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WeeklyOcTObEr 19, 2012

Citizens UnitedAre Shareholder Revolts in the Offing?

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Citizens UnitedAre ShAreholder revoltS in the offing?

Citibank & soCial Media Succeeding Where BAnkS feAr to treAd

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data seCUrity in the digital age

bankrUptCy & restrUCtUringA chAnging lAndScApe

blogsto folloW

22 leViCkin the neWS

11 adjUsting exeCUtiVe CoMpensation plans

16 new stoCk exChanges leverAging opportunity

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here’s now reason to feel

good―or at least a bit bet-

ter―about Citizens United, the

landmark case in which the

Supreme Court ruled that the First Amend-

ment prohibits the government from restrict-

ing political expenditures by corporations and

unions. The decision caused a flurry of spend-

ing by trade associations and non-profit groups

that are not required to disclose their corpo-

rate donation sources―and near-apoplexy

among some people who were anticipating

covert corporate control of the political system.

But lo and behold, a study released last month

by the Center for Political Accountability (CPA),

in partnership with the Zicklin Center for Busi-

ness Ethics Research at the University of Penn-

sylvania‘s Wharton School, found a significant

increase in the number of large companies

voluntarily disclosing their political contribu-

tions. Among 88 such companies, 45 chose to

disclose, up from 36 the year before. The study

awarded particularly high marks to Microsoft,

Merck, Aflac, and Gilead for their disclosure

policies and procedures.

The ideological dynamics are fascinating and by

no means glibly predictable. “We’re encouraged

that even when the stakes are highest, leading

companies are refusing to engage in hidden

spending,” said CPA president Bruce Freed. This

is the very same CPA castigated earlier this year

in the Wall Street Journal as a well-armed sol-

dier in the war against corporate free speech.

It’s always a good sign when public figures

undermine their own stereotypes.

At the same time, Mr. Freed’s enthusiasm is

not wholly driven by confidence in the civic

right-mindedness of global corporations. To

the contrary, coverage of the study has duti-

fully underscored self-interest as a compelling

motivation, quoting the study’s own emphasis

on shareholder relations.

Outside interest groups and politicians usu-

ally have multifarious agendas and, as a result,

shareholders may become aware of financial

contributions that unwittingly disserve their

own interests. For example, four of the seven

biggest manufacturers of birth control drugs

and devices donated to a trade association

supporting Republicans who were presumably

pro-business, but who had also vowed to limit

access to birth control-related products. Not all

businesses are created politically equal.

Heretofore, most of the talk about marketplace

impact as a corporate concern in the wake of

Citizens United was really about how consum-

ers might react. Such pressures are not to

be taken lightly as Target learned in 2010

when gay rights groups started a boycott

because the company donated $150,000 to a

business group supporting Minnesota’s guber-

natorial candidate Tom Emmer, who opposes

same-sex marriage.

Yet the real pressure points, or at least the most

consistent ones, are likelier to be felt among

shareholders who may be upset over negative

consumer opinion triggered by a donation, or

who are themselves directly opposed to a par-

ticular donation. Shareholder activism, about

tCitizens United:are shareholder reVolts in the offing? richard s. levick, esq.

Originally Published on Forbes.com

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“ Consider the Center for Political Accountability itself as a barometer of the activist sea change. According to its own reports, shareholders working with CPA have filed a total of 51 resolutions in 2012.”

which we’ve written so frequently in these

pages, is thus a salient countervailing force

against the oligarchic trends purportedly un-

leashed by Citizens United. And corporations

know it, as the mounting number of voluntary

disclosures clearly suggests.

Consider the Center for Political Accountability

itself as a barometer of the activist sea change.

According to its own reports, shareholders

working with CPA have filed a total of 51 reso-

lutions in 2012. Of those, 13 led to agreements

with the company. For example, the New York

State Pension Funds “successfully engaged”

Safeway, Kroger, CSX Corp., Sempra Energy,

R.R. Donnelley & Sons, and Reynolds Ameri-

can. Trillium Asset Management “reached

agreements” with Halliburton, Chubb Corp,

and State Street Corp. The list goes on, en-

compassing both individual shareholders and

other institutional investors.

Robert Kelner offers an important general

caveat to any such evidence of a ground-break-

ing rapprochement between shareholders

and corporate political contributors. “There

is a lot more form than there is substance in

the agreements that shareholder groups have

struck with public companies,” says Kelner,

chair of the Election and Political Law Practice

Group at Covington & Burling LLP. “The vast

majority of what they are disclosing was al-

ready publicly available. For the most part, they

are just pulling it all together in one place.”

But there’s no gainsaying that the CPA/Zicklin

Center report touched a political nerve if only

because the narrative has shifted, from debate

about Citizens United itself to a discussion of

how corporate stakeholders will or will not

hold public companies accountable for their

decisions. On the right, former Federal Elec-

tion Commission Chairman Bradley Smith has

averred that shareholders “regularly defeat”

proposals to compel donation disclosures. In

the same breath, however, Smith laments that

“many corporations are feeling pressure from

faux ‘shareholder rights’ groups to adopt such

policies, or to exit the political arena entirely.”

It’s hard to imagine that those shareholder

rights groups are all that “faux” when the

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pressures driving companies like Aflac and

Chubb to reveal their contributions seem very

genuine indeed.

On the left, observers like Craig Holman of

Public Citizen argue that shareholders are in-

creasingly less amenable to “squander” money

on the political enthusiasms of their CEOs. Nor

are all conservatives as disturbed as Smith by

the trend. Jim Bopp Jr., who has sued to over-

turn disclosure requirements, has no problem

with voluntary action. “If [companies] think

they get a competitive advantage by disclos-

ing their contributions, we are fine with that.

That’s the marketplace.”

Yet disclosure is only one aspect of the problem

for corporations. As Smith correctly suggests,

they must still decide if they even want to

participate in the political process given the

increased scrutiny to which Citizens United has

inspired the watchdogs. There’s a communica-

tions challenge layered over any decision that

companies make. After all, once they disclose

how much they’ve contributed and to whom,

it stands to reason that shareholders and other

interested parties will also want to know why.

At that point, the penalties for miscommuni-

cating accelerate. How justify a donation to

a pro-industry candidate who might have a

problematic position on abortion or gay rights?

Conversely, how justify not contributing to a

prominent industry supporter because he or

she happens to have a strong position on an

unrelated social issue? You risk being per-

ceived as either knave or fool.

The move toward transparency applauded by

Bruce Freed and others is in and of itself a

sign of progress but, like all progress, it begets

new problems. In fact, it opens up a Pandora’s

Box as we’re no longer just talking about a

marketplace for the products and services that

corporations exist to sell. We’re also talking

about a marketplace of ideas, where more

than a few corporate angels have historically

feared to tread.

The lesson is that, if you do tread there, watch

your step. Think very hard about the questions

you may be asked and the answers you’ll have

to give. You may pay dearly for the “favor” the

Supreme Court did you with its fateful decision

in Citizens United.

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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Luís Brás / Shutterstock.com

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When Citibank customer Stacy Small tweeted

about being left on hold for 40 minutes during

a routine call to the bank’s customer service

department, a Citibank agent responded within

minutes with a message that read “Send us your

phone number and we’ll call you right now.”

Not moments later, Ms. Small was speaking

to one of approximately 30 Citibank customer

service representatives who have received

special training in social media monitoring and

response. The experience was so overwhelm-

ingly positive that Ms. Small doesn’t even call

Citibank customer service anymore. Instead,

she simply tweets the address @askCiti when-

ever a question or problem arises.

While such interactions may be nothing

new to the social media mavens who protect

online brands at hotels, airlines, and major

consumer product companies, Citibank is

something of a pioneer for the simple reason

that it is actively gaining ground in an indus-

try with a spotty history of customer service

through traditional channels.

Key to Citibank’s success (as evidenced by the

anecdote above) is an understanding that even

the most critical commentary posted to a Face-

book page or Twitter account is only the begin-

ning of a conversation that could potentially

transform a negative customer experience into

a positive one.

Even better, Citibank’s social media efforts

provide potential customers with a look at the

lengths it will traverse to ensure an optimal

banking experience for all.

Michael W. Robinson is an Executive Vice President at

LEVICK and a contributing author to LEVICK Daily.

When it comes to social media’s impact on America’s largest financial institutions, one can’t help but think of the ways that the Occupy movement and other consumer activists have used platforms such as Twitter and Facebook to grow their ranks, organize their efforts, and disseminate scathing critiques of the industry. But as reported last week in the Wall Street Journal, at least one major financial services provider is embracing social media to get closer to its customers.

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cITIbaNk’s sOcIal MEDIa EffOrTsucceeding Where Many banks still fear to Tread

by Michael W. robinsonOriginally published in the LEVICK Daily

Weekly

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I recently sat down with Shane Sims, a Director in PricewaterhouseCoopers’ U.S. Forensic Services

practice, to discuss data security in the Digital Age.

Mr. Sims outlined the specific risks presented to companies and countries by the five primary

threat groups when it comes to data loss and theft: foreign intelligence services; terrorist organiza-

tions; transnational criminal enterprises; global competitors; and insiders. With so many potential

threats, companies must establish a data breach response plan that enables fast action and effec-

tive outreach to all concerned stakeholders.

As a former Supervisory Special Agent with the Federal Bureau of Investigation (FBI) who has

more than 24 years experience in forensic investigations, cybercrime, national security, and crisis

management, Mr. Sims shared these insights and many more with Bulletproof™.

data seCUrity in the digital age froM piCewaterhoUseCoopers’ shane siMs

010

This week’s edition of NACD BoardVision focuses on adjusting executive compensation plans

during a turnaround. Join Steve Kalan, associate publisher of NACD Directorship, and Glenn Bor-

romeo, of Meridian Compensation Partners, in this video interview as they discuss changing pay

strategies for companies pivoting to turnaround mode.

Crisis

litigationfinanCial CoMMUniCations

Corporate & repUtationpUbliC affairs

sign Up today

naCd boardrooM:adjUsting exeCUtiVe CoMpensation plans dUring a tUrnaroUnd

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richard s. levick, Esq.Originally Published on LEVICK Daily Over the next several weeks, LEVICK Daily

will share selected interviews from our recent

NACD Directorship article entitled “What’s

Next? The Top Issues of 2013 and Beyond.”

Today, we feature a discussion on bankruptcy

and restructuring with Tyler Nurnberg, a Part-

ner in Kaye Scholer’s Bankruptcy & Restructur-

ing Group and Managing Partner of the firm’s

Chicago office.

Mr. Nurnberg represents troubled companies

in restructurings throughout the U.S. He

also advises lenders, funds, institutional

investors, and private equity sponsors on

restructuring matters.

At the conclusion of the interview, you can

find LEVICK’s own communications best

practices appended.

how has the bankrUptCy and restrUCtUring landsCape Changed in the wake of the global finanCial Crisis?

tyler nurnberg: Europe is still very much in

the midst of a financial crisis and the effects

are multifaceted. Notably, we have seen an

increase in the number of cross-border insol-

vency cases, which is a trend we fully expect to

continue. In particular, there has been a rise in

cases filed under Chapter 15 of the Bankruptcy

Code, which provides a framework for multi-

national companies to have foreign insolvency

proceedings recognized in the U.S. The laws

governing these cases are still being devel-

oped, and courts are struggling with how much

weight to give foreign insolvency laws when

they conflict with U.S. law.

tyler nUrnberg on

bankrUptCy&

restrUCtUring

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We have also witnessed growth in the num-

ber of foreign companies looking to file under

Chapter 11 of the Bankruptcy Code. The rules

on eligibility for a foreign company to file

bankruptcy here are lenient, and our bank-

ruptcy laws are biased towards rehabilitating

a troubled company to preserve its “going

concern” value―as opposed to most foreign

insolvency regimes, where the focus is on liqui-

dating a troubled company’s assets quickly and

distributing the proceeds to creditors.

how Can direCtors best serVe a CoMpany dUring bankrUptCy or restrUCtUring?

tyler nurnberg: A board will want practical

outside advice early in the process on how to

fulfill its fiduciary duties, and how those duties

may change when the company is insolvent or

approaches insolvency. The board will want to

maintain a proper supervisory role and not ex-

ercise undue influence over day-to-day opera-

tions. Prior to filing bankruptcy, the board and

its advisors should also assess the adequacy

of the D&O insurance policies. Also, directors

should be alerted to the discrete areas where

they could potentially be liable personally for

the bankrupt company’s debts. Every case is

different, but these pitfalls can include person-

al liability for “responsible persons” when a

company fails to pay wages or segregate certain

taxes, or for knowingly permitting the company

to incur debts beyond its ability to pay.

Once a company files bankruptcy, the board

should appreciate that the decision-making

process becomes much more transparent. In

general, the company can operate as usual but

will need prior court approval for “non-ordi-

nary course” transactions such as sales, financ-

ings and the like. A question that frequently

gets asked is whether a director should resign

once the company files bankruptcy―there

are exceptions but in most cases, the answer

is “no,” the director is better off staying on the

board and guiding the company to conclusion

of the bankruptcy process.

how Can a CoMpany best position itself for post-bankrUptCy operations?

tyler nurnberg: The company should deter-

mine its exit strategy before it files bankruptcy

wherever possible, and view the process as

an opportunity to fix both financial and op-

erational problems. Get as much negotiated in

advance of filing as possible. There has been

an increase in the number of “prepackaged” or

“pre-negotiated” cases in recent years and we

see that trend continuing. Filing with an exit

plan already negotiated enables the company

to shorten the time it spends in bankruptcy,

maintain control over the process and reduce

restructuring costs.

Another piece of practical advice is for the

company to get the right managers and finan-

cial advisors in place, and develop a plan to

“right-size” the employees, before it files

bankruptcy. The benefits of getting this done

before filing can include greater flexibility in

developing an incentive bonus plan for the

company and avoiding potential liability for

premature layoffs.

Lastly, the board needs to stay focused on the

business plan during the bankruptcy. While

external factors may have contributed to the

need to file, larger underlying problems with

the business model or the balance sheet likely

drove the decision. Those issues need to be

resolved for the company to emerge as a viable

Boards must ensure that exit strategies and future growth are the hallmarks of communications during bankruptcy, beginning with the initial announcement. When companies control the “new day” narrative, internally and externally, they keep stakeholders focused on future success, not past mistakes.

every ruling, decision, and development in the restructuring process is an opportunity to communicate the new day message. Adversaries will use these milestones to disseminate their own messages. don’t let them operate in a vacuum.

Boards must understand the power of social and digital media to disclose. teams need to be ready to respond publically from the very moment a company begins to seriously consider restructuring—in other words, go on the offense so you don’t have to play defense.

best CoMMUniCations praCtiCes:

1.

2.

3.

business and, while bankruptcy can be a

powerful tool, it is not a panacea for the

problems that led the company to file

bankruptcy in the first place.

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 Catho-

lic Church.

This post is excerpted from Richard Levick’s recent NACD

Directorship feature “What’s Next? The Top Issues of 2013

and Beyond.”

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stoCk exChanges Can LeverageglobaleConoMiC opportUnityho

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richard s. levick, Esq.Originally Published on Fast Company

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June of this year, a Bank of Amer-ica poll found that investors are still sitting on their hands as the global economic recovery inches

forward. According to the study, they are hold-ing more cash than at any point since 2009.

Given the high levels of anxiety still present in the marketplace, one might conclude that this is perhaps not the most opportune time to es-tablish a new stock exchange such as those that have been created in Egypt, India, and even Cambodia in recent years. But because inves-tors aren’t finding attractive options on the ex-changes that traditionally dominate the capital markets (such as the NYSE or FTSE), the door is open for these and other new exchanges to brand themselves as true players on the global economic stage.

And it isn’t just investors who may be seeking new opportunities. As the world gets smaller, big companies are looking for ways to access pools of capital that exist in regions they have yet to tap into. At the same time, these regions are home to growing companies that need to raise capital, but can’t get themselves listed on the major exchanges.

All of this means that the time is right for new and nascent exchanges to begin aggressively promoting their value propositions to inves-tors and public companies alike. Right now, they have the chance to breed confidence; articulate their unique competitive advantages; and attract the committed, long-term invest-ment so essential to reducing volatility and ensuring steady growth.

Confidence, competitiveness, and commit-ment are the “three Cs” of creating and grow-ing an exchange today—and to develop these necessary elements of success, new exchanges need to rely on the fourth C that brings them all together: communication.

nUrtUring ConfidenCe

Investors—especially today’s anxious breed—need to feel that the exchange facilitating their trades is a safe and protected environment. That means fairness and transparency need to be seen as paramount concerns by all the right stakeholders, including governments, investment bankers, accountants, ratings agencies, institutional investors, and financial advisors. For a nascent exchange, this point is especially critical as new and uncharted frontiers inherently conjure fears of potential problems.

As such, a strong regulatory infrastructure needs to be implemented and articulated to the point that the dominant perception by investors and listed companies alike is one of safety and security. New exchanges often bring unfamiliar trading partners together. This is another point that ups the ante for emerging exchanges. When buyers and sellers don’t know each other, they need to know that the institution standing between them will ensure the best price, facilitate a complete transaction, and prevent any underhanded dealings.

artiCUlating the CoMpetitiVe adVantage

Equally as important to new stock markets as fairness and transparency are concrete demonstrations of the value and advantages that come with being listed on the exchange. Most new exchanges rely heavily on local and regional companies’ participation, so there exists a need to discuss the ways that the ex-change benefits local and regional interests.

At the same time, there is also a desire to at-tract global companies who are often listed

on multiple exchanges in New York, London, Hong Kong, and other major financial hubs. As such, it is incumbent on new exchanges to highlight six key selling points:

attraCting CoMMitted inVestors

During the first three days of trading on the Cambodian Stock Exchange (CSX), which opened last year, the share price of a local wa-ter utility shot up 60 percent. It wasn’t long be-fore investors looking for a quick buck began selling their stakes and pocketing the profits,

significantly driving down the price. That kind of volatility can keep investors and compa-nies on the sidelines. As such, new exchanges need to identify ways to encourage long-term investing.

That means helping global investors better un-derstand the intricacies of the market and how they represent fertile ground for long-term growth. To some extent, this means controlling the digital conversation surrounding the re-gional economy. For example, a Google search performed as of this writing for the generic term “Middle East Investment” returns not one result owned by a regional exchange. That

liqUidity — the deeper and more liquid the market, the more companies will want to be there;

new Capital — companies seeking investment have a new venue in which to access capital that likely wouldn’t have been invested elsewhere;

goVernanCe — Attracting market participants means promoting the experience, capital, and management capabilities of those running the exchange in order to build the needed trust;

global regUlatory Cooperation — if companies don’t see a strong commitment to the rule of law, administered via clear and consistent legal guidelines, they will see risk rather than opportunity.

teChnology — State of the art trading systems can help prevent the problems that derailed the high-profile ipos of facebook and others. they also support robust market surveillance and stand as a bulwark against hacking and cybercrimes; and

listing fees – the more reasonable, the better.

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six key selling points

4.

5.

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in

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means other voices are controlling the conver-sation and establishing the dominant percep-tions about opportunities in the region—and their messages are not always what investors would hope to hear.

why new exChanges need to sUCCeed

By aggressively communicating the three Cs, new exchanges have the chance to benefit the global economy in two distinct ways. First, by providing large, established companies with access to investment capital that might not find its way to the NYSE, FTSE, or any of the other traditional exchanges. And second, by provid-ing small regional companies that could never be listed on those traditional exchanges with

blogs to followthought leaders induStry blogs

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Amber NaslundBrASStAckthinking.comAmber Naslund is a coauthor of The Now Revolution. The book discusses the impact of the social web and how businesses need to “adapt to the new era of instantaneous business.

Brian HalliganhuBSpot.com/compAny/mAnAgement/BriAn-hAlligAn

HubSpot CEO and Founder.

Chris BroganchriSBrogAn.comChris Brogan is an American author, journalist, marketing consultant, and frequent speaker about

social media marketing.

David Meerman ScottdAvidmeermAnScott.com David Meerman Scott is an American online marketing strategist, and author of several books on marketing, most notably The New Rules of Marketing and PR with over 250,000 copies in print in more than 25 languages.

Guy KawasakiguykAWASAki.comGuy Kawasaki is a Silicon Valley venture capitalist, bestselling author, and Apple Fellow. He was one of the Apple employees originally responsible for marketing the Macintosh in 1984.

Jay BaerjAyBAer.comJay Baer is coauthor of, “The Now Revolution: 7 Shifts to Make Your Business Faster, Smarter and

More Social.

Rachel BotsmanrAchelBotSmAn.comRachel Botsman is a social innovator who writes, consults and speaks on the power of collaboration

and sharing through network technologies.

Seth GodinSethgodin.typepAd.com Seth Godin is an American entrepreneur, author and public speaker. Godin popularized the topic of permission marketing.

Holmes ReportholmeSreport.comA source of news, knowledge, and career information for public relations professionals.

NACD BlogBlog.nAcdonline.orgThe National Association of Corporate Directors (NACD) blog provides insight on corporate governanceand leading board practices.

PR WeekprWeekuS.comPRWeek is a vital part of the PR and communications industries in the US, providing timely news, reviews, profiles, techniques, and ground-breaking research. PR Daily NewsprdAily.comPR Daily provides public relations professionals, social media specialists and marketing communicators with a daily news feed.

FastCompanyfAStcompAny.comFast Company is the world’s leading progressive business media brand, with a unique editorial focus on business, design, and technology.

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access to the resources they need to grow, create jobs, and perhaps even become econom-ic engines for parts of the world that sorely need them.

That’s a rising tide that lifts all boats—and one that can help motivate those global investors still sitting on the sidelines.

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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artiCles

Video

Los Angeles Times | october 19, 2012google releASeS eArningS premAturely, triggering Stock Sell-off

MSNBC | october 18, 2012google deliverS 3Q letdoWn eArly, Stock plummetS

ESPN | october 17, 2012ArmStrong out AS liveStrong heAd, loSeS SponSorS

in the news

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the UrgenCyof now.

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