DEI has helped drive significant growth at Target

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Store	Link	Sample Product
UK Artful Impressions	Premiere Etsy Store

Before their conversation begins, Lev-Ram checks in with Fortune senior writer Phil Wahba, who has been covering Target for many years, to find out how Cornell turned around what was once a “hot mess” of a company. “He really saved that company from obsolescence,” Wahba says.

Listen to the episode or read the full transcript below. 

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Transcript

Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are exploring the changing rules of business leadership and how CEOs are navigating this change.

Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Alan Murray.

Michal Lev-Ram: And I’m Michal Lev-Ram.

Lev-Ram: Let me tell you, Alan, it feels like I spend a lot of my time, when I’m not doing this podcast, driving back and forth to Target and some other stores. I’ve actually been, you know, kind of, post-pandemic, going more and more in person to stores and getting deliveries a little bit less. And there’s always something, you know, picking up something for my kids or the house or work. It just seems sort of endless, but I actually enjoy it some of the time. And I actually drive over to the store. What about you?

Murray: Well, I don’t. But you’ve given it away. There’s no suspense left for our listeners. Our guest today on Leadership Next is the CEO of Target, Brian Cornell. And even though I’m not a regular Target shopper, this one is really worth listening to, because I think Brian is one of the most thoughtful leaders I know. He’s a student of leadership. And he has demonstrated, in the process, that brick and mortar stores do have a place in this very virtual world we live in.

Lev-Ram: Yeah, I mean, you can’t count them out, especially for certain brands, right. Not all have survived and for a reason. But Target operates almost 2,000 retail stores across the country, and Brian spends a lot of his time going to these stores. Along with, of course, Target’s online retail presence, this brings in a lot of money. Target was ranked No. 32 on last year’s Fortune 500, and it raked in almost $7 billion in profit in 2021. That’s a 59% increase from the previous year.

Murray: Pretty impressive. And people are continuing to spend and spend a lot at Target, even though their patterns have changed somewhat, and anxieties about an impending recession continue to kind of haunt us.

Lev-Ram: Yeah. And Alan, I’m curious to dig into Brian’s role and Target’s success over the last few years. He took over as CEO in 2014, so about 10 years ago, and in 2017 he made an announcement that investors hated. He was going to spend $7 billion to rehab Target stores across the country, which was very unpopular at the time and seemed to go against the trend. You know, in the age of Amazon, investors were really doubtful that spending money to improve brick and mortar was worth the money. 

Murray: He did that for you, Michal. It was a bold move, and it seems to have paid off. He has invested a lot of time and money also in improving the Target employee experience. In 2022, Target raised the minimum wage for some associates to as much as $24 an hour and is working on offering health insurance, training benefits to hourly employees.

Lev-Ram: And Alan, we are very, very lucky to have someone on our staff who knows even more about Target than the two of us, senior writer Phil Wahba. He’s been writing about the retail industry for years. And he’s closely tracked all of these moves at Target that we just talked about. So before we dive into the conversation with Brian, I thought it’d be great to hear from Phil and get a few more details about how Brian’s leadership has impacted the company. 

Lev-Ram: Okay, Phil, let’s start at the beginning here. Brian was a bit of an unusual hire for Target, and I want to hear why. You’ve been covering this company for a while.

Phil Wahba: One of Target’s biggest problems that he had to come in and and solve was that it was a very insular company culture, and people just thought, well, you couldn’t really be a good executive if you hadn’t been developed from within. So that was a big departure for Target to hire him. He had been a high flyer at PepsiCo, and he had experience in retail at Michaels and at Sam’s Club. So he had the retail chops.

Lev-Ram: And there were some other problems going on at the time, right? He came in at around 2014. Paint the picture for us. What was Target going through then?

Wahba: Well, Target was a hot mess at the time. I mean, they were still recovering from the data breach, if you remember, that really, really, really left a lot of customers angry and feeling betrayed.

Lev-Ram: That was the period I paid cash at Target. Right? 

Wahba: Right. Yeah. And they also had the start of their misadventure in Canada, something that ended up costing them billions of dollars. They just went into Canada absolutely not prepared for the market. They had begun to lose the “Tarjay” magic, its collaborations that made it so famous were becoming boring, and people didn’t care, and the stores were dated. I mean, you know, Target was on its way to becoming the kind of retailer that we associate department stores with, you know, blah and boring. And just like, in a very slow, downward spiral.

Lev-Ram: What did Brian do that was instrumental in the turnaround?

Wahba: Turnarounds are hard. But the first couple of years, arguably, a little easier, because there’s low-hanging fruit. You get immediate bang for your buck. So he exited Canada, and he also started to change up his merchandising teams. And one of the things too, that Target was in dire need of, was to fix its e-commerce. I mean, until maybe a year or two before he became CEO, Target had outsourced its e-commerce to Amazon. I mean, it’s really crazy when you think about it, in hindsight. And also, Target had, you know, this, this part of retail is less sexy, but you can’t sell things if they’re not on your shelves or in your distribution center. And Target was mired with so many supply chain problems and out-of-stocks in stores, and it was just a disaster. So he had to fix e-commerce. He had to fix the brands. He had to fix the food business. He had to fix get out of Canada. And he also had to, you know, prettify the stores. I mean, it was a long list of things to do. He started to do those. And for the first two years, there was definitely an uptick in business because of those efforts.

Lev-Ram: Okay. And then he also in addition to that, he ended up doubling down on brick and mortar, right, which was kind of surprising and not, you know, super popular at the time. Why do you think he did that?

Wahba: At one point, the turnaround seemed to be stalling. And we’ll call this the 2016 timeframe. So two years in. So yeah, so the easier stuff to do, the more obvious things to do in a turnaround had been done. And now you’re like, Oh, alright, there’s a bit of stagnation, right? So he understood that the way to compete with Amazon, the way to compete with Walmart, is to double down on what Target has that they didn’t. I mean, Walmart has a lot of stores. But they’re not, you know, they’re more functional. Or they were, I mean, actually, Walmart has also made its stores nicer. But Amazon doesn’t have 1,800 stores across the country. And so he, he decided that there was going to be a remodeling to make the stores prettier, much better lighting, nicer floors, nicer shelving. But it was a lot of the improvements were not visible to the shopper but were essential to combining e-commerce and stores, because Walmart and its competitors soon understood that having stores where you could pick up items that you’d ordered, or drop off, or do returns, or you could use inventory from stores to fill online orders, that was what was going to protect the economics of e-commerce, but also do something that Amazon couldn’t. So $7 billion. I remember I was at the investor presentation, and literally as soon as he started talking about $7 billion, and it’s going to be for stores, that you could see, I was following on the stock price immediately was plunging and and people were like, Oh, God, you know, how long is it going to take to pay for that? I mean, if you asked me to summarize what, why was he successful in that period? And what really gave them a nice five-year push after that is he focused the retailer on being a retailer. So that meant nicer stores, refreshed brands. I don’t know if you ever bought Cat & Jack for your kids. But Cat & Jack is a $2 billion a year brand.

Lev-Ram: Oh, yeah. My kids have had a lot of Cat & Jack over the years, for sure.

Wahba: I mean, you know, it’s just, I don’t think people think of it as a Target store brand. It’s just a brand, right? And they’re very, very good at that. So that got people into stores, and it made the stores lively. And there was a narrative on Wall Street and in some parts of the media, not at Fortune, but in certain parts of the media, that Amazon was just going to kill everybody, and it was a matter of time. Mr. Cornell said, Oh, no. Stores that are up to date and are well integrated to e-commerce, that’s how we’re going to win, and he was proven right.

Lev-Ram: Okay, as you look back on his tenure so far, I know you started out talking about how unusual and different and you know tough it was for Target to bring in an outsider. What do you think of him as a leader today, knowing what you know, and how do you think he’s perceived internally at this point?

Wahba: He really saved that company from obsolescence. I’m not saying oh, it would have gone in the same direction as Sears or JC Penney. But you know, because retailers can really really stagnate for a very long time and still be profitable and still can even decline, but he revitalized Target in the eyes of shoppers. And you know, they launched 30 store brands, many of which were immediately billion-dollar brands within a year. Crucially, and we haven’t talked about this, but Target dilly dallied for years about the food offering because they thought, well, we can’t compete with the supermarkets or with Walmart, and so they found their niche. I remember this was also controversial, at one point Cornell said, we don’t need to be your whole grocery trip. And people are like, What is he saying? Well, it turns out that it complements the weekly trip. So when you go to Target, they call these fill-in trips. And internally, you know, he got he got people to think in different ways. He broke down silos, and he just shook the place up, brought in some outside talent, but also—and this is very crucial—he didn’t do what can be tempting for other CEOs when they’re doing a turnaround. He didn’t turf people who had been at Target for a long time, just for the sake of turfing them. So he didn’t get rid of, you know, the institutional knowledge and the high performers. Because sometimes you see in a turnaround, it’s very tempting, you know, CEO wants to make a splash, kick everybody out and you’re like, Oops, they knew where the bones are buried, or they’re the ones who had the relationships with, you know, the shipping companies. So he’s demanding, but he’s very well respected and the results speak for themselves. I would say Target is probably the most striking turnaround story in U.S. retail history among large companies.

Murray: Thanks to the wonderful Phil Wahba for joining us. His thoughts really set the stage, Michal, for the conversation you and I had with Brian. So let’s go to it. Here it is. Our conversation with Brian Cornell of Target. 

Brian, I need your help here. This is one of the strangest economies I’ve seen in my 40 years of of doing this. Everybody keeps talking about a recession, but everyone seems to be continuing to spend. You have the data, and I know that you are a secret data nerd. What are you seeing? Are people still spending? What’s happening in the economy?

Brian Cornell: Well, I do like to look at the data on a regular basis, and I’d start with, American consumers are continuing to shop. And we’ve been reporting for quite some time now steady traffic increases in our business. But sitting here today, I think we recognize that it is a consumer who’s on a budget. They’ve been facing very sticky inflation for several years now. They’re seeing interest rates rise. And we are seeing a shift in how they spend. And it’s much more about those essential items, food and beverage, household essentials, they continue to spend for beauty. But some of the categories that were so important during the pandemic, electronics, all things for your home office, we’ve seen those discretionary items start to slow down. So it is a consumer that’s still spending, they’re still shopping, they’re in our stores and on our site every day. In 2022, despite the fact that we saw a bit of a pullback in discretionary items, we still sold over $55 billion of home and apparel and those household hard-line items that were so important during the pandemic. But we did see an adjustment and much greater strength in all things food and beverage and essentials and beauty, and we’ve seen that continue as we move into this year.

Lev-Ram: Well, okay. And speaking of the economy, it seems like we keep getting curveball after curveball. You have built such a track record of really looking into the future and, you know, seeing where trends are going. Not just in what people are buying, but how they’re buying. And I know back in 2017, you made this huge investment in stores and at the time, people were probably kind of scratching their heads, what are you doing here? But you’ve had this amazing growth in stores as well over the last few years. So what are you focused on to keep that going?

Cornell: I’ll go back to that announcement we made in 2017. And, by the way, it was not very popular at that time, because we said we’re going to invest billions of dollars to build new stores, to remodel our existing stores, to invest in our team in wages and benefits, because as we talked to the consumer and we talked to the Target guest, even though they were certainly shopping online and using our digital assets, they kept telling us they still enjoyed shopping in physical stores. And kind of fast forward learning during the pandemic, you know, at a time when so many Americans were staying home to stay safe, we still saw growth in physical stores. And you look at the recent data despite the emergence of all the omni-channel services, just over 73% of all the retail dollars spent last year were spent in physical stores. So Americans still like shopping in a physical store. There’s a social component. They like the opportunity to walk up and down aisles and see what’s new and exciting. So, back then we tried to explain it wasn’t going to be an either/or; it was an and. It’s going to be a combination of Americans who love physical stores and the ease and convenience of shopping online.

Murray: If we’re at 73% now, purchases in physical stores, where do you think we’ll be 10 years from now? Do you think it’ll still be around 73%? Or you think it’ll be a gentle decline? What’s your guess?

Cornell: We keep score based on certain accounting dynamics. But the reality is, when I look at our business, 95% of all of our sales were fulfilled by our stores. So when someone places an order at target.com, and uses our drive-up service, so they’re pulling in our parking lot, and our store team members do the shopping for them, we know as you’re pulling in, within a couple of minutes, we’re going to put that order in your trunk. Well, the consumer came to our stores, they pulled into our parking lot, our stores did all the work. We call it a digital sale. But the stores play a really important role. So there’s a blurring of how consumers are shopping today. And when we talk to consumers, they actually don’t talk about physical shopping versus shopping digitally. It’s just how they live today. It’s how they shop. Some days, we’re going to shop in a physical store. Other days, they might have a couple of kids asleep in the backseat and they’ll take advantage of the ease and convenience of letting us do the work for them. Pull into our parking lot and our team member in a contact-free way will simply put that order in their trunk or now, you can actually say, Can you also bring me a cup of Starbucks coffee? And our team members will put the order in your trunk, and everybody smiles when I say that and says, and now I get my favorite Starbucks product delivered right to my car.

[Music starts]

Murray: Jason Girzadas, the CEO-elect of Deloitte US, is the sponsor of this podcast and joins me today. Welcome, Jason.

Jason Girzadas: Thank you, Alan. It’s great to be here. 

Murray: Jason, we live in an era of disruption, technology disruption, geopolitical disruption, workplace disruption, and it makes accurate predictions about what’s going to happen in the future more difficult than it has ever been. Yet the polls that we do together with you show that most business leaders largely remain optimistic. Why do you think that is?

Girzadas: I think optimism is a result of the fact that we’ve been through an incredibly tumultuous three years. And so I think business leaders realize that they’ve built resiliency into their organizations. The prospect of even more disruption isn’t as foreign of a concept, and I think there’s more confidence in their ability to adapt and to be agile. Secondarily, there’s been tremendous investment in technology and new capabilities that client organizations and executives broadly are optimistic about those creating more value and more opportunities. So, it’s a function of what we’ve been through, as well as the investments that have been made that give a sense of optimism despite some of the headwinds.

Murray: And what’s your advice to companies that are struggling with the potential disruption in the future?

Girzadas: Well, disruption is the new normal. I don’t think there’s any placid water on the horizon or calmness that we can predict. So it’s a function of getting accustomed to the discontinuities that are ahead of us. Whether it’s around technology, or geopolitical change, or workplace changes associated with the future of work, or the demands of the talent workforce, change is the new normal, and as a result, it is requiring executive teams to actually look holistically at those challenges, be facile with doing scenario planning and being on the lookout for where and how to capitalize on disruption—versus being concerned by it or seen as a barrier to their success.

Murray: Jason, thanks for your perspective. And thanks for sponsoring Leadership Next. 

Girzadas: Thank you. 

[Music end.]

Murray: You’re, what, nine years in now?

Cornell: Nine years, and it’s gone by quickly. 

Murray: Well, it’s been a big transformation and kudos, kudos to you. I mean, the other thing you’re known for is a real focus on your employees. You made some big moves early on to raise the wages of people who work in your stores. You’ve put in place education programs to subsidize advancement and training. And in many ways you’ve been ahead of the, not just the industry but business generally in recognizing this as the way to make your business better. How did you develop that approach? How did you know it was the right thing to do?

Cornell: Well, I’ve always talked about the fact, Alan, that our most important asset is our team. And that Target team member that takes care of our guests every day is there to serve America. And, you know, going back to the announcements we made back in 2017, we also said we were going to invest $1 billion in wages and benefits for our team, and in developing great careers for our team members. So we were one of the very first that said, we’re going to get to a starting minimum wage of $15. Today, that starting wage could vary from 15 to as much as $24 an hour depending on the market. We’ve enhanced our benefit program to give access to benefits to more of our team members. Because beyond that wage, they told us what’s really important, I need the medical benefits to take care of myself and my family. But they also want to make sure they have a rewarding career at Target and education plays an important role. So that debt-free educational program, where today over 70,000 team members across the country are taking advantage of that. It’s changing lives. It’s actually some of my favorite memories the last couple of years, is running into team members who’ve told me, Brian, I’m taking advantage of the educational assistance, I’m going back to school. I was, during the pandemic, I was in Minneapolis visiting one of our stores close to the office on Lake Street. And I met a team member by the name of Tia Darden. And she had been with us for almost 20 years. She grew up in the local neighborhood, a mom of two, and Tia starts telling me that she’s gone back to school. She’s going to get her degree, and she wants to continue to advance her career in HR. And I actually featured her, she came with me to Orlando, when we were recognized by Michael Bush as one of the great companies to work for, a great place to work. And Tia was taking a public speaking class. I had her on stage talking about her experience and I was really proud when she sent me a note that said, and Brian, I got an A in that class. But it’s a great example of team members who said, Boy, wages are important. Yes, I need benefits. But that educational assistance allows me to grow. And she’ll continue to advance her career at Target. So those are the things that excite me.

Murray: And you’re not backing off of any of those things because of a weaker economy.

Cornell: We are not. We want to make sure we’re playing the long game here. And you and I both know, cycles in the economy will come and go. But the importance of having a great team that’s committed to our business that feels like they’ve got a rewarding career at Target, that’s going to pay us dividends for years and years to come.

Lev-Ram: I want to ask you a bit about culture more broadly, the nature of your business is that it’s incredibly distributed, you’ve got 2000 stores in the U.S. Obviously, these are workers who have to come in to work, at least when it comes to the stores. How do you make sure that you in such a distributed landscape, you’ve got a cohesive culture, and especially given all of the challenges that people have gone through in the last few years?

Cornell: We spent a lot of time actually at the start of the pandemic, talking about the importance of culture. And we spent a lot of time talking to our teams. And they started talking about a culture of care and growth and winning together. And that really galvanized the organization during the challenging times we faced during the pandemic. People recognized how important care is. When I talk about care at Target, it’s caring for our team, caring for the guests, but also caring for communities that we serve. And that’s been a really important pillar. We talk about growth and it’s not just top-line growth. Now, I’m proud to say that, over the last few years, we’ve added $30 billion of top-line growth to our business during a challenging period of time. But it’s also that personal development, and that growth that leads to an advanced career. And then for Target, it’s all about making sure we win together. So whether you run a store, you’re in merchandising, you’re in marketing, you’re in finance, you’re working in engineering, or in data science, making sure that the only way we serve our guests and we win is the entire team working together. Alan, nine years ago, I probably didn’t realize how important culture was. I would have talked to you about the importance of strategy and building capabilities and recruiting great talent. But sitting here today, the one thing I’ve learned in my nine years at Target is just how important culture is.

Murray: Is that because you’ve changed, or because the world has changed?

Cornell: I think a combination of both. I think the world has changed. And I think the more we listen to team members, the more I talk to our teams as I travel the country and the world, culture is really important. I think in many cases, people are coming to a company because they see a great opportunity, they love the brand, but they stay because of culture. And when I look at our engagement surveys, when I talk to our teams, they love our brand strategy, they love being part of an organization that’s investing in advanced capabilities, but what they really love and what keeps them here is that connection to culture. And I didn’t realize nine years ago just how important culture was to the success of our company.

Murray: One of the things that happened during the pandemic was the murder of George Floyd, in your hometown of Minneapolis. How did that affect Target?

Cornell: Well, I’ll go back to May of 2020, and a period of time that I know I will never forget, because his murder did take place in Minneapolis not far from our headquarter operation. And watching the news, watching the videos, you know, certainly impacted me personally. And I recognize that, despite our long-standing commitment to diversity, and equity, and inclusion, we had to do more. And we made some pretty bold commitments. But it started with, right after his murder, spending time with our Black officers, and giving me a chance to listen to them. And we’ve all been on countless Zoom calls over the last few years. This is one I’ll never forget, because the screen was filled with boxes of officers from around the country, telling their story, describing to me how they explain this to their spouses, their family members, their kids. You know, Daddy, what happened, and why. And they inspired our team to do more. Coming out of that we said, Alright, we’ve got to make sure we’re making even bigger investments to representation of Black team members across the country. We wanted to make sure that we were partnering with Black vendors and service providers, and we said we’re going to spend over $2 billion with Black companies, vendors, and service partners between that point and 2025. And we’re well on our way. For all of our team, that was an inflection point. And because it was so close to our headquarters, we knew we had to step up and really make a difference. And we’ve seen an acceleration in opportunities for Black team members across Target across the country, and acceleration and advancement of Black officers. And we’re building some great partners in the Black community with vendor and service providers.

Lev-Ram: What’s your take on some of the the pushback now on you know, so called “woke” capitalism and Alan, you write about this a lot. We saw so many CEOs like yourself stand up during this really challenging time in our society, when a lot kind of bubbled to the surface. And obviously, we were experiencing COVID at the same time. We saw a lot of statements, a lot of partnerships sparked different programs and initiatives. And now we’re seeing a lot of backlash, not just on the social justice side, but kind of woke capitalism in general. What is your take on it? How do you approach it? How do you answer those criticisms?

Cornell: You know, I start every day thinking about our company purpose and our company culture. So when we think about purpose at Target, it’s really about helping all the families, and that “all” word is really important. How to discover that little bit of joy in everyday life. Our brand is all about delighting and taking care of the families we serve, and all those families, most of America shops at Target. So we want to do the right thing to support families across the country. And when it’s true to our purpose and true to our culture, we lean in. And I’m really proud of the work we’ve done in the DE&I space. Now, the fact that we talked about almost 2,000 stores, well, half of those stores are run by female store directors. Over 40% of our store directors are diverse. That component is so important, but it also reflects the consumer we serve. And when your team, your leadership represents the consumer you serve, I think good things happen. So I can see the benefits for our shareholders. I know that focus on diversity and inclusion and equity has fueled much of our growth over the last nine years. But when you walk into a store and you feel at home, and it represents the community, it makes a huge difference. We just opened up a new store, and—you’re out in California—down in Inglewood. Well, we spent a lot of time understanding that community. The store was built by diverse contractors and female contractors. We had a local artist kind of bring the store to life. And recognizing that many of the guests were Latino, we’ve got the right Spanish-language signage in that store so that they feel at home and the store population looks and feels like the community they serve. I think those are just good business decisions, and it’s the right thing for society, and it’s the great thing for our brand.

Murray: Okay, but Brian, that was very compelling. You gave a very compelling answer to Michal’s question without saying anything about politics or politicians. But what we’re talking about is a political movement here that’s trying to take what you just described, and turn it into a wedge issue. You exist in the political world. How do you deal with that? Do you just do what you just did there and stay out of it? How do you deal with what’s happening in politics?

Lev-Ram: I should point out you’re in Florida right now. Good thing you’re not with Disney. But still?

Murray: Where’s the governor? 

Cornell: I go back to, we start with what’s right for the company purpose and that focus on families. We think about what’s right for our team, and what’s consistent with our culture. And Alan, when we do that, I think we make really good decisions. And we add value for our shareholders. And that’s part of why we’ve seen explosive top-line growth. So, I think the facts are in, the results for us, and the things we’ve done from a DE&I standpoint, it’s adding value, it’s helping us drive sales, it’s building greater engagement with both our teams and our guests. And those are just the right things for our business today.

Murray: Brian, I hear lots of CEOs, I’ve heard this a number of times in the last couple of years, say this is a very tough time to have a job like yours. There’s so much uncertainty out there, you’re dealing with the kind of political issues that we asked about and you avoided. There is, you know, the geopolitical reality trying to deal with Russia, what’s going to happen in China. What do you think is the hardest thing about being a CEO today?

Cornell: Alan, I think it’s a combination of all those things you just talked about. So sitting in my job today, we’re a very large importer of goods. We’re the second largest net importer. So the geopolitical environment is something that affects us each and every day. Certainly the global supply chain challenges that so many of us face, we were in the middle of that. Certainly, you know, recognizing the consumer environment and all the uncertainty and I’ve used that term a lot. But, you know, understanding what’s happening with consumers, what’s happening with our competition, what’s happening at the national level, what’s happening from a global standpoint, those are all the factors we have to think about each and every day. And I think for successful CEOs, there’s a premium on agility and flexibility, on resiliency in this environment. Because there are no easy days. There’s always another big problem to solve. You’ve got to plan for the challenges that might be in front of us. I think we all learned a lot during the pandemic. But this job that I’m in today requires tremendous agility and flexibility, the ability to stay focused and align teams around, you know, the key direction we’re taking, but resiliency, I think is more important than ever. 

Murray: Brian, thank you so much. 

Cornell: Well, it’s great to talk to the two of you and I look forward to seeing you in person very soon.

Murray: Leadership Next is edited and produced by Alexis Haut. Our theme is by Jason Snell. Our executive producer is Megan Arnold. Leadership Next is a product of Fortune Media. For even more Fortune content, use the promo code LN25. That’ll get you 25% off our annual subscription at Fortune.com/subscribe.  

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