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EDITION 14
WeeklyOcTObEr 26, 2012
THE FISCAL
CLIFFLook Who’s Leading Now
03 Contents040910
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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.
O
M&Aaccounting liabilities
inventoryterm
s
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
sign UP Today
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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Weekly
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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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aRTiCles
PR Daily | oCtoBer 27, 2012the finaLists in our digitaL Pr & soCiaL Media aWards 2012
Centre Daily | oCtoBer 26, 2012university Leaders foCus on Positive at one-year sandusky Mark
CMO Council | oCtoBer 25, 2012JCPenney: toMorroW is a Work in Progress
Montreal Gazette | oCtoBer 24, 2012Live Chat: LanCe arMstrong
in The news
The URgenCyoF now.