these books don't become stronger leaders; instead they grow fat with platitudes as they consume these alluring tomes, the vast majority of which offer only empty calories.

The problems are two. First, most of these books aren't by real leaders who've produced knockout business results. They're by observers who weren't under the gun to hit numbers and often didn't even have up-close access to the people they write about -- so why risk your career by doing what they tell you?

The second problem is that even leadership books by credible authors generally don't explain, in useful, nuts-and-bolts detail, how to do what they recommend. Foster an open, candid culture? That's a great idea, but without an instruction manual, it won't get you far.

Among the many reasons to like Taking People With You: The Only Way to Make Big Things Happen by David Novak is that on these two critical points where most leadership books are terrible, it's extraordinarily good. Specifically:

Credibility. Novak is CEO of Yum! Brands (I will henceforward omit the exclamation point, lest the constant excitement of mentioning the company become distracting). Yum (YUM) is the restaurant business spun off from PepsiCo (PEP) in 1997, comprising KFC, Pizza Hut, and Taco Bell, and Novak has run it from the beginning. Its performance has been spectacular. The stock has risen almost 16% a year on average; Yum's return on capital consistently towers over its cost of capital. If anyone in business has earned the right to opine on leadership, Novak has.

Usefulness. Besides being the title of this book, Taking People With You is the name of a three-day leadership program that Novak teaches up to eight times a year within the company; he began developing it even before Yum was spun off and has taught it to more than 4,000 employees. So this book isn't just Novak's thoughts on leadership; it's a highly organized program. In fact, it isn't a book you curl up with at all; it's a workbook, so be prepared to work. Novak recommends reading just one chapter a day. I'd say one a week.

This book is demanding because Novak understands that leadership isn't about techniques. It's about your own deep nature, your traits as a human being, and how you connect with other people at deep levels. Most business books tell you to do analysis; this one makes you do psychoanalysis, mostly of yourself, and that's a lot harder. Calculating free cash flow is easy. Being honest with yourself about whether you ever pretend to be something you're not, whether others see you as reliable, whether you really value the contributions of others -- that can leave you exhausted.

Taking People With You isn't entirely about introspection. It's also about strategy and structure, action plans and execution. But those things come later. The foundation of the book's message is the profoundly human experience of leading. For example, one of Novak's most powerful themes is the value of recognition -- he is an absolute fanatic about publicly recognizing good performance, and recognition is at the heart of Yum's culture. It's such a simple concept; recognition costs nothing, and its value is staggering. Yet most managers seem virtually clueless about this basic facet of human nature.

Not many business leaders have produced long-term performance that merits our attention; of those few, not many write books; and of those who do, hardly any write good books. Novak is in that tiny subset. You can safely declutter much of your business leadership bookshelf, even if it's just taking up gigabytes in your iPad or Kindle, and install this one in the vast empty space.

Filed under: The Weekly Read

Will the Passat propel VW to No. 1?

Fortune Editors — Thu, 05 Jan 2012 14:11:19 +0000

With lofty goals to surpass GM and Toyota by 2018, Volkswagen needs to win over skeptical American car buyers. The new Passat is off to a good start.

By Doron Levin, contributor

Volkswagen Passat

FORTUNE -- American car buyers and the motoring press are giving a warm welcome to Volkswagen's new Passat midsize sedan, the German automaker's latest salvo in a campaign to pass General Motors and Toyota to achieve No. 1 sales status worldwide.

November sales of Passat, which was named Motor Trend magazine's Car of the Year following its introduction in September, barely topped 6,000. Though that number is less than half that of the leaders in its segment, it represents an impressive total compared to that of the previous, smaller and more expensive Passat. The increase suggests that VW buyers as well as loyalists of other brands are adding Passat to their shopping lists.

VW sales overall were up 40% for the month in the U.S. Passat was named a finalist in the North American Car of the Year competition, which will be decided at the North American International Auto Show in Detroit on January 9.

Wolfsburg, Germany-based Volkswagen's goal is to lead the world in unit sales of vehicles by 2018, which would require the automaker to increase sales in all major automotive markets. It is currently third in the world; and the top seller in Europe.

But the final numbers may show that VW achieved No. 1 -- at least temporarily -- in 2011. Toyota last year was hit by quality concerns in the U.S. and the March 11 earthquake/tsunami in Japan. The German automaker's goal is to have firm grasp on the top spot six years hence, with sales of 10 million vehicles annually, compared in 2011.

"VW's goals are very aggressive," says Michelle Krebs, an analyst for Edmunds.com, an automotive website. "Next year will be competitive in the midsize sedan segment. Ford has a new Fusion, Chevy a new Malibu and Honda (HMC) a new Accord."

Auto preview: New car bonanza in 2012

One of VW's weak spots is the U.S., where it holds a slim 3.5% of the market, including its Audi luxury franchise – behind all major Asian automakers and GM, Ford (F) and Chrysler. But the U.S. also could be the place where VW's potential is the most unrealized.

VW floundered for years in the American market because it failed to convince enough motorists to buy models that were engineered for Europeans. The new Passat, built in a new assembly plant in Chattanooga, Tennessee, represents a fresh approach: designing cars specifically for American tastes while retaining the flavor of German engineering.

"We feel very confident about 2012," says Scott Vazin, a VW spokesman. "Between VW and Audi we should end 2011 with slightly more than 400,000 in sales." The VW Group's goal in the U.S. is to sell 1 million VW and Audis in 2018.

The Chattanooga plant, with capacity to build 150,000 Passats, can be expanded if sales of the sedan grow sufficiently. VW could add another U.S.-built model, a crossover, based on the Passat architecture.

The most disliked cars of 2011

As for Audi, rumors abound that VW is considering a manufacturing site in Chattanooga or elsewhere, mimicking BMW and Mercedes, both of which build vehicles in the U.S.

Audi is the most sought-after car in the U.S., according to Edmunds.com, and its dealer inventory is at a mere 28 days. "The challenge for Audi is more production," says Krebs.

Nearly every automaker in the world states explicitly or implies that it intends to grab a bigger share of the market – though, of course, such an outcome is impossible for all to accomplish. In fact No. 1 status has been nothing but heartache for Toyota (TM) and GM (GM). VW might want to reflect on whether its scorched-earth policy is a wise one.

Filed under: Uncategorized

Barry Minkow: All-American con man

Fortune Editors — Thu, 05 Jan 2012 10:00:10 +0000

His many lives: entrepreneur, fraud fighter, pastor, movie actor - and serial swindler.

By Roger Parloff, senior editor

Second act: Barry Minkow, the former whiz kid behind the ZZZZ Best Ponzi scheme has grown up - but into what?

FORTUNE -- In 2009 a writer named Jon Meyers was hired to furnish a screenplay for what soon became the strangest movie project of his life. The film was to star a number of well-known actors -- James Caan, Talia Shire, Mark Hamill, Ving Rhames -- and it would chronicle the life of Barry Minkow.

Minkow (rhymes with Kinko) was the boy-wonder business phenom of the 1980s. In 1982, at age 16, he started ZZZZ Best, a carpet-cleaning company, from his parents' garage in Reseda, Calif., in the San Fernando Valley. The business expanded rapidly and went public in 1986, making Minkow, at age 20, worth more than $100 million on paper. But it was a giant Ponzi scheme and collapsed in May 1987. Minkow was convicted of 57 federal felonies, sentenced to 25 years, and ordered to pay $26 million in restitution.

Though raised as a Jew, Minkow then became an evangelical Christian. In prison he also began giving seminars and shooting videos designed to help detectives and accountants catch fraudsters of the type he had been. Paroled in 1995, he became the pastor of a San Diego church, where membership would more than quintuple under his charismatic leadership. In 2001 he founded the Fraud Discovery Institute (FDI), which assisted the Federal Bureau of Investigation, the Securities and Exchange Commission, and others in shutting down at least 20 serious Ponzi schemes, including one that had swept up $500 million in investor money, and another whose ringleader was sentenced to 30 years.

Asked to write a script based on this material, screenwriter Meyers jumped at the chance. But he soon encountered dismaying surprises. To begin with, Minkow was insisting on playing himself. Though Minkow still had the bodybuilder's physique he had acquired through weightlifting and steroid abuse as a teenager, he had never been blessed with a screen idol's good looks. And how could he, then 43, play himself in his early twenties? Furthermore, wouldn't it be thematically undermining for someone to star in a movie about his own redemption from narcissistic criminal to humble servant of Jesus?

Then things got stranger. Rather than receiving paychecks from a production company, Meyers and others working on the film got paid in irregular dribs and drabs over PayPal, with sums that came from Minkow, Minkow's wife, or two companies Meyers had never heard of before, including a trucking company. Sometimes Minkow just gave people $100 bills he peeled off a wad he kept in his pocket.

Finally, one day in September 2009, recounts Meyers, he was in the production booth with headphones on when Minkow and James Caan were schmoozing between takes. Perhaps forgetting about the open mike in his lapel, Minkow leaned over to Caan and whispered, "I financed this movie by clipping companies," Minkow said.

"Clipping," of course, is a slang word for "swindling." Minkow says the incident "never happened." "Not ever," he wrote Fortune in an e-mail in September. "And have him produce the tape."

The film's director, Bruce Caulk, did produce the tape. Scene 71, take 1. Minkow said it.

The movie has since been completed, but it now needs a new ending. That's because in March, Minkow pleaded guilty to conspiring to manipulate the stock of a then-Fortune 500 company, Miami-based homebuilder Lennar Corp. (LEN), which he caused to tank 26% in one day by making false accusations about it and its top executives. He did this, according to his plea agreement, to make money by short-selling (i.e., betting on Lennar's stock price to fall) and to assist a paying client who was attempting to extort money from Lennar that the client claimed to be owed.

In September, Minkow returned to federal prison, where he is beginning a five-year term and facing a new restitution order for $583 million -- the amount Lennar stockholders lost due to manipulation. Meanwhile, a church audit committee has been sifting through its records, where it is now clear that Minkow commingled personal and church funds for years. The movie's main backer, a former congregant, has sued Minkow for the return of more than $4.3 million he sank into the film and other Minkow ventures, alleging that Minkow raided the funds for personal purposes. Another church member -- a retired grandmother with health issues -- says Minkow left her with about $300,000 in unpaid loans; a third says Minkow forged his name on a $100,000 loan guarantee; a fourth alleges that Minkow opened credit cards in his name without his knowledge; a business associate says he is owed $47,000 for supplies; and another says the state's coming after him for $50,000 in taxes that he claims are Minkow's responsibility.

Minkow, meanwhile, is planning his next comeback.

The story of Minkow's life is comic, tragic, and psychologically perplexing. Minkow is blessed with intelligence, courage, indomitable drive, rhetorical gifts, an apparent desire to do good, and a record of documented beneficent deeds. Yet he also keeps doing ghastly things. His story is hard to read without pondering the question, Is character destiny? More narrowly, can a con man ever be redeemed?

Minkow's greatest gift is his ability to inspire others. His greatest failing is his inability to responsibly exercise his greatest gift. His business career is an astonishing morality yarn about that most titillating of subjects: intractable human failing.

"It's freedom I struggle with"

In his only extended interview since his rearrest, Minkow spoke with me for nearly three hours in August, after he was sentenced but before he reported to prison in Lexington, Ky. We met at his house in rural Crossville, Tenn., where he hastily moved his family after resigning his pastorship and pleading guilty in March. It's an unpretentious brick rambler on more than two acres of unwooded land he shares with his beautiful wife, Lisa; his twin 8-year-old adopted sons; two Siberian huskies; and a rambunctious Australian shepherd named Macho.

Minkow was bronzed, toned, and buff in his jogging shorts and a tank top emblazoned MUSCLE BEACH, VENICE, CALIFORNIA. In humid 90° heat he was building a handsome wooden fence. With a friendly hand resting on my shoulder, he explained that he had promised his wife that by the time he went to prison he'd have the fence completed, allowing her to let their boys and dogs roam in the yard with peace of mind. "I've never done anything like this in my life," he said. "I was a cowardly weasel who never liked physical labor. And now I love it."

Fine, but how did his life fall apart? Why is he headed back to prison?

"This is a drug case," Minkow says. "That's all it is." He started taking Vicodin in 2005 to relieve pain from a shoulder injury, he explains, then switched to OxyContin in 2006, gradually working his way up to 1,400 milligrams a day. "You think differently about things when you're on 1,400 milligrams a day," he adds. "And that is the story behind the story. That has kind of been glossed over."

Facing prison after his most recent conviction, Minkow worked out in the yard of his home in Crossville, Tenn.

Minkow says he weaned himself off his drug addiction -- secret even from his wife, he maintains -- by using a methadone-like substitute and then seeking outside help. By Thanksgiving 2010, he says, "I was clean and loving it." But by then he was under criminal investigation.

Did he commit securities fraud? "I was privy to insider information and that is a crime," he says. He didn't realize that what he was doing was illegal, he says, but later learned that there is a legal precedent establishing that it was. "Have you ever read it?" he asks. "It'll blow your mind. Everything going on on Wall Street is a crime. But big deal, I still did it. Please don't make it seem like I'm making an excuse."

Did he leave people with debts? Sure. He hadn't expected to get arrested, so he left some business associates in the lurch. Plus, some worshipers at his church invested in the movie, which may never be released, he says. "But it's not investment fraud," he adds. "We took [the] money, spent it as we said we would. It didn't work out great, I agree."

Did he commingle church funds? Yes, but he claims the church came out far ahead, especially considering that he hadn't accepted a salary there for several years. "I did a lot of things wrong," he says, "but trying to financially support that church was not one of them."

Minkow's lawyer submitted canceled checks in court showing deposits of about $1.6 million from Minkow's side businesses into church accounts over a three-year period. It's not known how much he took out. The church's board of elders declined to cooperate for this article. Current and former church members say the elders have told members to shun Minkow -- not communicate with him in any fashion -- because they don't think he has come clean with them.

The elders' perspective, Minkow says, is clouded by a conflict of interest. Over the years at least three of them shorted stocks on Minkow's recommendations. (Again, the elders declined to comment.) "They didn't do anything wrong in my view," continues Minkow, "and I take responsibility, but I do think it's a different story." He predicts that the FBI will not pursue the church's gripes against him because he was the church's biggest giver. He was "the Jew who laid the golden tithe," he quips.

"The point is, I'm back," says Minkow. "You know when I perform best? In custody. I work good under structure. It's freedom I struggle with. The Bureau of Prisons saved my life, and I hate to bother them again, but it looks like they're going to do it twice."

Barry Jay Minkow have been born with more energy than anyone could dissipate legally. He was diagnosed with attention-deficit/hyperactivity disorder as a child, took Ritalin from ages 6 to 15, and has taken Adderall since 2002. TV clips of Minkow during his ZZZZ Best days -- capped by a bravura performance on Oprah -- show a brash young man who keeps disappearing from view due to the violence with which he jerks his body to punctuate his sentences. Cameramen can't keep him in the picture.

The talented Mr. Minkow: A life of con

Frenetic energy was the signature feature of the ZZZZ Best (pronounced Zee Best) crimes. To launch the business, Minkow borrowed money from a loan shark. To expand it he stole jewelry from his grandmother; stole and forged checks and money orders; kited checks; altered customers' credit card receipts and forged their names on new charges; staged burglaries at his own offices and filed bogus insurance claims; fabricated invoices, financial statements, and tax returns; led lenders on a tour of a phony work project; defrauded banks; and, finally, hoodwinked a Big Eight accounting firm and a Wall Street law firm into helping him pull off a public stock offering. While doing all this he starred in the company's funny TV commercials, which played off the notion that most carpet cleaners were scam artists.

After the company collapsed, but before his arrest, his mother suggested he see her Christian spiritual counselor. (She had converted earlier.) Calculating that a quicky conversion might help him with his looming legal problems, Minkow agreed.

"But God took my wrong motives and accepted me despite my manipulative personality," he later explained in the second of his four autobiographical books. (Minkow disavows the first, Making It in America, which was published during his ZZZZ Best crime spree.)

At first, Minkow's conversion did not crimp his penchant for rococo lying. In a 60 Minutes segment that aired in early 1988 he told Diane Sawyer that all the ZZZZ Best crimes were committed without his knowledge by his top lieutenants. Later, he switched defenses, testifying at trial that, yes, he had committed the crimes, but had done so under duress from mobsters. "Thus," writes Minkow in his second autobiography, "I put my relationship with Jesus (now well over a year old) on the back burner and lied under oath to avoid prison and impress the public."

But Minkow's faith grew stronger, he has written, at the federal prison in Englewood, Colo., where he took correspondence courses in divinity from Jerry Falwell's Liberty University in Lynchburg, Va. While in custody he also gave seminars and even produced a video designed to help accountants and police detect white-collar fraud.

Minkow was released in 1995, obtained his master's in divinity, married, and then landed the head pastorship of the San Diego Community Bible Church in 1997. From Minkow's writings and recorded sermons there is no questioning his mastery of the tenets of evangelical Christianity, where his forte is "apologetics" -- defending the faith against doubters.

In some respects, Minkow appears to have considered his criminal background an asset for his new position, since it gave him an unusually deep appreciation for the miraculousness of Jesus's mercy. "Some of you don't have the advantage of being evil enough. I am uniquely qualified in that category for me to realize my need [for forgiveness]," he said in one sermon. "Good people don't go to heaven," Minkow often told his flock. "Forgiven people go to heaven." "The Christian life is not hard; it's impossible."

Luke 18: 9-14 was critical for Minkow. There Jesus stuns the crowd, as Minkow recounted in one sermon, by revealing that it is the reviled but humble tax collector -- Minkow calls him "a white-collar criminal" -- who will be saved, rather than the observant but proud Pharisee. When the tax collector cries out, "... be merciful to me, a sinner," Minkow explained, "it really means, 'I understand the standard. I'm nowhere near it' ... And yet, He says, 'I forgive you.'"

Minkow never regarded his own redemption as a done deal. Early in his pastorship, he wrote in his third autobiography, he recognized that he was taking an egotistical pride in his church's growing membership that was much like the one he had taken in ZZZZ Best's soaring stock price. "These points of similarity ... unlocked something inside me that I thought had been dead and buried," he wrote. He became a "manipulative" and "self-centered jerk" at elder board meetings, though when he walked out the door he became "the loving caring person I was hired to be. It was too bad I couldn't see out of one compartment into another to assess who I really was."

Minkow's first wife left him in 1999. He was in debt, which alimony exacerbated. "I never was too good at handling money," he wrote.

But he was beloved at the church. According to every current or former member who spoke to me -- including those who say they "got stung" in the end -- Minkow was amazing at helping congregants through personal and family crises. "From a Christian point of view, he was fabulous," says one.

The elders let him pursue side businesses to try to make ends meet.

It takes a thief

In 2001, Minkow met his current wife, Lisa, and took his fraud fighting to a new level. People sometimes sought Minkow's advice about investments they were considering. Over time he heard about some very fishy propositions, where congregants were being offered impossibly high returns. In those instances he posed as a potential investor himself, gathered evidence, and then wrote detailed reports about these dubious operators to his contacts at the FBI and SEC.

Minkow's nose for fraud was good, and his reports led to arrests and convictions of serious bad guys. His contacts in law enforcement were grateful and wrote letters attesting to the valuable work he had performed.

He founded the Fraud Discovery Institute in 2001. It was a for-profit company, though at first its only revenue came from private speaking engagements. He also continued giving free seminars to law enforcement, making regular appearances at the FBI academy in Quantico, Va.

Minkow met his wife, Lisa, in 2001, the year he founded the Fraud Discovery Institute. Unable to have kids because of his steroid abuse, they adopted twin boys in 2004.

With proof of Minkow's good deeds multiplying, Minkow's sentencing judge, Dickran Tevrizian, released Minkow from probation in 2002.

By late 2005, Minkow had uncovered at least 13 Ponzi schemes. In a commendation letter, the FBI acknowledged, "You identified millions of dollars of fraud and prevented further potential economic loss to hundreds of victims."

That year Minkow published his third autobiography, Cleaning Up, which rose to No. 25 on the New York Times bestseller list. One of Minkow's former prosecutors wrote a promotional blurb for its book jacket. Minkow spoke on CNN, NPR, CNBC, and Fox News. In May, 60 Minutes told his story in a segment in which Judge Tevrizian vouched for Minkow's turnaround. The following March, Sen. Patrick Leahy invited him to testify before a U.S. Senate subcommittee studying elder fraud.

But that year, 2006, Minkow's fraud fighting took a fateful turn. A hedge fund manager asked him a tantalizing question, Minkow told me in our August interview: "He said, 'You've had tremendous success uncovering private investment fraud. Do you think it translates to public companies?'"

Minkow had, in fact, been entertaining suspicions about corporations that employed "multilevel marketing" (MLM) strategies, where businesses enlist consumers to become distributors of their products, offering them commissions for signing up still more distributors, in a pyramidal pattern. Though many permutations of MLM are lawful -- Amway is a famous example -- others are outlawed in certain states, and some consumer advocates say MLM is potentially fraught with Ponzi-like peril.

Minkow began targeting several public companies pursuing MLM strategies. As he had in the past, he gathered evidence he alleged inculpated these targets and then sent confidential "fraud reports" to his contacts at the FBI and SEC. But now he also sent the reports to select short-sellers, who he hoped would pay him for the tips. The idea, he explained to me in our interview, was to eventually publicize the report, cause the targeted company's stock to take a well-deserved hit, and reward the short-sellers he'd tipped off in advance. He'd also short the target stock himself.

Is that business model legal? No one's sure. (This isn't what Minkow later pleaded guilty to.) In 1984, when Wall Street Journal columnist R. Foster Winans was caught trading the stocks of companies that he was about to tout or pan in his own newspaper column, he was arrested for securities fraud. It wasn't classic insider trading, though, because Winans wasn't a corporate insider, nor had he been leaked information by one. In 1987, Winans's conviction was upheld on the theory that he had misappropriated nonpublic information from his employer, the Wall Street Journal, and had traded on that.

But someone who works for himself can't be misappropriating information from an employer, observes Columbia law professor Jack Coffee in an interview. Now if he intentionally publishes false information about target companies, Coffee continues, that would be illegal stock manipulation. But if the information is true, or the person believes it is, it probably can't be stock manipulation.

On March 15, 2007, the Wall Street Journal reported that Barry Minkow, the fraudster-turned-private-investigator who "has won praise from the FBI," sent a report attacking the nutritional supplement company USANA Health Sciences (USNA) to the SEC and the FBI. That same morning Minkow posted the report on his FDI website. Its text, which launched a blunderbuss attack on USANA's products and business model, was dense and confusing. But the gist was that USANA's multilevel marketing practices resembled a "pyramid scheme." (Minkow disclosed on his website that he typically shorts the stocks of companies he investigates.)

USANA's stock dropped 15% that day.

The company denied Minkow's accusations, denounced him as a convicted con man, and sued him. But Minkow kept denouncing USANA, and its share price kept sinking -- 42% by July. He posted anti-USANA videos on YouTube and released new reports alleging -- accurately -- that a USANA spokesman and a medical advisory board member had embellished their résumés, claiming degrees or licenses they didn't have. The SEC began an informal inquiry into USANA, and the company was hit with several class-action suits.

Though some short-sellers did pay Minkow for his tips, they weren't very generous. "It was hard to get the business model to work," he told me in August.

But it was thrilling. "It was kind of like a narcotic effect," Minkow said. "Wall Street liked me again. I underestimated the allure of being accepted by the hedge funds, and people calling me. You saw a stock at 60-something, and then it went down to 18 or something. Not all because of me, but [still]."

Through persistence, Minkow did eventually stumble on a business model of sorts. Though the SEC dropped its inquiry into USANA in January 2008, Minkow kept dogging the company. Most of USANA's lawsuit against Minkow was thrown out in March 2008, since most of Minkow's allegations were constitutionally protected, a federal judge ruled. In May, USANA's CEO tried to take the company private to escape Minkow, but his plan failed on a shareholder vote.

Finally, in July 2008, USANA struck a settlement with Minkow. USANA paid him an undisclosed sum, and Minkow pulled down his Internet diatribes and targeted the company no more.

A month later a second Minkow target, Herbalife (HLF), struck a similar bargain. The very next month a third target, Nu Skin, reached a similar deal with Minkow.

In all, Minkow estimates, he made more than $1 million in 2008 from all his trades and tirades. Not a bad year for someone who was also, by now, an OxyContin addict, according to what Minkow told me this past August.

That fall, a new prospective client came to see Minkow. He was San Diego real estate entrepreneur Nicolas Marsch III, and he claimed that the big homebuilder and developer Lennar Corp. was defrauding him.

Lennar was a different breed of prey from Minkow's earlier targets. Lennar was then No. 256 on the Fortune 500 list, with revenue of more than $10 billion. It was being represented in its litigation against Marsch by O'Melveny & Myers, an 800-lawyer corporate law firm. Its lead attorney was Dan Petrocelli (pronounced Pet-ro-CHELL-i), who had handled the civil suit by Ron Goldman's family against O.J. Simpson and had defended Enron CEO Jeff Skilling in his criminal case.

Marsch alleged that Lennar had defrauded him in connection with two ritzy San Diego development projects, including the posh golf-course community known as the Bridges at Rancho Santa Fe. Lennar had misappropriated his $39 million investment, Marsch claimed, and then it cheated him of his share in the proceeds, which Marsch pegged in the hundreds of millions of dollars.

Lennar's legal filings asserted a very different story. The company argued that it owed Marsch nothing, that Marsch was a manipulative, litigious snake who had cheated Lennar of millions, and that Marsch was now trying to extort from the company money he knew no court would ever grant him.

The extortion charge stemmed from a very raw letter Marsch had FedExed to Lennar's seven outside directors in July 2008. In it Marsch asserted that he knew of some "dirty laundry" that Lennar CEO Stuart Miller and COO Jonathan Jaffe would not want "exposed," warned that Lennar might soon be known as "Lenn-ron" if the directors did not listen, and said he was prepared "to air Messrs. Miller and Jaffe's dirty little secrets in public" unless all his litigation was "completely resolved to my satisfaction prior to August 31, 2008."

Lennar's directors rebuffed the overture, and Lennar filed a new suit against Marsch in Miami state court leveling extortion-related charges.

Then Marsch hired Minkow.

Minkow: The Movie

By this point Minkow had substantial experience launching short-selling attacks on public companies. He had set up a side business that combed through databases looking for inflated educational credentials on the part of corporate officers. When he found a discrepancy he would short the stock, leak the story to a reporter, and hope for a price dip when the news hit. He eventually exposed résumé embellishments at more than a dozen companies, including MGM Mirage (MGM), Broadcom (BRCM), and EchoStar (SATS).

Though none of these attacks resulted in arrests or SEC actions, Minkow's reputation remained untarnished in the media, for whom he was a source of both tips and expert commentary. He became a regular guest of Neil Cavuto's on Fox Business Network, and after Bernie Madoff was arrested in December 2008 -- creating a demand for media-savvy Ponzi scheme experts -- he was invited to share his insights with Nightline, the Washington Post, the Los Angeles Times, and USA Today.

For Minkow, each media exposure seemed to trigger a need for more. For several years now he had wanted to star in a dramatic television series about himself. In 2008 he had a half-hour pilot shot. Then he decided that if he first starred in a full-length movie about his life, it might be easier to sell the TV show afterward, he explained to me in August. So he asked a prosperous congregant, Jeff Sachs (no relation to the economist-environmentalist), if he would fund the movie. Minkow told Sachs the movie would "inspire others and glorify God," according to a lawsuit Sachs later filed against Minkow. Sachs spotted him $1 million, and Minkow hired a production company to shoot his life story.

Lennar's lawyer, Dan Petrocelli, persuaded the government that Minkow was conspiring to manipulate the company's stock.

On Nov. 30, 2008, after a two-hour meeting with Marsch, Minkow e-mailed him an engagement letter, to which he attached a six-page "confidential proposal." In Phase I of the campaign, he proposed, he would investigate Marsch's fraud claims against Lennar and make videos of other Lennar "victims" (i.e., others with lawsuits or gripes against Lennar). They'd take this "case foundation" to Lennar, maybe in "early January," to see if Lennar would settle. If Lennar refused, they'd launch Phase II. That would involve going live with a website unleashing a "blitzkrieg" of attacks at Lennar with the "primary, measurable, deliverable" goal of "getting [it] back to the 'settlement' table." The proposal emphasized: "The media is the key [because Lennar CEO Miller] must become convinced that his reputation is at stake if he does not silence the 'squeakiest' of wheels."

Marsch was to pay Minkow $125,000 on the front end, plus a kicker of $1 million to $2 million on the back end "when settlement occurs or trial victory."

Marsch replied the next morning: "Let's proceed." (Marsch's current lawyer, Todd Macaluso, says Marsch hired Minkow solely to track down someone who had anonymously written Marsch claiming to be a Lennar insider who knew of wrongdoing at the company. "That and only that was the purpose of hiring Mr. Minkow," Macaluso says. "Marsch had nothing whatsoever to do with any other aspects of Minkow's investigations.")

In December, Minkow began gum-shoeing his hypothesis (never substantiated) that a $5 million personal loan Lennar COO Jonathan Jaffe had taken out in 2007, secured by his Laguna Beach home, was actually a disguised kickback of some kind. To try to prove this theory, Minkow made a "pretexting" call to the bank of Jaffe's mortgage broker, pretending to be the broker and asking for records. ("Hey, I saw it on The Rockford Files," Minkow told me. "[Rockford] never got in trouble.") The bank officer saw through the ploy and Minkow hung up.

At about the same time, Lennar's general counsel, Mark Sustana, was contacted by a Miami real estate broker, who asked for a private meeting. When they met, the broker said that Marsch had hired Minkow, who was looking closely at Jaffe's personal loan, and that the broker might be able to act as an intermediary if Lennar wanted to settle.

Word of both incidents got back to Petrocelli, who considered them a continuation of what he saw as Marsch's extortion attempt. He subpoenaed the bank officer and broker for depositions. But as Petrocelli was driving to the broker's deposition on the morning of Jan. 9, Lennar CEO Stuart Miller called to tell him that Lennar's stock was "nose-diving." Minkow had just publicized a fraud report on Lennar.

The report -- addressed to Minkow's contacts at the SEC, the FBI, and the IRS -- was posted on a website called www.Lenn-ron.com, along with a YouTube video in which Minkow summarized his findings. Minkow said, among other things, that he believed Lennar "to be a financial crime in progress" and that Lennar treated "their joint ventures exactly like a Ponzi scheme." He also propounded his unsubstantiated hypothesis that the personal loan Lennar COO Jaffe had received might be a "disguised kickback" and an "undisclosed related-party transaction." While the report itself was convoluted and hard to follow, it used the term "Ponzi scheme" four times and made three allusions to Madoff.

Marsch had met with Minkow to review a draft of his fraud report the day before Minkow released it, according to e-mail traffic, and Marsch later admitted in a deposition that he had edited drafts of it. Nevertheless, in an interview, Marsch's current attorney, Macaluso, asserts that Marsch never gave Minkow the final green light to release the report. Marsch and his then-attorney Fred Gordon "were as surprised as anyone when Mr. Minkow elected to proceed on his own to publish," says Macaluso.

The day the report came out, Lennar's stock -- already battered from the burst housing bubble of 2007 and the credit crisis of 2008 -- fell 26%, before recovering some ground after CEO Miller appeared on CNBC to rebut it.

A few days later Minkow expanded his attack with a second website, www.Lie-nnar.com. Lennar added Minkow as a co-defendant in its extortion suit against Marsch.

About a week after the campaign began, Marsch's then-lawyer Gordon contacted Petrocelli about the possibility of Lennar settling its disputes with Marsch and Minkow in one package deal. In e-mails Gordon explained that Lennar "finds itself in the same position as did Nu Skin, Herbalife, and ... USANA," which had all been represented by Denver attorney P.J. Poyfair, who "now represents Mr. Minkow." Gordon explained that after Minkow's previous settlements the stocks of his target companies "witnessed substantial recoveries." He also invited Lennar to pay Minkow and Marsch in Lennar stock, rather than cash, if it preferred. ("These statements are taken out of context," says Marsch's current lawyer, Macaluso. "Marsch did not participate in or approve any settlement or discussions.")

In responses to Gordon, Petrocelli demanded a retraction and apology from Minkow, and ruled out any package settlement. In an interview, Petrocelli says Lennar never considered paying Minkow a dime. That Marsch and Minkow were willing to be paid in Lennar stock -- notwithstanding having just accused Lennar of being a Ponzi scheme -- was "proof positive of extortionate behavior," he says.

Law enforcement authorities, prompted by Minkow's false accusations, initiated a criminal inquiry into Lennar. Minkow's FBI sources tipped him to the confidential probe. In an e-mail Minkow assured his sources that he wouldn't trade on that nonpublic information. Three days later he did anyway, using an account opened in his secretary's name. That constituted unambiguous insider trading.

Minkow fell further off his temperance wagon in April, when Petrocelli forced him to sit for three depositions. Minkow committed perjury at these, he admitted to me. Among other things, he claimed to have never traded Lennar stock, and he offered an array of implausible excuses for not being able to produce e-mails related to the case, including that he "lost [the] ability to receive and send e-mails for some reason," his "files were destroyed in a computer crash," that two of his laptops had been stolen in separate incidents, and that a hacker infiltrated both his personal e-mail and his FDI website, deleting items in both.

It got worse. Later that month Minkow sent Lennar's audit committee chairman an anonymous e-mail that he claimed had been sent to him at his FDI website. The e-mail purported to be from a Lennar insider, who had attached a putative smoking-gun memo revealing a plan to snooker the California Public Employees Retirement System (Calpers) on a land investment.

The attached document was a fabrication. It alluded to a genuine Lennar deal but was way off as to its most basic terms, and it misspelled the name of Lennar's chief investment officer. Though the memo had been redacted to block out both the name of its supposed author and a "cc:" recipient, the redactions had been accomplished electronically, and Lennar's lawyers were easily able to reverse the process. Upon doing so, the writer was revealed to be "abcdefghijklmnowqrstuvwx" and the "cc:" was directed to "abcdefghijklminop." Whether due to unfortunate coincidence or muscle-memory-induced typos, there were two nonalphabetical sequences in those strings of nonsense letters: "min" in the second string, and "ow" in the first. As in Minkow. (In our conversations, Minkow declined to comment on whether he fabricated any documents for his Lennar campaign.)

Meanwhile, USANA's former attorney Poyfair, now representing Minkow, contacted Petrocelli, saying that Minkow wanted to meet. On April 10, Petrocelli and Lennar COO Jaffe met with Minkow and Poyfair at a Las Vegas hotel. Minkow had asked that the meeting be held there because his TV pilot about himself, Redemption, was being shown at a Las Vegas film festival.

A "smoking-gun" memo that Minkow sent to Lennar, which he claimed he had received anonymously, turned out to be a fabrication.

Petrocelli made the case for why Minkow's allegations were false. Minkow responded that he felt he had been misled by Marsch and was willing to drop his campaign, according to Petrocelli. In exchange, though, he wanted $1 million. Jaffe and Petrocelli walked out. (Minkow confirms Petrocelli's account. Poyfair says he agreed to represent Minkow only for the limited purpose of drawing up a settlement document if Minkow were able to negotiate a deal with Lennar on his own.)

During the last weekend of this eventful month, Pastor Barry Minkow departed from his sermon schedule to deliver a special two-weekend homily on "forgiveness." At the second of these, which focused on the concept of confession, he observed: "One of the biggest temptations I have in my other life, investigating fraud, is the very real temptation to become the people and use their tactics that they're using to defraud people ... It's an awful, ugly temptation ... 'Well they're hurting people, and I'm just trying to unhurt 'em.' No, no, no. It's a slippery slope."

As his campaign continued, Minkow claimed to receive more e-mails from the purported Lennar insider, and a Citibank analyst got one too. Petrocelli's legal team, which had been scrutinizing Minkow's modus operandi for months, noticed that this insider's persona closely resembled that of an anonymous USANA insider from whom Minkow had purportedly received assistance on Internet message boards during his 2007 campaign against that company. Both insiders had a playful, taunting persona; both addressed Minkow as "convict" while according him obvious respect; and both used the phrases "Riddle me this, Batman" and "Happy hunting!"

In early May 2009, Minkow launched a fresh attack on Lennar, accusing CEO Miller and COO Jaffe of holding undisclosed bank accounts in the Cayman Islands and Switzerland. Miller and Jaffe immediately executed affidavits denying the accusation. Privately, they also offered bank-secrecy waivers to the government so it could verify that they held no such accounts.

When Petrocelli later forced Minkow, through litigation, to reveal the basis for this accusation, he identified an investigator he had hired, Terry Gilbeau, as his source. Gilbeau, when deposed, said he got the information orally from another investigator, whose name he could not recall, and said he regarded it as just "preliminary intelligence" that he assumed Minkow would "vet out" if he intended to rely on it.

In May, Petrocelli made a written submission -- the first of several -- to the criminal division of the U.S. Attorney's Office in Miami presenting evidence that, in his view, showed that Marsch and Minkow were conspiring to commit extortion and securities fraud. He also alerted authorities to another curiosity he had come across during discovery: Two of Minkow's consultants in the Lennar case had been paid via PayPal accounts belonging to the San Diego Community Bible Church.

"If you can't trust the pastor …"

As the full-length movie about Minkow's redemption was shot in Los Angeles in August and September 2009, litigation nets were constricting around Marsch and Minkow. The trial of Marsch's main allegations against Lennar started in San Diego in June, and over the summer Marsch was cross-examined by Petrocelli for 16 days. At the same time Petrocelli asked the Miami court, which was hearing Lennar's attempted extortion suit against Marsch and Minkow, to sanction Minkow for a wide range of litigation misconduct.

Though Marsch appeared outwardly to be wealthy, the litigations were taking a toll. To fund them he borrowed $3 million from an investor group in exchange for 65% of any potential recovery from Lennar. In May 2009 he borrowed $600,000 from Minkow and his congregant and business partner, Sachs, in exchange for another 5% of his recovery. Marsch also sold the pair a Colorado ski property for $850,000 of Sachs's cash and $500,000 in forgiveness of fees Marsch now owed Minkow, since the Lennar campaign had lasted so much longer than anticipated.

By the close of 2009, Minkow may have been experiencing financial strains of his own. He approached a retired, divorced grandmother in his congregation, whom I'll call Linda. As pastor, Minkow had helped Linda's family through difficult times. Now he asked Linda if she would take $150,000 out of her home-equity line and give it to another member of the congregation, whom I'll call Steve, so that Steve could invest it in Minkow's movie to pay for "post-production" expenses. In exchange, Steve would execute a promissory note to Linda, which Minkow would co-sign as guarantor.

Linda did as asked. "If you can't trust the pastor," she says in an interview, "who can you trust?"

A month later Minkow came back to Linda and asked for another $100,000 loan. This one was to expand a business he had set up owning FedEx delivery routes. (FedEx Ground does not directly employ its delivery truck drivers. Instead, it hires contractors to provide drivers for its trucks.) Linda gave Minkow the money, and he gave her another note. He also said he'd give her a piece of the trucking business, which would yield several thousand dollars a month. (In our interviews, Minkow said he had indirectly paid some money back to Linda -- maybe $50,000 -- by paying Steve to do remodeling work on Linda's house. But Minkow also admitted, "I kind of knew [Steve] was squandering the money and not doing it." Steve did not return e-mails.)

As 2010 began, Minkow was hurtling toward disaster. In January, Minkow got a subpoena from the SEC, revealing that he was being investigated for securities fraud. In February, Marsch declared bankruptcy in San Diego and also put his company, Briarwood Capital, into Chapter 11. In April the ski property Marsch sold to Sachs and Minkow also went into bankruptcy. In July, after Marsch gave seemingly inconsistent testimony in the San Diego and Colorado proceedings, the San Diego bankruptcy judge ousted him from control over his own company, saying he had lost confidence in Marsch's "capacity for candor and honesty."

On Friday, July 16, the judge who had presided over Marsch's 11-month trial against Lennar in San Diego, Superior Court Judge William Nevitt Jr., delivered his decision. While Marsch had been a persuasive witness during his direct testimony, Judge Nevitt wrote, his story "did not withstand close scrutiny and cross-examination." Nevitt concluded that Marsch "repeatedly gave false testimony on material issues." Lennar owed Marsch nothing, he concluded, and, on the contrary, Marsch owed Lennar $17 million.

Nevitt's ruling meant that there would most likely be no payoff for Minkow's long, costly mission for Marsch. Minkow was ruined.

At his sermon that weekend, Pastor Barry alluded to his predicament. "I have a client in the fraud-uncovering world that I live in," he said, "that I felt was just taken advantage of in a horrible way. And it was a big Goliath-type public company and he was the David ... I put my whole heart into it ... and after a year and a half" -- long pause -- "he lost everything. He lost the case."

But Minkow's sermon was not about accepting failure. It was about bouncing back from it. "Remember all the Rocky movies," he told the congregation. "I liked Rocky V the best." He recounted the moment when Tommy Gunn is savaging Rocky in the ring, and Rocky falls backward in slo-mo and all seems lost. But then Rocky has a flashback to what his deceased trainer Mickey -- the Burgess Meredith character -- would have told him. "Dum dede dum dede dum dum dum. And [Rocky] gets up, and he wipes the floor with Tommy Gunn. All because Mickey said, 'Get up ya bum, because Mickey loves ya' ... When you're down, I want you to hear that music. Dum dede dum dede dum dum dum. I want you to think Jesus is saying, 'Get up ya bum, because Jesus loves ya.' " The congregation erupted in applause.

In August, Minkow testified at a hearing on whether he had committed litigation misconduct, as Petrocelli alleged. Though she didn't rule on the spot, Miami judge Gill Freeman commented from the bench, "Mr. Minkow ... will lie, plain and simple. He seems to have absolutely no sense of responsibility for telling the truth."

In September the church elders discovered that the church's income was running below projections by $28,000 per month. It would have to surrender office space and lay off staff. They also learned -- in part due to evidence emerging from the Lennar case -- that Minkow was commingling funds, that he had concealed certain debts from the board, and that he had opened checking accounts in the church's name that the elders hadn't known about. Nevertheless, according to board minutes, the elders concluded that Minkow's "giving exceeded what was reimbursed to him," and retained confidence in him.

In November, Minkow went back to Linda, the retired grandmother. He was now selling his FedEx routes, he explained, and would be buying a gas station instead, and he'd give her a stake in that. To be known as GreenCo, the station would have an environmentalist angle. "People could pay I forget how much more for gas to get their carbon imprinting," Linda says. "It would be the first company of its kind. It was going to be big."

Minkow showed her a photocopy of what purported to be an e-mail from Minkow's accountant at Marcum, an accounting firm, instructing Linda to write Minkow a check for $22,500, which he'd pay back later. This "confusing" transaction, the accountant explained, would protect Linda from adverse tax ramifications from her investment in the gas station. She did as requested. (Linda faxed me the purported accountant's e-mail, which I forwarded to Marcum. A Marcum spokesperson says the e-mail could not possibly have originated from Marcum's servers, as their employees use "@marcumllp.com" addresses, while the one shown to Linda purports to have been sent from an "@marcumllp.net" address. Minkow responds, "If the e-mail to [Linda] is somehow inaccurate, it is in the hands of the FBI ... and I have no clue.")

December brought crisis. First, Minkow learned that he was under federal criminal investigation. Then one of his civil law firms sued him for nonpayment of $34,000 in fees. Finally, two days after Christmas, Judge Freeman ruled on Petrocelli's sanctions motion. She found that Minkow had "withheld key documents," "destroyed or discarded important evidence," "concealed the identity of material witnesses," "willfully violated court orders," "engaged in actions to cloud his misconduct," and "intentionally misrepresented" matters to his own lawyers, to Lennar, and to the judge herself. She ordered the stiffest possible sanction: default. In other words, the only issue left in the case was how much Minkow would owe Lennar in damages. (Lennar wanted $583 million plus attorneys' fees.)

Minkow's GreenCo gas station ("Feeling good about fueling") launched in January 2011. Its manager, Robert Warner, soon noticed something odd. The security camera showed that Minkow was coming in twice a day to clean out the safe.

GreenCo's main gasoline supplier, Eric Dransfield, also noticed puzzling conduct. First Minkow asked to pay him via PayPal. Then, once he set up an account, he began receiving payments from Minkow, Minkow's wife, Minkow's secretary, and, yes, the grandmother I've been calling Linda.

Minkow had asked Linda to set up a PayPal account linked to her Discover card, she explained to me, to which Minkow's secretary would have access. This was, again, supposed to be for tax purposes, she says. Minkow put $21,000 in gasoline charges on her card, she says.

In late January there was a burglary at Minkow's church -- never solved -- in which $50,000 was stolen from the donation box. In conversations with me, Minkow denied any involvement, emphasizing that, as he would have known, the box contained only a couple thousand in cash, that the rest consisted of checks on which congregants were easily able to stop payment, and that the church had no insurance for burglary, so he had "no motive."

In March, after a series of Minkow's payments bounced, Dransfield says, Minkow owed him $47,000. He went to Minkow's home.

Minkow appeared to have just given himself an injection to relieve migraines, according to Dransfield, who remembers seeing the needle and the mark it had left on Minkow's forehead. (Minkow does have a medical history of severe migraines.) He was "walking in a dazed state" with "his belt undone," Dransfield recalls. Minkow admitted owing Dransfield the money and signed over to Dransfield all his rights to GreenCo.

But Minkow never had authority to convey anything he was purporting to convey. GreenCo's lease had never been in Minkow's name in the first place.

A day or two later, on March 16, the church elder board issued a press release announcing that Minkow had resigned the day before and would be pleading guilty to "one criminal count." The board said it was "saddened," that it appreciated "his 14 years of faithful service," and that it would "make no further statements regarding these matters."

By then, Minkow had left town and, by April, he and his family were living in Tennessee.

Minkow's guilty plea was inked on March 22, his 45th birthday. In it Minkow acknowledged having conspired to "artificially depress" Lennar's stock price in order to assist "Conspirator A," who was employing "extortionate means" to induce Lennar to pay him a sum of money. Minkow admitted making "numerous false and misleading statements" on his websites, and "adopting Conspirator A's false assertions with reckless disregard for their truth." He also admitted that he "abused his relationship" with federal law enforcement to get nonpublic information and trade on it.

"We appreciate the good work of the Justice Department in protecting our public securities market," says Lennar CEO Stuart Miller.

Marsch hasn't been charged with any crime. "This case is still open," says a Miami FBI spokesperson. "Therefore, we cannot comment at this time." He also declined to say whether any FBI agents had been punished for sharing confidential information with Minkow.

In my conversations with Minkow, he more than once told me of a joke he recalls his criminal defense lawyer making that, he believed, provided an apt summary of the lessons we should take away from his "relapse." In a sense, I agree.

"We were at this very high-tension meeting, where I'm not allowed to talk," Minkow recounted. He and his lawyers were meeting with federal prosecutor Ryan O'Quinn. Minkow's lead lawyer, Don Re, was participating by phone, while Minkow attorney Alvin Entin was present in person.

According to Minkow, the prosecutor said, " 'Mr. Re, you should be proud of your client. In the ZZZZ Best thing he was running the deal -- he was the head guy. Now he's just a small player. He's getting better.'"

In response, according to Minkow, Re quipped, " 'That's how I know he's innocent. Because if this were a fraud, Barry would be running things.' " Everyone laughed, as Minkow remembers it.

Re did not return calls and e-mails seeking confirmation of his joke. Prosecutor O'Quinn, now in private practice, said he has no memory of such an exchange. "Given the role that Mr. Minkow admitted to playing in his attack on Lennar," he wrote in an e-mail, "I doubt anyone would have called him a small player. I certainly do not remember anyone saying that."

Entin, Minkow's longtime friend and lawyer, also could not confirm the story. "That one I don't recall at all," he said.

This article is from the January 16, 2012 issue of Fortune.

Filed under: Uncategorized

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