Lebanon Deal Boosts Hezbollah

Islamists Gain After Battle
Over Secret Fiber-Optic Network

By CAM SIMPSON
May 22, 2008; Page A1

BEIRUT, Lebanon -- In a stinging defeat for the U.S.-backed government of Lebanon, the Islamist group Hezbollah bolstered its political power in this volatile land on Israel's border.

HEZBOLLAH HIGHLIGHTS

¹

• Timeline:² See key dates and events for Hezbollah in the past two years.

Hezbollah reached a bargain with the weak Lebanese government that essentially gave the Islamic group veto power in a new government to be formed.

The deal comes two weeks after Hezbollah flashed its military might by seizing Beirut neighborhoods to protest efforts to rein it in. The trigger was unusual: Hezbollah was expanding a secret communications network, and the government wanted it dismantled. The ensuing fighting this month left 67 dead, in the worst internal strife since a long civil war ended in 1990.

Wednesday's agreement could have broad regional implications. It appeared to be the latest rebuke to the U.S.'s diplomatic efforts in the region to marginalize Syria and Iran, both big supporters of Hezbollah. The bargain met Hezbollah's longstanding demand for a political setup in which it could block any major legislation it opposed.

3

Associated Press

The Bush administration welcomed the agreement as an important tool for avoiding a potential civil war between Hezbollah and the pro-Western Lebanese government led by Prime Minister Fuad Siniora. "It's not perfect as a solution, but you have to weigh it against the alternative," said Assistant Secretary of State David Welch.

But a number of current and former administration officials viewed the deal as a major setback for U.S. interests in the region. "For the U.S.'s image, the fact that its leading ally had this type of setback" is disastrous, said David Schenker, a former Pentagon official now at the Washington Institute for Near East Policy. "I'm disturbed by this outcome."

Even as the bargain was being struck -- at talks in Doha, Qatar -- word came of separate, indirect peace discussions between Syria and Israel, the arch-foe with which Hezbollah fought a five-week war in 2006. (Please see related article.⁴)

The Doha deal broke a political stalemate in Lebanon and cleared the way to finally fill the long-vacant post of president. A compromise candidate, Army Gen. Michel Suleiman, is expected to fill it.

The catalyst for Lebanon's recent spasm was the government's discovery several months ago that Hezbollah was secretly expanding a network that could provide secure communications in times of battle. The network, the fight it sparked and Wednesday's resolution provide a dramatic illustration of Hezbollah's surging power in Lebanon.

Violent Response

Prime Minister Siniora ordered the network dismantled in early May. He also ordered the dismissal of an airport official his government labeled an ally of Hezbollah. After Hezbollah's violent response -- it seized neighborhoods, then handed them over to the neutral army -- the government was forced to rescind both orders last week.

Associated Press

Lebanese release white balloons to celebrate a deal that would end a political stalemate and bolster the Islamist group Hezbollah.

The drama began developing late last year when engineers working for Lebanon's telecommunications minister got an odd tip: Someone was mysteriously burying spools of fiber-optic cable near a village in southern Lebanon.

Then came a call from the mayor of Choueifat, an eastern suburb of the capital. "There are strange works, unknown to the municipality...on public and private lands," he said, according to Telecommunications Minister Marwan Hamadeh, who spoke in an interview before the government backed down on May 14.

He sent engineers to investigate, and soon determined that Hezbollah had a network stretching for more than 200 miles -- in a nation only about 140 miles long. It had wireless transmitters, Mr. Hamadeh said, and redundancies so communications could continue even if part of it was damaged. The government reported the network to the United Nations, saying it consisted of "wired and wireless links to the telephone network of our neighbor, the Syrian Arab Republic" -- which dominated Lebanon for years before agreeing to a pullout in 2005.

The government long knew Hezbollah had a network of some sort, but thought it was limited and of little threat to central authority. But after the 2006 war, the government told the U.N., Hezbollah secretly expanded it under the guise of postwar reconstruction, burying cables beneath newly paved roads.

The work, the government added, was done with the "participation in the field" of the Iranian Headquarters for the Reconstruction of Lebanon, an Iranian agency that has claimed credit for hundreds of rebuilding projects since the 2006 war. It wasn't reachable for comment.

The telecom minister said some of the equipment was imported from "the West," declining to be specific. Lebanese officials also believe Iran supplied some.

For government officials critical of Hezbollah, the system was a clear sign of Hezbollah's worrisome ambitions. "This," declared Mr. Hamadeh, pointing to a hand-drawn map of the network, "is the takeover of Lebanon."

'No. 1 Weapon'

Since the government's public challenge to the network, Hezbollah leader Hassan Nasrallah has left little doubt of its importance. In a news conference May 8, he defended it as a vital weapon against Israel, whose occupation of southern Lebanon from 1982 to 2000 helped give rise to Hezbollah.

Calling the system Hezbollah's "No. 1 weapon," the black-turbaned leader declared that "it is forbidden to touch [anything] linked to the networks, whether an engineer, a company or a mayor. Touching them is like touching me."

A spokesman for Hezbollah said the government's description of the network was aimed at creating a false threat to justify action against Hezbollah. The more rudimentary system that existed at the time of the 2006 war was considered vital in Hezbollah's military successes against Israel. Some independent analysts and diplomats worried that enhancement of the network meant Hezbollah is gearing up for another confrontation with Israel.

Hezbollah sees itself not only as a defender of Lebanon but as a vital link in the Iranian and Syrian alliance against the U.S. in the broader Middle East region. The U.S. has long listed the Shiite Islamic group as a terrorist organization, its critics accusing it of having carried out attacks such as the early-1980s bombings of the U.S. Embassy and Marine Corps barracks in Lebanon. But in the region, many view Hezbollah as an indispensable part of Lebanon's political structure.

Mr. Hamadeh, the telecom minister, outlined the events that led to the confrontation, speaking in an interview in the Grand Serail, a restored Turkish palace in the heart of Beirut -- now surrounded by coils of razor wire -- that serves as the headquarters for his government.

His engineers had discovered a Hezbollah fiber-optic cable in the heart of Beirut last year, he said. Confronted about it, Hezbollah reluctantly agreed to remove it from that area, and "things went quiet for a while." But then, when his engineers investigated the tips from Beirut suburbs and southern Lebanon, they found a greatly expanded Hezbollah system.

Reuters/Jamal Saidi

Lebanon's parliament house speaker Nabih Berri (right) shakes hands with former president Amin Gemayel in Doha May 21, 2008. Rival Lebanese leaders reached a deal on Wednesday to end 18 months of political conflict that had pushed their country to the brink of a new civil war.

On a hand-drawn map, Mr. Hamadeh traced the network's route: a line south from Beirut to the port of Tyre, then to myriad sites in the southern tip of Lebanon, then north through central Bekaa Valley. Off the main trunk, he sketched what he said were several new branches, reaching toward Christian areas in the north, pro-Syrian Palestinian bases in refugee camps and to areas east of Beirut controlled by the Druze, another sect. His final line reached to a tiny border town called Tufayel, where, he said, the secure network starts to connect with Syria.

Mr. Hamadeh said the government tried three weeks ago to negotiate secretly with Hezbollah about dismantling the network, working through the army intelligence chief and the head of internal security. He said Hezbollah confirmed the existence of the expanded system but "absolutely refused to dismantle it, directing threats against officials" involved. That response prompted the Siniora government, on May 6, to issue its now-withdrawn order to dismantle the network.

The government had also ordered removal of the security chief at Beirut's Rafik Hariri International Airport, Brig. Gen. Wafiq Choucair. It accused him of being too close to Hezbollah, after an army patrol found a wireless security camera trained on a runway and the airport's VIP terminal that are used by government officials. The camera was hidden in a cargo container on adjacent property owned by Hezbollah's construction arm, according to government and military documents published by the Arabic daily An Nahar and corroborated by government officials.

In a memo dated May 2, Gen. Choucair said he had spoken to Hezbollah officials and been told the camera was just intended to guard against "trespassers and thieves" on the construction firm's property.

The government saw no choice but to order a crackdown on Hezbollah, Mr. Hamadeh indicated. "We knew that if we didn't do anything it would be a catastrophe -- the end of any authority of the state," he said in the interview before the government backed down. Hezbollah's violent response took officials by surprise. "We didn't know they would go that far," he said. The government reversed its orders on May 14.

A Unity Government

There followed six days of government-Hezbollah talks in Doha, overseen by the Arab League. The agreement announced Wednesday calls on Lebanon's Parliament to convene quickly to elect Gen. Suleiman as president. Lebanese politics are guided by a complex power-sharing agreement in which key posts are parceled out among the country's sects. The presidency goes to a Christian.

The agreement also calls for a unity government that allots 16 cabinet seats to the U.S.-backed government's ruling coalition, 11 seats to the opposition -- which Hezbollah leads -- and three assigned by the new president. The setup would effectively block any government move the opposition didn't support, because major legislation needs a two-thirds vote. The deal also paves the way for a new electoral law that, if approved, will divide Lebanon into new, smaller electoral districts, in an effort to better reflect the various sects' demographics.

Material Support

The Bush administration had pushed Mr. Siniora's government for months to avoid making political concessions to Hezbollah. But in the end, said current and former administration officials, the U.S. and its allies didn't provide the government with the material support to withstand the military power Hezbollah amassed with Iranian and Syrian backing.

Longer term, the administration is voicing hope the agreement could give Beirut's pro-Western government space to reposition itself against Hezbollah. They hope support among Hezbollah's non-Shiite political allies, particularly the Christians, could evaporate ahead of Lebanese elections next year. The U.S. officials maintained that Hezbollah's use of force against Lebanese citizens in recent weeks has undercut its self-proclaimed mantle as a resistance movement battling Israel.

"The veil of resistance was ripped off this organization" in recent weeks, the State Department's Mr. Welch said. "Again, this is not the end of this crisis and Lebanon still has to go through implementing this agreement."

--Nada Raad in Beirut and Jay Solomon in Washington contributed to this article.

Write to Cam Simpson at cam.simpson@wsj.com⁵

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Israel Discovers Oil

June 10, 2007
Op-Ed Columnist
Israel Discovers Oil
By THOMAS L. FRIEDMAN
BEERSHEBA, Israel
Lucien Bronicki is one of Israel’s foremost experts in geothermal power, but when I ran into him last week at Ben Gurion University, in Israel’s Negev Desert, all he wanted to talk about was oil wells. Israel, he told me, had discovered oil.
Pointing to a room full of young Israeli high-tech college seniors, Mr. Bronicki remarked: “These are our oil wells.”
It was quite a scene. Once a year Ben Gurion students in biomedical engineering, software, electrical engineering and computing create elaborate displays of their senior projects or — as in the case of a student-made robot that sidled up to me — demonstrate devices they’ve invented.
On this occasion, Yossi Vardi, the godfather of Israeli venture capitalism — ever since he backed the four young Israelis who invented the first Internetwide instant messaging system, Mirabilis, which was sold to AOL for $400 million in 1998 — brought some of his venture capital pals, like Mr. Bronicki, down to Ben Gurion to scout out potential start-ups and to mentor the grads.
The first student exhibit I visited was by Yuval Sharoni, 26, an electrical engineering senior, whose project was titled an “Innovative Covariance Matrix for Point Target Detection in Hyperspectral Images” (which has to do with military targeting). When I told him I was from The Times, he declared: “This project is going to make the front page, I’m telling you.” The cover of Popular Mechanics, maybe, but it could one day make the Nasdaq, where Israel now has the most companies listed of any nation outside of the United States.
“Today, every Israeli Jewish mother wants her son to be a dropout and go create a start-up,” said Mr. Vardi, who is currently invested in 38 different ones.
Which gets to the point of this column: If you want to know why Israel’s stock market and car sales are at record highs — while Israel’s government is paralyzed by scandals and war with Hamas and doesn’t even have a finance minister — it’s because of this ecosystem of young innovators and venture capitalists. Last year, VCs poured about $1.4 billion into Israeli start-ups, which puts Israel in a league with India and China.
Israel is Exhibit A of an economic phenomenon I see a lot these days. Of course, competition between countries and between companies still matters. But when the world becomes this flat — with so many distributed tools of innovation and connectivity empowering individuals from anywhere to compete, connect and collaborate — the most important competition is between you and your own imagination, because energetic, innovative and connected individuals can now act on their imaginations farther, faster, deeper and cheaper than ever before.
Those countries and companies that empower their individuals to imagine and act quickly on their imagination are going to thrive. So while there are reasons to be pessimistic about Israel these days, there is one huge reason for optimism: this country has a culture that nurtures and rewards individual imagination — one with no respect for limits or hierarchies, or fear of failure. It’s a perfect fit with this era of globalization.
“We are not investing in products or business plans today, but in people who have the ability to imagine and connect dots,” said Nimrod Kozlovski, a top Israeli expert on Internet law who also works with start-ups. Israel is not good at building big companies, he explained, but it is very good at producing people who say, “Wouldn’t it be great if you could do this ...,” then create a start-up to do it — which is later bought out and expanded by an Intel, Microsoft or Google.
“The motto here is not work hard but dream hard,” Mr. Kozlovski added. “I had some guy come see me the other day and say, ‘You know Google? They make a lot of money, very famous, right? They’re not that good. We have a much better system that correlates to the cognitive process of searching. Google is worth $50 billion? Probably we can match their numbers.’ He was dead serious.”
My guess is that the flatter the world becomes, the wider the economic gap we will see between those countries that empower individual imagination and those that don’t. High oil prices can temporarily disguise that gap, but it’s growing.
Iran’s ignorant president, who keeps babbling about how Israel is going to disappear, ought to pay a visit to Ben Gurion and see these rooms buzzing with student innovators, with projects called “Integration Points for IP Multimedia Subsystems” and “Algorithms for Obstacle Detection and Avoidance.” These are oil wells that don’t run dry.

Sullivan Sisters

Raising Women to Be Leaders
The Four Sullivan SistersLearned to Work Early, Aim High and Try Again

February 12, 2007
IN THE LEAD By CAROL HYMOWITZ

Denise Sullivan was nine years old and her sister Maggie was eight when they organized their first carnival to raise money for muscular dystrophy. They mobilized friends on their block to build game booths in their backyard in Elberon, N.J. They rode their bikes to other neighborhoods to post signs advertising the carnival and collected used toys for prizes. One year, they raised $25, charging a penny a game.
"We discovered we liked handling money and liked being in charge," says Maggie.
They have been bouncing business ideas off one another ever since, handling more and more money as they have taken charge of bigger and bigger enterprises. Denise Sullivan Morrison, 52 years old, is president of Campbell USA at Campbell Soup Co., having advanced through a variety of high-octane jobs at Nestlé SA, Nabisco, Kraft Foods Inc. and other food giants. Maggie Sullivan Wilderotter, 51, is chairman and CEO of Citizens Communications Co., a $2 billion telecommunications company.
IN THE LEAD FORUM
1
Can children be taught to be successful? Share your thoughts.2WSJ PODCAST
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Maggie Sullivan Wilderotter talks4 with Carol Hymowitz about the role her parents played in encouraging her and three sisters to become leaders.
Their two younger sisters also are executives. Colleen Bastkowski, 45, is a regional vice president of sales at Expedia Inc.'s Expedia Corporate Travel. Andrea Doelling, 42, a champion horse jumper now devoting time to equestrian competition, most recently was senior vice president of sales at AT&T Wireless.
It is rare for four brothers to achieve such levels of success. The fact that they are sisters is striking. Half of all managers in the U.S. are female, but most are stuck in midlevel staff jobs. In senior posts, men outnumber women by almost six to one.
The Sullivan sisters, as they were known growing up, beat these odds, in large part because of their upbringing. Their father, an AT&T Inc. executive, wanted to share everything he knew about business with his girls, including talking to them, while they were still in grade school, about setting profit-margin goals. Their mother taught them that ambition is a part of femininity.
Dennis Sullivan, a Korean War veteran who started his career at New Jersey Bell, expected to raise at least one son. When he had four daughters, he imbued them with his intense work ethic and encouraged them to be independent and determined, and to cultivate big goals. "He didn't have sons to mentor so he was stuck teaching us," says Maggie.
He brought home models of the Princess Trimline phone when it was being developed and talked about marketing. He took the girls to his office decades before the launch of "bring your daughters to work day." And he showed, through his own climb, how getting ahead requires changing jobs frequently to gain broad experience. From New Jersey Bell, he moved to New York Telephone, then to AT&T, back to New York Telephone and AT&T, to Ohio Bell, to AT&T again, and finally to Cincinnati Bell, where he was chief financial officer.
"I tried to inculcate them with what the business world is like -- how products get launched, customers sampled -- and about all the interesting people I met, and how they could be part of that," says Mr. Sullivan. "I'd ask them what their goals were and when they told me, I'd add a few more to their list."
Carol Hymowitz talks to Denise Sullivan Morrison about the importance of networking and other career strategies for women.
Mr. Sullivan told each of his daughters to read at least one book a week and then write a report about it. He also expected them to get A's in school. When President Kennedy promoted the Royal Canadian Air Force fitness regimen, he woke his family at 6 a.m. to exercise together. " 'Rise and shine,' he'd shout to us and we'd all have to do leg lifts," says Denise.
Connie Sullivan, his wife of 54 years, was equally disciplined. A self-professed perfectionist who still wakes up at 4:30 every morning, she designed her daughters' Halloween costumes by August each year, dressed stylishly and enjoyed decorating her home. But she wasn't a traditional housewife. She became a Realtor when her youngest daughter started school and soon earned a spot in her employer's million-dollar club -- selling $28,000 homes. "Money was tight then," she says, and she was able to boost her family's income.
The Sullivans expected their daughters to choose activities they liked and to figure out on their own how to excel at them. Aim high, they said, and if you don't get what you want, analyze what went wrong and try again.
When Denise, the eldest sister, didn't make her high-school cheerleading team at 14, she quickly set her sights on becoming a baton twirler in the marching band. A teacher tried to dissuade her, saying she didn't walk gracefully. But Denise talked to her mother and concluded, "I think what the teacher is saying is I'm a little pigeon-toed," recalls Connie Sullivan.
Denise worked to correct the problem by taking long walks. She became captain of the team and the first twirler in her school to perform with a fire-lit baton. Her mother worried she might get hurt, but instead of stopping her, sewed her a fireproof twirling outfit.
Maggie, "the one who was always pushing the envelope," she says, was elected to student government and raised money for community causes. In ninth grade, she was summoned to the principal's office to take a call from the White House. An assistant to President Nixon told her the president appreciated her invitation to a local benefit for Vietnam Veterans but couldn't attend. "Isn't he at least going to pay for the dinner tickets I sent?" Maggie asked. The president's check arrived the next week.
Several years later, when Andrea asked her parents to buy her a horse, her father -- who was being transferred from Cleveland back to New Jersey -- told her to figure out what that would cost. Andrea, who was 13, called horse breeders, trainers and moving companies, and concluded it would be most economical to buy a horse in Ohio and transport it east in a van owned by a Cleveland race track. She showed her father her cost analysis -- and got the horse.
By then, their father was being transferred frequently for work. Colleen attended three high schools and learned to make new friends quickly by developing a unique sense of humor. She created her own stand-up comedy routine. "I learned to not get upset or bothered by change and to be able to adapt to new situations," she says.5
Wherever they were, the sisters had to earn their allowance. Every Saturday, each chose a slip of paper from a big glass jar their parents called "the job jar," on which was written a chore: washing and drying the dishes, for example, or shoveling snow. They could negotiate with one another and swap chores, but had to do something. As teenagers, they also found paying jobs.
The teamwork their parents expected at home evolved into a support network, despite their competitiveness with each other at times. "Sure we fought, sometimes like cats and dogs, but we didn't float in the same circles, so we could give each other a different perspective," says Maggie.
When their younger sisters started working, Denise and Maggie encouraged them to take jobs in sales, where individual performance is quantifiable. Colleen and Andrea both advanced in sales at AT&T and AT&T Wireless. Colleen sought her sisters' advice about her compensation contract when she was hired at Expedia.
"We call ourselves the Network because we each have different skills that we draw on," says Colleen, who calls Andrea every day and usually talks with her older sisters once a week. "Denise is the strategist, Maggie the networker, Andrea the communicator and I'm the competitive one," says Colleen. She started out as a secretary at AT&T. When given a chance in sales, she brought in so many new accounts she was promoted to management.
Denise and Maggie were "the pioneers who paved the way for us," says Andrea. They were among the first generation of women to seek management jobs. Both went to Jesuit colleges -- Denise to Boston College and Maggie to Holy Cross. Both worked part time to help pay their tuition and married soon after they graduated. They chose different business paths: Denise took a sales job at Procter & Gamble Co.'s paper-products division in Boston and Maggie accepted an accounting job at a start-up in California. Both were often the only women at business meetings in the late 1970s.
When Denise became the first woman in her P&G division to become pregnant, her boss warned her she would be fired if she didn't return from maternity leave in six weeks. She tried to humor him, saying, "Just pretend I broke a leg and can't walk around the stores for a while."
She never tolerated being held back. When her husband got a job in New York, Denise asked for a transfer within P&G and was told she would have to take a lower-level position -- even though she was leading her division's top sales team. She declined and found a better job at PepsiCo Inc. "I learned then to manage my own career -- and that loyalty to people counts more than loyalty to any one company."
Maggie had an easier start in Silicon Valley's start-up culture. She followed her husband, an Air Force pilot, to Sacramento and joined Cable Data, a software company with 300 employees. Founder Bob Matthews went out of his way to advance and retain women, offering Friday night baby-sitting services, free dry cleaning and other perks.
In her 12 years there, Maggie held 14 different jobs, including a stint as manager of regional operations. The job gave her profit-and-loss responsibility, "something a lot of women never get," she says.
Always pushing to expand her business network, Maggie went after a seat on the National Cable Television Association's board. Ten board seats were held by CEOs of the top cable companies, her biggest customers. Two seats were reserved for vendor companies such as Cable Data. Maggie called every vendor to try to get votes -- just as she had done in high school when she called every attorney in her local phone book until she found one willing to hire her as a typist.
She lost her first attempt to get on the board but made a successful bid the following year. Her fellow directors were shocked, she says. "I was a vice president of a tiny company and this was a CEO club," she says.
She and Denise supported one another's decision to keep working after they had children, agreeing they didn't want to quit careers they loved. When Maggie was nine months pregnant with her first child, she jumped on a plane because a customer refused to sign a contract unless she was there in person. When her two sons were young, she and her husband, who bought a vineyard after retiring from the Air Force, agreed he would be the one to stay close to home.
Denise divorced and remarried in her early 30s. She and her second husband, who also has a daughter, blended families and shared parenting. All the while, she analyzed her career moves to see what experience she needed to advance. She kept a chart, recording her tenure in each job, how much money she was responsible for, how many people she supervised and what she had accomplished.
When her husband told her he wanted to run a fruit farm in Bakersfield, Calif., Denise, who had joined Nestlé, told her boss, "The good news is I want to stay at Nestlé and the bad news is I have to move to Bakersfield."
"Where's Bakersfield?" he asked.
She reminded him that Carnation, which Nestlé had just acquired, had an ice-cream plant in Bakersfield. She set up her office there and made it Nestlé's national sales office for frozen/chilled foods.
But it took close to 20 years before Denise became general manager in charge of a business -- and she had to create the business she ran. A top sales executive at Nabisco by then, she wrote a business plan proposing a single-serve line of snacks. Former Nabisco CEO Jim Kilts liked the plan and put Denise in charge of what became known as the Down the Street devision. This single-serve snack division is now run by Kraft, which acquired Nabisco.
While Denise preferred the reach of big corporations, Maggie felt less pigeonholed and able to advance faster in smaller companies. "I didn't get stuck in any one area like finance or sales, which would have driven me crazy, and I could skip a few rungs at a time," says Maggie. So, in the late 1990s, she became CEO of Wink, a small start-up that was 10% owned by Microsoft Corp. But when Wink was sold, she was recruited by Microsoft CEO Steve Ballmer to expand the computer giant's government and educational markets.
She stayed just two years, then in 2004 once again was helped by her contacts to jump to the corner office at Citizens, based in Stamford, Conn. She knew five of Citizens' directors because she had served on a board with them a decade earlier. Since taking charge, she has helped to recruit five women and an African-American to what had been an all-white, all-male board, "so it better reflects our customers," she says.
She and her husband now keep homes on both coasts. The Sullivan sisters all are married to men who accommodate their wives' careers and don't seem threatened by their spouses' achievements or job demands. Denise followed her husband to California, but he followed her back to the East Coast when she joined Nabisco. Colleen's and Andrea's spouses also moved with their wives as promotions took them around the country. Neither couple has children.
When the sisters are traveling for business, they sometimes stay at each others' homes. Denise is based in New Jersey; Maggie commutes between Connecticut and Northern California, where Colleen also lives; and Andrea is in Denver.
In the workplace, the sisters have had to outperform men, take jobs men didn't want and draw on the perseverance they learned as children. Andrea's chance to be a regional sales manager took her to Birmingham, Ala., when it was AT&T Wireless's worst-performing region. Three prior male managers had failed there. She went on sales calls with employees and purchased a ship captain's bell for the office. "Anytime anyone sold something, they rang the bell -- and even though it seemed hokey at first, it made people feel like winners," she says. In 10 months, the region went from last to first place.
The sisters continue to make their own opportunities, another lesson learned from their parents. When Denise was recruited to Campbell Soup in Camden, N.J., four years ago as head of global sales, she wouldn't sign on until she was assured she would soon be in line to head a big division.
Denise is now in charge of Campbell's $3 billion soup, sauces and beverage division in the U.S., the company's largest business, and her challenge is to revitalize old brands. She has reshuffled her senior team and is rolling out shopping carts of new products.
Known by some employees for having "an iron fist in a velvet glove," she never ends a meeting until her managers agree on a plan and deadlines. "I want to see volume growth in the next few weeks," she told the head of sales at a recent meeting.
What she really wants is to be CEO of a Fortune 500 company. It is a job just 10 women currently hold and one that would put her a notch ahead of Maggie, one of 23 women heading Fortune 1000 companies. "I've been preparing to run a big company all my life," says Denise.
Can children be taught to be successful? Share your thoughts with Carol Hymowitz and other readers.6
Write to Carol Hymowitz at carol.hymowitz@wsj.com7

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When Buying A Diamond Starts With A Mouse

January 7, 2007
When Buying a Diamond Starts With a Mouse
By GARY RIVLIN
MARK C. VADON is one of the world's top diamond retailers, but wholesalers often decline to meet with him on the convention floor at jewelry trade shows. At the very least, many ask him to flip over his nametag so that no one knows who he is or what company he runs.
There was a time not long ago when pundits generally dismissed Mr. Vadon's company, the online jewelry purveyor Blue Nile, as one of the dot-com boom's more lamebrain creations. People might be willing to buy a book online, or a CD, and maybe a toaster, they said, but a $3,000 diamond engagement ring? The jewelry industry -- or at least the high-end jewelry trade -- seemed impervious to the Internet.
Not any more. Only a decade after it was founded in the infancy of the Web, Blue Nile ranks behind only Tiffany & Company in diamond ring sales, according to industry analysts. Experts also believe that probably only Tiffany's and the Zale Corporation, which operates more than 1,500 chain stores and an additional 800 kiosks, bought more diamonds from wholesalers than Blue Nile last year.
While Blue Nile has grown -- and its stock has soared 54 percent, to $38.53 a share on Friday from $25 when it was first sold to the public in May 2004 -- Main Street jewelers have seen their profit margins shrink and many of their brethren shutter their store doors. As a consequence, many retail jewelers refer to Blue Nile as the ''evil empire'' -- or worse.
So far, the Blue Nile effect has been felt mainly by mom-and-pop jewelers on Main Street and in malls; much bigger, high-end retailers like Tiffany have been affected only on the margins. And Blue Nile's influence is limited largely to diamond sales, particularly diamond ring sales, but those are often the cash cow for smaller jewelers, accounting for a disproportionate share of their revenue.
''Blue Nile is just busting the chops of everybody, especially in the sale of diamonds,'' said Ken Gassman, a former Wall Street financial analyst who runs the Jewelry Industry Research Institute. Diamond jewelry accounted for nearly half the $59.4 billion in jewelry, including watches and costume pieces, that United States retailers sold in 2005, Mr. Gassman said.
Blue Nile and other Internet jewelers are not solely responsible for smaller profits at traditional jewelers nor for the loss of more than 3,000 independent jewelry shops since 1999. Main Street jewelers, after all, have faced tough competition for decades, from the Home Shopping Network and other television creations beginning in the 1980s to, more recently, Wal-Mart, Costco and other big-box retailers that are grabbing a large share of the low-end jewelry market. A spike in the price of gold and other precious metals has also eaten into jewelry store profits.
Still, Blue Nile's influence has been big enough that many smaller jewelers have been threatening to boycott wholesalers that supply online retailers. At the same time, consultants have been earning a handsome living advising retailers struggling to compete with Blue Nile -- teaching them to ''romance the stone,'' as one consultant, Shane Decker, put it, using industry-speak for stressing the whole diamond-buying experience over merely the price.
Blue Nile operates no stores, so jittery men browsing its Web site in search of an engagement ring that matches their love and budget cannot compare diamonds side by side -- or even see what they have bought until they tear into an overnight-delivery package.
But still they buy. The average diamond ring bought at the Blue Nile site costs $5,500, twice the industrywide average of $2,700, according to Mr. Gassman and other analysts. Blue Nile's finance chief, Diane Irvine, says that nearly every day, the company sells a ring costing $20,000 to $40,000. Last month alone, more than a dozen people bought diamonds that were so expensive -- $50,000 or more -- that Blue Nile delivered them in armored trucks with armed guards. (All sales come with a 30-day money-back guarantee.)
''I don't get up every morning and curse Blue Nile, like some do,'' said Mark Moeller, owner of R. F. Moeller Jeweler, a three-store chain in St. Paul. ''But the Internet has certainly affected profitability; there's no doubt about that.''
Gary Gordon, chief executive of Samuel Gordon Jewelers in Oklahoma City, was more blunt. ''Ours is an industry in big turmoil over Blue Nile,'' he said.
SHOP owners, if they wish to curse anybody, might better aim their invective at one of their own, Doug Williams, a Seattle jeweler who in late 1995 took to heart all the radio advertisements he was hearing that implored business owners to adopt an Internet strategy.
The personal computer boom had been very kind to Mr. Williams, who for years had made a good living selling jewelry to Microsoft employees and other newly minted millionaires. Yet when he paid a consultant $2,000 to create a basic Web site he called Internet Diamonds, he did not even own a PC. ''I was like a caveman looking at a television,'' he said of the first time he visited his online creation.
Mr. Vadon stumbled on Mr. Williams's site after a frustrating visit to the Tiffany's in San Francisco, where he had gone in search of an engagement ring. This was late in 1998, and Mr. Vadon, a recent M.B.A. graduate from Stanford, was a well-paid management consultant at Bain & Company.
Yet as he tells it, the sales clerks initially ignored him, presumably because he was dressed in a T-shirt, shorts and Birkenstocks. He felt still more exasperated once one of their lot deigned to wait on him and was not much help. ''He said, 'Buy the one that speaks to you,' '' Mr. Vadon said. ''And I'm thinking, 'This is absolutely nuts.' ''
Tiffany's declined to make a spokesman available for this article, but in a prepared statement said its diamond sales continue to grow, despite Blue Nile, confirming ''the strong appeal of Tiffany's diamond jewelry and the Tiffany & Company shopping experience.''
The two rings that Mr. Vadon was considering, at $17,000 and $12,000, would have represented the most expensive purchase of his life, automobiles included. So in search of what he described as a ''Consumer Reports-like site,'' Mr. Vadon ventured online, where he discovered a basic tutorial written by Mr. Williams. There he learned enough to consider tradeoffs between size, shape and his tolerance for imperfections -- and also found, for $5,800, a diamond ring nearly identical to the less expensive of the two he had viewed at Tiffany's. He bought it.
A more unlikely diamond retailer is hard to imagine. Mr. Vadon, who sports a permanent stubble look, wears no jewelry -- not so much as a ring. On a recent day in Seattle, where Blue Nile is based, he was dressed in a rust-colored zippered pullover shirt and tan corduroys, and looked every bit like a man not quite comfortable in the spotlight but a numbers cruncher who finds himself the chief executive of a publicly traded company through happenstance.
By chance, Mr. Vadon was in Seattle on business a few weeks after he bought his engagement ring, and he stopped at Mr. Williams's store. When Mr. Vadon offered that he had probably been a very good customer, Mr. Williams told him not really: he sold one or two diamonds a day online, and at just under $6,000, Mr. Vadon's purchase was more or less an average sale.
Standing inside Mr. Williams's modest, two-employee store near the Seattle airport, Mr. Vadon did a quick calculation in his head. At that point he may have known little about diamonds, but he recognized that an Internet site that cleared $250,000 a month in revenue despite no advertising budget and a bare-bones design could be extremely valuable. So at dinner that night, he offered Mr. Williams $5 million, which he did not have, for an 85 percent stake in his company -- a deal penciled on a napkin and contingent on his raising the money.
Mr. Vadon was then 29, and unlike most of his Stanford business school classmates, had shown no great interest in the Internet. He had no experience selling jewelry. But this was Silicon Valley circa 1999, so in just eight weeks he raised $6 million to buy the site and ramp up its development. Over the next 12 months he raised an additional $44 million without, he said, having to work terribly hard at it.
The overabundance of cash engendered bad habits. The company, which at the end of 1999 switched to the more exotic Blue Nile name, booked $44 million in revenue in 2000, its first full year under Mr. Vadon, but managed to lose $30 million, largely because it spent $40 million advertising on television.
Blue Nile was hardly the only dot-com to burn through so many millions so quickly. Miadora.com, another jewelry site, raised more than $50 million in venture capital -- and managed to stay in business for just 15 months. Similar fates awaited Ijewelry.com, Mondera and others.
Shrewd business decisions kept Blue Nile afloat. First, it cut its work force sooner than most dot-coms, beginning in the summer of 2000. Second, its backers invested an additional $7 million in the second half of 2001, when many investors would not sink another dime into a consumer e-commerce Web site. Mr. Vadon, meanwhile, eliminated the advertising budget and hoped that consumers would still find his site.
''Either we were going to build this thing through word of mouth,'' said Darrell Cavens, Blue Nile's marketing chief, ''or we were going to see revenues collapse and we would all go home.'' Sales slowed in 2001, rising barely 10 percent, but then grew 30 to 50 percent annually over the next three years. That let the company start advertising again -- limiting itself almost exclusively to the Web -- while showing the kind of steady growth in profits that Wall Street now needs to see before most companies can go public.
After the dot-com bubble burst, ''there was this giant sigh of relief'' among jewelry retailers, said James S. Porte, the former chief marketing officer of Diamond.com who now runs a marketing firm in Fort Lauderdale, Fla. ''People hated Diamond.com and Blue Nile and the rest of them, and so they could say, 'See, I told you it would never work,' '' he said.
When Blue Nile refused to die, jewelry store owners reacted by pressuring wholesalers to cut off its supply. ''People would meet at conferences and talk about embargoes like this was the Cuban missile crisis,'' said a New York-based diamond wholesaler and Blue Nile supplier who declined to be quoted by name because, he explained, ''I don't need the grief.''
IT is easy to sympathize with the Main Street jeweler confronting a rival like Blue Nile. It operates no stores, only an office in downtown Seattle and a modest-size warehouse on the outskirts of town, so overhead eats up just 13 percent of its revenues, compared with 30 to 40 percent at a traditional Main Street retailer.
That allows Blue Nile to sell its diamonds at roughly 20 percent over cost and still make money, Mr. Vadon said and analysts confirmed. By comparison, the typical jewelry store sold its rings for 48.7 percent above cost in 2005, though that is down from 51.6 percent in 2002, an annual survey by Jewelers of America found.
As a result, Mr. Gassman, the analyst, found in one study that Blue Nile sold rings for 35 percent less than comparable rings at Zales.
David H. Sternblitz, the treasurer of Zale, in Irvine, Tex., said: ''The Internet business serves a target customer looking for a commodity that's basically sold on price. There's still a large segment of the population that wants to come into a store and inspect the jewelry, and wants the extra services we provide like cleaning and repair.''
In addition to its lower overhead, Blue Nile has a second advantage, at least over smaller jewelers. It bought roughly $170 million worth of diamonds last year, giving it the purchasing power to sometimes sell its diamonds at a cost below the wholesale price available to smaller stores.
''You can buy diamonds cheaper from Blue Nile than you can from most brick-and-mortar stores, including mine,'' said Jerry Robbins, the chief executive of Robbins Diamonds, a five-store chain in the greater Philadelphia area. ''But their big disadvantage is that customers cannot see the diamonds, they cannot touch them and they cannot compare them side by side.''
For now, diamond rings account for 70 percent of Blue Nile's sales, and other diamond purchases -- diamond post earrings, for instance -- account for an additional 20 percent. The mark-up on designer jewelry -- as well as on pearls and colored stones like sapphires and emeralds -- still exceeds 50 percent, according to Jewelers of America.
But diamonds serve as the financial backbone for jewelers nationwide, and while some have tried to match Internet prices, many still refuse to compete on that basis. ''Their attitude is, 'Our prices are higher but we provide you services, and we'll hold your hand, and we'll wrap it up all pretty and such,' '' Mr. Gassman said.
Will that work?
''I think it's relevant that we have seen an acceleration in the closure of specialty jewelers in recent months,'' he replied.
Correction: January 14, 2007, Sunday An article last Sunday about Blue Nile, an online diamond jewelry company, referred incorrectly to its relative standing among companies that sell the most diamond rings in the United States each year. Although jewelers do not provide comparable statistics about diamond-ring sales, Blue Nile does indeed rank behind Tiffany & Company. It also ranks behind at least one other competitor, the Signet Group, which operates Kay Jewelers.
The article also referred incorrectly to Mondera.com, another online jeweler. It is still in business; it is not defunct. And the article misspelled the city where the Zale Corporation, the jewelry retailer, has its headquarters. It is Irving, Tex., not Irvine.

 

Flat Out Competitive

Almost 10 years ago a CBS reporter named Bernard Goldberg wrote a Wall Street Journal Op-Ed about liberal bias in the media which caused a minor revolution and contributed to the dethroning of famed news anchor Dan Rather this year.

Goldberg’s main thrust was the pervasiveness of a subtle but asphyxiating bias in the newsrooms of MSM (Mainstream Media) which fortunately is not shared by Orthodox media.

But the trip wire for his op-ed and later books was the network treatment of the serious presidential candidacy of Malcolm Forbes, whose campaign was based on a flat income tax, and derided by the (liberal) MSM as ‘loony’ or ‘wacky’.

Fast forward. In 2001 Russia implemented a flat tax of 13% for individuals, along with a 15% rate for most business income. The economy grew over 7% last year. Tax revenues grew as well, because it was no longer economical to be an underground business. With rates so low, the cost of being black market was now more than the cost of being ‘white’.

What result has it brought? European neighbors, competitors and trading partners of Russia are taking notice. Romania and and Republic of Georgia just adopted flat taxes. Greece is expected to introduce a 25% flat rate for both corporations and businesses next month. If Poland’s opposition parties come into power, they are likely to adopt a flat tax. Business powerhouse Hong Kong and powerhouse wannabe (and maybe will be) Ukraine are both happy with flat taxes.

Pioneer Estonia, encouraged by 5.2% average economic growth since adopting the flat tax in 1994, is lowering their tax rate by 2% per annum until 2007.

Ireland entered the EU as one of the poorest members. When it switched to a flat corporate tax, its economy boomed and now it has a higher per capital GPA than Britain, France, or Germany

And even economically stodgy Germany has a major candidate advocating a flat tax.

A year ago I wrote a 3-part series for an orthodox newspaper on free trade and parnosa. People commented to me that it was depressing, because the implication is that there is no assured parnosa and hishtadlus is a treadmill not only in terms of working, but in terms of adjusting to the never ending changes in technology and economy – a much bigger task than working. And I believe this is true.

However, if America, and the Orthodox community as a component of America’s business community, are looking to get a leg up on the rest of the world, flattening taxes is one good way.

An internal treasury study in Britain found a flat tax would:

• Make Britain more attractive to investors
• Eliminate economic distortions
• Create a “mini economic boom”

Clint Eastwood, a media figure and former mayor postulates: “(flat tax means) a little old lady on a home computer could do the work of all these thousands of bureaucrats and accountants”.

Starting to salivate?

Freeing our economy of perhaps a trillion dollars of tax compliance costs, and a similar amount of inefficient tax shelter investments will also be a good shot in the arm.

And then there’s the amount of personal time, usually right before Passover, which goes into tax preparation.

My apologies to H & R Block, and the tax attorneys and accountants in our community. I’m sure that retraining for more economically beneficial endeavors for these talented professionals would be cheaper than what we have now.

And the loss of business in our community might well be matched by the additional business from some establishments which find it possible to go ‘white’ and have audited statements. Of course, this is also better for families, l’halacha, and for chinucn habonim. And it removes the burden to large families of a 40% cumulative rate. Forbes and others calculate a 17% rate would be enough to maintain services at current levels.

A senior fellow at Stanford’s Hoover Institution predicts it’s only a matter of time before an emerging economic superpower like India or China implements a flat tax. His book has just been published in Chinese with a forward from the Chinese vice minister of finance.

In the words of the Wall Street Journal: “If China adopted of flat tax, more than a quarter of the world’s population would be filling out tax returns on the back of a postcard. That would leave them a lot of time and money to eat our economic lunch.”

Lunch, anyone?