EDITION 6 Weekly AUGUST 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
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 www.levick.com/insights
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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
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
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
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.
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.