EDITION 14

WeeklyOcTObEr 26, 2012

THE FISCAL

CLIFFLook Who’s Leading Now

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The FisCal CliFF Look Who’s Leading noW

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CFiUs Review With Mark CoWan

MeRgeRs & aCqUisiTions With WiLLiaM Wynne

PRoxy PRoPosals regarding disCLosure of PoLitiCaL aCtivity

sUsan g. KoMen deCentraLized CoMMuniCations Puts the foCus BaCk Where it BeLongs

Blogs Worth foLLoWing

leviCK in the neWs

CoveR iMage: in late february 2012, Ben Bernanke, chairman of the u.s. federal reserve, was the first person to use the term “fiscal cliff” for this crisis. Before the house financial services Committee he described “a massive fiscal cliff of large spending cuts and tax increases” on January 1, 2013.

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Look Who’s Leading Now Richard s. levick, esq.

Originally Published on Forbes.com

THE FISCAL CLIFF:

In February 2012, Federal Reserve Chairman

Ben Bernanke provided business with just such

a pretext when he coined the now familiar

phrase “fiscal cliff.” Bernanke was referring

to the $600 billion in spending cuts and tax

increases that will be triggered on January 1,

2013, according to a provision of the Budget

Control Act of 2011 (BCA). That legislation

created a “super-committee” to decrease the

deficit by $1.2 trillion over the next 10 years or,

alternatively, enforce harsh austerity measures

that will likely drive us into another deep re-

cession by levying a 4% gross domestic product

reduction in 2013.

Flash forward eight months. This week General

Electric announced a $7 billion bond sale (the

first such by GE in five years) and a $5 billion

refinancing of bonds reaching maturity early

next year. The move was deemed important

enough by the Financial Times to warrant page

one above-the- fold coverage. According to CFO

Keith Sherin, GE has been strengthening its bal-

ance sheet against the risk of “choppy” condi-

tions early next year. It’s a prudent exercise

in risk management by a company that lost its

triple-A credit rating and cut its dividend dur-

ing the financial crisis.

Leadership doesn’t usually happen in a vacuum. Often, the soundest decisions cannot be implemented absent some compelling pretext.

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CEO Jeffrey Immelt’s comments are predict-

ably germane. He calls the fiscal cliff the “big

variable” for 2013—and Immelt is “ready”

if that situation is not resolved—even as he

avers that 2013 will look a lot like 2012.

Importantly, other corporations have been fol-

lowing a similar path. Dealogic reported that,

last week, large companies sold $26 billion in

investment grade bonds. Meanwhile, Oracle

sold $5 billion at some of the lowest yields

ever recorded in the corporate sphere while

United Health Care and Xstrata were among

other big names acting in advance of any po-

tential tumble over the fiscal cliff.

True, as indices of resolute leadership, cor-

porate bond sales aren’t exactly the stuff of

high Churchillian drama. Yet the very fact that

many big businesses seem so strategically like-

minded a few months ahead of a legislative

drop-dead day (literally) suggests a quieter

brand of leadership, one wholly appropriate

to the current exigent circumstance.

First, caution rather than bold initiative is

the order of the day. Think Eisenhower, not

Churchill. Think too about the real bellwether

of perceived corporate irresponsibility dur-

ing the last five years. It’s been all about

financial speculation, rapacious (rather than

strategic) risk-taking, and wild gambling with

other people’s money. As a result, many of the

world’s major financial institutions utterly

relinquished any credible presumption to

marketplace leadership.

By contrast, the preparatory measures now

being taken by GE and the others sends a most

welcome counter-message—that we know

what might happen next and that, under those

circumstances, we will safeguard the interests

of our investors and other stakeholders.

Second, these businesses seem to be taking a

rather forbearing approach with respect to

Beltway decision-makers. While there’s no

doubt some tumultuous behind-the-scenes

conversations occurring between corporate

lobbyists and lawmakers, the public demeanor

is, again, prudent. The implicit message is that

business will support any sane agreement

legislators reach, and won’t at this critical

juncture publicly impose untenable pressures

that only make it tougher to achieve the

fairest, most disinterested deficit reduction

plan possible.

Third—particularly instructive as a measure

of proactive leadership —major corporations

are seizing on the current crisis to do what

they are going to have to do anyway. “Busi-

nesses are trying to accommodate an inevi-

table belt-tightening,” says Andrew Zausner,

a member of Dickstein Shapiro’s Public Policy

& Law Practice, who specializes in legislative

activities. “To that end, they are being very

responsive to a situation that is not of their

making, but that does serve as a pretext for

the specific measures they need to take to get

them where they need to be.”

Business leaders may thus welcome the fiscal

cliff crunch as a salient opportunity. “Because

they are responding proactively to an impend-

ing crisis, they are able to inspire confidence

in the marketplace,” adds Zausner. “Ironically,

the very same austerity measures might only

deepen the current pessimism and even cause

some panic were there no fiscal cliff to force

their hand.”

The further irony is that many large corpora-

tions don’t actually anticipate a real crisis. On

the one hand, we have Goldman Sachs CEO

Lloyd Blankfein telling CNBC that the fiscal

cliff is “specifically…one of the major ways in

which the slow recovery that we have could

be completely derailed… We just met with a

dozen of the largest high-tech company CEOs

in the country. Not only are they hoarding

cash—all their customers, all their suppliers

are. They’re scared to death we’re going to go

over this cliff and it could be a catastrophe.”

On the other hand, a survey by the National

Association for Business Economics (NABE)

shows that economists from Ford, DuPont,

JPMorgan Chase, and others, are confident

that the worst fiscal cliff impact is unlikely. A

whopping four-fifths of respondents do not

anticipate draconian spending cuts, while 55%

say the Bush tax cuts will be extended next

year for all taxpayers. Caution may be the

watchword but the economists surveyed do

anticipate a 0.5% increase in economic growth

in 2013 over the 2012 rate.

Meanwhile, Morgan Stanley Wealth Manage-

ment’s Global Investment Committee takes

an even more markedly different tone from

Blankfein’s. On Monday, the committee wrote

in a note that “regardless of who wins the

“...the very fact that many big businesses seem so strategically like-minded a few months ahead of a legislative drop-dead day (literally) suggests a quieter brand of leadership, one wholly appropriate to the current exigent circumstance.”

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In this LEVICK Daily video interview, we look at the CFIUS (Committee on Foreign Investment in

the United States) process with Mark Cowan, Senior Executive Vice President for International

Business with Cassidy & Associates. When foreign companies consider transactions that could po-

tentially impact national security, it is always best to initiate the CFIUS application process as early

as possible so problems can be addressed before they damage the brand.

MaRK Cowanon CFiUs Review

White House, we expect action to both mitigate

and delay higher taxes and spending cuts…

Congress has already approved a continuing

resolution to fund the government into 2013.”

In fact, Morgan Stanley simply doesn’t think

Congress will implement the automatic cuts.

Somewhere between these two polarized visions,

companies like Caterpillar are reducing their

current earnings outlooks—a cautious approach

in line with what GE and others have done in the

bond market—but very judiciously commenting

that, as Chairman and CEO Doug Oberhelman

put it, “We’re not expecting rapid growth, and

we’re not predicting a global recession.”

Hardly the sentiments of a man who expects

to fall off a fiscal cliff. To the contrary, like GE

(which also trimmed its 2012 forecast), Cat-

erpillar says it expects next year to look very

much like this year: the tone is neither Gold-

man Sachs’ dire anxiety nor Morgan Stanley’s

glib assuredness.

There is no monolithic business view of the

fiscal cliff nor are the motives behind even

straightforward prognostications like Gold-

man’s or Morgan’s necessarily what they seem

on the surface. That’s the whole point. Busi-

ness is playing this “crisis” close to its vest in

order to maximize its immediate options even

as its reassures the marketplace in a way it’s

failed to do since 2008.

Some people might call that prevarication,

not leadership. We disagree. As Machiavelli

advised, the prince must imitate the fox as

well as the lion.

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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“Some people might call that prevarication, not leadership. We disagree. As Machiavelli advised, the prince must imitate the fox as well as the lion.”

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

ver the next several weeks,

LEVICK Daily will share select-

ed interviews from our recent

NACD Directorship article

entitled “What’s Next? The Top

Issues of 2013 and Beyond.” Today, we feature

a discussion on mergers & acquisitions with

William Wynne, a Partner in the New York of-

fice of White & Case.

Mr. Wynne represents principals in major

corporate transactions and financings, mergers

and acquisitions, international corporate debt

restructurings, and public and private securi-

ties offerings. As lead counsel for principals

in mergers and acquisitions transactions, Mr.

Wynne is involved in all aspects of structuring,

negotiating, and documenting deals.

At the conclusion of the interview, you can

find LEVICK’s own communications best

practices appended.

how Can BoaRds BesT seRve a CoMPany seeKing To MaKe iTselF aTTRaCTive To PoTenTial BUyeRs?

william wynne: The fastest way to derail a

sale process is to have a compliance problem

“discovered” in the course of a buyer’s due

diligence. Given the ever-increasing size of the

penalties being extracted by governments, even

routine compliance issues take on a dispropor-

tionate dimension. A board contemplating a

sale process is well advised to update its compli-

ance review and have well-prepared answers to

any questions that may be uncovered.

whaT sTePs Can BoaRds TaKe To ConvinCe shaReholdeRs ThaT They goT The BesT deal in The waKe oF a MajoR TRansaCTion?

william wynne: The board must be seen to

have asserted itself to control the transaction

process. If the board is seen to have been reac-

tive, activist shareholders are more likely to

question and challenge the transaction. Share-

holders, and indeed the general public, are

questioning management’s motives more ag-

gressively. There is also growing malaise about

corporate governance. Again, it is imperative

that the board be seen to take charge. That

means forming a committee of independent di-

rectors; participating in the retention of finan-

cial and legal advisors; and requiring periodic

updates on the transaction process.

how Can BoaRds oF diReCToRs eF-FeCTively PRePaRe FoR inadeqUaTe hosTile TaKeoveR Bids?

william wynne: Boards should periodically

review their companies’ structural defenses to

an unsolicited offer: a staggered board, abil-

ity of shareholders to act by written consent,

poison pills, etc. Just as important, however, is

being comfortable with the transaction process

and not panicking upon receipt of a hostile

offer. A team of advisors that has the board’s

confidence should be immediately available.

This team should not just include bankers and

lawyers, but public relations professionals and

proxy solicitors as well.

Boards should also review what similar

companies in their space have done in re-

sponse to hostile transactions. This will let

directors know what to expect and allow them

to learn from their competitors’ successful

tactics and missteps.

Finally, maintaining good relationships with

major shareholders is always good business;

but it pays particular dividends once a hostile

offer is made. A shareholder who is familiar

with management’s strategy and aware of the

board’s involvement in setting that strategy

will be much more receptive and supportive

than the shareholder who only hears from the

board once the hostile offer has arrived.

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M&Aaccounting liabilities

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shareholdercash

buisnessCEO

Mergers & AcquisitionsWith William Wynne

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Boards need to ensure that every employee understands the confidential nature of M&a transactions—and that they know what can and cannot be said, especially in the social media (and then be certain aggressive monitoring is in place to detect even a hint of a leak).

Boards that are seen as in control of the transaction process are best positioned to deflect criticism and defend against the inevitable litigation.

directors that demand strong investor relations in peacetime will build a trust bank among stakeholders that will serve the company well, especially if a hostile offer is made.

BesT CoMMUniCaTions PRaCTiCes:

1.

2.

3.

whaT’s nexT wiTh RegaRd To M&a law? aRe TheRe issUes oR oPPoRTUniTies on The hoRizon oF whiCh all PUBliC CoMPanies need To Be awaRe?

william wynne: Merger-related litigation has

reached epic proportions. In 2007, 53 percent

of mergers valued at $500 million or greater

attracted litigation. In 2011, almost all deals

(96 percent) attracted litigation. The reality is

that parties to a merger will get sued and need

to be prepared.

Process is paramount. Boards should hold

meetings to discuss and decide all materials

issues, and careful minutes should be taken.

Courts will hesitate to overturn board deci-

sions if there is a solid record. In particular,

boards need to be acutely aware of conflicts

of interest, both actual and perceived. Boards

should record their deliberations over the pros

and cons of each potential conflict in the con-

text of how the proposed relationship will bring

value to the shareholders in spite of the conflict.

Without evidence that such conflicts have been

considered by the board, exposure to sharehold-

er litigation increases significantly.

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.

This post is excerpted from Richard Levick’s recent NACD

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

and Beyond.” To read the full article and learn more about

the most significant issues impacting boardrooms today,

click here.

CRisis

liTigaTionFinanCial CoMMUniCaTions

CoRPoRaTe & RePUTaTionPUBliC aFFaiRs

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naCd BoaRdvisionPRoxy PRoPosals RegaRding disClosURe oF PoliTiCal aCTiviTy

This week’s edition of NACD BoardVision focuses on proxy proposals. Join Steve Kalan, associate

publisher of NACD Directorship, and Ken Gross, partner at Skadden Arps, as they discuss proxy

proposals regarding disclosure of political activity.

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Gene GrabowskiOriginally Published on LEVICK Daily

Throughout October, Susan G. Komen for

the Cure has been leveraging the opportunity

afforded by National Breast Cancer Aware-

ness Month to rebuild a brand tarnished

by controversy.

Since the national non-profit made, and then

reversed, its decision to halt funding for

Planned Parenthood back in February, dona-

tions are down approximately 30 percent.

Participation in the organization’s marquee

fundraising races is down as much as 35 per-

cent in some parts of the country. Now, Komen

is counting on an advertising blitz to reverse

these troubling trends and remind the public

of the important work at the heart of its life-

saving mission.

Noticeably absent from the online, print, and

earned-media effort is embattled founder and

former CEO Nancy Brinker, who transitioned

into a “new management role” in August. In-

stead, the spotlight has been firmly affixed on

everyday cancer survivors who are still here

today because of the new treatment options

that Komen fundraising helped bring about.

That’s a smart move for two reasons. First, it

takes the focus off past mistakes and the leaders

who made them. And second, it’s the continua-

tion of a decentralized communications strat-

egy that might very well have saved the organi-

zation during the controversy’s earliest stages.

For much of the past year, Komen’s central

leadership has wisely ceded control of its

messaging to its local chapters. In places such

as Austin, Tucson, Reno, and Arkansas, volun-

teers with local affiliates have been fielding

angry calls, responding to outraged emails,

and meeting face-to-face with donors whose

support could have dried up entirely in the

wake of the Planned Parenthood fiasco.

Having had no say in the decision to defund

Planned Parenthood, these local messengers

delivered Komen’s crisis messages with a de-

gree of caring and credibility that the organi-

zation’s central leadership simply could not

attain. In the end, they were uniquely quali-

fied to criticize the decision from afar, even as

they reminded Komen stakeholders of all the

cancer-fighting work that remains undone. All

the while, central leadership resisted the urge

to defend itself and remained virtually silent.

As a result of this decentralized approach,

a brand that may have been destroyed has

survived to fight the good fight another day.

While Komen still has a long way to go and

will no doubt have to apply other creative

communications strategies to regain its former

prominence, the organization has reminded

every other group facing crisis that your

messengers are often more important than

your message.

Gene Grabowski is an Executive Vice President at LEVICK

and a contributing author to LEVICK Daily.

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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.

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

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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.

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ForbesforBes.CoMForbes is a leading source for reliable business news and financial information for the Worlds business leaders.

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Montreal Gazette | oCtoBer 24, 2012Live Chat: LanCe arMstrong

in The news

The URgenCyoF now.