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Levick Weekly - Nov 30 2012


Published on

In this Issue: …

In this Issue:

The 100 Most Influential People in the Boardroom

Social Media & The Boardroom: Critical Questions Directors Need to Ask

Michael Volkov on Whistleblowers

What's Next? The Top Issues of 2013 and Beyond

H-P: Is There a Miraculous Recovery Ahead?

The Future of Directorship: Key Takeaways

Buy Me, Sell Me, Sue Me

Paul Ferrillo on Post Dodd-Frank Priorities

Jeff Rosenblum on The Naked Brand

The Next Big Superstorm Sandy Story: Are We Really in Good Hands?

Blogs Worth Following

LEVICK in the News

Published in: Business
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  • 1. EDITION 18 Weekly November 30, 2012 Special Issue: Boardroom Challenges Social Media & The Boardroom: Critical Questions Directors Need To AskMonth 1Month 2Month 3 34% 58% 28%Month 4LinkedIn Network Weekly Growth Twitter Favorite Rate Twitter Retreet Rate Twitter Monthly Growth Rate Facebook Yearly Activity = 10 New Connections Likes Friends Posts Shares
  • 2. This November, the National Association of Corporate Directors (NACD) released its annual list of The 100 Most Influential People in the Boardroom. In this special edition of LEVICK Weekly, we are pleased to present that prestigious list in its entirety along with in-depth articles and interviews discussing the challenges and opportunities facing boards today. 03 Contents 04 The 100 Most Influential People In the Board Room 12 SOCIAL MEDIA & THE BOARDROOM: Critical Questions Directors Need To Ask 19 MICHAEL VOLKOV on Whistleblowers 20 What’s Next? The Top Issues of 2013 and Beyond 30 H-P: IS THERE A MIRACULOUS RECOVERY AHEAD? 33 THE FUTURE OF DIRECTORSHIP: Key Takeaways 34 Buy Me, Sell Me, Sue Me also in this issue... Month 1 39 PAUL FERRILLO on Post-Election Dodd-Frank Priorities 40 Month 2 Month 3 34% 58% 28% JEFF ROSENBLUM Month 4 on The Naked Brand LinkedIn Network Weekly Growth Twitter Favorite Rate Twitter Retreet Rate Twitter Monthly Growth Rate Facebook Yearly Activity 42 The Next Big Superstorm Sandy Story: = 10 New Connections Likes Friends Posts Shares Are We Really in Good Hands?COVER Image: Social media employ web- and mobile-based technologies to support interactive dialogue and “introduce 47 Blogs Worth Following 48substantial and pervasive changes to communication between organizations, communities, and individuals.” AndreasKaplan and Michael Haenlein define social media as "a group of Internet-based applications that build on the ideological LEVICK In the Newsand technological foundations of Web 2.0, and that allow the creation and exchange of user-generated content.
  • 3. the 100 NACD Directorship Mathis Cabiallavetta Kent Foster Most Influential People Chair, Finance and Risk Chair, Human Resources and 100: Directors Committee; Swiss Re Compensation Committee; J.C. Penney Josef Ackermann Norm Champ in the Boardroom Chairman of the Board; Zurich Director, SEC Division of Investment Management Brenda J. Gaines Director; Office Depot Gilbert F. Amelio Arthur D. Collins, Jr. Raymond V. Gilmartin Chair, Human Resources; Chair, Compensation Chair, Corporate Governance; AT&T Committee; Boeing General Mills James L. Barksdale Scott Cook David R. Goode Chair, Information Technology Chair; Innovation Technology Chair, Personnel and NACD B. Kenneth West Lifetime Achievement Award Oversight; FedEx Procter & Gamble Compensation Committee; Delta Air Lines Jack B. Lowe, Jr./ Edward Barnholt Robert W. Cook Chairman; Zale Corporation; TDIndustries Chair, Compensation Director; SEC Division William H. Gray, III Committee; eBay of Trading and Markets Chair, Corporate Governance Lowe became CEO and board chair of TDIndustries, one of Americas premier spe- and Ethics; Prudential cialty contracting companies in 1980. For 15 consecutive years, the company has Gordon M. Bethune Alexander M. Cutler appeared in Fortune magazines list of the "100 Best Companies to Work in Amer- Chair, Compensation Director; DuPont Cheryl Grise ica". In his career, Lowe has been active in many civic and industry organizations Committee; Sprint Nextel Chair, Governance and and is a former trustee of the Dallas Independent School District. Domenico De Sole Corporate Responsibility; W. Frank Blount Director; Gap MetLife Chair, Nominating/ Governance Committee; KBR Susan L. Decker Myra M. Hart Lead Director; Intel Governance, Membership NACD Directors of the Year Samuel F. Bodman, III and Public Affairs Committee; Chair, Compensation Robert E. Denham Kraft Foods Committee; Weatherford Intl. Lead Director; Chevron William S. Ayer Linda Rabbitt Chairman; Alaska Air Group Founder, Chairman and Chief Michael Boskin Jane E. Henney, M.D. Executive Officer; Rand Con- Nick Donofrio Chair, Nominating/ Chair, Audit Committee; Director; Delphi Automotive A veteran of more than three struction Corp. Lead Indepen- Governance Committee; ExxonMobil decades in aviation, Ayer dent Director, Towers Watson AmerisourceBergen is the incoming chairman David W. Dorman Rabbitt is the current chair of James T. Brady Chairman of the Board; CVS Enrique Hernandez, Jr. of the NextGen Advisory Chair, Audit Committee; Council, a panel of aviation the Federal City Council, is on Chairman of the Board; industry leaders who are working with the the board of the Economic Club of Washington T. Rowe Price Group Dina Dublon Nordstrom and is a trustee of George Washington Univer- Chair, Audit Committee; FAA to modernize the nations air traffic con- Gregory D. Brenneman sity. She is a director and deputy chair of the PepsiCo Bonnie G. Hill trol system and improve airport and airspace Chair, Compensation efficiency. In addition, he is vice chairman of Federal Reserve Bank in Richmond, Va. Chair, Nominating Governance Committee; Home Depot William J. Fallon Committee; Home Depot the Museum of Flight and serves on the Angel Chairman of the Board; Flight West Foundation board. He is a regent Peter C. Browning CounterTack Mellody L. Hobson at the University of Washington and vice chair Chair, Nominating/Governance of the University of Washington Foundation. Director; Groupon Committee; Nucor Oscar Fanjul Chair, Finance Committee; Irvine O. Hockaday, Jr. Ursula M. Burns Marsh & McLennan Director; Ford Motor Co. Director; American Express Companies NACD Directorship 100: Hall of Fame Mary K. Bush Edward Neville Isdell Bill Ford, Jr. Director; General Motors Director; Discover Financial Chairman of the Board William B. Chandler, III James D. Robinson, III Services Ford Motor Co. Partner; Wilson Sonsini Goodrich & Rosati Chair, Directors and Corporate Governance; Coca-Cola04 05
  • 4. Weekly Shirley Ann Jackson Alex J. Mandl Georgia R. Nelson Susan C. Schwab Christine T. Whitman, Spencer T. Bachus Chair, Audit Committee; Lead Director & Chair, Audit Chair, Compensation Committee; Director; Boeing Governor Chairman, House Financial Marathon Oil Co. Committee; Dell Cummins Chair, Governance and Services Committee; Congress H. Hugh Shelton Stockholder Relations; Suzanne Nora Johnson Siri S. Marshall Donald T. Nicolaisen Chairman of the Board; Texas Instruments Stephen Bainbridge Director; Pfizer Chair, Nominating/Governance Chair, Audit Committee; Red Hat William D. Warren, Committee; Ameriprise Verizon Communications Donna F. Zarcone Distinguished Professor of Jim Kilts, Jr. Financial Ronald L. Skates Chair, Audit Committee; Law; UCLA School of Law Chair, Compensation Harald J. Norvik Director; Courier Corporation CIGNA Committee; Pfizer Arthur C. Martinez Director; ConocoPhillips Maria Bartiromo Lead Director; International James A. Skinner Carlo V. di Florio Anchor, Closing Bell; CNBC Ellen J. Kullman Flavors & Fragrances Charles H. Noski Chairman of the Board; Director; SEC Office of Chairman of the Board and Chair, Audit Committee, Walgreen Compliance Inspections David H. Batchelder CEO; DuPont Deryck Maughan Microsoft and Examinations Principal, Founder, member Director; Glaxo SmithKline Joan E. Spero of Investment Committee; Maria Lagomasino Sam Nunn, Jr. Director; IBM Relational Investors Chair, Compensation Stanley A. McChrystal, Chair, Public Responsibility; Committee; Coca-Cola Ret. USA General Electric Judith Sprieser NACD Directorship Lucian Bebchuk Director of the Program on Fred Langhammer Director; JetBlue Airways Chair, Audit Committee; 100: Governance Corporate Governance; Dean R. OHare Allstate Chair, Compensation Douglas H. McCorkindale Chair, Audit Committee; Professionals and Harvard Law School Committee; Walt Disney Chair, Nominating/Governance H.J. Heinz Thomas Stemberg Institutions Irv Becker Committee; Lockheed Martin Chair Compensation Sherry Lansing Samuel J. Palmisano National Practice Leader of Chair, Governance Committee; Committee; Lululemon Greg Abott the Executive Compensation Blythe J. McGarvie Chairman of the Board; IBM Athletica Attorney General; State Qualcomm Chair, Audit Committee; Viacom Practice; Hay Group of Texas Helmut Panke Randall L. Stephenson Jan Leschly Terry McGraw, III Chair, Antitrust Compliance; Richard A. Bennett Chair, Compensation & Chairman, President, Wiliam Ackman Chairman; GMI Chair, Nom Gov Committee; Microsoft CEO; AT&T CEO, Founder; Pershing Benefits; American Express Phillips 66 Square Capital Management Robert Bennett William D. Perez James S. Tisch Stuart R. Levine Andrew J. McKenna, Sr. Chair, Nominating/Governance Partner; Hogan Lovells Chair, Nominating/Governance Director; General Electric Joseph Adams Chairman of the Board; Committee; Johnson & Johnson Managing Partner, CEO Committee; Broadridge McDonalds Max W. Berger Financial Solutions Solomon D. Trujillo McGladrey Partner; Bernstein Litowitz David S. Pottruck Chair, Corporate Heidi Miller Chair, Compensation Committee; Berger & Grossman LLP Arthur Levinson Responsibility; Target Luis A. Aguilar Director; General Mills Intel Commissioner Chairman of the Board; Apple Carolyn Berger Laura DAndrea Tyson SEC Justice; Delaware Supreme M. Christian Mitchell Linda Rice Director; AT&T Ann M. Livermore Chairman of the Board; REIS Director; Kimberly-Clark Court Director; UPS William T. Allen Peter Ueberroth Director; NYU Pollack Center Stanley D. Bernstein Nicholas G. Moore Patricia F. Russo Director; Coca-Cola Edward J. Ludwig Chair, Audit & Examination; Lead Director; General Motors for Law and Business Partner; Bernstein Liebhard Lead Director and Chair, Wells Fargo Investment and Finance Craig Weatherup Charles Allen Kenneth A. Bertsch Thomas O. Ryder Lead Director; Starbucks CEO; Crowe Horwath Committee; Aetna Anne M. Mulcahy Chair, Audit Committee; Amazon President and CEO; Society Director; Johnson & Johnson of Corporate Secretaries & Christopher S. Lynch Arthur F. Weinbach Donna F. Anderson Paul Sagan Chairman of the Board; Vice President and Corporate Governance Professionals Chair, Audit Committee; AIG Leo F. Mullin Chair, Nominating and Corp CA Technologies Governance Specialist; T. Glenn Booraem Chair, Public Policy; Johnson Governance; iRobot Fred V. Malek & Johnson Rowe Price Fund Controller, Principal; Chair, Compensation Robert E. Weissman Ronald F. Sargent Chair, Nominating/ Francis J. Aquila Vanguard Group Committee; CBRE Group Richard B. Myers, Ret. USAF Chair, Audit Committee Governance Committee; Partner; Sullivan & Cromwell Director; United Technologies Kroger Cognizant Technology Solutions06 07
  • 5. Weekly Carol Bowie James Copland Michael Dowd Abe Friedman Bonnie W. Gwin Brad S. Karp Head, Compensation Director, Center for Legal Partner; Robbins Geller Former Head of Vice Chairman; Heidrick & Chairman; Paul, Weiss, Rifkind, Policy; ISS Policy; Manhattan Institute Rudman & Dowd LLP Governance; BlackRock Struggles Wharton & Garrison Richard C. Breeden Richard Cordray Theodore L. Dysart Eric Friedman Steven E. Hall David A. Katz Founder, Chairman, CEO, Director; Consumer Financial Vice Chairman; Heidrick & Executive Partner; Partner, Managing Director Partner; Wachtell, Lipton, Chief Investment Officer; Protection Bureau Struggles Skadden, Arps, Slate, Steven Hall & Partners Rosen & Katz Breeden Capital Management Meagher & Flom Meredith Cross David K. Eaton Robert E. Hallagan William Kelly Duke Bristow Director, Division of Corporate Vice President of Proxy Robert M. Galford Managing Director, Vice Corporate Partner; Davis Associate Professor of Finance; SEC Research, Glass Lewis & Co. Managing Partner; Center Chairman-Board Leadership Polk & Wardwell Clinical Finance and Business for Leading Organizations Services; Korn/Ferry Economics; USC Marshall Keith T. Darcy Richard Edelman International Robert Khuzami School of Business Executive Director; Ethics President and CEO; Edelman Daniel Gallagher Director, Division of and Compliance Officers Commissioner; SEC Kamala Harris Enforcement; SEC Catherine L. Bromilow Association Michelle Edkins Attorney General; State of PwC Partner; PwC Center for Global Head of Corporate Gary Gensler California David H. Kistenbroker Corporate Governance Julie Hembrock Daum Governance and Responsible Chairman; Commodity Managing Partner; Dechert, Co-Head, North American Investment; BlackRock Futures Trading Robert M. Hayward Chicago Office Beth Brooke Board and CEO Practice; W. Neil Eggleston Commission Partner; Kirkland & Ellis Global Vice Chair, Public Spencer Stuart Arthur Kohn Partner; Kirkland & Ellis Samuel Glasscock , III Paul G. Hodgson Policy; Ernst & Young Partner; Cleary Gottlieb Steen Steven Davidoff David Einhorn Vice Chancellor; Delaware Chief Research Analyst; GMI & Hamilton Stephen L. Brown DealBook Professor, The New Co-Founder, President; Court of Chancery Director of Corporate York Times Professor, Moritz Eric H. Holder Jannice L. Koors Greenlight Capital Arthur F. Golden Attorney General; United Governance; TIAA-CREF College of Law, Ohio State Managing Director; Pearl Meyer University Partner; Davis Polk & States of America & Partners Martha Carter Jay Eisenhofer Wardwell Managing Director, Co- Randy Holland Global Head of Research; ISS George L. Davis, Jr. Robert J. Kueppers Founder; Grant & Eisenhofer Amy L. Goodman Justice; Delaware Supreme Executive Committee Member, Deputy CEO; Deloitte Emily Chasan Co-Leader of Global Board Charles M. Elson Partner; Gibson, Dunn Court Senior Editor, CFO Journal; Practice; Egon Zehnder & Crutcher David F. Larcker, Professor Edgar S. Woolard, Jr., Chair Carl C. Icahn Wall Street Journal International Co-director, Arthur and University of Delaware; Michael D. Greenberg Chairman; Icahn Enterprises Toni Rembe Rock Center for Stephen Chipman Weinberg Center James W. DeLoach Director, RAND Center Corporate Governance; CEO, Grant Thornton Managing Director; Protiviti for Corporate Ethics and Darrell Issa Stanford Law School John M. Engler Governance Chairman, 112th Congress David Chun President; Business Mike DeWine Oversight Committee; United J. Travis Laster CEO, Founder; Equilar Roundtable Holly J. Gregory States Congress Attorney General; State of Ohio Vice Chancellor; Delaware Partner; Weil, Gotshal Court of Chancery James M. Citrin Phyllis Deiso Roger W. Ferguson, Jr. & Manges Jack Jacobs President, CEO; TIAA-CREF Co-Head; North American National SEC Practice Leader; Justice; Delaware Supreme Richard S. Levick Board and CEO Practice McGladrey Robin A. Ferracone Robert Greifeld Court President and CEO; LEVICK Spencer Stuart President, CEO; Nasdaq Executive Chair, Founder; Tim Johnson Thomas J. Donohue OMX Craig Lewis Mary Ann Cloyd Farient Advisors Chairman, Committee on President and CEO; U.S. Director, Division of Risk, Leader; PwC Center for Chamber of Commerce Laurence D. Fink Joseph Grundfest Banking, Housing and Urban Strategy and Financial Corporate Governance Senior Faculty, Arthur and Affairs; Senate Innovation and Chief Chairman, CEO; BlackRock James Doty Toni Rembe Rock Center for Economist; SEC John Coffee Chairman; Public Company Cynthia Fornelli Corporate Governance; Adolf A. Berle Professor of Accounting Oversight Board Executive Director; Center for Stanford Law School James P Liddy . Law; Columbia Law School U.S. Vice Chair, Audit and Audit Quzality Americas Regional Head of Audit; KPMG08 8 09
  • 6. Weekly Daniel S. Loeb Alan Murray Punit Renjen Timothy Smith Dennis T. Whalen Brian V. Breheny Founder, CEO; Third Point Deputy Managing Editor, Chairman of the Board; Senior Vice President Partner in Charge and Partner; Skadden, Arps, Slate, LLC Executive Editor of Online; Deloitte and Director of ESG Executive Director; KPMGs Meagher & Flom Wall Street Journal Shareowner Engagement; Audit Committee Institute David Louie Henry duPont Ridgely Walden Asset Management David Green Attorney General; State David A. Nadler Justice; Delaware Supreme Ralph Whitworth Director; U.K. Serious Fraud of Hawaii Vice Chairman; Marsh & Court Jeffrey Sonnenfeld Founder, Principal, Investment Office McLennan Companies Senior Associate Dean for Committee Member; Relational Joann S. Lublin Eileen Rominger Executive Programs; Investors Keir D. Gumbs Management News Editor; Charles M. Nathan Director, Division of Yale School of Management Partner; Covington & Burling Wall Street Journal Of Counsel; Latham & Watkins Investment Management; Christianna Wood SEC Larry Sonsini Chairman; International Darrin Hartzler Jon Lukomnik Duncan Niederauer Chairman;Wilson Sonsini Corporate Governance Manager, International Executive Director; IRRC CEO, director; NYSE Euronext Marc S. Rosenberg Goodrich & Rosati Network Finance Corporation Institute Partner and Co-Chair John Noble Corporate Governance and Andrew Ross Sorkin Ann Yerger Christopher Hohn Stephen P Mader . Vice Chancellor; Delaware Board Advisory Group; Chief Mergers & Executive Director; Council of Founder; Childrens Vice Chairman, Managing Court of Chancery Cravath, Swaine & Moore Acquisitions Reporter, Institutional Investors (CII) Investment Fund Director, Board Services Dealbook Editor and Practice; Korn/Ferry Justus OBrien Mary L. Schapiro Columnist; The New York Benjamin Lawsky International Head of Board Practice; Egon Chairman; SEC Times Superintendent; New York Zehnder International NACD Directorship Department of Financial Robert McCormick, JD Eric Schneiderman Myron Steele Services Chief Policy Officer; Glass John F. Olson Attorney General; State of Chief Justice; Delaware 100: People to Watch Lewis & Co. Partner; Gibson, Dunn & New York Supreme Court James McRitchie Crutcher Mark Beasley Publisher; William G. McGuinness Andrew E. Shapiro Leo E. Strine, Jr. Deloitte Professor of Chair of The Litigation Jonathan Oviatt Founder, President, Chancellor; Delaware Enterprise Risk Management; Henry Mintzberg Department; Fried Frank Chief Legal Officer; Mayo Clinic Portfolio Manager; Court of Chancery North Carolina State Professor; McGill University Harris Shriver & Jacobson Lawndale Capital University, ERM Initiative Troy Paredes Management David Swinford Ellen Moskowitz Patrick S. McGurn Commissioner; SEC President and CEO; Pearl Paul A. Beswick Partner; Brunswick Group Executive Vice President, Anne Sheehan Meyer & Partners Acting Chief Accountant; SEC Special Counsel; ISS Donald F. Parsons Director Corporate Ann C. Mule Vice Chancellor, Delaware Governance; CalSTRS Anton Valukas Errol L. Biggs Associate Director, Weinberg Keith Meyer Court of Chancery Chairman; Jenner & Block Instructor, Director of Center for Corporate Vice Chairman, Head Richard Shelby Graduate Programs in Governance; University of of Global CEO & Board George B. Paulin Ranking Member, Senate Bruce Vanyo Health Administration, Delaware Practice; CTPartners Chairman, CEO; Frederic Committee on Banking, Partner; Katten Director of Center for Health W. Cook Housing and Urban Affairs Administration; University of Jeffrey Rudman Nell Minow Congress John B. Veihmeyer Colorado Partner; WilmerHale Director; GMI Nelson Peltz Chairman, CEO; KPMG- Founder and CEO; Trian Fund Anne Simpson Americas Henry L. Boerner Jason Schloetzer Scott L. Mitchell Management Senior Portfolio Manager Chairman, CEO; Governance Professor; Georgetown Chairman; OCEG and Director for Corporate Mike Wallace & Accountability Institute University Becky Quick Governance; CalPERS Director, Global Reporting G. Mason Morfit Co-anchor, Squawk Box; CNBC Initiative’s (GRI) Focal Bradley J. Bondi Andrew J. Sherman Partner; ValueAct Capital Michael W. Smith Point USA; Global Partner; Cadwalader, Partner; Jones Day Jed Rakoff President of Executive Reporting Initiative Wickersham & Taft Jeff Morgan Chief Judge; US District Court Liability; Chartis Adair Turner CEO; National Investor Southern District of New York Elisse Walters Neil S. Braun Chairman; Financial Services Relations Institute (NIRI) Commissioner; SEC Dean; Pace University Lubin Authority, London L School of Business Charles Weinstein CEO; EisnerAmper10 11
  • 7. Social Media T he last 10 years have seen extraor- of a survey that examined how 180 top CEOs, dinary evolutions in the respon- senior executives, and corporate directors ap-& The Boardroom: sibilities boards of directors must proach the opportunities and risks associated assume. From Sarbanes-Oxley to with social media’s meteoric rise. The findings Dodd-Frank, directors have been are startling: subjected to new liabilities and new mandatesCritical Questions Directors Need To Ask Ninety percent of respondents report a basic for elevated levels of transparency and ac- understanding that what is said on social me- countability. But during that time, another dia can have a major impact on their organiza- development has had perhaps an even greater tion; but only 32 percent of their companies impact on directors’ day-to-day duties than monitor social media to identify risks and only any strictures from Washington, D.C. It’s the 14 percent utilize social media sentiment to social media revolution—and no public com-Richard S. Levick, Esq. measure corporate performance. pany, large or small, has eluded its impact.Originally Published on Only 24 percent of senior managers and 8 Social media are no longer novel stakeholder percent of directors request regular reports and consumer outreach tools; they are the on the company’s social media engagement ef- new normal in the modern business opera- forts and stakeholders’ social media sentiment. tions environment. The brand-building op- About half of the respondents do not collect portunities they present are nearly limitless. this information at all. The risks they introduce are just as expansive. They affect everything from reputations to Even here in 2012, only 59 percent of com- value propositions. And to many corporate panies surveyed use social media to interact leaders, they remain somewhat of a mystery. with customers. Only 49 percent use them to advertise. Only 35 percent use them for cus- Social networks are the venues where pur- tomer research purposes. And only 30 percent chasing decisions are increasingly made, use social media to research competitors, new investment opportunities are increasingly products and services, or communicate with weighed, and corporate adversaries—such as employees and other stakeholders. social activists and the plaintiffs’ bar—increas- ingly gain public support for their agendas. At the same time, 65 percent of respondents But despite that fact, the latest data indicate use social media for personal purposes and a significant divide between director engage- 63 percent utilize them for business purposes. ment on social media issues and social media’s Of that forward-thinking group, 80 percent impact on their companies. maintain a LinkedIn account and 68 percent are active on Facebook. At first glance, these Last month, Stanford University’s Rock Center numbers may seem encouraging; but, in real- for Corporate Governance released the results 13
  • 8. Weekly lways smart to look at what others in your need to know where the boundaries of accept- market are doing to leverage social media. able commentary may lie; but the risks are so Only 24 percent of senior managers and 8 percent of With the analytical tools available today, far outweighed by the opportunities that most companies can access a wealth of informa- boards are well-advised to encourage senior directors request regular reports on the company’s tion about the tactics their audiences respond leadership to build consumer and employee social media engagement efforts and stakeholders’ to, what drives them to take desired actions, loyalty via social media outreach.” social media sentiment. About half of the and the strategies that establish the strongest 4. What are our policies on employee use of so- connections both online and off. At the end respondents do not collect this information at all. of the day, both you and your competitors are cial media? Are we appropriately training employees on in this critical brand protection attempting to reach the same people. and promotion area? How often do we update From that perspective, your competitors the policies to ensure they are keeping up are providing you added insight with every with technology? ity, they make the above cited statistics all the 1. How do we use social media to engage Facebook post they publish, every tweet more alarming because familiarity with social with customers, open new markets & recruit Bromilow places a great deal of emphasis on they transmit, and every piece of video they media has not translated into C-Suite or board- the top talent? the importance of a carefully crafted social upload to YouTube or another video platform. room action. media use policy. “A number of directors I’ve “Social media engagement has evolved to Unfortunately, data from the PwC 2012 An- spoken to are concerned about employee social The good news is that there are a number of the point it is absolutely essential in today’s nual Corporate Directors Survey show that media use. There are productivity concerns, to questions directors can begin asking today marketplace,” says Bromilow. “A few years this point is lost on a number of board mem- be sure, but it goes even further than that. How that will immediately help them, and their or- ago, social media was something companies bers—77 percent of respondents answered can a company protect against accidental leaks ganizations, get up to speed. To formulate a list engaged in to provide themselves a com- “not at all,” “not sufficiently,” or “don’t know” of confidential information? How can it prevent of the 10 most critical, I enlisted the assistance petitive advantage. Now, it’s something that when asked how their companies monitor employees from sending inadvertent signals of three thought leaders who understand the they have to do to keep from falling behind. competitors’ social media activity.” by “liking” a certain article or “re-tweeting” crossroads of corporate directorship and so- Whether you’re looking to promote products, 3. How are our executives utilizing social controversial commentary? With the advent of cial media as well as any in the business world recruit talent, or introduce yourself to a new media? Who are they communicating with? location-based social media platforms, how can today. Catherine Bromilow, a partner in PwC’s market, your audience is on social media—so What are we allowing them to say? a company ensure that potentially damaging Center for Board Governance in the United your company needs to be as well.” conclusions aren’t drawn simply because an States; Chris Wood, a Senior Manager in PwC “Executives that engage with customers, 2. How are our competitors utilizing social executive is in a certain city? Companies need Canada’s Audit Committee Connect; and Neil employees, investors, and other stakeholders media to achieve the goals outlined above? formal policies to ensure that every employee, Manji, a partner and leader in PwC Canada’s via social media provide themselves an air of What can we learn from their efforts? at every level of the organization, understands Audit Committee Connect, shared insights and accessibility that simply doesn’t come across and follows the rules of the road. experiences that illuminate the opportunities Wood argues that competitors’ social media with other, one-way forms of communica- and risks inherent in social media engagement activity provides a great deal of insight into tion,” says Manji. “Social media are conver- “As important as this point is, the PwC 2012 An- and provide the foundation by which directors what works and what doesn’t with respect sational venues that empower the audience nual Corporate Directors Survey again shows can start asking the questions that set a strong to diverse industries that have varying audi- because it really feels it is being listened to. that most board members are not fully engaged strategic course. ences and different outreach goals. “It’s a Some topics may be off-limits, and executives on the issue--69 percent of respondents an-14 15
  • 9. Weekly swered “not at all,” “not sufficiently,” or “don’t story could go “viral” before the company even know” when asked how their companies em- knows it’s out there.” Bromilow adds that social ploy social media use training and policies.” media monitoring isn’t just about reputational risk management; but brand building as well. 5. Does our social media outreach comply “When a consumer does put something out with existing and potential regulations? What there that could be damaging to the brand, are the implications in terms of Regulation companies need to remember that it is only the Fair Disclosure? start of a conversation. If they respond quickly “We haven’t seen much yet from regulators and act fast to resolve the problem, they of- such as the SEC, FTC, or FDA in terms of con- ten win points for their care and attention to crete guidance as to what is constitutes ap- the matter—and they do so in a public venue propriate social media usage in the investor where others can see just how seriously they relations realm or in industries where market- take customer service. ing and communications are tightly controlled, Even with all the ways that social media can such as pharmaceuticals,” says Bromilow. make or break corporate reputations, the PwC “With so many concerns related to Regulation 2012 Annual Corporate Directors Survey once FD and other questions of compliance, boards again shows a disconnect on the issue, with 69 need to be reassured that 1) company social percent of board members answering “not at media engagement comports with all exist- all,” “not sufficiently,” or “don’t know” when lems in the bud before any of these adver- 8. What are we doing to build a burgeoning com- ing regulations, and 2) that they know how to asked how their companies monitor social me- sarial parties can leverage them to damage the munity of support in the social media space— respond should an external connection such as dia for adverse publicity.” company in the courtroom, the Court of Public one that is large enough to enable direct stake- a Facebook fan or Twitter follower post com- Opinion, or in terms of customer loyalty.” holder communications that can circumvent the mentary that could be problematic.” 7. Are we actively monitoring plaintiffs’, activists’, traditional media filter? and regulators’ social media activity for clues as It’s important to note as well that the plaintiffs’ 6. Are we actively monitoring popular social bar and even regulators engage in the same to where our next crisis might arise? To Wood, amassing multitudes of Facebook media platforms for negative publicity about type activity—and provide the level of insight fans, Twitter followers, or YouTube subscrib- the company? Manji sees social media monitoring not just into their plans. When plaintiffs’ attorneys ers is about more than a mere demonstration as a tool that allows for rapid response should “It used to be that companies really only had write blog posts that help them lay the ground- of brand strength. “When a company draws reputational problems arise, but as an early to worry about a damaging headline in the work for their next class action or regulators stakeholders to its key social media properties, warning system that can alert the company daily paper or a negative report on the nightly take to social media to discuss enforcement what it is really doing is creating a conduit by to problematic issues before they evolve into news,” says Wood. “Now, they have to be on the agendas, those companies that are listening which the company can directly communicate something worse. “You’ve got activists using lookout for individual stakeholders who may understand—and can plan for—what’s with its customers, shareholders, employees, social media to build groundswells of support comment about a negative experience on social coming next. and others. In this context, social media are around issues of corporate social responsibility. media platforms, because the inter-connected avenues that enable companies to bypass the That activity represents actionable intelligence nature of social networking means that the traditional media filter and transmit messages that companies can use to nip potential prob-16 17
  • 10. Weekly precisely as they are intended. That’s an asset that is particularly valuable in crisis or in situ- ations where misinformation is permeating the “race to be found.” With so much clutter on- line, today’s companies are constantly looking for ways to ensure that their online properties Michael Volkov on Whistleblowers marketplace; but it is also one that can’t be put rank high on the most popular search engines. into action unless the company has used peace- As Google, Bing, Yahoo, and others evolve their time to build its audience.” algorithms to include social media content to greater and greater extents, the value of smart 9. What is our strategy for reaching out to the social media strategy rises exponentially—as most influential social media voices covering our it not only strengths corporate reputations, industry? Are we treating them with the same but increases the chances that those enhanced respect we would show 60 Minutes or the New brands will be noticed amid a constant and York Times? highly competitive contest for online attention. “Just like in the traditional media, social As the latest data indicate, there are still a media are venues where some voices matter number of directors that are concerned about more than others,” says Manji. “That means the risks associated with social media engage- companies need to know who controls percep- ment today. In some cases, that’s a prudent tions related to their industries and do what is perspective. But as Wood reminds us, “The necessary to build productive working relation- greatest risk of all is failing to capitalize on all ships with those influential voices. It might be of the brand-building opportunities that social a blogger with 10,000 daily readers. It might media present. These online venues are where be pundit with 20,000 Twitter followers. But consumers, investors, regulators, and the full no matter the person or the venues he or she gamut of corporate stakeholders make deci- might populate, it is incumbent on companies Michael Volkov, a shareholder in LeClairRyan, discusses the tough whistleblower laws that sions. To be absent from the conversations that to understand that the most powerful commen- were passed as part of the Dodd-Frank financial reform package. Whistleblowers that meet impact your industry is a hazard simply too tators on social media have the same reach, certain criteria are now entitled to as much as 30 percent of all recoveries that result from their dangerous to invite.” L and speak with the same authority, as most cooperation with the government. That’s a powerful incentive—and it dictates an urgent need for traditional media outlets today.” Richard S. Levick, Esq., President and CEO of LEVICK, repre- companies to ensure that employees report problems internally, before turning to regulators. sents countries and companies in the highest-stakes global 10. How are we integrating social media strategy communications matters—from the Wall Street crisis and the with our Search Engine Optimization (SEO) and Gulf oil spill to Guantanamo Bay and the Catholic Church. Marketing (SEM) efforts? Are we taking steps to ensure that these critical initiatives support each other on an ongoing basis? It is important to remember that social media engagement is now a key element in the online18
  • 11. Boardroom Intelligence The Top whats next? Issues The transition from the age of Sarbanes-Oxley to the age of Dodd-Frank has ushered in yet another massive expansion of director roles and responsibilities. Under the new regime, directors need to be engaged in the full gamut of issues that impact corporate reputation and, ultimately, shareholder value. At the same time, the host of new regulations of 2013 And born of 2008’s financial crisis is just now dramatically escalating personal liability and introducing new exposures that boards must be prepared to successfully protect. Beyond To help directors fulfill their fiduciary and reputational obligations, we spoke with eight leading attorneys on issues from M&A and IPOs to data loss and theft. These feature interviews delve into the marquee challenges of 2013 and beyond—providing not only insight into how they can best be solved, but tips on how companies and directors can best communicate their steadfast commitment to compliance, value, and responsible oversight. To that end, we have appended our own suggestions for best communications practices to each interview.
  • 12. Weekly Activist Investors: Schulte Roth Marc Weingarten: The most common mistake Bankruptcy & Restructuring: see that trend continuing. Filing with an exit & Zabel’s Marc Weingarten is for a board to refuse to give the activist a Kaye Scholer’s Tyler Nurnberg plan already negotiated enables the company hearing. It’s fine to evaluate your defenses, but to shorten the time it spends in bankruptcy, Marc Weingarten, a partner in Tyler Nurnberg is a Partner stiff-arming or fighting the activist from the maintain control over the process and reduce the New York office of Schulte in Kaye Scholer’s Bankruptcy start and refusing to engage is generally not restructuring costs. Roth & Zabel, is chair of the & Restructuring Group and well-received by the other stockholders. Managing Partner of the firm’s Another piece of practical advice is that the Business Transactions Group Another common mistake is to attack the ac- Chicago office. board needs to stay focused on the business and a member of the Invest- tivist as merely a short-term opportunist look- plan during the bankruptcy. While external ment Management Group. ing for a quick pop in the stock price at the How can directors best serve a company factors may have contributed to the need to file, What are the reasons behind increased inci- expense of long-term value creation. Share- during bankruptcy or restructuring? larger underlying problems with the business dents of shareholder activism? holders will be happy to take any gains they model or the balance sheet likely drove the deci- Tyler Nurnberg: A board will want practical can get, even if short-term. As such, a com- sion. Those issues need to be resolved for the Marc Weingarten: The principal reason is the outside advice early in the process on how to pany under attack needs to put itself in the company to emerge as a viable business and, increased willingness of major sharehold- fulfill its fiduciary duties, and how those duties mindset of its shareholders and come up with while bankruptcy can be a powerful tool, it is ers, both institutional investors and pension may change when the company is insolvent or responses that explain prior performance and not a panacea for the problems that led the com- funds, to support activists. Historically, they approaches insolvency. The board will want to realistically support a more promising future. pany to file bankruptcy in the first place. simply “voted with their feet” and sold out. maintain a proper supervisory role and not ex- But they’ve become so big that now they really ercise undue influence over day-to-day opera- own the market, and rather than selling and tions. Prior to filing bankruptcy, the board and having to look to reinvest somewhere else, its advisors should also assess the adequacy they join the activists in pressing for improve- BEST COMMUNICATIONS of the D&O insurance policies. Also, directors BEST COMMUNICATIONS ments. PRACTICES: PRACTICES: should be alerted to the discrete areas where In the age of transparency, boards need they could potentially be liable personally for When markets are down, investors are unhap- 1. to direct their Investor Relations and the bankrupt company’s debts. 1. Boards must ensure that exit strategies py and will turn to activists for help. Several and future growth are the hallmarks communications team to focus on more of communications during bankruptcy, of the most successful financial activists now than just the analysts. The democratization How can a company best position itself for beginning with the initial announcement. have several billion dollars in assets, and can of the market is underway, investors are post-bankruptcy operations? When companies control the “new day” newly empowered, and companies need target even the largest-cap companies. Given narrative, internally and externally, they to think differently about how they engage Tyler Nurnberg: The company should deter- activists’ success rate in recent years, many keep stakeholders focused on future potential activist threats. mine its exit strategy before it files bankruptcy success, not past mistakes. more hedge funds that are not typically “activ- Don’t let the shuttering of MoxyVote fool wherever possible, and view the process as an ist” are now trying out the strategy on their 2. you; the activists are online and they use 2. Boards must understand the power of opportunity to fix both financial and opera- social and digital media to disclose. poor-performing positions. the Web to drum up support. Boards need Teams need to be ready to respond to direct their teams to better understand tional problems. Get as much negotiated in publically from the very moment a What are some of the most common mis- how WikiInvest, Seeking Alpha, and other advance of filing as possible. There has been company begins to seriously consider takes that boards of directors make when social and digital media have an impact an increase in the number of “prepackaged” or restructuring—in other words, go on the on their value. faced with pressure from activist investors? “pre-negotiated” cases in recent years and we offense so you don’t have to play defense.22 23
  • 13. Weekly Civil and Criminal Litigation & the SEC has also announced a willingness to Data Loss and Theft: Baker How can boards best serve a company em- Investigations: White & Case’s pursue civil cases in which defendants are ac- Hostetler’s Ted Kobus broiled in a data loss situation? Gregory Little cused of negligence only. Ted Kobus is National Co-Lead- Ted Kobus: The most important thing to re- Gregory G. Little is a trial law- How can boards of directors best serve a er of the Privacy, Security and member is that each incident presents a dif- yer who counsels clients on suc- company in the midst of a civil or criminal Social Media Team at Baker ferent set of circumstances. As such, the board cessfully avoiding, resolving, investigation? Hostetler. has to rely on the company’s incident response and winning litigation. team, which hopefully knows the facts better Gregory Little: In the beginning stages of the than anyone. Directors should start to worry investigation, every effort should be made to demonstrate to investigators that the company What are the most common mistakes compa- if they sense panic or disorganization. Some How is Dodd-Frank implementation most intends to be part of the solution—not part nies make in data loss situations? questions to ask of the team include: dramatically affecting director liability issues? of the problem. Regulators and prosecutors Ted Kobus: Too many companies fail to under- • Is there any insurance to help offset the Gregory Little: There are many provisions in are very quick to make a determination as to stand that data security events are not your costs of the breach response? If not, how Dodd-Frank that impact director liability. The whether your company is truly committed to typical legal problem. While complying with much is it going to cost the organization provision that has the most potential impact is solving a perceived problem or perpetuating it. legal requirements is critical, companies can- to respond? the SEC whistleblower bounty program. This not forget the impact these events have on em- If the investigation proceeds to the second stage • Is this event so large that our employees program authorizes the SEC to pay monetary ployees, customers, the public, and regulators. where the regulators believe a problem exists, will be concerned? If so, what resources awards to whistleblowers who provide informa- Appropriately protecting the people affected the company should make an objective assess- will be made available to answer tion that relates to violation of the federal secu- by the incident will protect the brand and the ment as to whether that is the case and, if so, their questions? rities laws and results in sanctions exceeding $1 company’s most valued relationships. demonstrate why that problem is an aberration million. The whistleblower bounty program has • Have you considered where all of the af- in an otherwise strong compliance program. Also, companies fail to understand that messag- been described by the SEC as a "game changer." fected people reside and have you complied ing is more important than the speed of noti- with all state and local laws? What do directors need to know about SEC fication. There are several laws that require enforcement trends? notification within a certain time frame. At the BEST COMMUNICATIONS BEST COMMUNICATIONS same time, people who are impacted by a data Gregory Little: In the past several years, the SEC PRACTICES: PRACTICES: security event expect that notification will take has been involved in a number of high-profile New whistleblower rules have changed place immediately. Unfortunately, notification Boards must understand that stakeholders insider trading cases. Insider trading cases, of 1. the game. Boards must ensure that 1. want answers in data breach situations. typically cannot, and should not, be made just course, have been around for years. However, all employees know every channel If the company isn’t prepared to answer by which they can report compliance to get the notice out the door. If a company isn’t all of the questions, then it isn’t ready to recent cases have demonstrated that the SEC is issues internally, before they turn to the ready to provide answers as to what happened, disclose the breach publically. working more closely with the Department of government. how it happened, what’s being done to protect Justice and taking full advantage of the DOJs Data loss is a topic that thrives in the Companies are naturally reticent to impacted parties, and what’s being done to 2. tech-savvy digital media. That means ability to bring criminal actions and seek en- 2. aggressively communicate on compliance. prevent future breaches, then it isn’t ready to boards must ensure that any response hanced investigatory powers like wiretaps and But the more they do, the more they strategy must emphasize bloggers and notify its stakeholders. informants. At the other end of the spectrum, condition the marketplace, investors, and social media to truly control the narrative. regulators to give them the benefit of the doubt should trouble arise.24 25
  • 14. Weekly Pillsbury’s David Keyko on propriately conservative. And the board needs to Weil Gotshal’s Alex Lynch on tions. Do you have the right management team General Litigation ensure that there is a “proper tone at the top.” Initial Public Offerings in place? Why is the IPO company going pub- David Keyko’s practice focuses What are the most common circumstances lic? Is the business model mature enough to Alex Lynch is a partner in on major complex litigation. He under which directors find themselves the withstand investor scrutiny? If you don’t have Weil Gotshal’s Capital Markets has defended clients in matters targets of lawsuits? the right answers to these questions, the IPO practice. involving securities allegations company is likely not ready to be public. David Keyko: Again, derivative claims against and various types of fraud, directors are now regularly made when a How can boards of directors best prepare antitrust violations, ethics issues, major lawsuit is filed against the company. The themselves for the transition from private to trusts and estates issues, and government probes. What are the responsibilities of boards of allegation in the derivative lawsuits is that the public ownership? directors in the IPO process? What are the hot issues in corporate litigation directors failed to take steps to ensure that the Alexander Lynch: Remember, IPOs are the today that most acutely impact directors? company’s actions were proper or that they ap- Alexander Lynch: Directors have a number of beginning; not the end. An IPO will not be the proved improper activity. unique responsibilities in the IPO process. David Keyko: It is commonplace for derivative last time the IPO company accesses the mar- First and foremost, directors have personal litigation to be commenced against directors To limit their exposure, directors should: ket. Preparation for life as a public company is liability for material misstatements and omis- when a major lawsuit is filed against the com- critical for success. Also, a well-executed IPO • Ensure that the company has appropriate sions in the registration statement and pro- pany. Ensuring that the company has appropri- provides a substantial amount of goodwill and financial controls in place, that the audit spectus. Directors also personally sign the reg- ate controls is important to limit claims and to positive publicity, while a poorly executed IPO committee regularly meets, and that the istration statement. As a result, it is critical for establish that, if problems do arise, the board can damage an IPO company’s reputation for directors receive regular reports about the directors to give themselves the time necessary has engaged in proper oversight. a long time. Accordingly, preparation by the company activities, in particular significant to read and review the registration statement board is critical. actions being taken by the company (this Audit committees, in particular, plays an impor- carefully in advance of the initial filing and can be used to demonstrate that the direc- tant role in overseeing corporations’ financial throughout the process. They should then com- tors have engaged in appropriate oversight); BEST COMMUNICATIONS reporting. Accounting firms tend to be very skit- pare the disclosure to what they know about PRACTICES: tish when any issues come up that might reflect • Ensure that the bylaws limit directors’ liabil- the business and alert the IPO company’s advi- ity to intentional misconduct and fraud (this sors of any disclosure issues. The price at which you set your IPO negatively upon the accuracy of financial re- 1. communicates a lot about your value ports – and investigating such issues can be very will require any shareholder filing a lawsuit Second, focus on accounting issues. Is the IPO proposition. What happens to that price expensive. The audit committee needs to ensure to allege with particularity the intentional after the offering communicates even company ready to report on a quarterly basis? that financial reporting and projections are ap misconduct or fraud in which the director more. Boards need to maintain investor Can it produce financial statements on a timely confidence by allowing room for the share has purportedly engaged—a heavy burden); basis? Are there any accounting policies that price to grow. need to be reconsidered? Do you have any ma- BEST COMMUNICATIONS PRACTICES: 2. The IPO is the beginning, not the end. terial weaknesses or significant deficiencies? It is not only a financial event, but a Social and digital media monitoring provides companies with early warning of issues that might drive future If so, how are they being remediated and will corporate branding opportunity. Boards 1. litigation. Boards need to see detailed analytics reports on what’s being said about their top risks or a need to ensure that newly-public they be remediated in advance of the IPO? companies communicate their value just developing issue—and who’s saying it—to ensure the company is ready for what lies ahead. as aggressively post-IPO as they do in the And third, make sure the IPO company is 2. Companies need to own their risk terms on the search engines in order to ensure that their narratives ready to be public by asking the tough ques- critical months leading up to it. and messages are the ones seen and heard first on the Web; rather than those disseminated by potential courtroom adversaries.26 27
  • 15. Weekly Pillsbury’s Paula Weber on Labor is always better for the board to be proactive. Mergers & Acquisitions: White & attracted litigation. In 2011, almost all deals (96 & Employment Issues If it isn’t, it’s too easy for adversaries to force Case’s William Wynne percent) attracted litigation. The reality is that the company into a defensive position. parties to a merger will get sued and need to be Paula Weber is leader of William Wynne represents prepared. What’s next when it comes to the labor and Pillsburys Employment & principals in major corporate employment issues? Process is paramount. Boards should hold Labor practice. transactions and financings, Paula Weber: We will continue to see a num- mergers and acquisitions, meetings to discuss and decide all materials ber of wage and hour matters. We will con- international corporate debt issues, and careful minutes should be taken. tinue to see a lot of litigation pertaining to restructurings, and public and Courts will hesitate to overturn board decisions How can boards best serve companies workers that are classified as independent private securities offerings. if there is a solid record. In particular, boards embroiled in a discrimination scandal or contractors as opposed to employees. need to be acutely aware of conflicts of inter- How can boards of directors effectively pre- est, both actual and perceived. Boards should union battle? One area we are likely to see the biggest pare for inadequate hostile takeover bids? record their deliberations over the pros and increase in labor and employment litigation, Paula Weber: Once litigation or some other cons of each potential conflict in the context of however, is in the area of disability. Even William Wynne: Boards should periodically form of labor unrest arises, the board has a review their companies’ structural defenses to how the proposed relationship will bring value though it is extremely difficult to bring col- specific oversight role to ensure that manage- lective actions on disability discrimination an unsolicited offer: a staggered board, ability to the shareholders in spite of the conflict. ment has the proper legal counsel and that claims because of the individualized nature of shareholders to act by written consent, poi- Without evidence that such conflicts have been the costs and risks are being appropriately of the cases, directors need to know that ac- son pills, etc. Just as important, however, is be- considered by the board, exposure to share- weighed. The board also has a responsibility commodation requirements of those with ing comfortable with the transaction process holder litigation increases significantly. to see that any bad actors are held accountable disabilities is a hot issue for the federal and and not panicking upon receipt of a hostile for their misdeeds. state anti-discrimination agencies right now. offer. A team of advisors that has the board’s BEST COMMUNICATIONS Of course, it’s always preferable that the board Federal regulations underwent a major over- confidence should be immediately available. PRACTICES: be involved long before labor and employ- haul a few years ago and this has resulted in This team should not just include bankers and ment issues evolve into full blown scandals. many more workers being deemed disabled Boards need to ensure that every lawyers, but public relations professionals and 1. employee understands the confidential Directors need to ensure that employees are and protected by the Americans with Dis- proxy solicitors as well. nature of M&A transactions—and that always treated fairly and with dignity and abilities Act. As a result—and because the law they know what can and cannot be said, respect. They need to identify ways to ensure remains quite ambiguous as to what accom- Boards should also review what similar com- especially in the social media (and then employee satisfaction, perhaps by tying man- modations are required for employees with panies in their space have done in response to be certain aggressive monitoring is in agement compensation to human resources disabilities—we can expect the government place to detect even a hint of a leak). hostile transactions. This will let directors know specificmetrics, such as ensuring that diversity and the plaintiffs’ bar to be far more aggres- what to expect and allow them to learn from Boards that are seen as in control of the is an element of the selection process. When 2. sive in asserting claims. their competitors’ successful tactics and missteps. transaction process are best positioned to it comes to labor and employment matters, it deflect criticism and defend against the What’s next with regard to M&A law? inevitable litigation. BEST COMMUNICATIONS PRACTICES: William Wynne: Merger-related litigation has With the prospect of more class action litigation looming, directors need to ensure open lines of communication reached epic proportions. In 2007, 53 percent 1. between management and employees by which potential issues can be addressed before they become systemic of mergers valued at $500 million or greater problems. The post-verdict or settlement phase of L&E litigation represents a critical opportunity for companies to share 2. messages about fair and equitable labor practices with a captive audience of investors, regulators, and employees.28 29
  • 16. Weekly H-P: Is There a I ndeed, after the announcement of an $8.8 billion write-down related in part to “serious accounting improprieties” and “outright misrepresentations” by Miraculous UK software company Autonomy, H-P’s board is being loudly castigated for failing to flag problems some say were hidden in plain sight. Recovery Ahead? Because of those purported improprieties, later more pointedly than Ms. Whitman. On the one disclosed during an internal H-P probe, the hand, she has directly accused Autonomy of a Richard S. Levick, Esq. Originally Published on company acquired Autonomy in 2011 at what “willful sustained effort” to misrepresent its now seems to have been an exorbitantly inflat- top and bottom lines. ed $11.1 billion price tag. According to reports, On the other hand, she has separated herself financial analysts had raised questions that H-P from her own company’s bungled due dili- only addressed after the internal audit began. gence. While not everyone is buying her argu- Observers like Richard Windsor, a former tech- ments, she reminded us that Apotheker was nology analyst with Nomura, are unequivocal: responsible for the acquisition and, shrewdly, H-P needs a new board of directors, period. expressed her own bewilderment that, prior to To be sure, this board has a long history of her ascension as CEO, due diligence reported conspicuous missteps, including successive to “strategy chief” Shane Robison rather than controversies over the firing of former CEOs to the CFO. “I’ve never seen that before in my Carly Fiorina, Mark Hurd and Leo Apotheker. career” and made a decision “right away” to fix Meanwhile, relatively strong performance it, said Whitman. numbers during Hurd’s tenure has rekindled At the same time, Whitman has comman- sharp criticism of the board for failing to stand deered the current massive write-down, only behind him. part of which is directly tagged to Autonomy’s Although there is the inevitable speculation alleged malfeasance. To be sure, analysts are about her becoming a target, it’s noteworthy closely scrutinizing the charge. Some have Ok, so due diligence isn’t exactly the that we do not now hear the same explicit calls observed that the $5 billion attribution to ac- H-P board’s strong suit. for current CEO Meg Whitman’s scalp as we counting irregularities simply doesn’t “make do for a boardroom coup. In fact, in the blame sense.” Others point out that, even if we swal- game now raging, no one is playing their part low that claim, the other $4 billion can only be30 31
  • 17. Weekly The Future of Directorship: blamed on the “boneheaded decision” to buy Assume that Autonomy was beyond reproach Autonomy in the first place. in every particular. Why was H-P buying it, was the price realistic, would it fit into an existing Yet irrespective of how the specific write-down numbers are interpreted, H-P has seized on the business model? Whitman may have effectively Key Takeaways jockeyed to buttress her power in 2013 but she Autonomy debacle as an opportunity to wipe is only delaying the inevitable if she and her the slate clean. One way or another, a new era board do not come up with a short- and long- can begin. term agenda to which a majority of sharehold- Or at least there’s that possibility. A simple ers can confidently sign on. question still looms Damocles-like, and it goes Response to the current write-down proves the well beyond bookkeeping or due diligence. The point. It’s not just H-P’s failed due diligence that question is: What happens next? concerns the marketplace. To an even greater Any answer to that underscores what has re- extent, it’s the company’s multiple other fail- ally been the H-P board’s principle failure over ures represented in the numbers. No wonder the last few years, a failure amply shared by some view H-P’s move simply as a cover-up of the company’s officers. It is a strategic failure its own mismanagement (a view powerfully in every sense of the word. Underlying all the expressed by Autonomy founder Mike Lynch in mistakes of which Autonomy is the latest exam- no uncertain terms and within hours of H-P’s ple, there has been the persistent inability of the announcement). board to actually define the company it manages. Yet even if one does take that jaundiced view, What can be a more fundamental boardroom the good news is that H-P has at least gained responsibility than to insist on a coherent stra- some critical breathing room despite share This edition of NACD BoardVision is a response to the panel on the future of directorship at the tegic plan girded by realistic growth projections prices sinking to 10-year lows. If a stunning 2012 NACD Board Leadership Conference. Join Peter Gleason, managing director and CFO of and, crucially, guided by a sense of what the corporate recovery is in the offing, it will be the NACD, and Mary Ann Cloyd, leader of the PWC Center for Board Governance, as they discuss key company actually sells? Is H-P a tablet compa- result of a new focus by the company’s leader- takeaways from the panels speakers. ny? A printer company? A software company? ship, a collaborative leadership in which offi- cers and directors set a single definable course No due diligence in the acquisition of a Compaq and stick to it. or an Autonomy can ultimately serve the share- holders absent this very basic sense of what the If that’s a realistic possibility, the current write- company is all about. No deliberations over a down with all its attendant controversy can Hurd or an Apotheker can mean much when turn out to be an effective medicine, albeit a the board is content to let a company like H-P bitter one. L lurch from pillar to post in hopes of quick rev- Richard S. Levick, Esq., President and CEO of LEVICK, repre- enue injections to stave off inevitable market sents countries and companies in the highest-stakes global share erosions. communications matters—from the Wall Street crisis and the Gulf oil spill to Guantanamo Bay and the Catholic Church.32
  • 18. Buy Me, Sell Me, Sue MeRichard S. Levick, Esq.Originally Published on Forbes.comAt 7:16 a.m. EDT on April 2, Reuters report- to shareholders. At 12:18 p.m., the firm Browered an unsolicited offer by Coty Inc. to pur- Piven announced it too was investigating Avonchase cosmetics legend Avon Products. At for the same reason.8:04 a.m., Avon formally rejected the offer— There’d been no time to come up for air. Aa smart move, according to some observers, scant five hours after a proposed merger wasin light of the purportedly low-ball offer. first publicly announced, and four hours afterThe specific timing here is interesting and it was rejected, not one but two potentialimportant because of what happened im- lawsuits were already in the works. Those whomediately afterward. At 10:18 a.m., the law understand the power of instantaneously viralfirm Harwood Feffer LLP announced it was communications to incite litigation might won-pondering a lawsuit against Avon’s board of der what took them so long.directors, based on concerns that Avon, byrejecting the $10 billion, $23.50 per share offerout of hand, failed to meet its fiduciary duties
  • 19. Weekly “ …we have not encountered a case in which shareholders rejected the deal after the additional disclosures were provided.” So pervasive have such lawsuits become that As the legal press recently reported, Exxon- some observers have taken to calling litigation Mobil is likewise a very good example of a a de facto “deal tax,” simply a cost of doing company that does “everything we can up business. Studies by Cornerstone Research front to make sure the buyer knows exactly show that the incidence of lawsuits in deals what they are buying.” Yet the most commend- valued at more than $500 million jumped to able of such efforts won’t plug all the holes 96% in 2011, up from just over 50% in 2007. In either. In February, for example, a Texas court other words, there’s now almost an absolute ruled against Exxon, awarding 21 plaintiffs’ certainty that, if you do the deal, you get sued. law firms $8.8 million in fees for their work on shareholder lawsuits related to the 2010 Just as startling is the rise in the average num- acquisition of XTO Energy Inc. It was a good ber of lawsuits per deal, which more than dou- payday for the lawyers if not their clients as bled to 6.1. Cornerstone found 11 transactions shareholders won important new disclosure in 2011 beset by at least 15 lawsuits apiece. guarantees but no money. We’re talking about a phenomenon that By contrast, Del Monte shareholders recently doesn’t only involve how bankers craft the got $89.4 million to settle a class action suit deals or lawyers dot the i’s. Nor are we just prompted by conflict of interest allegations necessarily talking about corporate fire sales against the company and Barclays Capital in under generally distressed circumstances. the sale of Del Monte to a group led by KKR. Even the best positioned deals involving the But the Exxon scenario is really the norm, ac- healthiest companies must inevitably run a cording to the Cornerstone data, as outcomes contentious legal obstacle course. Google’s more often involve governance changes than announcement in August 2011 that it planned pecuniary awards. “Interestingly,” the study to purchase Motorola Mobility resulted in comments, “…we have not encountered a case no fewer than 16 lawsuits even though the in which shareholders rejected the deal after $12.5 billion, $40 per share offer was widely the additional disclosures were provided.” praised throughout the mobile communica- Not one case! Thereby hangs an instructive les- tions industry as a good fit for all concerned. son about the kind of communications that may36
  • 20. Weekly Paul Ferrillo still effectively deter litigation, at least sharehold- lit and the stage is thus set for a social media er suits. (Lawsuits between buyers and sellers, conflagration. with different sets of problems, are also on the rise.) Lawyers like Stuart Grant of Grant & Eisen- If the problem starts online, solutions can be found there as well. Not just the substance of on Post-Election Dodd-Frank Priorities hofer, who represented the investors in the Del the messages whizzing around the Internet, the Monte case, say that litigation ensures fairness to Cornerstone research powerfully underscores the shareholders, especially in a market where, the importance of timeliness as approximately absent antitrust concerns, the regulators don’t two-thirds of M&A-related lawsuits are filed scrutinize the deals all that closely. within two weeks of the announcement. What’s Yet it also stands to reason that if, in lieu of demanded is as much transparency as possible cash, disclosures imposed after cases are as fast as possible. brought suffice to placate claimants, why not One envisions a situation, perhaps not un- assure those disclosures in the first instance like the Exxon-XTO Energy case, in which the and cut out the expensive middle men, i.e., the grievances that lead to a lawsuit are fully aired lawyers who file the now-inevitable lawsuits? on a social media channel, perhaps an activist To explain why there’s been this uptick in litiga- site, that allows shareholders to vent any and tion, we probably need look no further than the all such grievances. Recent signs point toward Internet and the social media. How else explain a prudently self-interested participation by the precipitous rise in case volume compared public companies—Johnson & Johnson was a to past markets when M&A transactions pro- pioneer here on the now-defunct Moxy Vote In this LEVICK Daily video interview, we discuss the election’s impact on Dodd-Frank liferated even more abundantly but activist —in such discussions on the very sites where implementation with Paul Ferrillo, Senior Securities Litigator at Weil Gotshal & Manges, LLP. shareholders and high-volume class actions did they’re happening. By going to the same sites During President Obama’s second term, big banks are going to have focus on their most profitable not? Human beings have not changed since the their potential adversaries go, they won’t elimi- business segments, juxtapose those segments against the new laws that are in effect, and work to 1980s but their tools have. nate litigation but they will take a meaningful identify potential changes to Dodd-Frank that are not only beneficial in those areas; but possible step in that direction. In addition to the shareholders themselves, in- in an era of divided government. fluencers with both interested and disinterest- It’s called getting down into the trenches. From ed motives to challenge deals range from busi- a cost/benefit perspective, that sure beats show- ness journalists to investment bankers looking to build a reputation as consultants. They often ing up at court. L Financial Communications deploy a combination of old and new media. Richard S. Levick, Esq., President and CEO of LEVICK, represents countries and companies in the highest-stakes Litigation The opening salvo might be a column in a respected print publication or an appearance global communications matters—from the Wall Street crisis and the Gulf oil spill to Guantanamo Bay and the Corporate & Reputation on a cable business news network. The fire gets Catholic Church. Public Affairs Crisis Sign Up Today38
  • 21. Jeff Rosenblum on The Naked BrandIn this LEVICK Daily video interview, Questus Founding Partner Jeff Rosenblum discussesThe Naked Brand―the feature film he directed that examines how traditional advertising hasfailed to keep up with consumer behavior. When brands are defined by actions, not words,companies must abandon the “Mad Men” approach of saying they’re great. They need to be great. IMAGE: Property of The Naked Brand. All rights reserved. Used with permissions.
  • 22. The Next BigSuperstorm It’s the most opportune moment in recent a reputational cost of doing business in the memory for the insurance industry to invest aftermath of many disasters. in its own reputation. The governors of nine affected states alreadySandy Story: A few weeks after the ravages of Superstorm gave homeowners a big break by forbidding Sandy, affected policyholders, residential and insurers from declaring that Sandy made land commercial, are completing the cleanup even as a hurricane. If categorized as a hurricane, as their insurers assess the damages and their residential policyholders would be subject to own exposure. Opinions as to whether the in- deductibles based on a percentage of property dustry is being reasonably helpful, responsive, value instead of fixed rates. But it’s the gover- Are We Really in Good Hands? forgiving, and flexible during this crisis are nors who get the public’s thanks for that, not therefore premature. the insurance industry. Especially problematic for insurance companies are reports that their Yet it’s noteworthy how reputational concernsRichard S. Levick, Esq. total exposure ranges from $10 billion to $20 have already figured prominently into pub-Originally Published on billion, while total storm damage is estimated lished commentary on the challenges facing at $50 billion. Much of that differential has the industry. Industry experts specifically ref- been tagged to flood exclusions or sub-limits, erence the litigious mess that occurred after as well as a bevy of other policy provisions. Hurricane Katrina along with reminders of how public officials are eager to avoid similar All that said, the insurance companies remain delays post-Sandy. Insurers would likewise do most favorably positioned. As Peter Gillon well to remember the reputational bath some points out, the industry now enjoys a signifi- companies took as a result of 911 coverage cant fiscal surplus. “There were no other major disputes that haunted the front pages for so catastrophic claims in 2012, their premiums many months. have increased slightly, and the equity markets in which insurers invest have been steadily Of course, we need to be realistic. Insurers going up,” says Gillon, a partner at Pillsbury are not going to relinquish their contractual Winthrop Shaw Pittman LLP who represents entitlements in some sort of multi-billion major corporate policyholders. dollar post-Sandy potlatch, and nor should they. At the same time, horror stories about With bottom-line pressures so much lower, inadequate coverage and excluded claims will the industry can afford to be generous where continue to attract attention simply because possible. Such generosity is certainly in their they’re great human interest stories, in which interest. They will want to be seen paying insurers are at least implicitly depicted as claims quickly and to reap significant goodwill impersonal and indifferent. For insurance by eschewing some purely technical coverage companies, that familiar caricature is simply disputes in order to both strengthen customer 43
  • 23. Weekly loyalty and appease politicians. As always, Yet the surest reputational investment for “seen” is the operative term in any such com- insurance companies may be the least costly in munications strategy. terms of hard dollars. Simply determine what major policyholders are being responsibly ad- No less than banks or hedge funds, the insur- vised to do—and then help them do it. ance industry has suffered its own consider- able share of public hostility in recent years. The determination is easy enough to make. For elected officials (especially those perceived After any major disaster, diverse professional to have played heroes’ roles during the Sandy insurance counselors predictably distribute crisis), insurance companies are, politically, sit- in-depth collaterals specifying best practices ting ducks if they take a Scrooge-like approach in dealing with insurance companies. For to claims at the very moment when they can example, Gillon’s Insurance Recovery & Advi- presumably afford to behave more like Old sory team at Pillsbury published a paper right Fezziwig. after Sandy that urges companies to review and evaluate all potentially applicable coverage As Gillon points out, however, commercial poli- (including everything from marine cargo poli- cies are a lot trickier than residential coverage cies to pollution policies); “meticulously” follow in terms of what the insurers can or cannot instructions for providing notice to the insurer; do on behalf of insureds. Because commercial document and photograph all losses, including coverage and pricing are often extensively ne- losses directly following the storm (such as in- gotiated, and done so at arm’s length, insurers ventory exposed to moisture); recruit specialist are more inclined to stick to the terms. advisors such as forensic accountants to detail That said, in the interest of being “commercial- business interruption loss; and memorialize in ly reasonable,” there are areas at least open to writing any deadline extension for submitting There is ample opportunity here for insurers sured relationship―even when the industry is discussion. For example, commercial policies sworn proofs of loss. to surpass their existing policyholder support no longer sitting on a pot of money right after a typically carry two deductibles, one for wind There is ample opportunity here for insurers systems. Not just timelier claim payments, the devastating emergency. L and one for flood—even when the flooding to surpass their existing policyholder support seller can provide enhanced customer service is caused by the wind. For good commercial Richard S. Levick, Esq., President and CEO of LEVICK, repre- systems. Not just by advancing insurance pay- to expedite each of these specific customer reasons, the insurers might simply forgive the sents countries and companies in the highest-stakes global ments for cleanup and other initial response needs if only by being impeccably responsive communications matters—from the Wall Street crisis and the second deductible. The fact that, since Hur- work, insurers can also provide enhanced when inquiries as to scope of coverage are Gulf oil spill to Guantanamo Bay and the Catholic Church. ricane Irene, so many more businesses have customer service to expedite each of these made or clarifications on notices or extensions purchased flood insurance, until Irene rela- specific customer needs if only by being impec- are sought. tively uncommon in the Northeast, should cably responsive when inquiries as to scope of further encourage the insurers to be as flexible Who knows, such value-added service might coverage are made, or clarifications on notices on deductibles as possible. become a permanent part of the insurer/in- or extensions are sought.44 45
  • 24. NACD Annual Board Leadership Conference BLOGS worth following October 13-15, 2013 | National Harbor, MD Thought leaders Industry blogs Amber Naslund Holmes Report Amber Naslund is a coauthor of The Now Revolution. A source of news, knowledge, and career The book discusses the impact of the social web information for public relations professionals. and how businesses need to “adapt to the new era of instantaneous business. NACD Blog Brian Halligan The National Association of Corporate DirectorsDirector Master Class HubSpot CEO and Founder. (NACD) blog provides insight on corporate governanceand leading board practices.Professionalism February 27-28, 2013 | Scottsdale, AZ Chris Brogan PR Week prweekus.comFebruary 25-26, 2013 | Scottsdale, AZ PRWeek is a vital part of the PR and communications June 13-14, 2013 | Boston, MA Chris Brogan is an American author, journalist, marketing consultant, and frequent speaker about industries in the US, providing timely news, reviews,June 10-11, 2013 | Boston, MA social media marketing. profiles, techniques, and ground-breaking research. August 19-20, 2013 | Laguna Beach, CA David Meerman Scott PR Daily NewsAugust 15-16, 2013 | Newport Beach, CA December 12-13, 2013 | Miami, FL PR Daily provides public relations professionals, David Meerman Scott is an American online marketing strategist, and author of several books social media specialists and marketingDecember 9-10, 2013 | Miami, FL communicators with a daily news feed. on marketing, most notably The New Rules of Marketing and PR with over 250,000 copies in print in more than 25 languages. Spring Forum BUSINESS Related Guy KawasakiDirectorship 100 May 21, 2013 | New York, NY FastCompany Guy Kawasaki is a Silicon Valley venture capitalist, fastcompany.comDecember 3, 2013 | New York, NY bestselling author, and Apple Fellow. He was one Fast Company is the world’s leading progressive of the Apple employees originally responsible for business media brand, with a unique editorial marketing the Macintosh in 1984. focus on business, design, and technology. Webinars Jay Baer ForbesFrom the C-Suite to the January 23, 2013 | Board Pay Preview: 2011/12 NACD Director Compensation Jay Baer is coauthor of, “The Now Revolution: 7 Forbes is a leading source for reliable businessBoard Seat Study Shifts to Make Your Business Faster, Smarter and news and financial information for the Worlds More Social. business leaders.March 22, 2013 | Washington, DC March 7, 2013 | Performance vs. Reten- Rachel Botsman Mashable tion: Do You Really Have to Choose? Rachel Botsman is a social innovator who writes, Social Media news blog covering cool new websites consults and speaks on the power of collaboration and social networks. and sharing through network technologies. Seth Godin Seth Godin is an American entrepreneur, author and public speaker. Godin popularized the topic of permission marketing.
  • 25. IN THE NEWS ArticlesLos Angeles Times | November 20, 2012Hostess, union agree to try mediation to avoid liquidationCBS News | November 20, 2012David Petraeus sex scandal a "blip" on his record, generals former Iraq aide saysChristian Science Monitor | November 19, 2012Wal-Mart Black Friday walkout: How bad will it be? THE URGENCY OF NOW.