Weekly October 26, 2012
CLIFF Look Who’s Leading Now
03 Contents 04 09 10 13 14 17 18 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.
The Fiscal CLiff
Look Who’s Leading Now
CFIUS Re view With Mark Cowan
Mergers & Acquisitions With William Wynne
Regarding Disclosure of Political Activity
Susan G. Komen
Decentralized Communications Puts the Focus Back Where it Belongs
In the news
The Fiscal Cliff: Look Who’s Leading Now Richard S. Levick, Esq. Originally Published on Forbes.com
Leadership doesn’t usually happen in a vacuum. Often, the soundest decisions cannot be implemented absent some compelling pretext.
In February 2012, Federal Reserve Chairman
Flash forward eight months. This week General
Ben Bernanke provided business with just such
Electric announced a $7 billion bond sale (the
a pretext when he coined the now familiar
first such by GE in five years) and a $5 billion
phrase “fiscal cliff.” Bernanke was referring
refinancing of bonds reaching maturity early
to the $600 billion in spending cuts and tax
next year. The move was deemed important
increases that will be triggered on January 1,
enough by the Financial Times to warrant page
2013, according to a provision of the Budget
one above-the- fold coverage. According to CFO
Control Act of 2011 (BCA). That legislation
Keith Sherin, GE has been strengthening its bal-
created a “super-committee” to decrease the
ance sheet against the risk of “choppy” condi-
deficit by $1.2 trillion over the next 10 years or,
tions early next year. It’s a prudent exercise
alternatively, enforce harsh austerity measures
in risk management by a company that lost its
that will likely drive us into another deep re-
triple-A credit rating and cut its dividend dur-
cession by levying a 4% gross domestic product
ing the financial crisis.
reduction in 2013.
CEO Jeffrey Immelt’s comments are predict-
By contrast, the preparatory measures now
Third—particularly instructive as a measure
the very same austerity measures might only
ably germane. He calls the fiscal cliff the “big
being taken by GE and the others sends a most
of proactive leadership —major corporations
deepen the current pessimism and even cause
variable” for 2013—and Immelt is “ready”
welcome counter-message—that we know
are seizing on the current crisis to do what
some panic were there no fiscal cliff to force
if that situation is not resolved—even as he
what might happen next and that, under those
they are going to have to do anyway. “Busi-
avers that 2013 will look a lot like 2012.
circumstances, we will safeguard the interests
nesses are trying to accommodate an inevi-
of our investors and other stakeholders.
table belt-tightening,” says Andrew Zausner,
Importantly, other corporations have been following a similar path. Dealogic reported that,
Second, these businesses seem to be taking a
last week, large companies sold $26 billion in
rather forbearing approach with respect to
investment grade bonds. Meanwhile, Oracle
Beltway decision-makers. While there’s no
sold $5 billion at some of the lowest yields
doubt some tumultuous behind-the-scenes
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
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
ever recorded in the corporate sphere while
be completely derailed… We just met with a
United Health Care and Xstrata were among
dozen of the largest high-tech company CEOs
other big names acting in advance of any po-
in the country. Not only are they hoarding
tential tumble over the fiscal cliff.
“...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.”
True, as indices of resolute leadership, corporate bond sales aren’t exactly the stuff of high Churchillian drama. Yet the very fact that many big businesses seem so strategically likeminded a few months ahead of a legislative drop-dead day (literally) suggests a quieter brand of leadership, one wholly appropriate
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
to the current exigent circumstance.
anticipate draconian spending cuts, while 55%
First, caution rather than bold initiative is
say the Bush tax cuts will be extended next
the order of the day. Think Eisenhower, not
The further irony is that many large corpora-
Churchill. Think too about the real bellwether
conversations occurring between corporate
of perceived corporate irresponsibility dur-
lobbyists and lawmakers, the public demeanor
ing the last five years. It’s been all about
is, again, prudent. The implicit message is that
financial speculation, rapacious (rather than
business will support any sane agreement
strategic) risk-taking, and wild gambling with
year for all taxpayers. Caution may be the making, but that does serve as a pretext for
watchword but the economists surveyed do
the specific measures they need to take to get
anticipate a 0.5% increase in economic growth
them where they need to be.”
in 2013 over the 2012 rate.
legislators reach, and won’t at this critical
Business leaders may thus welcome the fiscal
Meanwhile, Morgan Stanley Wealth Manage-
other people’s money. As a result, many of the
juncture publicly impose untenable pressures
cliff crunch as a salient opportunity. “Because
ment’s Global Investment Committee takes
world’s major financial institutions utterly
that only make it tougher to achieve the
they are responding proactively to an impend-
an even more markedly different tone from
relinquished any credible presumption to
fairest, most disinterested deficit reduction
ing crisis, they are able to inspire confidence
Blankfein’s. On Monday, the committee wrote
in the marketplace,” adds Zausner. “Ironically,
in a note that “regardless of who wins the
Mark Cowan “Some people might call that prevarication, not leadership. We disagree. As Machiavelli advised, the prince must imitate the fox as well as the lion.”
White House, we expect action to both mitigate
There is no monolithic business view of the
and delay higher taxes and spending cuts…
fiscal cliff nor are the motives behind even
Congress has already approved a continuing
straightforward prognostications like Gold-
resolution to fund the government into 2013.”
man’s or Morgan’s necessarily what they seem
In fact, Morgan Stanley simply doesn’t think
on the surface. That’s the whole point. Busi-
Congress will implement the automatic cuts.
ness is playing this “crisis” close to its vest in
Somewhere between these two polarized visions, companies like Caterpillar are reducing their current earnings outlooks—a cautious approach
order to maximize its immediate options even as its reassures the marketplace in a way it’s failed to do since 2008.
in line with what GE and others have done in the
Some people might call that prevarication,
bond market—but very judiciously commenting
not leadership. We disagree. As Machiavelli
In this LEVICK Daily video interview, we look at the CFIUS (Committee on Foreign Investment in
that, as Chairman and CEO Doug Oberhelman
advised, the prince must imitate the fox as
the United States) process with Mark Cowan, Senior Executive Vice President for International
put it, “We’re not expecting rapid growth, and
well as the lion. L
Business with Cassidy & Associates. When foreign companies consider transactions that could po-
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), Caterpillar says it expects next year to look very much like this year: the tone is neither Goldman Sachs’ dire anxiety nor Morgan Stanley’s glib assuredness.
on CFIUS Review
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.
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.
Mergers & Acquisitions With William Wynne Richard S. Levick, Esq.
How can boards best serve a company seeking to make itself attractive to potential buyers?
How can boards of directors effectively prepare for inadequate hostile takeover bids?
William Wynne: The fastest way to derail a
William Wynne: Boards should periodically
sale process is to have a compliance problem
review their companies’ structural defenses to
“discovered” in the course of a buyer’s due
an unsolicited offer: a staggered board, abil-
diligence. Given the ever-increasing size of the
ity of shareholders to act by written consent,
penalties being extracted by governments, even
poison pills, etc. Just as important, however, is
routine compliance issues take on a dispropor-
being comfortable with the transaction process
tionate dimension. A board contemplating a
and not panicking upon receipt of a hostile
sale process is well advised to update its compli-
offer. A team of advisors that has the board’s
ance review and have well-prepared answers to
confidence should be immediately available.
any questions that may be uncovered.
This team should not just include bankers and lawyers, but public relations professionals and
What steps can boards take to convince shareholders that they got the best deal in the wake of a major transaction?
proxy solicitors as well.
William Wynne: The board must be seen to
directors know what to expect and allow them
have asserted itself to control the transaction
to learn from their competitors’ successful
process. If the board is seen to have been reac-
tactics and missteps.
tive, activist shareholders are more likely to
Originally Published on LEVICK Daily
question and challenge the transaction. Share-
ver the next several weeks,
and acquisitions, international corporate debt
holders, and indeed the general public, are
LEVICK Daily will share select-
restructurings, and public and private securi-
questioning management’s motives more ag-
ed interviews from our recent
ties offerings. As lead counsel for principals
gressively. There is also growing malaise about
NACD Directorship article
in mergers and acquisitions transactions, Mr.
corporate governance. Again, it is imperative
entitled “What’s Next? The Top
Wynne is involved in all aspects of structuring,
that the board be seen to take charge. That
negotiating, and documenting deals.
means forming a committee of independent di-
Issues of 2013 and Beyond.” Today, we feature a discussion on mergers & acquisitions with William Wynne, a Partner in the New York office of White & Case.
At the conclusion of the interview, you can find LEVICK’s own communications best practices appended.
rectors; participating in the retention of financial and legal advisors; and requiring periodic
Boards should also review what similar companies in their space have done in response to hostile transactions. This will let
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.
updates on the transaction process.
Mr. Wynne represents principals in major corporate transactions and financings, mergers
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
of interest, both actual and perceived. Boards should record their deliberations over the pros and cons of each potential conflict in the context of how the proposed relationship will bring value to the shareholders in spite of the conflict. considered by the board, exposure to shareholder litigation increases significantly. L 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
to be prepared.
Process is paramount. Boards should hold
This post is excerpted from Richard Levick’s recent NACD
meetings to discuss and decide all materials
Directorship feature “What’s Next? The Top Issues of 2013
Courts will hesitate to overturn board deci-
Proxy Proposals Regarding Disclosure of Political Activity
Without evidence that such conflicts have been
that parties to a merger will get sued and need
issues, and careful minutes should be taken.
and Beyond.” To read the full article and learn more about the most significant issues impacting boardrooms today, click here.
sions if there is a solid record. In particular, boards need to be acutely aware of conflicts
BEST COMMUNICATIONS PRACTICES: 1.
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.
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.
Financial Communications Litigation Corporate & Reputation Public Affairs Crisis Sign Up Today13
Gene Grabowski Originally Published on LEVICK Daily
Throughout October, Susan G. Komen for
Noticeably absent from the online, print, and
messaging to its local chapters. In places such
the while, central leadership resisted the urge
the Cure has been leveraging the opportunity
earned-media effort is embattled founder and
as Austin, Tucson, Reno, and Arkansas, volun-
to defend itself and remained virtually silent.
afforded by National Breast Cancer Aware-
former CEO Nancy Brinker, who transitioned
teers with local affiliates have been fielding
ness Month to rebuild a brand tarnished
into a “new management role” in August. In-
angry calls, responding to outraged emails,
stead, the spotlight has been firmly affixed on
and meeting face-to-face with donors whose
everyday cancer survivors who are still here
support could have dried up entirely in the
today because of the new treatment options
wake of the Planned Parenthood fiasco.
Since the national non-profit made, and then reversed, its decision to halt funding for Planned Parenthood back in February, dona-
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
Having had no say in the decision to defund
communications strategies to regain its former
tions are down approximately 30 percent.
That’s a smart move for two reasons. First, it
Planned Parenthood, these local messengers
prominence, the organization has reminded
Participation in the organization’s marquee
takes the focus off past mistakes and the leaders
delivered Komen’s crisis messages with a de-
every other group facing crisis that your
fundraising races is down as much as 35 per-
who made them. And second, it’s the continua-
gree of caring and credibility that the organi-
messengers are often more important than
cent in some parts of the country. Now, Komen
tion of a decentralized communications strat-
zation’s central leadership simply could not
your message. L
is counting on an advertising blitz to reverse
egy that might very well have saved the organi-
attain. In the end, they were uniquely quali-
these troubling trends and remind the public
zation during the controversy’s earliest stages.
fied to criticize the decision from afar, even as
of the important work at the heart of its lifesaving mission.
that Komen fundraising helped bring about.
As a result of this decentralized approach,
For much of the past year, Komen’s central leadership has wisely ceded control of its
Gene Grabowski is an Executive Vice President at LEVICK and a contributing author to LEVICK Daily.
they reminded Komen stakeholders of all the cancer-fighting work that remains undone. All
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