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Business

Several Top Rivian Executives Depart the Electric-Vehicle Startup

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Several top executives at

Rivian Automotive Inc.,

RIVN -1.02%

including the vice president overseeing body engineering and its head of supply chain, have left the EV startup in recent months, as the company exits a year in which it fell short of its production targets.

The departures, confirmed by a Rivian spokeswoman, are the latest developments in what has been a challenging period for Rivian, which has been rolling out its first all-electric models but last year missed a critical milestone of manufacturing 25,000 vehicles. The company said it was off its goal by about 700 vehicles in part because of difficulty getting parts. 

Rivian’s stock has also tumbled since its blockbuster initial public offering in November 2021, down roughly 79% through Tuesday’s close. 

The executives who have left were some of Rivian’s longer-tenured employees. Among them is Randy Frank, vice president of body and interior engineering, and Steve Gawronski, the vice president in charge of parts purchasing. Both had departed around the beginning of this year. 

Mr. Frank joined Rivian in 2019 from

Ford Motor Co.

Mr. Gawronski joined in 2018 from the autonomous vehicle startup Zoox.

Another early employee, Patrick Hunt, a senior director in the strategy team, left the company late last year. Mr. Hunt joined Rivian in 2015.

Rivian’s general counsel, Neil Sitron, departed in September after 4½ years with the company, which was founded in 2009.

The Rivian spokeswoman said the company wants to ensure the startup has the talent and staff it needs to ramp up production. The company declined to comment on the individual circumstances of the departures. Efforts to reach the former employees weren’t immediately successful.

“We continue to attract world class talent to our company as our business needs change,” she said.

The departures mark the latest shake-up at the top of Rivian, which has brought in new executives to oversee the company’s manufacturing operations. The company’s first full year of factory production was marred by supply-chain troubles and difficulties getting the assembly line to run at full speed.

Tim Fallon, former head of

Nissan Motor Co.

’s factory in Canton, Miss., was hired in early 2022 to run Rivian’s sole factory in Normal, Ill.

In June, Rivian hired Frank Klein as chief operating officer, from contract manufacturer

Magna Steyr.

In a November email to employees reviewed by the Journal, Mr. Klein wrote that with Mr. Gawronski’s exit, the company was taking the opportunity to make some organizational changes to ensure it can support the increased complexity that the group will handle in coming years.

Mr. Klein added Rivian was reorganizing its supply-chain management, putting one vice president in charge of the supply chain and logistics, and another in charge of parts procurement.

He also announced that Rivian had hired Andreas Reutter from tool maker

Stanley Black & Decker Inc.

to oversee Rivian’s supply-chain logistics.

The changes at the top of Rivian come as it attempts to transform from an upstart looking to raise capital to a mass manufacturer with ambitions to become one of the world’s largest auto makers.

Rivian is under pressure to prove it can build its electric trucks at scale without having ramped up production before, as competition heats up from legacy auto makers. WSJ toured Rivian’s and Ford’s EV factories to see how they are pushing to meet demand. Illustration: Adam Falk/The Wall Street Journal

Its first all-electric models, the R1T pickup truck and R1S sport-utility vehicle, are relatively new. The company has only been building cars at its Illinois factory since late 2021. Before then, it had never built or sold a single vehicle for retail. 

As part of its expansion, Rivian went on a hiring spree, growing rapidly from about 1,200 workers in 2019 to around 14,000 employees by the summer of last year and has only recently begun creating positions that exist at many companies.

In April, Anisa Kamadoli Costa was hired as chief sustainability officer from jewelry maker Tiffany Inc. In October, Rivian hired a former Capital One Financial Corp. executive, Diane Lye, as its first chief information officer.

As Rivian has struggled to increase factory output, it has come under pressure to trim spending. Last summer, the company laid off around 6% of its workforce and cut spending on many of its programs. 

The company became focused on bringing production of its current set of vehicles up to speed. It also makes an electric delivery van that it sells to Amazon.com Inc. 

In an example of the young car maker’s shifting priorities, Rivian suspended negotiations with Mercedes-Benz AG over a proposed van partnership in Europe, which had been an expansion target for Chief Executive RJ Scaringe. Rivian said the decision came after re-evaluating its opportunities for growth.

The company reported a net loss of $5 billion for the first nine months of 2022, and its cash pile fell to $13.8 billion at the end of September, down from $15.46 billion in June. Rivian is scheduled to report its full-year results on Feb. 28.

Write to Sean McLain at sean.mclain@wsj.com and Nora Eckert at nora.eckert@wsj.com

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Business

Crypto Entrepreneurs Fail to Capture Elon Musk’s Attention With $600,000 Goat Statue

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AUSTIN, Texas—Even as a cold night started to settle outside

Tesla

‘s headquarters here on Saturday, a group of cryptocurrency entrepreneurs had no plans to leave until

Elon Musk,

the man they named their currency after, accepted a 12,000-pound sculpture of a Mr. Musk-headed goat riding a rocket.

It is the latest stunt in the cryptocurrency space, where jokes and memes about digital currencies regularly flood social media. But a 6-ton sculpture as a marketing gimmick isn’t so common.

The creators of Elon GOAT say the name of their cryptocurrency was inspired by their respect for Mr. Musk. They and his other fans think he is the “greatest of all time,” or a “GOAT.” They took the admiration literally, spending $600,000 to create a sculpture of Mr. Musk’s head, wearing a gold-plated dogecoin necklace on a goat’s body. The rocket can move, pointing to the sky as if it is taking off. Gas lines run through it so that flames can shoot out of the back.

They trucked it to

Tesla Inc.’s

headquarters, in hopes Mr. Musk would accept the gift. The creators are calling called the event “GOATSgiving.”

Elon Musk has warned of dire financial challenges facing Twitter, the social-media company he took over for $44 billion in October. WSJ’s Mark Maurer explains how the company is trying to fix its finances and avoid a potential bankruptcy. Photo Illustration: Laura Kammermann

But about two hours after the co-founders of Elon GOAT parked the sculpture right outside the Tesla building, there was no sign of Mr. Musk.

Dustin Dailey, a security officer at Tesla, walked over to a group of about 15 people and said they couldn’t accept the sculpture on Mr. Musk’s behalf, but would find a spot for it on their property if Mr. Musk gave the thumbs-up.

But so far Mr. Musk hasn’t given any indication he would accept it or whether he knew the sculpture was there. Tesla didn’t respond to a request for comment

“I am fairly certain he does know about it,” said Mr. Dailey of the sculpture. “It’s all over Twitter.”

SHARE YOUR THOUGHTS

What do you think of the Elon Musk goat sculpture? Join the conversation below. 

Alec Wolvert, an Elon GOAT co-founder and chief marketing officer, said they were planning on camping out on a piece of public land off a toll road that overlooks the headquarters until Mr. Musk accepted the sculpture.

“We’re gonna stay here as long as possible,” Mr. Wolvert said. “I even heard some people say they were going to strap themselves to it.”

The idea of the sculpture came together last year. “It was an evening joke that kind of just came to fruition,” said

Ashley Sansalone,

an Elon GOAT co-founder.

Metal sculptor Kevin Stone spent nearly six months working on the sculpture of Elon Musk.



Photo:

Kevin Stone

The cryptocurrency entrepreneurs asked Kevin Stone, a metal sculptor in British Columbia, Canada, to make the giant sculpture with Mr. Musk’s head. The goal: to get Mr. Musk to tweet about the sculpture to his more than 118 million followers and draw attention to their cryptocurrency, the Elon GOAT.

“Elon tweeting us would legitimize the token,” said Mr. Sansalone, 40 years old.

Mr. Sansalone said he works on the token full time and previously ran a construction company and traded energy. Unlike bitcoin, ether or dogecoin, the Elon GOAT token is far from a household cryptocurrency name. It is ranked well outside the largest cryptocurrencies by market value, according to CoinMarketCap.

Mr. Musk’s head, which took nearly six months to complete was made by Mr. Stone. The goat body and rocket were made by others in Phoenix to speed up the project, Mr. Sansalone said. Then all the pieces were put together and attached to the back of a 70-foot long semi-truck trailer.

“When I first saw the statue my jaw dropped,” said DeMarco Hill, 51, who spotted it in September in Goodyear, Ariz., where he lives. He grabbed his 12-year-old son and they followed it. “It was something you’ve never seen before in your life.”

Mr. Hill, a trucker who owns his own company, Stay Ready Trucking, thought the stunt was so entertaining that he found Mr. Sansalone and asked if he could participate. Mr. Sansalone said Mr. Hill was needed because only someone with a special license could drive around the heaping pile of metal.

He has since driven the sculpture through California, Arizona and Washington, before bringing it to Texas. People who drive by honk their horns or give a thumbs-up, Mr. Hill said. 

“If I pull up to the side of the road it’s like people crowding around,” he said. “It gets crazy.”

Mr. Sansalone said the sculpture has mostly gotten a positive response. He hasn’t heard anyone mistaken Mr. Musk’s face for someone else. “I would say he is probably the most relevant person on the planet right now,” Mr. Sansalone said about Mr. Musk, the world’s richest person who recently bought Twitter Inc. for $44 billion.

In September, the sculpture sat in front of Tesla’s office in Palo Alto, Calif., during the company’s artificial-intelligence conference. Tesla employees crossed the street to take pictures with the sculpture, Mr. Sansalone said. Mr. Musk was at the conference, according to Twitter posts he made, and Mr. Sansalone assumes the billionaire saw the sculpture. 

“All there was to look at was a lit-up rocket erected in the middle of the street,” he said. 

On Saturday night, the group remained hopeful.

At one point in the evening, a group of about 20 people who were waiting outside started to chant “Elon claim your goat” in the hopes that the god of crypto, as one co-founder put it, would hear them.

“I’m a huge fan of Elon and I want to give this man his flowers while he’s alive,” said Aamir Manzoor, a 36-year-old from Toronto who is a holder of Elon GOAT. “He’s done a lot for the world.”

Write to Joseph Pisani at joseph.pisani@wsj.com, Alyssa Lukpat at alyssa.lukpat@wsj.com and Adolfo Flores at adolfo.flores@wsj.com

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Business

TuSimple Fires CEO Xiaodi Hou Amid Federal Probes

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TuSimple Holdings Inc.,

TSP -46.16%

a self-driving trucking company, said Monday it had fired its chief executive and co-founder,

Xiaodi Hou.

The San Diego-based company said in a news release and securities filing that its board of directors on Sunday had ousted Mr. Hou, who was also the board chairman and chief technology officer. 

Mr. Hou was fired in connection with a continuing investigation by members of the board, the release said. That review “led the board to conclude that a change of Chief Executive Officer was necessary,” the company said in the release.

The securities filing said that the board’s investigation found that TuSimple this year shared confidential information with Hydron Inc., a trucking startup with operations mostly in China and funded by Chinese investors. The filing also said that TuSimple’s decision to share the confidential information hadn’t been disclosed to the board before TuSimple entered into a business deal with Hydron.

TuSimple said it didn’t know whether Hydron shared, or publicly disclosed, the confidential information, the securities filing said.

Messrs. Hou and Chen didn’t immediately respond to a request for comment.

Mr. Hou’s termination was announced the day after The Wall Street Journal reported TuSimple and its leadership, principally Mr. Hou, faced investigations by the Federal Bureau of Investigation, Securities and Exchange Commission and Committee on Foreign Investment in the U.S., known as Cfius, into whether the company improperly financed and transferred technology to a Chinese startup, according to people with knowledge of the matter.

TuSimple’s stock plunged more than 44% Monday. Shares in the company are down more than 90% for the year. 

Investigators at the FBI and SEC are looking at whether Mr. Hou breached fiduciary duties and securities laws by failing to properly disclose TuSimple’s relationship with Hydron, the China-backed startup founded in 2021 by TuSimple co-founder Mo Chen that says it is developing autonomous hydrogen-powered trucks, the Journal reported. Federal investigators are also probing whether TuSimple shared with Hydron intellectual property developed in the U.S. and whether that action defrauded TuSimple investors by sending valuable technology to an overseas adversary.

The Journal also has reported that the board in July began investigating similar issues, including whether TuSimple incubated Hydron in China without informing regulators, the TuSimple board or its shareholders, said other people familiar with the matter. A June business presentation from Hydron viewed by the Journal named TuSimple as Hydron’s first customer, and said TuSimple would purchase from Hydron several hundred hydrogen-powered trucks equipped with self-driving technology. A TuSimple spokesman said the company has considered an agreement to buy freight trucks from Hydron but isn’t a Hydron customer. 

TuSimple’s securities filing on Monday said that TuSimple employees worked for Hydron and were paid, earning less than $300,000. The board wasn’t aware of this nor had members approve it, the filing said. Mr. Chen, who founded and leads Hydron, is TuSimple’s largest shareholder, owning about 11.8% of the company, according to FactSet.   

Mr. Hou’s dismissal follows months of upheaval at the company, including the departures of its chief financial officer and chief legal officer and a sharp drop in its stock price. Much of the turmoil began when Mr. Hou took over as CEO in March, said former employees. 

In April, one of TuSimple’s autonomous semi trucks crashed on an Arizona freeway. The accident revealed safety and security problems at TuSimple that former employees said leadership had dismissed, the Journal reported in August. 

The company said

Ersin Yumer,

TuSimple’s executive vice president of operations, will serve as interim CEO while the board searches for Mr. Hou’s successor. Mr. Yumer previously worked on autonomous-vehicle technology at

Aurora Innovation Inc.,

Uber Technologies Inc.

and Argo AI, the autonomous-driving venture partly owned by

Ford Motor Co.

and

Volkswagen AG

that was shut down recently. Independent board director

Brad Buss,

the former chief financial officer at SolarCity Corp. and Cypress Semiconductor Corp., will be chairman, TuSimple said.

TuSimple said it would release its third-quarter earnings on Monday after the market closes. The earnings release was previously scheduled for Tuesday. The company, ahead of the results, said it remained on track to meet the full-year guidance disclosed in August, including ending the year with a cash balance of about $950 million.

Write to Heather Somerville at heather.somerville@wsj.com and Kate O’Keeffe at kathryn.okeeffe@wsj.com

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Business

Small Businesses Get Creative as They Still Struggle With Hiring

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The challenges are prompting some entrepreneurs to seek more creative ways to fill labor shortages at a time when they might have expected hiring to get easier.

Lindsay Goodson,

owner of Keith McDonald Plumbing in Milledgeville, Ga., hasn’t been able to find enough experienced plumbers. So she spent $700 to build a camera system that lets junior plumbers live stream their work while Ms. Goodson or another more-experienced plumber supervises from the office.

“It will be a step-by-step, start-to-finish training from afar,” said Ms. Goodson, who tried out the system for the first time in early September and said it would allow the 20-person business to take on more clients.

More than one-third of small businesses said hiring challenges had worsened in the three months ended Sept. 1, according to a Goldman Sachs survey of nearly 1,500 small-business owners. Forty-seven percent of them said finding and retaining qualified employees was the most significant problem small businesses faced, up from 43% in the survey released in June.

Lindsay Goodson hasn’t been able to find enough experienced plumbers for her business.

The data suggest a cooling labor market isn’t having the same impact on small firms that it is on big U.S. companies, some of which have reported that hiring has gradually gotten easier. Government data show the tight U.S. job market loosened a bit in August, with employers adding fewer workers and more people seeking work.

“Even though the news is talking about the labor market opening up, we’re not feeling it yet,” said

Wendy MacKenzie Pease,

owner of Rapport International, a Boston-based provider of translation services.

Ms. Pease and other small-business owners say they are having a harder time matching the salary and benefit increases that big companies are offering. Rapport, which has seven full-time and five part-time employees as well as hundreds of contractors, hasn’t been able to fill two full-time openings even though it boosted wages by about 10% this year, Ms. Pease said. She looked into adding health-insurance coverage but concluded she couldn’t afford it.

A worker at the job site, top, wears a camera on his head as Lindsay Goodson watches from her office with an employee.

Nearly 60% of small companies report that worker shortages are affecting their ability to operate at full capacity, according to a September survey of more than 725 small-business owners by Vistage Worldwide Inc., a business coaching and peer advisory firm.

Southeast Constructors Inc. in Des Moines, Iowa, is addressing the labor shortage by creating its own training school. The new academy, set to open early next year, will offer three months of instruction in construction basics such as how to hang drywall, paint and drive a Bobcat. The heavy-construction firm hopes to hire some graduates of the program, which is expected to start with 50 students.

“During Covid, it was really hard as far as hiring. After Covid, it was even harder,” said

Perlla Deluca,

president of the 22-year-old company, which specializes in bridges, roads, parking lots and other government projects.

Perlla Deluca, president of a company that specializes in bridges, roads and other government projects, says hiring has gotten harder since earlier in the pandemic.



Photo:

Perlla Deluca

Ms. Deluca borrowed nearly $750,000 to buy and renovate a former middle school to house the program; she plans to charge $4,200 for the three-month class.

Overall, small-business confidence inched up slightly in September, as expectations for the national economy improved and the portion of entrepreneurs who expect profits to increase or remain at current levels edged upward, the Vistage survey found.

Nearly 80% of small-business owners said they have increased wages and compensation in response to hiring challenges, according to the survey, and another 11% plan to do so. In addition, 60% of small businesses have refined their recruiting strategies, while 46% have boosted employee benefits.

Some small-business owners say they see the job market easing at the margins. William Duff Jr., founder and managing principal of William Duff Architects Inc. in San Francisco, said the firm is getting more applications for junior-level jobs that require six to seven years of experience or less. Senior architects are harder to find, he said. The 30-person firm, which struggled most of the year to fill job openings, handed out raises at the start of the year and again in the summer.

“At the end of the summer, sort of continuing now, we’ve seen a lot better set of candidates” responding to job postings and coming through recruiters, Mr. Duff said.

Boudreau Pipeline Corp., based in Corona, Calif., says it has turned down more than $13 million in work this year, roughly 22% of the amount it has been awarded, because it doesn’t have enough staff. The roughly 350-person company installs underground utilities, water, sewer and storm drains.

Amid a record hiring streak in the U.S., economists are watching for signs of a possible wave turn. WSJ’s Anna Hirtenstein looks at how rising interest rates, high inflation, market selloffs and recession risks challenge the growth of America’s workforce. Photo: Olivier Douliery/AFP

“It’s frustrating,” said the company’s president,

Alan Boudreau,

who figures he could easily employ 50 more people. The company has boosted wages by 22% over the past two years and added three in-house recruiters. It offers hiring bonuses of as much as $2,500 and retention bonuses of up to $5,000, provided workers stay at least one year. In early 2021, the company boosted referral bonuses to as much as $1,500, up from $150 four years ago. Referrals are the best source of new hires, Mr. Boudreau said.

In August,

Vladimir Gendelman

eliminated college-degree requirements from all job positions at his Company Folders Inc., a Pontiac, Mich., maker of custom presentation folders, binders and envelopes. He came up with the idea after promoting his executive-assistant to a job as print project manager, though she didn’t have any skills or training in printing, prepress or graphic design.

“We realized we don’t need an education,” he said. “We need somebody who is learning on their own, somebody who can figure things out.”

Ms. Goodson, the owner of the plumbing company in Georgia, said she developed her virtual camera system after trying out a widely available camera and discovering that it was too complicated and didn’t have enough battery life. With the system, she can tell less-experienced plumbers to back up if they miss a step. Her lead technician plans to take the camera out on calls to record more complicated jobs, which will then be edited to create training videos.

Jon Hollis, a field technician who has worked for the plumbing company for about a year and half, said he was initially skeptical but now sees the camera system as a very useful tool. “It’s become a pretty integral part of our everyday work,” he said.

Lincoln Vinson gets tools to do plumbing repairs at a home in Milledgeville, Ga.

Write to Ruth Simon at ruth.simon@wsj.com

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Business

SoftBank Considers Launching a Third Vision Fund

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Global tech investor

SoftBank Group Corp.

is considering the launch of a new giant startup fund after ill-timed bets and massive losses weighed down two earlier attempts to dominate startup investing, according to people familiar with discussions at the company.

The Tokyo-based tech conglomerate, by far the world’s largest startup investor in recent years, would likely use its own cash for what would be the third SoftBank Vision Fund if it moves ahead with the plan, some of the people said.

The company is also considering putting additional money into Vision Fund 2, its main investment fund for the past few years, instead of starting a new fund, one of the people said. Vision Fund 2 is currently worth less than the investment that went into it. Those losses significantly reduce the pay for SoftBank staff working on the fund—a factor in its decision making. The company expects to make a decision in the coming months, the people said. 

SoftBank, led by Chief Executive Officer

Masayoshi Son,

has been hit particularly hard by the rout in tech valuations that began last fall, posting a record $23 billion loss in the three months ended in June. 

Much of that red ink is a product of its first two Vision Funds, the startup investment unit that Mr. Son formed in 2017 in a bid to dominate the venture sector. The $100 billion initial Vision Fund, which raised $60 billion from Saudi and Emirati wealth funds, was beset by giant soured bets on companies including WeWork Inc. and

Didi Global Inc.,

leading to meager gains over five years. 

The successor Vision Fund 2, funded by SoftBank and intended to be more cautious, is now worth 19% less than the $49 billion it invested, after accelerating its spending just as valuations peaked on companies including fintech Klarna Holdings AB. 

Chief Executive Officer Masayoshi Son has been hit particularly hard by the rout in tech valuations.



Photo:

Neil Hall/REUTERS

Mr. Son told investors in August he was “quite embarrassed and remorseful” after having gotten caught up in the frenzy, and he has substantially cut back spending on startups. Still, he has said he is committed to the startup and tech sector long term and eventually plans to increase spending again.

Mr. Son and SoftBank have tried to chart a new path forward after the market turned against unprofitable tech investments. He has also faced a string of departures of top staff. In July, the company said

Rajeev Misra,

who led the Vision Fund since it was created in 2017, would step back from his role overseeing new investments as he starts his own fund. 

Despite the misses, SoftBank expects to have more cash coming in over the next year, from a public listing of its chip maker Arm. Its Japanese telecom holdings also generate cash. 

Still, analysts and investors say the company’s options are more limited than in the past. Mr. Son has been selling down SoftBank’s stake in Alibaba Group Holding Ltd. and its telecom holdings, and funding a large stock-buyback program. The result has been an increasingly concentrated bet on startups, where results have been disappointing. 

Among those pushing for a new fund are some employees of the Vision Fund. A new fund would be a way to reset their compensation, which is partly based on profits at the fund and its investments, one of the people familiar with discussions said. The current fund would require making back large losses before employees could get those bonuses. A new fund would put profits closer in reach. The company is also considering restructuring staff incentives for Vision Fund 2. 

The size of the new fund couldn’t be determined. 

Mr. Son personally takes a hit with Vision Fund 2 in the red because of a $2.6 billion personal commitment he made. Based on the terms of the investment, Mr. Son didn’t put up the money himself but owes SoftBank if the fund ends up performing poorly.

The unusual investment has been criticized by some investors and analysts who say it could skew Mr. Son’s motivations given a structure that could make him more focused on Vision Fund 2 than on other investments. Mr. Son, who owns over one-fourth of SoftBank, has said the structure better aligns him with the investment fund.

SoftBank structured its arrangement in a way that allows the company to get repaid on most of its investment before Mr. Son. About $33 billion of its commitment to Vision Fund 2 is in preferred equity.

While that structure would have led to outsize profits for Mr. Son if Vision Fund 2 did well, today it means particularly large losses because the fund is underwater. Mr. Son currently owes $2.1 billion on the investment, SoftBank disclosures show. He is charged a 3% annual interest rate on his unpaid balance to SoftBank.

From the Archives: SoftBank’s longtime strategy of dumping mountains of cash on promising young companies to create big winners failed dramatically at WeWork and is inviting scrutiny into the fund’s other investments. Here’s a look at Vision Fund’s structure, and how its fast-paced investment strategy could make it risky.

Write to Eliot Brown at Eliot.Brown@wsj.com and Julie Steinberg at julie.steinberg@wsj.com

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Business

Fed, Biden Administration Float New Lending Rules for Lower-Income Areas

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WASHINGTON—Top U.S. regulators proposed overhauling how banks lend hundreds of billions of dollars annually in lower-income communities, after scrapping a Trump-era revamp that had divided regulators and industry officials.

The latest proposal to modernize rules for the 1977 Community Reinvestment Act, announced Thursday, aims to ensure lending to lower-income individuals and small businesses is distributed more evenly where banks do business. Existing rules focus on bank activities around their physical branches. Those rules are outdated in a world in which much financial activity happens online, both bankers and community advocates say.

“Today’s proposal seeks to expand access to credit, investment, and banking services in [low- and middle-income] communities,” said incoming Federal Reserve Vice Chairwoman

Lael Brainard,

in a written statement. The Fed is one of three regulators rewriting the lending rules.

Federal Reserve Chairman Jerome Powell said Wednesday the central bank approved a half-percentage-point interest-rate increase in an effort to reduce inflation that is running at a four-decade high. Photo: Win McNamee/Getty Images

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The proposed revamp comes at a time when the Democratic Biden administration has pledged to do more to address disparities in wealth, incomes and access to financial services among Black Americans and other racial minority groups.

The Community Reinvestment Act is designed to end “redlining”—banks’ historical practice of avoiding lending in certain areas, often lower-income communities, frequently leading to stark economic disparities along racial lines. The law is one of the major tools the government uses to encourage banks to lend more to low- and moderate-income communities.

In recent years, the law has become a source of conflict between community groups that want the rules to be enforced more strongly and bankers who argue the regulations are too bureaucratic and haven’t kept up with technological changes, among other criticisms. Banks are typically examined every three years on their

CRA

efforts. A bad grade effectively prohibits mergers.

Thursday’s proposal, released Thursday by the Federal Reserve and two other banking regulators, aims to make rules more transparent and objective, potentially making it easier for banks to understand their regulatory requirements, though the firms could face heightened reporting mandates.

Under existing rules, banks must lend to lower-income communities in the area around their offices, even though they now accept deposits and make loans around the country via online accounts. This has led to a glut of reinvestment act spending in places such as Salt Lake City, where dozens of banks are headquartered but have no branches elsewhere.

If Thursday’s plan is finalized in the coming months, it would aim to spread online banks’ related activities nationally. Banks would be assessed for the CRA obligations even in areas where they don’t have physical offices, if they make a certain number of loans in a particular area.

In addition to the Fed, two other top bank regulators, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. signed on to the proposal Thursday. All three bank regulators are charged with overseeing the 1977 law and pledged last year to move jointly to modernize their rules. Regulators will collect public comment on the proposal through Aug. 5 before it can be finalized.

Thursday’s proposal comes after the OCC, which oversees national banks and the bulk of the activity under the low-income lending rules, in December rescinded Trump administration rule changes before banks were required to comply. That plan came from former Comptroller

Joseph Otting,

an appointee of former Republican President

Donald Trump,

and wasn’t supported by the Fed and the FDIC.

Incoming Fed Vice Chairwoman Lael Brainard is critical of a plan by the Trump administration that was later rescinded by President Biden.



Photo:

Al Drago/Bloomberg News

Fed officials, led by Ms. Brainard, said the 2020 OCC plan was rushed and could inadvertently decrease lending to lower-income areas. Ms. Brainard, a Fed governor since 2014, led a competing Fed effort to rewrite its CRA rules while central bank officials pledged to work with the other banking agencies on a unified set of new standards.

Though the Fed approved Thursday’s proposal unanimously, Fed governor

Michelle Bowman,

appointed by Mr. Trump, said in a statement that it remained unclear if overhaul’s costs will be greater than its benefits. She asked community banks to comment on whether the proposal would result in more or better investments.

“While I support issuing the proposed rule for public comment, there are significant unanswered issues posed by the proposal,” she said.

At present, banks are evaluated on compliance with the act based on a complex formula that includes loans to home buyers and small businesses, as well as the number of branches in lower-income areas. Most banks get passing grades on their CRA examinations.

The Consumer Bankers Association said ahead of the proposal that it welcomed regulators modernizing rules that haven’t been updated in over two decades, since before the widespread adoption of smartphones and mobile banking. “For decades, banks have invested trillions of dollars into underserved communities,” said

Richard Hunt,

the industry group’s president and chief executive, in a written statement. The association hopes the plan “provides the clarity, certainty, and flexibility banks need.”

Consumer advocates said they hoped the proposal would boost banks’ obligations under the law. “The impact will be pretty clearly to raise the bar in terms of what’s expected from banks,” said Jesse Van Tol, president and chief executive of the National Community Reinvestment Coalition, a fair-lending advocacy group.

Mr. Van Tol said there is a major gap in one aspect of the proposal: It wouldn’t apply to the nonbank financial firms that now provide the bulk of the consumer loans in the U.S., such as in the mortgage market. Nonbanks originated about 75.5% of government-backed home loans as of March 2022, according to the Urban Institute.

Although some states like Illinois and New York have implemented their own reinvestment requirements that apply to nonbanks, Congress would need to act to expand federal requirements. Last year, Fed Chairman

Jerome Powell

suggested Congress should extend the rules to cover all firms providing consumer credit, not just banks.

“Like activities should have like regulation,” Mr. Powell said last May.

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Nonbank mortgage lenders say expanding CRA to cover their firms would be a mistake, arguing they have different business models that don’t involve taking deposits that are then reinvested into their communities.

“The Community Reinvestment Act for independent mortgage bankers is nonsensical and a solution in search of a problem,” said Robert Broeksmit, president and chief executive of the Mortgage Bankers Association.

Write to Andrew Ackerman at andrew.ackerman@wsj.com

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Up to three-quarters of the $800 billion PPP flowed to business owners instead of workers, study finds

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The benefits of the landmark small-business relief program designed at the height of the pandemic mostly went to business owners rather than workers, a study from leading economists finds.

The study from authors including famed Massachusetts Institute of Technology economics professor David Autor, as well as several Federal Reserve economists, examined the $800 billion Paycheck Protection Program. It was circulated by the National Bureau of Economic Research, and tapped into data from payrolls processor ADP.

The PPP initially was signed into law by President Donald Trump in April 2020, and President Joe Biden signed an extension in March 2021. Both the initial law and the extension were overwhelmingly bipartisan.

The far-reaching PPP ended up sending loans to approximately 93% of small businesses, in just two months. The end result, the authors estimate, is that the program preserved up to 3 million “job years” of employment at a cost of between $170,000 to $257,000 per job-year retained.

Put another way, between 23% to 34% of PPP dollars went directly to workers who otherwise would have lost jobs, the study found. The program also was highly regressive, with three-quarters of PPP funds accruing to the top quintile of households.

The authors said PPP did help keep the lights on at establishments that otherwise would have shut, though they don’t know whether that was a permanent or temporary impact. PPP loans helped reduce employment losses due to small-firm closures by about 8 percentage points five weeks after loans were received, the authors said.

Another finding was that so-called second-draw loans in 2021 — that is, companies going back for more funding a year later — had no impact on employment. The authors said that was “perhaps because they were issued too late to be relevant, after the economic recovery was well underway. If this interpretation is correct, it affirms that Congress was wise to prioritize speed over precision in dispatching the initial two tranches of PPP loans.”

‘The United States chose to administer emergency aid using a fire hose rather than a fire extinguisher.’

Other pandemic programs had less regressive distributions. Stimulus checks were close to uniform in dollar terms across the four lower income quintiles, while pandemic unemployment insurance benefits went to both the upper and lower tails of the household income distribution. (The highest quintile benefited from the extra unemployment benefits because self-employed business owners were allowed to collect.)

The author said the primary job retention goal of PPP could be better achieved through expanding “work sharing,” or having employers reduce work hours rather than make layoffs. There are 26 U.S. states with work-sharing programs, though they’re not well subscribed, and the authors say these programs should be simplified and automated.

Other higher-income countries responded with a mixture of job retention incentives, including work sharing and wage subsidies. “A key lesson from these cross-national comparisons is that targeted business support systems were feasible and rapidly scalable in other high-income countries because administrative systems for monitoring worker hours and topping up paychecks were already in place, prior to the pandemic. Lacking such systems, the United States chose to administer emergency aid using a fire hose rather than a fire extinguisher, with the predictable consequence that virtually the entire small business sector was doused with money,” the authors said.

In the U.S., the unemployment rate has dropped to 3.9%, from a pandemic peak of 14.9%. The employment-to-population ratio has improved to 59.5% from a pandemic low of 51.3%, but it’s still below the Feb. 2020 level of 61.2%.

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Business

WSJ Tech Live Conference Features Interviews With Alphabet CEO Sundar Pichai, CEOs of ViacomCBS and Reddit

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The Wall Street Journal is hosting its virtual Tech Live conference with top executives, technologists and policy makers to discuss a range of issues including the lasting impact of Covid-19, as businesses grapple with disrupted supply chains, a shrinking labor force and the continuing chip shortage.

The conference launches at a time when lawmakers are re-examining big tech on issues ranging from privacy to competition. The Wall Street Journal’s investigation of

Facebook Inc.

has also led to new momentum for tougher tech laws, including special online protections for children.

Here is a rundown of interviews. Access to the conference is complimentary for Journal subscribers. You can see more details here.

First, starting at 11:15 a.m. ET,

ViacomCBS Inc.

VIAC -0.32%

Chief Executive

Robert Bakish

discusses the company’s investments in content and plans to increase global subscribers, following a recent leadership revamp at Paramount Pictures.

The conference then features conversations about the cutting edge of transportation. Grab Holdings Inc. co-founder Hooi Ling Tan will discuss plans to go public in a record-setting special-purpose acquisition and the company’s future in last-mile deliveries and financial services at 11:40 a.m. ET. Two astronauts who traveled to the edge of space with actor William Shatner will talk about their space tourism experience at 12:05 p.m. ET. Later, one of the top researchers in artificial intelligence,

Raquel Urtasun,

will speak about the future of autonomous trucking at 12:40 p.m. ET.

Investor

Alexis Ohanian

speaks at 12:15 p.m. ET on his latest venture capital endeavor, Seven Seven Six, which has focuses on founders’ well-being at a time of increased burnout and always-on work culture.

Alphabet CEO

Sundar Pichai

speaks at 2 p.m. ET on Google’s evolving workplace culture, privacy concerns and regulatory challenges, as the company battles antitrust lawsuits domestically and a $5 billion antitrust fine in Europe. Then, Reddit CEO

Steve Huffman

will discuss the social media platform’s global expansion, as the popularity of “meme stocks” helped to catapult the platform to a $10 billion valuation.

Alphabet CEO Sundar Pichai in Switzerland last year.



Photo:

fabrice coffrini/Agence France-Presse/Getty Images

Online educator Sal Khan talks about the future of virtual learning at 3:15 p.m. ET, followed by Cameo CEO Steven Galanis, who will speak about the growing opportunities for content creators to monetize their fan bases.

Arm Holdings CEO

Simon Segars

speaks at 4:35 p.m. ET about the continuing chip supply issues, in light of companies like

Apple Inc.

designing their own microchips. Following that, Xbox head

Phil Spencer

will speak about cloud gaming and the future of the console.

At 5:30 p.m. ET, the day concludes with basketball star and Los Angeles Lakers forward Carmelo Anthony who will speak about his tech investments, including his investment with Overtime Sports Inc.

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Business

China’s Antitrust Regulator Planning to Fine Meituan About $1 Billion

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SINGAPORE—China’s antitrust regulator is preparing to impose a roughly $1 billion fine on food-delivery giant Meituan for allegedly abusing its dominant market position to the detriment of merchants and rivals, according to people familiar with the matter.

The penalty could be announced in the coming weeks, and Meituan would be required to revamp its operations and end a practice that has been dubbed “er xuan yi”—literally, “choose one out of two,” the people said. Such exclusivity arrangements have forced many small businesses to pick sides in China’s competitive retail industry.

Meituan, with a market capitalization of about $170 billion, has raised billions of dollars from global investors and is China’s third-most valuable publicly listed internet company after Tencent Holdings Ltd. and Alibaba Group Holding Ltd. The Beijing-headquartered firm operates an online marketplace for millions of restaurants and other merchants, and is the biggest provider of food-delivery and related services in China. It also offers hotel bookings and sells groceries online.

China’s State Administration for Market Regulation, the country’s top commerce regulator that is overseeing Beijing’s antitrust push, in April imposed a record $2.8 billion fine on Alibaba for “er xuan yi” practices, in which the e-commerce giant punished merchants that sold goods on its platform and on rival marketplaces. That fine was equivalent to 4% of Alibaba’s domestic annual sales.

The antitrust watchdog believes Meituan has also prevented businesses from selling their goods on rivals’ platforms, the people familiar with the matter said. Its probe into Meituan’s suspected monopolistic behavior began in April. The company said it would fully cooperate with the investigation and has pledged to comply with China’s antimonopoly laws. Meituan reported the equivalent of $17.8 billion in revenue in 2020.

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Tech Startup Financing Hits Records as Giant Funds Dwarf Venture Capitalists

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Big money-management firms expanded their dominance in Silicon Valley last quarter, crowding out venture capitalists in a once-niche business and putting 2021 on pace to nearly double last year’s record in startup financing.

Hedge funds, mutual funds, pensions, sovereign-wealth groups and other so-called nontraditional venture investors were more active in the second quarter than in any previous period, according to research firm PitchBook Data Inc. These firms participated in 42% of startup financing deals, and those deals accounted for more than three-quarters of the invested capital, according to Pitchbook.

Investment in U.S. startups for the first half of 2021 hit $150 billion, eclipsing full-year funding every year before 2020, according to a report from PitchBook.

The large asset firms have massive pools of capital, move quickly and are less likely to ask for board seats or involvement in company decisions, often making them more appealing to founders, according to interviews with investors and startup executives. The result has been a dizzying pace of deal making.

“It’s like speed dating but more extreme,” said Peter Fishman, a longtime Silicon Valley tech professional who last year co-founded data-automation startup Mozart Data Inc.

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