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Conversation with Dick Costolo; Conversation with Bill Browder - Part 2

Wed, 09/19/2012 - 11:42am
CHARLIE ROSEAssociated Press

xfdls THE-CHARLIE-ROSE-SHOW-01

<Show: THE CHARLIE ROSE SHOW>

<Date: September 18, 2012>

<Time: 23:00:00>

<Tran: 091801cb.111>

<Type: SHOW>

<Head: Conversation with Dick Costolo; Conversation with Bill Browder - Part 2>

<Sect: News; International>

<Byline: CHARLIE ROSE>

<Guest: Dick Costolo, Bill Browder>

<High: Dick Costolo is the CEO of Twitter, the social networking service

has now grown to 140 million active users who tweet over 340 million times

a day; he has led the company`s successful mobile strategy, an area that

competitors such as Facebook continue to find elusive. Bill Browder is the

CEO and co-founder of Hermitage Capital Management, the fund was

established in 1996 to invest in Russia; in 2007 the firm`s lawyer Sergei

Magnitsky revealed a $230 million tax fraud, Sergei was sent to jail in

2009 where he died that year at the age of 37. >

<Spec: Twitter; Internet; Computers; Technology; Telecommunications;

Backgrounders; Profiles; Russia; Sergei Magnitsky; Justice; Human Rights;

Abuse>

CHARLIE ROSE: How do you see the roles of Facebook and Twitter developing?

DICK COSTOLO: I think that they are -- they are very different companies, for one. I think that we think about people and the kinds of accounts they follow, painting a picture of a -- of an interest graph, meaning -- by which I mean I followed San Francisco 49ers but I`m not friends -- they are not my friend, right?

CHARLIE ROSE: Yes.

DICK COSTOLO: I mean on Facebook I have a collection of friends.

CHARLIE ROSE: You want to know everything you can know about the 49ers.

DICK COSTOLO: Yes.

CHARLIE ROSE: And -- and what is --

(CROSSTALK)

DICK COSTOLO: On Facebook I`m -- you know, I have a group of friends and they are my friends and there is a symmetrical relationship here and on Twitter it`s asymmetric.

Pushing that forward, I think that the way the companies will evolve is you will see more real-time communication, more sharing, more willingness to share. So it`s definitely the case that younger generations are much more willing to share all kinds of -- all kinds of media and information about what they are doing right now; photos from what they are doing right now and the videos. And I think you`ll continue to see that -- I think you`ll continue to see more and more and more of that.

I do think that despite -- I should say irrespective of -- of aspects of the companies that may be competitive we compete for -- for advertisers, for example, that they`ll -- that they`ll continue to be very different things in people`s eyes.

CHARLIE ROSE: Some people have said and I know this is a stretch, but some people have said that Google is the new Microsoft, Facebook is the new Google, and Twitter is the new Facebook.

DICK COSTOLO: I think that people sometimes force themselves into analogy that don`t really make a lot -- don`t really -- don`t really work out.

CHARLIE ROSE: That does not resonate.

DICK COSTOLO: Right it doesn`t resonate. No, I think Google, look they are a remarkable company, they`ve got -- Android is doing amazingly well and Chrome is doing fantastically well and Search continues to be remarkable, so I don`t -- I don`t see that analogy working for me --

(CROSSTALK)

CHARLIE ROSE: And speaking of Android, I mean, is Android going to be more powerful as a system than we imagined in the beginning? I mean has it shown that because its velocity has been stronger than the --

DICK COSTOLO: I think that Google --

(CROSSTALK)

CHARLIE ROSE: Apple operating system.

DICK COSTOLO: -- I think Google will continue to have tremendous success with Android and -- and we`ll see how it -- how it evolves and you know, obviously with the Motorola acquisition you have to be curious about what - -

(CROSSTALK)

CHARLIE ROSE: Exactly.

DICK COSTOLO: -- what they`re thinking there.

There is obviously a lot of speculation about well, did they acquire it just for the IP or is this an interesting full-stack hardware-software opportunity Larry Paige is going to pursue? I don`t know what the answers are there, but obviously spent enough money on that that they obviously -- we got big plans for it.

CHARLIE ROSE: Indeed.

But you mentioned the whole thing, I mean, so somebody might ask because you have had a series of acquisitions, yes? Can you imagine the time that Twitter might come with hardware?

DICK COSTOLO: We don`t -- we don`t think about those kinds of things. It`s not in our -- that is not in the wheelhouse of the kinds of things we`re thinking about right now.

CHARLIE ROSE: What`s in the wheelhouse of the kinds of things you are thinking?

DICK COSTOLO: I think about continuing to move -- remove friction from people`s ability to communicate in real-time.

CHARLIE ROSE: Yes.

DICK COSTOLO: Everything we can do to remove friction from real-time communications is what we are thinking about right now.

CHARLIE ROSE: And there are some people who talk about the management of Twitter echo system and at the same time the creation of this consistent Twitter experience.

DICK COSTOLO: Yes. So Twitter has an API that allows people to take the tweets, take a stream of tweets and go, do whatever they want to do with them. And we have that and it is free and people can use it and so forth.

CHARLIE ROSE: Do they?

DICK COSTOLO: Yes, in tremendous numbers -- hundreds of thousands of applications out there that leverage the Twitter API. It used to be the case that the way that API was used in many respects was by companies that took the tweets and went over and built an alternative user experience, an alternate Twitter client experience. They use this experience to use Twitter. And it might be on iPhone, you had Twitterific, and Tweety and Tweet Bot and all of these things.

CHARLIE ROSE: Right. Right. Right.

DICK COSTOLO: And around the spring of 2010, we -- the management team at Twitter, Ev was the CEO and I was the COO decided that it was important for us to have an owned and operated Twitter client on all the major platforms, because it was hurting our ability to innovate, because we would want to create some innovation and then have to try to convince the other kinds of clients to adopt it and they might be going in one direction and we wanted to go in another.

And as our users were starting to adopt Twitter on more than just one platform, for example they would use it on the web and on an Android phone, web and on Blackberry.

CHARLIE ROSE: Right, right, right.

DICK COSTOLO: We realized, we have to have a consistent owned and operated experience on every client. Once we decided that, what we tried to message the ecosystem is there are all these value-added services that we would like you to start building that our customers and users are going to want, like large corporate accounts, one in customer relationship management software. And there are already thousand of Twitter clients there isn`t a need for lots and lots and lots of new kinds of clients. And that is the migration we have been continuing down.

I think the future of Twitter will be that we will have a true platform by which I mean not just an API that will allow developers to create an alternate Twitter experience but an API and true platform that allows third parties to build on top of Twitter in a way that creates, creates a creative value for the users.

In much the way Amazon created a true platform and said we`re going to allow third party merchants to build into Amazon and they can leverage our logistics capabilities and recommendation engine, et cetera. And the user gets the benefits of the platform, plus the added inventory of these third parties, et cetera.

CHARLIE ROSE: You have mentioned this several times and I still agree with you that Jeff Bezos is one of the giants out there, because he has been doing it longer and over the longer form, and he has been able to move beyond the original creation.

DICK COSTOLO: Yes.

CHARLIE ROSE: With a remarkable success rate --

DICK COSTOLO: Yes.

CHARLIE ROSE: -- because of his singular focus on the consumer.

DICK COSTOLO: Yes. That`s right. I agree with that.

CHARLIE ROSE: You know.

DICK COSTOLO: Absolutely.

CHARLIE ROSE: And you put him right at the top with everybody, whether it was Steve, or Larry and Sergei or --

DICK COSTOLO: Jeff`s maniacal --

CHARLIE ROSE: Maniacal is the word.

DICK COSTOLO: -- laugh -- his maniacal laugh and maniacal focus on the customer has served him incredibly well. I think, you know, that`s a great -- one of the great, I think lessons learned from Amazon is that there are so many different paths to success. You had Apple`s focus and courage, and Jeff`s version of that has been "I am going to do a bunch of different things but we`re going to maniacally focus on the customer" and he`s had the success he had.

So there is no question that user first, user engagement first has served those guys well and there is a lot of lessons to be learned there.

CHARLIE ROSE: Where do you think we are in terms of -- I don`t know how to ask this question well -- but it`s sort of where are we in the digital revolution. What is the moment we are in?

DICK COSTOLO: I think it is still remarkably early days, and that we`ll look back on this 20 years from now at this time and say, wow, it was so early. You know, remember when the web was the way we -- you know, we experienced our digital life? Things like Google glass.

CHARLIE ROSE: Remember when the web was the way we experienced our digital life? What a great line there.

DICK COSTOLO: I think even things like Google, you know, the glass that Google is working on -- not that that will be -- people tend to see these first versions of things and then say, oh, so we are all going to be walking around, you know, looking into the sky? They are a hint as to the kind of things that can happen and change the world in extraordinary ways.

CHARLIE ROSE: Yes. It is about some sense -- you may not have it now, but the fact that you are taking this step means that you may have it.

DICK COSTOLO: That`s right. And I think that is an enormous step and it is a courageous step.

CHARLIE ROSE: Ok. There are challenges too down the road, having nothing to do with the development of the product but having everything to do with the fact that we live in a kind of society we do. You have had to turn over a protester at Occupy.

DICK COSTOLO: Yes.

CHARLIE ROSE: What are the ramifications of that and what are the lessons of that and what does it say going forward?

DICK COSTOLO: Yes. So our position in this case, this Harris case, has been that we have -- we feel we have an obligation to protect our users` right to protest the forced production of their private information. We have to balance that desire with our obligation to respect the rule of law. And that is the kind of fine line we are trying to navigate here.

I think that the answer to your question is, we will have to see how this case plays out on ultimately on appeal. When we provided that information, we provided it sealed in the hopes that based on appeal we will still be able to give that user his ability to protect that information.

CHARLIE ROSE: What was a factor in the decision?

DICK COSTOLO: Well, I can`t say that I know the answer to that. The judge would have to tell you what that was. Our belief is that, you know -- well, our belief is that we wish we hadn`t had to do that and we did it under seal in the hopes that we can win on appeal.

CHARLIE ROSE: But do you see other issues like that on the horizon?

DICK COSTOLO: Of course. And I see them around the world, because, you know, there are --

CHARLIE ROSE: China.

DICK COSTOLO: -- different laws in different countries, of course. I will tell you that the specific kind of these cases that concern me the most are the ones in which in the U.K. the version of these called super injunctions, I believe is the term, but they`re these court orders that don`t allow you to say that there is a court order.

So not only do you have to turn over this information, you are not allowed to mention publicly that you received an order to turn over this information. I think that those are particularly tough to ask and disconcerting and don`t have -- there is something creepy about them that makes me feel like they don`t have a place in the kind of world we have all decided we want to live in here in the U.S., at least.

CHARLIE ROSE: This may be a no-brainer, but if you look at those places that would like to shut down Twitter, Facebook, means for people within the community within a larger community, communicate, are we beyond that as a possibility?

DICK COSTOLO: Well, we are --

CHARLIE ROSE: That is a dream that some dictator can give up?

DICK COSTOLO: We are blocked in China and Iran.

CHARLIE ROSE: Forever? Do you have to change behavior by them or new technology or what?

DICK COSTOLO: You have to have change of understanding by them that blocking this service does not -- does not prevent people ultimately from using it. We do have a large number of users in China who just use a virtual private network, get out of the country through VPN and use Twitter. Some of them very, very famous, you know.

The great Chinese artist Ai Weiwei has spoken openly and freely about Twitter. So, you know, I think that ultimately these kinds of communications will -- people will make their voices heard. They will -- it`s like water, right, it will find its way around the dam and it will flow.

CHARLIE ROSE: It always has and always will.

DICK COSTOLO: It always has and always will, that`s right.

CHARLIE ROSE: So where will Twitter be five years from now? Will it be a public company?

DICK COSTOLO: I say this all the time and I mean it in the sincerest way possible.

(CROSSTALK)

DICK COSTOLO: No, no, no. It`s a perfectly reasonable question. When I think about the company and, you know, another question people ask me frequently is what do you worry about when you go to bed at night? And the thing I worry about is just balance between courage and focus, and I don`t -- I think about, of course --

CHARLIE ROSE: -- courage and something else; courage and focus.

DICK COSTOLO: Courage and focus.

CHARLIE ROSE: Explain that equation.

DICK COSTOLO: Are we being -- are we being as bold as we could be, are we taking chances and not just trying to protect what we have but doing this amazing new thing, and balancing that with let`s not go do every new thing we want to do. We have to do few things and decide what we are not going to do and make sure we are concentrating our efforts.

So that balance, I think, is the tension that Apple and Amazon, in their very different ways have successfully navigated so well. And that is what I obsess about all the time, not how we are going to finance the next stage of growth in the company.

CHARLIE ROSE: Changing the model or any of that stuff.

DICK COSTOLO: Yes.

CHARLIE ROSE: But do you think that the business will be essentially an outgrowth of what you are doing now?

DICK COSTOLO: Yes, I do. The beauty of Twitter today --

CHARLIE ROSE: I was sort of asking what game changes might be out there, but go ahead.

DICK COSTOLO: The beauty of Twitter today is that more and more people are using it who don`t tweet. I think it may even be the most -- I`m sorry, the least understood change in the service over the last couple of years is --

(CROSSTALK)

CHARLIE ROSE: What do you mean?

DICK COSTOLO: I mean there are more and more people, almost 40, over 40 percent of our user base now who logs into Twitter regularly and they don`t tweet, they just read tweets, they consume tweets.

CHARLIE ROSE: Got you.

DICK COSTOLO: It was very much the case in the early years of the company that you got on to Twitter because you were ready to tell people what you were doing and I have this idea and you engage in this conversation. With as you mentioned at the top of the show hundreds of millions of tweets pouring in every day now, there are already something for everybody on there. And we have got more and more users coming to the platform and using it who are just consumers.

And I think that has fascinating implications for the way we think about the future of the service. There are lots of people coming who don`t want to and may never tweet, but still come every day or every hour.

CHARLIE ROSE: Every new employee at Twitter you do a sort of a five-hour immersion.

DICK COSTOLO: Yes.

CHARLIE ROSE: What is that about?

DICK COSTOLO: It is much longer than that now.

CHARLIE ROSE: How long is it?

DICK COSTOLO: Days now.

The culture at Twitter and the company we are trying to build is so important, and it is important because when everybody is on the same page and understands how to be successful in their work and how that maps to what the company is trying to do, you know how to wake up in the morning and be efficient and productive in what you are doing. And when you don`t understand what the management team or the leadership team understands, you can end up working incredibly long hours and not having any idea whether your work is being helpful to the company or not, and those are, I think, horrible places to work.

So lots of this immersion is about making sure everybody understands what the rest of us understand, right, from the day you get here you have to understand what the rest of us understand.

CHARLIE ROSE: Right, right. I mean really is a sense of you say to them we have a culture.

DICK COSTOLO: Right.

CHARLIE ROSE: And we want you to be a part of that culture.

DICK COSTOLO: That is correct.

CHARLIE ROSE: To be a part of it you have to understand it. You have to understand not only what it is but why it is.

DICK COSTOLO: That`s -- I think the why is probably the most important piece of it -- all aspects of the why. Why we have to achieve what we want to achieve, right? And why we, you know, why we have got these goals, why we set these core values out for ourselves.

CHARLIE ROSE: It is a pleasure to have you here.

DICK COSTOLO: Thanks very much for having me. It has been my pleasure.

CHARLIE ROSE: Back in a moment. Stay with us.

(END VIDEOTAPE)

(BEGIN VIDEOTAPE)

CHARLIE ROSE: Bill Browder is here. He is the CEO and co-founder of Hermitage Capital Management. The fund was established in 1996 with $25 million to invest in Russia. Over the next decade Hermitage grew to $4.5 billion. Events took a turn for the worse in 2005 when Browder was refused an opportunity to re-enter Russia.

Two years later Hermitage headquarters were raided by the Russian tax police, the firm`s lawyer Sergei Magnitsky revealed a $230 million tax fraud perpetrated by government officials. In 2009 he was sent to jail where he died that year at the age of 37. Since that time, Bill Browder has dedicated his time and his resources to uncovering the truth and prosecuting the guilty.

I am pleased to have him here at this table for the first time. Welcome.

BILL BROWDER, CEO AND FOUNDER, HERMITAGE CAPITAL MANAGEMENT: Thank you for having me.

CHARLIE ROSE: I want to set this up first with you and then how he gets involved and his death. And what you are doing now. You went to -- your grandfather was Earl Browder, who was the head of the Communist Party in America.

BILL BROWDER: Yes.

CHARLIE ROSE: Is that right, grandfather?

BILL BROWDER: I`ve got an accent like everyone else around here but I have a very unusual family background. My grandfather was the general secretary of the American Communist Party.

CHARLIE ROSE: Right.

BILL BROWDER: Before he became the general secretary, he went to Russia in 1927, he met my grandmother over there and my father was born in Russia. They came back here. He becomes head of the Communist Party and runs for president twice on the Communist ticket against Roosevelt in 1936, 1940. And then eventually they kick him out of the Communist Party for being too much of a capitalist.

CHARLIE ROSE: He thought that he could bridge the gap between communism and capitalism.

BILL BROWDER: Well, he thought he could. Stalin didn`t think he could. He was kicked out of the Communist Party and then the 1950`s began with the McCarthy era and it didn`t matter whether you were a good or bad Communist if you were a Communist.

CHARLIE ROSE: Communists were bad.

So he then spent many years defending himself in front of the house subcommittee on unAmerican activities and all sorts of other terrible things.

CHARLIE ROSE: And so his grandson decides what he most wants to be is a capitalist.

BILL BROWDER: Well, As often happens in any family, I was going through my teenage rebellion and I was looking around and I was saying what do I do? I can`t grow my hair long or whatever, to offend my family, what can I do to really make them unhappy? And I said well if I come from a family of communists, the best thing I can do is become a capitalist, so that`s what I did.

CHARLIE ROSE: Take me to the story of your lawyer, which brings you here.

BILL BROWDER: In November of 2005, after I`ve lived there for ten years, I had become the largest foreign portfolio investor in their country. I set up a big operation. I was flying back to Russia from a business trip to London. I arrived at Sheremetyevo-2 Airport, which is the main airport the Moscow and instead of whisking me through the passport control --

CHARLIE ROSE: The VIP place, yes.

BILL BROWDER: Instead they stop me, I sat there drinking my tea for 45 minutes, and it started to become strange why I wasn`t going. My driver went up to the window to ask them what was going on, and all of a sudden five guards from the border police came, took me away, stuck me in detention overnight, and then expelled me from the country the next day and declared me a threat to national security.

CHARLIE ROSE: And so bring your lawyer into the story -- Sergei.

BILL BROWDER: So they kicked me out of Russia. At this point, I didn`t want to be like Khodorkovsky and I liquidated all of my holdings in Russia. I evacuated all of my staff and I thought that was the end of the story.

CHARLIE ROSE: So what you do is that you liquidated -- you sold and took the cash out? Or what did you do?

BILL BROWDER: We sold the securities, took the cash out and returned it to our investors, dusted off my hands and started something new. I thought --

CHARLIE ROSE: And you were ok because you had gone liquid.

BILL BROWDER: We didn`t lose any money.

I thought that was the end of the story. It turned out to be the start of the biggest nightmare you could ever imagine. 18 months after I was kicked out, in June of 2007, 25 police officers from the Moscow interior ministry came to my office, raided my office. 25 more officers went to my American law firm and looking for the documents for our investment holding companies through which we have invested all of this money.

They found all the documents at our law firm. They didn`t know the companies were empty. They seized all the documents and then the next thing we knew, we didn`t own our companies anymore. The documents seized by the police had been used to steal our companies.

At this point, we hire a young lawyer, named Sergei Magnitsky. He was 36 years old, he worked for this American law firm and he was the smartest guy I knew in Moscow. He was one of these lawyers that could run circles around everybody else. And he was just this really, just the guy you call up at 10:00 o`clock at night. It was 1:00 in the morning in Moscow and he would get up and he`d figure out the problem and by the time you got into the office in the morning, you know, there would be a memo in your inbox. He was just the most reliable guy we knew.

And we said Sergei help us figure this whole thing out. And Sergei goes out and investigates and he says the situation is far worse than you can imagine. Not only have the police been involved in stealing your companies, but they created a billion dollars of fake contracts that claim your companies owe a billion dollars to some three empty shell companies. We said my God that is terrible.

He said it gets worse. He said those shell companies then sued your companies in court for a billion dollars based on these fake contracts. And we said well, that is horrible, and then what?

And he said three lawyers who you didn`t hire showed up in court, but when they want to went to court they didn`t defend your companies, they pled guilty to a billion dollars of fake court claims. And then immediately the judges stamped a billion dollars, the police went looking for a billion dollars worth of assets all over our banks, and they couldn`t find anything.

And I said -- and at the point when I saw that the police couldn`t find any money because there was no money to find, I said to Sergei, "Wow, they sure went through a lot of efforts for nothing." And Sergei said, "Bill, don`t relax. This is not the end of the story. These Russian stories never end this way."

CHARLIE ROSE: In 2009 he went to jail.

BILL BROWDER: And so what he discovered was that the police, working together with organized criminals, had gone to the tax office to the tax authorities of Russia and they had basically filed a fraudulent tax refund request for $230 million of taxes that we had paid in the previous year. We paid $230 million of taxes to the Russian government when we sold all of our stocks, the police and these crooks stole $230 million. He figured it out, he testified against the police officers.

And one month after he testified against the police officers three subordinates of one of the officers he testified against came to his house at 8:00 in the morning in front of his wife and two children, arrested him, put him in pre-trial detention and then started to torture him to get him to withdraw his testimony.

CHARLIE ROSE: And were you in communication with him at this time?

BILL BROWDER: The way we know about this is that Sergei was the most accurate lawyer I have ever come across and every day, in prison, when they were torturing him, he wrote a complaint about his mistreatment. He wrote 450 complaints about his 358 days in detention.

And once a month or so, his lawyer would come to visit, he`d give him a whole bunch of these handwritten complaints, and his lawyer would file them and then send us copies. So we got from these complaints a sort of day by day description about how the situation was getting worse and worse and worse.

They were torturing him in the most unpleasant ways. They were putting him in cells with 14 inmates and eight beds leaving the lights on 24 hours a day for sleep deprivation. They put him in a cell with no heat, no window panes in Moscow in December so he nearly froze to death. They he put him in cells with no toilets, just a hole in the floor where sewage would bubble up.

And after six months of this, he lost 40 pounds. He`s developed very severe stomach pains and was diagnosed as having pancreatitis and gallstones and needing an urgent operation. One week before the operation was due, instead of giving him the operation, the police moved him from the prison that had a medical facility to a prison with no medical facilities at all and they refused him all medical care.

He wrote 20 different requests desperately trying to get medical attention. Every one of his requests was either ignored or denied. His health started getting worse and worse and worse and was in constant agonizing pain, no treatment whatsoever. And on the night of November 16th, 2009 he went into critical condition. At that point, they then did decide to move him to prison with a hospital.

CHARLIE ROSE: Did you know he had been moved?

BILL BROWDER: We only learned about this afterwards. When they moved him to a prison with a hospital they didn`t take him to the hospital. They put him in an isolation cell. They chained him to a bed and eight riot guards with rubber batons beat him to death. He was 37 years old.

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