levick weekly aug 10 2012
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The Sentencing of Rajat Gupta: Why It Matters Pfizer Chooses Its Battles Wisely Just Say No? Canada’s Rona Does Your Company Has Social Media Nailed. Now What? www.levick.com/insightsTRANSCRIPT
EDITION 3
WeeklyAugusT 10, 2012
The Sentencing of Rajat Gupta: Why It Matters
Pfizer Chooses Its Battles Wisely
Just Say No? Canada’s Rona Does
Your Company Has Social Media Nailed. Now What?
2119131536/shutterstock.com
Twenty-five years later, we have hedge fund
bigwig Raj Rajaratnam setting a new record
as he serves an 11-year sentence for similar
misdeeds.
Maybe the lesson is that you’re better off get-
ting caught committing financial crimes in
prosperous times. Maybe it’s that persistent
violations over decades wear down public
patience, accelerating demand for ever more
severe punishments that, it’s fancied, will bet-
ter deter future wrongdoers.
In any event, the conviction of Rajat Gupta for
leaking insider information to Rajaratnam has
naturally generated much discussion about how
the retired head of McKinsey & Company and
former Goldman Sachs board member will fare
when Judge Jed Rakoff of the Federal District
Court in Manhattan passes sentence in October.
(Gupta was convicted on one count of conspira-
cy and three counts of securities fraud.)
Yet the discussion is more than just an odds-
maker’s game. Gupta’s ultimate fate raises
substantive issues that speak to public percep-
tion as well as the narrower considerations
that drive judges, influence the future actions
of enforcement officials, and impact markets.
Nor is the dynamic by any means simple; there
are conflicting sentiments at play that touch
on some of our deepest-seated cultural predi-
lections. Based just on what we heard from
the jurors after the trial, it does indeed seem
clear that Mr. Gupta inspires more complex
feeling than has ever been true of a Wall Street
defendant.
First, the jury…
Mr. Gupta’s peers spent less than two days—
under 10 hours, by some accounts—to reach
its verdict. By contrast, the jury took over
two weeks to convict Rajaratnam, despite the
fact that Rajaratnam was found to have prof-
ited financially from his crimes, which Gupta
did not.
Moreover, the evidence against Gupta was
almost all circumstantial. True, it was over-
WHY IT MATTERsTHE sENTENcINg Of RAjAT gupTA:
Richard s. Levick, Esq.Originally Published on Forbes.com
Farsh/shutterstock.com
Here’s a quaint news item from 1987 about how a certain Ivan F. Boesky, one of the world’s most powerful speculators and symbol de jour of Wall Street greed, was sentenced to three years in prison for insider trading-related violations. It was one of the longest jail terms ever imposed in such a case and, apparently, a source of satisfaction to then—U.S. Attorney Rudolph Giuliani.
Weekly
Rakoff’s impatience with the sentencing guide-
lines—he has called them “the mirage of some-
thing that can be obtained with arithmetic
certainty”—and a proven tendency to impose
lesser sentences.
It would seem as if Gupta has further reason to
be optimistic as the federal sentencing guide-
lines do differentiate between those who profit
from insider trading and those who don’t. On
the other hand, the prosecution will likely ar-
gue that Gupta is responsible for all the trading
cited in the indictment (an aggregate $16 mil-
lion in profit for Rajaratnam’s Galleon Group),
and that he likewise “abused a position of
trust.” As such, Gupta could be looking at eight
to 10 years, according to the guidelines.
Yet prosecutors won’t want the judge to per-
ceive them as vindictive as Rakoff has a history
of bristling at that. For example, in sentencing
lawyer Marc Dreier to 20 years for his notori-
ous Ponzi scheme, Rakoff summarily rejected
the government’s request for 145 years. Last
September, he gave Winifrid Jiau, convicted of
selling confidential information, less than half
the 10 years recommended by the government.
Law professor Peter Henning thinks Gupta
will do even a little bit better than Jiau; he
anticipates three years as the likely outcome.
There will be some irony in that if, after three
decades and so much accelerated demand for
harsher deterrence, Gupta winds up serving
the exact term as Ivan Boesky.
Henning observes that Gupta has a significant
history of charitable giving, which “seems to be
persuasive to judges.” It’s no doubt an estab-
lished take-away for businesses, to build up
reputational equity against the day when they
may face trial in a court or law or the Court of
Public Opinion.
More significant in this case is Rakoff’s assess-
ment of how his own decision will affect the
marketplace; as former federal judge Richard
Holwell, who sentenced Rajaratnam to 11
years, puts it, the extent to which he thinks it
will “give a strong warning to portfolio manag-
ers on Wall Street.”
No doubt, the very fact that someone of
Gupta’s stature will go to jail sends a welcome
message, not just to those managers but to
investors who still pine for a marketplace not
gamed by a handful of insiders.
But the best argument for a relatively stiff sen-
tence takes us back to that issue of motive by
which Gupta supporters would seek to at least
partially excuse him. To the contrary, Gupta’s
motive ought to work against him. The very
fact that he was driven by those “intangible
benefits,” rather than money, proves that Wall
Street’s culture itself, and its whole mélange
of winks and nods, faces sentencing on
October 16.
Judge Rakoff knows that culture very well.
Perhaps he also knows that, if we don’t com-
pel the heedless behavior it encourages to
change, then we’ve achieved very little since
1987 when a mere three years for Boesky was
deemed by some to be draconian.
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.
whelmingly circumstantial, yet such a fast
verdict is still noteworthy absent a smoking
gun. The prosecutors relied on phone and
transaction records without need of the wire-
taps that were decisive in Rajaratnam’s case.
The practicability of circumstantial evidence in
such cases was thus strategically validated and,
believe some observers, will only inspire the
government to be more aggressive in
the future.
One might conclude that Gupta must have
been a most unsympathetic defendant whose
position (and personality) made it easier for
the jury to reach their conclusion. In fact, the
opposite is true. The jury convicted someone
they actually found very sympathetic, and yet
they did so in a fraction of the time it took to
find his more flamboyant and purportedly
greedier cohort guilty as charged.
Gupta did not arouse sympathy simply because
he has a pleasant personality. Importantly, his
career embodies values that Americans hold
highest. He was an orphan. He went to Har-
vard Business School on a scholarship. He rose
to dizzying heights. The jury foreman called it
a “storybook life.”
“We were hoping he would walk out of this
courthouse,” said another juror. Apparently,
though, the jurors voted their heads, not their
hearts—no small feat when the defendant per-
sonifies everything you believe in. Some jurors
were crying when the verdict was read. (In this
context, the decision by the defense not to call
Gupta to the stand, and play on those sympa-
thies even harder, is rather interesting.)
Closely related to the issue of sympathy is
the issue of motive. Gary Naftalis, Gupta’s
superstar lawyer, argued that a 63 year-old
man would not risk everything for money he
neither made nor needed. Post-trial comments
suggest that jurors felt Gupta was manipulated
by Rajaratnam.
Rajat Gupta an unwitting dupe? That seems a
gross underestimation of a man who’s cir-
cumnavigated the financial markets as ably as
anyone in recent history.
Here the jurors may have missed the compel-
ling tie that bound Gupta to Rajaratnam but,
if so, it’s not the jurors’ fault. They just don’t
happen to live and work in a world like Wall
Street where favors are done and relation-
ships cultivated at any cost; where informal
conversations slip into illegality with amazing
nonchalance; where secrets are traded like
marbles; where insider trading is, as Gupta’s
prosecutor, U.S. Attorney Preet Bahara put it, a
“performance-enhancing drug.”
It’s called “intangible benefits.” Because he
sought and savored those benefits so avidly,
Rajat Gupta, for all his virtues, must do time.
The question is, how much time?—which
brings us to October 16, 2012 when Judge Ra-
koff will decide that very question.
Here too complex issues are at play, including
the extent to which the judge may be affected
by, or at least in synch with, the palpable
sympathies of the jury. In Gupta’s favor, add
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monticello/shutterstock.com
Pfizer Chooses its Battles Wisely
Earlier this month, Pfizer Consumer Healthcare
announced that it had agreed to activist de-
mands that its Centrum brand amend its mar-
keting practices. With the prospect of a lawsuit
from the Center for Science in the Public Inter-
est (CSPI) looming, the company agreed to
discontinue claims that some Centrum prod-
ucts promote “colon health” and “breast
health.” The company also agreed to qualify
statements made on the Web and in traditional
advertising that certain supplements contrib-
ute to “heart health.” All of the changes, includ-
ing revised product labeling, will be in effect by
January 5, 2013.
The agreement represents one of those rare
instances in which a major corporation—they
don’t get any bigger than Pfizer in the pharma-
ceutical industry—quickly backs down in the
face of activist pressure. Some may wonder
why Pfizer would make such a move. But don’t
fault the company for capitulating just yet.
There are least three good reasons why Pfizer’s
decision made sense under the circumstances.
First, Pfizer put the issue in the rear view mir-
ror without much negative attention. And the
company probably earned a few points with
the consumer crusader crowd at the same time.
At the very least, it took a potentially trouble-
some weapon away from its antagonists. With
rumors swirling that the company may spin
off its consumer business before long, Pfizer
has every reason to want to take off the table
any lingering issues that could make the unit
less attractive to potential suitors.
Second, by voluntarily agreeing to change its
practices Pfizer took the regulators out of the
game. The U.S. Food and Drug Administration
(FDA) doesn’t have the sharpest teeth when it
comes to product labeling in the supplements
market. Why give the Agency any incentive
to get involved? Right now, regulatory agen-
cies are feeling emboldened. They are eager to
show activist supporters that they will go after
big business on even the shakiest pretext. That
kind of scrutiny is one factor that could lead
potential acquirers of Pfizer’s consumer unit to
offer a lower price.
And third, Pfizer has avoided a fight that
would not have been worth winning. If
you’re big company facing an issue like this,
and the product involved does not represent
a large percentage of your business, your
overall interests are probably better served by
flight than fight. Save your reputational and
political capital for more important battles
sure to come in an aggressive legal and regula-
tory environment.
David Bartlett is a Senior Vice President at LEVICK and a
contributing author to Levick Daily.
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David BartlettOriginally Published on LEVICK Daily
Rejecting an unsolicited bid by U.S. home improvement retailer Lowe’s, Canadian competitor Rona Inc. said that its board had determined the proposal wasn’t in the best interests of its shareholders.
Kathleen WailesOriginally Published on Seekingalpha.com
I. Pilon/shutterstock.com
Just say No?CaNada’s roNa does
Weekly
A hostile deal clearly will not succeed, so if
Lowe’s wants to prevail, it likely must increase
its offer, gain the support of the Rona board,
then get the Rona board to gain governmental
support. With a highly motivated buyer, that
may well happen. In the meantime, Lowe’s
credit was put on a credit watch with a nega-
tive outlook by S&P, although S&P acknowl-
edged that the potential acquisition might be
additive to Lowe’s operations. Lowe’s stock
took some pain today as a result.
Any acquirer must take into account institu-
tional attitudes toward a potential transaction.
Laying the proper groundwork with regula-
tory authorities, governmental bodies, union
officials and local opinion leaders is central to
success. Conversely, any company that wants
to escape a foreign acquirer can marshal these
forces to create a virtual poison pill.
Lowe’s can still win this fight, but it first must
win over Rona management. Investors also can
hope for a competing offer that might be more
acceptable both to the company and to Cana-
dian constituencies, or for a revised corporate
strategy involving greater speed and upside
potential. While that’s running its course, this
is a play for momentum investors willing to
take the risk that the deal will never happen.
Disclosure: I have no positions in any stocks mentioned, and
no plans to initiate any positions within the next 72 hours.
Kathleen Wailes, Senior Vice President & Chair, Financial
Communications Practice
As Jerry Seinfeld always said, “Really?” The
stock price says this story isn’t over. This
contest is a perfect example of the battle be-
tween investor desire for a short-term catalyst
and corporate management’s desire to build
long-term shareholder value and maintain its
independence.
The bid of $14.50 valued RON at C$1.76 billion,
representing a premium of about 22% over
Monday’s close and was 37% of the price ahead
of the offer. RON has traded in a 52-week range
of C$8.64 to C$11.92.
The Quebec provincial government also stated
today that a takeover of Rona is not in the
province or Canada’s interest, which will make
it very difficult for a higher offer to succeed
unless Quebec relents. The Quebec finance
minister indicated that his government will
support Rona management in a takeover fight.
In addition, a foreign acquisition of Rona must
be cleared by the federal government, which
last year blocked the high-profile, $40 billion
attempt by Australian BHP Billiton (BHP) to
acquire Canadian company Potash Corp (POT).
The federal government in Canada can block
takeovers using the Investment Canada Act,
just as the U.S. government has the power to do
in the case of U.S. interests. Coming September
elections could result in a change of regime in
Canada, in turn reversing potential opposition.
According to The Wall Street Journal, the CEOs
of the two companies met last summer at
Rona’s request, which was followed by Lowe’s
first offer in December. That offer was rejected
by the board. Despite today’s latest rejection,
Lowe’s clearly hasn’t given up. Is it just a mat-
ter of price, and can a higher offer succeed?
Certainly, Rona’s institutional shareholders
might welcome the opportunity to cash in.
Lowe’s asserts that shareholders representing
15% of Rona’s shares support its offer for the
company. Lowe’s further states that it plans to
leave Rona’s Canadian operations alone, main-
taining its headquarters in Quebec and its cur-
rent mix of stores. Lowe’s has to overcome the
issue of Canada’s desire to maintain its inde-
pendent business base, persuade the Canadian
public that jobs and investments won’t decline,
and overcome management’s desire to remain
in place and pursue its own business plan.
06photo/shutterstock.com
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“ This contest is a perfect example of the battle between investor desire for a short-term catalyst and corporate management’s desire to build long-term shareholder value and maintain its independence.”
Benchmarks are met. Milestones are reached.
Pats on the back abound. But now what? Smart
executives know that contentment can devolve
into complacency in a flash—and that it’s up
to managers to ensure that their people are
continually motivated to meet new challenges.
To that end, here are five questions to ask the
next time you are presented with even the
most glowing digital engagement report. Not
only will they keep your digital team on its
toes, they will take your engagement strategies
to new heights.
When your digital team says: “We own top
placement on Google for searches on our
organization…”
Ask them: “Who owns top placement for nega-
tive terms we may be associated with?”
Search engine optimization (SEO) and market-
ing (SEM) are about more than advertising-
-they are risk functions that can help your
organization control its narrative when it
matters most. In the digital age, you don’t
have to wait to defend specific positions when
business crises materialize. Rather, you can
proactively identify risks and dominate the
web with branding messages in a positive,
non-defensive way. For a pipeline operator,
it’s about safety and reducing environmental
impacts. For a consumer-products company,
it’s about supply-chain diligence and consumer
well-being. For a bank, it’s about being an
economic engine and a driver of economic re-
covery. The most important point is that search
engine campaigns that move these messages to
the top of the rankings include risk terms such
as “explosion,” “mortgage abuse,” “recall,” or
“litigation”—as these are the terms consumers,
investors, regulators, and potential plaintiffs
will be using to gain a better understanding of
your next big problem.
Right about now, your digital team is feeling pretty darn good about itself. It’s amassed a strong social media following for your organization. Enter your company’s name on Google, and your website is the top result. You’ve got a blog, and people are actually reading it. Your monitoring capabilities ensure that you’re alerted the moment anyone mentions your company or its leadership in the digital space.
your ComPaNy has soCial media Nailed.
Richard s. Levick, Esq.Originally Published on Fastcompany.com
violetkaipa/shutterstock.com
83163073/shutterstock.com
NOW WHAT?
Weekly
When your digital team says: “We are ac-
tively monitoring for any mentions of our
company in the digital space…”
Ask them: “Are we monitoring for intelligence
about tomorrow’s issues, as well as today’s?”
By entering the terms associated with your
top-line risks into search engines, companies
can glean a great deal of intelligence about
the source of their next reputational, legal, or
regulatory problem. In other words, they can
see around corners. Do regulators, NGOs, or
plaintiffs’ firms own the marquee results? If
so, what are they saying about the risks and
your industry’s relationship to them? Know-
ing what’s coming next enables companies to
address potential problems before they evolve
into recalls, litigation, shareholder revolts, or
something worse. As such, this needs to be
a daily exercise—and a report on the results
should be submitted to communications and
risk managers each week.
When your digital team says: “Our blog
doubled its readership over the last year…”
Ask them: “What are we doing to build rela-
tionships with other influential bloggers in our
industry?”
Bloggers have evolved into the traditional
media’s assignment editors. They serve as
pollsters for legislators, regulators, and other
governmental bodies. Industry analysts moni-
tor their reports like hawks. That’s why it is ab-
solutely essential that every company identify
the “high authority” bloggers in their industry
and build positive working relationships with
them. That means reaching out directly—with
offers for exclusive interviews, invitations to
conference and earnings calls, and even al-
lowing them to craft guest posts for your own
blog. It also means that blogger queries should
be treated with all the reverence normally
reserved for 60 Minutes or The Wall Street
Journal. The key here is to personally know the
bloggers who influence your audience before
you need them, so that they can be enlisted to
understand company messages when it mat-
ters most.
When your digital team says: “We just
reached our goals for Facebook fans and
Twitter followers…”
Ask them: “What are we doing to transform
those connections into lasting brand loyalty?”
Amassing hundreds of thousands of social
media fans and followers is about more than
erecting a symbol of brand strength; it’s about
strengthening consumer and stakeholder rela-
tionships. In this context, social media strategy
is far more than a numbers game. Rather, it is
the most effective way to forge lasting connec-
tions based on the ways that your products and
services enrich and empower people’s lives.
Look at the way American Express is reward-
ing cardholders who tweet company hashtags
with special discounts and savings; or the way
Huggies, with its “High Chair Critics” blog, is
speaking directly to mothers via babies’ voices;
or the way Target is simplifying gift-giving with
a mobile app that sorts and highlights certain
products based on the recipient’s demographic
information. These strategies (and myriad
others like them) leverage social media connec-
tions to not just create awareness, but engage-
ment opportunities that strengthen the audi-
ence’s ties to the brand. At the end of the day,
that’s what social media is really all about.
When your digital team says: “We are at-
tracting more unique visitors to our website
than ever before…”
Ask them: “What are we doing to keep them
engaged once they arrive?”
There was a time when the Internet was
dominated by the written word. Those days
are over. Today, powerful images, engaging
videos, and informative podcasts are what
keep web users’ eyes from glazing over when
they reach your primary web presence. Why
tell stakeholders about new product features,
your commitment to safety, or a new Corporate
Social Responsibility initiative when you can
show them? The average visitor to your homep-
age likely spends about 30 seconds there before
clicking elsewhere. That means you have about
half that time to grab visitors’ attention and
ensure that click steers them further into your
own website.
Your digital team knows Information Age
tactics backwards and forwards—but they are
looking to you to provide the strategic vision
that their tactics ultimately support. By push-
ing your digital team to take on new challenges
each time benchmarks are reached, you will
not only keep them motivated, you will keep
them keenly aware of the overall mission their
work supports.
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.
L
“ Your digital team knows Information Age tactics backwards and forwards--but they are looking to you to provide the strategic vision that their tactics ultimately support. ”
the urGeNCyof NoW.