WSJ What’s News - Why Costco Is Holding Onto Its Diversity Initiatives

Episode Date: January 23, 2025

P.M. Edition for Jan. 23. Many companies and government agencies are facing pressure to roll back their efforts at diversity, equity and inclusion, but Costco is working to keep them. WSJ reporter Sarah Nassauer explains why the company is urging shareholders to strike down a proposal to reject them. Plus, President Trump pushes his “America First” policies in an address to the World Economic Forum. And software firm MicroStrategy is making a big bet on bitcoin. We hear from WSJ reporter Vicky Ge Huang about the surprising group of investors backing it. Alex Ossola hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

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President Donald Trump pushes his America First approach in an address at the World Economic Forum. Plus, why Costco is standing by its diversity initiatives. And how MicroStrategy is drawing conservative investors to put their money in Bitcoin. A lot of these bond investors, usually investors that play it safe, are starting to believe in the potential of Bitcoin to go up over the short, medium to long term. It's Thursday, January 23rd. I'm Alex Osola for the Wall Street Journal. This is the PM edition of What's News,

the top headlines and business stories that move the world today. In a video address at the World Economic Forum in Davos, Switzerland, President Trump told business leaders that if they don't make their products in the US, they should expect to pay a tariff. My message to every business in the world is very simple.

Come make your product in America and we will give you among the lowest taxes of any nation on Earth. We're bringing them down very substantially even from the original Trump tax cuts. But if you don't make your product in America, which is your prerogative, then very simply you will have to pay a tariff, differing amounts, but a tariff which will direct hundreds of billions of dollars and even trillions of dollars into our treasury to strengthen our economy and pay down debt. Trump also expressed frustration with European tariffs on American farm products and cars, and he called on the Saudi Arabia-led Organization of the Petroleum Exporting Countries, or OPEC, to lower the price of oil as a move that could pressure Russia to call off its invasion of Ukraine.

The Saudi government didn't immediately respond to a request for comment. Separately, a federal judge blocked President Trump's executive order that aimed to end birthright citizenship. In a lawsuit brought by a coalition of Democratic state attorneys general, district judge John C. Kuhnauer said he would enter a temporary restraining order that prohibits the Trump administration from implementing the executive order until he can hear arguments over its legality. The restraining order would be in effect for 14 days.

Between Trump's speech, his promises for tax cuts and AI investment, plus a strong start to earnings season, U.S. stock indexes were up today. The S&P 500 closed at a new record, its first of the year, rising about 0.5 percent. The Dow climbed approximately 0.9 percent, and the Nasdaq was up roughly 0.2%. Software company Microstrategy is making a big bet on Bitcoin. It owns about $48 billion worth of it, funded in part by selling convertible bonds, debt that can eventually be converted into shares if the stock price rises to a specified level. Last year, Microstrategy issued $6.2 billion of convertible debt.

According to Bank of America, that's the most ever issued by a single company in a calendar year. And who buys those bonds? Vicki Wong, who covers crypto for the Wall Street Journal, reports that it's a rather unlikely group of companies. Vicki joins us now. Vicki, you report that many of MicroStrategy's investors are organizations like insurance companies, which aren't known for big risky bets on things like crypto.

Why are they so into investing with MicroStrategy? What we found is it's a three-part answer. One of the reasons why these investors want to buy MicroStrategy bonds is simply because the performance of these bonds have been really, really strong. So that some bond investors almost have to buy it, especially if you're a convertible bond fund manager, and this is in your trading investing universe, it almost makes it so that you have to buy it just to have good performance. The other part of this is that because these are micro strategy bonds

and micro strategy itself has become a leverage play on Bitcoin, it just means so that these bonds are essentially Bitcoin bonds. A lot of these are unsecured bonds, meaning that micro strategy doesn't pose collateral to borrow money from investors. However, in a way, these bonds are almost backed by Bitcoin because they're backed by MicroStrategy. And a lot of these bond investors, usually investors that play it safe, are starting to believe in the potential of Bitcoin to go up over the short, medium to long term. And then the last reason is that because the bonds that MicroStrategy issued

are convertible bonds, a lot of hedge funds and mutual fund asset managers, they can buy the bonds of MicroStrategy and short the stock, which basically means betting against the stock. And this trading strategy works only when the stock you're betting against is super, super volatile and micro strategy stock like Bitcoin is really volatile. So a lot of hedge funds that engage in this convertible arbitrage strategy have been able to make a lot of profits because of the hypervolatility of micro strategy.

Are there other companies doing something similar? Yes, there are more and more companies that have started to copy micro strategies playbook. For example, some of the Bitcoin miners such as Bitcoin mining company Mara want to join in on this ride of momentum and profits. That was Wall Street Journal reporter Vicki Huang. Thanks Vicki. Thank you for having me. Coming up, under pressure to reduce its diversity initiatives, why Costco is holding out. That's after the break. INTRO

Diversity, equity, and inclusion efforts are under fire, both in government and the private sector. This week, the Trump administration closed DEI programs within federal agencies and placed all staff working on those programs on paid leave. And as we reported yesterday, activists are pushing banks like Goldman Sachs and JP Morgan Chase to abandon their initiatives as well. But at least one company is sticking with its DEI effort, Costco. Shareholders are expected to vote today on a conservative activist group's proposal

to assess the risks that diversity initiatives pose to the company's stock price. The retailer has urged them to reject it. My colleague Pierre Bienneme spoke with Sarah Nassauer, who covers big retailers for the Wall Street Journal. He asked her why Costco is sticking to its DEI efforts. They said that their DEI efforts are part of what has made them so successful. It helps them attract talent, spur innovation, select merchandise that appeals to shoppers, offer things at a good value. Basically said, you know, we're

committed to this and it's good for our business. The way that they have talked about it, and you can see this in some of their response to their own customers that have reached out to them about this stuff with concern, is, hey, we're an employer that wants to give everyone equal opportunities. We really focus on having a higher wage and benefit structure than our competitors. Those are things that have always been important to us over decades and we're not changing that.

It is just a little bit of a different tone than other companies that are on some level kind of just changing like switching from one language, set of language options to a different set of language options, right? They're just communicating differently. Customers at Costco, they pay an annual membership fee to shop there and they're pretty loyal. 92% of US members renew that membership each year. How significant is that for Costco's ability to stick to its guns? It seems fairly significant. There are several things at play here.

One is that Costco, it's a massive company, but it doesn't really jump on corporate bandwagons. They just tend to do things from a corporate perspective a little bit differently. They don't have a public relations department or even person. They're a retailer that hasn't really tried to quickly grow e-commerce sales. They really do want you to come into clubs even though they have a dot com site. And as you said, they have a very, very loyal customer base. And that does allow them to perhaps do things a little differently and be maybe not quite as reactive as other companies. What are Costco's DEI initiatives? They're not as extensive, frankly, as some other companies have developed, say, since

2020 in the wake of George Floyd's murder. There were a lot of companies that sort of came out with announcements like Walmart would be one, Target would be another, about funding new racial equity centers or doing things differently when it came to training workers, things like that. Costco's policies are about things like executive bonuses are partially tied to some social objectives including diversity, equity, inclusion goals. They do report metrics on gender and race and ethnicity demographics on their workforce, things like that.

That was WSJ reporter Sarah Nassauer speaking to my colleague Pierre Bienamé. In other business news, the Sackler family, which owns Purdue Pharma, has struck a new agreement to settle mass litigation around the sale and marketing of opioids. New York Attorney General Letitia James said the family members will pay $6.5 billion over 15 years, while the company will fork over an additional $900 million in a one-time payment. That makes a total of $7.4 billion. Family members won't receive a blanket shield from liability from civil lawsuits. And CNN is laying off about 200 employees, or roughly 6% of its workforce.

It's part of a broader effort to boost digital growth and prepare the company to launch a streaming service. And that's what's new for this Thursday afternoon. Today's show was produced by Pierre Bienneme and Anthony Bansi with supervising producer Michael Kosmides. I'm Alex Osela for The Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.