EDITION 6

WeeklyAugusT 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

What do tobacco and food labels have in

common? Not much, unless you consider

the successful attorneys who beat the tobac-

co industry a decade ago for record sums.

Now these very same plaintiffs’ attorneys--

indefatigable and brilliant--have zeroed in

on a new frontier: the grocery store aisles.

They smell liability over what’s labeled Ko-

sher, all natural, real fruit, or whole grain,

and they believe they have a compelling

case to make.

This summer, consumer activists have teamed

up with these powerful allies to launch an all-

out attack on product labels they believe to be

misleading and tantamount to false advertis-

ing, if not a crime. General Mills, for instance,

is facing a lawsuit from two California moth-

ers who have the Center for Science in the

Public Interest in their corner. They want the

“natural” label removed from the company’s

Nature Valley products because they contain

processed ingredients. The suit is only one of

25 cases that, according to the New York Times,

have been recently filed against companies

such as ConAgra, PepsiCo, and Heinz, over al-

legedly deceptive labels.

Plaintiffs’ attorney Don Barrett, who won

record settlements from Big Tobacco ten years

ago and is among a host of lawyers seeking

big paydays over the labeling issue, summed

up the activist position in just two sentences,

stating that mislabeling “is a crime” and

that “these products should be taken off the

shelves.” In what amounts to the most signifi

cant case to date, a federal court in California

has been asked to do just that by halting sales

of ConAgra products ranging from Pam cook-

ing spray to Hunt’s canned tomatoes.

What is perhaps most troubling in corporate

circles is that the fight isn’t limited to the food

industry. Just a few weeks ago, Pfizer Con-

sumer Healthcare agreed to discontinue claims

that its Centrum vitamin supplement products

support “breast health” and “colon health” af-

ter the Center for Science in the Public Interest

threatened another high-profile lawsuit.

At the same time, other activists are attacking

the product labeling issue from the other flank.

This November, California voters will consider

a ballot initiative that would require food

manufacturers to label products that contain

ingredients enhanced via biotechnology.

All the while, major news outlets are pay-

ing a lot of attention to these activist salvos,

which have been increasing in frequency over

the past three to four years and are just now

reaching critical mass. That’s because media

interest is a lynchpin in the activist strategy.

Consumer groups see high-profile lawsuits and

ballot initiatives as a way to force the issue into

the public spotlight and compel reforms with-

out having to rely on government regulators,

whom they see as too often colluding with big

corporations on labeling issues.

Traditionally, food and pharmaceutical com-

panies have worked with the Food and Drug

Administration (FDA) to reach compromises

on labeling rules that balance the need for ef-

fective marketing with concern for consumer

TObAccO WArrIOrs sET ThEIr sIghTs ON ThE

grOcEry sTOrErichard s. Levick, Esq.Originally Published on Fastcompany.com

Weekly

safety. The process is slow, as evidenced by the

fact that it took nearly a decade to reach final

agreement on the ingredient and nutrition

labels we now see on our beverage cans, pasta

sauce jars, cereal boxes, and just about every

other product we see on store shelves. Frus-

trated by both the length of the process and the

resulting rules, the activists are now stepping

up their activities in the courtroom, voting

booth, blogosphere, and newsroom.

Further complicating matter is the fact that

companies don’t always know what’s consti-

tutes compliance. “The FDA hasn’t set clear

enforcement standards for claims like ‘All

Natural,’ ‘100 percent Whole Grain,’ or ‘Made

with Real Fruit,’” says Richard Frank, a lead-

ing food labeling, advertising, inspection, and

safety attorney with Olsson Frank Weeda PC.

“As a result, we are seeing plaintiff class action

attorneys filling in the gap where clear stan-

dards don’t exist and ‘piling on’ where FDA has

issued a Warning Letter or taken other enforce-

ment action.”

What all of this means is that the companies in

the crosshairs—and those just outside them—

must think differently about labeling practices

and how they communicate with consumers

on a level above the customary marketing

relationship. They themselves must act like

consumer advocates, describing their labeling

practices and explaining their ingredients

with greater clarity and crediblity. Specifically,

they must:

Accept new levels of transparency.

With new levels of consumer aware-

ness around labeling issues comes a new level

of responsibility for food and pharmaceutical

manufacturers. If a claim on a label can’t be eas-

ily justified or substantiated, it is best not made

in an environment rife with intensified scrutiny.

Speak directly to consumers. Labeling

issues are no longer being settled behind

closed government doors; they are being debat-

ed under a glaring public spotlight. That means

what used to be a “grasstops” play has evolved

into a grassroots imperative. The issue is an

example of how the line between public affairs

and public relations is getting more blurry ev-

ery day. As such, food and pharmaceutical com-

panies need to make the most of social media

connections and optimized Web properties that

allow them to take back control of the conversa-

tion—even as they bypass the an increasingly

skeptical traditional media filter.

Understand that emotions trump science

on issues of health and safety. The FDA

seal of approval and the mountain of scientific ev-

idence that support companies’ labeling practices

aren’t enough to assuage fear and anxiety where

consumer health and safety are concerned. Emo-

tion, not logic, is what will win this debate. That

means companies can’t just tell consumers their

products are healthy and safe; they have to show

them with heavily optimized and engaging im-

ages, video, and stories that drive home the ways

their products contribute to healthy lifestyles,

something that can now be more easily done as

Google analytics increasingly optimize for the

spoken word.

Enlist third party support. In many

cases, the best third-party advocates hail

from the credibility-rich realms of academia,

government, or Washington D.C. think tanks.

This is not one of those cases. Consumers need

to hear from others among their ranks that

food and supplement products really are all

they are labeled to be.

Target California. The Golden State is

ground zero for movements such as

these, which often gain momentum among

friendly audiences out west and then spread

across the country. That means companies

need to emphasize California media and geo-

target their Search Engine Optimization (SEO)

and Marketing (SEM) campaigns for the region

as a means to nip the movement in the bud.

The fact that more than a dozen high-profile

attorneys that used to sue big tobacco are

migrating toward food and pharmaceutical

labeling issues speaks volumes about what lies

in store for the food industry. The sooner that

target companies—and those that will become

targets in the coming months—begin to con-

trol this highly threatening conversation, the

better positioned they will be to win in the

courtroom, the Court of Public Opinion, and

among regulators that are closely monitoring

the outcome of what could be an epic legal and

reputational battle.

Richard S. Levick, Esq., President and CEO of LEVICK,

represents countries and companies in the highest-stakes

global communications matters—from the Wall Street

crisis and the Gulf oil spill to Guantanamo Bay and the

Catholic Church.

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Kathleen WailesOriginally Published on LEVICK Daily

ProxyAdvisory Firmsdon’t HAve to HAve tHe LAst Word

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hard—with the backing of ISS—to gain seats on the AOL Board. It was soundly defeated. In a memo posted by the law firm Wachtell Lipton, attorney Martin Lipton noted that “The victory repre-sents a clear and powerful message that a well-articulated business strat-egy for long-term success will be sup-ported by investors notwithstanding activist generated criticism and ISS support.”

All of this leads to the conclusion that managements should take heart and

act assertively when challenged by proxy advisors. Do not hesitate to parry each objection and assertion forcefully so that your investors clearly understand management’s point of view. Follow Mr. Lipton’s advice, and spell out your strategy for building shareholder value. Don’t wait until ISS or Glass Lewis comes calling— get out in front of the issues and you will succeed.

Kathleen Wailes, Senior Vice President & Chair, Financial

Communications Practice

Rare is the corporation that has not paid close attention to the rec-ommendations of proxy advisory firms—those organizations that ad-vise investors how to vote on proxy issues. The two principal firms, Institutional Shareholder Services (ISS) and Glass Lewis, wield in-creasing power, with thousands of institutional clients that often fol-low their recommendations to vote against management’s proposals. The consequences of these votes can affect everything from a company’s independence to how its executives are paid. Increasingly, however, cor-porations are hitting back and chal-lenging the unbalanced influence these firms wield.

It’s important to know that corpora-tions can fight and win when ISS or Glass Lewis is wrong. Major compa-nies are taking on the proxy advisory duopoly and holding it accountable for its statements and actions—and such challenges to both the proxy ad-visory firms’ objectivity and accuracy are succeeding.

Recently, ISS took heat from com-panies regarding its recommenda-tions on executive compensation. The companies believe that ISS is choosing inappropriate peer groups against which to compare pay. Since 25 percent to 35 percent of institu-

tions follow ISS voting direction, this is no small matter. The consulting firm Semler Brossy reported in May that 52 companies had filed supplemental proxy materials this year—about dou-ble the rate in 2011—and half of that activity stemmed from disputes over peer groups.

Marriott International was a promi-nent example, since ISS suggested that Marriott’s compensation rates should be compared with those of companies outside the hospitality industry—com-panies such as Penske Automotive Group and Icahn Enterprises. As these so-called peers were wildly inappropri-ate, Marriott won the day. In March, the Center on Executive Compensation, which had called for greater account-ability on the part of proxy advisors, applauded the establishment of an ISS “Feedback Review Board” that would afford issuers and investors the oppor-tunity to rebut ISS positions. The Cen-ter previously had brought to light the conflicts of interest in firm structures and inaccuracies in reporting by both ISS and Glass Lewis.

Regulators also have stepped up their attention to proxy advisory firms, with new rules expected for the in-dustry this year. Executive pay is not the only area in which ISS and Glass Lewis wield considerable clout. The hedge fund Starboard Value LP tried

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sAmsungtHe decisive cAmPAign is yet to comerichard s. Levick, Esq.Originally Published on Forbes.com

Question: what might Samsung have in com-

mon with both the Prophet Mohammed and

Chairman Mao?

Think “retreat.” In 622 AD, Mohammed fled

from Mecca to the city of Medina and, as a

result of that tactical withdrawal, one of the

world’s five great religions was born. Just over

thirteen hundred years later, Mao and his

cohorts took flight on the Long March. Only

around 10% of them finished the trek but,

at day’s end, Mao was firmly in control and

would stay that way.

The point is that the most arduous retreat is

by no means a decisive defeat and can even

sow the seeds of historic success. True, one can

call the August 24 jury verdict against Sam-

sung a defeat in the sense that the company

was found to have willfully infringed multiple

Apple patents, including the rectangular shape

and rounded edges of the iPhone and Apple’s

pinch-to-zoom image magnifier. Pending ap-

peal, Samsung must pay $1.05 billion.

On the face of it, it looks like an unequivo-

cal triumph for Apple, which may now have

enough legal weaponry to discourage all com-

panies from manufacturing products that use

Google’s Android operating system. But there

is a sub-text here that speaks to the fundamen-

tal brand identities of both the winner and

loser—so much so that, if played right, Sam-

sung can use its position as courtroom loser

to great advantage, emerge as a marketplace

winner, and hopefully serve the interests of the

consumer in the process.

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It is a definitive precept of “litigation commu-

nications” that legal outcomes and business

outcomes are not necessarily congruent.

Never mind its mighty size and global reach,

Samsung can turn retreat into triumph be-

cause, like Mohammed and Mao, it has found

itself cast as an underdog, pitted here against

a company now viewed as a borderline mo-

nopolist. The concomitant message is that

innovation itself depends on such underdogs

having enough free range to invent and manu-

facture products unencumbered by the mere

technicalities of patent law. The August 24 jury

verdict, according to this narrative, fed on such

technicalities at the expense of the spirit of the

law, which is supposed to be all about encour-

aging innovation.

Of course there can be no innovation without

the protections that that law provides, but

here the intellectual property regime in effect

turned on itself, squelching the very creativity

it was designed to safeguard. We take no posi-

tion on whether the verdict itself was equitable

and reasonable. What’s important from our

perspective is a general (if not unanimous) per-

ception that the decision was neither equitable

nor reasonable.

Much of the response to the verdict has, in

fact, put patent law itself on trial, castigating a

stiflingly arcane system that has become “dys-

functional,” as the New York Times opined,

adding that, “By one estimate, as many as

250,000 patents can be used to claim owner-

ship of some technical or design element in

a smartphone. Each patent is potentially a

license to sue.” In such a litigious quagmire,

there can be no meaningfully determinative

fact-finding, as even some of our finest mag-

istrates agree. Thus did Judge Richard Posner,

in the recent Apple and Motorola case, deplore

the misuse of patents governing smartphones

and, in no uncertain terms, chastise both sides

as he dismissed their respective claims.

To be sure, Samsung may be appealing the

verdict for many years to come, and it can

hardly be happy with a decision the jury spent

merely three days to reach. There are further

risks ahead as the judge could treble damages

and grant an injunction to prevent Samsung

from selling its wares in the United States.

Samsung’s communications strategy should

continue to support its specific legal position in

the case until the last possible appeal is denied.

“ 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. ”

Yet those specific issues of the case comprise

a separate narrative from a broader brand-

enhancement potential that Samsung has

already begun to mine. In this corollary com-

munications campaign, Samsung plays its

underdog role to the hilt, underscoring its own

innovativeness, bloodied but not bowed by a

legal process that top courts like Posner’s have

themselves decried.

Given this climate of opinion, an aggressive

communications campaign can even highlight

specific products. As has been pointed out,

some of Samsung’s older products (Galaxy S1

and S2) were cited in the lawsuit; others were

not (Galaxy S3 and Galaxy Tablet). Connect the

narrative dots: “This jury verdict threatens in-

novation. We who lost the case (and are there-

fore innovative) still produce new products.

When you support those products, you support

innovation and yourselves.”

Samsung’s opportunity is all the more signifi-

cant because it is responding to a public senti-

ment that exists independently of any efforts

by the company to foster such sentiment. Con-

cern 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. There’s no need

for spin. Whatever Samsung has to say on

the subject, consumers will naturally want to

hear it, especially since, as the high-authority

bloggers have duly noted, Samsung was al-

ready well on the way to revamping its mobile

products. The company is thus a credible voice

in the cause of innovation.

Richard S. Levick, Esq., President and CEO of LEVICK,

represents countries and companies in the highest-stakes

global communications matters—from the Wall Street

crisis and the Gulf oil spill to Guantanamo Bay and the

Catholic Church.

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Five WAys deFense subcontrActors cAn remAin reLevAnt in tHe sequestrAtion erA

richard s. Levick, Esq.Originally Published on LEVICK Daily

Already, we’ve seen proposals put forth by

Congress and White House that would slash

core Department of Defense (DoD) spending

by as much as $5.2 billion. Unfortunately, even

that figure falls well short of the cuts called for

in 2011’s Budget Control Act (BCA), which re-

quires Congress to identify $1.2 trillion in fed-

eral deficit reductions over the next ten years.

If Congress fails to pass a FY2013 budget in line

with the BCA (an increasingly likely scenario

in this polarized political environment), the

worst case scenario kicks in as sequestration is

triggered and DoD procurement is slashed by

as $600 billion.

That’s bad news for defense contractors—and

it’s even worse for the subcontractors at the

mercy of their customers’ ability to win and

maintain lucrative Pentagon procurement

deals. All in all, as many as one million jobs

have been estimated to be at risk.

How can defense subcontractors compete and

remain relevant as critical national security

priorities take a back seat to widespread calls

for fiscal restraint?

In order to take advantage of the radical

change in the marketplace, defense subcon-

tractors need to think differently about their

communications and marketing initiatives.

Their brands matter more than ever—and as

such, they need to expand their spheres of

influence by engaging not only policy makers

and primes, but the constituencies these audi-

ences listen to as well.

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 curb terrorism essentially amounted to a full employment contract for those companies that support U.S. foreign policy objectives at home and abroad. Here in 2012, those wars aren’t just winding down; they are doing so at a time when budget deficits have reached crisis proportions and introduced the very real possibility of sequestration across the federal government.

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1. Articulate your unique selling proposition.

Subcontractors exist because they can do some-

thing that primary contractors cannot. What is

it that makes your company stand out and your

services absolutely necessary to achieving mis-

sion objectives? Are you the top provider

of cyber-security services? Do you excel in

on-the-ground training? Perhaps most impor-

tant, have you identified efficiencies that keep

costs down?

When defense subcontractors infuse their

business-to-business outreach efforts with

specialization messages, they provide primes

with reason to tell the Pentagon “we need these

guys on board.” When the same messages are

disseminated beyond the B2B audience, they

condition procurement officials to agree with

that assessment.

2. tell your story in videos.

Defense contractors possess a unique commu-

nicative advantage in the Digital Age because

their work produces such compelling image

and video opportunities. Here, subcontractors

can take a valuable cue from the very compa-

nies they need to reach. Northrup Grumman,

for instance, maintains its own branded You-

Tube channel by which it highlights the ways

its products and services protect and enrich-

the lives of brave servicemen and women.

Northrup Grumman’s videos stand out not only

because they are more engaging than the writ-

ten word; but because Google and other search

engines are putting more and more emphasis

on pushing the spoken word.

Most important, the videos reach audiences on

an emotional level—and whether the emotions

conveyed are pride, security, or even fear, they

drive buying decisions in ways that appeals to

logic simply can’t.

3. recruit influential allies.

When the companies that stand to lose money

from defense cuts speak out about the dangers

of sequestration, it’s one thing. When respected

and relatively disinterested third parties do

the same, the message is far more powerful.

The American Enterprise Institute, the Heri-

tage Foundation, and the Center for American

Progress have all voiced serious concerns about

what deep cuts to the defense industry would

mean to the national economy.

By teaming up with such a politically diverse

and intellectually credible array of potential

allies—and the similarly-aligned unions as

well—defense subcontractors can help ensure

that the jobs message rings out in and beyond

Washington D.C. corridors of power.

4. geo-target your efforts.

For maximum impact, defense subcontractors

need to aim their communicative efforts at

two targets; the home districts of the Congres-

sional members who can still be influenced

on defense budget issues; and the districts that

stand to lose the most economically should

sequestration come to pass.

Constituents in these communities need to be

reminded of the jobs that defense contracting

creates; the security threats that still loom at

home and abroad (even though the prior Ad-

ministration’s arguably overplaying of threat

issues may slightly diminish those messages’

impact); and the often irreplaceable role that

defense contractors play in keeping America

safe. That means aggressively reaching out to

local media in these districts. And it means di-

recting online optimization efforts toward the

local communities that can make a difference

on Capitol Hill.

5. dominate social and digital media

And just what are online optimization efforts?

They are strategies to ensure that companies’

online properties (websites, social media pro-

files, etc.) are highly-ranked by Google and the

other search engines that dominate the

informational landscape today. Via Search En-

gine Optimization (SEO) and Marketing (SEM)

initiatives, contractors can control the con-

versations surrounding their brands and the

issues impacting their industries; elevate the

visibility of their products and services; and

—as mentioned above—target these outreach

efforts to the local communities with the power

to influence defense budget decisions.

Of course, contractor social and digital media

strategy is more than just optimization. It is

reaching out to the blogs that influence defense

industry perceptions. It is engaging the social

media space to build awareness of, and affin-

ity for, your products and services. And it is a

strong investment in LinkedIn, which has be-

come the marquee social media venue for B2B

and B2G communicators and marketers today.

In the era of sequestration, the defense sub-

contractors that take their communications to

the next level will not only protect their slice

of the Pentagon procurement pie; the will also

find themselves well-positioned to dominate

the market when the budget pendulum

inevitably swings back toward national

security priorities.

Richard S. Levick, Esq., President and CEO of LEVICK,

represents countries and companies in the highest-stakes

global communications matters—from the Wall Street

crisis and the Gulf oil spill to Guantanamo Bay and the

Catholic Church.

to tHAt end, Here Are Five stePs tHAt WiLL HeLP deFense subcontrActors demonstrAte vALue At time WHen notHing is more imPortAnt to tHeir Future ProsPects.

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you Are WHo you Fund: WHAt todd Akin teAcHes us About cAmPAign contributions

When we examine the Todd Akin saga from

a crisis communications perspective, the

lessons are as obvious as they are numerous.

Avoid inflammatory messaging. Do what’s

necessary to keep allies by your side. Under-

stand that sacrifice is often necessary if you

want to fight another day. And so on.

As Mr. Akin has seen his party funding run dry

and his party brethren run for cover (when

they are not turning against him), many have

asked about a crisis response. Other than

spending what remains in his war chest on

ads expressing his remorse, what else can Mr.

Akin do? Much as those outside his state may

not like it, the congressman is playing it exactly

right--staying within Missouri. His opponent,

Senator Claire McCaskill, is barely acknowledg-

ing the controversy in her campaign because it

has barely moved Missouri voters. For what-

ever else Congressman Akin may not know, he

knows that all politics are local.

He also knows that he has long held these

views and has been elected to six terms in

Congress. Further, it was Missouri Republicans

who chose him in the Senate primary—and if

he believes they agree with his pro-life stance,

even if they are appalled by the way he articu-

lated it, there is every reason to also believe

that the grassroots will support him, even if the

“grasstops” will not.

At the end of the day, Mr. Akin still thinks he

can win. And as such, this is not as much a

story about the dos and don’ts of crisis commu-

nications as it is about the careful calculations

businesses and labor unions must make in the

Citizens United era—when contributions are

as unlimited as the transparency with which

they are made.

Our primary system has devolved into a

race to the fringes, resulting in general elec-

tion candidates whose views are as far from

the center as any we’ve seen (Todd Akin is far

from the only example, and they exist on

both sides of the political spectrum). At the

same time, the Citizens United decision has

opened the floodgates for big corporations and

small businesses to funnel unlimited sums of

money to the candidates that will further their

policy objectives.

This dichotomy has created a dynamic by

which businesses and business leaders don’t

have to be as outspoken as Whole Foods CEO

John Mackey to arouse the ire of those who

might not agree with them. Their dollars

speak as loudly as their words—and when the

candidates they support espouse increasingly

extreme views, they risk alienating at least

half of the consumers, investors, and other

stakeholders who won’t hesitate to find them

guilty by association.

Given that direct donations are a matter of pub-

lic record, some companies may believe that

Political Action Committees may provide some

cover. But we’ve already seen examples where

that hasn’t been the case. With intensified me-

dia and blogger attention to campaign finance

issues, the potential exists for any political

donation to be subjected to a harsh spotlight.

richard s. Levick, Esq.Originally Published on Fastcompany.com

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Citizens United provided business and labor

with the right to make unlimited political dona-

tions, but with that right comes new levels of

responsibility. Gone are the days when political

contributions were made in smoke-filled rooms

that provided a modicum of anonymity. Today,

everything is transparent. That means corpo-

rate donors can and will be held accountable

for the comments of their candidates.

So what is the business community to do?

Companies’ public policy interests demand that

they involve themselves in the political process.

But in this polarized environment, how can

they avoid being wedded to candidates whose

views may create embarrassment or worse?

Balance is the key. Most companies used to

give to both sides as means of hedging their

bets. Today, some companies still do—and

while it may seem counterproductive, that

strategy is one that can help protect donors

from being perceived as wedded to potentially

uncomfortable statements or policy positions.

By donating horizontally (to both sides) and

vertically (to local, state, and federal can-

didates), companies not only expand their

sphere of influence; they prevent any single

donation from standing out amongst the pack.

At the same time, they provide themselves with

more allies to provide cover should one of their

donations be criticized.

Questions may arise as to why a business

entity is playing both sides of the fence; but if

they do, companies can fall back on messages

about encouraging lively debate, supporting

public officials, ensuring all that all sides are

heard, and, most important, ensuring that all

sides hear the company as well.

As Target, Amway, and others have learned in

the past—and as more are certain to learn in

this charged political environment—any politi-

cal donation has the potential to create unfore-

seen business problems. But when companies

infuse balance into their donation strategies,

they help themselves steer clear of the extrem-

ism permeating today’s political discourse.

Richard S. Levick, Esq., President and CEO of LEVICK,

represents countries and companies in the highest-stakes

global communications matters—from the Wall Street

crisis and the Gulf oil spill to Guantanamo Bay and the

Catholic Church.

L tHe urgencyoF noW.