Booze, smokes on agenda for quirky gov’t group

BELTSVILLE, Md. (AP) — Deep in a secure laboratory just outside Washington sits the federal government‘s heaviest smoker.

It is a half-ton hulk of a machine, all brushed aluminum and gasping smoke holes, like a retrofit of equipment used on an Industrial Revolution production line. It can smoke 20 cigarettes at once and conclude which are unsafe because they are counterfeit and which are unsafe merely because they are cigarettes.

Down the hall, a chemist tests shiny flecks from a bottle of Goldschlager, the spicy cinnamon schnapps, to make sure they’re real gold. A government agent was sent out to stores to buy it and hundreds of other alcoholic drinks randomly chosen for analysis.

Back at headquarters in downtown Washington, a staffer prepares for a meeting of the Tequila Working Group — a committee created to mollify Mexico and keep bulk tequila flowing north across the border.

These are the proud scientists, rule-makers and trade ambassadors of the Alcohol and Tobacco Tax and Trade Bureau, one of the federal government’s least-known and most peculiar corners.

The bureau, known as TTB, collects taxes on booze and smokes and tells the companies that produce them how to do business — from approving beer can labels to deciding how much air a gin bottle can contain between lid and liquor.

It decides which valleys in Oregon and California can slap their names on wine labels, what grapes can go into wine and which new alcoholic drinks are safe to import.

The bureau is one example of the specialized government offices threatened by Washington’s current zeal for cost-cutting. Obama administration officials weighed eliminating it during the fiscal stalemate of 2011, according to news reports at the time. Its officials were called to the White House budget office to justify their existence — or risk having their duties split between the Internal Revenue Service and the Food and Drug Administration.

The White House ultimately left the bureau’s $ 100 million budget in place for this year — perhaps because it spends far less money to collect each tax dollar than its counterpart, the IRS. But officials there remain hyper-aware of their vulnerability as Republicans and Democrats look to squeeze savings from unlikely places.

If they look closely, the belt-tighteners will discover an agency whose responsibilities often appear to conflict — a regulator that protects its industry from rules it deems unfair, a tax collector that sometimes cuts its companies a break.

Some of its decisions are open to negotiation. A tequila-like liquor with a scorpion floating in it made scientists balk until the producer convinced them that the scorpions are farm-raised and non-toxic.

In other words, this may be the only federal agency that responds favorably to receiving scorpion candy in the mail — an edible tool for persuading scientists that the arthropods were fit for human consumption.

If labs, rules and taxes weren’t enough for the bureau’s 500-odd employees, they also have law enforcement authority. TTB investigators can send people to jail for things like removing alcohol from the production line and reselling it before it has been taxed by authorities.

With all these responsibilities, it’s no surprise the agency’s priorities sometimes clash. The bureau gives companies a wide berth on some rules and taxes, officials and experts say, mainly because of its small size and history of collaborating with business. It has granted millions in tax givebacks because of concerns that companies will sue and tie up government resources.

“Because we’re regulated by such a friendly agency, and because enforcement isn’t huge, there’s a level of non-compliance that’s sort of acceptable,” says Rachel Dumas Rey, president of Compli, a California company that helps wineries comply with Treasury policy.

Agency officials say they use scant resources where they can make the most difference, generally on the biggest producers or companies where there is an indication of wrongdoing.

Yet last July, the bureau slashed a tax bill for the multinational agribusiness conglomerate Cargill from $ 839,370 to $ 63,000. Cargill failed to report or pay taxes on about 23,000 gallons of nearly pure industrial alcohol that leaked from a rail car, violating several U.S. laws, according to documents on the bureau’s website.

Since 2010, under similar deals with alcohol and tobacco companies, the agency has forgiven more than $ 25.4 million; the total amount is unclear because some public documents do not list the size of the tax bill or penalty that is being reduced. Nine companies persuaded the agency to slash their bills by more than 95 percent, including Procter & Gamble’s Olay subsidiary, which uses alcohol in its skin care products.

Tom Hogue, a spokesman for the bureau and former explosives inspector, says it only agrees to reduce companies’ tax bills “if we are satisfied that the (remaining) penalty is commensurate with the violation and is sufficient to deter future illegal conduct.” In cases where settlements are granted, Hogue says, “they allow us to use our resources to counter non-compliance, instead of tying them up in court.”

When the alcohol and tobacco bureau was split from the Bureau of Alcohol, Tobacco and Firearms, it held on to the former agency’s tax collection duties, including for firearms and ammunition. It’s still the government’s third-biggest revenue collector, after the IRS and Customs and Border Protection. It took in $ 23.5 billion in federal taxes on alcohol, tobacco, weapons and ammo in the fiscal year ended Sept. 30, 2011, the most recent data available. That amounts to $ 468 for every dollar the agency spent collecting taxes — more than twice the IRS’ ratio, officials note.

The bureau also works with government trade officials to protect and expand international markets for American alcohol and tobacco. Its expertise is crucial in negotiating with Europeans about wine labeling, or standing up to countries that refuse to recognize American “straight bourbon” for what the government says it is: corn whiskey stored in charred new oak containers for at least two years.

In this role, the agency has come to the rescue over the years of whiskey lovers in China, Colombia and Brazil. Those countries’ governments tried to ban booze containing too much fusel alcohol, the pungent byproduct of fermentation that gives some whiskey its spicy, solvent-like aroma. Working through international trade groups, armed with data from TTB scientists, U.S. officials spent years convincing them to reverse their policies and allow the importation of whiskey that meets American standards. That was a win for American alcohol producers.

Sometimes, to protect U.S. producers, the bureau erects trade barriers of its own. Under a proposal by the bureau last spring, anything labeled Pisco must have originated in Chile and Peru. (Pisco is a South American grape brandy whose signature cocktail, the Pisco Sour, is so celebrated that it has its own official Peruvian holiday.)

Aspiring Pisco producers in Bolivia, in the U.S. government’s eyes, can take a hike.

This is no accident: It’s the result of a trade agreement that compels Chile and Peru, in exchange for the Pisco rule, to make sure any bourbon sold there is from the U.S. and meets this country’s standards.

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The U.S. is the only nation with an alcohol regulator based in its Treasury Department. Treasury was the federal government’s monitor of products seen as sinful or illicit even before Prohibition began in 1919.

When the government first tried to crack down on cocaine and heroin in 1914, it did so by enacting steep taxes. For a time, marijuana also was controlled by imposing taxes so high, it was hoped, that people might lose interest.

After Prohibition was repealed in 1933, the government tried to keep a handle on the alcohol industry by writing production standards for alcohol directly into the tax code. That’s where wine’s alcohol content is limited to 24 percent.

The government uses taxes to control social phenomena, explains Bill Foster, who ran the bureau’s headquarters before retiring this summer.

“Tobacco and alcohol are two of those commodities,” Foster says.

The taxes are collected directly from producers and manufacturers, which pass those costs along to consumers. Liquor producers generally pay a flat rate of $ 13.50 per proof gallon — a gallon of liquid that is one-half alcohol by volume. Small cigars and cigarettes are taxed at a rate of $ 50.33 per 1,000 sticks.

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The current Alcohol Tobacco Tax and Trade Bureau was split from the Bureau of Alcohol, Tobacco and Firearms in 2003. ATF was moved to the Justice Department, where it focuses on firearms, explosives and violent crime.

Officials who regulate and tax alcohol and tobacco remained at Treasury, where they continue to ensure that wine doesn’t contain pesticides and absinthe is free of thujone, the psychoactive ingredient — now banned — that gave it its hallucinogenic reputation.

That’s how Dr. Abdul Mabud found himself overseeing 26 chemists at a lab in Beltsville, Md., that tests hundreds of bottles, cigarettes and perfumes every year.

One afternoon, Mabud holds aloft a jar of pure, clear alcohol containing a coiled king cobra, its hood flared and forked tongue extended. Surrounding it are smaller green snakes that appear to be biting each other’s tails.

The snake liquor was submitted for consideration as an import from east Asia, where snakes are believed to increase virility.

“With that much snake in there, it’s probably not a beverage,” Mabud says, explaining why the shelves of America’s liquor stores and supermarkets are free of giant, gin-soaked snakes.

Mabud traces his lab’s history to 1886, when Congress passed steep taxes on margarine — at the time, an upstart competitor to the nation’s dairy products. The 1886 law aimed to prevent crooked margarine-pushers from selling their product as butter. Treasury’s first food-quality lab was set up to preserve butter’s integrity.

Today, the bureau owns some of the most sophisticated equipment available, including the smoking machine, which can be set to inhale in at least three ways, depending on how long and hard the smoker being simulated prefers to puff: light, medium and Canadian. The last one is when the perforations around the cigarette’s filter are blocked and the machine takes bigger, more frequent puffs. It was invented by the Canadian government, and does not necessarily reflect the actual smoking habits of Canadians, says Dawit Bezabeh, chief of the bureau’s tobacco lab.

“That’s the worst-case scenario,” he says.

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Officials are less chatty about a third agency priority: The diplomatically sensitive work of promoting the international alcohol and tobacco trade.

The bureau helps strike deals with other countries that have liquor industries, like the one with Peru and Chile over Pisco. The idea is to protect U.S. alcohol and tobacco producers from unfair competition. Jim Beam’s prices might be easily undercut, for example, if an overseas firm was allowed to label something as bourbon even though it was aged in a cask that is neither charred nor oak nor new.

That’s how the Tequila Working Group was born. Citing safety concerns, Mexico had threatened to stop exporting bulk tequila — a commodity that supports 500 U.S. bottling jobs. After the bureau agreed in 2006 to regular meetings with Mexico’s tequila industry, Mexico backed down. The jobs were saved.

Until the early 2000s, the U.S. negotiated wine-making standards as part of a European wine trade group. As the American wine industry blossomed, officials began to believe that the group was favoring European wineries, for example, by refusing to endorse American agricultural methods. Every member of the group had veto power, and France was willing to use it.

The U.S. escaped Europe’s dominance by joining with other oenological up-and-comers like Australia, Argentina, Canada, Chile, New Zealand and South Africa to form the World Wine Trade Group. The group encourages countries to accept each other’s wine-making methods.

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Its complicated history helps explain why the bureau looks and acts different from most government offices. As a tax-collecting agency, it wants to see its industries thrive. As a consumer-protection outfit tasked with keeping antifreeze-spiked wine off the market, the bureau must rein in dangerous, sloppy practices by industry members.

If other government agencies ran that way, the Consumer Product Safety Commission would be promoting U.S. baby crib makers at the same time it evaluated their products as potential death traps.

“There’s some peril with that kind of approach,” says Jeff Bumgarner, a professor of criminal justice at the University of Minnesota who studies the history of federal law enforcement. “The trade part of your mission is one of support and standing up the industries, and the tax collection part and the regulatory part and the compliance part is one of holding those industries in check.”

That basic conflict leaves the U.S. government with an alcohol regulator that recently hosted industry executives at conferences to educate them about the bureau’s rules and encourage “voluntary compliance,” then months later raided a Native American reservation that was suspected of harboring cigarette tax evaders.

Critics say the bureau’s close relationship with industry makes it less likely to take a hard line against violators.

Foster sees it another way. He says agents and officials like him are more effective overseers of the industry because they started out working on the distillery floor, measuring batches of liquor and handing producers their tax bills.

“It gave us all a significant understanding of how the industry operates and what their challenges were,” he says.

Agency officials say they are making the most of limited resources, and doing better than most federal departments. And their workload is increasing steadily. The alcohol and tobacco bureau is responsible, for example, for approving every label to be used on an alcohol product in the U.S. As the number of microbrewers and microdistilleries explodes, the work of reviewing those labels is becoming a heavier lift.

The bureau now regulates more than 56,000 companies, an increase of 27 percent since 2007. In that time, its core budget rose only 8 percent.

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Like any government office, the agency has had its share of hiccups. Agawam grapes were known on U.S. wine labels as Agwam grapes until the bureau corrected its spelling error in rules published last year.

Vintners with leftover Agwam labels were given until October to stop using them.

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Daniel Wagner can be reached at www.twitter.com/wagnerreports.

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Tim Cook’s Freshman Year

Prior to his death on Oct. 5, 2011, Steve Jobs made sure that the elevation of Tim Cook—his longtime head of operations and trusted deputy—to Apple chief executive officer would be drama-free. “He goes, ‘I never want you to ask what I would have done,’” recalls Cook. “‘Just do what’s right.’ He was very clear.” In Cook’s first 16 months on the job, Apple has released next-generation iPhones and iPads and seen its stock price rise 43 percent. Though it hasn’t yet expanded into new product categories (still no Apple TV set), the company has changed in significant ways, largely because of Cook’s calm and steady influence. In his most wide-ranging interview as CEO, Cook explains how Apple works now, talks about the perception that he’s “robotic,” and announces the return of Apple manufacturing to the U.S.

 
Bloomberg Businessweek: How has Apple changed since Oct. 5, 2011?
The first thing to realize is that all the things that have made Apple (AAPL) so special are the same as they have always been. That doesn’t mean that Apple is the same. Apple has changed every day since I have been here. But the DNA of the company, the thing that makes our heart beat, is a maniacal focus on making the best products in the world. Not good products, or a lot of products, but the absolute best products in the world.

In creating these great products we focus on enriching people’s lives—a higher cause for the product. These are the macro things that drive the company. They haven’t changed. They’re not changing. I will not witness or permit those changes because that’s what makes the company so special.

There are lots of little things that change, and there will be lots of little things that change over the next year and the years thereafter. We decided being more transparent about some things is great—not that we were not transparent at all before, but we’ve stepped it up in places where we think we can make a bigger difference, where we want people to copy us. So there are things that are different, but the most important thing by far is, the fiber of the place is the same.

The decisions that you’re alluding to—more transparency into the supply chain, doing corporate matches for employees’ charitable donations—were those things that you’d thought, “You know, I want to bring that to the culture. I can’t wait to introduce them.” How did those inflection points come up?
My own personal philosophy on giving is best stated in a [John F.] Kennedy quote, “To whom much is given, much is expected.” I have always believed this. Always. I think that Apple and Apple’s employees have done enormous good and can do even more. One of the things that we have done is match our employees’ charitable contributions, where they select who they want to give to. So it’s not some corporate committee deciding, but it’s our 80,000 employees deciding what they want to do, and then we match it.

You know, it’s clearly something I wanted to do, yes. But others wanted to do it, too. Our transparency in supplier responsibility is an example of recognizing that the more transparent we are, the bigger difference we would make. We want to be as innovative with supply responsibility as we are with our products. That’s a high bar. The more transparent we are, the more it’s in the public space. The more it’s in the public space, the more other companies will decide to do something similar. And the more everybody does it, the better everything gets.

It’s a recognition that we need to be supersecretive in one part about our products and our road maps. But there are other areas where we will be completely transparent so we can make the biggest difference. That’s kind of the way we look at it.

You were CEO on an interim basis twice before. How is the experience of being permanent CEO different from those two stints?
There were actually three times. There was Steve’s first surgery back in ’04. Then a medical leave for half a year and then ’11. Not that there wasn’t public focus on those, but that public focus tended to be quick, and then it sort of flipped back to Steve. This has been different. This, you know. (Pause.) This has been different. So I have had to adjust to that. I’m a private person, so that’s been a bit of a surprise for me, not something I would have predicted. Maybe I should have.

Rex Tillerson is the CEO of Exxon (XOM), which is at any given moment the second-most valuable company in the world. I’m guessing 10 percent of our readers know who he is. I’m guessing less than 1 percent could spot him on sight. By virtue of Steve Jobs and his legacy and by virtue of Apple living in everyone’s pocket, you’re famous. I mean, really, globally famous.
I don’t feel famous. You know, I lead a simple life. My life is incredibly simple. But what’s changed is that, yeah, people recognize me. They may think, “I have seen him before. You know, the CEO of Apple” or whatever. And so it has been a bit of adjustment for me, because for years I had the privilege of being anonymous. There is a great privilege in that if you’re a private person. So it’s a bit different. I love Apple deeply, and I’m having the time of my life. Obviously, if I could rewind the clock, Steve would still be here. He was a dear friend—much more than a boss. But I love being CEO of Apple. I love it. It’s just something I have to, and continue to, adjust to. If you have some ideas there of how I can do it better, I would love to hear it. (Laughs.)

Would you describe yourself as a shy person? If so, what would you tell a shy person about how to go about not just being a public face, but also being a source of inspiration for 80,000 employees?
Would I describe myself as being shy? (Pause.) No, I wouldn’t say I’m shy. I don’t think a shy person would stand on a stage and give a presentation or do communications meetings with numerous people and this sort of thing. But I’m not a person that puts value in being recognized. This doesn’t drive me. I am driven by great work and seeing people do incredible things and having a part in that. So it’s more of a feeling inside that drives me, not a public recognition that drives me. Maybe that makes me a bit different.

You mentioned the Exxon CEO. It’s interesting to me—and I think this is a privilege for Apple—just like we’re sitting down at this table today, I get e-mails all day long, hundreds, thousands per day from customers who are talking like you and I are talking, almost like I’ve gone over to their home and I am having dinner with them. They care so deeply about Apple they want to suggest this or that or say, “Hey, I didn’t like this,” or, “I really love this,” or tell me that FaceTime has changed their lives. I received an e-mail just today where a customer was able to talk to their mother who lives thousands of miles away and is suffering from cancer, and they couldn’t see her any other way.

But the point is they care so much they take the time to say something. It’s not a letter like you might think is written to a CEO. It’s not this formal kind of stuff. It’s like you and I are having a discussion, and we’ve known each other for 20 years, and I want to tell you what I really think. I love it. I don’t know if there’s another company on earth this happens with. It’s just not people from the U.S. These are people from all over the world. I look at it, and I go, “This is a privilege.”

Is there another company in the world where their customers care so much they do this? I don’t think there is. Other companies I’ve worked at, you might get a letter every six months, and it was, you know, “I want my money back,” or something sort of terse. There was no emotion in it. So I think this is really something incredible.

It’s one of the things that I knew about Apple even back 15 years ago when I was in the interview process with Steve. Apple was this company going through all of these hard times. Customers got angry with Apple and would yell and scream—but they would keep buying. If they got mad at Compaq they would just buy from Dell (DELL). There was no emotion there. It was a transaction.

Headline from April 6, 1998, when Apple dropped the Newton

With Apple, my first day at work I crossed a picket line to get in the building! There was a picket line of customers who were protesting, because Steve had decided to kill the Newton device. And it was because they cared so deeply about it. And I thought, “This is amazing.” I still remember it like it was yesterday. I was walking to the lift that day and thinking, “Oh my God, my life is different.” It was so great. It was so great. You know, I have been involved in hundreds of new product announcements, hundreds of product withdrawals. At one of the companies I worked at, not to mention any names, we’d put [new products] in the lobby. We’d get on the employee intercom system and say, “Come look at them,” and nobody came. They didn’t even care.

So I think you’re right. I don’t know the gentleman from Exxon. But I think the likelihood that’s going on there is zero. I’ve talked to many other CEOs who look at me like I have three heads when I talk about getting hundreds or thousands of customer e-mails in a day. It’s a privilege. It’s like you’re sitting at the kitchen table. You’re a part of the family. And we have to continue to honor that.

You seem to be an enormously responsible person. Is that accurate?
I love the company. A significant part of my life is Apple. Maybe some people would say it’s all of my life. I would say it’s a significant part. And you know, I feel both a love for it [and] I feel a responsibility. I think this company is a jewel. I think it’s the most incredible company in the world, and so I want to throw all of myself into doing everything I can do to make sure that it achieves its highest, highest potential.

Auburn University Special Collections and Archives Dept.Cook in 1979, his freshman year at Auburn University

Nothing hardens faster than the details of a CEO’s bio. Every story about you mentions the following: You’re a Southern gentleman. An Auburn football fan. Always early to work, always the last one to leave. None of it is negative, but do you recognize yourself in those descriptions or do you find yourself a little bit distorted? If so, would you like to correct a few things?
I think when you start reading about yourself, it’s almost—it’s like a caricature. It begins to sound like someone else. That’s probably a better question to ask people that really know me vs. me. I hate talking about me. You know, it’s not something I do well or do a lot. I generally avoid it.

But I would say that the person you read about is robotic. There are some good things about that, perhaps. (Laughs.) Discipline comes to mind. But it sounds like there is just no emotion. People that know me, I don’t think they would say that. I certainly am not a fist-pounder. That isn’t my style. But that and emotion are two different things. One is just a way of expressing it, basically. So, anyway.

How many products does Apple have now?
Well, we have few. You could almost place every product that we [make] on this table. I mean, if you really look at it, we have four iPods. We have two main iPhones. We have two iPads, and we have a few Macs. That’s it. And we argue and debate like crazy about what we’re going to do, because we know that we can only do a few things great. That means not doing a bunch of things that would be really good and really fun.

That’s a part of our base principle, that we will only do a few things. And we’ll only do things where we can make a significant contribution. I don’t mean financially. I mean some significant contribution to the society at large. You know, we want to really enrich people’s lives at the end of the day, not just make money. Making money might be a byproduct, but it’s not our North Star.

How does that calculus work when you’re considering product refinements vs. new product lines?
The way we look at things is we will argue and debate about what to do with both existing products and new product lines. And when we get an idea that’s great enough, we put all of our energy into executing that. We’re fortunate. We find ourselves in two markets right now that are extremely fast-growing and extremely large—that’s the phone space and the tablet space. The PC space is also large, but the market itself isn’t growing. However, our share of it is relatively low, so there’s a lot of headroom for us.

The MP3 market has shrunk. It’s shrinking because people are listening to music on their phones, but it’s still big. We sold 35 million iPods last year, and we love music. I still use a dedicated music player in the gym every day, and I think many people do. Clearly they do with what we’re selling.

So each of those product lines has a great future by themselves, but obviously we also talk about what else we can do. We always have. And we’ll argue, debate, and collaborate. And I mean argue and debate in the greatest sense of the words because they—you know, I never wanted to remove that. It’s a great culture. And it’s clear that we can do more. At the right time, we’ll keep disrupting and keep discovering new things that people didn’t know they wanted.

I’m not going to ask you about an Apple TV, because I know you’re not going to say if it exists or when it’s coming. But what I do want to know is—there must be enormous pressure, both on you and on your teams, to continue to create breakthroughs. How does that affect you?
There’s more pressure that comes from within than from the outside. Our customers have an incredibly high bar for us. We have an even higher bar for ourselves. So we want to do great work, and yeah, people are always talking about what we may do next and when it might happen, but honestly we’re driven much more internally by great people who want to do great work. As I look around the table at the executive team, arguably, at least in my opinion, we have the best designer in the world, the top silicon expert in the world, the best operational executive in the world, and the best leaders in marketing, software, hardware, and services. These are people that have very high standards that are driven to do things beyond what other people have thought. And I think it’s that ambition and that desire and that thrust for excellence that make creating new things even more likely.

Let me drill down on this one more time.
Please. Go ahead.

Even superheroes brood, right? Even people with superpowers who are used to doing miraculous stuff—I’m putting myself in their shoes and imagining that the masses are out there giving Apple love because you’ve created behavior-altering technology. I would imagine that would get to people at Apple once in a while, and that it’s partly your job to figure out a way to say to them, “Trust the process. Trust us.”
Two things. One, I wouldn’t call it a process. Creativity is not a process, right? It’s people who care enough to keep thinking about something until they find the simplest way to do it. They keep thinking about something until they find the best way to do it. It’s caring enough to call the person who works over in this other area, because you think the two of you can do something fantastic that hasn’t been thought of before. It’s providing an environment where that feeds off each other and grows.

So just to be clear, I wouldn’t call that a process. Creativity and innovation are something you can’t flowchart out. Some things you can, and we do, and we’re very disciplined in those areas. But creativity isn’t one of those. A lot of companies have innovation departments, and this is always a sign that something is wrong when you have a VP of innovation or something. You know, put a for-sale sign on the door. (Laughs.)

Everybody in our company is responsible to be innovative, whether they’re doing operational work or product work or customer service work. So in terms of the pressure, all of us put a great deal of pressure on ourselves. And yes, part of my job is to be a cheerleader, and getting people to stop for a moment and think about everything that’s been done.

I mean, just take this year. You know, take the last 60 days: iPhone 5, whole new iPods, including a new iPod touch and iPod nano, a fourth-generation iPad, the new iPad mini, a to-die-for MacBook Pro that’s the best Mac we’ve ever done. And so you look at all this, and you go, “Oh my God. How could one company do all of this?” And it’s not like we have that many people. As a matter of fact, that’s a secret. You know, small teams do amazing things together.

All of the people around the table have been there for a while, and they’ve lived through different cycles. So they have a maturity, but they still have their boldness. They’re still ready to burn the bridge. And this is great. Because there is no other company like that anymore. I mean, no company would have done what we did this year. Think about it. We changed the vast majority of our iPhone in a day. We didn’t kind of—you know, change a little bit here or there. IPad, we changed the entire lineup in a day. The most successful product in consumer electronics history, and we change it all in a day and go with an iPad mini and a fourth-generation iPad. Who else is doing this? Eighty percent of our revenues are from products that didn’t exist 60 days ago. Is there any other company that would do that?

But as a technology consumer and user, and a heavy one, I’m always interested in the new. So unlike, say, P&G (PG), where there’s a dependability factor, a lot of your brand is “Here comes something new. We’re going to change your behavior again.”
This is the reason we exist. This is the reason we keep working, and it’s the reason people want to work at Apple.

David Paul Morris/BloombergForstall was senior vice president of iPhone software until Cook relieved him of his duties on Oct. 30

In the past few weeks you replaced two members of your senior executive team, mobile software head Scott Forstall and retail chief John Browett. How did those moves make Apple better, which is a polite way of saying, what was wrong?
The key in the change that you’re referencing is my deep belief that collaboration is essential for innovation—and I didn’t just start believing that. I’ve always believed that. It’s always been a core belief at Apple. Steve very deeply believed this.

So the changes—it’s not a matter of going from no collaboration to collaboration. We have an enormous level of collaboration in Apple, but it’s a matter of taking it to another level. You look at what we are great at. There are many things. But the one thing we do, which I think no one else does, is integrate hardware, software, and services in such a way that most consumers begin to not differentiate anymore. They just care that the experience is fantastic.

So how do we keep doing that and keep taking it to an even higher level? You have to be an A-plus at collaboration. And so the changes that we made get us to a whole new level of collaboration. We’ve got services all in one place, and the guy that’s running that has incredible skills in services, has an incredible track record, and I’m confident will do fantastic things.

Jony [Ive, senior vice president of industrial design], who I think has the best taste of anyone in the world and the best design skills, now has responsibility for the human interface. I mean, look at our products. (Cook reaches for his iPhone.) The face of this is the software, right? And the face of this iPad is the software. So it’s saying, Jony has done a remarkable job leading our hardware design, so let’s also have Jony responsible for the software and the look and feel of the software, not the underlying architecture and so forth, but the look and feel.

I don’t think there’s anybody in the world that has a better taste than he does. So I think he’s very special. He’s an original. We also placed Bob [Mansfield, senior vice president of technologies] in a position where he leads all of silicon and takes over all of the wireless stuff in the company. We had grown fairly quickly, and we had different wireless groups. We’ve got some really cool ideas, some very ambitious plans in this area. And so it places him leading all of that. Arguably there’s no finer engineering manager in the world. He is in a class by himself.

And Craig [Federighi, Apple’s senior vice president of software engineering] is unbelievable. We don’t subscribe to the vision that the OS for iPhones and iPads should be the same as Mac. As you know, iOS and Mac OS are built on the same base. And Craig has always managed the common elements. And so this is a logical extension. Customers want iOS and Mac OS X to work together seamlessly, not to be the same, but to work together seamlessly.

These moves take collaboration to a whole different level. We already were—to use an industry phrase that I don’t like—best of breed. But it takes us to a whole new level. So that’s what it’s all about. I know there has been a lot written on that, but that’s really what’s behind it.

What’s your relationship like with Jony Ive? What bonds you to him?
I love Jony. He’s an incredible guy, and I have a massive amount of respect for him. What bonds us? We both love Apple. We both want Apple to do great things. We both subscribe to the same principles. We believe in the simple, not the complex. We believe in collaboration. We both view Apple as here to make the best products in the world. So our values are the same.

And whether you ask me about “Tim and Jony” or “Jony and Bob” or whatever, my answer would be the same. If you look at the top 100 people at Apple, you’re going to find very different people, very different personalities, very different styles. We’re not a Chiclet company. We don’t put people through a machine where they come out and talk the same, look the same, think the same. We really value diversity with a capital D.

We want diversity of thought. We want diversity of style. We want people to be themselves. It’s this great thing about Apple. You don’t have to be somebody else. You don’t have to put on a face when you go to work and be something different. But the thing that ties us all is we’re brought together by values. We want to do the right thing. We want to be honest and straightforward. We admit when we’re wrong and have the courage to change.

And there can’t be politics. I despise politics. There is no room for it in a company. My life is going to be way too short to deal with that. No bureaucracy. We want this fast-moving, agile company where there are no politics, no agendas.

When you do that, things become pretty simple. You don’t have all of these distractions. You don’t have all of these things that companies generally worry about. You don’t have silos built up where everybody is trying to optimize their silo and figuring out how to grab turf and all of these things. It makes all of our jobs easier so we’re freed up to focus on the things that truly matter.

You know, I’ve got experience with other companies. Apple’s a jewel. It’s a privilege to be in an environment like that. I have seen the results of things not being like that. It’s no fun. It sucks the life out of you, and so I guard that. There is nothing I won’t do to guard that. Let me just put it like that.

How do you interact with design? You don’t have meetings. You don’t have a formal process. Do you just wander down, and you and Jony look at stuff?
I wouldn’t say we don’t have meetings. I wouldn’t go that far. I’m talking about how the kernels of ideas are born. We want ideas coming from all of our 80,000 people, not five or three. A much smaller number of people have to decide and edit and move forward, but you want ideas coming from everywhere. You want people to explore. So that’s what I was talking about before.

Photograph by Justin Sullivan/Getty ImagesCook, Ive, and Foo Fighter Dave Grohl at the iPhone 5 launch on Sept. 12

We have an executive team meeting. It’s every Monday at 9 a.m. Religiously, all of us are in that meeting. We spend four hours together. We talk about everything in the company that’s important—everything. We go through every product that’s shipping, how it’s doing. We go through every new product that’s on the road map—what’s going on, how the teams are doing, and any key issues there are. We might argue and debate current issues. We might argue and debate future road maps. We may get to a point where we say, “You know, this one we’ve got to go off site and really brainstorm about it in a bigger way.” By keeping that cadence and being religious about it—people don’t travel during that time; everyone is there, and they’re not delegating—it makes the company run a lot smoother. You don’t get out of sync because you’re constantly coming together.

Now that’s just one thing. Here’s another example. Every Wednesday we’re meeting with product divisions. So a subset of the [executive team] will meet with the Mac division and spend several hours going through Mac. The following Wednesday we’ll spend several hours going through iPhone, and then we’ll go tick-tock, tick-tock again. And so you have meetings like this not just for yourself, although it’s critical for yourself, but you do it because it helps the company run.

Do you get walking-around time?
Yeah, and it’s critical. And it’s not just not walking around on campus. We have a lot of stores. So I’ll walk around our stores. You can learn a tremendous amount in a store. I get a lot of e-mails and so forth, but it’s a different dimension when you’re in a store and talking to customers face to face. You get the vibe of the place.

Not allowing yourself to become insular is very important—maybe the most important thing, I think, as a CEO. Now fortunately, I think it would be really hard for a CEO of Apple to become insular, but maybe it could happen. I don’t know. But between customers and employees and the press, you get a lot of feedback. The bigger thing is processing and deciding what to put in the distraction category vs. where the nuggets are.

How is Apple’s tablet strategy different from Samsung’s or Amazon’s (AMZN) or Microsoft’s (MSFT)?
Again, if you look at our North Star, we’re focused on making the best products, so ours is very product-centric. We care about every detail. We’re also marrying hardware, software, and services. If you think about Android, it’s more like the Windows PC model. The operating system comes from company A. Company B is doing some integration work, and maybe the services come from yet somewhere else. I think we know the kind of customer experience that produces.

In fact, there are all these tablets that have come out—there were a lot of tablets that came out last year as well—and the usage of them appears to be very low. Certainly the data that I’m seeing suggests—and this is all third-party data—that over 90 percent of the Web-browsing traffic from tablets are from iPad. You may have seen the data over the weekend from IBM (IBM) that was Black Friday sales that showed the iPad was used in more e-commerce transactions than any other device. And that’s more than all Android devices combined, tablets and smartphones.

Since these statistics do not correlate with unit sales, it suggests to me that the iPad user experience is so far above the competition. The iPad has become a part of their lives, instead of a product that they buy and place in a drawer. And so the advantage for us in having some competition is the more products that are out there, the more attention a category gets. The more attention the category gets, the more people that are in the buying and consideration process. I think that’s actually good for us.

Have you played with the Surface or Galaxy?
I have, yes. Both of those—and some others. What I see, for me, is that some of these are confusing, multiple OSs with multiple UIs [user interfaces]. They steer away from simplicity. We think the customer wants all the clutter removed. We want the customer to be at the center of everything. I think when you start toggling back and forth between OSs and UIs, etc., I don’t think that’s what customers are looking for. I think that customers want tablet-optimized apps. You know, we have 275,000-plus apps that have been optimized for the tablet. If you just stretch out a smartphone app on a tablet, it’s an awful experience. It’s not what customers want. I think it’s another reason that usage is so low on these other tablets.

I don’t doubt that there will be units sold in other tablets. It’s happening today. It will happen in the future. But what I strongly believe is that many people that are doing so might feel good initially if they pay a low price, but will bring it home and start to use it, and they’re no longer satisfied. That good feeling is gone. And those people don’t repeat purchases.

Let me give you an example of this. I was thinking about this the other day. Look at netbooks. Many people thought netbooks were the coolest thing ever. Many companies hyped them. In fact, the sales boomed, and then what happened? They crashed, because they were awful! They were flimsy products with crappy, cramped keyboards. They were underpowered. They were just awful.

So we never went into that category. We never put any time into it. A great product doesn’t mean an expensive product. It means a fair price. The iPad mini is all the way down to $ 329. This isn’t an expensive product. So when we can do great products and achieve a great price, we feel great. But what we wouldn’t do is say, “We’ve got to have something for this price, and then let’s see what we can do for it.” That’s not how we think. We think about the product and making a great product that we want to use. When we can do that and achieve another price point, that’s great. But our customers have a high expectation, and we’re not going to try to pass off something—we would never do that. That’s not how we think.

It strikes me that Apple Maps was a very rare instance of Apple thinking about corporate strategy before thinking about the customer experience. Is that fair?
No. No, it’s not how I would characterize it. I would characterize—well, let me back up for a minute. The reason we did Maps is we looked at this, and we said, “What does the customer want? What would be great for the customer?” We wanted to provide the customer turn-by-turn directions. We wanted to provide the customer voice integration. We wanted to provide the customer flyover. And so we had a list of things that we thought would be a great customer experience, and we couldn’t do it any other way than to do it ourselves.

We set on a course some years ago and began to do that. So it wasn’t a matter of saying, “Strategically it’s important that we not work with company X.” We set out to give the customer something to provide a better experience. And the truth is it didn’t live up to our expectations. We screwed up.

So what are we doing? We’re putting all of our energy into making it right. And we have already had several software updates. We’ve got a huge plan to make it even better. It will get better and better over time. But it wasn’t a matter that we … decided strategy over customers. We screwed up. That’s the fact.

Samsung is one of your biggest suppliers. They’re also one of your biggest competitors and an opponent in litigation. Is that awkward?
Life is a complex thing sometimes, and yes, it’s awkward. It is awkward. I hate litigation. I absolutely hate it. For us, this is about values. What we would like, in a perfect world, is for everyone to invent their own stuff. We love competition. But we want people to have their own ideas and invent their own stuff. So after lots of trying, we felt we had no other choice. We tried every other avenue, and so we’ll see what happens in the future.

You know the Lee family at Samsung. Does it affect how you interact with them? How do you defuse that when you have to talk as partners?
We can separate in our minds the different portions of their company. They’re a big company and have different divisions and so forth. So that’s kind of how I try to think about it.

I’m not saying this is the same, but for years we have worked with people who we also compete with. I mean, Microsoft is an example. They provide Office, and so they’re a developer-partner, but they’re also a competitor. Intel (INTC) is a partner on the Mac, but they are obviously trying to get into the mobile business. So it’s not different for us. It’s not unique. It’s not the first time where we have competed and cooperated. This is something that we get up every day doing. The thing that is different is the added litigation burden. I hope this works out over time.

You’ve done a lot of work to add transparency to the manufacturing process, in particular to the conditions of people who are working on Apple products. You’ve known Terry Gou at Foxconn for 20 years.
A long time.

When you asked him to change some things, what specifically did you ask him to change and how receptive was he?
I found him to be very receptive. We had been in the auditing mode for some time and publishing annual reports and working very hard to correct things that we found, and so forth. We’re still doing tremendous auditing, but in addition to that we’ve enlisted the Fair Labor Association to provide additional audits. They bring expertise of looking at different industries. It’s total transparency. They publish their own results and so forth. We’re the only technology company that’s doing that. Terry agreed to open his facilities to our auditors and the FLA auditors. It was a requirement from us, but he agreed.

Foxconn: ReutersCook visiting the iPhone production line at Foxconn’s Zhengzhou technology park in March 2012

If you look at our website, we’re publishing working hours for almost a million people across our supply chain. Nobody else is doing this. We are very much managing this at a micro level. And you know, maybe as important as that, we are training workers on their rights. We have trained 2 million people, and we’ve brought college courses to the factories where people can begin to earn their degrees.

So we’re doing a number of things that I think are really great, really different, and industry-leading. I think no one is looking at this as deeply as we are or going as deep in the supply chain. We’re back to the mines. We’re going all the way, not just at the first layer. And in addition to that, we’ve chosen to be incredibly transparent with it. I invite everyone to copy us.

I understand there are Apple employees staying in the dorms at these factories.
We have executives that have stayed in dorms. It’s not unusual. Honestly, this wasn’t to see what life was like in a dorm. It was that we worked so closely with these manufacturing partners and in the manufacturing plants [that] it’s convenient to do. And actually several of our people wind up doing that.

In addition, we have hundreds of people that reside in China in the plants on a full-time basis that are helping with manufacturing and working on manufacturing process and so forth. The truth is we couldn’t innovate at the speed we do if we viewed manufacturing as this disconnected thing. It’s integrated. So it’s a part of our process.

You said you now track down to the mines. What’s left in the supply chain that’s unknowable?
There are always things that are unknowable. I think that anyone that thinks they have it all down is not looking hard enough, not looking deep enough, or not raising the bar. From our point of view, we don’t want to find zero issues. If we’re finding zero issues, our bar is in the wrong place. So we begin to raise the bar to find issues, and we keep doing this. If you’re doing that, you’re always finding something. That’s the way we look at it.

It sort of goes back to that Kennedy point I made with regard to our matching contributions. We have been given a lot. We earned it, but we have a responsibility to leave the world a better place.

You were instrumental in getting Apple out of the manufacturing business. What would it take to get Apple back to building things and, specifically, back to building things in the U.S.?
It’s not known well that the engine for the iPhone and iPad is made in the U.S., and many of these are also exported—the engine, the processor. The glass is made in Kentucky. And next year we are going to bring some production to the U.S. on the Mac. We’ve been working on this for a long time, and we were getting closer to it. It will happen in 2013. We’re really proud of it. We could have quickly maybe done just assembly, but it’s broader because we wanted to do something more substantial. So we’ll literally invest over $ 100 million. This doesn’t mean that Apple will do it ourselves, but we’ll be working with people, and we’ll be investing our money.

On that subject, it’s 2012. You’re a multinational. What are the obligations of an American company to be patriotic, and what do you think that means in a globalized era?
(Pause.) That’s a really good question. I do feel we have a responsibility to create jobs. I don’t think we have a responsibility to create a certain kind of job, but I think we do have a responsibility to create jobs. I think we have a responsibility to give back to the communities, to pick ways that we can do that … and not just in the U.S., but abroad as well. I think we have the responsibility to make great products that we can recycle and that are environmentally friendly. I think we have a responsibility to make products that have a greater good in them.

That’s the one that is most important of all, because a cigarette company could give back things and environmentally dispose of their product or something like that. But we want to provide a product that changes people’s lives in some way. We spend a lot of energy focusing on education. We created iBooks Author and gave it away for free. We wanted to reinvent the textbook and reinvent the classroom and try to really go a long way to solving the student engagement problem. It doesn’t solve every problem in education, but it solves a very important one, right?

And so I think we do have a responsibility for all these things. I’ve never thought a company’s measurement of job creation should be limited to the number of employees working directly for them. That’s a very old-time way of measuring. Our iOS platform allows developers to work as entrepreneurs and sell their applications to a worldwide market that didn’t exist previously. The mobile software industry was nascent before the iPhone. Now you’ve got hundreds of thousands of developers out there.

Unlike other companies—at least I know of no other large companies—almost all of our R&D is sitting in California. It’s a part of our model. We do this because it’s important for people to run into each other and discuss ideas and collaborate. We’re building a multibillion-dollar headquarters to house them in what we think will be the center of creativity. We’re building a campus in Austin for people in Texas. We’re building three data centers—adding to the one we have in Maiden [N.C.] and establishing new sites in Oregon and in Nevada.

So jobs can come in many different ways. I think if you fairly look at it—we’ve had this estimated by other parties—we’ve created about 600,000 jobs in the U.S. They all don’t work for Apple. We’re part of a global economy. Over 60 percent of our sales are outside the United States. So we have a responsibility to others as well. But this is our home market, and I take all of those very seriously—jobs, education, giving back, the environment.

Not many people know that Apple has a hedge fund, Braeburn Capital.
I wouldn’t call it a hedge fund.

How would you describe it?
It’s an entity that manages Apple’s cash. So I wouldn’t call it a hedge fund because—at least the way I think of a hedge fund, it’s—if you look at [Braeburn's] investments you would find the most conservative investments known to man in there. (Laughs.)

And from what I hear about the returns …
That’s intentional. We don’t view ourselves as an investment bank or a mutual fund with an aggressive charter. The goal is capital preservation. I have to say, in the last several years that has not been an easy task. I think the guys have done a remarkable job in this.

How often do you check in on it?
I don’t get into the decision to invest in this municipal or this corporate bond or this T-bill or anything like that. We have a treasury department and a chief financial officer that’s fantastic, and they do those things. I was obviously involved heavily in the decision to distribute some of the cash but not the investment in bonds and so forth.

One of the few negative things said about you is that you’re not a product guy. You’re a logical guy. You’re a systems guy. You have an engineering background. Given that you’re a product company, does that cut you? Is that something you would refute?
I think people should decide how they want to describe me themselves. But I’ll tell you what I do. Whether there’s something that I think I know really well or I don’t know at all—and there’s a huge range there—I always enlist other people, because the people around the table are phenomenal people. And I’ve always found even when I thought I knew the most that there was something more that could be added and make it even better.

I’ve never felt that I had to know it all, do it all, any of those things. I think you could have an S on your chest and a cape on your back and not be able to do all those things. I know of no one that can do all that. Maybe there are, but I’m not. So I rely on a lot of people for a lot of different things.

What’s the role of intuition in your job?
It’s critical. It’s extremely critical. The most important things in life, whether they’re personal or professional, are decided on intuition. I think you can have a lot of information and data feeding that intuition. You can do a lot of analysis. You can do lots of things that are quantitative in nature. But at the end of it, the things that are most important are always gut calls. And I think that’s just not true for me, but for many, many people. I don’t think it’s unique.

An anecdote that’s now part of your biography is that Steve Jobs told you, “Don’t think what I would do.” Is that true, and if so, can you tell the story?
Yeah, sure. One weekend he called me, and he said, “I’d like to talk to you.” This was in summer of ’11.

I said, “Fine. When?”

In typical Steve fashion he said, “Now.”

“Great. I’ll be right over.” (Laughs.)

Win McNamee/Reuters/LandovJobs and Cook in May 2001 at the opening of Apple’s first retail stores

So I go over to his house, and—I still remember how he started this discussion. He said, “There has never been a professional transition at the CEO level in Apple.” He said, “Our company has done a lot of great things, but has never done this one.” The last guy is always fired, and then somebody new comes in. And he goes, “I want there to be a professional CEO transition, and I have decided, and I am recommending to the board that you be the CEO, and I’m going to be the chairman.”

Of course, we had talked about me being a successor before, so it wasn’t the first time I had heard that, but the conversation occurred at a period of time when I felt Steve was getting better, and I think he felt this way as well. So from that point of view, I was a little surprised. I asked again, “Are you sure?” He said, “Yes.” I would go, “Are you sure,” and he said, “Yes. Don’t ask me anymore.”

So we started talking about what it meant. Again, this is when I am thinking, and I’m certain he’s thinking, that this is going to go on for a long, long period where he’s the chairman and I am CEO. So I’m trying to understand—how does he see this working? He had obviously thought very deeply about it.

And as a part of this, I asked him about different scenarios to understand how he wanted to be involved as chairman. He said, “I want to make this clear. I saw what happened when Walt Disney passed away. People looked around, and they kept asking what Walt would have done.” He goes, “The business was paralyzed, and people just sat around in meetings and talked about what Walt would have done.” He goes, “I never want you to ask what I would have done. Just do what’s right.” He was very clear.

He was making this point, and he says, “I hope you listen to my input if I want to input on something.” I said, “Of course.” (Laughs.) But he was so clear, and I have to tell you that it’s probably removed a tremendous burden from me that would have been there otherwise. And he repeated this much closer to his passing. I think in the second instance, I think he did that because he knew it would lift a burden. It was his way of making sure Apple would not be burdened by the past.

More so than any person I ever met in my life, he had the ability to change his mind, much more so than anyone I’ve ever met. He could be so sold on a certain direction and in a nanosecond (Cook snaps his fingers) have a completely different view. (Laughs.) I thought in the early days, “Wow, this is strange.” Then I realized how much of a gift it was. So many people, particularly, I think, CEOs and top executives, they get so planted in their old ideas, and they refuse or don’t have the courage to admit that they’re now wrong. Maybe the most underappreciated thing about Steve was that he had the courage to change his mind. And you know—it’s a talent. It’s a talent. So, anyway.

Do you miss him?
I do, every day. He was a friend, and it’s—I guess the external view of that is that he’s a boss, but when you work with someone for that long, for me anyway, the relationship is really important. You know? I don’t want to work with people I don’t like. Life is too short. So you do become friends. Life has too few friends.

Tyrangiel is editor of Bloomberg Businessweek and an executive editor of Bloomberg News.

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Anger at Australian radio station over royal hoax

LONDON (AP) — It started out as a joke, but ended in tragedy.

The sudden death of a nurse who unwittingly accepted a prank call to a London hospital about Prince William‘s pregnant wife Kate has shocked Britain and Australia, and sparked an angry backlash Saturday from some who argue the DJs who carried out the hoax should be held responsible.

At first, the call by two irreverent Australian DJs posing as royals was picked up by news outlets around the world as an amusing anecdote about the royal pregnancy. Some complained about the invasion of privacy, the hospital was embarrassed, and the radio presenters sheepishly apologized.

But the prank took a dark twist Friday with the death of nurse Jacintha Saldanha, a 46-year-old mother of two, three days after she took the hoax call. Police have not yet determined Saldanha‘s cause of death, but people from London to Sydney have been making the assumption that she died because of stress from the call.

King Edward VII’s Hospital, where the former Kate Middleton was being treated for acute morning sickness this week, wrote a strongly-worded letter to the 2DayFM radio station’s parent company Southern Cross Austereo, condemning the “truly appalling” hoax and urging it to take steps to ensure such an incident would never happen again.

“The immediate consequence of these premeditated and ill-considered actions was the humiliation of two dedicated and caring nurses who were simply doing their job tending to their patients,” the letter read. “The longer term consequence has been reported around the world and is, frankly, tragic beyond words.”

The hospital did not comment when asked whether it believed the prank call had directly caused Saldanha’s death, only saying that the protest letter spoke for itself.

DJs Mel Grieg and Michael Christian, who apologized for the prank on Tuesday, took down their Twitter accounts after they were bombarded by thousands of abusive comments. Rhys Holleran, CEO of Southern Cross Austereo, said the pair have been offered counseling and were taken off the air indefinitely.

No one could have foreseen the tragic consequences of the prank, he stressed.

“I spoke to both presenters early this morning and it’s fair to say they’re completely shattered,” Holleran told reporters on Saturday.

“These people aren’t machines, they’re human beings,” he said. “We’re all affected by this.”

Details about Saldanha have been trickling out since the duty nurse’s body was found at apartments provided by the private hospital, which has treated a line of royals before, including Prince Philip, who was hospitalized there for a bladder infection in June.

The nurse, who was originally from India, had lived with her partner Benedict Barboza and a teenage son and daughter in Bristol, in southwestern England, for the past nine years. The hospital praised her as a “first-class nurse” who was well-respected and popular among colleagues during her four years working there.

Just before dawn on Tuesday, Saldanha was looking after her patients when the phone rang. A woman pretending to be Queen Elizabeth II asked to speak to the duchess, and, believing the caller, Saldanha transferred the call to a fellow nurse caring for the duchess, who spoke to the two DJs about Kate’s condition live on air.

During the call — which was put online and later broadcast on news channels worldwide — Grieg mimicked the Britain’s monarch’s voice and asked about the duchess’ health. She was told Kate “hasn’t had any retching with me and she’s been sleeping on and off.” Grieg and Christian, who pretended to be Prince Charles, also discussed with the nurse when they could travel to the hospital to check in on Kate.

Three days later, officers responding to reports that a woman was found unconscious discovered Saldanha, who was pronounced dead at the scene. Police didn’t release a cause of death, but said they didn’t find anything suspicious. A coroner will make a determination on the cause.

In the aftermath of Saldanha’s death, some speculated about whether the nurse was subject to pressure to resign or about to be punished for the mistake. Royal officials said Prince William and Kate were “deeply saddened,” but insisted that the palace had not complained about the hoax. King Edward VII’s Hospital also maintained that it did not reprimand Saldanha.

“We did not discipline the nurse in question. There were no plans to discipline her,” a hospital spokesman said. He declined to provide further details, and did not respond to questions about the second nurse’s condition.

The Australian Communications and Media Authority, which regulates radio broadcasting, said it has received complaints about the prank and is discussing the matter with the Sydney-based station, which yanked its Facebook page after it received thousands of angry comments.

Holleran, the radio executive, would not say who came up with the idea for the call. He only said that “these things are often done collaboratively.” He said 2DayFM would work with authorities, but was confident the station hadn’t broken any laws, noting that prank calls in radio have been happening “for decades.”

The station has a history of controversy, including a series of “Heartless Hotline” shows in which disadvantage people were offered a prize that could be taken away from them by listeners.

Saldanha’s family asked for privacy in a brief statement issued through London police.

Flowers were left outside the hospital’s nurse’s apartments, with one note reading: “Dear Jacintha, our thoughts are with you and your family. From all your fellow nurses, we bless your soul. God bless.”

Officials from St. James’s Palace have said the duchess is not yet 12 weeks pregnant. The child would be the first for her and William.

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Software guru McAfee wants to return to United States

GUATEMALA CITY (Reuters) – Software guru John McAfee, fighting deportation from Guatemala to Belize to face questions about the slaying of a neighbor, said on Saturday he wants to return to the United States.

“My goal is to get back to America as soon as possible,” McAfee, 67, said in a phone call to Reuters from the immigration facility where he is being held for illegally crossing the border to Guatemala with his 20-year-old girlfriend.

“I wish I could just pack my bags and go to Miami,” McAfee said. “I don’t think I fully understood the political situation. I’m an embarrassment to the Guatemalan government and I’m jeopardizing their relationship with Belize.”

The two neighboring countries in Central America are locked in a decades-long territorial dispute and voters in 2013 will decide in a referendum how to proceed.

Responding to McAfee’s remarks, a U.S. State Department spokeswoman said U.S. citizens in foreign countries are subject to local laws. Officials can only ensure they are “treated properly within this framework,” she said.

On Wednesday, Guatemalan authorities arrested McAfee in a hotel in Guatemala City where he was holed up with his Belizean girlfriend.

The former Silicon Valley millionaire is wanted for questioning by Belizean authorities, who say he is a “person of interest” in the killing of fellow American Gregory Faull, McAfee’s neighbor on the Caribbean island of Ambergris Caye.

The two had quarreled at times, including over McAfee’s unruly dogs. Authorities in Belize say he is not a prime suspect in the investigation.

Guatemala rejected McAfee’s request for asylum on Thursday. His lawyers then filed several appeals to block his deportation. They say it could take months to resolve the matter.

The software developer has been evading Belize authorities for nearly four weeks and has chronicled his life on the run in his blog, www.whoismcafee.com.

McAfee claims authorities will kill him if he turns himself in for questioning. He has denied any role in Faull’s killing and said he is being persecuted by Belize’s ruling party for refusing to pay some $ 2 million in bribes.

Belize’s prime minister has rejected this, calling McAfee paranoid and “bonkers.

BEATING HEAD AGAINST WALL

After making millions with the anti-virus software bearing his name, McAfee later lost much of his fortune. For the past four years he has lived in semi-reclusion in Belize.

He started McAfee Associates in the late 1980s but left soon after taking it public. McAfee now has no relationship with the company, which was later sold to Intel Corp.

Hours after his arrest, McAfee was rushed to a hospital for what his lawyer said were two mild heart attacks. Later he said the problem was stress. McAfee said he fainted after days of heavy smoking, poor eating and knocking his head against a wall.

He told Reuters he no longer has access to the Internet and has turned over the management of his blog to friends in Seattle, Washington. On Saturday, they began posting a series of files claiming to detail Belize’s corruption.

Residents and neighbors in Belize have said the eccentric tech entrepreneur, who is covered in tribal tattoos and kept an entourage of bodyguards and young women on the island, had appeared unstable in recent months.

Police in April raided his property in Belize on suspicion he was running a lab to make illegal narcotics. There already was a case against him for possession of illegal firearms.

McAfee says the charges are an attempt to frame him.

“People are saying I’m paranoid and crazy but it’s difficult for people to comprehend what has been happening to me,” he said. “It’s so unusual, so out of the mainstream.”

(Editing by Dave Graham and Bill Trott)

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New Whitney Houston book recalls singer’s musical magic

LOS ANGELES (Reuters) – A new book on Whitney Houston by her early producer seeks to tell the story of the rise to stardom of the pop diva who died nine months ago.

Emmy and Grammy-winning producer Narada Michael Walden, who produced many of Houston‘s early hits, like “How Will I Know” and “I Wanna Dance With Somebody,” appeared at the Grammy Museum in Los Angeles on Wednesday to discuss the book and perform some of the songs he collaborated on.

“Her death was so shocking and sudden that I wanted to create something to keep alive the beautiful aspects of her life. The media was lashing out on the addiction and ignoring her musical genius,” Walden told Reuters.

Since she drowned in a bathtub on February 11 after taking cocaine, Houston‘s music and life have generated a TV tribute with Jennifer Hudson, Usher and others, a greatest hits CD, a coffee table book of photos and a TV reality show starring family members.

Walden’s book “Whitney Houston: The Voice, the Music, the Inspiration,” co-written with Richard Buskin, describes how Walden first met the singer when she was 13 and accompanied her mother to the studio. Walden was working on a record with her mom, soul and gospel singer Cissy Houston.

Walden said he all but forgot the young pretty girl until he got a call from Arista records in 1984, while working on an Aretha Franklin record, and was told to “make the time” to work on Houston‘s debut album.

Walden said Janet Jackson‘s management turned down the chance to record “How Will I Know” and that he rewrote it to make it catchier for Houston, who with her five-octave vocal range, recorded the 1985 No.1 song in only one take.

“The first take was the keeper. Instead of laboring on it for the better part of a day or even longer, we were done in a matter of minutes,” he said, noting Houston always worked fast.

Walden, who also produced for Ray Charles, Stevie Wonder and Barbra Streisand, collaborated with Houston on “So Emotional,” “One Moment in Time” and “I’m Every Woman” from the film, “The Bodyguard.”

Walden and Houston went in different directions by the late 1990s, but he would see her at the annual pre-Grammy party hosted by her long-time mentor, record industry mogul Clive Davis.

At the 2011 Davis party, Houston sat with her daughter, Bobbi Kristina – then 17 – who exclaimed she wanted to sing and work with Walden. “But Whitney gave me a look that said ‘Slow down. I’ve been down that road….and I’m not sure I want to curse her with that’,” he said.

Walden said he would now welcome the opportunity to work with Houston‘s daughter, who has become a fixture of gossip blogs and tabloids.

“If she wants to, I’d love to produce her and keep alive the professional image of her mother and focus on the positive,” he said.

(Reporting By Susan Zeidler, editing by Jill Serjeant and Andrew Hay)

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Boehner says Obama pushing U.S. toward “fiscal cliff”

WASHINGTON (Reuters) – Republican House Speaker John Boehner accused President Barack Obama of pushing the country toward the “fiscal cliff” on Friday and of wasting another week without making progress in talks.

With three weeks left before a combination of steep tax hikes and deep spending cuts kicks in unless Congress intervenes, Boehner said the administration had adopted a “my way or the highway” approach and was engaging in reckless talk about going over the cliff.

“This isn’t a progress report because there is no progress to report,” Boehner told reporters at the Capitol. “The president has adopted a deliberate strategy to slow-walk our economy right to the edge of the fiscal cliff.”

The day’s rhetoric did point the way to a possible compromise that has been discussed for weeks on the main sticking point, tax hikes for the wealthy.

While Obama wants tax rates raised to 39.6 percent from 35 percent, he has not ruled out a smaller increase, perhaps to 37 percent. On Friday, Boehner, House Minority Leader Nancy Pelosi and Vice President Joe Biden indicated flexibility on the “37 percent solution.”

Biden was most explicit, saying that raising the rate was “not a negotiable issue; theoretically we can negotiate how far up.”

“There are a lot of things that are possible to put the revenue that the president seeks on the table,” Boehner said when asked about the same thing.

Pelosi, questioned later about Boehner’s remark, said, “It’s not about the rate, it’s about the money.”

But the bleak report from Boehner prolonged the economic uncertainty surrounding the fiscal cliff, which has already riled markets, slowed down business decisions and disrupted the budgeting processes for government at all levels across the country.

Economists say going over the cliff could throw the economy back into a recession.

Obama has called for extending the tax cuts set to expire on December 31 for middle-class taxpayers, but letting them rise for the wealthiest 2 percent of Americans. Boehner and Republicans oppose his plan, preferring to find new revenues by closing loopholes and reducing deductions.

Boehner characterized as “reckless talk” Treasury Secretary Timothy Geithner’s comment this week that the administration was prepared to go over the cliff if tax rates for the wealthiest were not increased.

The downbeat assessment was in line with what Boehner has offered for weeks as the two sides hold their ground on Obama’s call for raising tax rates and Republican calls for cuts in entitlements like the Medicare and Medicaid healthcare programs for seniors and the poor.

Congressional aides said there were no plans for meetings on the issue this weekend. Future talks will be limited to Boehner and Obama and their staffs as the deadline approached, aides said.

Boehner said his telephone conversation with Obama on Wednesday and renewed staff talks on Thursday had not made any progress.

‘MORE OF THE SAME’

“The phone call was pleasant, but it was just more of the same. Even the conversations the staff had yesterday were just more of the same. It’s time for the president, if he’s serious, to come back to us with a counteroffer,” Boehner said.

Boehner and the House of Representatives leadership submitted their terms for a deal to the White House on Monday, after Obama offered his opening proposal last week.

The plans from both sides would cut deficits by more than $ 4 trillion over the next 10 years but differ on how to get there. Republicans want more drastic spending cuts in entitlement programs, while Obama wants to raise more revenue with tax increases and to boost some spending to spur the sluggish economy.

With polling showing most Americans would blame Republicans if the country goes off the cliff, more House Republicans have been urging Boehner to get an agreement quickly, even if it means tax hikes for the wealthiest.

But Boehner could have a challenge selling an eventual agreement to conservative Tea Party sympathizers in the House, some of whom are openly critical of the concessions the speaker has already made.

Boehner has been under fire from the right for proposing $ 800 billion in new revenue and for removing from House committees four conservative Republican lawmakers who were seen as bucking the leadership.

“When he couples this conservative purging with a negotiated tax increase of $ 800 billion, we are starting to see more and more signs that he’s not dedicated to fiscally conservative beliefs,” Andrew Roth of the influential anti-tax group Club for Growth told Fox News.

If the question of whether to raise tax rates is resolved, the two sides will then try to figure out a way to deal with the spending cuts, perhaps postponing or trimming them. They will also work toward a longer-term deficit-reduction package to be taken up after the new Congress is sworn in next month.

At a news conference on Friday, Pelosi threw her support behind a White House proposal to give Obama power to raise U.S. borrowing authority without legislation from Congress.

The debt ceiling issue, which provoked a 2011 showdown that led to a downgrade of the U.S. credit rating, has become entwined in the fiscal cliff debate. The debt limit will need to be raised in the next few months.

“The White House and House Democrats are on the same page on the debt ceiling,” Pelosi said.

(Additional reporting by Susan Heavey, Rachelle Younglai, David Lawder and Richard Cowan; Writing by John Whitesides; Editing by Eric Beech and Peter Cooney)

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‘Fiscal cliff’ woes could extend into 2014-BofA

CHARLOTTE, North Carolina (Reuters) – If the United States goes off the “fiscal cliff” and stays there for too long, the economy could suffer into 2014, Bank of America Corp’s head of commercial banking says.

Concern about the so-called fiscal cliff is already causing mid-sized businesses to pause activity and to issue special dividends ahead of possible tax increases, Laura Whitley said in an interview this week.

“It will push you into planning season when people are thinking about not 2013 but 2014,” Whitley said.

The “fiscal cliff” is a $ 600 billion combination of steep tax hikes and deep spending cuts that will kick in next year unless Congress intervenes.

Whitley remains confident that her business will continue to increase total loans, a bright spot for a bank still struggling to recover from the financial crisis.

“We will finish the year strong,” she said.

In some cases, the “fiscal cliff” is actually providing a boon to the bank because customers are using debt to finance their dividend payments. Whitley’s group works with public and private companies.

Bank of America‘s total loans in the third quarter fell 4 percent from a year ago to $ 893 billion as the No. 2 U.S. bank by assets continued to shed unwanted consumer mortgages. But commercial loans, including ones made to large corporations, climbed 7 percent to $ 330.8 billion.

After a year of building capital to meet new international requirements, Bank of America CEO Brian Moynihan said at an investor conference this week that he is pushing his team to make more loans.

Whitley, 51, has led Bank of America’s commercial banking business since the fall of 2011, when the previous head, David Darnell, became co-chief operating officer, overseeing consumer banking and wealth management.

Over a nearly 30-year career at the bank and predecessor companies, she has held posts in middle-market banking, investment banking and wealth management. In 2011, she was also one of the leaders steering a company-wide cost-cutting program called Project New BAC.

Whitley’s unit provides mid-sized businesses with loans, cash management services and other products. In a presentation this week, the bank said lending and treasury management services for commercial customers with revenues between $ 50 million and $ 2 billion brought in $ 6.1 billion in revenue in the first nine months of the year, nearly one-tenth of the company’s total.

The growth comes in a year in which the bank eliminated an undisclosed number of jobs in the commercial lending unit as part of New BAC. The unit, which has just under 5,000 employees, is not planning any more cuts and is now adding 50 lenders in key markets such as Colorado, Georgia and Florida, she said. The bank is also adding staff in sectors such as new media and energy.

Commercial lending has been a growth area for many banks, so Bank of America has faced competition for loans and for employees. Earlier this year, JPMorgan Chase & Co hired some of its bankers as part of an expansion into Bank of America’s hometown of Charlotte, North Carolina.

“At that time I think we were more vulnerable because it was the middle of New BAC and people were concerned about what would that mean for our business,” Whitley said. “The business was very sound.”

(Reporting by Rick Rothacker in Charlotte, North Carolina; Editing by Dan Grebler)

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Protesters surge around Egypt’s presidential palace

CAIRO (Reuters) – Tens of thousands of Egyptian protesters surged around the presidential palace on Friday and the opposition rejected President Mohamed Mursi‘s call for dialogue to end a crisis that has polarized the nation and sparked deadly clashes.

The Islamist leader’s deputy said he could delay a December 15 referendum on a constitution that liberals opposed, although the concession only partly meets a list of opposition demands that include scrapping a decree that expanded Mursi‘s powers.

“The people want the downfall of the regime” and “Leave, leave,” crowds chanted after bursting through barbed wire barricades and climbing on tanks guarding the palace of Egypt‘s first freely elected president.

Their slogans echoed those used in a popular revolt that toppled Mursi’s predecessor Hosni Mubarak in February 2011.

Vice President Mahmoud Mekky said in a statement sent to local media that the president was prepared to postpone the referendum if that could be done without legal challenge.

The dialogue meeting was expected to go ahead on Saturday in the absence of most opposition factions. “Tomorrow everything will be on the table,” a presidential source said of the talks.

The opposition has demanded that Mursi rescind a November 22 decree giving himself wide powers and delay the vote set for December 15 on a constitution drafted by an Islamist-led assembly which they say fails to meet the aspirations of all Egyptians.

The state news agency reported that the election committee had postponed the start of voting for Egyptians abroad until Wednesday, instead of Saturday as planned. It did not say whether this would affect the timing of voting in Egypt.

Ahmed Said, leader of the liberal Free Egyptians Party, told Reuters that delaying expatriate voting was made to seem like a concession but would not change the opposition’s stance.

He said the core opposition demand was to freeze Mursi’s decree and “to reconsider the formation and structure of the constituent assembly”, not simply to postpone the referendum.

The opposition organized marches converging on the palace which elite Republican Guard units had ringed with tanks and barbed wire on Thursday after violence between supporters and opponents of Mursi killed seven people and wounded 350.

Islamists, who had obeyed a military order for demonstrators to leave the palace environs, held funerals on Friday at Cairo’s al-Azhar mosque for six Mursi partisans who were among the dead. “With our blood and souls, we sacrifice to Islam,” they chanted.

“ARM-TWISTING”

In a speech late on Thursday, Mursi had refused to retract his November 22 decree or cancel the referendum on the constitution, but offered talks on the way forward after the referendum.

The National Salvation Front, the main opposition coalition, said it would not join the dialogue. The Front’s coordinator, Mohamed ElBaradei, a Nobel peace laureate, dismissed the offer as “arm-twisting and imposition of a fait accompli”.

Murad Ali, spokesman of the Brotherhood’s Freedom and Justice Party (FJP), said opposition reactions were sad: “What exit to this crisis do they have other than dialogue?” he asked.

Mursi’s decree giving himself extra powers sparked the worst political crisis since he took office in June and set off renewed unrest that is dimming Egypt’s hopes of stability and economic recovery after nearly two years of turmoil following the overthrow of Mubarak, a military-backed strongman.

The turmoil has exposed contrasting visions for Egypt, one held by Islamists, who were suppressed for decades by the army, and another by their rivals, who fear religious conservatives want to squeeze out other voices and restrict social freedoms.

Caught in the middle are many of Egypt’s 83 million people who are desperate for an end to political turbulence threatening their precarious livelihoods in an economy under severe strain.

“We are so tired, by God,” said Mohamed Ali, a laborer. “I did not vote for Mursi nor anyone else. I only care about bringing food to my family, but I haven’t had work for a week.”

ECONOMIC PAIN

A long political standoff will make it harder for Mursi’s government to tackle the crushing budget deficit and stave off a balance of payments crisis. Austerity measures, especially cuts in costly fuel subsidies, seem inevitable to meet the terms of a $ 4.8-billion IMF loan that Egypt hopes to clinch this month.

U.S. President Barack Obama told Mursi on Thursday of his “deep concern” about casualties in this week’s clashes and said “dialogue should occur without preconditions”.

The upheaval in the most populous Arab nation worries the United States, which has given billions of dollars in military and other aid since Egypt made peace with Israel in 1979.

The conflict between Islamists and opponents who each believe the other is twisting the democratic rules to thwart them has poisoned the political atmosphere in Egypt.

The Muslim Brotherhood’s spokesman, Mahmoud Ghozlan, told Reuters that if the opposition shunned the dialogue “it shows that their intention is to remove Mursi from the presidency and not to cancel the decree or the constitution as they claim”.

Ayman Mohamed, 29, a protester at the palace, said Mursi should scrap the draft constitution and heed popular demands.

“He is the president of the republic. He can’t just work for the Muslim Brotherhood,” Mohamed said of the eight-decade-old Islamist movement that propelled Mursi from obscurity to power.

(Additional reporting by Omar Fahmy; Writing by Edmund Blair and Alistair Lyon; Editing by Giles Elgood)

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