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LEVICK Weekly - Aug 31 2012


Published on

Tobacco Warriors Set Their Sights on the Grocery Store

Proxy Advisory Firms Don’t Have to
Have the Last Word

Samsung: The Decisive Campaign is Yet to Come

Five Ways Defense Subcontractors
Can Remain Relevant in the
Sequestration Era

You Are Who You Fund: What Todd
Akin Teaches Us About Campaign

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LEVICK Weekly - Aug 31 2012

  1. 1. EDITION 6Weekly August 31, 2012 Tobacco Warriors Set Their Sights on the Grocery Store Proxy Advisory Firms Don’t Have to Have the Last Word Samsung: The Decisive Campaign is Yet to Come Five Ways Defense Subcontractors Can Remain Relevant in the Sequestration Era You Are Who You Fund: What Todd Akin Teaches Us About Campaign Contributions
  2. 2. Tobacco Warriors Set What do tobacco and food labels have in cant case to date, a federal court in California common? Not much, unless you consider has been asked to do just that by halting sales the successful attorneys who beat the tobac- of ConAgra products ranging from Pam cook-Their Sights On The co industry a decade ago for record sums. ing spray to Hunt’s canned tomatoes. Now these very same plaintiffs’ attorneys-- What is perhaps most troubling in corporateGrocery indefatigable and brilliant--have zeroed in circles is that the fight isn’t limited to the food on a new frontier: the grocery store aisles. industry. Just a few weeks ago, Pfizer Con- They smell liability over what’s labeled Ko- sumer Healthcare agreed to discontinue claims sher, all natural, real fruit, or whole grain, that its Centrum vitamin supplement products and they believe they have a compelling support “breast health” and “colon health” af- case to make. ter the Center for Science in the Public Interest This summer, consumer activists have teamed threatened another high-profile lawsuit.Store up with these powerful allies to launch an all- At the same time, other activists are attacking out attack on product labels they believe to be the product labeling issue from the other flank. misleading and tantamount to false advertis- This November, California voters will consider ing, if not a crime. General Mills, for instance, a ballot initiative that would require food is facing a lawsuit from two California moth- manufacturers to label products that contain ers who have the Center for Science in the ingredients enhanced via biotechnology. Public Interest in their corner. They want the “natural” label removed from the company’s All the while, major news outlets are pay- Nature Valley products because they contain ing a lot of attention to these activist salvos, processed ingredients. The suit is only one of which have been increasing in frequency overRichard S. Levick, Esq.Originally Published on 25 cases that, according to the New York Times, the past three to four years and are just now have been recently filed against companies reaching critical mass. That’s because media such as ConAgra, PepsiCo, and Heinz, over al- interest is a lynchpin in the activist strategy. legedly deceptive labels. Consumer groups see high-profile lawsuits and ballot initiatives as a way to force the issue into Plaintiffs’ attorney Don Barrett, who won the public spotlight and compel reforms with- record settlements from Big Tobacco ten years out having to rely on government regulators, ago and is among a host of lawyers seeking whom they see as too often colluding with big big paydays over the labeling issue, summed corporations on labeling issues. up the activist position in just two sentences, stating that mislabeling “is a crime” and Traditionally, food and pharmaceutical com- that “these products should be taken off the panies have worked with the Food and Drug shelves.” In what amounts to the most signifi Administration (FDA) to reach compromises on labeling rules that balance the need for ef- fective marketing with concern for consumer
  3. 3. Weekly 2. Speak directly to consumers. Labeling issues are no longer being settled behind food and supplement products really are all they are labeled to be. closed government doors; they are being debat- ed under a glaring public spotlight. That means what used to be a “grasstops” play has evolved 5. Target California. The Golden State is ground zero for movements such as these, which often gain momentum among into a grassroots imperative. The issue is an friendly audiences out west and then spread example of how the line between public affairs across the country. That means companies and public relations is getting more blurry ev- need to emphasize California media and geo- ery day. As such, food and pharmaceutical com- target their Search Engine Optimization (SEO) panies need to make the most of social media and Marketing (SEM) campaigns for the region connections and optimized Web properties that as a means to nip the movement in the bud. allow them to take back control of the conversa- tion—even as they bypass the an increasingly The fact that more than a dozen high-profile skeptical traditional media filter. attorneys that used to sue big tobacco are migrating toward food and pharmaceuticalsafety. The process is slow, as evidenced by the dards don’t exist and ‘piling on’ where FDA has 3. Understand that emotions trump science on issues of health and safety. The FDA labeling issues speaks volumes about what lies in store for the food industry. The sooner thatfact that it took nearly a decade to reach final issued a Warning Letter or taken other enforce- seal of approval and the mountain of scientific ev- target companies—and those that will becomeagreement on the ingredient and nutrition ment action.” idence that support companies’ labeling practices targets in the coming months—begin to con-labels we now see on our beverage cans, pasta aren’t enough to assuage fear and anxiety where What all of this means is that the companies in trol this highly threatening conversation, thesauce jars, cereal boxes, and just about every consumer health and safety are concerned. Emo- the crosshairs—and those just outside them— better positioned they will be to win in theother product we see on store shelves. Frus- tion, not logic, is what will win this debate. That must think differently about labeling practices courtroom, the Court of Public Opinion, andtrated by both the length of the process and the means companies can’t just tell consumers their and how they communicate with consumers among regulators that are closely monitoringresulting rules, the activists are now stepping products are healthy and safe; they have to show on a level above the customary marketing the outcome of what could be an epic legal andup their activities in the courtroom, voting them with heavily optimized and engaging im- relationship. They themselves must act like reputational battle. Lbooth, blogosphere, and newsroom. ages, video, and stories that drive home the ways consumer advocates, describing their labeling their products contribute to healthy lifestyles, Richard S. Levick, Esq., President and CEO of LEVICK,Further complicating matter is the fact that practices and explaining their ingredients represents countries and companies in the highest-stakes something that can now be more easily done ascompanies don’t always know what’s consti- with greater clarity and crediblity. Specifically, global communications matters—from the Wall Street Google analytics increasingly optimize for thetutes compliance. “The FDA hasn’t set clear they must: crisis and the Gulf oil spill to Guantanamo Bay and the spoken word. Catholic Church.enforcement standards for claims like ‘AllNatural,’ ‘100 percent Whole Grain,’ or ‘Madewith Real Fruit,’” says Richard Frank, a lead- 1. Accept new levels of transparency. With new levels of consumer aware- 4. Enlist third party support. In many cases, the best third-party advocates hail ness around labeling issues comes a new leveling food labeling, advertising, inspection, and from the credibility-rich realms of academia, of responsibility for food and pharmaceuticalsafety attorney with Olsson Frank Weeda PC. government, or Washington D.C. think tanks. manufacturers. If a claim on a label can’t be eas-“As a result, we are seeing plaintiff class action This is not one of those cases. Consumers need ily justified or substantiated, it is best not madeattorneys filling in the gap where clear stan- to hear from others among their ranks that in an environment rife with intensified scrutiny.
  4. 4. WeeklyProxyAdvisoryFirmsDon’t Have to Havethe Last WordKathleen WailesOriginally Published on LEVICK Daily
  5. 5. WeeklyRare is the corporation that has tions follow ISS voting direction, thisnot paid close attention to the rec- is no small matter. The consulting firmommendations of proxy advisory Semler Brossy reported in May thatfirms—those organizations that ad- 52 companies had filed supplementalvise investors how to vote on proxy proxy materials this year—about dou-issues. The two principal firms, ble the rate in 2011—and half of thatInstitutional Shareholder Services activity stemmed from disputes over(ISS) and Glass Lewis, wield in- peer groups.creasing power, with thousands of Marriott International was a promi-institutional clients that often fol- nent example, since ISS suggested thatlow their recommendations to vote Marriott’s compensation rates shouldagainst management’s proposals. be compared with those of companiesThe consequences of these votes can outside the hospitality industry—com-affect everything from a company’s panies such as Penske Automotiveindependence to how its executives Group and Icahn Enterprises. As theseare paid. Increasingly, however, cor- so-called peers were wildly inappropri-porations are hitting back and chal- ate, Marriott won the day. In March,lenging the unbalanced influence the Center on Executive Compensation,these firms wield. which had called for greater account-It’s important to know that corpora- ability on the part of proxy advisors,tions can fight and win when ISS or applauded the establishment of an ISSGlass Lewis is wrong. Major compa- “Feedback Review Board” that wouldnies are taking on the proxy advisory afford issuers and investors the oppor- hard—with the backing of ISS—to gain act assertively when challenged byduopoly and holding it accountable tunity to rebut ISS positions. The Cen- seats on the AOL Board. It was soundly proxy advisors. Do not hesitate tofor its statements and actions—and ter previously had brought to light the defeated. In a memo posted by the law parry each objection and assertionsuch challenges to both the proxy ad- conflicts of interest in firm structures firm Wachtell Lipton, attorney Martin forcefully so that your investors clearlyvisory firms’ objectivity and accuracy and inaccuracies in reporting by both Lipton noted that “The victory repre- understand management’s point ofare succeeding. ISS and Glass Lewis. sents a clear and powerful message view. Follow Mr. Lipton’s advice, and that a well-articulated business strat- spell out your strategy for buildingRecently, ISS took heat from com- Regulators also have stepped up their egy for long-term success will be sup- shareholder value. Don’t wait untilpanies regarding its recommenda- attention to proxy advisory firms, ported by investors notwithstanding ISS or Glass Lewis comes calling—tions on executive compensation. with new rules expected for the in- activist generated criticism and get out in front of the issues and youThe companies believe that ISS is dustry this year. Executive pay is not ISS support.” will succeed. Lchoosing inappropriate peer groups the only area in which ISS and Glassagainst which to compare pay. Since Lewis wield considerable clout. The All of this leads to the conclusion that Kathleen Wailes, Senior Vice President & Chair, Financial Communications Practice25 percent to 35 percent of institu- hedge fund Starboard Value LP tried managements should take heart and
  6. 6. SamsungThe Decisive CampaignIs Yet to ComeRichard S. Levick, Esq.Originally Published on Forbes.comQuestion: what might Samsung have in com- Apple patents, including the rectangular shapemon with both the Prophet Mohammed and and rounded edges of the iPhone and Apple’sChairman Mao? pinch-to-zoom image magnifier. Pending ap- peal, Samsung must pay $1.05 billion.Think “retreat.” In 622 AD, Mohammed fledfrom Mecca to the city of Medina and, as a On the face of it, it looks like an unequivo-result of that tactical withdrawal, one of the cal triumph for Apple, which may now haveworld’s five great religions was born. Just over enough legal weaponry to discourage all com-thirteen hundred years later, Mao and his panies from manufacturing products that usecohorts took flight on the Long March. Only Google’s Android operating system. But therearound 10% of them finished the trek but, is a sub-text here that speaks to the fundamen-at day’s end, Mao was firmly in control and tal brand identities of both the winner andwould stay that way. loser—so much so that, if played right, Sam- sung can use its position as courtroom loserThe point is that the most arduous retreat is to great advantage, emerge as a marketplaceby no means a decisive defeat and can even winner, and hopefully serve the interests of thesow the seeds of historic success. True, one can consumer in the the August 24 jury verdict against Sam-sung a defeat in the sense that the companywas found to have willfully infringed multiple
  7. 7. Weekly“ Concern over the impact of the case on innovation was quickly voiced throughout the technology industry, which means that Samsung has the enviable advantage of simply seizing on what people are thinking anyway. ”It is a definitive precept of “litigation commu- Much of the response to the verdict has, innications” that legal outcomes and business fact, put patent law itself on trial, castigating aoutcomes are not necessarily congruent. stiflingly arcane system that has become “dys- functional,” as the New York Times opined,Never mind its mighty size and global reach, adding that, “By one estimate, as many asSamsung can turn retreat into triumph be- 250,000 patents can be used to claim owner-cause, like Mohammed and Mao, it has found Yet those specific issues of the case comprise Samsung’s opportunity is all the more signifi- ship of some technical or design element initself cast as an underdog, pitted here against a separate narrative from a broader brand- cant because it is responding to a public senti- a smartphone. Each patent is potentially aa company now viewed as a borderline mo- enhancement potential that Samsung has ment that exists independently of any efforts license to sue.” In such a litigious quagmire,nopolist. The concomitant message is that already begun to mine. In this corollary com- by the company to foster such sentiment. Con- there can be no meaningfully determinativeinnovation itself depends on such underdogs munications campaign, Samsung plays its cern over the impact of the case on innovation fact-finding, as even some of our finest mag-having enough free range to invent and manu- underdog role to the hilt, underscoring its own was quickly voiced throughout the technology istrates agree. Thus did Judge Richard Posner,facture products unencumbered by the mere innovativeness, bloodied but not bowed by a industry, which means that Samsung has the in the recent Apple and Motorola case, deploretechnicalities of patent law. The August 24 jury legal process that top courts like Posner’s have enviable advantage of simply seizing on what the misuse of patents governing smartphonesverdict, according to this narrative, fed on such themselves decried. people are thinking anyway. There’s no need and, in no uncertain terms, chastise both sidestechnicalities at the expense of the spirit of the for spin. Whatever Samsung has to say on as he dismissed their respective claims. Given this climate of opinion, an aggressivelaw, which is supposed to be all about encour- the subject, consumers will naturally want to communications campaign can even highlightaging innovation. To be sure, Samsung may be appealing the hear it, especially since, as the high-authority specific products. As has been pointed out, verdict for many years to come, and it can bloggers have duly noted, Samsung was al-Of course there can be no innovation without some of Samsung’s older products (Galaxy S1 hardly be happy with a decision the jury spent ready well on the way to revamping its mobilethe protections that that law provides, but and S2) were cited in the lawsuit; others were merely three days to reach. There are further products. The company is thus a credible voicehere the intellectual property regime in effect not (Galaxy S3 and Galaxy Tablet). Connect the risks ahead as the judge could treble damages in the cause of innovation. Lturned on itself, squelching the very creativity narrative dots: “This jury verdict threatens in- and grant an injunction to prevent Samsung Richard S. Levick, Esq., President and CEO of LEVICK,it was designed to safeguard. We take no posi- novation. We who lost the case (and are there- from selling its wares in the United States. represents countries and companies in the highest-stakestion on whether the verdict itself was equitable fore innovative) still produce new products. Samsung’s communications strategy should global communications matters—from the Wall Streetand reasonable. What’s important from our When you support those products, you support crisis and the Gulf oil spill to Guantanamo Bay and the continue to support its specific legal position inperspective is a general (if not unanimous) per- innovation and yourselves.” Catholic Church. the case until the last possible appeal is denied.ception that the decision was neither equitablenor reasonable.
  8. 8. WeeklyFive Ways Not since the aftermath of World War II has the U.S. defense industry seen such a precipitous shrinking of its marketplace. In the years following 9/11, dual wars in Iraq and Afghanistan and a worldwide effort to curbDefense Subcontractors Can Remain terrorism essentially amounted to a full employment contract for those companies that support U.S. foreignRelevant in the Sequestration Era policy objectives at home and abroad. Here in 2012,Richard S. Levick, Esq. those wars aren’t just winding down; they are doingOriginally Published on LEVICK Daily so at a time when budget deficits have reached crisis proportions and introduced the very real possibility of sequestration across the federal government. Already, we’ve seen proposals put forth by maintain lucrative Pentagon procurement Congress and White House that would slash deals. All in all, as many as one million jobs core Department of Defense (DoD) spending have been estimated to be at risk. by as much as $5.2 billion. Unfortunately, even How can defense subcontractors compete and that figure falls well short of the cuts called for remain relevant as critical national security in 2011’s Budget Control Act (BCA), which re- priorities take a back seat to widespread calls quires Congress to identify $1.2 trillion in fed- for fiscal restraint? eral deficit reductions over the next ten years. If Congress fails to pass a FY2013 budget in line In order to take advantage of the radical with the BCA (an increasingly likely scenario change in the marketplace, defense subcon- in this polarized political environment), the tractors need to think differently about their worst case scenario kicks in as sequestration is communications and marketing initiatives. triggered and DoD procurement is slashed by Their brands matter more than ever—and as as $600 billion. such, they need to expand their spheres of influence by engaging not only policy makers That’s bad news for defense contractors—and and primes, but the constituencies these audi- it’s even worse for the subcontractors at the ences listen to as well. mercy of their customers’ ability to win and
  9. 9. Weekly By teaming up with such a politically diverse informational landscape today. Via Search En-To that end, here are five steps that will and intellectually credible array of potential allies—and the similarly-aligned unions as gine Optimization (SEO) and Marketing (SEM) initiatives, contractors can control the con-help defense subcontractors demonstrate well—defense subcontractors can help ensure versations surrounding their brands and thevalue at time when nothing is more that the jobs message rings out in and beyond Washington D.C. corridors of power. issues impacting their industries; elevate the visibility of their products and services; andimportant to their future prospects. 4. Geo-target your efforts. —as mentioned above—target these outreach efforts to the local communities with the power For maximum impact, defense subcontractors to influence defense budget decisions.1. Articulate your unique selling for instance, maintains its own branded You- need to aim their communicative efforts atproposition. Tube channel by which it highlights the ways Of course, contractor social and digital media two targets; the home districts of the Congres- its products and services protect and enrich- strategy is more than just optimization. It isSubcontractors exist because they can do some- sional members who can still be influenced the lives of brave servicemen and women. reaching out to the blogs that influence defensething that primary contractors cannot. What is on defense budget issues; and the districts that Northrup Grumman’s videos stand out not only industry perceptions. It is engaging the socialit that makes your company stand out and your stand to lose the most economically should because they are more engaging than the writ- media space to build awareness of, and affin-services absolutely necessary to achieving mis- sequestration come to pass. ten word; but because Google and other search ity for, your products and services. And it is asion objectives? Are you the top provider engines are putting more and more emphasis Constituents in these communities need to be strong investment in LinkedIn, which has be-of cyber-security services? Do you excel in on pushing the spoken word. reminded of the jobs that defense contracting come the marquee social media venue for B2Bon-the-ground training? Perhaps most impor- creates; the security threats that still loom at and B2G communicators and marketers today.tant, have you identified efficiencies that keep Most important, the videos reach audiences on home and abroad (even though the prior Ad-costs down? an emotional level—and whether the emotions In the era of sequestration, the defense sub- ministration’s arguably overplaying of threat conveyed are pride, security, or even fear, they contractors that take their communications toWhen defense subcontractors infuse their issues may slightly diminish those messages’ drive buying decisions in ways that appeals to the next level will not only protect their slicebusiness-to-business outreach efforts with impact); and the often irreplaceable role that logic simply can’t. of the Pentagon procurement pie; the will alsospecialization messages, they provide primes defense contractors play in keeping America find themselves well-positioned to dominatewith reason to tell the Pentagon “we need these 3. Recruit influential allies. safe. That means aggressively reaching out to the market when the budget pendulumguys on board.” When the same messages are local media in these districts. And it means di- When the companies that stand to lose money inevitably swings back toward nationaldisseminated beyond the B2B audience, they recting online optimization efforts toward the from defense cuts speak out about the dangers security priorities. Lcondition procurement officials to agree with local communities that can make a difference of sequestration, it’s one thing. When respectedthat assessment. on Capitol Hill. Richard S. Levick, Esq., President and CEO of LEVICK, and relatively disinterested third parties do represents countries and companies in the highest-stakes2. Tell your story in videos. the same, the message is far more powerful. 5. Dominate social and digital media global communications matters—from the Wall Street The American Enterprise Institute, the Heri- crisis and the Gulf oil spill to Guantanamo Bay and theDefense contractors possess a unique commu- And just what are online optimization efforts? Catholic Church. tage Foundation, and the Center for Americannicative advantage in the Digital Age because They are strategies to ensure that companies’ Progress have all voiced serious concerns abouttheir work produces such compelling image online properties (websites, social media pro- what deep cuts to the defense industry wouldand video opportunities. Here, subcontractors files, etc.) are highly-ranked by Google and the mean to the national economy.can take a valuable cue from the very compa- other search engines that dominate thenies they need to reach. Northrup Grumman,
  10. 10. You Are Who When we examine the Todd Akin saga from businesses and labor unions must make in the a crisis communications perspective, the Citizens United era—when contributions are lessons are as obvious as they are numerous. as unlimited as the transparency with which Avoid inflammatory messaging. Do what’s they are made.You Fund: necessary to keep allies by your side. Under- Our primary system has devolved into a stand that sacrifice is often necessary if you race to the fringes, resulting in general elec- want to fight another day. And so on. tion candidates whose views are as far from As Mr. Akin has seen his party funding run dry the center as any we’ve seen (Todd Akin is farWhat Todd Akin Teaches Us About and his party brethren run for cover (when from the only example, and they exist on they are not turning against him), many have both sides of the political spectrum). At the asked about a crisis response. Other than same time, the Citizens United decision hasCampaign Contributions spending what remains in his war chest on ads expressing his remorse, what else can Mr. opened the floodgates for big corporations and small businesses to funnel unlimited sums of Akin do? Much as those outside his state may money to the candidates that will further their not like it, the congressman is playing it exactly policy objectives.Richard S. Levick, Esq.Originally Published on right--staying within Missouri. His opponent, This dichotomy has created a dynamic by Senator Claire McCaskill, is barely acknowledg- which businesses and business leaders don’t ing the controversy in her campaign because it have to be as outspoken as Whole Foods CEO has barely moved Missouri voters. For what- John Mackey to arouse the ire of those who ever else Congressman Akin may not know, he might not agree with them. Their dollars knows that all politics are local. speak as loudly as their words—and when the He also knows that he has long held these candidates they support espouse increasingly views and has been elected to six terms in extreme views, they risk alienating at least Congress. Further, it was Missouri Republicans half of the consumers, investors, and other who chose him in the Senate primary—and if stakeholders who won’t hesitate to find them he believes they agree with his pro-life stance, guilty by association. even if they are appalled by the way he articu- Given that direct donations are a matter of pub- lated it, there is every reason to also believe lic record, some companies may believe that that the grassroots will support him, even if the Political Action Committees may provide some “grasstops” will not. cover. But we’ve already seen examples where At the end of the day, Mr. Akin still thinks he that hasn’t been the case. With intensified me- can win. And as such, this is not as much a dia and blogger attention to campaign finance story about the dos and don’ts of crisis commu- issues, the potential exists for any political nications as it is about the careful calculations donation to be subjected to a harsh spotlight.
  11. 11. WeeklyCitizens United provided business and labor didates), companies not only expand theirwith the right to make unlimited political dona- sphere of influence; they prevent any singletions, but with that right comes new levels of donation from standing out amongst the pack.responsibility. Gone are the days when political At the same time, they provide themselves withcontributions were made in smoke-filled rooms more allies to provide cover should one of theirthat provided a modicum of anonymity. Today, donations be criticized.everything is transparent. That means corpo- Questions may arise as to why a businessrate donors can and will be held accountable entity is playing both sides of the fence; but iffor the comments of their candidates. they do, companies can fall back on messagesSo what is the business community to do? about encouraging lively debate, supportingCompanies’ public policy interests demand that public officials, ensuring all that all sides arethey involve themselves in the political process. heard, and, most important, ensuring that allBut in this polarized environment, how can sides hear the company as well.they avoid being wedded to candidates whose As Target, Amway, and others have learned inviews may create embarrassment or worse? the past—and as more are certain to learn inBalance is the key. Most companies used to this charged political environment—any politi-give to both sides as means of hedging their cal donation has the potential to create unfore-bets. Today, some companies still do—and seen business problems. But when companieswhile it may seem counterproductive, that infuse balance into their donation strategies, THE URGENCYstrategy is one that can help protect donors they help themselves steer clear of the extrem-from being perceived as wedded to potentially ism permeating today’s political discourse. Luncomfortable statements or policy positions. Richard S. Levick, Esq., President and CEO of LEVICK, OF NOW.By donating horizontally (to both sides) and represents countries and companies in the highest-stakesvertically (to local, state, and federal can- global communications matters—from the Wall Street crisis and the Gulf oil spill to Guantanamo Bay and the Catholic Church.